These are a few of the compliance related stories that recently caught my attention.
Why The SEC Shutdown Must End (Now) by John Reed Stark
It is not surprising that the SEC has only filed one civil action in federal court since the shutdown began, which was a parallel action brought alongside the U.S. Attorney’s Office for the District of New Jersey. (The matter involved charges against nine defendants for participating in a previously disclosed scheme to hack into the SEC’s EDGAR system and extract nonpublic information to use for illegal trading.)
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When Is a Crypto Asset a “Security,” and Why Does That Matter? (Part I)
When Is a Crypto Asset a “Security,” and Why Does That Matter? (Part II)
by Joseph H. Nesler
In our January 17 blog, “When Is a Crypto Asset a “Security,” and Why Does That Matter? (Part I),” the Crypto Law Corner explained that SEC-registered investment advisers must apply the so-called “Howeytest,” on a case–by-case basis, to determine whether a particular crypto asset is a security, and suggested that applying the Howey test can prove daunting to SEC-registered investment advisers in the event they are required to determine whether particular crypto assets are “securities.”
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Why is the Howey test daunting?
Although the three-part “Howey test” may sound simple and straightforward, it is anything but.
BigLaw associate was duped into transferring over $2.5M to fraudster’s account, decision reveals
by Debra Cassens Weiss
An associate at Dentons Canada was duped into transferring more than $2.5 million into a fraudster’s account, according to an opinion by an Ontario judge in an insurance coverage dispute.
The Dec. 11 decision by Judge Carole J. Brown said the Vancouver-based associate sent the money from a property sale to a Hong Kong bank account after he received emails asking him to do so, report the American Lawyer and the Law Times. The emails appeared to have been sent by a mortgage company representative and two bank officials where the mortgager had an account.
Should some parts of a compliance program be kept secret?
By Richard L. Cassin
Internal controls, for example, share some DNA with corporate security systems. The controls must be there, according to the FCPA and securities laws, so that management knows where all the company’s assets are, who’s handling them, and for what purpose. That’s a way to stop the company assets from being used to pay bribes.
But from a corporate security perspective, the internal controls are there to stop people from stealing from the company, or using the assets to commit fraud or other crimes. Internal controls, then, are something like the security system around a bank vault.
Circuit Court Rejects SEC Claims on Howey Security Test
by T. Gorman
Partnership interests such as those involved here may be securities within the meaning of Howey. Typically, however, interests in general partnerships fail the test – investors have sufficient authority and powers negating the need for the protections of the securities laws. Limited partners are different. Their authority is limited. Without significant power they become more like a shareholder and their interest may be viewed as a security.
The line between the two types of partnerships when considering the question of if a security is involved can be assessed by considering three factors set forth in Williamson v Tucker, 645 F. 2d 404 (5th Cir. 1981). Under that test a partner is dependent “solely” on the efforts of a third party manager when: 1) an agreement among the parties leaves so little power in the hands of the partner that the person essentially becomes a limited partner; or 2) the partner is so inexperienced that he is incapable of intelligently exercising his authority; or 3) the partner is so dependent on some unique entrepreneurial or managerial ability of the promoter that he cannot replace the person or exercise any meaningful partnership or venture powers.
Five ‘stupid’ ideas about trust in business
By Barbara Brooks Kimmel and Charles H. Green
Do these flawed views of trust merit actually being called “stupid”? You be the judge.
1. Trust is synonymous with “check-the-box”sustainability practices or “greening” your organization.
2. Blockchain is a road to trust.
3. Loading up corporate communications with trust words du jour elevates brand or organizational trust
4. Elevating data security is a pathway to trust
5. Trust can be chemically induced.
Why Aren’t Hedge Funds Required to Fight Money Laundering?
By Heather Vogell
Yet one major part of the financial system has remained stubbornly exempt, despite experts’ repeated warnings that it is vulnerable to criminal manipulation. Investment companies such as hedge funds and private equity firms have escaped multiple efforts to subject them to rules meant to combat money laundering.
The latest attempt, which began in 2015, appears to have ground to a halt, according to sources familiar with the process.
