SEC adopts JOBS Act amendments to make inflation adjustment to Regulation Crowdfunding and emerging growth company threshold. The Securities and Exchange Commission announced that it adopted final rules on March 31, 2017, to make technical amendments to conform certain rules and forms to amendments made to the Securities Act and the Securities Exchange Act by Title I of the Jumpstart Our Business Startups Act. The final rules also adjust for inflation the eligibility threshold in the definition of “emerging growth company” and amend Regulation Crowdfunding to adjust for inflation the dollar amounts used in connection with the crowdfunding exemption. The final rules are effective upon publication in the Federal Register. (4/5/2017) SEC press release.
SEC shortens settlement cycle for securities transactions. The SEC adopted an amendment to Securities Exchange Act Rule 15c6-1(a) that will shorten the standard settlement cycle for most broker-dealer transactions from three business days after the trade is executed (T+3) to two days (T+2). The compliance date for the rule amendment is September 5, 2017. (3/22/2017) SEC Commissioner Kara M. Stein called the amended rule “an improvement from the current T+3 standard,” but directed staff to “consider further improvements,” including the possibility of moving to T+1 or end-of-the-day settlement cycles. See also Acting SEC Chair Michael S. Piwowar’s statement in support of the rule amendment.
Selected Enforcement Actions
SEC charges investment adviser and owner with overstating value of fund assets. The SEC instituted settled administrative proceedings against an investment adviser and the firm’s owner for materially misstating the value of assets in five private funds. The SEC alleged that the third-party vendor pricing service used by the firm to value the municipal bonds held in the funds had adopted an approach that was inconsistent with a Generally Accepted Accounting Principles measurement of fair value and at odds with representations made in the funds’ financial statements, private placement memoranda, and limited partnership agreements. As a result, the funds overstated the value of their recorded assets and paid investment adviser excess fees of over US$400,000. Without admitting or denying the allegations, the firm and its owner settled the charges by consenting to the entry of cease-and-desist and censure orders and agreeing to pay disgorgement and civil penalties of nearly US$145,000 on a joint and several basis.(3/29/2017) In the Matter of Covenant Financial Services, LLC, and Stephen Shafer, SEC Release No. IA-4672.
Environmental services company and former CFO settle charges of accounting failures. The SEC announced civil the former chief financial officer of an environmental services company for accounting failures that resulted in the inaccurate recording of transactions in the company’s books and records and in the filing of false and misleading financial statements over a two-year period. Without admitting or denying the allegations, the CFO settled the charges by consenting to a permanent injunction and an officer-and-director bar as well as agreeing to pay disgorgement, prejudgment interest and a penalty totaling US$238,692. The CFO will also be suspended from appearing and practicing before the SEC as an accountant, with the right to apply for reinstatement after five years. In a separate administrative proceeding, the company settled charges that it issued false and misleading financial statements and had deficient internal control over financial reporting. The company consented to the entry of a cease-and-desist order and agreed to pay US$500,000. (3/29/2017) SEC v. Mark McKinnies, SEC Lit. Release No. 23793.
Speeches and Statements
Piwowar examines regulator’s role in growing capital markets. Acting SEC Chair Michael S. Piwowar discussed how the regulatory approach to disclosure, enforcement, international cooperation, and FinTech impacts the growth and development of capital markets at the SEC’s 27th Annual International Institute for Securities Market Growth and Development. (3/27/2017) Piwowar remarks.
Bricker emphasizes need to reinforce audit committee effectiveness. SEC Chief Accountant Wesley R. Bricker highlighted ways to enhance the effectiveness of audit committees to support high quality financial reporting, in remarks at the University of Tennessee’s C. Warren Neel Corporate Governance Center (3/24/2017) Bricker remarks.
Piwowar announces pilot program for lower exchange access fees. In a keynote address at an event at Columbia University, Acting SEC Chair Michael S. Piwowar announced that he has directed SEC staff to design a new pilot program that will test the effect on equities trading of caps placed on access fees charged by exchanges to broker-dealers for executing trades. (3/23/2017) Piwowar remarks.
Bricker discusses effective internal controls and credible financial reporting. SEC Chief Accountant Wesley R. Bricker considered the importance of the implementation of the new revenue recognition standard and effective internal control of financial reporting in reinforcing and advancing credible financial reporting in a speech at the Annual Life Sciences Accounting & Reporting Congress. (3/21/2017) Bricker remarks.
Equity Market Structure Advisory Committee meeting. The SEC’s Equity Market Structure Advisory Committee met to discuss subcommittee recommendations on the trade-through exemption under Rule 611 of Regulation NMS and SRO rule-based limitations of liability. (4/5/2017) See also opening remarks by Acting SEC Chair Michael S. Piwowar and SEC Commissioner Kara M. Stein.
Staff announcements. The SEC announced that Kara Novaco Brockmeyer, Chief of the Enforcement Division’s Foreign Corrupt Practices Act Unit, will leave the agency at the end of April. (4/4/2017) The SEC has named Sagar S. Teotia as a Deputy Chief Accountant in the SEC’s Office of the Chief Accountant. (3/30/2017)
2016 Government-Business Forum on Small Business Capital Formation final report. The SEC published the final report from its 2016 Government-Business Forum on Small Business Capital Formation, which includes a consolidated list of recommendations made from the three break-out groups on exempt securities offerings, smaller reporting companies, and secondary marketplace for securities of small businesses. (3/31/2017) SEC final report.
SEC annual report on minority and women inclusion. The SEC’s Office of Minority and Women Inclusion issued its annual report to Congress, which explains the actions taken by the SEC to increase diversity in the agency’s workforce and promote the use of minority-owned and women-owned businesses in the SEC’s business activities. (3/30/2017) SEC report.
OIG suggests improvements to Corporation Finance’s management of no-action and interpretive requests. The Office of the Inspector General issued a final report of the findings from its audit of how the SEC’s Division of Corporation Finance manages requests for no-action and interpretive letters, exemptions, and waivers. The final report found that the Division needs to update or develop standardized policies and procedures for receiving, recording, and responding to requests and take steps to ensure that the data recorded in the no-action letter database is accurate and complete. (3/27/2017) OIG final report.
SEC announces details of 2017 compliance outreach seminars. The SEC announced the dates for its 2017 compliance outreach seminars for investment companies and investment advisers, which will take place in four cities in May and June. Registration for the seminars should be completed at least two weeks prior to the event date. (3/23/2017) SEC press release.
No-Action Relief and Exemptive Orders
Covered clearing agencies granted a temporary exemption from compliance with Rule 17Ad-22(e)(3)(ii). The SEC granted covered clearing agencies a temporary exemption from compliance with Rule 17Ad-22(e)(3)(ii) and certain requirements in Rules 17Ad-22(e)(15)(i) and (ii) until December 31, 2017. (4/5/2017) SEC Release No. 34-80378.
Division of Trading and Markets Grants Deutsche Bank Exemption from Rules 101 and 102 of Regulation M. The Division of Trading and Markets granted an exemption from Rules 101 and 102 of Regulation M under the Securities Exchange Act to Deutsche Bank Aktiengesellschaft, a corporation organized under the laws of the Federal Republic of Germany. The Division noted that it granted the exemption, pursuant to specified conditions, so that Deutsche and certain affiliates can conduct specified activities in the ordinary course of business outside the US. (3/17/2017)
C&DIs: Regulation Crowdfunding. The SEC updated two of its Compliance and Disclosure Interpretations on regulation crowdfunding: Rule 201: Disclosure Requirements and Rule 202: Ongoing Reporting Requirements. (4/5/2017)
Securities Act Rules Updated. The SEC updated the following C&DIs from Section 182 relating to Regulation A: New C&DI 182.15, New C&DI 182.16, New C&DI 182.17, New C&DI 182.18, New C&DI 182.19, and New C&DI 182.20. (3/31/2017)