Consolidation of investment company financial statements. The Chief Accountant for the Division of Investment Management published guidance concerning the presentation of consolidated financial statements for certain investment companies. (10/31/2014) Guidance.
Mutual fund mixed and shared funding orders. The Division of Investment Management issued the staff’s view that a mutual fund is not required to obtain a “mixed and shared funding” order prior to offering its shares as an investment option under a variable life and/or variable annuity contract. Moreover, a fund that has obtained a mixed and shared funding order need not comply with the terms and conditions of that order if the exemptions granted by the order are not being relied upon by any person. (10/2014) Guidance.
Updated financial reporting manuals. An updated Financial Reporting Manual has been published by the Division of Corporation Finance. The updates reflect minor technical changes and clarifications regarding financial statements, development stage entities, acquisitions of working interests in oil and gas properties, individually insignificant acquirees, real estate acquisitions, pro forma financial information and reverse mergers by foreign companies. (10/20/2014)Summary.
New Form 2903 published by the Office of Credit Ratings. The Office of Credit Ratings published new Form 2903 entitled, “Supplemental Information for Persons Requested to Supply Information Voluntarily to the Office of Credit Ratings’ Monitoring Staff.” (10/20/2014) Form 2903.
Updated EDGAR manuals. Revisions to the Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) Filer Manual and related rules have been published. The updates support the revision of the disclosure, reporting and offering process for asset-backed securities; a system upgrade to be compatible with Internet Explorer version 8.0; and revisions of the N-SAR system requirements. (10/20/2014) SEC Release No. 33-9668; New EDGAR Filer Manuals. Additional manuals were also published: the “EDGAR ABS XML Technical Specification (Version 1),” and “EDGARLink Online XML Technical Specification (Version 13).”
Investment Management denies request to exclude shareholder proposal. The Division of Investment Management denied a closed-end mutual fund’s request to exclude from its 2015 proxy materials a shareholder request regarding a self-tender offer in the event that the fund’s net asset value falls below a certain threshold. (11/6/2014) No-action letter.
Short selling relief is granted. The Division of Trading and Markets granted the no-action relief requested by Goldman Sachs Execution & Clearing (GSEC). GSEC requested assurances that enforcement action would not be recommended under Rule 204 of Regulation SHO if GSEC establishes, maintains, and enforces specified policies and procedures reasonably designed to address certain subsequent activity on the date that GSEC effects a close-out pursuant to Rule 204(a). (10/27/2014) No-action letter.
Selected Enforcement Actions
Crowdfunding portal violated accredited investor rules. The SEC instituted settled administrative proceedings against Eureeca Capital SPC, a Cayman Islands-based crowdfunding platform, for failing to implement procedures reasonably designed to prevent US persons from accessing and investing in securities through its crowdfunding website. Without admitting or denying the allegations, Eureeca agreed to pay a civil penalty of US$25,000 to settle this matter. (11/10/2014) In the Matter of Eurecca Capital SPC, SEC Release No. 33-9678.
SEC files first control person case against municipal official. The SEC filed settled civil fraud charges and instituted settled administrative proceedings against the City of Allen Park, Michigan, a suburb of Detroit; its former mayor, Gary Burtka, and its former city administrator, Eric Waidelich. An SEC investigation found that offering documents provided to investors during the town’s sale of US$31 million in general obligation bonds contained false and misleading statements about the scope and viability of a movie studio project as well as Allen Park’s overall financial condition and its ability to service the bond debt. Without admitting or denying the allegations Burtka has agreed to pay a US$10,000 penalty to settle the charges. Waidelich consented to the entry of an order barring him from the bond industry, and the town agreed to a cease and desist order. (11/6/2014) SEC press release.
Insider trading charges filed against firm’s CEO. The SEC instituted settled administrative proceedings against Steven Durrelle Williams, the former CEO of Intellicheck Mobilisa, Inc., for using non-public material information to trade in Intellicheck stock. Without admitting or denying the allegations, Williams consented to the entry of an order finding that he sold Intellicheck stock while knowing that the company would be announcing poor earnings results. Shortly before selling his shares, Williams spoke positively about the company’s prospects, inducing an existing shareholder to purchase additional shares. Williams agreed to a two-year officer and director bar and to pay US$178,712 in disgorgement and penalties to settle this matter. Williams also acknowledged that the disgorgement and penalties will not be dischargeable in bankruptcy. (11/4/2014) In the Matter of Steven Durrelle Williams, SEC Release No. 33-9676.
First ever market manipulation case filed against high-frequency trading firm.The SEC instituted settled administrative proceedings against a high-frequency trading firm for placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of NASDAQ-listed stocks. The SEC found that Athena Capital Research used an algorithm to engage in “marking the close” where stocks are bought or sold near the close of trading to affect the closing price. The massive volumes of Athena’s last-second trades allowed Athena to overwhelm the market’s available liquidity and artificially push the market price in Athena’s favor. Without admitting or denying the allegations, Athena agreed to pay a US$1 million penalty to settle the SEC’s charges. (10/16/2014) SEC press release.
Rulemaking priorities. SEC Chair Mary Jo White’s rulemaking priorities were summarized by Reuters. Those priorities include market structure issues such as maker-taker and the adoption of Regulation Systems Compliance. (11/10/2014)Market structure. MarketWatch reported that the SEC will also address executive compensation. (11/10/2014) Priorities.
Individual focus. Bloomberg summarized the remarks of Enforcement Division head Andrew Ceresney at an industry conference. Ceresney said the agency will be focusing on individual liability with regard to the municipal securities industry. (11/10/2014) Individual responsibility.
Awarding points for bad behavior. A New York Times op-ed suggested that the SEC adopt a “point system” to encourage compliance with its rules. Like the points system employed by state motor vehicle departments, the proposed program would assess penalty points to firms who have violated the securities laws. If enough points are assessed, a firm would lose its registration or exemption. (11/7/2014)Points.
Penny stock investor alert. The Office of Investor Education and Advocacy and the Financial Industry Regulatory Authority issued an alert warning investors about penny stock frauds and providing tips on how to avoid pump-and-dump schemes. (10/30/2014) SEC press release.
Investment Division Director speech. The Director of the Investment Management Division, Norm Champ, discussed enhanced risk monitoring efforts, the tracking of industry trends and areas of heightened risk. (10/29/2014) Champ speech.
Staff reports. The SEC published two staff reports which analyze data on the reporting and dissemination of security-based swap transaction information. (10/17/2014) SEC press release.