Proposed Rules

Comment period reopened for asset-backed securities proposal. The SEC reopened the comment period for its proposed disclosure rule for asset-backed securities. The Commission seeks comment on the Division of Corporation Finance’s suggestion concerning the dissemination of potentially sensitive asset-level data. Comments should be submitted by March 28, 2014. (2/25/2014) SEC Release No. 33-9552.


Investment companies. The Division of Investment Management issued guidance on how Securities Exchange Act Rule 14a4-4, the unbundling of proxy materials, applies to investment companies. (2/24/2014) Guidance.

Selected Enforcement Actions

Penny stock sanctions. The SEC barred two registered representatives from the securities industry for their participation in an unregistered penny stock scheme and also barred their senior manager from association with any broker or dealer with a right to reapply in a non-proprietary, non-supervisory capacity after two years. The Commission reduced the amount of disgorgement imposed by the administrative law judge but increased the civil penalties. (2/27/2014) In the Matter of Ronald S. Bloomfield, SEC Release No. 33-9553.

SEC alleges private equity manager misallocated assets. The SEC instituted contested administrative proceedings against an Arizona-based private equity fund manager and his investment advisory firm for misallocating their expenses to the funds they manage. The Enforcement Division alleges that Scott A. Brittenham and Clean Energy Capital LLC (CEC) improperly paid more than US$3 million of the firm’s expenses by using assets from 19 private equity funds, and loaned money to the funds at unfavorable interest rates and unilaterally changed how they calculated investor returns in order to benefit themselves. (2/25/2014) SEC press release.

Junior claims he doesn’t recognize his father’s name. The SEC announced the filing of an emergency action against an investment banker charged with insider trading for nearly US$1 million in illicit profits. The SEC alleges that Frank Hixon Jr. regularly logged into the brokerage account of the mother of his child. He executed trades based on confidential information that he obtained on the job, sometimes within minutes of learning it. Illegal trades also were made in his father’s brokerage account. When his firm confronted him about the trading, Hixon Jr. pretended not to recognize the names of his father or his child’s mother. Hixon Jr. was subsequently fired. Related criminal charges have also been filed against Hixon Jr. (2/21/2014) SEC press release.

The producers. The SEC charged three California residents with defrauding investors in a purported multi-million dollar movie project that would supposedly star well-known actors and generate large investment returns. High-pressure salespeople persuaded more than 60 investors to invest a total of US$1.8 million in the movie first titled Marcel and later changed to The Smuggler. The defendants allegedly spent most of the money among themselves, and the investor funds that remain aren’t enough to produce a public service announcement. Related criminal charges have also been filed against the individuals. (2/20/2014) SEC press release.

Other Developments

2014 fiscal year fee rate. The SEC will not make a mid-year adjustment to the Section 31 fee rate for fiscal year 2014. The Section 31 fee rate will remain at US$17.40 per million through March 17, 2014, and as previously announced, change to US$22.10 per million starting March 18, 2014. This rate will remain in place until September 30, 2014, or 60 days after the enactment of a regular 2015 fiscal year appropriation, whichever is later. The Section 31 assessment on round turn transactions in security futures will remain at US$0.0042 per transaction. (2/28/2014) SEC press release.

Exchange-traded notes. According to Bloomberg, the SEC is preparing to issue guidance on exchange-traded notes. (2/28/2014) ETNs.

Crowdfunding. The comments submitted to the SEC in response to its proposed crowdfunding rules were summarized by the Wall Street Journal. (2/27/2014) Comments.

SEC speaks. At this year’s “SEC Speaks” conference, SEC Chair Mary Jo White discussed the SEC’s priorities, which include expanded stress tests by the Division of Investment Management, the development of new analytical tools by the Office of Risk Assessment and Surveillance and the implementation of a pilot program to test tick sizes. Commissioner Kara Stein addressed the important role played by gatekeepers and said she would like to see the adoption of clear guidelines concerning when a “bad actor” waiver request will be granted. Commissioner Luis Aguilar enumerated the growing cyber- threats faced by registrants, the capital markets and investors. (2/21/2014)

OCIE focus. In 2014, the focus of the SEC’s Office of Compliance Inspections and Examinations will be aimed at investment advisers who have been registered with the SEC for at least three years but have never been examined. OCIE will focus on these advisors’ compliance programs, filings and disclosure, marketing, portfolio management, and client custody practices. (2/20/2014) SEC press release.

Investor bulletin. The SEC published an investor bulletin discussing how fees and expenses affect an investment portfolio. (2/2014) Investor bulletin.