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The end of 2018 was notable for two SEC enforcement actions against private equity fund managers for violations of the Investment Advisers Act of 1940 arising from improper allocations of expenses, undisclosed conflicts of interest, and insufficient compliance policies and procedures.  The two actions demonstrate the SEC’s continued focus on private equity fund managers’ use of “operating partners” or consultants and the particular issue of how the expenses of such operating partners or consultants are…
FINRA recently published its 2019 Risk Monitoring and Examination Priorities Letter (“Priorities Letter”) highlighting topics upon which FINRA will focus in the coming year. Unlike letters in prior years, the Priorities Letter focuses primarily on areas that FINRA considers to be material new priorities. Of particular interest to the growing number of companies providing financial services through an online platform is the first materially new priority highlighted by FINRA in its Priorities Letter—online distribution platforms…
In December 2018, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) published its fifth and last risk alert of 2018 on the topic of electronic messaging by personnel of registered investment advisers. In the alert, OCIE focuses its attention on the growing use by advisory personnel of various types of electronic messaging for business-related communications and seeks to provide suggestions to advisory firms on ways firms can continue to meet their…
Until yesterday, the enforcement actions of the U.S. Securities and Exchange Commission (SEC) in the digital token (aka cryptocurrency) space have primarily focused on the primary issuances of tokens. However, on November 8, 2018, the SEC announced in an order (the “Order”) that it had settled charges against Zachary Coburn, the founder of the digital token exchange EtherDelta, marking the first time that the SEC has brought an enforcement action against an online digital token platform…
On July 11, 2018, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published a Risk Alert identifying the most common deficiencies that its staff observed in recent examinations of registered investment advisers’ best execution practices. As with prior OCIE Risk Alerts, investment advisers should carefully examine their compliance policies and procedures in light of the issues identified by OCIE and make improvements where necessary. Read our client alert.…
In a July 2018 regulatory notice (Regulatory Notice 18-20, available here: http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-18-20.pdf), FINRA has requested that members notify it if they engage, or intend to engage, in any activities related to digital assets, such as cryptocurrencies. In addition, until July 31, 2019, FINRA requests that firms notify their point of contact with FINRA, their regulatory coordinators, if they begin to engage in new activities of this type. Relevant activities include, among other things: transactions…
In a speech on May 2, 2018 regarding the SEC’s recent proposed broker-dealer standard of conduct, Jay Clayton, Chair of the Securities and Exchange Commission (SEC), commented as follows on retail investor confusion over whether their financial service providers are investment advisers or broker-dealers: “‘Financial advisor,’ ‘financial consultant,’‘wealth manager.’  Your financial professional may have any of a number of different titles that firms use to advertise their services.” Because of the perceived confusion caused…
In the third release comprising part of the package of proposed rules and forms related to broker-dealers’ and investment advisers’ standards of conduct, the SEC proposed a new disclosure document to be used by registered broker-dealers, registered investment advisers, and dual registrants. The new client relationship summary, or “Form CRS,” would provide certain basic disclosures to retail investors at the account opening stage. Form CRS would be an additive disclosure; it is not designed to…
According to the SEC, its April 18, 2018 release proposing an interpretation of the standard of conduct for investment advisers is intended to “reaffirm – and in some cases clarify – certain aspects of the fiduciary duty that an investment adviser owes to its clients under section 206” of the Investment Advisers Act of 1940. As discussed in greater detail in this alert, however, the proposed interpretation, if adopted, appears to expand the parameters of…
On April 18, 2018, the SEC introduced new Regulation Best Interest for broker-dealers and their associated persons when dealing with retail customers. This alert provides background of broker-dealer regulation, an overview of Regulation Best Interest, and our take on what this means for broker-dealers going forward. This alert is one in a series of Client Alerts on recent SEC proposals regarding regulation of broker-dealers and investment advisers. Read our client alert.…