These are some of the compliance-related stories that recently caught my attention or I missed while on vacation.
SEC Ratifies Appointment of ALJs and Lifts Stay on Pending Administrative Proceedings
The Securities and Exchange Commission (“SEC” or “Commission”) has issued an order clearing the way for cases to proceed before its own administrative law judges (“ALJs”), notwithstanding a Supreme Court decision issued earlier this year that declared the SEC’s prior appointment of ALJs to be unconstitutional. Respondents in nearly 200 SEC proceedings with pending cases will now be granted the opportunity to have their case reheard by a different ALJ. Through the ratification order, the Commission has also attempted to comply with the Appointments Clause of the Constitution. Whether this post hac ratification passes constitutional muster, however, remains to be tested in the courts. [More…]
Compliance, Monitoring, and Future CCOs by Matt Kelly
“Do you think I need to be a lawyer to be a chief compliance officer?”
Oh boy. That question again. [More…]
Respondents denied recovery of legal fees in first post-Lucia ALJ decision by Amanda Maine, J.D. In Jim Hamilton’s World of Securities Regulation
An SEC administrative law judge (ALJ) rejected an application for recovery of legal fees and expenses from two firms who had prevailed against the SEC’s Division of Enforcement last year and successfully had proceedings against them dismissed. While the ALJ found that the applicants had demonstrated their eligibility for recovery of legal fees and expenses under the Equal Access to Justice Act (EAJA), the SEC’s action had been substantially justified, even though it was eventually dismissed. The decision was the first initial decision issued by an ALJ following the Supreme Court’s Lucia decision, which determined that the ALJ in that proceeding was not appointed by the Commission in conformity with the Constitution. The Commission stayed all administrative proceedings following Lucia, but the stay was allowed to expire on August 22. The applicants waived their rights under Lucia to a new hearing before a different judge (In the Matter of Donald F. (“Jay”) Lathen, Jr., Release No. ID-1259, Patil, S.). [More…]
Adviser Pays $1.9 Million SEC Penalty For False Ads by T. Gorman in SEC Actions
In 2003 the firm created an analysis internally known as “research proof.” It calculated annualized returns from February 1995 — the earliest point for which the firm had stored fundamental ratings –for six hypothetical baskets of stocks. In 2006 MFS began using the research proof analysis in advertisements. The charts compared annualized returns from February 1995 through the date of publication for research proof’s hypothetical baskets. The charts showed that the hypothetical portfolios of “buy” stocks at the fundamental quant intersection performed better than either the hypothetical portfolio stocks rated “buy” by the firm’s quantitative models or the hypothetical portfolio of stocks rated “buy” by the adviser’s fundamental research. The same was true on the sell side. Stated differently, the charts illustrated the point that over time blended stock ratings provided better return potential than either fundamental or quantitative ratings alone. [More…]
What Happened to “Meaningfully Close Personal Relationship” in Insider Trading? by Peter Henning in The CLS Blue Sky Blog
An interesting question is whether the convictions in Newman of the two hedge fund portfolio managers might have survived after Martoma. The government’s lack of evidence of their knowledge of the benefit would likely defeat the prosecution, especially as they were third- and fourth-level tippees. But the relationship between the sources of the information and the initial tippees might have been enough to establish the quid pro quo under Martoma’s analysis. So long as there is an intention to benefit the recipient, there is unlawful tipping. [More…]
