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Yesterday the Securities and Exchange Commission took two significant actions relating to the MD&A disclosures in annual and quarterly reports of public companies.

First, it proposed amendments to MD&A requirements that would, if adopted, make significant and long-overdue improvements to a central disclosure requirement of the U.S. securities laws. Second, it issued guidance on the…

On January 7, 2020, the U.S. Securities and Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) released its 2020 Examination Priorities (“2020 Priorities”).  While at first blush the themes appear consistent with and predictable from their 2019 priorities, on closer read OCIE has provided some new insights and some unexpected focus areas.  The themes for the 2020 Priorities are:  retail investors, information security, financial technology (“Fintech”) and innovation (including digital assets and electronic investment advice), several areas covering registered investment advisers and investment companies, anti-money laundering, market infrastructure (clearing agencies, national securities exchanges, alternative trading systems, transfer agents), and oversight of the Financial Industry Regulatory Authority and Municipal Securities Rulemaking Board programs and policies.  OCIE also stressed the challenges it faced in light of last year’s government shutdown and resource constraints, as the Division of Enforcement did in its 2019 Annual Report (see our analysis here), and the challenges in examining non-U.S. advisers due to limits that foreign data protection and privacy laws may place on cross-border information transfers.  In this post, we analyze the highlights in and our takeaways from the 2020 Priorities.
Continue Reading From the Expected to the Surprises: Highlights of SEC OCIE’s 2020 Priorities

On September 4, 2019, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert addressing the most common compliance issues it identified in examinations of investment advisers (“Advisers”) related to principal and agency cross transactions.
Continue Reading SEC’s OCIE Affiliate Transaction Risk Alert Highlights Pitfalls in Obtaining Effective Consent

On July 3, SEC Chairman Jay Clayton issued a statement signaling a policy change in SEC settlements and the consideration of applications for waiver of collateral consequences flowing from those settlements, such as the loss of certain significant procedural advantages in (or even outright exemption from) the securities registration process.[1]  In practice, this change could both streamline the process of settling enforcement actions with the SEC and provide additional certainty to settling entities, which, under the current regime, must decide whether to settle a matter before completing and knowing the outcome of negotiations over waivers.
Continue Reading SEC to Allow Settling Parties to Submit Simultaneous Settlement Offers and Applications for Waiver from Disqualifications

On June 5, 2019, the Securities and Exchange Commission (“SEC”) finalized Regulation Best Interest (“Reg BI” or the “Final Rule”) under the Securities Exchange Act of 1934 (“Exchange Act”) 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…

On May 15, 2019, the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Commodity Futures Trading Commission (“CFTC”) announced that they entered into an Enhanced Multilateral Memorandum of Understanding Concerning Consultation and the Exchange of Information (“Enhanced MMoU”) under the auspices of the International Organization of Securities Commissions (“IOSCO”), along with nine other international financial regulators.[1]  Both the SEC and CFTC are already signatories to IOSCO’s predecessor memorandum of understanding with 121 other signatories.  However, the Enhanced MMoU provides for significant enhancements in cross-border enforcement cooperation—including the ability to compel testimony outside of the United States—that, if widely adopted, could increase the signatory regulators’ abilities to undertake (and coordinate) multilateral cross-border investigations.
Continue Reading SEC and CFTC Chairs Sign Enhanced Multilateral Memorandum of Understanding Expanding Cross-Border Enforcement Cooperation

On April 16, 2019, the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert addressing all registered broker-dealers and investment advisers’ (together, “Firms”)[1] privacy-related obligations under Regulation S-P (“Reg S-P”).  The Risk Alert set out the most frequent Reg S-P deficiencies OCIE identified during examinations over the past two years, and encouraged registrants to review their written privacy policies and procedures as well as the consistency with which these policies and procedures have been implemented.  The Alert is the latest in a series of recent privacy and cybersecurity guidance documents issued by the SEC, including the February 2018 Commission Statement and Guidance on Public Company Cybersecurity Disclosures and October 2018 Report of Investigation on cyber-related frauds and public company accounting controls.

This Risk Alert is consistent with the SEC’s approach of seeking to influence the conduct of registrants by providing guidance on specific compliance issues, followed by Risk Alerts noting common exam deficiencies, prior to pursuing enforcement actions.  Investment advisers and broker-dealers should  take this as a prompt to review their relevant policies and procedures to ensure they are appropriate and being followed in practice.
Continue Reading SEC Privacy Risk Alert may Foreshadow Upcoming Reg S-P Enforcement Against Broker-Dealers, Investment Advisers

On April 3, 2019, staff of the Securities and Exchange Commission released (1) a framework providing principles for analyzing whether a digital asset constitutes an investment contract, and thus a security, as defined in SEC v. W.J. Howey Co. and (2) a no-action letter permitting TurnKey Jet, Inc., without satisfying registration requirements under the Securities…

On February 20, the Securities and Exchange Commission (the “SEC” or “Commission”) issued a cease-and-desist order against Gladius Network LLC (“Gladius”) concerning its 2017 initial coin offering (“ICO”).  The SEC found that the Gladius ICO violated the Securities Act of 1933’s (“Securities Act”) prohibition against the public offer or sale of any securities not made pursuant to either an effective registration statement on file with the SEC or under an exemption from registration.[1]  While this is far from the first time that the SEC has found that a particular ICO token meets the definition of a “security” under the Securities Act,[2] this is notably the first action involving an ICO token issuer that self-reported its potential violation.  Due to this, and Gladius’s cooperation throughout the investigation, the SEC stopped short of imposing any civil monetary penalties among its ordered remedial measures.
Continue Reading SEC Issues First ICO Enforcement Action Against a Self-Reporting Token Issuer

On January 29, 2019, the SEC announced four settlements with publicly-traded companies for failure to maintain adequate internal control over financial reporting.

None of the companies was charged with making false or inaccurate statements, either about its ICFR or otherwise; indeed, each had repeatedly disclosed material weaknesses in ICFR over many years.

These cases are…