New Final Rules
Cross-border security-based swaps. The first set of SEC rules and guidance on cross-border security-based swap activities has been published. The rules and guidance address when a cross-border transaction must be counted toward the security-based swap dealer registration requirement; the scope of the SEC’s cross-border anti-fraud authority; and the procedural rules for submitting substituted compliance requests. The rules will be effective 60 days after publication in the Federal Register. (6/25/2014) SEC press release.
Freedom of Information Act fees and procedures. The SEC requested comment on amendments to the agency’s rules under the Freedom of Information Act. The amendments would allow the SEC to collect fees that reflect its costs in responding to FOIA requests, add an appeals time frame and clarify other issues. Comments should be submitted by July 28, 2014. (6/20/2014) SEC Release No. 34-72440.
Tick size pilot. The SEC has ordered US equities exchanges and the Financial Industry Regulatory Authority to develop a joint pilot program that would widen the quoting and trading increments for certain small capitalization stocks. The pilot plan is expected to be filed with the SEC by August 25, 2014. (6/24/2014) SEC press release.
Accredited investors. The Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DI) concerning Securities Act Rules 501 (Definitions and Terms Used in Regulation D) and Rule 506 (Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering). The new C&DIs concerning Rule 501 can be found at New Question 255.48 and New Question 255.49. The new C&DIs concerning Rule 506 can be found at New Question 260.35, New Question 260.36, New Question 260.37 and New Question 260.38. (7/3/2014) C&DIs.
Proxy voting. The Divisions of Investment Management and Corporation Finance jointly issued a legal bulletin which addresses an investment adviser’s responsibilities in voting client proxies and retaining proxy advisory firms and the availability and requirements of two exemptions to the federal proxy rules that are relied upon by proxy advisory firms. (6/30/2014)
Business development companies. The Division of Investment Management issued guidance on business development companies with wholly-owned small business investment company subsidiaries. (6/27/2014)
Investment companies. The Division of Investment Management updated its guidance on private funds and the application of the custody rule to special purpose vehicles and escrows and on mutual fund enhanced disclosure. (6/27/2014)
Selected Enforcement Actions
Auditor of China-based firm faces restrictions. The SEC instituted settled administrative proceedings against EFP Rotenberg, LLP, an accounting firm, and Nicholas R. Bottini, a Rotenberg partner and head of its China practice, in connection with the audit of the financial statements of Universal Travel Group (UTG), a Shenzhen, China-based group formerly listed on the New York Stock Exchange. Without admitting or denying the allegations, respondents consented to the entry of an order finding that UTG’s previous auditor had resigned after it became suspicious that UTG had tampered with the third party confirmation process. Despite that resignation, respondents never took the steps necessary to verify UTG’s third party confirmations, did not obtain comprehensible English translations of UTG’s internal controls procedure, and never investigated critical analyst reports. Nevertheless, respondents issued an unqualified opinion of UTG’s financial statements. The order censures Rotenberg, places restrictions on its representation of China-based issuers, and requires it to pay a US$50,000 penalty. The order suspends Bottini from appearing or practicing before the SEC for two years and requires him to pay a penalty of US$25,000. (7/1/2014) In the Matter of EFP Rotenberg, LLP, SEC Release No. 33-9608.
Emergency order stops city’s bond offering. The SEC obtained an emergency court order against a Chicago suburb and its comptroller to stop an allegedly fraudulent bond offering that the city has been marketing to potential investors. The SEC filed fraud charges against the city of Harvey, Illinois, and Joseph T. Letke, alleging that they have been engaging in a scheme for the past several years to divert bond proceeds for improper, undisclosed uses. (6/25/2014) SEC press release.
Speeches and Testimony
Director Champ addresses Private Equity Forum. The Director of the SEC’s Division of Investment Management, Norm Champ, discussed alternative mutual funds, addressing their potential risks in the areas of valuation, liquidity, leverage and disclosure. Champ noted how existing investment company staff guidance applies to alternative funds and the Office of Compliance Inspections and Examinations’ recent risk alerts concerning alternative funds. As previously announced, OCIE will be conducting a sweep examination of 15 to 20 alternative mutual fund groups later this year. (6/30/2014) Champ speech.
Commissioner Aguilar on corporate governance. Commissioner Luis A. Aguilar addressed the corporate governance of pension funds. He discussed shareholder engagement, executive compensation, financial reporting and boardroom diversity. (6/27/2014) Aguilar speech.
Director Luparello testifies at House subcommittee hearing. The Director of the SEC’s Division of Trading and Markets, Stephen Luparello, testified at hearings held by the House capital markets subcommittee. Luparello addressed the implementation of the Dodd-Frank Act, efforts to reform market structure, the introduction of new rules for financial utilities and the harmonization of the fiduciary duty standard for advisers and brokers. (6/26/2014) Luparello testimony.
Chair White discusses corporate directors. SEC Chair Mary Jo White noted the role corporate directors play as gatekeepers for their shareholders, self-reporting and cooperating in SEC investigations and the agency’s whistleblower program. Emphasizing the importance which self-reporting plays in both SEC and Justice Department investigations, she noted that early communication is vital. (6/23/2014) White speech.
Chair White addresses the fixed income markets. Discussing the fixed income markets, SEC Chair Mary Jo White said that the Commission is working with the Municipal Securities Rulemaking Board on a best execution rule for the municipal securities market. The Commission, MSRB and the Financial Industry Regulatory Authority are also developing guidance on how brokers might effectively achieve best execution and on rules regarding the disclosure of markups in “riskless principal” transactions for both corporate and municipal bonds. (6/20/2014) White speech.
XBRL reporting. The Division of Economic and Risk Analysis staff reported the results of its assessment of the quality of XBRL exhibits submitted by issuers complying with the 2009 rule requirements to file financial statement information in an XBRL format. (7/7/2014) Staff report. The Division also published the sample letter it sent to certain filers regarding their reports on Form 10-Q and the XBRL requirement to include calculation relationships. (7/7/2014) Sample letter.
Additional law judges announced. The SEC will add two new judges and three new attorneys to its Office of Administrative Law Judges. (6/30/2014) SEC press release.
Investor advocate. The Office of the Investor Advocate published its first report, addressing its objectives for the upcoming year, which include equity market structure, investor flight, municipal market reform, cybersecurity, effective disclosure, and elder abuse. (6/30/2014) Report.