Motion to stay adoption of Regulation A+ denied. The SEC issued an Order denying a motion for a stay of the Amendments for Small and Additional Issues Exemptions under the Securities Act (Regulation A), which were scheduled to become effective on June 19, 2015. Montana State Auditor and ex officio Commissioner of Securities and Insurance, Monica J. Lindeen, argued in her May 22nd petition for review that the new capital raising rules unduly limit the states’ ability to register and review offerings made under the scheme. The rules will provide two tiers of qualified offerings: one at the US$20 million threshold and the other at US$50 million. According to the SEC, the rules provide for the preemption of state securities law registration and qualification requirements for Tier 2 securities offered or sold to “qualified purchasers.” Issuers making Tier 1 offerings will be subject to federal and state registration and qualification. (6/16/2015) Order 33-9808.
SRO recognition contradicts Limited Volume Exemption request for Automated Matching Systems Exchange. The SEC denied Automated Matching Systems Exchange, LLC (AMSE) a limited volume exemption, under Section 5 of the Securities Exchange Act of 1934, from the requirement to register as a national securities exchange under Section 6 of the Act. AMSE’s proposal to possess the broad regulatory powers and responsibilities that are reserved for self-regulatory organizations (SROs) conflicted with the Act’s requirement that an exchange must be registered as national securities exchange to meet the definition of a SRO. The SEC considered this a fatal flaw and denied the exemption. (6/10/2015) Release 34-75157.
Certain trading activities of financial advisors granted relief. The Division of Corporation Finance granted Cambria ETF’s No Action letter request for exemptive relief from Rule 14e-5 under the Exchange Act. Cambria argued that without such relief the Rule’s restrictions could impede the ability of the Funds to operate as intended and as disclosed in publicly filed documents, which could be detrimental to investors. (6/16/2015)
New Monster receives reorganization relief. The Division of Corporation Finance concurred with New Monster Corporation and New Laser Corporation’s No Action letter requesting advice with respect to Old Monster’s proposed plan to (1) engage in a holding company reorganization and (2) following the consummation of the Reorganization, acquire KO Energy and dispose of Monster Non-Energy. Monster wrote that New Monster could take into account Old Monster’s reporting and registration history in determining future reporting and registration requirements. (6/12/2015)
Selected Enforcement Actions
SEC orders cease-and-desist proceedings against company that caused others’ violation. The SEC ordered cease-and-desist proceedings to be instituted against Equity Trust Company, a custodian of self-directed IRAs, for engaging in active marketing and other acts and omissions that caused large-scale offering frauds coordinated by Taylor, the majority owner and CEO of City Capital Corporation, and Poulson, Equity’s owner and operator. At least 100 investors transferred their retirement savings from traditional IRAs to self-directed IRAs at Equity and then, with Equity’s assistance, used those funds to purchase fraudulent notes, the face value of which totaled over US$5 million, issued by entities controlled by Taylor and Poulson. Most or possibly all of these retirement savings have been lost. The SEC determined that, as a result of Equity’s actions and omissions, Equity caused Taylor and Poulson’s violations of the Securities Act. (6/16/2015) In the Matter of Equity Trust Company, SEC Administrative Proceeding No. 9807.
SEC seeks injunction in action arising out of fraudulent conduct in sale of common stock. The SEC sought an order permanently enjoining defendants in an action that arose out of fraudulent conduct in the offer and purchase and sale of common stock of HelpMed Inc., a Utah corporation that purportedly provides medical recruiting services for healthcare facilities to hire medical professionals for temporary and permanent placements. A founder of HelpMed wanted to sell his HelpMed common stock and, in order to obtain top value for the stock, he came up with a scheme to defraud at least three investors of US$2 million by fabricating invoices, accounts receivables, customer lists, and sales projections. He also enlisted others to pose as HelpMed customers to provide positive reviews of HelpMed to investors and potential investors. (6/12/2015) Ryan L. Cook and HelpMed, Inc., et al.; Litigation Release No. 23285.
Speeches and Statements
SEC Commissioner explains vote against settlements with CCOs. SEC Commissioner Daniel Gallagher in a public statement, explained why he voted against two settled SEC enforcement actions involving alleged violations of Investment Advisers Act Rule 206(4)-7 by chief compliance officers (CCOs). He recommends that the SEC consider amendments to Rule 206(4)-7, or at least publishing guidance, to clarify roles and responsibilities of compliance personnel, not use enforcement actions to interpret the rule. (6/18/2015) Gallagher statement.
Importance of anti-money laundering programs. National Associate Director, Broker-Dealer Examination Program, Office of Compliance Inspections and Examinations, Kevin W. Goodman, spoke before the Securities Industry and Financial Markets Association (SIFMA) about the critical importance of broker-dealers’ anti-money laundering (AML) programs, outlining the challenges in designing and implementing effective AML programs. (6/18/2015) Anti-money laundering.
SEC Commissioner Stein says ETF new developments expose weakness in regulation. In her speech on the 75th anniversary of the Investment Company Act, Commissioner Kara M. Stein reviewed the history of mutual and exchange traded funds and voiced her concerns that the Act was no longer up to the task of effectively regulating the sector. “Promising high liquidity, which all mutual funds must do, on illiquid assets that have not traditionally been a part of mutual funds, does not seem in keeping with the intent of the Investment Company Act.” In addition, Stein warned that the increasingly over leverage of funds obtained through derivatives bears a striking resemblance to the funds that imploded in the 1920s. In conclusion, Stein noted that as more of Main Street is investing in ETFs to fund retirement, “regulators and the industry have a responsibility to make certain that the legal framework is stable and remains focused on protecting the retail investor.” (6/12/2015)
Commissioners urge reflection on “anachronistic” transfer agent rules.Commissioners Luis A. Aguilar and Daniel M. Gallagher released a statement urging the SEC to publish proposed rule changes to update the outdated transfer agent rules. The Commissioners argued that the situation demanded prompt action in the shape of proposed rules, in preference to the “lengthy delay in updating the Commission’s transfer agent rules” that waiting on the publication of a Division of Trading and Markets Concept Release would introduce. Commissioner Michael S. Piwowar and Commissioner Kara M. Stein later released a short statement in which they concurred with Commissioners Aguilar and Gallagher. (6/11/2015) See also Reuters.
Making much of the Legal Entity Identifier. Commissioner Kara M. Stein, a vocal proponent of the Legal Entity Identifier (LEI), spoke passionately about how “this small but mighty tool has the power to help us prevent another financial crisis.” Stein lauded the regulator and industry co-operation that brought the LEI to fruition following the 2008 financial crisis, and proposed the co-operation as a model to develop the holy grail of a single standard for entity identification, the unique product identifier (UPI) and a unique trade identifier (UTI). (6/10/2015) Stein remarks.
Dissenting voice — a diversity policy “without a requirement to actually do anything.” Commissioner Luis A. Aguilar issued a statement dissenting from the “Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies,” issued by the SEC and a number of other financial regulators. The Commissioner argued that the voluntary nature of the requirements had rendered the policy ineffective, advancing the position that the agencies could have made provision for the identification of entities that failed to conduct self-assessments. Aguilar went as far to suggest that the SEC missed an opportunity by not using its rulemaking powers to require self-assessment, which would then be made public. (6/9/2015)
OCIE Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative. The Office of Compliance Inspections and Examinations issued a multi-year Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative to examine certain higher-risk areas of SEC-registered investment advisers’ and broker-dealers’ sales, investment, and oversight processes. This initiative will focus on retirement-based savings in view of the complex and evolving set of factors that retail investors face when making these sorts of investment decisions, including the extensive and fluctuating range of investments available. (6/22/2015) Initiative. See also Reuters.
EDGAR filer manual updated. The SEC released the latest EDGAR Filer Manual(Volume II) EDGAR Filing (Version 32) which supports EDGAR Release 15.2; Support for Regulation A changes. (6/18/2015) SEC Releases 33-9849; 34-75242; 39-2504; IC-31680.
Updated FAQs for Volcker Rule. The SEC’s Divisions of Trading and Markets, Investment Management, and Corporation Finance provided further guidance on the SEC’s final rule implementing section 13 of the Bank Holding Company Act of 1956 (BHC Act), commonly referred to as the “Volcker Rule.” (6/12/2015) FAQs.
Dodd-Frank Investor Advisory Committee meeting. The SEC’s Investor Advisory Committee announced that it will hold a public meeting on July 16, 2015. (6/22/2015) SEC Release Nos. 33-9851; 34-75253.
SEC seeks public input on complex new ETFs. The SEC published a request for public comment, Release 34-75165, to help inform its review of the listing and trading of new, novel, or complex exchange-traded products (ETPs). Comments are due on or before July 8, 2015. (6/12/2015) SEC press release. See also Investment News.