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

Last year the U.S. Securities and Exchange Commission (“SEC”) approved Regulation Best Interest (“Reg BI”).[1] Reg BI requires broker-dealers and their associated persons to act in “the best interest” of a retail customer when recommending a securities transaction or investment strategy. Reg BI applies not only to broker-dealers but also to investment advisors.[2] It will take effect in June of 2020.[3] Continue Reading It’s the Final Countdown: Being Prepared for Regulation Best Interest

The Fifth Circuit overturned a U.S. District Court’s approval of a settlement between Ralph Janvey, the Receiver for Stanford International Bank, and various insurance company Underwriters, under which the Underwriters had agreed to pay $65 million to the Stanford Receivership estate.  Writing for the Court, Judge Edith H. Jones held that the District Court abused its discretion in approving the settlement because the injunction issued by the District Court (referred to as a “bar order”) nullified claims by third-party coinsureds to policy proceeds without an alternative compensation scheme.  The settlement also improperly released third-party tort and statutory claims against the Underwriters that the estate did not own. Continue Reading Fifth Circuit Overturns Receiver’s Settlement Barring Third-Party Claims Against Stanford Financial Insurers

An opinion this week from the Southern District of New York, SEC v. Alderson[1] [click here], held that an RIA’s communications with lawyers associated with its third-party compliance consultant were not protected by the attorney-client privilege or the attorney work-product doctrine. As a result, the district court compelled disclosure of over 230 communications passing between the RIA’s in-house counsel and its third-party compliance firm (staffed with licensed attorneys) before and during the course of an examination of the RIA by the Securities and Exchange Commission (“SEC”).[2] This ruling raises important considerations for an RIA or broker-dealer when engaging outside compliance consultants and lawyers, especially if the firm intends for certain of or all of those communications to be cloaked with privilege. Continue Reading An RIA’S Communications with Attorney Consultants Associated with its Outside Compliance Firm are Always Privileged, RIGHT? Well, That Depends . . .

KPMG must pay $50 million after the Securities and Exchange Commission charged the accounting giant with cheating on training exams and using purloined information concerning audit inspections to be conducted by the Public Company Accounting Oversight Board (PCAOB).  KPMG agreed to the $50 million penalty and also accepted a public censure as part of the settlement. Continue Reading Audit Firm to Pay $50 Million Penalty for Using Information Pilfered From PCAOB

Celadon Group Inc. announced a settlement with the SEC and the DOJ over allegations of accounting fraud.[1]  The company agreed to pay restitution of over $42 million in connection with a Deferred Prosecution Agreement with the DOJ, and to pay disgorgement of roughly $7.5 million in a parallel SEC settlement.  The disgorgement obligation is deemed satisfied by payment of the $42 million restitution amount. Continue Reading Freight Company Charged with Truckload of Accounting Fraud

Securities litigation frequently raises the question of what conduct constitutes a primary violation of the federal securities laws, specifically, Rule 10b-5 and the various other antifraud provisions.  Must one make a false statement in order to be primarily liable?[1]  The Supreme Court held in Janus Capital Group, Inc. v. First Derivative Traders that only those who “make any untrue statement of material fact” may violate Rule 10b5-(b).[2]  Continue Reading Janus Meets Its Maker: The Supreme Court Expands Primary Liability in Lorenzo v. SEC

The Securities and Exchange Commission (SEC) recently announced other notable examples of the scrutiny being applied to investment advisers’ disclosures of conflicts of interest.  The criticism is notably sharp on issues involving fees and costs associated with advisory services.

Of course, there are the well-publicized actions involving the disclosure of 12b-1 fees pursuant to the share class initiative. On March 11, 2019, the SEC announced that 79 investment advisory firms had agreed to return over $125 million to clients in connection with the SEC’s “Share Class Initiative.”[1]  Continue Reading You WILL (not May) Face the Heat

The Financial Industry Regulatory Authority (“FINRA”) recently published its Risk Monitoring and Examination Priorities Letter (the “Letter”) for 2019 and signaled its intent to expand the scope of its priorities and exam program. Unlike previous years, FINRA’s 2019 Letter took a “somewhat new approach” by identifying materially new areas of emphasis.[1] Admittedly, FINRA will continue to examine longstanding priorities detailed in prior letters,[2] but in adding “Risk Monitoring” to the title to the Letter, FINRA notified the industry it planned to broaden its exam program into three materially new priorities: (1) online distribution platforms, (2) fixed income mark-up disclosure, and (3) regulatory technology.[3]  Continue Reading What You Should Know About FINRA’s Exam Priorities for 2019

As a follow-up to our last post on the status of the EB-5 Program, the EB-5 Program has been renewed, at least for the short-term.

After the government shutdown ended, and on the evening of Valentine’s Day, Congress pushed the spending bill through to renew the EB-5 Program until September 30, 2019.[1]  Because the EB-5 Program does not have permanent legislation authorization, it will continue so long as Congress periodically renews the program. However, whether the program will continue in the long-run is still up in the air in light of growing criticisms of the Immigrant Investor Program.[2] For now, however, the EB-5 Program will continue at least until the fall of this year. Continue Reading Update: The EB-5 Program Has Been Renewed . . . For Now