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Cady Bar the Door Insight & Commentary on SEC Enforcement Actions and Related Issues

Category Archives: Compliance

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SEC Says the Cyber Police Are Coming

Posted in Broker-Dealers, Compliance, Investment Advisers

Pretty soon we’ll all be data privacy lawyers.  The SEC is certainly doing its part to ensure that comes to pass.  Earlier this year the SEC’s Office of Compliance, Inspections, and Examinations announced that its 2014 Examination Priorities included a focus on technology, including cybersecurity preparedness.  On  March 26, the SEC sponsored a Cybersecurity Roundtable… Continue Reading

SEC CustodyFest Vol. 3: Jason Returns

Posted in Compliance, Investment Advisers

In this last chapter of SEC CustodyFest, we visit Knelman Asset Management Group.   For this case, I’m mostly interested in discussing a change to the SEC’s custody rule, Rule 206(4)-2, from 2010. Rule Change Before its amendment in March of that year, the rule required advisers with custody of its clients’ assets to: have a… Continue Reading

SEC CustodyFest Vol. 1: A New Beginning

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

Imagine being Andrew Bowden.  As director of the SEC’s Office of Compliance, Inspections and Examinations, you know you don’t have enough staff to conduct reasonably regular exams of registered investment advisers.  You also know that some members of Congress continue to take great delight in beating up the SEC for its failures with the Bernard… Continue Reading

SEC Hits TD Bank for Rothstein Ponzi Scheme

Posted in Compliance

Running a bank is fraught with risk.  Its loans could go bad, devolving into a pool of what is euphemistically called “non-performing assets.”  East European hackers could steal its customers’ identities, and ultimately their money.  A bank’s own investments could sour.  As you probably know, the list goes on and on.  But here’s another possibility:… Continue Reading

Companies Finding Little Use for Quick, Efficient Way to Avoid Liability

Posted in Compliance, Insider Trading

When I was on the SEC’s enforcement staff, I had a case once where we were pretty sure our prospective defendant had engaged in insider trading.  Our conversation with his lawyer went something like this:¹ Us:       Did your guy sell those shares on the basis of material, nonpublic information? Him:   No way.  In fact, he… Continue Reading

SEC Dings Investment Adviser for Custody Violations, Failure to Supervise

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

Readers of this space – and SEC observers generally – will recall a March 4 risk alert designed to warn investors about the ways U.S. investment advisers had recently been found to have violated the SEC’s asset custody rule.  The number and variety of violations were legion.  Advisers were not assuring themselves that clients were… Continue Reading

SEC Highlights Compliance and Ethics for Broker-Dealers

Posted in Broker-Dealers, Compliance

On Tuesday the SEC held a National Compliance Outreach Program for Broker-Dealers at an open meeting at its D.C. headquarters.  The first panel – titled The Role of Compliance and Ethics – was nominally targeted to broker-dealers, but its lessons could be applied to any businesses under significant regulatory scrutiny. The participants were: Merri Jo… Continue Reading

SEC Issues Risk Alert on Investment Adviser Custody Rule

Posted in Auditors, Compliance, Investment Advisers, Non-scienter-based Violations

The SEC can express its displeasure with a particular securities practice in a number of different ways, with increasing levels of fun for the alleged malefactor.  Here’s a non-exhaustive list: One thing it can do is file an enforcement action in federal or administrative court.  This option is not fun at all.  It’s not as… Continue Reading

SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 2

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

As we discussed last month, the SEC’s Asset Management Unit has developed a likeness for not just big, headline-grabbing cases, but relatively small compliance-based cases that are designed to prevent minor problems from growing into large ones.  People like to say that the damage is done before the SEC ever gets involved, and that is… Continue Reading

SEC’s Asset Management Unit Focuses on Compliance Failures, Vol. 1

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The SEC Enforcement Division’s Asset Management Unit has brought some substantial cases over the last year, including a number arising out of its Aberrational Performance Inquiry.  Another focus for the unit has been compliance failures at registered investment advisers.  On November 20th, the unit filed a pair of administrative cases addressing some of those failures. … Continue Reading

Saturday Links

Posted in Accounting Fraud, Broker-Dealers, Compliance

Good morning!  Some stories for you to read today: The Legal Times reports that Harvey Pitt says the SEC has been saddled with an impossible job in writing rules to implement the JOBS Act.  At an ABA conference in D.C., he said, ”We’ll see some sort of scandal rise and of course everyone will blame the… Continue Reading

Khuzami Touts SEC’s Focus on Compliance

Posted in Compliance, Insider Trading, Investment Advisers, Non-scienter-based Violations

The SEC’s Enforcement Director, Rob Khuzami, gave an interview to Thomson Reuters last week that you should read.  These things are always edited, so it’s hard to know in what order he spoke, but as it is written he gets the interview off to an interesting start.  He does not crow about any particularly “big”… Continue Reading

SEC Targets Insider Trading Compliance Failures

Posted in Broker-Dealers, Compliance, Insider Trading, Non-scienter-based Violations

In light of Cady’s recent IA compliance gala celebration, I thought I would spend a post discussing In re Janney Montgomery Scott LLC, Admin. Proc. File No. 3-14459 (July 11, 2011), a compliance matter involving a broker-dealer. The case was based in Section 15(g) of the Exchange Act, which requires all registered broker-dealers to establish, maintain,… Continue Reading

SEC Sues IAs for Compliance Failures, Part III

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

In the final chapter of this Cady Bar the Door investment adviser extravaganza, we examine In re Feltl & Company, Inc., Admin. Proc. File No. 3-14645 (Nov. 28, 2011). Minneapolis-based Feltl & Co. is a dually-registered broker-dealer and investment adviser, and substantially larger than the other two IAs in the trio, OMNI and Asset Advisors…. Continue Reading

SEC Sues Investment Advisers for Compliance Failures, Part II

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The second of three cases the SEC’s Asset Management Unit brought against registered investment advisers on November 28th, In re OMNI Investment Advisors Inc., Admin Proc. File No. 3-14643 (Nov. 28, 2011), was much like Asset Advisors.  OMNI, based in Draper, Utah, had about 190 clients with approximately $65 million in assets under management.  OMNI… Continue Reading

SEC’s Asset Management Unit Picks Up Its Game

Posted in Compliance, Investment Advisers, Non-scienter-based Violations

The SEC’s Asset Management Unit is making its presence felt.  Last week the unit brought a slew of cases against investment advisers and hedge funds that put the group on the forefront of the Enforcement Division’s efforts to remake itself after the Bernard Madoff fiasco.  Though the two groups of cases were obscured by Judge… Continue Reading