Financial Institutions

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The long and winding road of the Corporate Transparency Act (CTA) litigation (as discussed in our most recent CTA client alert) has taken another turn, and this time companies are driving blind. On New Year’s Eve, the U.S. Department of Justice (DOJ) asked the U.S. Supreme Court to lift the injunction imposed by a Texas court and let the law go into effect while the legal contest over the constitutionality of the law is pending. Yesterday, the U.S. Supreme Court resoundingly agreed with the DOJ. In an 8-1 ruling, the nation’s highest Court lifted the stay on enforcement of the statute. One might assume that the Supreme Court ruling ended the injunction issue, but a separate order issued by a different federal judge in Texas blocking enforcement of the statute nationwide remains in place.Continue Reading U.S. Supreme Court Lifts Initial Injunction Against Enforcement Of Corporate Transparency Act, But A Separate Injunction Continues To Halt Implementation 

On November 22, the Securities and Exchange Commission announced its enforcement results for the 2024 fiscal year with a record $8.2 billion in financial remedies.[1]  At the same time, a few cases and sweeps comprised the vast bulk of that amount, and the number of cases brought dropped by 26%.  In a press release announcing the results, Acting Enforcement Director Sanjay Wadhwa touted the agency’s “high impact enforcement actions” and noted “stepped up efforts” by market participants to self-report their own potential wrongdoing, cooperate in SEC investigations, and remediate any shortcomings.  Chair Gary Gensler, who recently announced he will step down at the start of the next Trump presidency, described the Enforcement Division as a “steadfast cop on the beat.”  Set forth below are key highlights on enforcement trends from the past year, as well as predictions for what the next year may hold under a new administration.Continue Reading SEC FY 2024 Enforcement Results: Record Dollars But Many Fewer Cases

On September 18, 2024, the Securities Exchange Commission (“SEC”) unanimously adopted new rules amending Regulation NMS (the “Amendments”). The Amendments (1) establish new minimum pricing increments (or “tick sizes”) for certain stocks priced above $1.00, (2) establish a new maximum fee for access to quotations, and require that all such fees be calculable as of the transaction date, and (3) accelerate the implementation of operational amendments to the “round lot” and “odd-lot information” definitions previously adopted to harmonize with the adopted NMS amendments.Continue Reading The Next Market Structure Rule Arrives: SEC Adopts New Minimum Pricing Increments and Access Fee Caps

Earlier this month, the California State Budget released for approval by the state legislature included an updated version of Senate Bill 54 (the “VC Diversity Law”).  The latest version contains several updates to the VC Diversity Law, including revisions to the definition of “covered entity;” that said, as we discuss below, it is not clear that the scope of coverage will meaningfully differ.  The updates also delay the initial reporting date to March 1, 2026 (from the original date of March 1, 2025), and reflect a change to the California governmental division responsible for enforcing the law.Continue Reading California Updates Diversity Reporting Law for Venture Capital Funds to Start in 2026

With its decision in Securities and Exchange Commission v. Keener (May 29, 2024), the U.S. Court of Appeals for the Eleventh Circuit has now twice in the span of four months affirmed a broad interpretation of who is considered a “dealer” for purposes of the securities laws. More specifically, the Eleventh Circuit upheld the Securities and Exchange Commission’s (“SEC”) position that a person engaged in the business of purchasing—for its own account—convertible debt notes from microcap issuers (also referred to as “penny-stock” companies), converting the notes into common stock, and selling that stock in the market meets the definition of a “dealer” under the Securities Exchange Act of 1934 (the “Exchange Act”), and must therefore be registered as a dealer with the SEC. The decision in Keener closely tracked the same Court’s decision in Securities and Exchange Commission v. Almagarby, Microcap Equity Group (February 14, 2024), in which the Eleventh Circuit agreed with the SEC that the plaintiff Almagarby had been acting as an unregistered “dealer” in violation of the Exchange Act by obtaining convertible debt of microcap companies for his own account, converting the debt into common stock, and then selling the stock. Continue Reading Keener, Almagarby, and the Scope of the “Dealer” Definition: Potential Implications for Fund Managers and other Investors

On March 6, 2024, the Securities and Exchange Commission (“SEC” or “Commission”) adopted amendments to the disclosure requirements of Rule 605 of Regulation NMS for order executions of stocks listed on a national securities exchange.[1]  The final rule amendments expand the scope of entities that must comply with, and order types and sizes that must be reported under, Rule 605, and requires time-based metrics to be reported at a more granular level.  This is the first substantive update of Rule 605 since it was adopted in 2000. Continue Reading SEC Approves Amendments to Enhance Disclosure of Order Execution Information

On February 15, 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) released a notice of proposed rulemaking (the “Proposed Rule”)[1] that would impose anti-money laundering/countering the financing of terrorism (“AML/CFT”) compliance obligations on SEC-registered investment advisers (“RIAs”) and exempt reporting advisers (“ERAs”) pursuant to the Bank Secrecy Act (the “BSA”), taking steps to close a perceived gap in the AML/CFT defenses of the U.S. financial system. FinCEN estimates more than 15,000 RIAs and almost 6,000 ERAs may be covered by the Proposed Rule, including many advisers that are located outside the United States but have registered (or file reports) with the SEC because they have U.S. clients. Continue Reading FinCEN Tries Again . . . to Impose AML Requirements on Investment Advisers

On November 14, the Securities and Exchange Commission announced its enforcement results for the 2023 fiscal year,[1] with case numbers up from fiscal year 2022 and monetary sanctions at the second highest level in the agency’s history, though down significantly from last year’s record highs.  In a press release announcing the results, Enforcement Director Gurbir Grewal noted that the past year’s cases demonstrate how the agency “work[s] with a sense of urgency, using all the tools in our toolkit.”  This post evaluates how the SEC used its enforcement tools in the past year and surveys the enforcement highlights in key substantive areas.Continue Reading SEC Announces FY 2023 Enforcement Results with Second-Highest Penalties on Record

On October 13, the Securities and Exchange Commission (the “SEC”) adopted new rule 10c-1a (the “Rule”), which establishes broad reporting requirements of the terms of securities loans to the Financial Industry Regulatory Authority (“FINRA”) for public dissemination. Aimed at increasing transparency in the securities lending market, the Rule will significantly increase compliance obligations in the securities lending industry, and many market participants will likely require extensive operational upgrades to prepare for compliance. Certain details of reporting obligations will be the subject of FINRA rulemaking, and participants should be prepared to review and provide comment on what is proposed.Continue Reading SEC Finalizes Rule Requiring Securities Loan Reporting

On July 26, 2023, the Securities and Exchange Commission (“SEC”) proposed new rules targeting the use of predictive data analytics and artificial intelligence (“AI”) by registered investment advisers (“RIAs”) and broker-dealers.[1]  The new proposed rules focus on the potential for conflicts of interest and the possibility that newer, more complex analytics models (including those using AI) might optimize decision making for RIAs and broker-dealers by placing those firms’ interests above the interests of their clients.[2]  The proposed rules would require RIAs and broker-dealers to: (i) evaluate whether their use of technologies “that optimize for, predict, forecast or direct investment-related behaviors or outcomes” create such a conflict of interest, and (ii) either stop using or address the effects of tools that place a firm’s interests before the interests of clients.  RIAs and broker-dealers will also will be required to adopt policies to ensure compliance with the new proposed rules.[3] Continue Reading SEC Proposes Rules Limiting the Use of Artificial Intelligence by Registered Investment Advisers and Broker-Dealers