New Final Rules
Asset-backed securities. The SEC voted to adopt new rules governing the disclosure, reporting, and offering process for publicly-offered asset-backed securities. The new rules address loan-level disclosure for certain assets, provide more time for investors to review and consider a securitization offering, revise the eligibility criteria for using shelf offerings and revise reporting requirements. (8/27/2014) SEC press release.
Credit rating organizations. The SEC adopted new requirements for credit rating agencies, which address governance, protect against conflicts of interest and increase transparency. Among other things, the new rules require an annual certification by the CEO as to the effectiveness of internal controls. New rules for issuers, underwriters, and third-party due diligence services are also included. (8/27/2014) SEC press release.
Requests for Comment
Proposed tick pilot. The SEC announced that the national securities exchanges and the Financial Industry Regulatory Authority have proposed the establishment of a 12-month pilot program that would widen minimum quoting and trading increments for certain stocks with smaller capitalizations. Comments should be submitted within 21 days after publication in the Federal Register, which is expected shortly. (8/26/2014) SEC press release.
Selected Enforcement Actions
SEC charges advisory firm with undisclosed conflicts of interest. The SEC filed contested administrative proceedings against Robare Group Ltd., an investment advisory firm, for recommending that clients invest in particular mutual funds without disclosing that it was receiving compensation from the broker offering the funds. Robare Group received approximately US$440,000 in such payments from the brokerage firm during an eight-year period. (9/2/2014) SEC press release.
Whistleblower award. The SEC has granted a US$300,000 whistleblower award to an employee who performed audit and compliance functions and reported wrongdoing to the SEC after the employer failed to take action. This is the first whistleblower award given to an audit or compliance professional. (8/29/2014) SEC press release.
Hedge fund advisor settles trade allocation matter. The SEC instituted settled administrative proceedings against Structured Portfolio Management, L.L.C. (SPM) and two affiliated advisers. Without admitting or denying the allegations, respondents consented to the entry of an order finding that SPM failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act concerning trade allocation and the review of investor disclosures. The compliance failures were the result of disclosed but inadequately addressed conflicts of interest wherein SPM allowed a trader to trade the same securities across three SPM-managed hedge funds. This conflict presented the possibility for the trader to engage in improper allocations. SPM also failed to adopt and implement written policies and procedures reasonably designed to prevent inaccurate disclosures concerning its funds and their investment strategies. Along with consenting to several undertakings, respondents agreed to pay a US$300,000 penalty to settle this matter. (8/28/2014) In the Matter of Structured Portfolio Management, LLC, SEC Release No. IA-3906.
SEC sues investor relations director for insider trading. The SEC announced that it has charged a director of market intelligence at an investor relations firm with insider trading ahead of impending news announcements by more than a dozen clients. The charges were filed against Michael Anthony Dupre Lucarelli, who garnered nearly US$1 million in illicit profits. An SEC investigation and ongoing forensic analysis of Lucarelli’s work computers uncovered that he repeatedly accessed clients’ draft press releases stored on his firm’s computer network prior to public announcements. The SEC alleges that Lucarelli, who had no legitimate work-related reason to access the draft press releases, purchased stock or call options in advance of favorable news and sold short or bought put options ahead of unfavorable news. The SEC further alleges that Lucarelli tried to conceal his activities by telling the brokerages through which he traded that he was self-employed or retired. Related criminal charges have also been filed. (8/26/2014) SEC press release.
Broker-dealer/equity research firm fined for policy and procedure violations.The SEC instituted settled administrative proceedings against Monness, Crespi, Hardt & Co., Inc. (MCH), a registered broker-dealer and equity research firm, for failing to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information, in violation of the Securities Exchange Act. Specifically, MCH failed to enforce written compliance procedures, that required it to maintain a restricted list and for employees to submit a report of their securities transactions. MCH also did not adopt written policies and procedures to address the potential risk created by the firm’s Idea Dinner and Corporate Access programs, which the firm had established and provided as services to its existing and prospective customers. The Commission’s Office of Compliance Inspections and Examinations conducted an examination of MCH in 2011 which identified these issues and MCH promptly undertook remedial measures in response, which included adopting revised insider trading supervisory procedures with expanded and formalized restricted list procedures, prohibiting trading by employees in MCH covered securities, and adopting written supervisory procedures for its Corporate Access and Idea Dinner programs. Without admitting or denying the allegations, MCH agreed to settle the matter by paying a $150,000 civil penalty. (8/20/2014) In the Matter of Monness, Crespi, Hardt & Co., Inc., SEC Release No. 34-72886.
Wrap fee focus. InvestmentNews discussed the SEC’s examination focus on fees charged for wrap accounts. (8/31/2014) Wrap accounts.
Fee rate advisory. The SEC announced that in fiscal year 2015 the fees that public companies and other issuers pay to register their securities with the Commission will be set at $116.20 per million dollars. (8/29/2014) Fee rate advisory.
Investor Advocate’s priorities. The director of the SEC’s Office of the Investor Advocate summarized his office’s priorities, which include making recommendations on cybersecurity, inspecting investment advisers and reforming the municipal bond market. (8/19/2014) Fleming speech.
Staff announcements. The SEC announced the retirement of Martin Murphy, the Associate Regional Director for Examinations in the agency’s Los Angeles office, after 24 years at the SEC. (8/29/2014) The SEC has named James Schnurr as its chief accountant. He will begin his new post in October. (8/26/2014) The Commission has also announced that its Chief Information Officer, Thomas Bayer, is planning to leave the agency in October. (8/20/2014)