The SEC censured and fined an investment adviser for paying solicitors without complying with the solicitation rule (206(4)-3). The adviser had networking relationships with over 300 banks whereby the adviser paid the banks a substantial portion of the advisory fees received from clients referred to the adviser. The SEC asserts that the adviser did not comply with the solicitation rule, which requires separate disclosure about the solicitation relationship, the specific terms, and the compensation received. The adviser erroneously relied on a 1991 no-action letter, which stated that a bank need not register as investment adviser. The no-action letter did not hold that bank solicitors were exempt from the solicitation rule.
A broker charged with bribing a public plan official to secure brokerage business pled guilty to criminal securities fraud charges and was barred from the industry. The SEC charges that the broker spent nearly $20,000 on hotels, meals and concert tickets and then concealed the name of the public plan official on expense reports. The SEC argues that the bribes resulted in over $1 Billion in fixed income trading for her firm and significant commissions paid to the broker. The SEC also asserts that she knew the public plan official violated his disclosure obligations.
OUR TAKE: The payor of illegal solicitation payments will incur as much legal wrath as the recipient. It is unlikely that the commissions received will compensate her for the fines, criminal penalties and industry bar.
OUR TAKE: These rules allow government plan solicitors to continue their activities on behalf of RIAs by submitting to the lighter CAB regulatory regime. These rules represent a loosening of the rules that appeared very restrictive in the wake of Rule 206(4)-5’s adoption.
The SEC commenced enforcement proceedings against a public plan’s former Fixed Income Director and two brokers for a kickback scheme whereby the public official steered brokerage business in exchange for personal gifts. The U.S. Attorney’s Office also announced parallel criminal charges. The SEC alleges the brokers bribed the public official with combined gifts totaling more than $180,000 over a 2-year period, which gifts included jewelry, tickets, trips, restaurants, cocaine, and prostitutes. The SEC also asserts that the 3 respondents conspired to hide the gifts from reporting and disclosure. The SEC charges that the public official breached his fiduciary duty to the public plan and thereby violated the securities laws. The SEC’s Enforcement Director expressed the SEC’s position on public corruption: “This action demonstrates that the SEC will not tolerate public officials who abuse public pension funds to satisfy their own greedy and wanton desires.”
OUR TAKE: The SEC is expanding its regulatory jurisdiction by pursuing public corruption cases. Although the public official’s alleged conduct certainly violated the plan’s policies and state (and federal) laws, the SEC employs a broad application of the fiduciary duty to assert that the conduct amounted to fraud in the purchase or sale of a security. The SEC may use this same legal theory to enforce the DoL’s fiduciary rule.