Category Archives: Miscellaneous

SEC Database Improves Tracking of Tips and Complaints

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The SEC received heavy criticism for their failure to conduct a proper investigation into early tips received relating to the Madoff scandal.   In response, they have developed the Tips, Complaints and Referrals Database (the “TCR Database”) which significantly improves their ability to track and respond to tips and complaints on potential wrongdoers.  The TCR Database has emerged alongside a new program by the FBI’s criminal profiling group in Quantico, Va. that is creating a series of behavioral composites to help agents investigate white collar crime.

In recent years, financial crimes have been on the rise.

In the US government’s 2010 fiscal year, the FBI’s economics crime unit reports the bureau had 1,703 active securities and commodities fraud investigations, a 41 percent increase over the number of active investigations in 2008.  Over the past year, the amount of monetary penalties the SEC has imposed on wrongdoers has almost tripled…

Prior to the creation of the TCR Database tips would come in via phone calls, e-mails, faxes and even handwritten letters into the SEC’s 11 regional offices and Washington headquarters and often were not properly recorded or followed up. The TCR database now provides a systematic and organized approach to reviewing the information provided by tipsters, whistle-blowers and self-regulatory organizations.  Once a tip or complaint is entered into the system through the online questionnaire available in the TCR Database portal, about 2,300 SEC employees can see it, analyze the information and add to it.

While the TCR Database can not yet be cross-checked against other internal databases or against trading activity, company filings or news feeds, it is a start and a positive reform and improvement for the SEC.

Division of Investment Management Requests Extensions of Deadlines for Mid-Sized Advisers and Private Fund Advisers

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IA Watch is reporting that the Division of Investment Management has formally requested that the Securities and Exchange Commission (SEC) move to next year the deadlines for mid-sized advisers (certain advisers with between $25 million and $100 million in assets under management) to switch to state registration and for private fund advisers with more than $150 million in assets under management to register with the SEC.  IA Watch states: “The formal request moves this closer to becoming reality, should the Commission act on it.”

Robert E. Plaze, Associate Director of the Division of Investment Management, had suggested that extensions to the first quarter of 2012 were a possibility in his April 8, 2011 letter to David Massey, President, North American Securities Administrators Association, Inc. and Deputy Securities Administrator, North Carolina Securities Division.

“We anticipate that the Commission will complete its implementing rulemaking by July 21,2011 in accordance with the Dodd-Frank Act, but expect in connection therewith that the Commission will consider providing additional time for investment advisers affected by these provisions to come into compliance.”

With respect to the switch of mid-sized advisers to state registration, Mr. Plaze’s letter noted that once the SEC  adopts the implementing rulemaking, the Investment Adviser Registration Depository system (lARD) will “require re-programming to accept advisers’ transition filings” and that they “understand that the re-programming process will take until the end of the year to complete.”  As a result, under consideration was the possibility that  “all SEC-registered advisers would be required to report their eligibility for registration with the Commission in the first quarter of 2012.”  He went on to say that, even if the implementing rulemaking is completed prior to July 21, 2011,  private fund advisers will need time to register and come fully into compliance with the accompanying obligations, and that they “expect that the Commission will consider extending the date by which these advisers must register and come into compliance with the obligations of a registered adviser until the first quarter of 2012.”

IA Watch‘s report is not surprising given recent reports in industry publications (including a May 2 report by IA Watch) that SEC staff members have indicated the expectation that the delays will go through.  One such statement was reported to have been made by Sara Crovitz, a Branch Chief in the Office of Chief Counsel in the Division of Investment Management, as  a participant in a DC bar luncheon panel discussion on “Cross Border Issues Affecting Investment Advisers in the World of  Dodd-Frank.”

Marketers to Public Plans in New York City and California Required to Register as Lobbyists

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As of the beginning of 2011, investment advisers, as well as individuals and third-party firms, soliciting business from New York City or the State of California public pension plans must determine if they have any registration obligations under the lobbying laws of those jurisdictions and comply with any applicable requirements as soon as possible. These regulations have been imposed in the wake of pay-to-play scandals in both locales and are in addition to any obligations an investment adviser may have under the Securities and Exchange Commission’s (“SEC”) pay-to-play rules. Continue reading →

And Now Another Post from HR…..

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Although the focus of Compliance Avenue is compliance issues, from time to time, we will post relevant articles from experts that apply to the business-side of the RIA.  Today’s post focuses on HR issues that many workplaces may face:

Sick Employees Should Stay Home

Many employees feel pressure to report to work even when they are sick whether or not they have paid sick leave.  The problem is that employees who are ill while getting their work done may be getting their co-workers sick. If an employee is sick they should be encouraged to talk to their manager about staying home or working remotely until they are no longer contagious.

Most managers and HR professionals agree that if an employee is sick they should stay home.  If they need to be in the office, the sick employee should try to isolate themselves as best they can by working in a conference room or confined space.  They should be reminded to cover their mouth when coughing or sneezing and to use a hand sanitizer frequently. They should regularly clean their keyboard, phone and desk often.

Employers should remember to communicate their sick time policy to ensure that employees understand how much time they can use for this purpose so they use it and keep their germs away from their co-workers.

Senate Spending Bill would Increase SEC and CFTC Budgets; SEC and CFTC Meetings this Week

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Senate Spending Bill

Reuters is reporting that a Senate spending bill released today will give an increase of 18% in the SEC’s 2011 budget  to $1.3 billion and an increase of 69% in the CFTC’s 2011 budget to $286 million (in excess of the funding requested by that agency).  These increases should give the agencies the monies they need to implement the many new rules being put in place pursuant to Dodd-Frank, in particular the rules governing the over-the-counter derivatives market.  Both agencies had warned of delays resulting from lack of funds and the SEC (whose fiscal year began October 1) recently announced that, because of budget uncertainty, it was deferring setting up new offices, including the whistleblower office and those overseeing credit rating agencies and municipal securities.

In order for the agencies to receive their funds, the Senate must now pass the bill and then merge its bill with the House spending bill which has already been passed and includes large increases for these agencies.

SEC Open Meeting

Among the items to be discussed at tomorrow’s Open Meeting at the SEC:

  • Rule and form amendments to establish a process for the submission for review of security-based swaps for mandatory clearing and notice filing requirements for clearing agencies; and
  • An end-user exception to mandatory clearing of security-based swaps for certain counterparties.

CFTC Public Meeting

The CFTC will hold a public meeting on Thursday, December 16, to consider rules whose effect will be to limit speculation in the commodity derivatives markets.  The CFTC plans to propose rules that will set:

  • “Position limits” on how many physical commodity derivative contracts a single speculator can hold;
  • Confirmation, portfolio reconciliation and portfolio compression requirements for swap dealers and major swap participants;
  • Risk management requirements for derivatives clearing organizations;  and
  • Core principles and other requirements for swap execution facilities.

The CFTC is expected to produce new rules by late January.

Analyst Exposes Names of Contacts and Clients in a Blast Email

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John Kinnucan, a research analyst and principal at Broadband Research, gained industry notoriety when he refused to cooperate with the Federal Bureau  of Investigation’s widespread investigation into insider trading and would not wiretap conversations with one of his clients. 

Mr. Kinnucan who has been very vocal in the media, also circulated a blast email to clients and contacts informing them of his decision not to work with federal authorities.  Reuters  gained access to Kinnucan’s email recipient list (which failed to use blind carbon copy) and noted that in addition to those associated with hedge funds and mutual funds, the email may have gone to some individuals in finance not previously considered by federal authorities for investigation into insider trading.   Advisory firms like Friess Associates and Sonar Capital Management, giant hedge fund Citadel Group, and money manager Ameriprise Financial are just a few that have been revealed.

 According to an article published by Reuters,

“Officials for a few of the funds said that Kinnucan, in disclosing the identity of his clients, may have violated an expectation of privacy that traders and analysts had when they signed up with him.”

Some of Mr. Kinnucan’s current or former clients include SAC Capital Advisors and mutual funds Janus Capital Group and Wellington Management, all of whom have already either been subpoenaed or asked by federal prosecutors to provide information.  As such, it is likely that those email recipients who were not previously affected by the recent insider trading probe are probably anxiously wondering if they too may now receive a visit from federal authorities.

SEC December Activities Implementing Dodd-Frank

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The SEC staff continues to carry out the rulemaking and proceed with the studies mandated by the Dodd-Frank Act.

The SEC’s  “Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act” web page consolidates links to all of the SEC’s related accomplishments to date, includes a calendar of its planned activities implementing the Dodd-Frank Act through July 2011 and provides a link to comments the SEC has received on both rulemaking and planned studies.

In November, the SEC proposed the following: an anti-manipulation rule for security-based swaps, a Whistleblower Incentives and Protection Program, rules regarding the registration and regulation of security-based swap repositories and security-based swap reporting and, most recently, exemptions from investment adviser registration for venture capital firm advisers and certain private fund advisers, as well as rules and changes to forms to implement the transition of mid-sized investment advisers from SEC to State regulation.

Highlights of the December, 2010 calendar most relevant to hedge funds and investment advisers include: Continue reading →

SEC To Propose Hedge Fund Manager Registration Rules

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The SEC continues to closely follow its calendar of anticipated Dodd-Frank rulemaking activity and has posted a notice of an Open Meeting, to be held on Friday,  November 19, 2010 at 10:00 a.m.

The SEC plans to propose  Investment Advisers Act of 1940 rules:

  • requiring advisers to hedge funds and other private funds to register with the SEC;
  • addressing reporting by certain investment advisers that are exempt from registration;
  • increasing the statutory threshold for SEC  registration of investment advisers from $25 million in assets under management to $100 million;
  • implementing new exemptions from the registration requirements  for advisers to venture capital funds and advisers with less than $150 million in private fund assets under management in the United States; and
  • clarifying the meaning of certain terms included in a new exemption for foreign private advisers.

The SEC will consider proposed security-based swaps rules: Continue reading →

SEC Approves New Rules Prohibiting Market Maker Stub Quotes

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Yesterday, the SEC approved new rules proposed by the U.S. exchanges and FINRA which will effectively prohibit “stub quotes” in the U.S. equity markets.  The new rules will require exchange-listed equities market makers to post continuous two-sided quotations within a designated percentage of the national best bid and offer (NBBO).  These rule changes are part of continuing efforts to restore investor confidence and minimize the likelihood of a recurrence of the May 6, 2010 “flash crash.”  For further background, see previous Compliance Avenue posts.

As noted in the Joint SEC-CFTC Report on the Market Events of May 6th 2010, executions against stub quotes significantly contributed to the flash crash as they represented a high proportion of the trades that were executed at extreme prices on May 6 and subsequently broken.  A “stub quote” is an offer to buy or sell a stock at a price so far away from the prevailing market price that it is  not intended to be executed (such as an order to buy at a penny or sell at $100,000).  In the past, when a market maker did not want to actively provide liquidity, it might enter a stub quote to technically comply with its obligation to maintain a two-sided quotation.

The new rules require exchange-listed equities market makers to maintain continuous two-sided quotations during regular market hours that are within a certain percentage of the NBBO.  The percentage band will vary based on different criteria: Continue reading →