In addition to laying out the changes to Form ADV, in Release No. IA-3110 the SEC also took a slightly different course on regulating placement agents. Rule 206(4)-5, released in July 2010, required placement agents to either be registered with the SEC as an investment adviser and subject to the limitation on campaign contributions, or register with FINRA. The FINRA registration was subject to enactment of a similar pay-to-play rule by FINRA.
The SEC has abandoned FINRA for the MSRB when it comes to regulating placement agents that interact with government sponsored plans.
The MSRB is undertaking a rule-making to subject municipal advisers to the pay-to-play rules in place for municipal securities dealers under MSRB Rule G-37.
“Municipal advisors” include businesses and individuals that advise municipal entities concerning municipal financial products and municipal securities, as well as businesses and individuals who solicit certain types of business from municipal entities on behalf of unrelated broker-dealers, municipal advisors, or investment advisers.
In comparing the de minimis amounts under Rule 206(4)-5 and MSRB Rule G-37, the MSRB only allows for contributions up to $250 for candidates the person can actually vote for. The SEC rule is $350 for a candidate you can vote for and $150 for a candidate you can’t vote for. Both have a two-year ban for violation of the rules.
Sources:
SEC Release No. IA-3110 – Rules Implementing Amendments to the Investment Advisers Act of 1940
The first thing to say about the Newspaper Test is that it probably is a useful heuristic. Asking the question it poses at very least serves as an opportunity to pause and ask yourself whether the action you’re about to take is one that could withstand publicity and scrutiny. But there are two clear problems with the Newspaper Test….
Many companies integrate a compliance committee into their compliance and ethics programs. Compliance committees usually comprise a cross-section of representatives across the business, who share a unique perspective or interest related to the compliance and ethics program. Compliance committees often meet on a regular schedule and participate in a wide range of discussions and activities, from official responsibilities such as preliminary policy approvals to less formal activities such as discussions about trends or communication strategies.
Although the majority of the Directive’s rules are likely to become effective by January 2013, some of the rules affecting non-EU funds and non-EU fund managers will be deferred until 2015 or later. Thus, non-EU managers may still actively raise funds in the EU, but will have to comply with a number of additional regulatory requirements beginning in January 2013.
This is what I understand the Staff to be saying. When (i) the grantors of a trust are accredited under Rule 501(a)(5); and (ii) the trust may be amended or revoked at any time by the grantors, then a trust is deemed NOT TO EXIST. Then, they seem to be saying that this non-existent trust is deemed accredited. So there you have it, a non-existent trust may be deemed to be an accredited investor.
Don’t write emails so provocative that they wind up reproduced on the front page of the Wall Street Journal.
With many fund managers having to register under the Investment Advisers Act, they will now be subject to more extensive record-keeping requirements. That means more emails will be saved for a longer period of time.
Those questionable emails will preserved for litigants and federal regulators to see, long after you hit the delete button in Outlook.
E-mails from Goldman Sachs Group Inc. director Fabrice Tourre are the center of the case saying Goldman misled investors. In one he wrote, “The whole building is about to collapse anytime now,” according to the complaint. “Only potential survivor, the fabulous Fab.”
Here is another great email quote from the Fabulous Fab:
“When I think that I had some input into the creation of this product (which by the way is a product ofpure intellectual masturbation, the type of thing which you invent telling yourself: “Well, what if we created a “thing”, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price ?”) it sickens the heart to see it shot down in mid-flight. .. It’s a little like Frankenstein turning against his own inventor;)”
The other detrius that ended up in front of the Senate Subcommittee on Investigations were the email love letters from Fab to his girlfriend. Another reminder to keep personal email off the company’s network and company time.
A cynical look from Dilbert at corporate culture creation:
Some of the comments to the comic reinforce this cynical view of corporate values (and ethics):
kmulchandani:
Just Brilliant! i had a boss who always preached in a code of ethics and values, but when it came to him he was always excused. Quoting him it was – “for the greater good” or “my experience tells me that in this case it can be ignored”. “Values” are a subjective term, flowing down a corporate hierarchy, with the ones on top enforcing them onto their “minions”.
It’s not about stating what values and ethics should be. It’s what values and ethics are evidenced by the actions of your company’s employees at all levels in the organization.
It’s the holiday season. Like the Macy’s Thanksgiving Day parade, your community may run a similar parade.
They need to pay attention to compliance issues.
Particularly, they need to compare the height of the parade’s balloons to overhead power lines and traffic signals. For your entertainment, a parade that failed.
The hard work has begun as federal regulators are trying to implement the provisions of Dodd-Frank. The law pushed lots of the detail out to the agencies so there are lots of unanswered questions.
One of the hot button issues was what to do with financial institutions that were too big to fail. Dodd-Frank came up with the concept of “systemically important.” They created a new entity, the Financial Stability Oversight Council to come up with a definition, figure who should get that designation and design safeguards for those designees.
Private equity lost the battle to get an exemption from registration under the Investment Advisers Act. It may have to fight another battle to avoid the “systemically important” label.
The Independent Community Bankers of America, a major trade group for community banks, said General Electric Co.’s GE Capital and private-equity firms Carlyle Group, KKR & Co.’s Kohlberg Kravis Roberts & Co. and Blackstone Group LP should be tagged as systemically important.
Private equity doesn’t belong in that group, shot back Blackstone spokesman Peter Rose. “We do not trade, we have no leverage at the parent-company level, our investments are clearly disclosed and transparent, our investors are with us for the long term,” he said. “Therefore there is no possibility of a, quote, ‘run on the bank.’ ”
may determine that a U.S. nonbank financial company shall be supervised by the Board of Governors and shall be subject to prudential standards, in accordance with this title, if the Council determines that material financial distress at the U.S. nonbank financial company, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the U.S. nonbank financial company, could pose a threat to the financial stability of the United States.
The term “U.S. nonbank financial company” means
a company (other than a bank holding company, a Farm Credit System institution chartered and subject to the provisions of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.), or a national securities exchange (or parent thereof), clearing agency (or parent thereof, unless the parent is a bank holding company), security-based swap execution facility, or security-based swap data repository registered with the Commission, or a board of trade designated as a contract market (or parent thereof), or a derivatives clearing organization (or parent thereof, unless the parent is a bank holding company), swap execution facility or a swap data depository registered with the Commodity Futures Trading Commission), that is–
(i) incorporated or organized under the laws of the United States or any State; and
(ii) predominantly engaged in financial activities, as defined in paragraph (6).
[102(a)[4)]
A company is “predominantly engaged in financial activities” if–
(A) the annual gross revenues derived by the company and all of its subsidiaries from activities that are financial in nature (as defined in section 4(k) of the Bank Holding Company Act of 1956) and, if applicable, from the ownership or control of one or more insured depository institutions, represents 85 percent or more of the consolidated annual gross revenues of the company; or
(B) the consolidated assets of the company and all of its subsidiaries related to activities that are financial in nature (as defined in section 4(k) of the Bank Holding Company Act of 1956) and, if applicable, related to the ownership or control of one or more insured depository institutions, represents 85 percent or more of the consolidated assets of the company.
[102(a)[6)]
Those are some very wide open definitions for who could be considered “systemically important.”
(A) The extent of the leverage of the company;
(B) The extent and nature of the off-balance-sheet exposures of the company;
(C) The extent and nature of the transactions and relationships of the company with other significant nonbank financial companies and significant bank holding companies;
(D) The importance of the company as a source of credit for households, businesses, and State and local governments and as a source of liquidity for the United States financial system;
(E) The importance of the company as a source of credit for low-income, minority, or underserved communities, and the impact that the failure of such company would have on the availability of credit in such communities;
(F) The extent to which assets are managed rather than owned by the company, and the extent to which ownership of assets under management is diffuse;
(G) The nature, scope, size, scale, concentration, interconnectedness, and mix of the activities of the company;
(H)The degree to which the company is already regulated by 1 or more primary financial regulatory agencies;
(I) The amount and nature of the financial assets of the company;
(J) The amount and types of the liabilities of the company, including the degree of reliance on short-term funding; and
(K)Any other risk-related factors that the Council deems appropriate.
[113(a)(2)]
Hearing
Then it takes 2/3 of the voting members of the Council, including the Chairperson, to make the designation [113(a)(1)]. Then the financial company designated as systemically important has 30 days to request a hearing and another 30 days to submit material. [113(e)(2)] The Council has 60 days to make a final determination.
Too Big to Fail
This provision of Dodd-Frank is the Anti-AIG and to some extent the Anti-Lehman Brothers portion of the law.It is one of the many ways the law tries to address Too Big to Fail.
Capital has many forms and is made available in many ways. The U.S. government thought AIG was too big to fail because of its size and interconnectedness. They didn’t think Lehman Brothers was too big to fail, but I think they were wrong about that.
Back to the Finger Pointing
Now that the Financial Stability Oversight Council is trying to define Too Big to Fail as systemically important, the finger pointing has begun. Industries and companies are saying “not me” and saying that others should be included.
The problem is that once you are designated “systemically important” it’s not clear what additional burdens will be placed on you and whether there will be any benefit to the designation. It seems the Council has the flexibility to craft different requirements for different companies and different industries.
It may boost your ego to be considered “systemically important” but it will also lead to a regulatory headache. Private investment firms are not exempt from the designation and could be tagged.
Apparently, many of the recent financial fraud actions in the news have been part of a nationwide operation organized by the Financial Fraud Enforcement Task Force to target investment fraud: Operation Broken Trust.
“To date, the operation has involved enforcement actions against 343 criminal defendants and 189 civil defendants for fraud schemes that harmed more than 120,000 victims throughout the country. The operation’s criminal cases involved more than $8.3 billion in estimated losses and the civil cases involved estimated losses of more than $2.1 billion. … Starting on Aug. 16, 2010, within a three-and-a-half month period, Operation Broken Trust involved 231 criminal cases and 60 civil enforcement actions. Eighty-seven defendants have been sentenced to prison, including several sentences of more than 20 years in prison.”
With the flurry of regulatory changes happening south of the 49th Parallel, I have not paid much attention to the Canadian law blogs dealing with compliance, privacy, ethics and other topics that interest me here at Compliance Building.
I will throw two blogs in for nominations:
Brian Bowman – On the Cutting Edge. This was the only Canadian blog that made it into one of my blog posts for 2010. It’s only fair that I nominate it.
The Business Ethics Blog by Chris MacDonald. He has a Ph.D. instead of a JD and business ethics is not a pure legal topic. However, if business lawyers are not thinking about business ethics, then they are not doing their jobs very well. Just because something is legal, does not mean it is ethical or a questionable move by the company.
I would also throw Stem Legal’s Law Firm Web Strategy blog and Jordan Furlong’s Law 21 into pool, but since they are sponsors, I assume they are not eligible. (Oddly, Law 21 garnered a nomination from the American Bar Association for their Blawg 100. I guess the ABA is looking to annex Canada.)
If you do the math, 19 of the top 30 are already registered with the SEC as Investment Advisers. I expect to see several more in the “yes” column before July 21, 2011, the registration deadline under Dodd-Frank.
The PERE 30 measures capital raised for direct real estate investment through commingled vehicles, together with co-investment capital, over the past five years.
Transparency International says its branch in Pakistan has received death threats from government officials, in connection with the anti-corruption organization’s agreement with the U.S. to monitor aid flows to the country. Syed Adil Gilani, chairman of Transparency International Pakistan, told The Wall Street Journal the threats came from “high-level” Pakistani officials, telling him to halt his organization’s anti-graft investigations.
There are arguments for legalizing insider trading that revolve around promoting the free flow of information–I get that. There are also arguments against legalizing insider trading that equate insider trading with the theft of information and conclude that it should be punished for the same reasons that we punish other forms of theft of property–I get that, too (and tend to agree). But put all that aside, for a moment, and join me in imagining a world where insider trading is completely legal. Here is how I see life in Legalized Insider Trading (LIT) World. …
The leadership of the Big 4 audit firms in the UK has admitted that they did not issue “going concern” opinions because they were told by government officials, confidentially, that the banks would be bailed out.
The SEC considered California’s definition of “venture capital companies” in 10 CCR § 260.204.9 but felt that California’s rule was inconsistent with Congressional intent because the California rule doesn’t limit investments to companies that are not publicly traded. This sounds plausible, but the SEC’s evidence of Congressional intent is surprisingly weak. Essentially, it consists of the testimony of two individuals before the Senate Banking Subcommittee on Securities, Insurance and Investment Hearing a year before the enactment of the Dodd-Frank Act and several months before the Dodd-Frank Bill was even introduced into Congress.
To conduct an investigation interview, you don’t need to be Sherlock Holmes- but it wouldn’t hurt to channel your inner detective. Fraud investigation interviews are a lot of work, but can take your investigation from ho hum to awesome. A successful investigation interview isn’t just a question and answer period. Asking good questions is just a small piece of a very big puzzle. To get the most out of your fraud investigation interviews, remember these 5 important steps: …
In October, an 18% budget increase that the SEC was supposed to receive under Dodd-Frank was not included in a stopgap spending bill to fund government operations through early December. Now, the WSJ reports, the SEC has been forced to shelve its plan to open a new whistleblower office as mandated by Dodd-Frank. The agency says that it cannot open that office, and four other new offices created under Dodd-Frank, without an increased budget.
The Office Holiday Party – Alcohol-Induced Stupidity Can Lead to Serious Sexual Harassment Claims by Daniel Schwartz
There are no statistics out there to prove this point, but the traditional office holiday party has to be among the top places where claims of sexual harassment and hostile work environment start. Indeed, just a cursory look at some federal employment cases shows a common thread that run through each of them: alcohol-induced stupidity leading to serious sexual harassment claims.
