At the 2013 Annual Seminar of SIFMA’s Compliance & Legal Society, members of the securities bar had several helpings of substance to go with their entrees of petit filets and roast salmon. In one key event, the heads of Enforcement from the SEC, CFTC, and FINRA discussed the effect of the federal budget sequester on their resources as well as the effect of the recent Gabelli Supreme Court decision and Dodd-Frank on the regulators’ enforcement effort. They also addressed current priorities and suggestions for broker-dealers caught up in an enforcement investigation.
According to George Canellos, the then-Acting Director of the SEC’s Division of Enforcement, the sequester will not slow down the SEC’s enforcement efforts, but is affecting the agency’s ability to hire examination staff and to continue the SEC’s efforts to upgrade technology. CFTC Enforcement Division Director David Meister said that the CFTC is substantially underfunded, particularly considering the agency’s dramatically enhanced jurisdiction under Dodd-Frank.
In the Gabelli decision, the Supreme Court asserted that the SEC’s five-year statute of limitations does not allow for a “discovery” rule, that is, does not begin to run when the SEC actually discovered the violations. However, neither Canellos nor Meister thought that the decision would materially affect existing cases, and stated that defense counsel were continuing to agree to sign tolling agreements in investigations.
Panelists also provided these encouraging words:
- The industry should expect more insider trading cases, with a focus on non-traditional players such as hedge funds, and non-traditional trading mechanisms such as sophisticated options strategies.
- Firms selling structured products should be particularly wary of products not proprietary to their firms. The typical structured product case brought by FINRA is relatively straightforward; they typically involve products sold by brokers who don’t understand them, to customers who didn’t understand them.
- The CFTC has already brought one case under its “civil perjury” jurisdiction granted by Dodd-Frank, giving the CFTC the power to bring an action against someone who made a false statement to the Commission in an investigation.
- FINRA is getting more comfortable with the use of its temporary cease-and-desist-order authority, and the industry can anticipate more such emergency actions.
In the admonition portion of the presentation, panelists encouraged counsel, when presenting their position to agency staff, to be candid and not oversell their positions. In FINRA insider-trading investigations, firms should cooperate voluntarily even when the requests involve the investment-advisory side of the business, where FINRA lacks jurisdiction.