Category: SEC News

When the Numbers Don’t Add Up

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Sometimes when you look at an investment opportunity, you run through the math and see that things don’t add up. That means it might be a fraud. Take a look at the offering of Bio Profit Series V, LLC detailed in an enforcement action by the Securities and Exchange Commission.

Assuming the SEC’s complaint is true, the fund was selling 10-year notes paying 6% per year with a bonus payment of 45% of the outstanding principal at maturity. That is not an outrageous return by itself. On top of that, the managing member receives a business operations and management fee of 7.5% of the proceeds from the note sale. (See item 15 on the Form D for the offering.)

The fund is supposed to be in the business of buying and making residential loans secured by first or second deeds of trust in California. How can the fund offer that kind of return when interest rates are below 6%?

The SEC lawyers laid out the math in the complaint. Bio Profit Series V would have to generate an average annual return of 12.2% per year to pay the annual return and bonus payment. It was the fourth fund raised by Yin Nan Wang and his Velocity Investment Group, all of which had promised returns that did not add up. (Apparently, Wang skipped over Series IV.)

According to the SEC complaint, Wang was using new investor money to pay old investors. He admitted to the ponzi scheme when talking to a company that originated loans for one of the Bio Profit funds.

Although the underlying investments may be in loans that constitute real estate, the interest in the funds are securities. That gives the Securities and Exchange Commission jurisdiction. It appears that all, or at least a large portion of the investors are from overseas. That may complicate matters.

What’s missing in the story of how the SEC found out about the alleged scam. It does not appear that any investors are complaining of lost money. Perhaps it was the person who was told it was a ponzi scheme. Perhaps that person used the SEC’s relatively new Tip, Complaints and Referrals Portal to alert them to the fraud?

Yet Another Rule to Discourage Companies From Going Public

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There has always been a tension between regulating the capital markets to protect the public and making capital formation more efficient. While I was focusing on Tuesday’s meeting SEC Advisory Committee on Small and Emerging Companies discussing changes to private placements, the SEC passed another rule that smacks public companies. Now public companies need to start worrying about the ratio of the CEO’s compensation to the median compensation of all employees.

I think it’s a silly rule that will do nothing except fire up shareholder activists and further discourage companies from going public.

At least this rule is not the fault of the Securities and Exchange Commission. Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated this rule. Blame Congress, not the SEC.

(b) ADDITIONAL DISCLOSURE REQUIREMENTS.—

(1) IN GENERAL.—The Commission shall amend section 229.402 of title 17, Code of Federal Regulations, to require each issuer to disclose in any filing of the issuer described in section 229.10(a) of title 17, Code of Federal Regulations (or any successor thereto)—

(A) the median of the annual total compensation of all employees of the issuer, except the chief executive officer (or any equivalent position) of the issuer;

(B) the annual total compensation of the chief executive officer (or any equivalent position) of the issuer; and

(C) the ratio of the amount described in subparagraph (A) to the amount described in subparagraph (B).

There is an exception for Emerging Growth Companies from the rule. Yet another benefit to grabbing this status under the JOBS Act.

The SEC did not mandate any particular methodology for the calculation. This rule will be a big challenge for bigger companies and multi-national companies.

I also wonder if there will be a math problem with companies using “average” instead of “median.” Surely, at least one company will put someone in charge of the calculation that does not know the difference.

References:

Ignoring Changes to Regulation D

compliance and ignore this sign
While many embraced lifting the ban on general solicitation and advertising, most despised the additional mess that the SEC added in. Fortunately, you can probably ignore much of that mess. At least for a few months.

We knew that the SEC was going to require that firms selling public private-placements were going to have to take some reasonable steps to confirm that the purchasers were actually accredited investors. Congress wrote that into the JOBS Act. (Although I suspect they would have written it differently if they knew the end result.)

Based on the July 10 SEC meeting, 506(c) and 506(d) go into effect on September 23. The dreaded changes to Form D and Rule 156 do not. Those are only proposed rules.

SEC Chairman Mary Jo White made this obvious in a recent letter response to Congressman McHenry.

It’s clear that funds can use the public private-placement regime under Rule 506(c) on September 23, 2013. The current rules on filing the Form D are in place. There will be no requirement to file the advertisements with the SEC. There will be no required legends on the advertisements.

For now.

The changes to Form D and the advertising legends are merely in a proposed rule. The SEC may abandon its concerns and not issue a final rule. (unlikely) The SEC may make significant changes to the rule. (possibly)

Chairman White makes it clear that there will need to be some transitional guidance for offerings that commence before the effective date of the final rule. So you can ignore the proposals.

But the proposed rule is clearly a signal that the SEC wants to do something more for private placements. I would guess that some form of the rule will be adopted before the end of the year. The mutual fund industry will be furious that their product advertisements are weighed down with disclaimers, while cowboy hedge funds are all over the place and grabbing bigger fees.

There are signs ahead. But we can ignore them for now.

References:

Ignore This Sign, 2004
Marietta, Georgia, USA
Hacking the City, by Brad Downey

SEC Compliance Outreach Program

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In May attended the SEC Compliance Outreach program hosted by the Securities and Exchange Commission’s Boston office. That was supposed to be the first in a new series from the SEC. The SEC just announced a few other program dates and locations. I highly recommend attending.

From the SEC:

The SEC’s Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management, and Division of Enforcement’s Asset Management Unit (AMU) are jointly sponsoring the regional seminars for investment companies and investment advisers. The seminars highlight areas of focus for compliance professionals. They provide an opportunity for the SEC staff to identify common issues found in related examinations or investigations and discuss industry practices, including how compliance professionals have addressed such matters.

The Compliance Outreach Program was created to promote open communication on mutual fund, investment adviser, and broker-dealer compliance issues. The program, formerly known as the CCOutreach Program, was redesigned in 2011 to include all senior officers, not just CCOs, underscoring the importance of compliance throughout a firm’s business operations.

The series of regional seminars kicked off in Boston on May 16 with panel discussions on the priorities for the SEC’s National Examination Program, current topics in money management regulation, and OCIE’s process for assessing risks and selecting firms for examination.

The remaining seminars:

• Chicago – August 28: This seminar will present an overview of the examination process, including how registrants are selected for examination and the most commonly identified deficiencies. There also will be three discussion panels on traded and non-traded real estate investment trusts, on investment companies with special emphasis on alternative investment funds and money market funds, and on current enforcement actions in the investment management industry. Lastly, there will be a breakout session focusing on custody and compliance for small advisers. Register for this event.

• New York – September 13: This seminar will be most relevant to newly registered investment advisers, to dual registrants and to investment advisers affiliated broker-dealers. The topics most relevant to newly registered advisers will include the SEC’s examination process, priorities, risk surveillance, and examination selection process. In addition, the staff will discuss Form PF and other filing requirements and recent industry and regulatory developments. The topics most applicable to dual registrants or advisers with affiliated broker-dealers will address the staff’s coordinated examination process, common examination findings, and controls that some firms use to address conflicts of interest. Register for this event.

• Atlanta – September 25: This seminar will discuss the importance of enterprise risk management and effective compliance and will identify key issues noted during examinations, including conflicts of interests and issues associated with fees, such as undisclosed remuneration, miscalculation, and layering. Additional discussion topics include the changing demographics of SEC-registered investment advisers and key examination program initiatives to address such changes. Register for this event.

• San Francisco – November 6: This seminar will feature an overview of the SEC’s examination processes and procedures and a discussion of OCIE and AMU priorities. Emphasis also will be placed on valuation issues, including best practices for valuing assets by private and registered investment funds. Register for this event.

If registrations exceed capacity at an event location, investment company and investment adviser CCOs will be given priority based on the order in which their registration requests were received. Information regarding these seminars was also provided in SEC Press Release 2013-127 (see http://www.sec.gov/news/press/2013/2013-127.htm). For more information, contact: [email protected].

What’s Next For Private Funds Now that the SEC has Lifted the Ban on General Solicitation

SEC Seal 2

On Wednesday, the Securities and Exchange Commission adopted a new rule that will allow private funds to advertise. (Perhaps “private fund” is not the right label anymore.) Of course it’s not as simple as merely removing the word “not” and allowing public advertising of private placements.

The new rule creates a new option. It creates a public private placement. A fund manager or company can publicly advertise the offering so long as all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors

The existing option is still viable that operates under the regulatory regime as it existed before 10:00 am yesterday. I suppose it’s a private private placement.

One concern I had was how a public private placement under the new Rule 506(c) would affect a private fund under its Section 3(c)1 or 3(c)7 exemption under the Investment Company Act. Private funds are precluded from relying on either of these two exemptions if they make a public offering of their securities. The SEC explicitly addressed this concern.

As we stated in the Proposing Release and reaffirm here, the effect of Section 201(b) is to permit private funds to engage in general solicitation in compliance with new Rule 506(c) without losing either of the exclusions under the Investment Company Act.(page 48 of Release 33-9415)

Another concern was whether the SEC was eliminating the “reasonable belief” standard that an investor is accredited under the new Rule 506(c) offerings. The SEC specifically addressed this concern.

We note that the definition of accredited investor remains unchanged with the enactment of the JOBS Act and includes persons that come within any of the listed categories of accredited investors, as well as persons that the issuer reasonably believes come within any such category.

My last concern was what it meant to take “reasonable steps to verify” that investors are accredited. The SEC stuck with its principles-based approach, but did provide four non-exlusive methods for verifying accredited investor status for individuals.

The principles-based approach requires you to take an “objective determination … in the context of the particular facts and circumstances.” That’s a bit messy. I was hoping the SEC would explicitly state that a minimum investment of $1 million would be enough. If the investor has $1 million, then the investor has $1 million of net worth and meets the accredited investor threshold. The SEC states that the minimum investment is a highly relevant factor.

The SEC expresses some concern that the cash investment could be financed by the issuer or a third party. Those are legitimate concerns given the potential for fraud by shady operators who would hide behind such a bright line test. But it does cause me a headache.

Clearly there will need to be some additional recordkeeping when it comes to a public offering of a private placement.

The SEC also passed a rule banning “bad actors” from having a substantial role in a private placement, regardless of whether it is public or private. I’ll take a closer look at that one later.

Lastly, the SEC is proposing changes to the Form D required to filed with a private placement. There are many changes in that rule. More than I expected.

  • the filing of a Form D no later than 15 calendar days in advance of the first use of general solicitation in a Rule 506(c) offering;
  • the filing of a closing Form D amendment within 30 calendar days after the termination of a Rule 506 offering; and
  • additional information on Form D about the offering

In addition, the rule is proposing a new disclosure on advertising materials in public private placements. The new rule 509 will require all issuers to include: (i) legends in any written general solicitation materials used in a Rule 506(c) offering; and (ii) additional disclosures for private funds if such materials include performance data.

The SEC is also proposing amendments to Rule 156 under the Securities Act that would extend the guidance contained in the rule to the sales literature of private funds.

There is a lot to digest. Looks like my weekend will be spent reading SEC releases and rules.

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SEC Warns About Exemptive Order Compliance

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The SEC’ Division of Investment Management issued new guidance to reminds firms to comply with conditions and representations in exemptive orders. The guidance suggests that firms “adopt and implement policies and procedures reasonably designed to ensure ongoing compliance with each representation and condition in any such order.”

The  guidance was triggered by June 2011 report from the SEC’s Office of Inspector General which noted noncompliance with exemptive order requirements and no-action letters. Besides this guidance, the Office of Compliance Inspections and Examinations’ 2013 examination priorities listed compliance with exemptive orders as an examination priority.

The SEC may allow a firm to engage in transactions that would otherwise be prohibited by securities laws by means of an exemptive orders. In order to receive this exemptive relief, a firm will make certain representations in its application and may agree to comply with certain conditions.

Based on its review of a sample of OCIE examination reports, the OIG determined in its 2011 report that many firms failed to comply with the representations and conditions of SEC exemptive orders and no-action letters they have received.
The OIG report found that the SEC divisions that issue relief do not have a process for confirming whether firms subsequently comply.

It’s a simple problem found in many organizations. One part of the SEC issues the exemptive relief and another conducts the inspections. The one conducting the inspections is probably not aware of the exemptive order or the need to comply with the provisions. It sounds like that is starting to change.

The OIG report made five recommendations intended to enhance the SEC’s oversight of exemptive order compliance.

(1) The Divisions of Investment Management, Trading and Markets, and Corporation Finance should develop processes for coordinating with OCIE regarding reviewing for compliance with conditions and representations in exemptive orders and no-action letters issued to regulated entities on a risk basis;

(2) The Divisions of Investment Management, Trading and Markets, and Corporation Finance, in coordination with the Office of Information Technology and OCIE, should develop and implement processes to consolidate, track, and analyze information regarding exemptive orders and no-action letters;

(3) The Divisions of Investment Management and Trading and Markets should, in their plans for implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act requirement that they establish their own examination staffs, develop procedures to coordinate their examinations with OCIE and include provisions to review for compliance with conditions and representations in exemptive orders and no-action letters on a risk basis;

(4) The Divisions of Investment Management and Trading and Markets should include compliance with the conditions and representations in significant exemptive orders and/or no-action letters issued to regulated entities as risk considerations in connection with their monitoring efforts; and

(5) OCIE should include compliance with conditions and representation in significant exemptive orders and no-action letters issued to regulated entities as risk considerations in connection with its compliance efforts.

Although the 2011 OIG report also include no-action letter, this 2013 guidance only mentions exemptive orders.

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SEC’s Compliance Outreach Program

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I was able to attend the Boston stop on the SEC’s Compliance Outreach Program.

Michael Garrity, the Associate Director of the Boston Examination Program kicked off the program, by highlighting some examination statistics. There are 1200 registered adviser in the Boston region. But there are only 50 examiners. Last year, they had 80 exams. They are clearly taking a risk-based approach to examinations because the resources are so limited. They are getting increased data and are working on finding the signal through all the noise.

The first panel focused on examination priorities and risks.

The selection process is one involving qualitative and quantitative review. The SEC uses the Form ADV information, third-party data providers, and media stories, among other sources to select firms for examination.  These are some of the red flags that may make an exam more likely:

  • Firms in the media
  • Firms with new product lines / closed product lines
  • Management changeover
  • New fee arrangements
  • Decentralized firms or odd structures
  • Use of riskier service providers

In a post-Madoff world, the SEC takes Tips, Complaints, and Referrals as the top indicators for examination. The biggest red flag is when someone takes the time to the tell the SEC that a firm is doing something wrong.

The SEC is trying to be transparent in examination priorities. The 2013 SEC Examination Priorities clearly lay out what the SEC is most likely to focus upon. The exam staff expects to update the exam priorities each year.

The panel made it clear that the Form ADV is used in selecting firms for examination. However, they seemed to indicate that the exam staff has not quite figured out how to deal with all of the information in Form PF.  Examiners will use the information in Form PF as part of the examination. But its seems that the data is not yet an integral part of the selection criteria.

Valuation was the number one topic for examination when it comes to funds. It affects performance marketing and fee generation. The examiners are not going to second-guess assumptions, but do want to see a robust process. Although an examiner will not second-guess assumption, an examiner may look at other market data to see if it distinctly contradicts the assumptions used.

In particular, an examiner will note if valuations are “being tweaked when new funds are raised”. The panel referred to the Oppenheimer case where there was distinct change in the valuation process with no justification or disclosure. The panel also referenced the Morgan Keegan case where there was distinct hanky-panky during the valuation process.

The examiners want to see if the written polices and procedures are effective. They want to make sure that marketing pressure does not affect valuations. The exam staff is looking for ad hoc changes.

Social media is hot topic for examination. The panel pointed to last year’s risk alert on investment adviser use of social media. The use of social media is clearly subject to the anti-fraud rule. Most of it will also be subject to the advertising rule. The exam will focus on social media if the adviser uses social media to target clients and potential clients, not for personal or non-business use.

Safety and security of client assets is another hot topic for examinations.  Based on the recent risk alert, the SEC is not happy with compliance under the custody rule. Many advisers fail to understand that they have custody.

A new issue is the application of the identity theft rules under the FRCA. Dodd-Frank made the Red Flags Rule applicable to the SEC. Regulation SID will have a November compliance deadline.

The second panel was on the current topics in money management regulation.

The first line of discussion was who would show up at an examination. In the Boston office, it is now common to have a member of enforcement take part in an examination. However, this is for educational purposes, not because of the likelihood to bring an action. With the massive inflow of hedge funds, private equity funds, and real estate funds, the SEC is trying to develop expertise in these types of advisers. The Boston office also has staff intern in different divisions. So an examination person will work for six months in enforcement and an enforcement person will work for six months on exams.

The number one reason for an enforcement action is failing to fix problems that you say you will fix. The SEC is now routinely making follow-up returns to see if a firm has made the changes mandated in the deficiency letter.

The panel downplayed the enforcement actions against compliance staff. The cases against compliance officers are for egregious failures.

Expenses bubbled up as a hot topic. Examiners will look closely at expenses billed to investors.  The examiners want to know that these expenses are clearly disclosed to investors. For funds that means the PPM and Partnership Agreement. The examiners said they want to see written expense policies and to see them tested.

The SEC examiner strongly suggested that registrants prepare a risk matrix.  One advisor thought this was providing a blueprint for the SEC to conduct their audit. They want to see a catalog of risks, status, rating and worst case impact for the risk.

The panel listed a few things that make an enforcement action more likely:

  • Fraud
  • Misappropration of funds
  • Intent
  • Investor harm
  • Recidivism
  • Failure to respond to exam staff
  • Providing false information to staff

The panel raised the current hot topic of Broker-dealer registration for internal marketing personnel at private fund managers.  The panel noted the David Blass speech on private funds and broker-dealer registration.

The third panel focused on the examination process.

There are four types of exams:

  1. Risk priority exam
  2. Cause exam
  3. Sweep exam
  4. Presence exams for new registrants.

The presence exam program started 10/12 and is expected to end in the  fall of 2014. The SEC plans on compiling findings from these exams and releasing that compilation or risk alert to all registered advisors. The presence exams are short – less than a week.  The focus is on the five areas in the October welcome letter: Marketing, Conflict of interest, Safety of client asset,  Portfolio Management, and Valuation.

They also mentioned a fifth type of exam: corrective action review. This a follow-up after an “exam summary letter” (nee’ deficiency letter) and focuses on whether the firm fixed the deficiencies they said they would in the letter.

It is the SEC’s policy to not disclose the type of exam during the examination process.

As for the process, it usually starts with a phone call to let you know they are coming.  The notice could be from none to two weeks. Typically it will be one week’s notice. Can you postpone the field date? Almost never. (One participant told me that the SEC came on the date of his annual investor meeting and would not move the date.)

The examiners will interview senior staff. The CCO can be present for all interviews.

The panel paid a lot of attention on annual reviews. After all, it is required by the SEC rules. They expect the following to be addressed in the annual review:

  • Review and document compliance issues for the year
  • Review change in business activities
  • Note Regulatory changes
  • Changes in key personnel

It’s okay to outsource the annual review.

Identify risks and either (1) change the policies and procedures, (2) test, and/or (3) mitigate.

Use the annual review as an opportunity to highlight your resources and all of the good things you have done over the past year.

At the end of the exam you will get a letter to know its over. The letter will be either a summary letter or a no further action letter.

 

As you can tell from my notes, this was a great program for compliance officers.

The First Enforcement Action Under the JOBS Act

SEC Enforcement Logo

I believe the Securities and Exchange Commission has taken its first enforcement action under the JOBS Act. The SEC announced fraud charges against a Spokane Valley, Wash., company and its owner for misleading investors with claims to raise billions of investment capital under the Jumpstart Our Business Startups (JOBS) Act and invest it exclusively in American businesses.

Every critic has some concerns about investor protections in a post-JOBS Act securities world. There has been a whirlwind of entrepreneurs and wanta-preneuers who want to take advantage of the crowdfunding rules and the removal of the ban on general solicitation for private offerings.

“The JOBS Act is intended to help small businesses raise capital, not to legalize fraud or give unscrupulous entrepreneurs a right to make false claims to fleece investors.”
– Michael S. Dicke, Associate Director in the SEC’s San Francisco Regional Office.

According to the SEC complaint, Daniel Peterson sold his USA Real Estate Fund 1 securities, raising more than $400,000 based on false and misleading statements.  According to the business plan, the fund could invest in real estate, mortgage notes and technology companies. I consider all of these to be high risk investments. But the website touts that investors won’t lose their money.

Q: How do you assure the investor that they will not lose their investment?
A: Our protection works much the same as flood insurance or earthquake or tornado insurance. We buy Financial Instruments comprised of US Government treasuries, Top Rated US and World Insurance and Reinsurance Companies (GIC and Annuity) contracts. The fund reserves the right to invest up to 5% of its assets in other Debt securities, such as but not limited to, high yield securities, foreign bonds, and money market instruments, when to do so would be considered within the strategy of the fund and in the best interest of its investors. These are the financial instruments that will provide the money to insure against loss.

I’m not quite sure how to reconcile that answer with the investment strategy.

According to the SEC complaint, the firm claimed it would offer additional securities and raise more investment capital, made possible by the Jumpstart Our Business Startups Act. Again, its not clear to me how passage of the JOBS Act would create value for the fund investors. I suppose that’s one of the reasons the SEC is making a claim against the fund for false and misleading statements.

It is clear that this is not a case of legitimate fundraising trying to take advantage of the JOBS Act before the JOBS Act regulations are put in place. If you, like me, were looking for a juicy and sordid tale instead of mere fraud you will be disappointed with the headline.

Equity crowdfunding portals are not yet legal because the regulations have not been enacted. General solicitation for Rule 506 private placements is not yet legal, because the regulations have not been enacted. Of course there are legal ways to use exemptions in these situations, but they are all pre-JOBS Act.

Anyone currently touting ways to get rich using the JOBS Act should be viewed as suspect. They are merely speculating on what the SEC may do and how entrepreneurs would take advantage of the potential new regimes.

You need to draw the distinction between entrepreneurs and wanta-preneuers.

Sources:

New SEC Rule to Protect Investors from Identity Theft

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The Securities and Exchange Commission adopted new rules requiring investment advisers, broker-dealers, mutual funds, and certain other entities regulated by the agency to adopt programs to detect red flags and prevent identity theft.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Fair Credit reporting Act to add the SEC to the list of federal agencies that must adopt and enforce identity theft red flags rules. In February 2012, the SEC proposed for public notice and comment identity theft red flags rules and guidelines and card issuer rules. Yesterday, the SEC issued the final rule.

Originally, it looked like investment advisers (and therefore private fund managers) might escape the rule. However, the final rule explicitly includes registered investment advisers as being subject to the rule.

Investment advisers who have the ability to direct transfers or payments from accounts belonging to individuals to third parties upon the individuals’ instructions, or who act as agents on behalf of the individuals, are susceptible to the same types of risks of fraud as other financial institutions, and individuals who hold transaction accounts with these investment advisers bear the same types of risks of identity theft and loss of assets as consumers holding accounts with other financial institutions. If such an adviser does not have a program in place to verify investors’ identities and detect identity theft red flags, another individual may deceive the adviser by posing as an investor.

The SEC concluded that the red flag program of a qualified custodian that maintains custody of an investor’s assets would not adequately protect individuals holding transaction accounts with an adviser. The adviser could give an order to withdraw assets, but at the direction of an impostor. However, an adviser that has authority to withdraw money from an investor’s account solely to deduct its own advisory fees would not hold a transaction account, because the adviser would not be making the payments to third parties.

Does this apply to private funds?

Private fund managers may directly or indirectly hold transaction accounts. According to the SEC rule, if an individual invests money in a private fund, and the adviser to the fund has the authority to direct the individual’s investment proceeds (such as distributions) to third parties, then that adviser would indirectly hold a transaction account. The SEC concludes that a private fund adviser would hold a transaction account if it has the authority to direct an investor’s redemption proceeds to other persons upon instructions received from the investor.

I’m not sure that I agree with the SEC conclusion. However, I do agree that funds need to make sure that distributions are not re-directed improperly. Private fund managers will have to put some effort into this.

This rule is going to take some time to figure out how it applies in the context of fund operations. The subscription agreement and partnership agreement for a fund may not explicitly address if an investor can direct distributions to a third party account. I think that would be an unusual restriction.

The SEC-mandated program under rule should include policies and procedures designed to:

  • Identify relevant types of identity theft red flags.
  • Detect the occurrence of those red flags.
  • Respond appropriately to the detected red flags.
  • Periodically update the identity theft program.

The rules require entities to provide such things as staff training and oversight of service providers. The rules include guidelines and examples of red flags to help firms administer their programs.

The final rules will become effective 30 days after publication in the Federal Register. The compliance date for the final rules will be six months after their effective date.

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