Communiques
The latest compliance news from SEC3 and CCO3.
If You Have Never Been Examined by the SEC, Get Ready
February 24, 2014
The Securities and Exchange Commission announced on Thursday, February 20th that its Office of Compliance Inspections and Examinations (OCIE) is launching an initiative directed at investment advisers that have never been examined, focusing on those that have been registered with the SEC for three or more years.
Read more: If You Have Never Been Examined by the SEC, Get Ready
SEC National Exam Program 2014 Exam Priorities
January 10, 2014
The Securities and Exchange Commission’s National Examination Program (“NEP”) has released 2014 examination priorities which can be found here. Much of what has been announced is a reiteration of prior focus areas. NEP-wide initiatives (not specific necessarily to the particular type of registrant) include fraud detection and prevention; corporate governance; conflicts of interest; enterprise risk management; technology; dual registrants; new laws and regulations, including general solicitation of private funds under Rule 506(c) under the Securities Act of 1933; and retirement vehicles.
The Volcker Rule adopted after a 3-year wait
December 12, 2013
The Volcker rule was adopted on Tuesday, December 10, 2013 by five regulatory agencies including the Securities and Exchange Commission (the “SEC”). The original proposal was drafted in 2010 and received more that 19,000 comment letters from industry participants. The final rule was adopted by the SEC with a narrow 3 to 2 vote. It is interesting to read the strong dissenting opinions by Commissioners Gallagher and Piwowar who thought that the rule was so substantially different than the proposal that it should have been re-submitted for comment and not presented to the SEC for adoption in the rushed manner that it was presented at year-end. Commissioner Gallagher mentioned that the SEC received the final draft on December 5 which left little time for careful consideration.
The Importance of Effective Compliance Programs in Preventing Enforcement Actions
December 03, 2013
Stephen L. Cohen, the Securities and Exchange Commission’s (“SEC”) Associate Director of Enforcement, spoke recently at the Society of Corporate Compliance and Ethics’ Annual Conference. In his remarks he noted what he considers characteristics of effective and ineffective compliance programs and how having a strong compliance program can impact the SEC staff’s decision on whether or not to bring an enforcement case against a firm as well as the extent of penalties and sanctions pursued. Mr. Cohen said: “When evaluating a company’s misconduct, we typically give credit when a company can demonstrate a strong compliance culture”.
Read more: The Importance of Effective Compliance Programs in Preventing Enforcement Actions
Hot Topics in National Futures Association Audits
November 13, 2013
As a result of the rescission of Rule 4.13(a)(4) for commodity pool operators (CPOs) advising funds offered to qualified eligible persons and the narrowing of the exclusion under Rule 4.5 available to registered investment companies, almost 600 new CPOs registered with the Commodity Futures Trading Commission (CFTC) and became members of the National Futures Association (NFA). The number of registered CPOs increased from 1,200 to 1,800. Currently-registered CPOs manage over 6,000 commodity pools. Before the advent of the new registrants, the first audit was generally expected within the first year of registration.
Read more: Hot Topics in National Futures Association Audits
Why We Don't See the SEC's New Rules Implementing the Jobs Act Altering the Way Hedge Funds Market in the Short Run
October 29, 2013
On September 23, 2013, SEC regulations adopted on July 10, 2013 to implement Section 201(a) of the JOBS Act will be effective. We are not seeing firms rush to generally solicit by marketing heavily or un-password protect their websites. In fact, what we are seeing is firms proceeding thoughtfully and cautiously. Most realize at this point that what initially was perceived as a new found freedom for private funds, is actually a maze of hurdles that must be carefully cleared before private funds can actually determine that they should in fact take advantage of new Rule 506(c) and “generally solicit”.
Weeding out the Bad Actors
August 05, 2013
On the infamous day in July when the SEC loosened the reins on general solicitation and proposed related new rules and rule amendments, the SEC also finalized the "bad actor" disqualification rules for most private placements (as required by the 2010 Dodd-Frank Act).
SEC and European Regulators Establish Supervisory Cooperation Arrangements
July 25, 2013
On July 19th, the SEC announced the establishment of supervisory cooperation arrangements (memoranda of understanding) with European regulators related to the asset management industry. While the SEC initiative deals only with European regulators, it may signal increased interest by the SEC in its asset management registrants outside the United States especially given that some are new to their jurisdiction post Dodd-Frank.
Read more: SEC and European Regulators Establish Supervisory Cooperation Arrangements
The SEC lifts the ban on General Solicitation
July 11, 2013
The Securities and Exchange Commission (“SEC”) voted yesterday to eliminate the ban on general solicitation and advertising for offerings conducted under Rule 506 of Regulation D. Private investment funds can now offer their securities freely and solicit investors with no restriction provided that they:
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take reasonable steps to verify that the investors are accredited investors; and
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all purchasers of their securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the fund reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.
This means that although offers of fund interests will be unrestricted by private funds that will engage in general solicitation, sales of those interests will be restricted to accredited investors only and will be subject to the new verification requirement regarding accreditation.
Latest cease and desist order - Northern Lights and Gemini
May 09, 2013
The Securities and Exchange Commission (“SEC”) issued a cease-and-desist order against Northern Lights Compliance Services, LLC (“Northern Lights”), Gemini Fund Services, LLC (“Gemini”) and the trustees of two investment companies (“Funds”) for which Northern Lights and Gemini were service providers for “disclosure, reporting, recordkeeping and compliance violations”.
Northern Lights, a compliance firm which provided outsourced chief compliance officer services to the Funds, and Gemini, the Funds’ administrator, were each fined $50,000 for failure to perform their respective functions appropriately.
Read more: Latest cease and desist order - Northern Lights and Gemini
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