This case should prompt fund financial officers to review the charges imposed by the custody bank. That nickel and diming on everything from wire fees to foreign custody reports may be unlawful. Service providers should also take note that the SEC will initiate enforcement for overcharging registrants even where the service provider itself is not an SEC registered or regulated entity.
The expansive MSD proposal includes any type of financial adviser, any type of customer, and any type of advice. If adopted, the MSD’s rule would set up a court case about whether Regulation Best Interest preempts state fiduciary rules.
This issue has dogged large index funds and ETFs for the last couple of years as the FAANG securities have increased in market value as compared to other index components. This letter offers welcome relief.
The Foreign Corrupt Practices Act requires registrants to implement rigorous compliance and internal controls to prevent unlawful payments to foreign government officials. Violations can result in substantial civil and criminal penalties.
We believe that the SEC should expand the “accredited investor” definition and allow broader use of private pooled funds for capital raising and investment. However, we have been here before in 2017, 2013, and 2010. Let’s hope Chairman Clayton, who focuses on capital raising, can make true reform happen this time.
The SEC fined a Big 4 audit firm $50 Million for misappropriating information from the PCAOB concerning impending inspections. Several members of firm management were also terminated and charged. The firm obtained the confidential exam information from employees that previously worked at the PCAOB as well as PCAOB employees being recruited by the firm. Information included lists of audit engagements that the PCAOB planned to inspect, specific criteria used for the inspection, and the focus areas. The SEC alleges that the firm also reviewed and revised work papers to avoid deficiencies. Separately, the firm was also charged with sharing answers and adjusting scores so that internal personnel could more readily pass internal continuing education courses. The SEC charges the firm with failing to comply with ethics and integrity standards, AICPA conduct rules, and PCAOB quality control standards. In addition to the fine, the firm agreed to retain an independent consultant.
The SEC relies on the securities markets gatekeepers, such as the large audit firms, to police the industry. When the gatekeepers act without integrity, it undermines the SEC’s ability to protect investors. This case once again raises the issue whether government officials should observe a cooling-off period before going to work for the companies they previously regulated.
Welcome to the June 2019 edition of the Best of the Law Firms. In this feature, we recommend some of the best recent articles and analyses authored by top investment management lawyers. These articles offer a more comprehensive review of the issues that we address in our daily “Our Take” alerts.
The law firms continue to offer up some great articles for the investment management industry. We have included several year-end litigation and trend reviews from Morgan Lewis, Stradley Ronon, and Willkie Farr. We also like the analyses of new products including interval funds (Ropes & Gray), opportunity zone funds (K&L Gates), cannabis (Kramer Levin), and litigation finance (Schulte Roth). There are some other great pieces of work about hedge fund seeding (Seward & Kissel) and DoL investigations (Groom).
The SEC charged a University of Georgia undergraduate with running a Ponzi scheme out of his fraternity house. The SEC asserts that he utilized group texts to solicit others associated with the university to invest in a hedge fund which did not exist. He also used on-line cash applications as a means for one investor to send money to other investors to further his scheme. The respondent touted high historical returns and false credentials. The SEC contends that the respondent used the funds for personal expenses including gambling junkets and adult entertainment.
Affinity-based Ponzi schemers will use their positions of trust to swindle funds from the naïve and unsuspecting. In this case, the tools may be new (group texts, cash apps, fraternity), but the con job is as old as the securities markets. Tell your friends and family not to give money to anybody without checking the SEC website and making sure the “manager” is registered.
Let’s rename this “The Compliance Officer Full Employment Act.” Compli-pros at broker-dealers will have to rework all of their Written Supervisory Procedures, revise client agreements, create disclosures, and eliminate all prohibited conflicts. Compliance offices at investment advisers must address the new Form CRS requirement and implement new client onboarding procedures while figuring out the changes required by the investment adviser fiduciary interpretation. And, we only have 12 months to get this all done.