Final Rules

Pay ratio disclosure rule. In accordance with the mandate of the Dodd-Frank Act, the Securities and Exchange Commission adopted a final rule requiring public companies to disclose the ratio of the compensation of their chief executive officers to the median compensation of their employees. The rule will become effective on October 19, 2015. (8/5/2015) SEC press release. In supporting the rule, SEC Chair Mary Jo White noted the final rule’s flexibility. White remarks. See also concurring statements from Commissioners Aguilar and Stein. In opposing the rule, Commissioner Daniel Gallagher called it “nakedly political.” (8/5/2015) Gallagher remarks (dissenting). Commissioner Piwowar issued two statements in dissent. He first criticized the SEC’s approval of the rule as “acquiescing to … bullying tactics” and later elaborated by arguing that the SEC acted arbitrarily and capriciously in adopting several elements of the final rule and failed to provide adequate explanation of the rule’s objective in violation of the Administrative Procedure Act. (8/7/2015) Piwowar statement (dissenting).

Dealer registration rules for security-based swap entities. The SEC approved final rules establishing a registration process and other requirements for security-based swap (SBS) dealers and major security-based swap participants. The final rule will become effective on October 13, 2015. (8/5/2015) SEC press release. See also remarks from Chair White and Commissioners AguilarGallagherPiwowar and Stein.

Updated EDGAR Filer Manual. The SEC adopted the updated EDGAR Filer Manual reflecting recent updates and software changes to the EDGAR system, which will be effective upon publication in the Federal Register. (8/3/2015) SEC final rule.

Proposed Rules

Waivers proposed for disqualified persons to associate with security-based swap entities. At its open meeting on August 5, 2015, the SEC proposed a rule that would establish the conditions under which an SBS entity may apply for an order allowing an associated person subject to statutory disqualification to effect or be involved in effecting SBS transactions on its behalf. (8/5/2015) SEC Release No. 34-75612.


SEC validates online venture capital group’s interpretation of general solicitation rules. The SEC’s Division of Corporation Finance issued a no-action letter in which it agreed that Citizen VC, Inc. has established policies and procedures to create pre-existing relationships with prospective investors so that offers of securities made on its online platform would not violate the general solicitation prohibition under Rule 502(c) of Regulation D. (8/6/2015) No-action letter.

New CDIs clarify Regulation D’s general solicitation prohibition. The SEC’s Division of Corporation Finance issued new guidance on Rule 502(c) of Regulation D, which prohibits general solicitation by issuers offering or selling securities, in updated Compliance and Disclosure Interpretations (CDIs). (8/6/2015) Securities Act Rules CDIs. In addition, the Division provided additional information regarding sales compensation disclosure on Form D in updated Securities Act Forms CDIs. (8/6/2015)

SEC elucidates rules governing whistleblowers. In an interpretative release, the SEC clarified the circumstances governing the different protections afforded to whistleblowers under Section 21F of the Securities Exchange Act. The SEC explained that an individual will qualify as a whistleblower eligible for employment retaliation protections regardless of the method in which the suspected violations are reported, but must follow the reporting procedures outlined in Rule 21F-9(a) to qualify for the award and heightened confidentiality provisions under the Securities Exchange Act. (8/4/2015) SEC Release No. 34-75592.

Selected Enforcement Actions

Brokerage firm, employee overcharged customers in municipal bond underwritings. The SEC announced it had instituted settled administrative proceedings against broker-dealer Edward D. Jones & Co., L.P. and the former head of its municipal underwriting desk, Stina R. Wishman. According to the Order Instituting Proceedings (OIP), Edward Jones and Wishman failed to offer new bonds to customers at the initial offering price. Instead, Edward Jones and Wishman would place new bonds into Edward Jones’ own inventory and offered them to customers at prices higher than the initial offering price. In other cases, Edward Jones and Wishman waited until trading began in the secondary market and then offered the bonds at higher prices. As a result, Edward Jones overcharged its customers for new bonds in the amount of US$4.6 billion. The SEC brought additional charges against Edward Jones for supervisory failures related to its misconduct in pricing new bonds. Without admitting or denying the allegations, Edward Jones agreed to be censured, to pay more than US$20 million in disgorgement, prejudgment interest, and civil penalties, and to cease and desist from future violations. Without admitting or denying the allegations, Wishman agreed to the entry of a cease and desist order and a two-year associational bar, and to pay a US$15,000 penalty. (8/13/2015) In the Matter of Edward D. Jones & Co., L.P., SEC Release No. 33-9889, and In the Matter of Stina R. Wishman, SEC Release No. 33-9890. Commissioners Aguilar, Gallagher, Piwowar, and Stein released a joint statement in response to the enforcement action, urging the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) to complete rulemaking mandating the disclosure of mark-ups and mark-downs, and suggesting that, in the absence of action by FINRA and the MSRB, the SEC propose rules requiring transparency of mark-ups and mark-downs. (8/13/2015) Joint statement.

Compliance director charged with supervisory failures in connection with fraudulent real estate investment scheme. The SEC instituted settled administrative proceedings against a broker-dealer and investment adviser, and the firm’s compliance director, for their failure to supervise two registered representatives who engaged in an unauthorized fraudulent real estate investment scheme. The SEC alleged that two registered representatives employed by Signator Investors, Inc. lured clients to invest in a real estate investment company that was not approved by Signator. The representatives produced consolidated reports with false valuations of the investments and received undisclosed commissions in connection with the scheme. The Commission found that Signator failed to establish an adequate procedure for reviewing consolidated reports and its director of compliance failed to conduct adequate reviews of the two representatives’ reports. Without admitting or denying the allegations, Signator agreed to be censured and pay a US$450,000 penalty. The director of compliance agreed to a one-year suspension and a US$15,000 penalty. (8/13/2015) In the Matter of Signator Investors, Inc. and Gregory J. Mitchell, SEC Release No. 34-75690.

Speeches and Statements

Aguilar seeks greater clarity in Commission enforcement orders.Commissioner Luis Aguilar released a statement in which he called for more clarity in Commission orders issued in enforcement actions involving compliance officers. Because the compliance community looks to Commission orders for guidance regarding the type of behavior that may lead to the initiation of enforcement proceedings, Aguilar argued that transparent orders are essential in helping compliance professionals to perform their duties in compliance with securities laws. (8/10/2015)

Gallagher enumerates the failures of Dodd-Frank. Commissioner Daniel Gallagher, in a speech before the US Chamber of Commerce, commemorated the fifth anniversary of the Dodd-Frank Act by accusing it of “strangling our economy, increasing the fragility of the financial system, and politicizing our independent financial regulators.” Gallagher criticized the circumscribed role of capital market regulators and the overreach of prudential regulators in the formation of the Financial Stability Oversight Council (FSOC). Gallagher called upon the SEC to abandon Dodd-Frank rulemaking and return to reforming its existing programs. (8/4/2015) Gallagher remarks.

Other Developments

Staff announcements. The SEC announced that Shamoil T. Shipchandler will join the agency in October to serve as the Regional Director of its Fort Worth Regional Office. (8/18/2015) SEC press release.

FINRA to Administer Municipal Advisor Qualification Exams. The SEC issued an order designating FINRA to administer professional qualification tests for associated persons of registered municipal advisors pursuant to Section 15B(c)(7)(A) of the Securities Exchange Act. (8/17/2015) SEC Release No. 34-75714.

Draft EDGAR manuals published. The SEC has published Draft EDGAR Filer Manual (Volume I) General Information (Version 23)Draft EDGAR Filer Manual (Volume II) EDGAR Filing (Version 34)Draft EDGAR Filer Manual (Volume III) N-SAR Supplement (Version 5)Draft EDGARLink Online XML Technical Specification (Version 18); and Draft EDGAR Form SDR - XML Technical Specification (Version 3). (8/14/2015)

Division of Investment Management reports its use of private fund systemic risk data. The SEC’s Division of Investment Management published its annual report to Congress detailing its use of private fund systemic risk data collected from submissions of Form PF. (8/13/2015) Annual report.

Insurers respond to increased risk for asset managers. In response to the SEC’s heightened focus on the fund management industry, including an increase in enforcement actions, whistleblower activity, and investment adviser examination, insurers have increased their insurance coverage offerings for asset managers, according to a report in Chief Investment Officer. (8/13/2015) Asset manager insurance.

Three-step guide to pay ratio disclosure compliance. In a recent Forbes article, Robin Ferracone advised companies on the three steps they will need to take to comply with the SEC’s recently adopted pay ratio disclosure rule and discouraged companies from providing more than the minimum narrative to explain their pay ratio disclosure. (8/13/2015) Steps to compliance.

SEC prohibited from pursuing enforcement action against S&P executive.Stating that the appointment process for in-house ALJs is “likely unconstitutional,” a federal judge enjoined the SEC from pursuing its enforcement action against former Standard & Poor’s executive Barbara Duka, according to Bloomberg. (8/12/2015) Consequently, ALJ James E. Grimes issued a stay in the SEC’s administrative proceedings against Duka. ALJ Order.

Non-transparent ETFs. Despite the SEC’s tepid response to its previous proposals, Precidian Investments has again asked the Commission to approve its proposal for an exchange-traded fund (ETF) that would not disclose its managers’ investments, Investment News reports. (8/11/2015) ETF proposal.

ALJ bias investigation. The SEC’s Office of the Inspector General reported the status of its investigation of alleged ALJ bias in Commission administrative proceedings, informing the Commission that it has not yet discovered any evidence of bias by ALJs in their decisions issued in administrative proceedings. (8/7/2015) OIG interim report.