Requests for Comment
Proposed auditing standard. The SEC provided notice of the PCAOB’s submission of proposed Auditing Standard No. 17, Auditing Supplemental Information Accompanying Audited Financial Statements, to its interim auditing standards. Comments should be submitted by December 6. (11/8/2013) SEC Release No. 34-70843.
Proposed attestation standards. The SEC provided notice of the PCAOB’s submission of proposed Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, and Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers, to the PCAOB standards. Comments on either proposal should be submitted by December 6. (11/8/2013) SEC Release No. 34-70842.
Selected Enforcement Actions
SEC rejects the “everyone is doing it” defense. The SEC affirmed the Financial Industry Regulatory Authority’s findings of violations and sanctions against Robert Conway and Kakit Ng. FINRA found that Conway and Ng engaged in unethical conduct, in violation of NASD Conduct Rule 2110, by using deceptive market timing practices and executing late trades in mutual fund shares. In its opinion sustaining FINRA’s findings, the Commission found that Conway and Ng had actual notice that their activities were improper. Discounting the respondents’ contention that their conduct was consistent with industry norms, the Commission held that “it is no defense that others in the industry may have been operating in a similarly illegal or improper manner.” (11/7/2013) In the Matter of the Application of Robert Conway, SEC Release No. 34-70833.
SEC charges audit firm and partners with audit failures. The SEC instituted settled administrative proceedings against an audit firm, its founder, two other partners, and an audit manager for their roles in the failed audits of three China-based companies publicly traded in the US. An SEC investigation found that Sherb & Co. LLP and its auditors falsely represented in audit reports that they had conducted the audits in accordance with US auditing standards when in fact they were riddled with failures and improper professional conduct. One of the companies audited, China Sky One Medical Inc., has since been charged by the SEC with fraud. To settle the SEC’s charges, the firm and the four auditors agreed to be barred from practicing as accountants on behalf of any publicly traded company or other entity regulated by the SEC. The firm agreed to pay a US$75,000 penalty. (11/7/2013) SEC press release.
SEC reconsiders “accredited investor” definition. The Wall Street Journalsummarized a letter SEC Chairman Mary Jo White sent to Congress concerning the Commission’s plans to revise the accredited investor rules. Among other things, the agency is considering whether to amend the rule to allow investors with certain higher-education degrees to participate in private offerings even if they do not meet income thresholds. (11/18/2013) Definition.
Office of the Whistleblower’s annual report. The SEC’s Office of the Whistleblower published its 2013 Annual Report to Congress. For fiscal year 2013, the Office paid US$14 million to informants. The number of whistleblower tips and complaints increased from 3,001 in the 2012 fiscal year to 3,238 in the 2013 fiscal year.
SEC roundtable on proxy advisors. The SEC will host a roundtable discussion on December 5, 2013, to discuss the use of proxy advisory firm services by institutional investors and investment advisers. (11/5/2013) SEC press release.
Chairman White discusses trials. Mary Jo White, Chairman of the SEC, discussed the importance of trials. “If,” she noted, “a result of our change in settlement policy results in more trials, one clear winner will be the administration of justice, which will always fare best in the open for the public to see and to take stock of what a defendant did and what its government is doing. It also would make our lives as lawyers and judges more interesting and... even more exciting from time to time.” (11/14/2013) White speech.
Crowdfunding. The potential costs that a company may incur when it raises funds via the SEC’s new crowdfunding rules were discussed by the New York Times. (11/14/2013) Crowdfunding.
SIFMA’s objections to the municipal advisor rule. The Securities Industry and Financial Markets Association’s objections to the SEC’s municipal advisor registration rule were discussed by the Bond Buyer. (11/14/2013) Response.
Staff guidance. The SEC’s Division of Corporation Finance issued 11 new compliance and disclosure interpretations. New Questions 138.03 and 138.04 concern Rule 144A - Private resales of securities to institutions. New Questions 260.05 through 260.13 address Rule 506 - exemption for limited offers and sales without regard to dollar amount of offering. (11/13/2013) C&DI guidance page.
Commissioner Gallagher discusses market structure. SEC Commissioner Daniel Gallagher has called for the creation of a separate marketplace for the exclusive use of small and emerging companies. (11/6/2013) Gallagher speech.