The BD/IA Regulator

Providing securities regulatory, enforcement and litigation trends for broker-dealers, investment advisers and investment funds

On July 17, 2018, the SEC announced that it had entered into a settlement with a broker-dealer charged with failure to preserve certain records and inaccurately recording travel, entertainment, and other expenses. The broker-dealer agreed to pay a $1.25 million penalty to settle the charges. The SEC found that after receiving document requests from the SEC’s Division of Enforcement, the broker-dealer deleted audio files for certain recorded telephone lines that were responsive to the document requests.…
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…
On July 2, 2018, the State of Massachusetts announced that it was investigating 10 broker-dealers that have 15% or more of their agents with current disciplinary incidents and that offer private placements to individual investors. According to the announcement, the investigation arises in large measure due to a recent Wall Street Journal investigation into these types of firms, which targeted senior investors in particular. The Wall Street Journal’s article on the subject can be found at…
At an open meeting held June 28, 2018, the SEC voted unanimously to propose a new rule codifying exemptions to certain rules under the Investment Company Act.  These exemptions have enabled the exchange-traded fund (ETF) industry to grow to more than $3.4 trillion in 24 years.  In order to even the playing field for existing ETFs and new entrants to the market, the proposed rule would rescind the existing exemptive orders upon which most ETFs…
The AICPA recently released for public comment a working draft of its Accounting and Valuation Guide: Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies (the “Guide”). The Guide is designed to provide investment companies that invest in securities issued by privately held enterprises with an overview of the valuation process and the roles and responsibilities of the various parties involved in the valuation process.  It…
On June 1, 2018 the SEC announced that it entered into settled enforcement proceedings with 13 registered investment advisers. According to the settled orders, the advisers failed to file and update Form PF over multi-year periods, in violation of Rule 204(b)-1 under the Investment Advisers Act of 1940.  Each of the advisers agreed to a $75,000 civil money penalty. Rule 204(b)-1 requires registered investment advisers with at least $150 million in private fund assets under…
On May 2, 2018, staff of the Division of Market Oversight of the Commodity Futures Trading Commission (“CFTC”) issued an interpretation regarding CFTC Reg. 150.4(b)(1), 17 CFR 150.4(b)(1), which provides an exemption from the CFTC’s position limits aggregation rules for certain passive investors in commodity pools (CFTC Staff Letter No. 18-12). In general, market participants are required to aggregate all positions in accounts for which the person, by power of attorney or otherwise, directly or…
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…
On May 1, the SEC’s Division of Enforcement issued a series of frequently asked questions (FAQs) related to its Share Class Selection Disclosure Initiative (“SCSD Initiative”). The SCSD Initiative, which was originally announced February 12, 2018, provides that the Enforcement Division will agree to recommend to the Commission standardized, favorable settlement terms for investment advisers who self-report possible securities law violations related to their failure to make certain disclosures concerning mutual fund share class selection.…