Principal trades with advisory clients. The SEC seeks comment on the proposed extension, to December 31, 2016, of Investment Advisers Act Rule 206(3)-3T, which creates an alternative means for investment advisers who are also registered brokerdealers to meet the requirements of Section 206(3) of the Investment Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients. Comments should be submitted by September 17, 2014. (8/12/2014) SEC Release No. IA-3893.
Selected Enforcement Actions
Civil and criminal insider trading charges filed against former bank exec. The SEC charged a former bank executive in Massachusetts and his friend with insider trading in advance of the bank’s acquisition of another financial institution. The SEC alleges that Patrick O’Neill, then a senior vice president at Eastern Bank, learned through his job responsibilities that his employer was planning to acquire Wainwright Bank & Trust Company. O’Neill tipped Robert H. Bray, a fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase Wainwright securities. O’Neill and Bray each were subpoenaed to testify in the SEC’s investigation but asserted their Fifth Amendment privileges against self-incrimination. Related criminal charges have also been filed. (8/19/2014) SEC press release.
Kansas settles municipal bond disclosure matter. The SEC instituted settled administrative proceedings against the state of Kansas for failing to disclose in municipal securities offering documents that the state’s pension system was significantly underfunded, and that the unfunded pension liability created a repayment risk for investors in those bonds. Without admitting or denying the allegations, the state consented to the entry of a cease-and-desist order. Kansas has since adopted new policies and procedures to help ensure that appropriate disclosures about pension liabilities are being made in its offering documents. Kansas designated responsible parties in state agencies critical to the disclosure process, mandated closer communication and cooperation among those agencies, established a disclosure committee, and now requires annual training of key personnel. (8/11/2014) SEC press release.
Net capital violations alleged against brokerage firm; principal charged with obstruction. The SEC instituted contested administrative proceedings against Charles “Chuck” Moore and his brokerage firm, Crucible Capital Group, for attempting to disguise the firm’s extensive and repeated net capital insufficiencies by improperly off-loading its liabilities onto the books of an affiliated firm and improperly treating non-marketable stock as an allowable asset. (8/8/2014) SEC press release.
Municipal advisor exam initiative. The SEC announced that the Office of Compliance Inspections and Examinations is launching an examination initiative directed at newly regulated municipal advisors. Over the next two years, OCIE plans to examine a significant percentage of these advisors using an approach that focuses on identified risks. Areas targeted for scrutiny may include the municipal advisor’s compliance with its fiduciary duty to its municipal entity clients, books and recordkeeping obligations, disclosure, fair dealing, supervision, and employee qualifications and training. (8/19/2014) SEC press release.
Credit rating reforms. CFO.com, covering an article published by the Wall Street Journal, reported that the SEC will soon adopt new rules for credit rating agencies aimed at limiting possible conflicts of interest in the industry. (8/18/2014) Credit rating reforms.
Form PF study. In accordance with the Dodd-Frank Act, the SEC published its second annual report to Congress regarding how it uses the data it collects regarding private funds. During the past year, Commission staff focused its efforts on utilizing Form PF data in examinations and investigations of private fund advisers, and in the Commission’s risk monitoring activities; providing additional guidance to filers; and working with other federal regulators and international organizations regarding issues relating to private fund advisers. (8/15/2014) SEC study.