On April 1, 2021, the Texas State Securities Board (TSSB) announced the entry of a Consent Order against an SEC registered investment adviser named Independent Financial Group, LLC (“Independent”). The TSSB’s action may represent a large shift in investment adviser regulation and enforcement considerations for SEC-registered investment advisers. (Emphasis on “may.”)
Continue Reading SEC Investment Advisers: Texas says “April Fools!” to Federal Preemption?

Capital raising through Special-Purpose Acquisition Companies (“SPACs”) has gone through the roof in the last two years.  Last year was by far the single highest deal value for SPACs, and the first quarter of 2021 has already surpassed last year’s total deal value.[1]  Given the explosion of SPAC transactions, often backed by celebrities, it is a safe bet that the SEC will increase its scrutiny of SPACs.

In fact, on March 25, 2021, Reuters reported that the SEC has requested voluntary information from Wall Street banks on SPAC deals.[2]  Whether this inquiry broadens into a full-scale industry sweep remains to be seen, but it is clear that the hotbed of SPAC activity has captured regulatory attention.  Also notable is that the plaintiffs’ bar has been filing lots of cases arising from SPAC transactions, which can be a harbinger of SEC inquiries.  For these reasons, it is important to understand the regulatory risks of these deals.Continue Reading SPACs in the Spotlight: Skyrocketing Deal Volume Invites Regulatory Scrutiny

As we discussed in our recent post “What to Expect from the SEC Under the Biden Administration,” market participants can expect a more vigorous SEC enforcement program under the new administration.  President Biden’s nominee to chair the SEC, Gary Gensler, was known as a tough enforcer while serving as chairman of the CFTC during the financial crisis.  If confirmed as SEC Chairman by the Senate, Mr. Gensler is sure to bring an assertive approach to SEC enforcement.
Continue Reading What Investment Advisers and Fund Managers can Expect from the SEC Under the Biden Administration

The dust has settled on the 2020 election, and the Biden administration has begun pressing forward with its policy objectives. Critical to achieving such objectives is the Democrats’ control of both the House of Representatives and the Senate, albeit by the narrowest of margins after the Democratic senatorial candidates won their run-off elections in Georgia. As a result of the Georgia elections, Vice President Harris will be able to cast the tie-breaking vote in the case of a deadlock in the Senate. What does the change in administrations mean for SEC enforcement?
Continue Reading What to Expect from the SEC Under the Biden Administration

The government cannot take action against abuses of the various aid programs associated with the CARES Act without first identifying abuses. In a recent round of inquiries, FINRA sent requests to numerous individuals it has identified as having obtained aid under the CARES Act (e.g., the Paycheck Protection Program (PPP) or Economic Injury Disaster Loan (EIDL)). FINRA has acknowledged the existence of these requests and has stated the focus of the inquiries is the representatives and not FINRA member firms.
Continue Reading When PPP met OBA – An Investigation was Born

The Securities and Exchange Commission (the “SEC”) recently adopted amendments to the definition of “accredited investor,” which will permit a wider range of investors to participate in certain private offerings.  The amended definition includes several new categories of natural persons and entities who qualify as accredited investors for purposes of Rule 501(a) of Regulation D under the Securities Act of 1933 (the “Securities Act”).  The amendments also expand the definition of “qualified institutional buyer” under Rule 144A under the Securities Act.
Continue Reading SEC Adopts Amendments to “Accredited Investor” Definition

By Andrew Schumacher and Brad Monk

The COVID-19 pandemic has caused a sudden disruption to businesses and halted almost all forms of global commerce. Contractual parties, lenders and borrowers, and parties to Merger and acquisition agreements are now closely reviewing their contracts, loan agreements and, in particular, any Material Adverse Change clause (also called Material Adverse Effect) (“MAC”) in the contract to analyze what options they might have. 
Continue Reading What a Business Should Know Before Triggering a MAC Clause Based on COVID-19

By Toby M. Galloway,  Matthias Kleinsasser,  Joe Wielebinski

In sports, it is often said that “winning cures everything.”  The same concept applies to uncovering fraud.  When the economy is strong and most investors are making money, there is little incentive to ask difficult questions about a company’s performance.  Once the economy craters, however, investors begin demanding answers and harsh truths are often revealed.  As Warren Buffett has said, “only when the tide goes out do you discover who’s been swimming naked.”
Continue Reading Fraud in the Time of Covid-19

Management.com has a new article, found here, that points to the importance of an investment adviser or RIA firm borrower getting their SBA Paycheck Protection Program loan application right the first time: “What you don’t want is to submit an application that’s incomplete and you have to fix it … [because then] you [fall]

As everyone in the securities industry appreciates, a registered representative’s departure from one broker-dealer firm to join another is a not uncommon event. Such departures, even when voluntary and made on good terms, can and often raise a host of issues. Just last year for instance, FINRA issued Regulatory Notice 19-10 (April 5, 2019), which can be found here.
Continue Reading Risky Business: How Departing Brokers Can Unintentionally Trip Reg. BI