Tag:SEC

1
D, F, G, 3, 4, 5: Firms Charged for Failing to Make Section 13 and 16 Filings
2
SEC Enforcement Takes Broad View of Anti-Whistleblower Rule in Latest Action Targeting Investment Advisers and Broker-Dealer
3
FinCEN Narrows the Final AML Requirements for Investment Advisers
4
The MNPI Is Coming From Inside the House
5
PFAR Appeal Timeline Runs Out
6
SEC Adopts Enhanced Privacy Safeguards
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Go Ahead and Take a CIP: SEC and Treasury Department Propose New Regulations for Investment Advisors
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SEC Risk Alert Offers Initial Observations on Compliance
9
Marketing Rule Enforcement Remains Priority: SEC Charges Five Advisers for Marketing Rule Violations
10
SEC Fines Adviser for Off-Channel Communications

D, F, G, 3, 4, 5: Firms Charged for Failing to Make Section 13 and 16 Filings

By: Pablo J. Man, C. Todd Gibson, and Lisa N. Ju

On 25 September 2024, the SEC announced settled charges against 23 entities and individuals for failing to make timely filings about their holdings and transactions on Schedules 13D and 13G and on Forms 3, 4 and 5, pursuant to Sections 13 and 16 of the 1934 Act, respectively. The individuals charged were officers, directors and/or beneficial owners of publicly traded companies that failed to make “insider” filings. Two firms were charged for contributing to their officers’ and directors’ failures to file insider reports and for failing to comply with their own disclosure obligations to report such delinquencies. The penalties ranged from US$10,000 to US$750,000, and in the aggregate exceeded US$3.8 million.

All firms paid financial penalties and unlike the SEC’s enforcement against firms last week for their failure to file Forms 13Fs and 13H, there was no indication that any of the firms in this settlement self-reported their violations. In addition, although not included in last week’s actions, one of the firms separately settled for failing to timely file Forms 13F. The SEC indicated that its staff used data analytics to identify the charged entities and individuals as filing required reports late.

Schedules 13D and 13G are designed to provide information about the holdings of investors who beneficially own more than five percent of any registered voting class of certain equity securities (including registered closed-end funds). Meanwhile, Forms 3, 4, and 5 are designed to provide information about public company stock transactions by corporate officers, directors, or certain investors who beneficially own more than 10 percent of the stock.

The filing requirements here are not limited to asset managers or US entities and apply to investors, domestic or foreign. These enforcement actions serve as a reminder for firms to review their Section 13 obligations, and to take note of upcoming changes to Schedule 13G deadlines, and the new requirement to file after any material changes.

SEC Enforcement Takes Broad View of Anti-Whistleblower Rule in Latest Action Targeting Investment Advisers and Broker-Dealer

By: Hayley Trahan-Liptak and Taylor A. Listau

On 4 September 2024, the US Securities and Exchange Commission (SEC) announced that it settled charges against affiliated investment-advisers and a broker-dealer over the use of restrictive language in confidentiality agreements, in violation of Rule 21F-17(a) of the Securities Exchange Act of 1934. The firms agreed to pay a combined $240,000 in civil penalties to settle the charges. The enforcement action is the latest in the SEC’s ongoing focus on confidentiality provisions in release agreements; an emphasis that has increasingly focused on investment advisers and broker-dealers.

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FinCEN Narrows the Final AML Requirements for Investment Advisers

By: Richard F. Kerr and Jennifer L. Klass

On 28 August 2024, the Financial Crimes Enforcement Network (FinCEN) finalized regulations that add certain investment advisers (Covered Advisers) to the definition of a “financial institution” under the Bank Secrecy Act thereby requiring Covered Advisers to, among other things, establish anti-money laundering (AML) and counter-terrorist financing (CFT) programs and file Suspicious Activity Reports with FinCEN.  The effective date of the new rules is January 1, 2026.

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The MNPI Is Coming From Inside the House

By: Pablo J. Man and Lance C. Dial

On 26 August 2024, the SEC settled charges against an SEC-registered adviser for policies and procedures failures related to the misuse of material nonpublic information (MNPI) concerning its trading of collateralized loan obligations (CLOs). The adviser paid a US$1.8 million penalty.

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PFAR Appeal Timeline Runs Out

By: Ed Dartley and Jamie M. Robinson

The clock ran out Monday, 22 July 2024 for the SEC and its timeline to appeal the unanimous decision of the US Court of Appeals for the Fifth Circuit to vacate the Private Fund Adviser Rules (PFAR). The 2023 August adoption of PFAR and the Fifth Circuit’s 2024 June subsequent decision to vacate, has caused both controversy and compliance confusion across the private fund sector over the last few years. Even in the absence of an appeal, open questions remain surrounding the implications of future rulemaking under Section 206(4) of the Advisers Act and the SEC’s stated goal to enhance transparency in the private funds space.

While the next steps for the SEC remain to be seen, managers and investors alike will still need to gauge market reaction to the core principles of PFAR and how they may drive industry initiatives separate and apart from any future regulatory efforts. For example, Institutional Limited Partners Association (ILPA) continues to adjust the parameters of the “Quarterly Reporting Standards Initiative” which was launched in early 2024 and proposes model reporting forms that are substantively similar to what was proposed in the Quarterly Statements provision of PFAR. Now that the “wait and see” attitude on PFAR is past us, it can be expected that private fund industry participants will continue to explore the parameters of the goals that PFAR tried to achieve.

SEC Adopts Enhanced Privacy Safeguards

By: Rich Kerr, Sasha Burstein, and Brian Doyle-Wenger

On 16 May 2024, the US Securities and Exchange Commission (SEC) adopted amendments to Regulation S-P’s safeguards and disposal rules. The amendments are designed to address the expanded use of technology and corresponding risks that have emerged since the original adoption of Regulation S-P in 2000. The amendments expand the scope of information and broaden the number of customers protected under both rules. The safeguards and disposal rule will apply to “customer information”, which includes records that contain “nonpublic personal information” as defined in the existing rule. Additionally, the amended rule expands the applicability of the safeguards rule to include transfer agents, and the disposal rules to include all transfer agents including those registered with appropriate regulatory authorities other than the SEC.

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Go Ahead and Take a CIP: SEC and Treasury Department Propose New Regulations for Investment Advisors

By: Richard F. Kerr, Jennifer L. Klass, C. Todd Gibson, and Kenneth Holston

On 13 May 2024, the Securities and Exchange Commission (SEC) and the Department of the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) jointly proposed rulemaking to implement section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (CIP Rulemaking), which would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish written customer identification programs (CIP).

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SEC Risk Alert Offers Initial Observations on Compliance

By: Michael S. Caccese and Lance C. Dial

On 17 April 2024, the Securities and Exchange Commission (SEC) Division of Examinations issued a risk alert entitled “Initial Observations Regarding Marketing Rule Compliance” (the Alert). The Alert reflected the SEC examination staff’s preliminary observations coming from its examination program and noted that compliance with Rule 206(4)-1 (the Marketing Rule) continues to be a priority for the SEC staff.

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Marketing Rule Enforcement Remains Priority: SEC Charges Five Advisers for Marketing Rule Violations

By: Lance C. Dial, Pablo J. Man, Pamela A. Grossetti, and Bradley D. Bostwick

On 12 April 2024, the SEC announced the settlement of charges against five registered investment advisers for violations of Rule 206(4)-1 under the Advisers Act (Marketing Rule). The allegations in these settlements will be familiar: the SEC determined that the five firms advertised hypothetical performance to the general public on their websites. As noted in prior settlements, the SEC takes the view that hypothetical performance should not be included on a firm’s public website, because public website disclosure does not allow firms to ensure that (through the adoption and implementation of policies and procedures) the hypothetical performance is “relevant to the likely situation and investment objectives of each advertisement’s intended audience”, as required under the Marketing Rule. 

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SEC Fines Adviser for Off-Channel Communications

By: Lance C. Dial and Pablo J. Man

On 3 April 2024 the SEC announced the first off-channel communications settlement with a registered investment adviser who was not otherwise affiliated with a broker-dealer. This settlement provides new insight into how the SEC views adviser’s recordkeeping obligations, which are narrower than broker-dealer regulatory requirements.

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