Final Rules 

SEC extends state law registration exemption to IEX-listed securities. The SEC amended Rule 146 under Section 18 of the Securities Act to designate certain securities listed on Investors Exchange LLC as covered securities for purposes of Section 18(b). The rule will become effective on November 29, 2017. (10/24/2017) SEC final rule. 


New question added to Securities Act Rules: Protecting against the unauthorized disclosure of Rule 701(e) information. The SEC updated its Securities Act Rules to add a new question on whether companies that are using electronic delivery to satisfy Rule 701(e) disclosure requirements may implement safeguards with respect to electronic access to Rule 701(e) information. (11/6/2017) 

Shareholder proposals: staff legal bulletin. The Division of Corporation Finance published a staff legal bulletin providing information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934. (11/1/2017) 

No-Action Relief and Exemptive Orders 

Broker-dealers are temporarily exempted from recordkeeping, reporting, and monitoring responsibilities of Rule 13h-1. The SEC granted a temporary extension to certain broker-dealers from the recordkeeping and reporting requirements of Rule 13h-1(d) and (e) under the Securities Exchange Act of 1934. (10/31/2017) 

Three related no-action letters enable cross-border implementation of MiFID II’s research provisions. Following consultation with EU authorities and, as SEC Chair Jay Clayton commented, “to reduce confusion and operational difficulties that might arise in the transition to MiFID II’s research provisions,” SEC staff issued three related no-action letters in an effort to give market participants more certainty as to their US regulated activities when engaging in efforts to comply with the EU’s MiFID II in advance of its January 3, 2018, effective date. Under the no-action relief, market participants will be able to comply with MiFID II’s research requirements in a way that is consistent with US federal securities laws. Pursuant to the first no-action letter, broker-dealers may temporarily receive research payments from money managers in cash or from advisory clients’ research payment accounts. Pursuant to the second no-action letter, money managers may continue to aggregate orders for mutual funds and other clients. Pursuant to the third no-action letter, money managers may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage. Clayton added that these letters “take a measured approach in an area where the EU has mandated a change in the scope of accepted practice, and accommodate that change without substantially altering the U.S. regulatory approach.” He continued, “[t]hese steps should preserve investor access to research in the near term, during which the Commission can assess the need for any further action.” (10/26/2017)   

Selected Enforcement Actions 

Biotech company, former executives charged with accounting fraud. The SEC brought civil charges against a biotech company and four of its former executives for misleading investors by overstating the company’s performance in its financial statements. The SEC alleged that the company and the executives improperly recognized revenue using artificially inflated prices, backdated documents to recognize revenue in earlier periods, and prematurely recognized revenue upon delivery of products to be held on consignment. Without admitting or denying the allegations, the company settled the charges by agreeing to pay a US$1.5 million penalty. The litigation against the executives is ongoing. (11/2/2017) SEC press release. 

Petroleum engineer charged with trading on nonpublic information about oil discovery. The SEC charged a petroleum engineer at an energy company with insider trading, alleging that he obtained and traded on nonpublic information about the company’s newly discovered oil resource. The engineer allegedly conducted trades in the company’s shares and call options prior to the announcement of the new resource, generating profits of US$214,295.07. Without admitting or denying the allegations, the engineer settled the charges by agreeing to pay disgorgement, interest, and penalties totaling US$435,809.50. (11/1/2017) SEC press release. 

Investment adviser failed to supervise director who cherry-picked trades. The SEC instituted settled administrative proceedings against an investment adviser for failing to supervise a former managing director and minority owner who engaged in fraudulent trade allocations. The firm allegedly failed to supervise the director’s trading activities, which generated US$309,651 in ill-gotten gains, and failed to adopt and implement policies and procedures reasonably designed to prevent preferential trade allocations. Without admitting or denying the allegations, the firm settled the charges by consenting to the entry of cease-and-desist and censure orders and agreeing to pay disgorgement, prejudgment interest, and penalties totaling US$172,986. Separately, the managing director settled the charges against him by consenting to the entry of a cease-and-desist order and industry bar and by agreeing to pay disgorgement, prejudgment interest, and penalties totaling over US$422,000. (10/26/2017)  In the Matter of Canterbury Consulting, Inc., SEC Release No. 34-81959. 

Private-fund adviser, principals settle charges of multiple disclosure failures. The SEC announced that it has reached a settlement with a private-fund adviser and two of its principals in connection with charges of disclosure failures. The SEC alleged that the adviser and its principals failed to disclose to fund investors that they lent money from the fund to two entities in which the adviser’s owners held a significant interest, as well as to one of the principals so he could invest in a business venture with the adviser’s owners. In addition, the adviser and the principals allegedly used investor funds to pay for virtually all of the firm’s overhead expenses, even though they told investors that the adviser would bear these expenses. Without admitting or denying the allegations, the adviser and the principals consented to the entry of a cease-and-desist order and agreed to pay, jointly and severally, disgorgement and interest of US$728,306.10 and penalties ranging from US$50,000 to US$150,000. The firm also agreed to a censure, and the principals agreed to three-year bars from the securities industry. One principal also agreed to be suspended from appearing or practicing before the SEC as an accountant. (10/26/2017) In the Matter of Augustine Capital Management LLC, John T. Porter, and Thomas F. Duszynski, SEC Release No. IA-4800. 

Speeches and Statements 

Celebrity endorsements of ICOs may violate securities laws. In a joint statement, the SEC’s Division of Enforcement and Office of Compliance Inspections and Examinations noted that recent celebrity endorsements of Initial Coin Offerings may violate federal securities laws if the offerings are unregistered and if the endorsers fail to disclose the nature, scope, and amount of compensation they received in exchange for the promotion. (11/1/2017) SEC statement. See also the SEC’s Investor Alert on celebrity endorsements. 

Stein criticizes MiFID II no-action relief. Responding to the SEC staff’s decision to issue no-action relief to certain market participants to comply with the research requirements of MiFID II, SEC Commissioner Kara M. Stein maintained that the no-action relief failed to address issues of transparency and investor protection associated with the practice of bundling research payments with trading commissions and other fees. (10/26/2017) Stein statement.  

Avakian discusses SEC’s commitment to retail investors and cyber issues at Securities Enforcement Forum. At the Securities Enforcement Forum 2017, SEC Division of Enforcement Co-Director Stephanie Avakian explained how the SEC’s new Retail Strategy Task Force and Cyber Unit exemplify the SEC’s commitment to allocating its resources to address its key priorities of protecting retail investors and confronting threats posed by cyber-related issues. (10/26/2017) Avakian remarks. 

Piwowar highlights new market structure initiatives in conference remarks. SEC Commissioner Michael S. Piwowar discussed the SEC’s plans for a transaction fee pilot and the formation of a new advisory committee on fixed income market structure as part of its review of market structure issues at the FINRA and Columbia University Market Structure Conference. (10/26/2017) Piwowar remarks. 

Other Developments 

Staff announcements. The SEC has appointed Charles E. Cain to serve as chief of the Enforcement Division's Foreign Corrupt Practices Act Unit. (11/2/107) David Glockner, Director of the Chicago Regional Office, will leave the SEC in November. (11/1/2017) Peter B. Driscoll has been named Director of OCIE. (10/26/2017) 

SEC status report on administrative proceedings. The SEC released a report detailing the number of administrative proceedings pending, instituted, filed, and disposed of during the six-month period of April 1, 2017, through September 30, 2017. (10/31/2017) SEC report. 

SEC announces new advisory committee on fixed income market structure. The SEC intends to establish the Fixed Income Market Structure Advisory Committee to advise the SEC on the structure and operations of the US fixed income markets. (10/26/2016) SEC notice. 

Q1 2017 private fund statistics. The SEC’s Division of Investment Management published private fund statistics for the first quarter of 2017. (10/25/2017) Private fund statistics.