Guidance

Compliance guide for small entities on Rule 504 of Regulation D. The Securities and Exchange Commission’s Division of Corporation Finance issued a guide for small entities on compliance requirements under Rule 504 of Regulation D, which offers an exemption from registration under the Securities Act for the offer and sale of up to US$5,000,000 of securities in a 12-month period. (1/20/2017) Small entity compliance guide.

Investment Management updates Form PF FAQs. The SEC’s Division of Investment Management revised its frequently asked questions on Form PF, the reporting form for private fund advisers, to include additional information regarding general filing requirements and specific questions about the form. (1/18/2017) Investment Management Information Update.

No-Action Letters and Exemptive Orders

SEC extends temporary exemptive relief for security-based swaps. The SEC extended until February 5, 2018, certain temporary exemptions provided in connection with the revision of the definition of “security” in the Securities Exchange Act to encompass security-based swaps and requested comments on whether it is necessary to continue the exemptive relief beyond the new deadline. (1/18/2017) SEC Release No. 34-79833. 

Investment Management offers interpretive guidance on application of Investment Company Act restrictions on commissions to Clean Shares. In response to the Capital Group’s request for interpretive guidance, the SEC’s Division of Investment Management clarified that the restrictions of section 22(d) of the Investment Company Act do not apply to a broker when the broker acts as agent on behalf of its customers and charges its customers commissions for effecting transactions in Clean Shares, or a class of shares of a registered investment company without any front-end load, deferred sales charge, or other asset-based fee for sales or distribution. (1/11/2017) SEC no-action letter.

Selected Enforcement Actions

SEC brings FCPA and accounting charges against medical device company. The SEC announced charges against a medical device company and four former executives for accounting failures and Foreign Corrupt Practices Act violations. The SEC alleged that the company immediately recorded revenue when it had provided customers with significant extensions of time to make payments, which caused the company to materially misstate some of its financial statements from 2011 until 2013. In addition, the company allegedly violated the FCPA by making improper payments to doctors at government-owned hospitals in Brazil in an effort to increase sales. In settling the charges, the company admitted wrongdoing and agreed to pay an US$8.25 million penalty to resolve the accounting violations and more than US$6 million in disgorgement and penalties to settle the FCPA charges. The company agreed to retain an independent compliance consultant for one year to monitor its FCPA compliance program. (1/18/2017) SEC press release.

Private equity adviser failed to disclose conflicts of interests. A private equity fund adviser has reached a settlement with the SEC over charges that it breached its fiduciary duty to its fund clients and made materially misleading statements to the funds’ investors by failing to disclose potential conflicts of interest. The SEC alleged that the adviser failed to inform its fund clients that several of its principals held investments in and served on the board of a third-party information technology service provider, which the adviser engaged to provide due diligence and assorted information technology services paid for by fund clients. Although neither the adviser nor the principals financially profited from their relationships with the service provider, the adviser breached its fiduciary duty to its fund clients and made materially misleading statements to the funds’ investors by failing to disclose these potential conflicts of interest. Without admitting or denying the allegations, the adviser consented to the entry of cease-and-desist and censure orders and agreed to pay a US$50,000 civil penalty. (1/10/2017) In the Matter of Centre Partners Management LLC, SEC Release No. IA-4604.

Speeches and Statements

White emphasizes importance of SEC as an independent regulator. Outgoing SEC Chair Mary Jo White discussed the need for the SEC to maintain a “fierce independence” and immunity from political pressure as it carries out its work as a market regulator following the financial crisis in a speech to The Economic Club of New York. (1/17/2017) White remarks.

Other Developments

Three whistleblowers share US$7 million award. The SEC announced that it has paid a US$7 million award that was split among three whistleblowers for providing information that assisted an SEC investigation and subsequent enforcement action related to an investment scheme. (1/23/2016). SEC Commission Notice.

Staff announcements. The SEC announced that SEC Chief of Staff Andrew J. “Buddy” Donohue will leave the SEC at the end of January. The SEC also announced that Jennifer A. Diamantis will serve as Chief of the Enforcement Division’s Office of Market Intelligence. (1/19/2017) The SEC announced that SEC General Counsel Anne K. Small will leave the agency later this month. In addition, SEC Deputy Chief of Staff Nathaniel Stankard announced his departure plans. (1/18/2017) The SEC also announced that Michael J. Osnato Jr., Chief of the Enforcement Division’s Complex Financial Instruments Unit, plans to leave the agency later in January. (1/12/2017)

December 2016 money market fund statistics. The SEC’s Division of Investment Management updated its money market fund statistics to reflect data as of December 31, 2016. (1/19/2017) Money market fund statistics.

SEC announces 2017 examination priorities. The SEC’s Office of Compliance Inspections and Examinations announced its 2017 examination priorities, which include electronic investment advice, money market funds, the financial exploitation of senior investors, FINRA oversight, and cybersecurity. (1/12/2017) SEC press release.