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Carl F. Emigholz advises major financial institutions and securities market participants on securities and derivatives regulatory and enforcement matters.

On June 1, 2018, the U.S. Securities and Exchange Commission (“SEC”) issued a press release announcing settlements for $75,000 each with 13 private fund advisors for violating their disclosure obligations under Rule 204(b)-1 under the Investment Advisers Act of 1940.  Rule 204(b)-1, adopted to increase transparency in the U.S. financial system and identify risks to financial stability, implemented provisions of Title IV of the Dodd-Frank Act and requires that SEC-registered investment advisers with at least $150 million in private fund assets under management file Form PF with the SEC. Continue Reading SEC Settles With Private Funds For Rule 204(b)-1 Disclosure Violations

On April 18, 2018, the Securities and Exchange Commission (“SEC”) proposed Regulation Best Interest under the Securities Exchange Act of 1934 to establish a new “best interest” standard of conduct for broker-dealers when making a recommendation of any transaction or investment strategy involving securities to a retail customer. The SEC also proposed an interpretation to reiterate and clarify the fiduciary duty applicable to investment advisers under the Investment Advisers Act of 1940. Finally, the SEC proposed a new disclosure form for investment advisers and broker-dealers to provide to retail investors.

In proposing the new Regulation Best Interest and the Guidance, the SEC has attempted to more closely align the standards of conduct applicable to broker-dealers and investment advisers while recognizing the fundamental differences between the services each provides and maintaining investor choice.

Please click here to read the full alert memorandum.

On January 31, 2018, the U.S. Court of Appeals for the D.C. Circuit upheld a federal statute curbing the President’s power to fire the director of the Consumer Financial Protection Bureau (“CFPB”), a financial regulator with the mandate to enforce federal consumer protection laws.[1]  In a 7-3 en banc decision, the Court held that it is constitutional for the CFPB director to be appointed to a five-year term, removable by the President only for “inefficiency, neglect of duty, or malfeasance in office.”[2]  At the same time, however, the Court affirmed the vacature of a $109 million sanction levied by former CFPB director Richard Cordray against PHH Corporation (“PHH”), a large mortgage lender.[3]

As a result of the Court’s decision, the enforcement action will be remanded back to the CFPB, now under the leadership of Trump Administration-appointee Mick Mulvaney.  The remand comes at a time of substantial uncertainty as to the CFPB’s enforcement prerogatives.  In a leaked email to the entire CFPB staff on January 23, 2018, Mulvaney indicated that the CFPB would no longer “push the envelope” when it comes to enforcing consumer protection laws, and would instead be reviewing “everything that [it] do[es], from investigations to lawsuits and everything in between.”[4]  Indeed, the CFPB has since issued several Requests for Information to encourage public comment as it reviews its policies and processes related to enforcement and civil investigative demands.[5]  Continue Reading D.C. Circuit Rules CFPB’s Structure Constitutional but Vacates $109 Million Enforcement Award

FINRA released its 2018 Regulatory and Examination Priorities Letter (“2018 Letter”) on January 8, 2018.  The 2018 Letter highlights areas of emphasis for FINRA in the coming year.  While many of the areas of focus are similar to those included in the 2017 Regulatory and Examination Priorities Letter—including continued focus on high-risk brokers, fraud, firms’ surveillance systems, cybersecurity protocols, and protecting vulnerable investors—there are additional topics included in the 2018 Letter based on market developments throughout 2017 and the results of FINRA’s 2017 exam program, summarized in the 2017 Report on FINRA Examination Findings.

Continue Reading FINRA Declares Regulatory and Examination Priorities for 2018

On October 26, the SEC staff provided, in three related no-action letters, a 30-month grace period during which it will not pursue enforcement actions against U.S. broker-dealers and their client money managers subject to European Union regulations, including investment advisers, for accepting or making direct and separate (i.e., hard dollar) payments for research.  This grace period temporarily relieves a regulatory conflict concerning how market participants provide and pay for research between current U.S. securities laws and the European Union’s new Markets in Finance Instruments Directive (MiFID II) rules, which will take effect on January 3, 2018. Continue Reading The SEC’s Temporary Enforcement Grace Period to Mitigate Legal Status and Operational Implementation Issues Over the EU’s New Research Regulation