Treatment of Communications Involving Security-Based Swaps That May Be Purchased Only By Eligible Contract Participants
On September 8th, the SEC published for comment a proposed rule under the Securities Act of 1933 to provide that certain communications involving security-based swaps that may be purchased only by eligible contract participants will not be deemed for purposes of Section 5 of the Securities Act to constitute offers of such security-based swaps or any guarantees of such security-based swaps that are securities. Under the proposed rule, the publication or distribution of price quotes relating to security-based swaps that may be purchased only by persons who are eligible contract participants and are traded or processed on or through a facility that either is registered as a national securities exchange or as a security-based swap execution facility, or is exempt from registration as a security-based swap execution facility, would not be deemed to constitute an offer or a solicitation of an offer to buy or purchase such security-based swaps or any guarantees of such security-based swaps that are securities for purposes of Section 5 of the Securities Act. Comments should be submitted on or before November 10, 2014. SEC Release No. 33-9643.
Selected Enforcement Actions
SEC Alleges Hedge Fund Manager Defrauded Investors
On September 8th, the SEC filed contested civil charges against a hedge fund manager, his investment advisory firm, and an accomplice for defrauding investors in two hedge funds out of more than $1 million under the guise of research expenses and fees. The SEC alleges that as the management fees earned by Archer Advisors LLC were shrinking due to the funds’ worsening performance, the firm’s owner Steven R. Markusen and an employee, Jay C. Cope, implemented a scheme to enrich themselves at the expense of investors in the funds. Markusen routinely caused the funds to reimburse Archer for fake research expenses, and he eventually routed much of that money to his personal checking account. Furthermore, Markusen devised a way to essentially charge fund investors twice for the same fake research expenses. First, he billed the funds directly by falsely claiming that Archer had paid Cope to conduct research for the funds. He and Cope then improperly diverted soft dollars from the hedge funds to Cope for the same purported research under the additional pretense that Cope was an independent consultant. The SEC also charges Markusen and Cope with conducting a separate scheme to manipulate the stock price of the funds’ largest holding in order to inflate the monthly returns reported to investors and conceal the true extent of the funds’ mounting investment losses. SEC Press Release.
SEC Creates New Office of Risk Assessment
On September 11th, the SEC announced the creation of a new Office of Risk Assessment within the Division of Economic and Risk Analysis. The new office will provide data-driven risk assessment tools and models supporting various SEC activities. Risk Assessment.
SEC Considers New Reporting Requirements for Mutual Funds
On September 7th, the Wall Street Journal reported the SEC is considering new reporting rules for mutual funds that would require them to provide additional information about their portfolios and to conduct stress tests. Reporting Requirements.
On September 5th, Investment News summarized the comments of Barbara Roper, director of investor protection at the Consumer Federation of America, concerning the harmonization of the broker-dealer/investment advisor fiduciary duty standard. Roper said that to love forward, SEC Chair Mary Jo White must overcome not only the opposition of Commissioners to a harmonized standard but also the skepticism of Commission staff. Internal Barriers.
The SEC announced that Tracey L. McNeil has been selected as the first ombudsman for the agency. Victor J. Valdez has been named the SEC’s Chief Operating Officer and Managing Executive of the agency’s Enforcement Division, where he will oversee project management, information technology, human capital strategy, and risk management, among other functions.