Every year, I offer my predictions on what will happen in the investment management regulatory world. (I will publish my 2020 predictions next Friday.) For 2019, I went 4-4-2 (ties for predictions that were mostly correct). Last year, I went 8-2, which suggested I needed to stretch a bit more this year. Over the last 5 years, I have gone 26-19-5 (4-6 in 2017, 4-3-3 in 2016 and 6-4 in 2015). Below are the predictions I made in early January and how they turned out:
A Review of My 2019 Predictions
The SEC will propose a comprehensive adviser marketing/advertising rule. The SEC proposed a comprehensive new investment adviser advertising rule in November. The SEC has proposed broadening the definition of “advertising” and requiring standardized performance. (1-0)
The SEC will re-propose the broker best interest standard. I predicted that the SEC would propose a best interest standard short of an adviser fiduciary standard. The SEC went one step further by actually adopting a heightened Regulation Best Interest that is not quite a fiduciary standard. (2-0)
The Enforcement Division will bring several significant cases alleging violations of the solicitor rule. There were several solicitation cases alleging violative facts such as failure to deliver proper disclosures. (3-0)
The SEC will liberalize the private offering rules. After publishing a broad concept release in June, the SEC’s December proposal would expand the definition of “accredited investor.” (4-0)
OCIE will examine at least 20% of advisers. OCIE examined only 15% of advisers this year. Even if you annualize results because federal workers were furloughed a month, they didn’t get to 20%. It still remains an OCIE goal (4-1).
The SEC will bring significant cases against independent fund directors. I am unaware of any significant cases against independent fund directors this year, other than the usual glut of hopeless 36(b) cases. Regardless, there is some industry concern that the SEC will begin to scrutinize directors who approve questionable revenue sharing practices. (4-2)
The SEC will allege securities fraud in secondary market private equity transactions. There have been cases alleging secondary market fraud, but those cases have not been widespread in the PE market. With the surge in secondary market transactions this year, this prediction may be a year early. We’ll call it a push. (4-2-1)
The SEC will approve a registered crypto fund. It didn’t happen, although most of the industry remains hopeful. The Division of Trading and Markets did allow a pilot program to test the use of a distributed ledger system for securities settlement. Baby steps. (4-3-1)
The Supreme Court will decide that digital tokens are not securities and that an ICO is not a securities offering. This didn’t specifically happen, but, perhaps more surprising, the SEC’s Division of Corporation Finance allowed an initial coin offering without registration on the grounds that the underlying digital tokens were not securities. If the SEC will concede this point, the issue may not reach the high court. I am taking a tie on this one. (4-3-2).
The SEC will expand the whistleblower program. Despite recommending changes in 2018, the SEC never took action to expand the program in 2019. Maybe, this comes up again next year. (4-4-2)