Proposed Rules

SEC proposes amendments to intrastate offering rule and Rule 504 of Regulation D. The SEC has proposed amendments to Securities Act Rule 147, which governs intrastate securities offerings exempt from federal registration requirements, and Rule 504 of Regulation D. The proposed revisions to Rule 147 would allow issuers to advertise offerings through media that could potentially reach out-of-state residents provided the securities are only offered or sold to residents of the state in which the issuer has its principal place of business; require an issuer to maintain a “principal place of business” in the state in which it conducts an offering; limit the amount of securities an issuer may sell to no more than $5 million in a 12-month period; and place an investment limitation on investors. The proposed amendments to Rule 504 of Regulation D would increase the amount of securities offered and sold under Rule 504 from $1 million to $5 million in a 12-month period and extend bad actor disqualifications to participants in Rule 504 offerings. Comments are due on or before January 11, 2016. SEC press release.The SEC’s Division of Economic and Risk Analysis concurrently published a white paper, which examines the characteristics of offerings conducted under Regulation D from 2009-2014. See also statements from Chair White and Commissioners Aguilar and Stein (supporting the proposed rules). Commissioner Piwowar objected to the condition that issuers meet certain percentage thresholds to determine the in-state nature of their business and to the offering amount and investment limitations. (10/30/2015)


SEC offers additional guidance on Regulation SCI. The SEC published updated responses to frequently asked questions (FAQs) regarding Regulation SCI.

(10/30/2015) Regulation SCI FAQs. 

Division of Corporation and Finance offers guidance regarding the unbundling of M&A proxy matters. The SEC’s Division of Corporation and Finance published new Compliance and Disclosure Interpretations (C&DIs) to address questions regarding the application of Securities Exchange Act Rule 14a-4(a)(3), which requires the unbundling of separate matters submitted to a shareholder vote, in the context of mergers and acquisitions, specifically in the presentation by a target company of proposed amendments to an acquiror’s organizational documents. (10/27/2015) CDI 201.01 and 201.02.

Division of Investment Management considers treatment of ESC securities transferred to States under escheatment laws. The SEC’s Division of Investment Management issued a Guidance Update that explains the Division’s position that an Employees’ Securities Company (ESC) may continue to rely on exemptive orders under the Investment Company Act if ownership of ESC securities is transferred to a State under the State’s escheatment laws. 

(10/27/2015) SEC Guidance Update 2015-04.

Division of Corporation Finance guidance on the exclusion of shareholder proposals. The SEC Division of Corporation Finance issued guidance in a staff legal bulletin regarding its approach to no-action requests under Exchange Act Rule 14a-8(i)(9), indicating that it will no longer consider a shareholder proposal to be in conflict with a management proposal if a reasonable shareholder could logically vote for both proposals. (10/22/2015) Division of Corporation Finance Staff Legal Bulletin No. 14H.

Exemptive Orders and No-Action Relief

SEC extends implementation date for Tick Size Pilot. The SEC granted an exemption to several self-regulatory organizations (SROs) from compliance with the National Market System Plan to implement a Tick Size Pilot program until October 3, 2016. The SEC cited the need for the SROs to develop and test their trading and compliance systems to prepare for implementation of the Tick Size Pilot. (11/6/2015) SEC Release No. 34-76382.

SEC issues conditional exemptive relief from compliance with large trader reporting requirements. The SEC issued an order granting an exemption from compliance with requirements to identify large traders and report information regarding large trader transaction information under Rule 13h-1 of the Securities Exchange Act to equity options traders that have not exceeded the identifying activity level based on the gross premium of the options trades. The SEC also extended the compliance date for the remaining recordkeeping and reporting requirements of Phase Three until November 1, 2017. (10/30/2015) SEC Release No. 34-76322.

Selected Enforcement Actions

Private equity fund advisers improperly charged fund clients for legal and compliance expenses. The SEC, in a settled administrative proceeding, charged two private equity fund advisers for improperly allocating consulting, legal, and compliance-related expenses to their client funds. The SEC alleged that two private equity fund advisers retained a compliance consultant and law firm to assist them in preparing to register as investment advisers with the SEC. The fund advisers also incurred expenses related to a compliance examination conducted by SEC staff and an investigation by the SEC Division of Enforcement. The advisers passed along these compliance and legal expenses to their fund clients. Although the terms of the advisers’ agreements with its client funds disclosed that the funds would be charged for expenses related to the operations and activities of the funds, the fund advisers failed to disclose to its clients that they would be charged for the advisers’ legal and compliance-related expenses. Without admitting or denying the allegations, the advisers agreed to cease and desist from future violations of the relevant provisions of the Investment Advisers Act and to pay a civil monetary penalty of US$100,000. (11/5/2015) In the Matter of Cherokee Investment Partners LLC and Cherokee Advisers LLC, SEC Release No. IA-4258.

Trader’s tweets result in market manipulation charges. In a case highlighting the growing use of social media to engage in fraudulent investment schemes, the SEC filed charges against a Scottish trader who used Twitter to manipulate the stock prices of two companies, leading to a trading halt in one of them. The SEC alleged that the trader created false Twitter accounts that mimicked the real Twitter accounts of two highly-regarded securities firms and then sent several tweets containing false information about two companies. The SEC is seeking an order permanently enjoining the trader from future violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5, along with disgorgement and a civil penalty. The SEC announced that the trader is also facing parallel criminal charges. (11/5/2015) SEC press release.

Private equity firm and four executives settle charges of failing to disclose conflicts of interest. The SEC announced that it has brought charges against a private equity firm and four senior executives for failing to disclose conflicts of interest to a fund client and investors after they used fund and portfolio company assets to make more than US$20 million in payments to an affiliated entity and former firm employees. Without admitting or denying the allegations, the respondents agreed to settle the charges. Fenway Partners, its two principals, and its former principal agreed to the entry of cease and desist and censure orders and the payment of US$8,716,471.10 in disgorgement and prejudgment interest on a joint and several basis, as well as civil penalties ranging from US$1 million to US$150,000. Fenway Partners’ chief financial officer agreed to cease and desist from violations of the relevant provisions of the Investment Advisers Act and pay a civil penalty of US$75,000. In the Matter of Fenway Partners, LLC, Peter Lamm, William Gregory Smart, Timothy Mayhew, Jr., and Walter Wiacek, CPA, SEC Release No. IA-4253. 

SEC charges investment adviser with multiple compliance and disclosure violations. The SEC instituted settled administrative proceedings against a registered investment adviser for several compliance and disclosure-related violations of the Investment Advisers Act during a four-year period. According to the SEC, the investment adviser’s affiliated broker-dealers executed thousands of securities trades in a principal capacity; however, the investment adviser failed to disclose this potential conflict of interest to its advisory clients or obtain their consent. The investment adviser also failed to implement policies and procedures regarding principal transactions and neglected to confirm that its efforts to route its client orders through independent broker-dealers were effective. The SEC also alleged that the investment adviser failed to disclose to its clients disciplinary events involving its investment adviser representatives on the brochure supplement to Form ADV. The adviser’s CEO and several directors failed to submit reports identifying their personal securities transactions in violation of the adviser’s code of ethics. Finally, the investment adviser failed to conduct a required annual compliance review in 2012. The investment adviser settled the charges, without admitting or denying the SEC’s findings, by agreeing to the entry of a cease and desist and censure order and to the payment of a US$200,000 civil penalty. The adviser also agreed to enlist the services of an independent compliance consultant. (10/26/2015) In the Matter of National Asset Management, Inc., SEC Release No. 34-76264. See also the Division of Corporation Finance’s no-action letter granting the investment adviser’s request for a waiver of disqualification under Rule 506(d)(2)(ii) of Regulation D.

SEC brings charges against investment adviser and private fund manager for failures related to financial statements and valuation methodology. The SEC instituted proceedings against a registered investment adviser, a private fund manager, and their president and co-manager for violations of the Investment Adviser’s Act related to their failure to obtain financial statements prepared according to Generally Accepted Accounting Principles (GAAP) or audited financial statements for the pooled investment funds they managed, failure to value client investments in a manner consistent with their stated valuation methodology, and failure to maintain copies of all business communications relating to recommendations, advice and disbursement of the funds. Without admitting or denying the charges, the respondents agreed to cease and desist from committing or causing future violations and to be censured. The investment adviser also agreed to pay disgorgement of US$144,243.09 and a civil penalty of US$37,500, as well as enlist the services of an independent compliance consultant. The private fund manager and its president agreed to pay civil penalties of US$37,500 and US$25,000, respectively. (10/21/2015) In the Matter of Retirement Investment Advisors, Inc., Research Holdings, LLC, and Joseph Wayne Bowie, SEC Release No. 34-76218.

Speeches and Statements

Stein examines role of regulation in fostering market innovation. SEC Commissioner Kara Stein discussed the need for market regulators to embrace innovation as they consider the best way to regulate evolving market structures shaped by unprecedented technological change in a lecture at Harvard Law School. (11/9/2015) Stein remarks.

Director of Enforcement assures compliance officers they are not targets. The SEC Division of Enforcement Director Andrew Ceresney discussed the SEC’s approach to enforcement actions that involve compliance professionals working in the investment adviser sector, emphasizing that the SEC has only charged compliance officers in cases of clear misconduct or negligence. (11/4/2015) Ceresney remarks.

White highlights role of data analytics in enforcement. In an address to the 21stAnnual International Institute for Securities Enforcement and Market Oversight, SEC Chair Mary Jo White explained the importance of data analytics, as well as international cooperation, in bolstering the SEC’s global enforcement efforts. (11/2/2015) White remarks. 

Ceresney emphasizes market structure enforcement priorities. Speaking to the SIFMA Compliance & Legal Society New York Regional Seminar, SEC Division of Enforcement Director Andrew Ceresney outlined the SEC’s response to the threats to investors and markets brought about by innovations in market structure and highlighted the four types of threats that the Division of Enforcement will continue to prioritize in enforcement actions. (11/2/2015) Ceresney remarks.

Chair White highlights efforts to evaluate securities offering reforms. SEC Chair Mary Jo White discussed securities offering reforms implemented under the JOBS Act, including amendments to Rule 506 of Regulation D and Regulation A, noting that only a small portion of issuers are taking advantage of general solicitation and advertising under Rule 506 and that fraud has not become a widespread problem. White emphasized the SEC’s efforts to evaluate the effectiveness of rule changes and identify and address potential problems. (10/28/2015) White remarks.

White asks Equity Market Structure Advisory Committee to examine maker-taker fee structure, regulation of trading venues. SEC Chair Mary Jo White encouraged the Equity Market Structure Advisory Committee to consider a pilot to study proposed changes to the maker-taker fee structure and how the SEC might alter its regulatory approach to trading venues in response to changes in trading venue management and operation. (10/27/2015) White remarks.

Aguilar calls for maker-taker pilot program. SEC Commissioner Luis A. Aguilar repeated his recommendation that the SEC undertake a maker-taker pilot program in which maker-taker rebates would be suspended for the most liquid stocks in remarks to the Equity Market Structure Advisory Committee. (10/27/2015) Aguilar remarks.

SEC Chief Accountant highlights major issues facing audit committees. In an address to the UCI Audit Committee Summit, SEC Chief Accountant James Schnurr discussed the SEC’s Concept Release on Audit Committee Disclosures, the importance of internal control over financial reporting, implementation of the new revenue recognition standard, and disclosure effectiveness. (10/23/2015) Schnurr remarks.

Director of Division of Investment management suggests new proposals for investment management rulemaking on the horizon. In testimony before the US House of Representatives Subcommittee on Capital Markets and Government Sponsored Entities, David W. Grim, Director of the SEC’s Division of Investment Management, indicated that the Division is considering making recommendations to the Commission regarding new rulemaking initiatives, including new requirements related to the use of derivatives by investment companies, transition plans for investment advisers, stress testing for large investment advisers and investment companies, and third-party compliance reviews. (10/23/2015) Grim remarks.

SEC Chief Economist touts importance of economic analysis to policy decisions. Mark J. Flannery, Chief Economist and Director of the SEC’s Division of Economic and Risk Analysis, advised attendees at the Public Company Accounting Oversight Board’s (PCAOB) Center for Economic Analysis 2015 Conference on Auditing and Capital Markets how the PCAOB might use economic analysis of its inspections data to inform its regulatory decisions regarding changes to auditing standards and rules. (10/22/2015) Flannery remarks.

Chair White calls for increased scrutiny of Treasury market. Speaking at the Evolving Structure of the U.S. Treasury Market Conference, SEC Chair Mary Jo White indicated that the SEC is considering measures to increase oversight of the government bond markets in response to recent trading disruptions in US Treasuries. (10/20/2015) White remarks.

Aguilar notes challenges faced by small and midsize businesses in addressing cybersecurity risks. In an article for the Cyber Security Review, SEC Commissioner Luis A. Aguilar discussed the challenges facing small and midsize business in dealing with cybersecurity threats and called for a partnership between the public and private sector to assist smaller businesses in addressing their cybersecurity risks. (10/19/2015) Aguilar statement.

Other Developments

SEC will host Government-Business Forum on Small Business Capital Formation. The SEC’s annual Government-Business Forum on Small Business Capital Formation will take place on November 19, 2015. SEC press release.

OCIE claims weakness in outsourcing compliance functions. The SEC’s Office of Compliance Inspections and Examinations (OCIE) National Exam Program staff published a Risk Alert discussing the outsourcing of compliance activities, including the role of chief compliance officer (CCO), to unaffiliated third parties by investment advisers and investment companies. The Risk Alert notes that OCIE staff identified compliance weaknesses associated with companies that outsourced their CCO function and advised firms to review their business practices to ensure that they are fulfilling their responsibilities under the Investment Advisers and Investment Company Acts’ compliance rules. (11/9/2015) OCIE Risk Alert. 

SEC Investor Alert on social media and market manipulation. The SEC’s Office of Investor Education and Advocacy published an Investor Alert to warn investors that fraudsters are using social media in market manipulation schemes to spread false information regarding stocks. (11/5/2015) SEC Investor Alert.

Staff announcements. The SEC announced that Bryan Bennett has been appointed to lead the examination program in its Los Angeles Regional Office. (11/5/2015) The SEC also announced that it has named Wenchi Hu as Associate Director, Risk and Supervision, and Christian Sabella as Associate Director, Regulation, in the Division of Trading and Markets’ Office of Clearance and Settlement. (10/20/2015) 

SEC distributes $325,000 to investment firm whistleblower. The SEC awarded over $325,000 to a whistleblower for providing specific information that resulted in an investigation of fraudulent activity at an investment firm and successful enforcement action. (11/4/2015) SEC Commission Notice 34-76338.

Money market fund statistics. The SEC’s Division of Investment Management released a report of money market fund statistics data as of September 30, 2015. (10/28/2015) SEC report. 

SIPC proposal regarding broker-dealer supplemental reports. The SEC published a proposal by the Securities Investor Protection Corporation (SIPC) to add rules specifying the format of and information to be included in a broker-dealer’s supplemental report to SIPC. Comments are due on or before November 25, 2015. (10/28/2015) SEC Commission Notice SIPA-173.

SEC seeks comment on rules subject to periodic review. The SEC published for comment the list of rules subject to review pursuant to the Regulatory Flexibility Act. Comments are due on or before November 27, 2015. (10/22/2015) SEC Commission Notice 33-9965.

SEC publishes enforcement results for fiscal year 2015. The SEC released its 2015 fiscal year enforcement results, which included 807 enforcement actions filed and approximately US$4.2 billion ordered in disgorgement and penalties during the fiscal year. (10/22/2015) SEC press release.