Guidance

Staff letter confirms that interests in ABLE accounts may be considered municipal securities. The SEC’s Office of Municipal Securities issued an interpretive letter on the applicability of Section 3(a)(29) of the Securities Exchange Act to interests in savings accounts established to support individuals with disabilities under the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014. The letter indicated that some interests in ABLE accounts may be “municipal securities” as defined in Section 3(a)(29) of the Securities Exchange Act and that a dealer participating in the sale of these interests would be participating in a “primary offering” and thus subject to the requirements of Rule 15c2-12. (3/31/2016) SEC staff letter.

Investment Management offers guidance to SBIC advisers on FAST Act registration exemptions. The SEC’s Division of Investment Management published new guidance for investment advisers to small business investment companies relating to Fixing America’s Surface Transportation Act amendments affecting registration requirements. In the guidance, the Division indicated that advisers may rely on the FAST Act amendments to the venture capital fund adviser exemption or the private fund adviser exemption, but must file the reports required of an exempt reporting adviser on Form ADV. (3/21/2016) IM Guidance Update 2016-03. 

Corporation Finance publishes revised C&DI to address vague shareholder proposals. The SEC’s Division of Corporation Finance revised its Compliance and Disclosure Interpretation regarding requirements for the description of shareholder proposals on a registrant’s proxy card under Rule 14a-4(a)(3) to explain that proposals must clearly identify and describe the action on which shareholders will vote and to provide examples of descriptions that would be considered too vague. (3/22/2016) C&DI 301.01.

Exemptive Orders and No-Action Relief

ETF receives no-action relief from certain Investment Company Act ownership limits. The SEC’s Division of Investment Management granted SPDR S&P Dividend ETF’s request for no-action relief from enforcement action under sections 12(d)(2) and 12(d)(3) of the Investment Company Act if the fund invests such that it may own more than 10 percent of the total outstanding voting stock of an insurance company and/or purchase more than 5 percent of an outstanding class of equity securities of an issuer that, in its most recent fiscal year, derived more than 15 percent of its gross revenues from securities related activities. (3/28/2016) SEC no-action letter.

SEC exempts three more exchanges from data collection requirements of Tick Size Pilot Program. The SEC’s Division of Investment Management issued orders granting limited exemptions to Bats BYX ExchangeBats EDGA Exchange, and Bats EDGX Exchange from compliance with certain data collection requirements contained in the Plan to Implement a Tick Size Pilot Program. (3/22/2016)

Selected Enforcement Actions

Investment adviser charged with front running transactions at the expense of clients. The SEC instituted contested administrative proceedings against an investment adviser for breaching his fiduciary duty by front running transactions that favored him and his largest investor at the expense of his other clients. The SEC alleged that the investment adviser to a private pooled investment fund invested the majority of fund’s assets in one security. After the share price of the security declined dramatically, the adviser sold all of his personal shares first and liquidated the fund’s shares the following day. By selling his personal shares first, the adviser benefitted from a higher share price as the share price of the security declined significantly during the liquidation of the fund’s shares. In addition, the adviser purchased shares of the security on behalf of the fund directly from his largest investor’s personal account at prices favorable to the investor. When the adviser liquidated the fund’s entire holdings in the security a few weeks later, the fund suffered losses because it sold the shares it had recently purchased from the investor at a substantially lower price than it originally paid. The SEC charged the adviser with violations of Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder, Sections 206(1) and 206(2) of the Investment Advisers Act, and Section 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder. (3/29/2016) In the Matter of Christopher M. Gibson, SEC Release No. 34-77466.

Speeches and Statements

White highlights concerns about unicorns and private company governance.Addressing the SEC-Rock Center for Corporate Governance’s Silicon Valley Initiative, SEC Chair Mary Jo White questioned the accuracy of unicorn valuations and called on private companies to take steps to safeguard the accuracy of their financial results and other disclosures. White also highlighted the need for growing start-ups to expand their governance structures and internal controls. (3/31/2016)White remarks.

White discusses fund directors’ role in addressing current and future risks.SEC Chair Mary Jo White, in a keynote address to the Mutual Fund Directors Forum 2016 Policy Conference, emphasized recent failures and technological glitches at mutual funds to illustrate her belief that directors must be proactive in determining whether their funds have adequately considered potential risks and how to prevent them. (3/29/2016) White remarks.

Chief Accountant discusses revenue recognition transition challenges and non-GAAP reporting concerns. SEC Chief Accountant James V. Schnurr delivered remarks to the 12th Annual Life Sciences Accounting and Reporting Congress in which he addressed the implementation of the new revenue recognition standard, concerns regarding non-GAAP reporting measures, and the importance of collaboration among preparers, auditors and management in effectively designing and implementing internal control over financial reporting. (3/22/2016) Schnurr remarks.

Other Developments

Investor Advisory Committee meeting. The SEC announced that the Dodd-Frank Investor Advisory Committee will hold a meeting on April 14, 2016. Written statements to the Committee are due on or before April 14, 2016. SEC Commission Notice 33-10058.

Investor Advocate urges MSRB to address potential for misleading disclosures in PMP guidance proposal. SEC Investor Advocate Rick Fleming submitted a letter commenting on the Municipal Securities Rulemaking Board’s proposed guidance for municipal securities dealers to determine the prevailing market price of a municipal security. Although he indicated his support for the proposal as an effort to increase price transparency, Fleming expressed concern regarding the potential for manipulation of the prevailing market price calculation for confirmation disclosure purposes. (3/31/2016) Investor Advocate letter.

Office of Minority and Women Inclusion submits annual report to Congress. The SEC’s Office of Minority and Women Inclusion submitted its annual report to Congress, which details the SEC’s efforts to enhance diversity in its workforce and promote the use of minority-owned and women-owned businesses in its business activities. (3/31/2016) Office of Minority and Women Inclusion report.

SEC issues order approving SIPC’s determination on maximum cash advance amount for SIPA liquidation claims. The SEC approved the Securities Investor Protection Corporation’s determination that the standard maximum cash advance amount available to satisfy customer claims in a Securities Investor Protection Act liquidation proceeding will remain at US$250,000, effective January 1, 2017, and for the following five-year period. (3/30/2016) SEC Commission Notice SIPA 176.

DERA staff report on custom axis tags in Form 10-K XBRL exhibits. Staff from the Office of Structured Disclosure in the SEC’s Division of Economic Risk and Analysis released a report that discourages issuers from using custom axis tags in the XBRL exhibits that accompany their annual reports, claiming it inhibits the comparison and analysis of financial statement data. The report notes that the use of custom axis tags is more prevalent among larger issuers. (3/29/2016) DERA staff report.

SEC reschedules open meeting. The SEC has changed the date of its open meeting from March 30, 2016, to April 13, 2016. The SEC previously announced that it will consider rules governing business conduct standards for security-based swap dealers and major security-based swap participants and the modernization of certain business and financial disclosure requirements under Regulation S-K at the meeting. (3/25/2016) SEC Sunshine Act Meeting Notice.

Draft EDGAR Filer Manual updates. The SEC released the Draft EDGAR Filer Manual (Volume II) EDGAR Filing (Version 36); the Draft EDGAR ABS XML Technical Specification (Version 1.2); the Draft EDGAR Form 17-H XML Technical Specification (Version 1); and the Draft EDGAR SBS Entity Forms XML Technical Specification (Version 1). If approved by the SEC, the changes in the drafts will be implemented on April 25, 2016. (3/25/2016)