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THE LATEST ON GOVERNMENT INQUIRIES AND ENFORCEMENT ACTIONS

Government Investigations and White Collar Litigation Group

Cheryl Haas

Photo of Cheryl Haas Cheryl is go-to litigation counsel for Fortune 100 companies, investment companies and advisers, broker-dealers and private individuals in high-stakes disputes in federal and state courts and a variety of arbitration forum as well as before the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and state securities regulators across the United States.

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SEC Focus on Private Fund Advisers Continues With the Publication of EXAMS Risk Alert

Enforcement and Prosecution Policy and Trends, Securities and Commodities
On January 27, 2022, the Division of Examinations (“EXAMS”) of the U.S. Securities and Exchange Commission (“SEC”) published a Risk Alert with its Observations from Examinations of Private Fund Advisers. This Risk Alert is one of a series of signals of the SEC’s focus on private fund advisers under Chairman Gensler, including Form PF amendments… Continue Reading

SEC Advisory Fees Focus Continues as Reflected in Division of Examinations Risk Alert and Chair Gensler Comments

Securities and Commodities
Recent comments from U.S. Securities and Exchange Commission (SEC) Chair Gensler at the Institutional Limited Partners Association Summit and an SEC Division of Examinations (EXAMS) Risk Alert published on the same day highlight the ongoing focus of the SEC on advisory fees, both in the institutional and retail spaces. In Chair Gensler’s remarks, he expressed… Continue Reading

FINRA’s Important Reminder to Firms—Don’t Forget to Supervise Third-Party Vendors

Compliance, Enforcement and Prosecution Policy and Trends, Financial Institution Regulation, Securities and Commodities
Overview Broker-dealers, like most companies, rely on third-party vendors for a wide variety of functions.  This common practice of outsourcing does not relieve a broker-dealer of its regulatory compliance and supervision obligations over the outsourced functions.  Accordingly, management and supervision of third-party vendors present important issues that merit careful attention from regulatory, compliance, and legal… Continue Reading

SEC 2021 National Exam Program Examination Priorities

Compliance, Securities and Commodities
On March 3, 2021, the Securities and Exchange Commission’s Division of Examinations (EXAMS) (formerly the Office of Compliance Inspections and Examinations (OCIE) released its 2021 examination priorities. Notably, while the majority of the examination priorities echo OCIE priorities from prior years, this year’s EXAMS priorities include a greater focus on climate-related risk and environmental, social,… Continue Reading

Consolidated Financial Account Reports and Use of Vendors: FINRA Continues Regulatory Scrutiny – What’s Old is New

Compliance, Enforcement and Prosecution Policy and Trends, Securities and Commodities
Overview Consolidated financial account reports can offer a broad – all-encompassing — view of customers’ investments regardless of where the assets are held and may even include non-securities assets. Customers often demand them and firms and financial advisers provide them. FINRA has had these types of communications to customers on its radar screen for years.… Continue Reading

Another Cop on the Beat? CFP Board Signals Increased Enforcement Focus

Compliance, Enforcement and Prosecution Policy and Trends, Financial Institution Regulation
Financial advisors have long used the Certified Financial Planner designation as an indicator to potential clients that they meet high standards of professionalism and ethics within their field.  The Certified Financial Planner Board of Standards, Inc. (the “CFP Board”), which grants the designation, markets it as demonstrating that its holder meets strict ethical standards.  Yet… Continue Reading

Pitfalls to Avoid in Investment Adviser Compliance Programs: SEC OCIE Risk Alert

Compliance, Securities and Commodities
On November 19, 2020, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a risk alert, OCIE Observations: Investment Adviser Compliance Programs, to provide the industry with insights regarding their findings in their examinations relating to Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Advisers Act”) or the Compliance Rule.… Continue Reading

Yet Another Mutual Fund Fee Issue or “Death by a Thousand Cuts”: FINRA Sweep of Rights of Reinstatement Waivers

Financial Institution Regulation, Securities and Commodities
What is the Issue? It may not be “death by a thousand cuts” but it may feel like it, as yet another mutual fund fee issue is being raised by the regulators. FINRA issued a “targeted examination letter” focused on Rights of Reinstatement (“RoR”) due to customers in certain mutual fund sales and purchases. RoRs… Continue Reading

COVID-19: Securities Regulators and Industry Associations Issue Coronavirus Guidance and Relief

Compliance, Securities and Commodities
Update: Our May 21, 2020, alert provides our most recent discussion of information and guidance issued by the SEC, FINRA, MSRB and SIFMA. As the Coronavirus, or COVID-19, continues to spread, the widespread impact on the markets, trading, firm operations, compliance obligations – every facet of the market, firms, and individuals working in the industry… Continue Reading

FINRA 2.0: FINRA Releases Its 2020 Risk Monitoring and Examination Priorities

Compliance, Securities and Commodities
FINRA’s examination program has undergone its most significant reorganization in decades. As stated in a press release, Oct. 1, 2018, FINRA’s goal for the reorganization was to “consolidate its Examination and Risk Monitoring Programs, integrating three separate programs into a single, unified program to drive more effective oversight and greater consistency, eliminate duplication and create… Continue Reading

SEC 2020 National Exam Program Examination Priorities

Compliance, Securities and Commodities
On January 7, 2020, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released its 2020 examination priorities.  OCIE is prioritizing practices, products, and services that it believes present heightened risks to investors or market integrity.  The examination priorities are organized around seven themes, many of which build on OCIE’s priorities from… Continue Reading

SEC Continues Compensation Disclosure Focus With FAQs and Enforcement

Enforcement and Prosecution Policy and Trends, Financial Institution Regulation, Securities and Commodities
On Oct. 18, 2019, the Securities and Exchange Commission (SEC) Division of Investment Management staff published Frequently Asked Questions Regarding Disclosure of Certain Financial Conflicts Related to Investment Adviser Compensation (FAQs). Many in the industry view the FAQs as overdue SEC guidance in an area that has been a focus of the SEC Division of… Continue Reading

Ready or Not, Prepare to Start Answering Questions About Reg BI Compliance

Financial Institution Regulation
On June 5, 2019, the SEC adopted Regulation Best Interest (“Reg BI”), which requires broker-dealers and associated persons to make recommendations regarding securities transactions (or investments involving securities) that are in the “best interest” of their retail clients. The SEC also adopted Form CRS, requiring broker-dealers and investment advisers to provide a brief relationship summary… Continue Reading

North American Securities Administrators Association (NASAA) Releases Model Cybersecurity Rule

Compliance
On May 21, the North American Securities Administrators Association (NASAA)—an organization comprised of 67 securities regulators within the United States (all fifty states as well as districts and territories), Canada, and Mexico—released a model cybersecurity rule package governing state-registered investment advisors’ cybersecurity and privacy practices.  The model rule package, which would need to be adopted… Continue Reading

D.C. Circuit Vacates SEC Sanctions, Says Negligent Omissions Are Not ‘Willful’ Under Advisers Act

Securities and Commodities
On April 30, the U.S. Circuit Court of Appeals for the District of Columbia Circuit vacated a Securities and Exchange Commission order imposing sanctions. The court held that an investment advisory firm and its owners did not violate Section 207 of the Investment Advisers Act of 1930, 15 U.S.C. § 80b-7, by negligently omitting material facts from the… Continue Reading

Suspicious Activity Monitoring and Reporting – FINRA Issues Notice Consolidating Governmental and Regulatory “Red Flag” Guidance

Anti-Money Laundering, Enforcement and Prosecution Policy and Trends, Financial Institution Regulation
Enforcement actions sanctioning firms and, in a few cases, individuals for failing to investigate and report suspicious activity have been significantly on the rise. SEC, FinCEN, FINRA, and others have been active in this area, particularly with regard to trading at, by, or through the financial institution.  One critical component of a financial institution’s ability… Continue Reading

SEC OCIE Highlights Potential Deficiencies in Firm Privacy Policies

Securities and Commodities
On April 16, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert highlighting Regulation S-P compliance deficiencies and issues it found in recent examinations of broker-dealers and investment advisers. Regulation S-P is the primary SEC rule detailing the safeguards these firms must take to protect customer privacy. The Risk Alert provides… Continue Reading

SEC Charges Its First Robo Actions – Increasing Scrutiny of the Investment Platform

Enforcement and Prosecution Policy and Trends, Financial Institution Regulation, Securities and Commodities
It was never a question of if, but rather, when the Securities and Exchange Commission would launch its first charges against robo-advisors and what those charges would be. Following then-SEC Chairperson, Mary Jo White’s keynote address at the SEC-Rock Center on Corporate Governance in 2016, regulators have been carefully monitoring robo-advisors’ compliance with the Investment… Continue Reading

FINRA Issues Sweep Letter on Firms’ Cultural Values

Financial Institution Regulation, Securities and Commodities
On February 18, 2016, Financial Industry Regulatory Authority (FINRA) announced that it had issued a targeted exam letter, or sweep, to firms seeking information about how firms establish, communicate and implement cultural values.  FINRA’s stated goal “is to better understand industry practices and determine whether firms are taking reasonable steps to properly establish and implement… Continue Reading

Variable Annuities Are Retirement Investment Product of Interest in SEC’s 2016 Examination Priorities

Securities and Commodities
As we discussed yesterday, the Securities and Exchange Commission’s (SEC’s) Office of Compliance Inspections and Examinations (OCIE) released its examination priorities for 2016 on January 11 (the “Examination Priorities”). Retirement investments continue to be an area of focus for OCIE as we march into the new year. Digging deeper into this area, OCIE identified variable… Continue Reading

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