SEC: SEC Provides for Phased CAT Broker-Dealer Reporting Timelines with Conditional Exemption for Impacts of COVID-19

Published on April 21, 2020 at 12:45AM
The Securities and Exchange Commission announced it has voted to issue two exemptive orders in order to move Consolidated Audit Trail (CAT) implementation forward: (1) establishing a phased CAT reporting timeline for broker-dealers, and (2) permitting…
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SEC: SEC Provides Additional Temporary Regulatory Relief and Assistance to Market Participants Affected by COVID-19

Published on March 27, 2020 at 01:00AM
Today, the Securities and Exchange Commission announced that it is providing additional temporary regulatory relief to market participants in response to the effects of the Coronavirus Disease 2019 (COVID-19). The actions announced today involve (1)…
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SEC: Cboe Options Exchange Temporarily Shifts to Fully Electronic Trading – SEC Enables Immediate Effectiveness of Proposed Rule Change to Facilitate Continued Operations in Light of Temporary Suspension of Cboe Physical Trading Floor

Published on March 15, 2020 at 01:12AM
The U.S. Securities and Exchange Commission noticed for immediate effectiveness a proposed rule filing submitted by Cboe Exchange, Inc. to facilitate the continued operation of Cboe's options exchange in light of Cboe's decision to temporarily suspend…
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SEC: SEC Proposes to Modernize the Advertising and Cash Solicitation Rules for Investment Advisers

Published on November 05, 2019 at 12:30AM
The Securities and Exchange Commission today announced that it has voted to propose amendments to modernize the rules under the Investment Advisers Act addressing investment adviser advertisements and payments to solicitors. The proposed…
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SEC: SEC Announces Extension of Temporary Measure to Facilitate Cross-Border Implementation of the European Union's MiFID II's Research Provisions

Published on November 04, 2019 at 11:30PM
Today the staff of the U.S. Securities and Exchange Commission issued an extension of an Oct. 26, 2017 no-action letter it provided to assist market participants regarding their U.S.-regulated activities as they engage in efforts to comply with…
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SEC: SEC Wins Jury Trial Against Broker Charged With Defrauding Customers

Published on June 20, 2019 at 11:00PM

Jurors in Manhattan federal court today returned a verdict in the Securities and Exchange Commission’s favor against a broker who was charged in January 2017 with fraud for excessively trading customer accounts using a trading scheme that generated hefty commissions for the broker but significant losses for his customers. A second broker, also charged in the same complaint for engaging in the same fraudulent practices, admitted to his misconduct and settled with the SEC on the eve of trial.

The SEC’s evidence at trial showed that the broker, Donald J. Fowler, while registered with J.D. Nicholas & Associates Inc., a now-defunct broker-dealer located in Syosset, New York, engaged in fraud when he deployed an in-and-out trading scheme that was unsuitable for his customers in order to generate large commissions for himself.  The evidence showed that Fowler failed to do any reasonable due diligence to determine whether his trading, which involved frequent buying and selling of securities, could deliver a profit for his customers. Indeed, the SEC’s proof showed that the cumulative commissions Fowler charged were so high that investors would have needed to generate, on average, a 142% return simply to break even.

On June 10, the SEC obtained a final judgment against Fowler’s partner, Gregory T. Dean, who admitted, among other things, that he knowingly or recklessly made trade recommendations to his customers with no reasonable basis, and that his conduct violated the federal securities laws.

“Brokers must have a reasonable basis to recommend a trading strategy to their customers,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “Today’s jury verdict marks an important victory in the SEC’s pursuit of brokers who engage in excessive trading in their customers’ accounts to enrich themselves at their customers’ expense.”

The jury found Fowler liable on all counts, finding that he violated the antifraud provisions of the federal securities laws.Dean consented to the entry of the final judgment, which enjoined him from violating the above antifraud provisions. In addition to admitting that his conduct violated the law, Dean agreed to pay $253,881 in disgorgement, $50,521 in prejudgment interest, and a civil penalty in the amount of $253,881. The court will determine remedies against Fowler at a later date.

The SEC’s litigation is being conducted by Kristin Pauley, David Stoelting, Jorge Tenreiro, and Thomas P. Smith, Jr. of the New York Regional Office. The investigation that led to the SEC’s action was conducted by Ms. Pauley, Mr. Stoelting, Barry O’Connell, Michael P. Fioribello, Jordan Baker, Leslie Kazon, and Mr. Smith. The case is being supervised by Sanjay Wadhwa.

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SEC: Sagar Teotia Named the SEC's Acting Chief Accountant

Published on May 30, 2019 at 08:00PM

The Securities and Exchange Commission today named Sagar Teotia as the SEC's Acting Chief Accountant following the departure of Wesley R. Bricker in June.

Since 2017, Mr. Teotia has served as Deputy Chief Accountant, leading the accounting group. As Acting Chief Accountant, Mr. Teotia will serve as the principal advisor to the Commission on accounting and auditing matters and will lead the Commission's Office of the Chief Accountant. He also will be responsible for assisting the Commission with discharging its oversight of the Financial Accounting Standards Board and the Public Company Accounting Oversight Board.

"I am grateful that Sagar has agreed to take on this important role, and I have no doubt that he will pick up right where Wes left off leading the Commission’s talented group of accounting and audit professionals," said Chairman Jay Clayton. "Sagar's extensive experience and expertise in accounting and audit matters is well recognized by his colleagues both inside and outside the Commission, and I know that he comes to work every day dedicated to ensuring that our investors have the benefit of the highest quality reporting and audit standards."

"It is an honor to continue to work on behalf of the agency and investors, and to lead the deeply talented and dedicated staff of the Office of the Chief Accountant," said Mr. Teotia. "I am looking forward to continuing to address the quality of financial reporting through engagement in both domestic and international activities and across the various groups involved in the preparation, audit, and use of financial information."

Mr. Teotia joined the SEC in 2017 from Deloitte LLP, where he was a Partner in Deloitte's National Office and was responsible for providing consultation regarding accounting matters. Earlier, he served as a professional accounting fellow in the Office of the Chief Accountant. Mr. Teotia received a B.S. in accountancy from the University of Illinois at Urbana-Champaign.

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SEC: Wesley R. Bricker, Chief Accountant, to Leave SEC

Published on May 30, 2019 at 07:59PM

The Securities and Exchange Commission today announced that Wesley R. Bricker, Chief Accountant, plans to leave the agency after more than six years of distinguished service.

Mr. Bricker was named as the SEC's Chief Accountant in 2016, after serving as the deputy chief accountant.  Earlier, he served as a professional accounting fellow.

As Chief Accountant, Mr. Bricker is the principal advisor to the Commission on accounting and auditing matters, and leads the Commission's Office of the Chief Accountant, a group of professionals widely regarded for advancing the quality of accountancy and financial reporting oversight in the capital markets in the U.S. and internationally.

He is responsible for assisting the Commission with discharging its oversight of the Financial Accounting Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB). Recognizing that today’s capital markets are global, Mr. Bricker also works with the International Financial Reporting Standards Foundation Monitoring Board and is the first SEC Chief Accountant to also serve as Chair of the Monitoring Group, a group of international financial institutions and regulatory bodies committed to advancing the public interest in international audit standard setting and audit quality.

"Wes is both the consummate professional and model public servant," said Chairman Jay Clayton. "From the first day I met Wes, I was impressed by the depth of his knowledge and his commitment to high quality standards for the benefit of our markets and our investors. Wes has moved the Commission forward in many ways, and I cannot thank him enough for his service."

"It has been a profound honor to contribute in public service to this wonderful agency and its people," said Mr. Bricker. "I owe Chairman Clayton and former Chair White my deep gratitude for giving me this opportunity and their support. I am also grateful to my phenomenal colleagues in the Office of the Chief Accountant, whose expertise and professionalism have benefitted me and the Commission in all areas of our work. I am impressed with the breadth and magnitude of results the Office has accomplished."

During his tenure, Mr. Bricker worked diligently to advance accounting and auditing policy and improve the professional performance of auditors domestically and internationally through policy-making, interpretative, consultative, and outreach activities.  Among other accomplishments, he:

• Emphasized the vital role of audit committees of listed public companies in financial reporting and external auditor oversight. 
• Emphasized the vital role of independent directors or independent advisory council members with meaningful governance responsibilities for the largest and most complex U.S. audit firms to foster audit quality and bolster public confidence.
• Worked with the FASB in overseeing the timely identification and resolution of implementation issues related to new accounting standards such as revenue recognition, leasing, current expected credit losses, investments in equity securities, and improvements to hedging activities.
• Developed recommendations regarding auditor independence and a framework for reporting and disclosing the income tax accounting implications of the U.S. Tax Cuts and Jobs Act.
• Worked to strengthen the PCAOB in its mission and operations, including recommending approval for the most substantial changes in the auditor’s report in over seven decades, among numerous other initiatives to enhance the quality of audit services for public companies and broker dealers.  
• Worked across the SEC's divisions and other offices on ongoing activities and Commission rulemaking and interpretative priorities, such as filer definitions, financial disclosures, cybersecurity, and non-GAAP.
• Provided assistance to the Division of Enforcement on cases such as those involving internal accounting controls, financial disclosure, and improper professional practice cases. 
• Delivered a blueprint of the U.S. financial reporting structure to aid in strengthening the system, along with more than twenty speeches, each addressing aspects of the varied roles, responsibilities, and topics arising in every phase of financial reporting, as well as the relationship of accounting to business and the economy.
• Delivered organizational, managerial, and technological initiatives to support a more integrated and coordinated approach in the office to increasing the identification and awareness of emerging issues in financial reporting to inform policy making and provide opportunities for the development of new, current, and emerging leaders.

Mr. Bricker received a B.S. in accounting from Elizabethtown College and a J.D. from American University.  He is licensed as a certified public accountant and is a member of the New York State Bar Association.

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SEC: Erin Schneider Named Director of San Francisco Office

Published on May 28, 2019 at 10:05PM

The Securities and Exchange Commission today announced that Erin E. Schneider has been named Director of the San Francisco Regional Office.

Ms. Schneider joined the SEC staff in 2005 as a staff attorney in the San Francisco office.  She was promoted to Assistant Regional Director of the Enforcement Division’s Asset Management Unit in 2012 and then to Associate Regional Director of the San Francisco office in 2015.  In her new role, Ms. Schneider will lead a staff of more than 125 enforcement attorneys, accountants, investigators, and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the Northern California and Pacific Northwest region.  This region covers a unique, multi-faceted and dynamic set of market participants.

During her career with the SEC, Ms. Schneider has investigated or supervised dozens of enforcement matters involving a variety of securities law violations, including cases against:

• Elon Musk, CEO and former Chairman of Silicon Valley-based Tesla Inc., for defrauding investors through a series of false and misleading tweets about a purported potential transaction to take Tesla private, and Tesla for failing to have required disclosure controls and procedures relating to Musk’s tweets

• Theranos Inc., its founder and CEO Elizabeth Holmes, and its former President Ramesh “Sunny” Balwani for raising more than $700 million from investors through an allegedly elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance

• Washington-based Barrett Business Services Inc. and its former CFO for allegedly manipulating accounting records to hide from investors the fact that certain expenses were increasing relative to revenue

• The former CEO of a Silicon Valley-based fiber optics company for insider trading in his company’s stock by using secret brokerage accounts which generated more $2 million in illicit profits and losses avoided

• Burrill Capital Management and G. Steven Burrill for misappropriating more than $4 million from their San Francisco-based biotech venture capital fund

“I am pleased that Erin has agreed to take on the important role of leading the talented and dedicated group of women and men in our San Francisco Regional Office,” said SEC Chairman Jay Clayton.  “For nearly 15 years, Erin has worked tirelessly with her colleagues in San Francisco and across the Commission to protect our markets and our Main Street investors.  Her skills as a leader and extensive experience, including in issues relevant in the Silicon Valley region, will serve the Commission and investors well.”

“We are looking forward to working with Erin in her new position, and we are confident that under her leadership the San Francisco Regional Office will continue its track record of bringing complex enforcement actions,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. 

“In more than 14 years at the SEC, Erin has handled a broad range of noteworthy cases,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.  “She has demonstrated strong leadership, technical expertise, and sound judgment, and we believe she will be an outstanding leader of our San Francisco Regional Office.”

“Through her time at the SEC, Erin has shown her commitment to protecting investors and tackling the difficult and complex issues in the financial markets,” said Pete Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations.  “The examination program will benefit greatly from Erin’s vast legal and accounting expertise and her dynamic and collaborative leadership.”

Ms. Schneider said, “It’s a privilege to have been selected to serve in this new role in San Francisco.  Over my career at the SEC, I have been continually impressed by the commitment, integrity, and enthusiasm demonstrated by the San Francisco examination and enforcement staff every day.  I look forward to continuing and building upon San Francisco’s strong tradition of proactive and productive efforts to protect investors.”   

Prior to joining the SEC staff, Ms. Schneider worked as a litigation associate in the Washington D.C. and San Francisco offices of Gibson, Dunn & Crutcher LLP, and as an auditor at PricewaterhouseCoopers LLP.  Ms. Schneider earned her bachelor’s degree in business administration from the University of California at Berkeley in 1995, and her law degree cum laude from the University of California’s Hastings College of the Law in 2001.

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SEC: SEC Charges Investment Adviser With Fraud

Published on May 28, 2019 at 06:25PM

The Securities and Exchange Commission today charged investment adviser Stephen Brandon Anderson with defrauding clients by overcharging advisory fees of at least $367,000.

According to the SEC’s order, Anderson owned and operated River Source Wealth Management, LLC, a now-defunct registered investment adviser in North Carolina.  River Source’s primary revenue stream was customer advisory fees.  Customer agreements provided that those fees would be based on each customer’s assets under management.  The SEC’s order finds, however, that in 2015 and 2016, Anderson overcharged a majority of his clients.  The amount and percentages of the overcharges varied but, in the aggregate, amounted to approximately 40% more than the agreed-upon maximum customer advisory fees.  As described in the order, Anderson also misled his clients about the reason he transferred their assets from River Source’s long-time asset custodian, falsely stating that it was his decision and that the separation was “amicable.”  In fact, as the order finds, the asset custodian ended the relationship with River Source after it noticed irregular billing practices and failed to receive sufficient supporting documentation from Anderson.  Furthermore, the order finds that Anderson made material misstatements in reports filed with the Commission, including overstating River Source’s assets under management by at least $34 million (18%) in 2015 and $61 million (35%) in 2016, and failed to implement required compliance policies and procedures.  The order prohibits Anderson from acting in a supervisory or compliance capacity or from charging advisory fees without supervision for at least three years, and requires Anderson to provide notice of the SEC order to clients and prospective clients.

“When advisors breach their duty to clients by misleading and overcharging them, they can expect the SEC will craft a package of remedies that will compensate harmed investors, provide additional safeguards for prospective investors, and deter similar conduct,” said Carolyn M. Welshhans, Associate Director in SEC’s Enforcement Division.

The SEC’s order finds that Anderson violated Sections 206(2) and 207 of the Investment Advisers Act, and aided and abetted and caused River Source’s violations of the books and records and compliance provisions of the Advisers Act.  In addition to the limitations and undertakings discussed above, Anderson agreed to a cease-and-desist order and a censure, and agreed to pay disgorgement and prejudgment interest of $405,381 and a $100,000 penalty.  Payments made by Anderson pursuant to the order will be distributed to harmed investors through a Fair Fund.  Anderson consented to the order without admitting or denying the findings.    

The SEC’s investigation was conducted by Brian Vann and Daniel A. Weinstein with assistance from James Smith, Samara Ross and Jonathan Swankie, and the case was supervised by Brian O. Quinn and Ms. Welshhans.

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SEC: SEC Awards $4.5 Million to Whistleblower Whose Internal Reporting Led to Successful SEC Case and Related Action

Published on May 24, 2019 at 05:45PM

The Securities and Exchange Commission awarded more than $4.5 million to a whistleblower whose tip triggered the company to review the allegations as part of an internal investigation and subsequently report the whistleblower’s allegations to the SEC and another agency. 

The whistleblower sent an anonymous tip to the company alleging significant wrongdoing and submitted the same information to the SEC within 120 days of reporting it to the company. This information prompted the company to review the whistleblower’s allegations of misconduct and led the company to report the allegations to the SEC and the other agency. As a result of the self-report by the company, the SEC opened its own investigation into the alleged misconduct. Ultimately, when the company completed its internal investigation, the results were reported to the SEC and the other agency. This is the first time a claimant is being awarded under this provision of the whistleblower rules, which was designed to incentivize internal reporting by whistleblowers who also report to the SEC within 120 days.

“In this case, the whistleblower was credited with the results of the company’s internal investigation, which were reported to the SEC by the company and led to the Commission’s resulting enforcement action and the related action,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “The whistleblower gets credit for the company’s internal investigation because the allegations were reported to the Commission within 120 days of the report to the company.”

The SEC has now awarded approximately $381 million to 62 individuals since issuing its first award in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.

On Feb. 21, 2018, the U.S. Supreme Court issued an opinion in Digital Realty Trust, Inc. v. Somers stating that the Dodd-Frank anti-retaliation provisions only extend to those persons who provide information relating to a violation of the securities laws to the SEC. The SEC protects the confidentiality of whistleblowers and does not disclose information that could reveal a whistleblower’s identity as required by the Dodd-Frank Act. 

For more information about the whistleblower program and Dodd-Frank anti-retaliation provisions, visit www.sec.gov/whistleblower/retaliation.

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SEC: SEC, NASAA, and FINRA Issue Senior Safe Act Fact Sheet to Help promote Greater Reporting of Suspected Senior Financial Exploitation

Published on May 23, 2019 at 08:15PM

In recognition of the one-year anniversary of the passage of The Senior Safe Act, the Securities and Exchange Commission, the North American Securities Administrators Association (NASAA), and the Financial Industry Regulatory Authority (FINRA) have issued a fact sheet to help raise awareness among broker-dealers, investment advisers, and transfer agents of the Act and how the Act’s immunity provisions work.

The Senior Safe Act Fact Sheet provides information on the immunity and training provisions of the Act, as well as additional resources from the SEC, NASAA, and FINRA.

The Senior Safe Act was included as Section 303 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law on May 24, 2018. The Act addresses barriers financial professionals face in reporting suspected senior financial exploitation or abuse to authorities. Specifically, the Act protects “covered financial institutions” – which include investment advisers, broker-dealers, and transfer agents – and their eligible employees, affiliated persons, and associated persons (“eligible employees”), from liability in any civil or administrative proceeding for reporting a case of potential exploitation of a senior citizen to a covered agency. As an example, this immunity can be helpful when a firm wants to report potential exploitation but fears that the report could violate a privacy requirement.

The immunity established by the Act is provided on the condition that employees receive training on how to identify and report exploitative activity against seniors before making a report. In addition, reports of suspected exploitation must be made “in good faith” and “with reasonable care.” This immunity applies to individuals and firms.

“Financial professionals can provide a critical frontline role in identifying and reporting senior financial exploitation,” said SEC Chairman Jay Clayton.  “The SEC strongly encourages broker-dealers and investment advisers to train their personnel in accordance with the Senior Safe Act. We also encourage all investors, including our most vulnerable, to ensure they are dealing with a registered investment professional.”

“In reminding broker-dealers and investment advisers of the Senior Safe Act’s important immunity provisions, we hope to encourage firms to train their employees on how to detect and report suspected senior financial exploitation. Early detection and reporting are critical to help prevent elder financial abuse and the devastating financial and emotional impacts that ensue,” said Michael S. Pieciak, NASAA President and Vermont Commissioner of Financial Regulation.

“Protecting senior investors has long been a top priority for FINRA,” said FINRA President and CEO Robert Cook. “The Senior Safe Act seeks to empower financial professionals to detect and report cases of suspected abuse of senior investors and we believe it is important to broaden awareness and understanding of the Act throughout the securities industry.”

The Senior Safe Act Fact Sheet is available on the SEC’s website, NASAA’s website, NASAA’s Serve Our Seniors website, and FINRA’s website.

About the SEC:

The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The SEC strives to promote a market environment that is worthy of the public's trust.

About NASAA:

Formed in 1919, NASAA is the non-profit association of state, provincial, and territorial securities regulators in the United States, Canada and Mexico. NASAA has 67 members, including the securities regulators in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. NASAA’s U.S. members are responsible for administering state securities laws, commonly known as “Blue Sky Laws.” For more information, visit: www.nasaa.org.

About FINRA:

FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

Contacts:

SEC
Office of Public Affairs
202-551-4125 news@sec.gov

NASAA
Bob Webster, Director of Communications
202-737-0900 | bw@nassa.org

FINRA
Angelita Plemmer Williams
Director, Media Relations, FINRA
202-728-8988

***

Senior Safe Act Fact Sheet

Introduction

The Senior Safe Act became federal law on May 24, 2018.[1]  The Senior Safe Act does not mandate any action by financial institutions and regulators.  However, for financial institutions and certain eligible employees (discussed below), affiliated persons, and associated persons (“eligible employees”), who satisfy its requirements, the Senior Safe Act provides immunity from liability in any civil or administrative proceeding for reporting potential exploitation of a senior citizen.  As an example, this immunity can be helpful when a firm wants to report potential exploitation but fears that the report could violate a privacy requirement.  This Fact Sheet provides general information regarding the Senior Safe Act with the goal of educating financial institutions and employees about the benefits of the Act.[2] 

What is the Senior Safe Act?

The Senior Safe Act protects “covered financial institutions”[3] – which include investment advisers, broker-dealers, and transfer agents – and their eligible employees, from liability in any civil or administrative proceeding in instances where those employees make a report about the potential exploitation of a senior citizen (defined as not younger than 65 years) to a covered  agency.[4]  The immunity established by the Senior Safe Act is provided on the condition that (1) certain employees (discussed below) receive training on how to identify and report exploitative activity against seniors before making a report, and (2) reports of suspected exploitation are made “in good faith” and “with reasonable care.”  This immunity applies to eligible employees and firms, but the requirements differ slightly, as discussed below.

The inspiration for the Senior Safe Act was Maine’s Senior$afe training program, an initiative launched in 2014 by the Maine Council on Elder Abuse Prevention that is designed to train financial professionals to detect and report cases of suspected senior financial abuse.

What types of employees are eligible for immunity under the Senior Safe Act?

1. An employee who serves as a supervisor or in a compliance or legal function (including as a Bank Secrecy Act officer), for a covered financial institution; OR
    
2. A registered representative, investment adviser representative, or insurance producer affiliated or associated with a covered financial institution.

What types of employees must be trained to receive the immunity provided by the Senior Safe Act?

The Senior Safe Act does not mandate that any employees be trained.  However, to qualify for the immunity provided by the law, training must be provided to and completed by the employees who are eligible for immunity (see above) and those employees who may come into contact with a senior citizen as a regular part of their professional duties or may review or approve the financial documents, records, or transactions of a senior citizen in connection with providing financial services to a senior citizen.

What are the training requirements under the Senior Safe Act?

The Senior Safe Act provides that, to receive the immunity provided by the Act, the training must: (1) instruct any individual attending the training on how to identify and report the suspected exploitation of a senior citizen internally and, as appropriate, to government officials or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen; (2) discuss the need to protect the privacy and respect the integrity of each individual customer of the covered financial institution; and (3) be appropriate to the job responsibilities of the individual attending the training.

How soon must employees be trained to receive the immunity provided by the Senior Safe Act?

For current employees, affiliated persons, and associated persons, as soon as reasonably practical.  New employees or persons who become affiliated or associated with a covered financial institution have no later than one year from the date of hire, affiliation, or association to complete the training.

What records of training must be maintained?

Records of employees who completed the training and the content of the training must be maintained by the covered financial institution and made available to a covered agency with examination authority over the covered financial institution, upon request, except that a covered financial institution shall not be required to maintain or make available such content with respect to any individual who is no longer employed by or affiliated or associated with the covered financial institution.

How do the requirements for “individual immunity” and “institutional immunity” differ?

An eligible employee who has received the training and makes a disclosure to a covered agency in good faith and with reasonable care receives individual immunity pursuant to the Senior Safe Act.  A covered financial institution also receives institutional immunity when an eligible employee makes a disclosure to a covered agency and all employees have received training to the extent necessary to qualify for immunity under the Senior Safe Act.

Does the immunity provided by the Senior Safe Act allow for contacting third parties?

No, the qualified immunity established by the Senior Safe Act applies only to disclosures made by a covered financial institution or an employee of such institution to a “covered agency,” not a third party.

Where can I find additional information?

SEC Resources:
SEC Seniors webpage

NASAA Resources:
Serve Our Seniors website

FINRA Resources:
FINRA’s Senior Investors webpage
Regulatory Notice 17-11, SEC Approves Rules Relating to Financial Exploitation of Seniors (March 2017)
FINRA Securities Helpline for Seniors: 844-57-HELPS (844-574-3577)
FINRA Securities Helpline for Seniors webpage
Report on the FINRA Securities Helpline for Seniors (December 2015)
Protecting Seniors From Financial Exploitation (April 25, 2018)
FINRA Investor Alerts

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[1] The Senior Safe Act, which was included as Section 303 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, was signed into law on May 24, 2018.

[2] This document should not be construed as providing legal advice.

[3] The Senior Safe Act defines the term “covered financial institution” as credit unions, depository institutions, investment advisers, broker-dealers, insurance companies, insurance agencies, and transfer agents.

[4] The Senior Safe Act defines the term “covered agency” to include a state financial regulatory authority (including a state securities regulator or law enforcement authority and a state insurance regulator); a state or local adult protective services agency; the SEC; an SEC-registered national securities association (e.g., FINRA); a federal law enforcement agency; or any Federal agency represented in the membership of the Financial Institutions Examination Council.  

http://bit.ly/2VKDtIc

SEC: SEC Sues Alleged Perpetrator of Fraudulent Pyramid Scheme Promising Investors Cryptocurrency Riches

Published on May 23, 2019 at 05:00PM

The Securities and Exchange Commission filed a civil injunctive action against Daniel Pacheco, a resident of San Clemente, California, and the alleged perpetrator of a multimillion-dollar pyramid scheme.

The SEC’s complaint, filed Wednesday, alleges that from January 2017 through March 2018, Pacheco conducted a fraudulent, unregistered offering of securities through two California-based companies he controls, IPro Solutions LLC and IPro Network LLC (collectively, “IPro”). IPro raised more than $26 million from investors by selling instructional packages that provided lessons on e-commerce. Investors also received “points” that could be converted into a digital asset known as PRO Currency. Investors who contributed additional funds could earn a mixture of cash commissions and additional convertible points by recruiting new investors into the IPro network. As alleged in the complaint, however, IPro was a fraudulent pyramid scheme. IPro’s inevitable collapse was hastened by Pacheco’s fraudulent use of investor funds, which included, among other things, the all-cash purchase of a $2.5 million home and a Rolls Royce. Pacheco’s misappropriation accelerated the rate at which IPro became unable to pay the commissions and bonuses due its investors.

The complaint further alleged that Pacheco’s offer and sale of IPro instructional packages constituted an unregistered sale of securities because the IPro instructional packages involve (i) an investment in a pyramid scheme; and/or (ii) an investment in the PRO Currency digital assets, and therefore must be registered with the SEC unless an exemption applies. No registration exemption applies to Pacheco’s offer and sale of IPro instructional packages.

“We allege that Pacheco hid an old fraud under the guise of cutting-edge technology,”said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “He enticed investors by offering them the opportunity to speculate in cryptocurrency, when in fact he was simply operating a pyramid scheme.”

The SEC’s complaint, filed in U.S. District Court for the Central District of California, charges Pacheco with violating Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder.  The complaint also names seven relief defendants for the purpose of recovering investor proceeds in their possession that must be returned. The SEC does not allege wrongdoing with respect to these relief defendants.

The SEC’s investigation was conducted by Peter Del Greco, Eric Shu and Maria Rodriguez, and supervised by Marc Blau, of the Los Angeles office, with the assistance of trial attorney Gary Leung, who will lead the litigation.

http://bit.ly/2JyufgJ

SEC: SEC Seeks Emergency Relief to Halt Prominent New York Developer’s Ponzi-Like Real Estate Investment Scheme

Published on May 23, 2019 at 03:08PM

The Securities and Exchange Commission filed an emergency action charging Robert C. Morgan, a New York residential and commercial real estate developer, and two of his entities, Morgan Mezzanine Fund Manager LLC and Morgan Acquisitions, LLC, with fraud for siphoning and misusing investor funds. In its action, filed Wednesday, the SEC seeks an asset freeze and other emergency relief.

The SEC's complaint alleges Morgan financed his development projects in different ways, including through sales of securities directly to more than 200 retail investors, many of whom invested through their retirement accounts. Morgan represented to investors that their money would be used to improve multifamily properties, and based on these representations, raised more than $80 million. Instead, as alleged in the complaint, Morgan and his entities diverted investor funds to facilitate Ponzi scheme-like payments to earlier investors. In addition, the complaint alleges Morgan’s improper use of more than $11 million in investor funds to repay an inflated, fraudulently-obtained loan for an unrelated apartment complex.

"In seeking this emergency relief, the SEC is acting to protect current and potential future victims of this elaborate scheme by halting Morgan's fraud, which we allege involves the improper use of more than $25 million dollars in investor funds," said Daniel Michael, Chief of the SEC's Division of Enforcement's Complex Financial Instruments Unit.

The SEC's complaint, filed in federal district court in Buffalo, NY, charges Morgan and his two entities with violating the antifraud provisions of the federal securities laws. The SEC is requesting an order freezing Morgan's assets and appointing a temporary receiver over the relevant funds. The SEC's complaint further seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and a permanent receiver over the entities.  

The SEC's continuing investigation is being conducted by Lee A. Greenwood, Joshua Brodsky, and Daniel Nigro of the Complex Financial Instruments Unit and Kerri L. Palen of the New York Regional Office. The investigation is being supervised by Osman Nawaz. The litigation is being handled by Mr. Greenwood, Neal Jacobson, and Alexander Vasilescu, with assistance from Alistaire Bambach. The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of New York and the Federal Housing Finance Agency Office of Inspector General.

http://bit.ly/2WdQVcf

SEC: SEC Obtains Emergency Order Halting Alleged Diamond-Related ICO Scheme Targeting Hundreds of Investors

Published on May 21, 2019 at 02:21PM

The Securities and Exchange Commission today announced it has obtained a court order halting an ongoing $30 million Ponzi scheme targeting more than 300 investors in the U.S. and Canada. The SEC complaint unsealed Monday charges South Florida-based Argyle Coin, LLC, a purported cryptocurrency business, and its principal Jose Angel Aman with using investor funds to run a Ponzi scheme.

On May 20, the Honorable Judge Robin L. Rosenberg of the U.S. District Court for the Southern District of Florida granted the SEC’s request for a temporary restraining order and temporary asset freeze against Aman, Argyle Coin and other companies charged by the SEC as relief defendants. The court also appointed Jeffrey D. Schneider as a Receiver over Argyle Coin.

The SEC's complaint alleges that Aman operated Argyle Coin as a Ponzi scheme -- it used new investor funds to pay prior investors their purported returns.  As alleged, this fraud is a continuation of a scheme Aman orchestrated with two other companies he owns, Natural Diamonds Investment Co. (Natural Diamonds) and Eagle Financial Diamond Group Inc (Eagle).  According to the complaint, Aman engaged in unregistered offerings of securities in Natural Diamonds and Eagle as early as May 2014, falsely promising investors that the companies would invest in whole diamonds to cut down and sell for huge profits. Aman was assisted by Harold Seigel and Jonathan H. Seigel, who also have interests in Natural Diamonds and Eagle. According to the complaint, in October 2017, Aman and Jonathan H. Seigel continued the scheme by luring investors to invest in Argyle Coin, falsely claiming the investment was risk-free because it was backed by fancy colored diamonds, and promising to use investor funds to develop the cryptocurrency business. Instead, according to the complaint, Aman, Natural Diamonds, Eagle, and Argyle Coin, misused or misappropriated more than $10 million of investor funds to pay other investors their purported returns and for Aman's personal expenses, including rent on his home, purchases of horses, and riding lessons for his son.

"As alleged, Aman operated a complicated web of fraudulent companies in an effort to continually loot retail investors and perpetuate the Ponzi schemes as well as divert money to himself," said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. "The SEC's diligent investigative work uncovered the Ponzi schemes and our goal is to bring justice to the harmed investors."

The SEC's complaint charges Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel and Jonathan H. Seigel with violations of the securities registration provisions and also charges Natural Diamonds, Eagle, Argyle Coin and Aman with violations of the antifraud provisions of the federal securities laws. The SEC's complaint seeks disgorgement of allegedly ill-gotten gains and prejudgment interest from Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel, and the relief defendants, and financial penalties against Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel and Jonathan H. Seigel.

The SEC's investigation was conducted in the Miami office by Linda S. Schmidt with assistance from Kathleen Strandell, under the supervision of Glenn S. Gordon and Elisha L. Frank. The litigation is being led by Amie Riggle Berlin. The SEC appreciates the assistance of the Florida Office of Financial Regulation.

http://bit.ly/2QejH6W

SEC: SEC and CFTC Participate in the Signing Ceremony for the IOSCO Enhanced Multilateral Memorandum of Understanding Concerning Cross-Border Enforcement

Published on May 20, 2019 at 08:00PM

At the 44th Annual International Organization of Securities Commissions (IOSCO) Conference in Sydney, Australia, the Chairmen of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission (CFTC) participated in a signing ceremony on May 15 for the IOSCO Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (EMMoU).

IOSCO established its first enforcement Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information in 2002 (2002 MMoU). The 2002 MMoU created a framework for international information-sharing among securities and derivatives regulators to facilitate cross-border enforcement investigations, and now is widely viewed as the international benchmark for cross-border cooperation in enforcement matters. The 2002 MMoU currently has 123 signatories that have agreed to comply with minimum standards for obtaining and sharing with fellow signatories banking, brokerage and beneficial ownership information.  Both the SEC and the CFTC became signatories to the 2002 MMoU on December 19, 2002.

Since 2002, there have been significant changes in the complexity, sophistication and size of global financial markets, as well as in the technology used by market participants and regulators. These changes, along with the demonstrated success of the 2002 MMoU, led IOSCO to adopt the EMMoU.  Signatories of the EMMoU agree to new forms of assistance critical to effective enforcement, such as obtaining compelled testimony and obtaining asset freezes to protect customer funds, among other powers.

“As investment products, services and markets evolve, it is critical that the international community of securities and derivatives regulators continue to cooperate to protect investors from bad actors perpetrating fraud across borders,” said SEC Chairman Jay Clayton. “The SEC took an active role in negotiating and drafting the EMMoU with the intent of building upon the tremendous success of the MMoU in facilitating international cooperation. This signing demonstrates the SEC’s continued strong commitment to combatting securities and derivatives fraud against American investors – including fraud which is carried out outside our borders.”

“The CFTC is proud to be part of the inaugural group of signatories to the EMMoU and to demonstrate its commitment to international enforcement cooperation,” said CFTC Chairman J. Christopher Giancarlo. In today’s world of rapidly evolving technology and increasingly global financial markets, securities and derivatives violations frequently involve cross-border misconduct.  As a result, effective enforcement requires that regulators around the world ensure that they are able to cooperate fully with their regulatory counterparts to ensure that investors are protected, markets are safeguarded and wrongdoers are held accountable.”
 

http://bit.ly/2JRoTfL

SEC: Jury Rules in SEC’s Favor, Finds Brokerage Firm and Two of Its Executives Liable for Fraud

Published on May 15, 2019 at 10:20PM

Jurors in Manhattan federal court today returned a verdict in the Securities and Exchange Commission’s favor against a brokerage firm and two of its executives.

The SEC charged the brokerage firm, Portfolio Advisors Alliance Inc. (PAA), Howard J. Allen, the indirect owner of PAA, and Kerri L. Wasserman, PAA’s president, with fraud and related charges in connection with making material misrepresentations and omissions in American Growth Funding II LLC (AGF II)’s private placement offering. The SEC alleged that AGF II, which raised capital from investors to provide loans to businesses, and its owner, Ralph C. Johnson, promised investors 12 percent annual returns and falsely claimed in offering documents that its financial statements were being audited each year.  The SEC further alleged that PAA, Allen, and Wasserman knew the offering documents were inaccurate yet continued using them to solicit sales of AGF II securities.

Earlier this year, the SEC obtained a final consent judgment against AGF II and Johnson, who were charged with lying to investors who purchased AGF II’s high-yield securities.

“Brokerage firms have a duty to truthfully disclose all material information about an investment recommended to their customers,” said Marc P. Berger, Regional Director of the SEC’s New York Regional Office.  “Today’s jury verdict demonstrates that PAA and its principals, Allen and Wasserman, participated in this fraud to the detriment of their customers.”

The jury found PAA, Allen and Wasserman liable on all counts, finding that they violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The jury also found that Allen and Wasserman aided and abetted PAA’s violations of those antifraud provisions, and that Wasserman aided and abetted Allen’s violations of those antifraud provisions. In addition, the jury found Allen and Wasserman liable as control persons under Section 20(a) of the Exchange Act for PAA’s violations.

The SEC’s litigation is being conducted by Alexander M. Vasilescu, Richard Hong, Jorge G. Tenreiro, Karen M. Lee, and Raymond Chan.  The investigation that led to the SEC’s litigation was conducted by Gerald Gross and Ms. Lee, with assistance from Thomas Feretic, Lisa Knoop, and Doreen Rodriguez. The case is being supervised by Sanjay Wadhwa.

http://bit.ly/2VIs00L

SEC: SEC Proposes Actions to Improve Cross-Border Application of Security-Based Swap Requirements

Published on May 10, 2019 at 03:00PM

The Securities and Exchange Commission today proposed a package of rule amendments and interpretive guidance to improve the framework for regulating cross-border security-based swaps transactions and market participants.

The proposals are intended to improve the regulatory framework by pragmatically addressing implementation issues and efficiency concerns, and in some cases further harmonizing the regulatory regime governing security-based swaps administered by the Commission with the regulatory regime governing swaps administered by the Commodity Futures Trading Commission (CFTC). 

“First, I would like to thank Commissioner Peirce for her leadership on this proposing release.  Today’s proposals reflect an important step forward in the Commission’s efforts to stand up the Dodd-Frank Title VII regulatory regime.  These proposals preserve important investor and market protections, while at the same time addressing several of the practical implementation challenges that have been identified,” said SEC Chairman Jay Clayton.  “Also, I want to thank our colleagues at the SEC as well as CFTC Chairman Giancarlo, Commissioner Quintenz and their colleagues for their efforts and commitment to interagency cooperation.” 

Today’s proposing release addresses four key areas:

• the use of transactions that have been “arranged, negotiated, or executed” by personnel located in the United States as a trigger for regulating security-based swaps and market participants
• the requirement that non-U.S. resident security-based swap dealers and major security-based swap participants certify and provide an opinion of counsel that the Commission can access their books and records and conduct onsite inspections and examinations
• the cross-border application of statutory disqualification provisions
• the questionnaires or employment applications that security-based swap dealers and major security-based swap participants must maintain with regard to their foreign associated persons

The accompanying fact sheet describes each of these aspects in more detail.

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register. 

*   *   *

FACT SHEET

Proposed Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements

SEC Seriatim Approval
May 10, 2019

Background

The Commission has proposed rule amendments and interpretive guidance to address the cross-border application of certain security-based swap requirements under the Securities Exchange Act of 1934 (Exchange Act) that were added by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).

Specifically, the Commission has:

• Proposed supplemental guidance to address how certain requirements under Title VII of the Dodd-Frank Act — related to security-based swap transactions that have been “arranged” or “negotiated” by personnel located in the United States — apply to transactions involving limited activities by those U.S. personnel.
• Requested comment on two alternative proposals to amend Rule 3a71-3 under the Exchange Act to modify the Commission’s approach to counting certain transactions “arranged, negotiated, or executed” by personnel located in a U.S. branch or office for purposes of the security-based swap dealer de minimis threshold calculations.
• Proposed corresponding technical revisions to Exchange Act Rule 0-13 in conjunction with the proposed amendment to Rule 3a71-3, and requested comment on whether to provide other conditional exceptions for certain other requirements that apply to such “arranged, negotiated, or executed” transactions, including regulatory reporting and public dissemination requirements and security-based swap dealer business conduct requirements. 
• Proposed guidance regarding the certification and opinion of counsel requirements in Exchange Act Rule 15Fb2-4, and proposed to amend Exchange Act Rule 15Fb2-1 to provide additional time for a security-based swap dealer or major security-based swap participant (collectively defined in the release as “SBS Entity”) to submit the certification and opinion of counsel required under Rule 15Fb2-4(c)(1).
• Proposed to amend Commission Rule of Practice 194 to exclude an SBS Entity, subject to certain limitations, from the prohibition in Exchange Act Section 15F(b)(6) with respect to an associated person who is a natural person who (i) is not a U.S. person and (ii) does not effect and is not involved in effecting security-based swap transactions with or for counterparties that are U.S. persons, other than a security-based swap transaction conducted through a foreign branch of a counterparty that is a U.S. person.
• Proposed certain modifications to proposed Exchange Act Rule 18a-5 to address the questionnaire or application for employment that an SBS Entity is required to make and keep current with respect to certain foreign associated persons.

Highlights

Application of Title VII of the Dodd-Frank Act to certain transactions “arranged, negotiated, or executed” by U.S. personnel

• The Commission has proposed interpretive guidance regarding the definition of “arranged” or “negotiated” in connection with determining which transactions non-U.S. persons must count against de minimis thresholds to determine whether they must register as security-based swap dealers; certain security-based swap dealer business conduct requirements; and regulatory reporting and public dissemination requirements under Regulation SBSR. 
  • Under the guidance, Title VII requirements would not be triggered merely because U.S. personnel provide “market color” – in the form of certain background information regarding pricing and market conditions and trends – so long as those U.S. personnel do not receive transaction-based compensation or exercise client responsibility in connection with those transactions.
• The Commission also has proposed two alternative exceptions from the requirement in Exchange Act Rule 3a71-3(b)(1)(iii)(C) that non-U.S. persons count security-based swap dealing transactions with non-U.S. counterparties against the de minimis thresholds associated with the security-based swap dealer registration, when U.S. personnel arrange, negotiate or execute those transactions.  Either exception would be subject to conditions that are intended to protect the interests associated with security-based swap dealer regulation under Title VII while reducing potentially negative consequences that otherwise could be associated with the existing counting rule.  Those conditions include: 
  • use of a registered security-based swap dealer or a registered broker (depending in part on the alternative adopted) in connection with the arranging, negotiating and executing activity in the United States
  • compliance by the registered entity with certain security-based swap dealer requirements “as if” the entity itself were a counterparty to the transaction
  • Commission access to certain books, records and testimony
  • disclosures to counterparties regarding the limited applicability of Title VII to the transaction
  • the non-U.S. person that is relying on the exception being subject to the margin and capital requirements of a jurisdiction that the Commission has designated as a “listed jurisdiction”

Certification and opinion of counsel requirements

• Exchange Act Rule 15Fb2-4(c)(1), which addresses the registration of non-U.S. resident SBS Entities (known as nonresident SBS Entities), requires that nonresident SBS Entities certify and provide an opinion of counsel that the Commission can access their books and records and conduct onsite inspections and examinations.
• Firms have raised questions concerning the interplay between this certification and opinion of counsel requirement and various foreign blocking laws, privacy laws, secrecy laws and other legal requirements. 

• The Commission has proposed guidance to address the application of the certification and opinion of counsel requirement when such potential legal impediments and barriers are present.  The proposed guidance would provide that the certification and opinion of counsel: 
  • need only address the law of the jurisdiction or jurisdictions in which the nonresident SBS Entity maintains the relevant books and records
  • need only address books and records related to the “U.S. business” of the nonresident SBS Entity, and for a nonresident SBS Entity subject to the Exchange Act capital and margin requirements, the financial records necessary for the Commission to assess the nonresident SBS Entity’s compliance with Exchange Act capital and margin requirements
  • may be predicated on the nonresident SBS Entity obtaining the prior consent of the persons whose information is or will be included in the books and records
  • need not address contracts entered into prior to the date on which the SBS Entity submits an application for registration pursuant to Section 15F(b)
  • in certain circumstances may account for whether the relevant regulatory authority in the foreign jurisdiction has issued an approval, authorization, waiver or consent, or whether the foreign authority and the Commission have entered into a memorandum of understanding or other arrangement to facilitate the Commission’s direct access to the entity’s books and records located in that jurisdiction

• The proposed guidance, and the certification and opinion of counsel requirement generally, would not affect the independent requirement that nonresident SBS Entities must provide the Commission with direct access to their books and records. 
• The Commission also has proposed rule amendments to Exchange Act Rule 15Fb2-1 that would provide additional time for nonresident SBS entities to submit certifications and opinions of counsel.  Under the proposed amendments, a nonresident applicant that is unable to provide the required certification and opinion of counsel may conditionally be registered for up to 24 months following the applicable compliance date before being required to submit such certification and opinion of counsel.

Cross-border application of statutory disqualification provisions

• Exchange Act Section 15F(b)(6) makes it unlawful for an SBS Entity to permit an associated person who is subject to a statutory disqualification to effect or be involved in effecting security-based swaps on behalf of the SBS Entity if the SBS Entity knew, or in the exercise of reasonable care should have known, of the statutory disqualification, “[e]xcept to the extent otherwise specifically provided by rule, regulation, or order of the Commission.”
• Commission Rule of Practice 194 provides, among other things, a process by which an SBS Entity could apply to the Commission so that the Commission can assess on a case-by-case basis whether to grant relief from the statutory disqualification prohibition in Exchange Act Section 15F(b)(6).
• The Commission has proposed to amend Rule of Practice 194 to more closely harmonize the Commission’s rules with the CFTC’s approach to the statutory disqualification of non-domestic associated persons of CFTC registered swap entities.  
  • Proposed new paragraph (c)(2) of Rule of Practice 194 would provide an exclusion from the statutory prohibition in Exchange Act Section 15F(b)(6) for SBS Entities with respect to an associated person who is a natural person who:  (i) is a not a U.S. person, and (ii) does not effect and is not involved in effecting security-based swap transactions with or for counterparties that are U.S. persons, other than a security-based swap transaction conducted through a foreign branch of a counterparty that is a U.S. person.
  • An SBS Entity would not be able to avail itself of the exclusion provided in proposed Rule of Practice 194(c)(2) if the associated person of that SBS Entity is currently subject to an order—i.e., an affirmative determination by the Commission, the CFTC, a self-regulatory organization (such as the Financial Industry Regulatory Authority), a registered futures association (the National Futures Association), or a foreign financial regulatory authority—that prohibits such associated person from participating in the U.S. financial market, including the U.S. securities or swap market, or foreign financial markets.

Questionnaires and employment applications

• The Commission previously proposed Exchange Act Rule 18a-5 to establish recordkeeping standards for stand-alone and bank SBS Entities.  That proposed rule in part would require each SBS Entity to make and keep current a questionnaire or application for employment for each associated person who is a natural person. 
• In response to commenter concerns, the Commission has proposed to add the following two exceptions to the rule:
  • An SBS Entity need not make or keep current such questionnaires or employment applications if the entity is excluded from the statutory disqualification prohibition in Exchange Act 15F(b)(6) with respect to the associated person (such as due to the proposed amendment to Rule of Practice 194, discussed above).
  • A questionnaire or application for employment executed by an associated person that is not a U.S. person need not include certain information if its receipt, or the creation or maintenance of records reflecting that information, would violate applicable law in the jurisdiction where the associated person is employed or located.    

What’s Next?

The Commission will seek public comment on the proposed rule amendments and interpretive guidance for 60 days following publication of the proposing release in the Federal Register.

http://bit.ly/2VerPVX

SEC: SEC Proposes Amendments to More Appropriately Tailor the Accelerated and Large Accelerated Filer Definitions

Published on May 09, 2019 at 03:35PM

The Securities and Exchange Commission today voted to propose amendments to the accelerated filer and large accelerated filer definitions.  The proposed amendments would reduce costs for certain lower-revenue companies by more appropriately tailoring the types of companies that are categorized as accelerated and large accelerated filers while maintaining effective investor protections. 

As a result of the proposed amendments, smaller reporting companies with less than $100 million in revenues would not be required to obtain an attestation of their internal control over financial reporting (ICFR) from an independent outside auditor.  The proposed amendments would not change key protections from the Sarbanes-Oxley Act of 2002, such as independent audit committee requirements, CEO and CFO certifications of financial reports, or the requirement that companies continue to establish, maintain, and assess the effectiveness of their ICFR.

“The proposed rules build on the JOBS Act of 2012 and are aimed at a subset of smaller companies where the additional requirement of an ICFR auditor attestation may not be an efficient way of benefiting and protecting investors,” said SEC Chairman Jay Clayton.  “Investors in these lower-revenue companies will benefit from more tailored control requirements. Many of these smaller companies – including biotech and health care companies – will be able to redirect the savings into growing their companies by investing in research and human capital.”

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

*  *  *

FACT SHEET

Amendments to the Accelerated and Large Accelerated Filer Definitions

SEC Open Meeting
May 9, 2019

The Securities and Exchange Commission proposed amendments to Exchange Act Rule 12b-2 that would revise the “accelerated filer” and “large accelerated filer” definitions.

Background

On June 28, 2018, the Commission adopted amendments to the smaller reporting company (SRC) definition to expand the number of companies that benefit from scaled disclosure requirements.[1]  Prior to these amendments, the reporting regimes for SRCs and non-accelerated filers were aligned.  As a result of the amendments, however, some issuers are now categorized as both SRCs and accelerated or large accelerated filers. These SRCs, among other things, are required to comply with the requirement that an outside independent auditor attest to the effectiveness of their internal control over financial reporting.

When the Commission revised the SRC definition, the Chairman directed the staff to formulate recommendations to the Commission for possible rule amendments that, if adopted, would appropriately redefine the issuers that are designated as accelerated filers and thereby promote capital formation.  As part of the staff’s consideration, the Chairman directed the staff to consider, among other things, the historical and current relationship between the SRC and accelerated filer definitions as well as how the rule change could reduce compliance costs for certain registrants, while maintaining appropriate investor protections.

Proposed Amendments

The proposed amendments would:

• Exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be an SRC and had no revenues or annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available
• Increase the transition thresholds for accelerated and large accelerated filers becoming a non-accelerated filer from $50 million to $60 million and for exiting large accelerated filer status from $500 million to $560 million
• Add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status

What’s Next?

The proposal will be subject to a 60-day public comment period.
 

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[1]       See Smaller Reporting Company Definition, Release No. 33-10513 (June 28, 2018) [83 FR 31992 (July 10, 2018)].

http://bit.ly/2JA1e3D

SEC: SEC Charges Nevada Man Who Traded on Confidential Information Taken From Lifelong Friend

Published on May 07, 2019 at 06:55PM

The Securities and Exchange Commission today announced settled insider trading charges against a Nevada man who obtained confidential information about a pending corporate merger from a lifelong friend and used it to generate more than $250,000 in illicit trading profits.

According to the SEC’s complaint, while Brian Fettner was a guest in the home of a longtime friend who was also the general counsel of Cintas Corporation, Fettner surreptiously viewed documents contemplating an acquisition of G&K Services Inc. by Cintas.  Based on that information and without telling his friend, Fettner then purchased G&K Services stock in the brokerage accounts of his ex-wife and a former girlfriend, and persuaded his father and another girlfriend to purchase G&K shares.  The complaint further alleges that after Cintas and G&K announced the merger on Aug. 16, 2016, G&K’s stock price jumped more than 17 percent, resulting in illicit profits from Fettner’s misconduct of more than $250,000. 

“Those who illegally use confidential information to financially benefit others will be held liable for their misconduct,” said Carolyn M. Welshhans, Associate Director of the SEC’s Division of Enforcement.  “The penalty in this action takes such improper trading profits into account.”

The SEC’s complaint, filed in U.S. District Court for the Southern District of Florida, alleges that Fettner violated Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5.  Without admitting or denying the allegations in the complaint, Fettner has consented to the entry of a final judgment permanently enjoining him from violating the charged provisions of the federal securities laws and imposing a penalty of $252,995.  The SEC also named as relief defendants Fettner’s ex-wife and a former girlfriend, who each profited when Fettner used their brokerage accounts to place illicit trades.  The relief defendants consented to the entry of a final judgment agreeing to disgorge those profits with prejudgment interest.  The settlement is subject to court approval. 

The SEC’s investigation was conducted by Christopher G. Margand and supervised by David Frohlich and Ms. Welshhans.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

http://bit.ly/2WtGVIt