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Government Investigations and White Collar Litigation Group
Enforcement and Prosecution Policy and Trends, Fraud, Deception and False Claims

President’s Proposed Budget Increases Healthcare Fraud Enforcement Funding

iStock_000004688619Medium-thumb-225x149-186.jpgMuch of the discussion surrounding President Trump’s 2018 budget blueprint has focused on cuts, but one proposed budget increase shows the new administration is likely to continue focusing on healthcare fraud enforcement.  Among cuts of approximately 18% to the budget of the Department of Health and Human Services (HHS), the president’s budget proposes $70 million in additional funding for the Health Care Fraud and Abuse Control program (HCFAC), a more than 10% increase.

HCFAC is jointly directed by the Secretary of HHS and the Attorney General and is supervised by the HHS Office of Inspector General.  The program coordinates federal, state, and local healthcare fraud enforcement efforts.  According to the president’s budget, the HCFAC program returns more than $5 in fraud recovery for every dollar spent.

The increase in HCFAC funds suggests that the new administration will not deemphasize healthcare fraud investigations and prosecutions, despite new HHS Secretary, and physician, Tom Price’s statement at his confirmation hearing that healthcare fraud enforcement should focus on truly bad actors and focus less on scrutinizing the medical necessity of treatments.  Compliance should thus remain a priority for all healthcare providers and fraud investigations are likely to continue to be a top concern.  Secretary Price also spoke in favor of using data analysis to scrutinize payments for red flags before they are made, as opposed to the government’s traditional practice of investigating suspicious cases long after payment has been made. Such analysis, already used by the government, may raise the immediacy and importance of compliance for providers.  Data analysis may also mean that more healthcare fraud is first identified by the government, decreasing the importance of whistleblowers bringing qui tam suits.

Although there is no prospect of the president’s budget blueprint becoming law in the immediate future and any enacted budget is likely to face significant changes, the funding increase for HCFAC shows that, despite the new administration, healthcare fraud is likely to continue to be a major priority of government regulators and prosecutors.

Anti-Money Laundering, Enforcement and Prosecution Policy and Trends, Securities and Commodities

SEC Opens Cease-and-Desist Order Proceeding against Broker-Dealer and Chief Compliance / AML Officer

Government-Regulatory-and-Criminal-Investigations.jpgAs we have highlighted in prior posts, regulators of financial institutions, including FinCEN, FINRA and SEC, have increasingly brought actions to bring organizations – and individuals – into compliance with AML / BSA obligations.  This enforcement activity is consistent with FinCEN’s August 2014 Advisory, now nearly three years old, emphasizing the idea that U.S. financial institutions must promote a culture of compliance, one that does not allow the pursuit of profits to overshadow obligations prescribed by applicable laws.

The latest example of an enforcement action against both involves a New York broker-dealer and its chief compliance / AML officer.   The SEC initiated cease-and-desist proceedings (Complaint) against Windsor Street Capital, L.P. and its chief compliance officer.   In the Complaint, the SEC alleges violations of the Securities Act of 1933 and Securities Exchange Act of 1934, stemming from the “unregistered sale of hundreds of millions of penny stock shares.”  (¶ 3.)  The SEC further alleges that the broker-dealer failed to file suspicious activity reports with FinCEN.  (¶ 4.)  As a result of these violations, the firm recognized nearly $500,000 in commissions and fees.”  (¶ 5.)  Finally, the CCO was allegedly personally responsible for “monitoring customer transactions for suspicious activity and ensuring the firm’s compliance with SAR reporting requirements,” a task he failed to fulfill.  (¶ 6.)

The Complaint cites broker-dealers’ requirements under the BSA regulations (31 C.F.R. § 1023.320) and the obligation under the Exchange Act (Rule 17a-8) to comply with the SAR rule promulgated by FinCEN.  The Complaint also points to the firm’s and the CCO’s awareness of these obligations, both through their internal written AML program (¶ 15), and January 2009 FINRA guidance for broker-dealers titled “‘Unregistered Sales of Registered Securities,’ which lists many of the same red flags listed in the AML Program.”  According to the Complaint, the firm ignored these red flags when they permitted customer transactions to occur without filing SARs.  (¶¶ 15, 17, 21.)

Key Take-Aways:

  •  Profits cannot come at the expense of compliance.  As we have seen more frequently over the last several years, financial regulators are exhibiting a willingness to bring actions against individuals, not just companies.  This individual risk should embolden CCOs and others in compliance oversight roles to request and receive sufficient resources reasonably necessary to discharge their responsibilities.
  • Written AML programs must be current and reasonably designed to address risk.  The regulations require the creation of a written AML policy tailored to the company and reasonably designed to achieve compliance with applicable laws.  (31 C.F.R. §§ 1023.200-220.)  The policy should include a clear protocol for identifying red flags, escalation of the issues to senior management, resolution and documentation.  It is important that these programs be maintained continually and reflect the collective experience of the enterprise.  As demonstrated with this case, regulators will look at the written compliance program as putting an entity (or individual) on notice of the required conduct under the law.
  • Most importantly, the written AML program must be followed.  It would be a challenge for any enterprise to contradict (or ignore) its written AML policies.  Follow-through with execution is imperative to avoid significant – potentially criminal – consequences, enhanced regulator scrutiny, reputational harm and business disruption.

 

 

 

 

Enforcement and Prosecution Policy and Trends, Financial Institution Regulation, Fraud, Deception and False Claims

Will 2017 Be the Year of Insider Trading Reform?

iStock_000004688619Medium1For several years running, insider trading has been among the most high-profile enforcement priorities for both DOJ and the SEC. Unlike most federal criminal law, insider trading remains undefined by statute, having instead been largely judge-made. Unsurprisingly, since the explosion of enforcement actions began, prosecutors and defendants have both pushed the courts to clarify (or even re-define) the boundaries of the law. Despite several recent rulings, however, the law remains complex and ambiguous.

In its December 2014 ruling in United States v. Newman, the Second Circuit significantly altered the landscape for insider trading prosecutions. Newman held that a tippee who trades on insider information must know that the tipper received a “personal benefit” to be liable for insider trading. The decision went further, though, in suggesting that the personal benefit must have pecuniary value. Several months later, in United States v. Salman, the Ninth Circuit rejected such a narrow definition of “personal benefit.” In December 2016, the Supreme Court unanimously sided with the Ninth Circuit holding that the personal benefit test is met when the tipper “makes a gift of confidential information to a trading relative or friend.” Nonetheless, Justice Alito’s opinion left significant questions unanswered – and the central holding of Newman unaltered.

Last week, in a speech to the Securities Bar, Judge Jed Rakoff – who authored the Ninth Circuit’s Salman opinion and has presided over several high-profile insider trading trials – urged lawmakers to take up insider trading legislation. In particular, Judge Rakoff argued that a broad prohibition similar to the European Union’s laws would benefit both the markets and the courts. As it turns out, there may now be a window for Congress to take up such legislation. Shortly before Judge Rakoff’s remarks, House Judiciary Committee Chairman Bob Goodlatte announced the committee’s agenda for the 115th Congress. Rep. Goodlatte observed that he and Ranking Member John Conyers were “committed to passing bipartisan criminal justice reform.” Rep. Goodlatte considered it “imperative [to] continually examine federal criminal laws” in conjunction with this effort. Although past Congressional efforts to codify insider trading laws have failed, Goodlatte’s remarks suggest that there may be an opportunity to try again. And some observers are optimistic that a reform bill could pass this year.

What might such a reform bill look like? Judge Rakoff spoke approvingly of the EU’s approach that focuses on equal access to market information rather than U.S. law’s focus on the insider’s fiduciary duty. Specifically, the EU prohibits anyone from trading on information “that person knows, or ought to have known, [is] insider information.” Thus, the focus is on the information itself, rather than the source. Such an approach would eliminate disputes over the “personal benefit” test. It would also reverse Newman’s requirement that the tippee know of the tipper’s benefit. While the question of whether a trader “should have known” a tip to be insider information might be problematic, the insider trading statute – like other federal statutes – could define knowledge to include deliberate indifference or reckless disregard.

A uniform federal standard could bring much needed certainty to the law. Markets would benefit from a definition that protects equal access to market-moving information. Prosecutors would almost certainly be pleased with the expanded scope of proscribed conduct. And traders would have a clear, common-sense rule to guide their conduct.

 

Compliance, Uncategorized

McGuireWoods Announces Updated Government Investigations Resource Guide

Resources-Guide---7th-EditionWe are pleased to announce that McGuireWoods LLP has published the seventh edition of its Government Investigations Resource Guide. While Subject to Inquiry provides detail on the latest news and regulatory trends, this guide serves as a handy reference tool for in-house attorneys, compliance officials, and executives.

The Guide features overviews for key areas of law, as well as suggestions for proper responses to agency inquiries as well as the general risks posed in each area.

A complimentary electronic copy is available here.

Financial Institution Regulation

D.C. Circuit Grants Rehearing in PHH Case

On Thursday, February 16, 2017, the D.C. Circuit granted the Consumer Financial Protection Bureau’s (CFPB) petition for rehearing en banc in PHH Corporation v. Consumer Financial Protection Bureau.  The Order marks the latest twist in a case that tests the constitutional and 780536983statutory limits of the CFPB.

As we previously reported, in 2014 an Administrative Law Judge (ALJ) found that PHH Corporation (PHH) violated the Real Estate Settlement Procedures Act (RESPA) by accepting kickbacks from mortgage insurers.  PHH appealed the decision to CFPB Director Richard Cordray.  In a 38 page decision—the first administrative appellate decision for the CFPB—Cordray affirmed that PHH had violated RESPA but expanded PHH’s liability from $6 million to $109 million by holding that no statute of limitations applied to the CFPB’s administrative proceedings.

PHH appealed the matter to the D.C. Circuit.  On October 11, 2016, a three-judge panel ruled against the CFPB and held, among other things, that the CFPB’s single independent director structure was unconstitutional.  The October 11 Opinion also rejected the CFPB’s statutory arguments on the statute of limitations and RESPA.

On November 18, 2016, the CFPB filed its petition for rehearing en banc.  While the petition was pending, attorneys general from 16 states and the District of Columbia filed a motion to intervene in the case.  In the motion, the attorneys general raised concerns regarding the Trump Administration’s commitment to defending the constitutionality of the CFPB’s structure given President Trump’s criticism of the CFPB and the Dodd-Frank Wall Street Reform and Consumer Protection Act.  However, the court denied the motion on February 2, 2017.

The D.C. Circuit’s February 16 Order vacates the three-judge panel’s prior October 11 Opinion and sets oral arguments in the case for Wednesday May 24, 2016.

Notably, in the February 16 Order, the Court specially asked the parties to address three Constitutional issues in their briefs:

  1. Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?
  2. May the court appropriately avoid deciding the constitutional question given the panel’s ruling on the statutory issues in the case?
  3. If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC 832, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?

Although the first two questions relate directly to the issues at the heart of the October 11 Opinion, the third question regarding the status of the ALJ adds a new focus to the appeal.  Lucia v. SEC, the case referenced in the Order, concerns the constitutionality of the use of Securities and Exchange Commission (SEC) ALJs in administrative proceedings.  Briefly addressed by Judge Randolph is his October 11 concurring opinion in PHH, the issue centers on the requirement under Article II, section 2, clause 2 that “inferior officers” be appointed by the President, the courts of law, or the heads of the department.

In PHH, the initial administrative decision was rendered by a Securities and Exchange Commission (SEC) ALJ. Rather than being appointed as an inferior officer, the SEC’s Chief Administrative Law Judge assigned the ALJ to the PHH case pursuant to an agreement between the CFPB and the SEC. If the SEC ALJ is in fact an inferior officer within the meaning of Article II, the ALJ’s assignment arguably violates the Constitution. The D.C. Circuit could use this Appointment Clause issue as grounds to decide the case without reaching the issue of the constitutionality of the CFPB’s structure.

PHH will file its opening brief on these issues by March 10, 2017.

Financial Institution Regulation

Pending Senate Bill Would Restructure CFPB Leadership

On January 11, 2017, a trio of Republican Senators introduced a bill that would change the leadership structure of the Consumer Financial Protection Bureau (“CFPB”) from a single director to a five-member bipartisan “Board of Directors.”iStock_000004688619Medium1

Senate Bill 105, titled “Consumer Financial Protection Board Act of 2017,” introduced by Senators Deb Fischer (R-Neb.), Ron Johnson (R-Wisc.), and John Barrasso (R-Wyo.), and now also co-sponsored by Senator Jeff Flake (R-Ariz.), would make the following changes to the CFPB’s leadership:

  • Replace the current single-director structure of the Bureau with a five-member board appointed by the President and confirmed by the Senate, with one member appointed by the President to serve as chairperson.
  • No more than three members from one political party.
  • Staggered terms, with three of five initial members serving 30-month terms, and the other two (and subsequent) members serving five-year terms.
  • No member may be reappointed to a consecutive term, unless that individual had been appointed for less than a five-year term.
  • Removal by the President for “inefficiency, neglect of duty, or malfeasance in office.”

The bill also stipulates that board members “must have developed strong competency and understanding of, and have experience working with, financial products and services.”

In a statement, Senator Fischer stated that CFPB Director Richard Cordray’s “bad decisions have kept families locked out of economic opportunity.”  Senator Fischer said her bill “would prevent this misconduct by divesting authority from one director to a five-member bipartisan board” and “bring accountability to the Bureau and give more Americans a chance to build their own businesses and provide for their families.”

The bill is currently referred to the Senate Committee on Banking, Housing, and Urban Affairs.

Senator Fischer’s bill represents yet another sign of potential changes to the Bureau’s leadership, structure, and authority.

As we recently reported, President Trump’s February 3 Executive Order signaled the beginning of the administration’s efforts to dismantle parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  Though the Order does not explicitly mention the Bureau, President Trump has repeatedly voiced criticism of Dodd-Frank, which created the CFPB.

Also on January 11, President Trump reportedly met with former Representative Randy Neugebauer (R-Tex.) and is considering him to head the CFPB.  When he was in Congress, Neugebauer was sharply critical of the Bureau’s efforts to regulate payday lenders and introduced a bill to overhaul the agency.

Senate Bill 105 also comes as the CFPB continues to fight over the constitutionality of its leadership structure in the U.S. Court of Appeals for the District of Columbia.  As we reported, in October 2016, the D.C. Circuit ruled that the Bureau’s leadership structure, with a single director that the President could remove only “for cause” rather than “at will,” was unconstitutional.  In that decision, the court also vacated a $103 million increase to a $6 million fine levied against PHH Corp. by Director Cordray.  The parties are currently awaiting the D.C. Circuit’s ruling on the Bureau’s petition for en banc review of the panel’s decision.  However, if Senator Fischer’s bill’s becomes law it could make any potential CFPB victory a hollow one, as its leadership structure could soon change regardless of the outcome in PHH.

Finally, we have seen this amendment to the CFPB’s leadership in other bills introduced by Congressional Republicans.  The Financial CHOICE Act, released in 2016 by Representative Jeb Hensarling (R-Tex.), would have also replaced the director with a five-member commission.  However, as we have discussed, the Financial CHOICE Act also proposed a wide range of changes to the CFPB and Dodd-Frank.  Given Senate Bill 105’s narrow focus on changing the Bureau’s leadership structure, a transition from a single director to a five-member board would appear more viable through Senator Fischer’s bill.

Nonetheless, one can expect strong opposition from the left to whatever mechanism Congressional Republicans use in attempts to alter the CFPB’s structure or weaken its authority.  We will monitor the progress of Senate Bill 105, which is currently referred to the Senate Committee on Banking, Housing, and Urban Affairs.

Enforcement and Prosecution Policy and Trends

Will Cryptocurrency Abuse be an Enforcement Focus for the IRS this Tax Season?

Tax filing season began January 23rd, and with its arrival the IRS began rolling out its annual list of the so-called “Dirty Dozen.” The Dirty Dozen list is an educational effort to inform the public about scams, but it also offers insight into the tax enforcement issues on the IRS’s radar.

Particular tax schemes often stay on the “Dirty Dozen” list for years until the IRS devises an effective strategy for combatting them (if it ever does). Changes on the list reveal new schemes or enforcement priorities that have caught the IRS’s attention.

Of particular interest this year: whether cryptocurrency abuse will make the list. Cryptocurrencies, of which Bitcoin is the most well-known, are digital currencies not backed by any government. They trade on public markets called exchanges, and their use has grown rapidly in recent years. The IRS taxes cryptocurrency like property, not foreign currency.document-review

The IRS is presently litigating a summons case against Coinbase Inc., a prominent U.S.-based cryptocurrency exchange, in the Northern District of California. The IRS uses John Doe summons procedure when it believes some type of transaction is being used for tax avoidance, and it wants to find out the identities of currently-unknown taxpayers who have participated in those transactions. John Doe summonses have used to sniff out the identities of, for example, taxpayers using debit cards linked offshore, or holding accounts at certain banks suspected of abuse.

The IRS’s resort to John Doe procedure suggests it views cryptocurrency dealing as a widespread tax evasion strategy. But its evidence to date proves only isolated abuse, not pervasive tax evasion. The IRS’s summons is supported by interviews with 3 taxpayers who admitted to using cryptocurrency to avoid or evade taxes. But its demand for records is far broader: all cryptocurrency transactions with a U.S. jurisdictional hook at a large cryptocurrency exchange over a 3 year period.

Based in part on this mismatch of the IRS’s evidence and the information it demands, some cryptocurrency users and Coinbase itself are litigating to fight the summons. But such efforts seldom succeed at blocking disclosure.

If the IRS viewed cryptocurrency as a common tool for tax abuse, one might expect it to serve John Doe summonses on other US-based cryptocurrency exchanges or payment applications. But it has not done so, probably for lack of evidence they have been abused. Of course, such evidence could emerge from new interviews or from Coinbase records, once produced and digested.

The IRS’s disclosures to date create real questions about just how widespread cryptocurrency-based tax fraud really is. If the IRS includes cryptocurrency abuse on its dirty dozen list, it will be sending a signal that it views the Coinbase litigation not as a one-off skirmish, but the first front in a lengthy war to come.

Financial Institution Regulation

Trump Signals Beginning of Efforts to Curtail Dodd-Frank

On February 3, President Donald J. Trump signed an executive order that signaled the beginning of the Trump Administration’s efforts to dismantle parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). subjecttoinquiryimage.jpg

The executive order, entitled Core Principles for Regulating the United States Financial System (“Order”), lays out seven core principles (“Core Principles”) to guide the Trump Administration’s regulation of the financial industry.  Specifically, the Order makes it the executive branch’s policy to:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(f) make regulations efficient, effective, and appropriately tailored; and

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

The Order also requires the Secretary of the Treasury to consult with the heads of the Financial Stability Oversight Council within 120 days of the executive order (and periodically thereafter) regarding whether current laws and regulations “promote the Core Principles.”  The Secretary of the Treasury then must report to the President on the extent to which current laws and regulations promote the Core Principles as well as “what actions have been taken, and are currently being taken, to promote and support the Core Principles.”

Although the Order never explicitly addresses Dodd-Frank, as we have previously reported, President Trump has long been a vocal critic of the Act.  Originally signed into law in 2010 during the Obama Administration, Dodd-Frank imposed sweeping regulatory reforms on the financial industry and created the Consumer Financial Protection Bureau (CFPB).  During his campaign, President Trump repeatedly voiced his disapproval of  the Dodd-Frank, going as far as calling the Act “a disaster” that “mak[es] it harder for small businesses to get the credit they need.”

On Friday, shortly before signing the Order, President Trump and Press Secretary Sean Spicer reiterated the Trump Administration’s commitment to dismantling Dodd-Frank.  In remarks at the Strategy and Policy Forum, Trump—citing continued concerns that over regulation is negatively affecting American businesses—told the forum that “we expect to be cutting a lot out of [the Act].”

Spicer went further during his comments on the new executive order.  According to Spicer, the new Core Principles “sets the table for a regulatory system that mitigates risk, encourages growth, and more importantly, protects consumers.”  Then contrasting the new policy with Dodd-Frank, Spicer called Dodd-Frank, “a disastrous policy that’s hindering our markets, reducing the availability of credit, and crippling our economy’s ability to grow and create jobs.”  Spicer claimed that Dodd-Frank “imposed hundreds of new regulations on financial institutions” without adequately protecting consumers.

Given President Trump and Press Secretary Spicer’s passionate remarks, it appears that the Trump Administration does not believe that Dodd-Frank is “efficient, effective, and appropriately tailored” or that it empowers “Americans to make independent financial decisions and informed choices” as required by the new Core Principles.  Thus, expect the Secretary of the Treasury’s report on the Core Principles this June to address Dodd-Frank and its perceived shortcomings.

House Financial Service Committee Chairman Jeb Hensarling (R-Tx) was also quick to point out on Friday that the Order “mirrors provisions that are found in the Financial CHOICE Act.”  As we previously reported, the Financial CHOICE Act, which was first introduced by Congressional Republicans in 2015, is a likely blueprint for any legislative attempt by the GOP to repeal parts of Dodd-Frank this year.  The Order is another sign that President Trump is ready and willing to work with Republicans to remove parts of Dodd-Frank.

Compliance, Election and Political Law

Congress Votes to Disapprove SEC’s Resource Extraction Disclosure Rule

piplineIn previous posts, we discussed the potential impact of the SEC’s Resource Extraction Payment Disclosure (Rule 13q-1), including possible FCPA implications and the development of an appropriate compliance plan. After the election, much attention has been given by Congress to the so-called “midnight” agency rules that were adopted in the final months of the Obama Administration, including Rule 13q-1.  And, Congress wasted no time disapproving Rule 13q-1.

Rule 13q-1 requires issuers involved in the commercial development of oil, natural gas and minerals to disclose payments they made to the U.S. federal government and to non-U.S. governments in connection with their resource extraction activities. It took effect on September 26, 2016.

On February 1, 2017, however, the U.S. House of Representatives passed, under the Congressional Review Act (CRA), a resolution that would disapprove Rule 13q-1 and its disclosure requirements. On February 3, 2017, the U.S. Senate approved the disapproval resolution passed by the House.  It appears that the President is likely to sign the resolution in the coming days.

If this resolution of disapproval is signed by the President, then, under the CRA, Rule 13q-1 is effectively nullified. Moreover, Rule 13q-1 cannot be reissued in the same form barring authorization from Congress.  5 U.S.C. § 801(b)(2).  Further, any new variation that is “substantially the same” as Rule 13q-1 is also prohibited. Id.

However, where, as here, Congress has rejected a rule that the SEC is required to issue, then the SEC will be given an automatic one year extension to attempt to fashion a different rule to satisfy that requirement. Id. at § 801.

While it is unclear what the SEC’s new rule will look like, it is important to note that other countries, such as the UK and Canada, as well as the EU, have enacted rules similar to Rule 13q-1, and covered companies are already required and have begun to make disclosures regarding covered payments.

We will continue to monitor these developments and update you accordingly.

 

Compliance, Securities and Commodities

SEC Annual Exam Guidance: Cybersecurity, Robo-Advising, and Retirement

The SThinkstockPhotos-90833697_jpgEC recently announced its Office of Compliance Inspections and Examinations’ (OCIE) 2017 priorities.  Though these listed priorities are not exhaustive and remain flexible in light of market conditions, industry developments, and ongoing risk assessment, it is helpful for companies to keep these items in mind when evaluating securities compliance programs in 2017.

The 2017 examination priorities include the following:

  • Retail Investors – Taking issue with industry marketing methods, the OCIE continues its 2016 initiatives to protect retail investors by assessing the risks to investors seeking information, advice, products, and services. OCIE looks to direct its examinations to review firms involved with “robo-advising” (delivering investment advice through electronic mechanisms) and wrap fee programs (when a single bundled fee for advisory and brokerage services is charged to an investor).
  • Senior Investment and Retirement Investments – OCIE will continue to scrutinize public pension advisers while expanding its focus on those services targeting senior investors and individuals investing for retirement. OCIE carefully reviews registrants’ interactions with senior investors, including the identification of financial exploitation.  OCIE is also widening its ReTIRE initiative to include reviews of 1) investment advisers and broker-dealers that provide insurance products to investors with retirement accounts, and 2) investment advisors that offer and manage target-date funds.
  • Market-Wide Risks – OCIE will focus on registrants’ compliance with the SEC’s Regulation SCI and anti-money laundering rules, fulfilling the SEC’s mission for maintaining fair, orderly, and efficient markets. New in 2017, OCIE will evaluate money market funds’ compliance with the SEC’s amended rules (recently effective in October 2016).
  • FINRA – OCIE will conduct inspections of FINRA’s operations and regulatory programs, focusing resources on assessing the examinations of individual broker-dealers.
  • Cybersecurity – OCIE will continue to examine firm cybersecurity compliance procedures and controls. This includes implementation testing of those procedures and controls at broker-dealers and investment advisers.

Outgoing SEC Chair Mary Jo White noted, “Whether it is protecting our most vulnerable senior investors or those investing in the trillion dollar money market fund industry, OCIE continues its efficient and effective risk-based approach to ensure compliance with our nation’s securities laws.”  OCIE Director Marc Wyatt added, “OCIE’s priorities identify where we see risk to investors so that registrants can evaluate their own compliance programs in these important areas and make necessary changes and enhancements.”

While newly tapped SEC Chair Jay Clayton has not had a chance to weigh in on the 2017 examination priorities, firms providing investor services should review and update their compliance programs to best position themselves in the new year.