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Items of interest to investment advisers are constantly updated. Bookmark this page to read up-to-the-minute news and important regulatory changes!

SEC Clarifies Investment Advisers' Proxy Voting Responsibilities and Application of Proxy Rules to Voting Advice

On August 21, 2019, the SEC issued guidance to assist investment advisers in fulfilling their proxy voting responsibilities. The guidance discusses, among other matters, the ability of investment advisers to establish a variety of different voting arrangements with their clients and matters they should consider when they use the services of a proxy advisory firm.  In addition, the Commission issued an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” under the federal proxy rules and provided related guidance about the application of the proxy antifraud rule to proxy voting advice.  Both of these actions explain the Commission’s view of various non-exclusive methods entities can use to comply with existing laws or regulations or how such laws and regulations apply.

“Voting is a key component of shareholder engagement and investing more generally,” said SEC Chairman Jay Clayton.  “I’d like to thank Commissioner Elad Roisman for his leadership on our efforts to consider improvements to the proxy process, and for helping to develop this important guidance that, among other things, will provide clarity to investment advisers regarding proxy voting responsibilities, and ultimately benefit their clients.”      

“Today’s releases have benefited from the substantial engagement from the public over the past decade, including last November’s Staff Roundtable on the Proxy Process and the extensive public comments the Commission has received,” said Commissioner Roisman.  “The releases reiterate the Commission’s views on the importance of investment advisers’ voting responsibly on behalf of their clients and the applicability of our proxy rules to proxy voting advice.  Advisers who vote proxies must do so in a manner consistent with their fiduciary obligations and, to the extent they rely on voting advice from proxy advisory firms they must take reasonable steps to ensure the use of that advice is consistent with their fiduciary duties. In addition, proxy advisory firms, to the extent they engage in solicitations, must comply with applicable law.”

FACT SHEET
SEC Open Meeting
August 21, 2019


The Commission has issued guidance to assist investment advisers in fulfilling their proxy voting responsibilities, particularly where they use the services of a proxy advisory firm, and provides guidance on proxy voting disclosures under Form N-1A, Form N-2, Form N-3, and Form N-CSR under the Investment Company Act of 1940.  The Commission has also issued an interpretation of Exchange Act Rule 14a-1(l) that proxy voting advice generally constitutes a solicitation under the federal proxy rules and related guidance regarding the application of the antifraud provisions in Exchange Act Rule 14a-9 to proxy voting advice.

Proxy Voting Responsibilities of Investment Advisers


Investment advisers owe each of their clients a duty of care and loyalty with respect to services undertaken on the clients’ behalf, including proxy voting.  Rule 206(4)-6 under the Advisers Act requires an investment adviser who exercises voting authority with respect to client securities to adopt and implement written policies and procedures that are reasonably designed to ensure that the investment adviser votes proxies in the best interest of its clients.

The guidance clarifies how an investment adviser’s fiduciary duty and Rule 206(4)-6 under the Advisers Act relate to an adviser’s proxy voting on behalf of clients, particularly if the investment adviser retains a proxy advisory firm.  The guidance follows a question and answer format and provides examples to help facilitate compliance.

In particular, the guidance discusses, among other things:

Applicability of the Federal Proxy Rules to Proxy Voting Advice

The federal proxy rules apply to any solicitation for a proxy with respect to any security registered under Exchange Act Section 12.  Under Exchange Act Rule 14a-1(l), a solicitation includes, among other things, a “communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy,” and includes communications by a person seeking to influence the voting of proxies by shareholders, regardless of whether the person itself is seeking authorization to act as a proxy.

Under the Commission interpretation, proxy voting advice provided by proxy advisory firms generally constitutes a solicitation subject to the federal proxy rules.  The Commission’s interpretation does not affect the ability of proxy advisory firms to continue to rely on the exemptions from the federal proxy rules’ filing requirements.  These exemptions, found in Rule 14a-2(b), among other things, provide relief from the obligation to file a proxy statement, as long as the advisory firm complies with the exemption’s conditions.

Solicitations that are exempt from the federal proxy rules’ filing requirements remain subject to Exchange Act Rule 14a-9, which prohibits any solicitation from containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact.  The Commission guidance explains what a person providing proxy voting advice should consider when considering the information it may need to disclose in order to avoid a potential violation of Rule 14a-9 where the failure to disclose such information would render the advice materially false or misleading.

What’s Next?


The guidance and interpretation will be effective upon publication in the Federal Register.

We encourage investment advisers to review their policies and procedures in light of the guidance in advance of next year’s proxy season.  To the extent that firms identify operational or other questions in the course of that review, we encourage them to contact the staff of the Division of Investment Management. 
[Please login to IA Act UnwrappedTM to view Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Release No. IA-5325, “Fiduciary Release”; also see Release No. 34-86721 Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice ]. Top

SEC Releases Videos on Choosing and Working with a Financial Professional

On August 15, 2019, the SEC released a series of short educational videos designed to provide ordinary investors with basic information about choosing and working with a financial professional. The videos are now available at SEC.gov and Investor.gov/CRS.

“Through my discussions with Main Street investors across the country, it became apparent to me that there are several key concepts involving working with a financial professional that have not been well explained,” said Chairman Jay Clayton. “These videos are designed to describe, generally and in plain language, the differences between brokers-dealers and investment advisers, arming investors with the information they need to ask better questions and help them make sound decisions for themselves and their families with their hard-earned money. We encourage investors to ask direct questions of their financial professional, so that they can better understand the services they will receive and what they are paying.  I encourage investors to ask my favorite question:  If I work with you, how much of my money is going to fees and costs, and how much is going to work for me?”

The videos released are a part of the Commission’s larger Main Street investor engagement and education campaign, following recently adopted rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers and bring the legal requirements and mandated disclosure in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products. Specifically, these actions include new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940.

Chairman Clayton previously announced that these videos, along with investor events, would be part of a new campaign designed to help retail investors understand key differences between broker-dealers and investment advisers, and to help them decide whether working with one of those types of financial professionals is right for them. [Please
login to IA Act UnwrappedTM Regulatory Database Rule 204-5 for more information under the Description Tab.]   Top 

SEC Charges IA with Failing to Disclose Financial Conflict of Interest

The Commission announced settled charges against MVP Manager LLC ("MVP"), a New York-based investment adviser to private funds, for failing to adequately disclose conflicts of interest.

According to the SEC's order, MVP advised and managed private fund clients that invested in the securities of venture-backed companies that had not conducted initial public offerings. The order finds that on three occasions between December 2014 and December 2015, MVP personnel arranged to receive a brokerage commission from the counterparty that was selling such securities to MVP's client funds. Each of these arrangements created a potential or actual conflict of interest because MVP and its personnel had an economic incentive to cause the private funds to purchase the securities at the prices MVP negotiated with the counterparties, which would trigger the payment of the commissions. None of the disclosure documents that MVP provided to fund investors, however, revealed the existence of the arrangements or MVP's attendant conflicts of interest.

The SEC order finds that MVP willfully violated the antifraud provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Without admitting or denying the SEC's findings, MVP agreed to settle by consenting to a cease-and-desist order and censure, disgorgement and prejudgment interest of approximately $170,000, and a civil monetary penalty of $80,000. [Please
login to IA Act UnwrappedTM to view Release No. IA-5319 In the Matter of MVP Manager LLC.]  Top 

SEC to Consider Proxy Voting Guidance
Open Meeting Agenda for Wednesday, August 21, 2019


Item 1: Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers

Office: Division of Investment Management

Staff: Dalia Blass, Paul Cellupica, Holly Hunter-Ceci, David Bartels, and Thankam Varghese

The Commission will consider whether to publish guidance regarding the proxy voting responsibilities of investment advisers under Rule 206(4)-6 under the Investment Advisers Act of 1940, and Form N-1A, Form N-2, Form N-3, and Form N-CSR under the Investment Company Act of 1940.

For further information, please contact Thankam Varghese or Holly Hunter-Ceci in the Division of Investment Management at (202) 551-6825.

Item 2: Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice

Office: Division of Corporation Finance

Staff: William Hinman, Michele Anderson, Ted Yu, Tamara Brightwell, and Adam Turk

The Commission will consider whether to publish an interpretation and related guidance regarding the applicability of certain rules, which the Commission has promulgated under Section 14 of the Securities Exchange Act of 1934, to proxy voting advice.

For further information, please contact Adam Turk in the Division of Corporation Finance at (202) 551-3500. Top

SEC Charges Recidivist IA for Failing to Disclose Conflicts of Interest

On July 24, 2019, the Commission announced that recidivist N. Gary Price, a principal of formerly registered investment adviser Genesis Capital LLC, agreed to settle charges that he failed to disclose to clients significant conflicts of interest relating to recommendations to invest in securities issued by Aequitas Commercial Finance, LLC. The SEC previously charged Aequitas Management LLC and four of its affiliates, including ACF, with fraudulently raising more than $350 million from investors.

According to the SEC's order, from 2013 through 2015, Genesis made several investments for its mutual fund clients in promissory notes issued by ACF. Price, of Gig Harbor, Washington, approved these investments through Genesis's investment committee. At the time Genesis made these investments, Price benefited from significant financial ties to Aequitas entities. In particular, the SEC's order found that Price held ownership stakes in two Aequitas-affiliated businesses that together received $3.6 million in loans from ACF as well as a $10 million line of credit. At the same time, a broker-dealer part-owned by Price allegedly received fees from another Aequitas affiliated-business for referring other investors to ACF.   Despite several opportunities to disclose his ties to Aequitas, the SEC's order found that Price repeatedly failed to do so.

The SEC's order found that Price violated Section 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the SEC's findings, Price consented to a cease-and-desist order, and agreed to pay disgorgement and prejudgment interest of $67,033 and a civil penalty of $75,000. The order also bars Price from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, with the right to apply for reentry after one year. 
[Please login to IA Act UnwrappedTM to view Release No. IA-5307]   Top 

Adviser & Principals Charged with Failing to Disclose Conflicts of Interest

On July 24, 2019, the Commission announced that Foundations Asset Management, LLC (“FAM”), an Anchorage, Alaska-based investment adviser, along with its principals Michael Shamburger and Rob Wedel, agreed to settle charges that they failed to disclose conflicts of interest related to compensation FAM received.

The SEC’s order finds that from May 2013 to June 2016, FAM breached its fiduciary duty to its retail clients by failing to disclose conflicts of interest FAM had in recommending investments in the private real estate fund Alaska Financial Company III LLC (“AFC III”).

As detailed in the order, during this period, AFC III and its manager paid FAM approximately $254,000, in both up-front payments and annual trailing fees, in exchange for FAM recommending investments in the fund. FAM ultimately recommended its clients put approximately $12 million in AFC III. The order finds that FAM, Shamburger, and Wedel failed on multiple occasions to adequately disclose to clients the conflicts of interest presented by FAM’s AFC III compensation, including that FAM earned significantly more money by recommending AFC III investments as compared to other investments. The SEC’s order further finds that FAM failed to register as a broker and made materially false statements regarding its compensation in SEC filings.

The SEC’s order finds that FAM willfully violated the broker-dealer registration provision of Section 15(a) of the Securities Exchange Act of 1934 and the antifraud provisions of Sections 206(2) and 207 of the Investment Advisers Act of 1940, that Shamburger caused FAM’s violations of Section 15(a) of the Exchange Act and Sections 206(2) and 207 of the Advisers Act, and that Wedel caused FAM’s violations of Section 15(a) of the Exchange Act and Section 206(2) of the Advisers Act.

Without admitting or denying the findings, FAM agreed to pay disgorgement and prejudgment interest of $278,947 and an $85,000 penalty, while Shamburger and Wedel agreed to pay $50,000 and $25,000 penalties, respectively. The SEC’s order also includes cease-and-desist orders against FAM, Shamburger, and Wedel; a censure against FAM; and a voluntary undertaking by FAM to relinquish its right to receive further trailing fees related to AFC III investments. AFC III and its manager were the subject of a 2018 SEC enforcement action alleging fraud. [Please
login to IA Act UnwrappedTM to view Release No. IA-5306 In the Matter of Foundations Asset Management, LLC, Michael W. Shamburger, and Rob E. Wedel] Top

OCIE Publishes Observations from Supervision Initiative

As part of OCIE’s Supervision Initiative and focus on protecting retail investors, OCIE staff conducted a series of examinations to assess the oversight practices of SEC-registered investment advisers that previously employed, or currently employ, any individual with a history of disciplinary events.

On July 23, 2019, OCIE issued a Risk Alert to raise awareness of certain compliance issues that OCIE observed by sharing the staff’s observations from these examinations.

The staff conducted over 50 exams of advisers in 2017 as part of the Supervision Initiative.  The advisers examined collectively managed approximately $50 billion in assets for nearly 220,000 clients, the vast majority of whom were retail investors.  Advisers were identified for examination through a review of information about disciplinary events and other legal actions involving supervised persons of the adviser, including legal actions that are not required to be reported on Form ADV (e.g., private civil actions).  

The Supervision Initiative focused on advisers’ practices in certain areas, including: compliance programs and supervisory oversight practices, disclosures, and conflicts of interest.

The Initiative identified a variety of observed deficiencies across a range of topics.  Nearly all of the examined advisers received deficiency letters.  The vast majority of these deficiencies relate to compliance issues, but many relate to disclosure issues, including undisclosed conflicts of interest. The OCIE Risk Alert also discusses staff observations on ways to improve compliance and considerations for advisers that hire or employ supervised persons with disciplinary histories.

OCIE encourages advisers, when designing and implementing their compliance and supervision frameworks, to consider the risks presented by hiring and employing supervised persons with disciplinary histories and adopt policies and procedures to address those risks. [Please
login to the IA Act UnwrappedTM Examination Tools Database/2019 Information to access the Risk Alert.]  Top

Portfolio Manager Charged with Mispricing Fund Investments

On July 18, 2019, the Commission announced settled administrative proceedings against Swapnil Rege, a North Brunswick, New Jersey portfolio manager and trader, for mispricing private fund investments, resulting in a large personal bonus.

According to the SEC's order, from June 2016 to April 2017, while employed by the fund's adviser, Rege manipulated the inputs he used to value interest rate swaps and swap options to create the false impression that his investments for the fund were profitable. Rege's conduct, the SEC's order finds, artificially inflated the fund's reported returns and caused the fund to pay too much in fees. Rege took steps to conceal his mispricing from the fund's adviser. Because of Rege's inflated valuations, he received a $600,000 bonus. The order states that the adviser ultimately fired Rege, closed the fund, and returned the excessive management fees to the fund.

"Rege overvalued fund assets to benefit only himself and then tried to cover it up," said C. Dabney O’Riordan, Co-Chief of the SEC Enforcement Division's Asset Management Unit. "Today the SEC, along with our colleagues at the Commodity Futures Trading Commission, are holding him accountable for his misconduct, which harmed both the fund and its investors."

The SEC's order finds that, based on the above conduct, Rege aided and abetted and caused the adviser's violations of the antifraud provisions of Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Without admitting or denying the findings in the SEC's order, Rege agreed to a cease-and-desist order, an associational bar and investment company prohibition with a right to apply for reentry after three years, disgorgement of ill-gotten gains of $600,000 plus prejudgment interest, and a civil penalty of $100,000.

The Commodity Futures Trading Commission (CFTC) also entered a consent order against Rege, involving substantially the same conduct as described in the SEC’s order. The CFTC's order finds that Rege violated the Commodity Exchange Act and imposes a trading ban for a period of at least three years, disgorgement that will be deemed satisfied by the payment of disgorgement under the SEC's order, and an additional penalty of $100,000. [Please
login to IA Act UnwrappedTM to view Release No. IA-5303 In the Matter of Swapnil Rege]   Top 

SEC Charges Fund Adviser and Principal for Fraudulently Overvaluing Assets

The Commission has charged Paul Alar of Atlanta, Georgia, and his investment adviser firm, West Mountain, LLC, for fraudulently over valuing assets in two funds they managed, allowing them to collect significantly inflated fees.

The SEC's complaint alleges that, beginning in late 2016, West Mountain and Alar directed two funds that they managed to invest in subsidiaries of two privately held companies. According to the complaint, at the time of the investments, both companies had minimal revenues, very limited operations, and minimal numbers of employees. Nevertheless, Alar and West Mountain recorded in the financial records for their two funds a collective unrealized gain of $18.6 million based on those investments, thereby allowing them to collect approximately $900,000 of additional fees.

The complaint further alleges that, in valuing the unrealized gains, West Mountain and Alar falsely represented to investors that independent valuations by a third party supported their valuations, even though they knew that the third-party expressly stated it "should not be regarded as an independent valuation." In addition, West Mountain's auditors had advised that the valuation methodology used to calculate the unrealized gains was unreasonable and inappropriate. The SEC also alleges that, in 2017, West Mountain and Alar misrepresented that one of the companies was actively negotiating an anticipated agreement that would result in massive gains for investors. According to the complaint, however, these "active negotiations" never existed.

The SEC's complaint, filed in federal district court in Atlanta, Georgia, charges defendants with violating the antifraud provisions of Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC seeks permanent injunctions and monetary relief. [Please
login to the IA Act UnwrappedTM Enforcement Case Database to view Litigation Release No. LR-24939 SEC v. Paul Alar and West Mountain, LLC] Top 

SEC and NASAA Explain Application of Securities Laws to Opportunity Zone Investments

The Securities and Exchange Commission and the North American Securities Administrators Association (NASAA) have issued a summary that explains the application of the federal and state securities laws to opportunity zone investments. The "opportunity zone" program was established by the Tax Cuts and Jobs Act in December 2017 to provide tax incentives for long-term investing in designated economically distressed communities.

The summary is intended to help participants in the opportunity zone program understand the compliance implications for qualified opportunity funds under federal and state securities laws.

"The opportunity zone program has the potential to encourage investment and economic development in many areas across the country that are in need of capital. The staff statement released today will help market participants understand securities laws implications when seeking to raise capital for opportunity zones," said SEC Chairman Jay Clayton. "In addition, today the SEC is issuing staff guidance regarding the ability of Main Street investors to participate in these offerings."

"This new program provides an opportunity to strengthen investments in low-income communities and rural areas that traditionally struggled to attract the capital necessary to spur economic growth and job creation," said Michael Pieciak, NASAA President and Vermont's Commissioner of Financial Regulation. "This joint summary is a good example of state and federal regulators working collaboratively to address new compliance issues raised by an innovative program and thereby promoting our dual mission of protecting investors and helping facilitate capital formation."

Specifically, this summary discusses:

  1. What are qualified opportunity zones (QOZs);
  2. When interests in qualified opportunity funds (QOFs) would be “securities” under federal and state securities laws;
  3. Registration of securities offerings with the SEC and/or state securities regulators and potential exemptions from securities registration for investments in a QOF (particularly through Rule 506 of federal Regulation D);
  4. Broker-dealer registration requirements for persons selling interests in QOFs; and
  5. Registration and exemptions from registration for QOFs that are “investment companies” and considerations for advisers to a QOF.

Please login to the IA Act UnwrappedTM Examination Tools Database/2019 Information to view the Opportunity Zones summary, “Staff Statement on Opportunity Zones: Federal and State Securities Laws Considerations.”  Top 

Agencies Adopt Final Rule to Exclude Community Banks from the Volcker Rule

Five federal financial regulatory agencies announced on July 9th that they adopted a final rule to exclude community banks from the Volcker Rule, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act.

The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with hedge funds or private equity funds. Under the final rule, which is unchanged from the proposal, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5% or less of total consolidated assets are excluded from the Volcker Rule.

The final rule also permits a hedge fund or private equity fund, under certain circumstances, to share the same name or a variation of the same name with an investment adviser as long as the adviser is not an insured depository institution, a company that controls an insured depository institution, or a bank holding company.

The final rule is being issued by the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.  Top 

Lee Sworn in as SEC Commissioner

Allison Herren Lee was sworn into office on July 8 as an SEC Commissioner.  Ms. Lee was nominated to the SEC by President Donald J. Trump and unanimously confirmed by the U.S. Senate and fills a term that expires on June 5, 2022.

Commissioner Lee has over two decades of experience as a securities law practitioner. Most recently, she has written, lectured, and taught courses internationally on financial regulation and corporate law. She served for over a decade in various roles at the SEC, including as counsel to Commissioner Kara Stein, and as Senior Counsel in the Division of Enforcement’s Complex Financial Instruments Unit. In addition, Commissioner Lee has served as a Special Assistant U.S. Attorney, was a member of the American Bar Association’s former Committee on Public Company Disclosure, and participated on a USAID project in Armenia, assisting in the drafting of periodic reporting and disclosure provisions for a comprehensive law of the Republic of Armenia on Securities Market Regulation.

Prior to government service, Commissioner Lee was a partner at Sherman & Howard LLC, focusing on securities, antitrust, and commercial litigation. A member of the Colorado bar, she holds a bachelor’s degree in Business from the University of Colorado and a J.D. from the University of Denver College of Law, where she was salutatorian, a Chancellor’s Scholar, and served on the Law Review.  Top  

SEC Charges Investment Adviser with Fraud

On July 1, 2019, the Commission charged Fieldstone Financial Management Group LLC and its principal Kristofor R. Behn, both of Foxboro, Mass., with defrauding retail investment advisory clients by failing to disclose conflicts of interest related to their recommendations to invest in securities issued by affiliates of Oregon-based Aequitas Management LLC.  Behn also fraudulently misused approximately $500,000 of one investor’s funds to pay personal expenses.

According to the SEC’s order, from 2014 to early 2016, approximately 40 retail clients of Behn and Fieldstone invested more than $7 million in Aequitas securities, which were the subject of a previous Commission enforcement action.  The order finds that Behn and Fieldstone failed to disclose to their clients that Aequitas had provided Fieldstone with a $1.5 million loan and access to a $2 million line of credit, both of which had terms that created a significant financial incentive for Behn and Fieldstone to recommend Aequitas securities to their clients.  The order further finds that Behn and Fieldstone made material misstatements and omissions in reports filed with the Commission, including false representations that the repayment terms of the loan from Aequitas were not contingent on Fieldstone clients investing in Aequitas.

In addition, the order finds that Behn and Fieldstone fraudulently induced a client to invest $1 million in Fieldstone.  Within days of Fieldstone receiving the $1 million, Behn used approximately $500,000 to pay his personal taxes and make other payments to himself or for his personal benefit.

“Behn flagrantly disregarded his most basic duties as an investment adviser by concealing the significant financial incentives he and his firm would receive by recommending investments in Aequitas,” said Erin E. Schneider, Director of the SEC’s San Francisco Regional Office.  “The Commission is committed to rooting out breaches of fiduciary duty to retail investors.”

Without admitting or denying the Commission’s findings, Fieldstone and Behn consented to the issuance of the order, which finds that they violated the antifraud provisions of the federal securities laws, censures Fieldstone, orders them to cease and desist from future violations, and orders them to pay, on a joint-and-several basis, disgorgement and prejudgment interest of $1,047,971 and a penalty of $275,000, all of which will be distributed to harmed investors.  Behn will also be permanently barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

The SEC’s investigation was conducted by Tracy S. Combs and Thomas J. Eme of the San Francisco office and supervised by Steven D. Buchholz.  An examination of Fieldstone contributed to the investigation and was conducted by Mark S. Audet, Michael Garrity, Michael McGrath, and Mayeti Gametchu of the SEC’s Boston Regional Office.  [Please
login to IA Act UnwrappedTM to view Release No. IA-5263 In the Matter of Fieldstone Financial Management Group, LLC and Kristofor R. Behn]   Top 

2019 Compliance Outreach Program for IAs & ICs
 
The Chicago Regional Seminar is being streamed live on the SEC's website:
https://www.sec.gov/news/upcoming-events/cco-ia-ic-regional-seminar-chicago

June 25, 2019 | 9:30 AM - 4:30 PM ET

Perspectives from the Directors of OCIE and the Divisions of Enforcement and Investment Management; initiatives and registrant selection; initiatives; common deficiencies; protecting retail investors; afternoon breakout panels on RICs, private funds, recent decisions, and preparing for SEC examinations.

Agenda
 Registration (8:00 am – 8:30 am) 
 
Welcome and Opening Remarks (8:30 am – 8:35 am)  Joel R. Levin, Regional Director, Chicago Regional Office (CHRO)
 
Panel 1:  Director’s Perspectives (8:35 am – 9:35 am) Dalia Blass, Director, Division of Investment Management  Steven Peikin, Co-Director, Division of Enforcement Kristin Snyder, Deputy Director, Office of Compliance, Inspections and Examinations (OCIE) Joel R. Levin, Regional Director, CHRO (Moderator)
 
Panel 2:  IA/IC 2019 Program Overview, Priorities, Initiatives, Common Deficiencies, and Interactions with Enforcement (9:35 am – 10:30 am)   Steven J. Levine, Associate Regional Director, CHRO IA/IC Examination Program Paul Montoya, Assistant Director, Asset Management Unit (AMU), Enforcement, CHRO Alicia Tate, Risk Management Specialist, CHRO IA/IC Examination Program Tanya Solov, Director, Illinois Securities Department (Moderator)
 
Refreshment Break (10:30 am – 10:45 am) 
 
Panel 3: Protecting Retail Investors (10:45 am – 11:45 am)  Charu Chandrasekhar, Assistant Regional Director, Retail Strategy Task Force, Enforcement Louis A. Gracia, Deputy Associate Regional Director, CHRO IA/IC Examination Program Jennifer Porter, Branch Chief, Investment Adviser Regulation Office, Division of Investment Management Tina Diamantopoulos, Counsel to the Regional Director, CHRO (Moderator) 
 
A Conversation with Commissioner Elad L. Roisman (11:45 am – 12:30 pm) Hon. Elad L. Roisman, Commissioner, SEC   Joel R. Levin, Regional Director, CHRO
 
Lunch (12:30 pm – 1:30 pm)
 
Breakout Session 1 (1:30 pm – 2:30 pm) (1a) RIC Initiatives, Priorities, and Hot Topics (live and webcast) Stacey Gohl, Exam Manager, CHRO IA/IC Examination Program Daryl Hartman, Exam Manager, CHRO IA/IC Examination Program José L. Santillan, Senior Specialized Examiner, CHRO IA/IC Examination Program Susan Weis, Senior Regulatory Counsel, CHRO IA/IC Examination Program
 
(1b) Private Funds – Current Topics in Compliance (live only) Michael Collins, Staff Accountant, Private Fund Unit, OCIE  Jennifer Duggins, Co-Head, Private Fund Unit, OCIE Matthew Harris, Exam Manager, Private Fund Unit, OCIE
 
(1c) Recent Decisions (live only) Anne Graber Blazek, Senior Attorney, AMU, Enforcement, CHRO Kent McAllister, Senior Regulatory Counsel, CHRO IA/IC Examination Program Paul M.G. Helms, Partner, McDermott Will & Emery 
 
Break (2:30 pm – 2:40 pm) 
 
Breakout Session 2 (2:40 pm – 3:30 pm)
 
(2a) Newer Registrants – Preparing for a SEC Examination (live only)  Maureen Dempsey, Assistant Regional Director, CHRO IA/IC Examination Program Anne Salvador, Exam Manager, CHRO IA/IC Examination Program Brent VanHootegem, Examiner, CHRO IA/IC Examination Program
 
(2b) Q&A Session (mix of pre-submitted and live questions) (live and webcast)  SEC Staff (various)  Top     

Senate Confirms New SEC Commissioner

On Thursday, June 20th, the Senate confirmed by voice vote Allison Herren Lee, of Colorado, to be a Member of the Securities and Exchange Commission for a term expiring June 5, 2022.

Lee, a Democrat, will replace Commissioner Kara Marlene Stein, whose term expired in January. The SEC currently has a full slate of commissioners, however Commissioner Robert Jackson (also a Democrat) has noted his intent to return to New York University's Law School in the fall.   Top

Two SEC Events in Boston Scheduled for July 8th

SEC Chairman Jay Clayton announced two events for Main Street investors to be held in Boston on Monday, July 8. 

First, Chairman Clayton will host a roundtable with Main Street investors as part of the SEC’s ongoing investor education efforts. The roundtable will focus on issues relevant to Main Street investors, such as understanding key differences between broker-dealers and investment advisers, and choosing whether to work with one of these types of financial professionals. Senior SEC staff are expected to join the Chairman at this event.

Later that evening, Chairman Clayton will discuss the package of rules and interpretations adopted by the Commission on June 5, which were designed to enhance and clarify the standards of conduct applicable to broker-dealers and investment advisers, help retail investors better understand and compare the services offered and make an informed choice of the relationship best suited to their needs and circumstances, and foster greater consistency in the level of protections provided by each regime, particularly at the point in time that a recommendation is made.

“The Commission has an important role to play when it comes to investor education, particularly when it comes to the critical decision of whom investors trust to assist them in securing their financial future,” said Chairman Clayton. “These events are intended to help Main Street investors better understand the key choices they have to make when deciding whether to work with a financial professional. I look forward to continuing the conversation I began with many Main Street investors at our roundtables last year.”

Details about the upcoming events can be found below. The events are free and open to the public and the media. Participants in the investor roundtable should be retail investors who work with, or are considering working with, a financial professional and have no affiliation with the financial services industry. Please note that the number of participants for both events may be limited. Please note which event(s) you are registering for in your RSVP.

Main Street Investor Roundtable
   Location: U.S. Securities and Exchange Commission, Boston Regional Office – 33 Arch Street, 24th Floor, Boston, MA 02110
   Date: July 8, 2019
   Time: 2 p.m.-3 p.m., Doors open at 1:30 p.m.
   RSVP: boston@sec.gov

Chairman Clayton’s Discussion of the Standards of Conduct for Financial Professionals
   Location: Babson College’s Boston Campus – 100 High Street, 9th Floor, Boston, MA 02210
   Date: July 8, 2019
   Time: 5 p.m.-6 p.m., Doors open at 4:30 p.m. Guests must check-in at the registration table in the lobby before proceeding to the 9th floor.
   RSVP: boston@sec.gov

Background: On June 5, 2019, the Securities and Exchange Commission adopted a package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products. Specifically, these actions include new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940. Chairman Clayton previously announced that events such as these would be part of a new campaign designed to help retail investors understand key differences between broker-dealers and investment advisers, and to help them decide whether working with one of those types of financial professionals is right for them. This campaign will also feature a series of short educational videos and updates to the SEC’s investor education website, Investor.gov. Top

SEC Adopts Amendments to Improve the Application of the Auditor Independence Rules to Loan Provision

The Commission has adopted amendments to the auditor independence rules relating to the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client.

The Commission has become aware of circumstances where the existing rules capture relationships that otherwise do not bear on the impartiality or objectivity of the auditor.  The amendments are intended to focus the rules on those lending relationships that reasonably may bear on external auditors’ impartiality or objectivity and, in so doing, improve the application of the Loan Provision for the benefit of investors while reducing compliance burdens.

“This rulemaking reflects the staff’s extensive experience and judgment, and I thank them for their continued commitment to retrospective review,” said SEC Chairman Jay Clayton.  “The amendments we are adopting today will more effectively identify debtor-creditor relationships that could impair an auditor’s objectivity and impartiality, as opposed to certain more attenuated relationships that are unlikely to pose such threats.”

These amendments will become effective 90 days after they are published in the Federal Register.

FACT SHEET

Auditor Independence With Respect to Certain Loans or Debtor-Creditor Relationships
SEC Seriatim Approval

The Commission adopted amendments to the auditor independence rules relating to the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client.  The amendments are intended to more effectively identify debtor-creditor relationships that could impair an auditor’s objectivity and impartiality, as opposed to certain more attenuated relationships that are unlikely to pose such threats.

Highlights -
Rule 2-01(c)(1)(ii)(A) of Regulation S-X (the “Loan Provision”) generally provides that an auditor is not independent if that auditor is in a lending relationship with its audit client.  In recent years, the Commission has become aware that, in certain circumstances, the existing Loan Provision may not have been functioning as it was intended.

The amendments will focus the analysis on beneficial ownership rather than on both record and beneficial ownership; replace the existing ten percent bright-line shareholder ownership test with a significant influence test; add a known through reasonable inquiry standard with respect to identifying beneficial owners of the audit client’s equity securities; and exclude from the definition of audit client, for a fund under audit, any other funds that otherwise would be considered affiliates of the audit client under the rules for certain lending relationships.

These amendments will become effective 90 days after they are published in the Federal Register. [Please
login to the IA Act UnwrappedTM Releases Database to view Release No. IA-5255 Auditor Independence with Respect to Certain Loans or Debtor-Creditor Relationships]  Top 

Glazer Named Senior Advisor to the Director of Investment Management

 

Adam B. Glazer has been named Senior Advisor to the Director of the Division of Investment Management. Mr. Glazer started his new position on June 12. He will advise the Director of Investment Management on issues related to mutual funds and investment advisers.

 

Mr. Glazer has been counsel to SEC Commissioner Hester M. Peirce since 2018. Prior to that, he served as counsel to SEC Commissioner Michael S. Piwowar from September 2013 until January 2018. He is a 19-year SEC veteran who joined the agency in 2000 as an attorney in the Division of Investment Management, where he focused on mutual fund rulemaking. Top  

 

KPMG Paying $50 Million Penalty for Illicit Use of PCAOB Data and Cheating on Training Exams

The SEC has charged KPMG LLP with altering past audit work after receiving stolen information about inspections of the firm that would be conducted by the Public Company Accounting Oversight Board (PCAOB).  The SEC’s order also finds that numerous KPMG audit professionals cheated on internal training exams by improperly sharing answers and manipulating test results.

KPMG agreed to settle the charges by paying a $50 million penalty and complying with a detailed set of undertakings, including retaining an independent consultant to review and assess the firm’s ethics and integrity controls and its compliance with various undertakings.

“High-quality financial statements prepared and reviewed in accordance with applicable accounting principles and professional standards are the bedrock of our capital markets.  KPMG’s ethical failures are simply unacceptable,” said SEC Chairman Jay Clayton.  “The resolution the Enforcement Division has reached holds KPMG accountable for its past failures and provides for continuing, heightened oversight to protect our markets and our investors.”
“The breadth and seriousness of the misconduct at issue here is, frankly, astonishing,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

“This settlement reflects the need to severely punish this sort of wrongdoing while putting in place measures designed to prevent its recurrence.”
“This conduct was particularly troubling because of the unique position of trust that audit professionals hold,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “Investors and other market professionals rely on these gatekeepers to fulfill a critical role in our capital markets.”

Five former KPMG officials were charged last year in a case alleging they schemed to interfere with the PCAOB’s ability to detect audit deficiencies at KPMG.  According to the SEC’s order issued today against KPMG, these senior personnel sought and obtained confidential PCAOB lists of inspection targets because the firm had experienced a high rate of audit deficiency findings in prior inspections and improvement had become a priority. Armed with the PCAOB data, the now-former KPMG personnel oversaw a program to review and revise certain audit work papers after the audit reports had been issued to reduce the likelihood of deficiencies being found during inspections.

The SEC’s order also finds that KPMG audit professionals who had passed training exams sent their answers to colleagues to help them also attain passing scores.  The exams related to mandatory continuing professional education, ethics and integrity, and training mandated by a prior SEC order finding audit failures.  They sent images of their answers by email or printed answers and gave them to colleagues.  This included lead audit engagement partners who not only sent exam answers to other partners, but also solicited answers from and sent answers to their subordinates.

Furthermore, the SEC’s order finds that certain KPMG audit professionals manipulated an internal server hosting training exams to lower the score required for passing.  By changing a number embedded in a hyperlink, they manually selected the minimum passing scores required for exams.  At times, audit professionals achieved passing scores while answering less than 25 percent of the questions correctly.

“The sanctions will protect our markets by promoting an ethical culture at KPMG,” said Melissa Hodgman, Associate Director of the SEC’s Enforcement Division.  “To that end, KPMG will take additional remedial steps to address the misconduct and further strengthen its quality controls, all of which will be reviewed and assessed by an independent consultant.”

In addition to paying a $50 million penalty, KPMG is required to evaluate its quality controls relating to ethics and integrity, identify audit professionals that violated ethics and integrity requirements in connection with training examinations within the past three years, and comply with a cease-and-desist order.  The SEC’s order requires KPMG to retain an independent consultant to review and assess the firm’s ethics and integrity controls and its investigation.

KPMG has admitted the facts in the SEC’s order. It has also acknowledged that its conduct violated a PCAOB rule requiring the firm to maintain integrity in the performance of a professional service and provides a basis for the SEC to impose remedies against the firm pursuant to Sections 4C(a)(2) and (a)(3) of the Exchange Act and Rules 102(e)(1)(ii) and (iii) of the Commission’s Rules of Practice.

The SEC’s investigation, which is continuing, has been conducted by Ian Rupell and Paul Gunson and supervised by Rami Sibay. [In the Matter of KPMG, LLC
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SEC Updates List of Firms Using Inaccurate Information to Solicit Investors

The SEC has updated its list of unregistered entities that use misleading information to solicit primarily non-U.S. investors, adding 11 soliciting entities, four impersonators of genuine firms, and nine bogus regulators.

The SEC’s list of soliciting entities that have been the subject of investor complaints, known as the Public Alert: Unregistered Soliciting Entities (PAUSE) list (https://www.sec.gov/enforce/pause-unregistered-soliciting-entities), enables investors to better inform themselves and avoid being a victim of fraud. The latest additions are firms that SEC staff found were providing inaccurate information about their affiliation, location, or registration. Under U.S. securities laws, firms that solicit investors generally are required to register with the SEC and meet minimum financial standards and disclosure, reporting, and recordkeeping requirements.

“By making this information readily available through the PAUSE list, investors are better able to evaluate solicitations to buy and sell securities and avoid being a victim of fraud,” said Jennifer Diamantis, Chief of the SEC’s Office of Market Intelligence.

In addition to alerting investors to firms falsely claiming to be registered, the PAUSE list flags those impersonating registered securities firms and bogus “regulators” who falsely claim to be government agencies or affiliates.  Inclusion on the PAUSE list does not mean the SEC has found violations of U.S. federal securities laws or made a judgment about the merits of any securities being offered.

The PAUSE list is periodically updated by the SEC’s Office of Market Intelligence in coordination with the Office of Investor Education and Advocacy and the Office of International Affairs. Top 

SEC Adopts Standards of Conduct Rules & Interpretations for BDs & IAs

On June 5, 2019, the Commission voted to adopt a package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products. Specifically, these actions include new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940.

Individually and collectively, these actions are designed to enhance and clarify the standards of conduct applicable to broker-dealers and investment advisers, help retail investors better understand and compare the services offered and make an informed choice of the relationship best suited to their needs and circumstances, and foster greater consistency in the level of protections provided by each regime, particularly at the point in time that a recommendation is made.

“The rules and interpretations we are adopting today address issues that the Commission has been actively considering for nearly two decades,” said SEC Chairman Jay Clayton. “Our staff, working collaboratively across all of our Divisions and many of our Offices, has leveraged its decades of experience and expertise in considering these issues. I believe that the exceptional work of the SEC staff, including their careful evaluation of the feedback we received, will benefit retail investors and our markets for years to come. This rulemaking package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations, while simultaneously preserving retail investors’ access to a range of products and services at a reasonable cost.”

Under Regulation Best Interest, broker-dealers will be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. Regulation Best Interest will enhance the broker-dealer standard of conduct beyond existing suitability obligations and make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer when making recommendations.

The Form CRS Relationship Summary will require registered investment advisers and broker-dealers to provide retail investors with simple, easy-to-understand information about the nature of their relationship with their financial professional. While facilitating layered disclosure, the format of the relationship summary allows for comparability among the two different types of firms in a way that is distinct from other required disclosures. Form CRS will also include a link to a dedicated page on the Commission’s investor education website, Investor.gov, which offers educational information about broker-dealers and investment advisers, and other materials.

The Commission also issued an interpretation to reaffirm and, in some cases, clarify the Commission’s views of the fiduciary duty that investment advisers owe to their clients under the Advisers Act. The interpretation reflects how the Commission and its staff have applied and enforced the law in this area, and inspected for compliance, for decades. By highlighting principles relevant to the fiduciary duty, investment advisers and their clients will have greater clarity about advisers’ legal obligations.

Finally, the Commission issued an interpretation of the “solely incidental” prong of the broker-dealer exclusion under the Advisers Act, which is intended to more clearly delineate when a broker-dealer’s performance of advisory activities causes it to become an investment adviser within the meaning of the Advisers Act. This interpretation confirms and clarifies the Commission’s position, and illustrates the application in practice in connection with exercising investment discretion over customer accounts and account monitoring.

Regulation Best Interest and Form CRS will become effective 60 days after they are published in the Federal Register, and will include a transition period until June 30, 2020 to give firms sufficient time to come into compliance. Our interpretations under the Advisers Act will become effective upon publication in the Federal Register.

The Commission recognizes that these new rules will require various market participants to make changes to their operations, including to mandatory disclosures, marketing materials and compliance systems. In order to assist firms with planning for compliance with these new rules, the Commission is establishing an inter-Divisional Standards of Conduct Implementation Committee. We encourage firms to actively engage with this committee as questions arise in planning for implementation. You may send your questions by email to: IABDQuestions@sec.gov.
 
FACT SHEET

SEC Open Meeting
June 5, 2019


The Commission adopted a package of new rules and amendments and interpretations to enhance the quality of retail investors’ relationships with broker-dealers and investment advisers. The rulemaking package is designed to enhance investor protections while preserving retail investor access and choice in: (1) the type of professional with whom they work, (2) the services they receive, and (3) how they pay for these services.

The new rules will enhance the standard of conduct that broker-dealers owe to their customers and align the standard of conduct with retail customers’ reasonable expectations. The rules will also provide additional transparency and clarity for retail investors through enhanced disclosures designed to help them understand who they are dealing with, and why that matters. The interpretations reaffirm, and in some cases clarify, the standard of conduct that investment advisers owe to their clients and clarify the scope of the services a broker-dealer can provide consistent with the statutory definition of investment adviser.

With the adoption of this package, regardless of whether a retail investor chooses a broker-dealer or an investment adviser (or both), the retail investor will be entitled to a recommendation (from a broker-dealer) or advice (from an investment adviser) that is in the best interest of the retail investor and that does not place the interests of the firm or the financial professional ahead of the interests of the retail investor.

HIGHLIGHTS


Regulation Best Interest

Regulation Best Interest imposes a new standard of conduct specifically for broker-dealers that substantially enhances the broker-dealer standard of conduct beyond existing suitability obligations. The standard of conduct draws from key fiduciary principles and cannot be satisfied through disclosure alone. It provides specific requirements to address certain aspects of the relationships between broker-dealers and their retail customers, including certain conflicts related to compensation.

When making a recommendation of a securities transaction or an investment strategy involving securities, a broker-dealer must act in the retail customer’s best interest and cannot place its own interests ahead of the customer’s interests. Regulation Best Interest, in an enhancement from the proposal, applies to account recommendations, including recommendations to roll over or transfer assets in a workplace retirement plan account to an IRA, and recommendations to take a plan distribution. It also applies to implicit “recommendations to hold” that result from agreed-upon account monitoring.

Regulation Best Interest includes the following components:

• Disclosure Obligation: Broker-dealers must disclose material facts about the relationship and recommendations, including specific disclosures about the capacity in which the broker is acting, fees, the type and scope of services provided, conflicts, limitations on services and products, and whether the broker-dealer provides monitoring services.

• Care Obligation: A broker-dealer must exercise reasonable diligence, care and skill when making a recommendation to a retail customer. The broker-dealer must understand potential risks, rewards, and costs associated with the recommendation. The broker-dealer must then consider these factors in light of the retail customer’s investment profile and make a recommendation is in the retail customer’s best interest. The final regulation, which is an enhancement from the proposal, explicitly requires the broker-dealer to consider the  costs of the recommendation.

• Conflict of Interest Obligation: The broker-dealer must establish, maintain, and enforce written policies and procedures reasonably designed to identify and at a minimum disclose or eliminate conflicts of interest. This obligation, which is an enhancement from the proposal, specifically requires policies and procedures to:

? Mitigate conflicts that create an incentive for the firm’s financial professionals to place their interest or the interests of the firm ahead of the retail customer’s interest;
? Prevent material limitations on offerings, such as a limited product menu or offering only proprietary products, from causing the firm or its financial professional to place his or her interest or the interests of the firm ahead of the retail customer’s interest; and
? Eliminate sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sale of specific securities or specific types of securities within a limited period of time.

• Compliance Obligation: In an enhancement from the proposal, broker-dealers must establish, maintain and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole.

Form CRS Relationship Summary

Investment advisers and broker-dealers will be required to deliver a relationship summary to retail investors at the beginning of their relationship. Firms will summarize information about services, fees and costs, conflicts of interest, legal standard of conduct, and whether or not the firm and its financial professionals have disciplinary history. The relationship summary will have a standardized question-and-answer format to promote comparison by retail investors in a way that is distinct from existing disclosures. The relationship summary will permit the use of layered disclosure so that investors can more easily access additional information from the firm about these topics. It also will highlight the Commission’s investor education website, Investor.gov, which offers the investing public educational information, including a series of educational videos designed to provide ordinary investors with some basic information about broker-dealers and investment advisers.

Investment Adviser Interpretation

An investment adviser owes a fiduciary duty to its clients under the Advisers Act—a duty that is established by and enforceable through the Advisers Act. This duty is principles-based and applies to the entire relationship between an investment adviser and its client. The final interpretation reaffirms, and in some cases clarifies, certain aspects of the federal fiduciary duty that an investment adviser owes to its clients.

Solely Incidental Interpretation


The broker-dealer exclusion under the Advisers Act excludes from the definition of investment adviser—and thus from the application of the Advisers Act—a broker or dealer whose performance of advisory services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation for those services. The interpretation confirms and clarifies the Commission’s interpretation of the “solely incidental” prong of the broker-dealer exclusion of the Advisers Act. Specifically, the final interpretation states that a broker-dealer’s advice as to the value and characteristics of securities or as to the advisability of transacting in securities falls within the “solely incidental” prong of this exclusion if the advice is provided in connection with and is reasonably related to the broker-dealer’s primary business of effecting securities transactions.

What’s Next?

The rules, forms, and interpretations will be published on the Commission’s website and in the Federal Register. The rules and forms will be effective 60 days from publication in the Federal Register and the interpretations will be effective upon publication in the Federal Register.

By June 30, 2020, registered broker-dealers must begin complying with Regulation Best Interest and broker-dealers and investment advisers registered with the Commission will be required to prepare, deliver to retail investors, and file a relationship summary.

In order to assist firms with planning for compliance with these new rules, the Commission is establishing an inter-Divisional Standards of Conduct Implementation Committee, comprised of representatives from our Division of Investment Management, Division of Trading and Markets, Division of Economic and Risk Analysis, Office of Compliance Inspections and Examinations, and Office of the General Counsel. We encourage firms to actively engage with this committee as questions arise in planning for implementation. You may send your questions by email to IABDQuestions@sec.gov.  Top

Hedge Fund Adviser to Pay $5 Million for Compliance Failures Related to Valuation of Fund Assets

On June 4, 2019, the Commission announced that a private fund manager in the mortgage-backed securities space has agreed to pay a $5 million penalty to settle charges stemming from compliance deficiencies that contributed to the firm’s failure to ensure that certain securities in its flagship fund were valued properly. The fund manager’s chief investment officer (CIO) agreed to pay a $250,000 penalty.

Item #1 in the SEC's Order states:

"Valuation of client assets is a critically important area for investment advisers. Failure to properly value assets can impact key areas of fund operations and also potentially lead to over or under payment of withdrawal proceeds, incorrect calculation of fees and inaccurate performance reporting, among other things. Under the Compliance Programs Rule 206(4)-7, registered investment advisers are required to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the federal securities laws stemming from inaccurate valuations."

An SEC investigation found that Colorado-based investment adviser Deer Park Road Management Company LP, in connection with its flagship STS Partners’ fund which has been ranked as one of the most consistent performing hedge funds in the country, failed to have policies and procedures to address the risk that its traders were undervaluing securities and selling for a profit when needed.  The firm also failed to guard against its traders’ providing inaccurate information to a pricing vendor and then using the prices it got back to value bonds.  CIO Scott Burg oversaw the valuation of certain assets in the flagship fund and approved valuations that the traders flagged as “undervalued” with notations to “mark up gradually.”  Also overseeing valuation was a committee comprised of the principal’s relatives and others without relevant expertise.

“Valuation of client assets is a critically important area for investment advisers,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “Deer Park’s pervasive compliance failures allowed its traders to mark assets up gradually instead of marking them to market, in violation of the accounting principles they were required to follow.”

Without admitting or denying the findings in the SEC’s order, Deer Park consented to a censure and Deer Park and Burg agreed to cease and desist from committing or causing any violations and future violations of a provision of the Investment Advisers Act requiring reasonably designed policies and procedures. [Please
login to the IA Act UnwrappedTM Releases Database to view Release No. IA-5245 In the Matter of Deer Park Road Management Company, LP and Scott E. Burg]   Top 

Marshall Gandy Named Co-Head of SEC’s IA/IC Exam Program

Marshall Gandy has been named Co-National Associate Director of the Investment Adviser/Investment Company examination program in the Office of Compliance Inspections and Examinations (OCIE).

He joins Co-National Associate Director Kristin Snyder, who has led the program since Aug. 10, 2016, and was named OCIE’s Deputy Director on July 25, 2018.  Together, Ms. Snyder and Mr. Gandy will oversee more than 630 lawyers, accountants, and examiners responsible for inspections of SEC-registered investment advisers and investment companies. 

Mr. Gandy has been the Associate Regional Director for Examinations in the SEC’s Fort Worth office since March 2012 and will continue in that role while also assuming this shared leadership position in the national investment adviser/investment company program.  He joined the SEC in 1999 and spent eight years as a trial counsel and enforcement attorney in the Fort Worth office’s enforcement program before taking the role of Senior Regional Counsel at FINRA’s Dallas District Office. Mr. Gandy also held the roles of Presiding Judge and Assistant District Attorney in Dallas County before joining the SEC.

“Marshall is an exceptional and collaborative leader of our Fort Worth exam team and will bring additional strong leadership to the national IA/IC program,” said OCIE Director Peter B. Driscoll.  “His efforts to improve our exam process, increase investor outreach and pursue emerging risk areas have strengthened the entire exam program.”

Mr. Gandy said, “I am extraordinarily honored for the opportunity to serve in this new role in OCIE.  For seven years, I have been extremely privileged to work with Fort Worth’s fantastic exam team, and now that privilege will extend to working with the equally talented and dedicated IA/IC teams across the entire exam program.”

Mr. Gandy received his law degree from Southern Methodist University and his bachelor’s degree from Sam Houston State University.

OCIE conducts the SEC’s National Examination Program through examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies and transfer agents.  It uses a risk-based approach to examinations to fulfill its mission to promote compliance with U.S. securities laws, prevent fraud, monitor risk and inform SEC policy. Top 

SEC to Vote on Regulation Best Interest on June 5th

Open Meeting Agenda
Wednesday, June 5, 2019


Item 1: Regulation Best Interest — Standard of Conduct for Broker-Dealers

Office: Division of Trading and Markets
The Commission will consider whether to adopt a new rule to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation to a retail customer of any securities transaction or investment strategy involving securities.

Item 2: Form CRS Relationship Summary
Office: Division of Investment Management, Division of Trading and Markets
The Commission will consider whether to adopt new and amended rules and forms to require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors.

Item 3: Standard of Conduct for Investment Advisers

Office: Division of Investment Management
The Commission will consider whether to publish a Commission interpretation of the standard of conduct for investment advisers.

Item 4: Interpretation of "Solely Incidental"
Office: Division of Investment Management
The Commission will consider whether to publish a Commission interpretation of the solely incidental prong of section 202(a)(11)(C) of the Investment Advisers Act of 1940.
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IA Defrauded Clients by Overcharging Advisory Fees


On May 28, 2019, the Commission charged investment adviser Stephen Brandon Anderson with defrauding clients by overcharging advisory fees of at least $367,000.

According to the SEC’s order, Anderson owned and operated River Source Wealth Management, LLC, a now-defunct registered investment adviser in North Carolina.  River Source’s primary revenue stream was customer advisory fees.  Customer agreements provided that those fees would be based on each customer’s assets under management.  The SEC’s order finds, however, that in 2015 and 2016, Anderson overcharged a majority of his clients.  The amount and percentages of the overcharges varied but, in the aggregate, amounted to approximately 40% more than the agreed-upon maximum customer advisory fees. 

As described in the order, Anderson also misled his clients about the reason he transferred their assets from River Source’s long-time asset custodian, falsely stating that it was his decision and that the separation was “amicable.”  In fact, as the order finds, the asset custodian ended the relationship with River Source after it noticed irregular billing practices and failed to receive sufficient supporting documentation from Anderson.  Furthermore, the order finds that Anderson made material misstatements in reports filed with the Commission, including overstating River Source’s assets under management by at least $34 million (18%) in 2015 and $61 million (35%) in 2016, and failed to implement required compliance policies and procedures.  The order prohibits Anderson from acting in a supervisory or compliance capacity or from charging advisory fees without supervision for at least three years, and requires Anderson to provide notice of the SEC order to clients and prospective clients.

“When advisors breach their duty to clients by misleading and overcharging them, they can expect the SEC will craft a package of remedies that will compensate harmed investors, provide additional safeguards for prospective investors, and deter similar conduct,” said Carolyn M. Welshhans, Associate Director in SEC’s Enforcement Division.

The SEC’s order finds that Anderson violated Sections 206(2) and 207 of the Investment Advisers Act, and aided and abetted and caused River Source’s violations of the books and records and compliance provisions of the Advisers Act.  In addition to the limitations and undertakings discussed above, Anderson agreed to a cease-and-desist order and a censure, and agreed to pay disgorgement and prejudgment interest of $405,381 and a $100,000 penalty.  Payments made by Anderson pursuant to the order will be distributed to harmed investors through a Fair Fund.  Anderson consented to the order without admitting or denying the findings. [Please
login to IA Act UnwrappedTM to view Release No. IA-5242 In the Matter of Stephen Brandon Anderson] Top 


OCIE Issues Risk Alert Regarding Safeguarding Customer Records and Information in Network Storage and the Use of Third-Party Security Features


OCIE has issued a new Risk Alert highlighting the risks associated with the storage of electronic customer records and information by broker-dealers and investment advisers in the cloud and on other types of network storage solutions. 

During recent examinations, OCIE identified security risks associated with the storage of electronic customer records and information by broker-dealers and investment advisers in various network storage solutions, including those leveraging cloud-based storage. Although the majority of these network storage solutions offered encryption, password protection, and other security features designed to prevent unauthorized access, examiners observed that firms did not always use the available security features.  Weak or misconfigured security settings on a network storage device could result in unauthorized access to information stored on the device.

OCIE staff observed firms storing electronic customer records and information using various types of storage solutions, including cloud-based storage.  During examinations, OCIE staff identified the concerns that may raise compliance issues under Regulations S-P and S-ID, including: misconfigured network storage solutions; inadequate oversight of vendor-provided network storage solutions; and insufficient data classification policies and procedures. 

The implementation of a configuration management program that includes policies and procedures governing data classification, vendor oversight, and security features would help to mitigate the risks incurred when implementing on-premise or cloud-based network storage solutions.  During examinations, OCIE staff observed several features of effective configuration management programs, data classification procedures, and vendor management programs, including:

Please login to the IA Act UnwrappedTM Examination Tools Database/2019 Information to view the full text of the Risk Alert. Top 

Cherry-Picking and Soft Dollar Violations


On May 16, 2019, the SEC issued Release No. IA-5236 In the Matter of J.S. Oliver Capital Mangement, L.P., and Ian O. Mausner. This proceeding involves misconduct by JS Oliver, a registered investment adviser, and its founder, president, head portfolio manager, and control person, Mausner, for engaging in two distinct schemes: fraudulent trade allocation by “cherry-picking” favorable trades for JS Oliver’s affiliated hedge fund clients to the detriment of other, unfavored client accounts, and misusing client commission credits called “soft dollars.”

JS Oliver and Mausner disproportionately allocated favorable trades to six client accounts, including four affiliated hedge funds, ultimately harming three unfavored clients by approximately $10.7 million. Mausner financially benefitted from the cherry-picking scheme because he and his family were personally invested in the hedge funds, and he earned additional fees from one of the hedge funds based on the boost in its performance as a result of the cherry-picking.

JS Oliver and Mausner used over $1.1 million in soft dollar credits in a manner not disclosed to clients. Soft dollar credits arise from the client commission arrangement between an investment adviser and the broker-dealer that handles the trades for the adviser. Generally, a client’s investment assets are used to pay additional commissions – called “soft dollar credits” –that the broker-dealer sets aside as payment for legitimate research and brokerage expenses of the adviser. The Respondents’ misuse of these soft dollar credits included: (1) $329,265 paid to Mausner’s ex-wife for amounts due pursuant to a divorce agreement; (2) $300,000 in grossly inflated “rent” paid to a company Mausner owned, the majority of which was funneled directly to Mausner’s personal bank account; (3) approximately $480,000 paid to a company owned by a JS Oliver employee for purported outside research and analysis; and (4) nearly $40,000 in payments for fees on Mausner’s personal timeshare in New York, New York. [Please
login to IA Act UnwrappedTM to view Release No. IA-5236 In the Matter of J.S. Oliver Capital Mangement, L.P., and Ian O. Mausner]   Top

Aderton Named Co-Chief of the Asset Management Unit
Specialized Unit Focuses on Misconduct by IAs, ICs and Private Funds

Adam S. Aderton has been named Co-Chief of the Division of Enforcement's Asset Management Unit, a national specialized unit that focuses on misconduct by investment advisers, investment companies, and private funds.  He succeeds Anthony Kelly, who left the agency in November 2018. Mr. Aderton has brought or supervised enforcement actions that addressed a wide range of misconduct and investor harm across the asset management industry, including the SEC’s actions against:

•    Two J.P. Morgan wealth management subsidiaries for failing to disclose conflicts of interest to retail clients
•    Two UBS advisory firms for failing to disclose a change in investment strategy by a closed-end fund they advised
•    Gustavo A. Altuzarra, Christopher R. Chase, and three entities they controlled for using client funds to make unauthorized loans and concealing those loans through fraudulent straw purchaser transactions
•    Crypto Asset Management LP and its principal, Timothy Enneking, for making misrepresentations to investors and causing its advised fund’s violations

"Adam is a highly respected leader and his broad experience and strong judgment are a tremendous asset. We look forward to working closely with him as co-chief of the Asset Management Unit," said Stephanie Avakian, Co-Director of the SEC's Division of Enforcement.

"I am confident that Adam and his Co-Chief, Dabney O'Riordan, will together provide strong leadership of the Asset Management Unit and continue to deliver results for investors harmed by asset manager misconduct," said Steven Peikin, Co-Director of the SEC's Division of Enforcement.

"I am honored to lead the Asset Management Unit with Dabney," said Mr. Aderton. "I have been with the Unit since its inception, and I have tremendous pride in its people, its work, and all it has accomplished so far. I look forward to working with our talented and dedicated colleagues across the country as we continue our work protecting investors in this critical industry."

Mr. Aderton joined the SEC in 2008 as a staff attorney in the Division of Enforcement. He joined the Asset Management Unit in 2010, and was promoted to Assistant Director in 2013. Mr. Aderton received the Ellen B. Ross Award in 2013, which recognizes exemplary commitment, enthusiasm, and performance in the fair and effective enforcement of the federal securities laws. Before joining the SEC, Mr. Aderton served as a law clerk to the Honorable J. Frederick Motz on the U.S. District Court in Maryland and then was a securities associate at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, D.C. He received his law degree from the University of Virginia School of Law where he was Order of the Coif and his undergraduate degree with highest honors from Truman State University. Top 

SEC Staff Announces Agenda for May 31 FinTech Forum

The Commission has announced the agenda for the forum that its staff is hosting on May 31 to discuss distributed ledger technology and digital assets. The 2019 FinTech Forum, which will be hosted by the SEC's Strategic Hub for Innovation and Financial Technology (FinHub), will begin at 9:30 a.m. ET, and will feature four panels. The agenda and speaker list for the forum is provided below.

The FinTech Forum will be held at the SEC's headquarters in Washington, D.C., and is open to the public on a first-come, first-serve basis. While the forum will begin at 9:30 a.m. ET, doors will open at 8 a.m. ET. Guests attending should bring photo identification and are encouraged to time their arrival with the understanding that they will be screened by security before entering the FinTech Forum. No registration is required to attend the event.

A live webcast will be available on the SEC's main website and will be archived on the FinHub page on the SEC website for later viewing. The public is encouraged to follow the SEC on Twitter at @SEC_News for live updates throughout the forum. The FinTech Forum hashtag is #SECfintech.

Agenda and Panelists
(All times Eastern, Panelists listed are scheduled to appear)

8 a.m.        Doors open

Morning Session

9:30 a.m.   Opening Remarks by Valerie Szczepanik, Head, FinHub

Remarks by William Hinman, Director, Division of Corporation Finance

Panel 1: Capital Formation Considerations
Moderator: Jonathan Ingram, Chief Legal Advisor, FinHub, Division of Corporation Finance
Panelists:
•Paul Brody – Ernst & Young
•Joshua Ashley Klayman – Klayman LLC
•Aaron Wright – Cardozo Law School

Remarks by Brett Redfearn, Director, Division of Trading and Markets

Panel 2: Trading and Markets Considerations
Moderator:  Elizabeth Baird, Deputy Director, Division of Trading and Markets
Panelists:
•David Forman – Fidelity Brokerage Services
•Mark Wetjen – DTCC
•Neha Narula – MIT Media Lab

Lunch Break – 75 minutes

Afternoon Session

Remarks by Dalia Blass, Director, Division of Investment Management

Panel 3: Investment Management Considerations
Moderator: Jennifer McHugh, Senior Special Counsel, Division of Investment Management
Panelists:
•Jay Baris – Shearman & Sterling LLP
•John D’Agostino – DMS
•Amy Steele - Deloitte

Remarks by Peter Driscoll, Director, Office of Compliance Inspections and Examinations

Panel 4: Distributed Ledger Technology Innovations: Industry Trends and Specific Use Cases for Financial Markets
Moderator: Scott Walker, Special Counsel, FinHub
Panelists:
•Christopher Ferris – IBM
•Todd McDonald – R3
•Kevin Werbach – Wharton School, University of Pennsylvania

5:30 p.m.        FinTech Forum concludes
  Top


OCIE Issues Risk Alert Highlighting IA/BD Compliance Issues Related to Reg S-P


On April 16, 2019, OCIE released a list of compliance issues related to Regulation S-P, the primary SEC rule regarding privacy notices and safeguard policies of investment advisers and broker-dealers. These issues were identified in recent examinations of SEC-registered investment advisers and brokers and dealers. The information in the Risk Alert is intended to assist advisers and broker-dealers in providing compliant privacy and opt-out notices, and in adopting and implementing effective policies and procedures for safeguarding customer records and information, under Regulation S-P. Examples of the most common deficiencies or weaknesses identified by OCIE staff in connection with the Safeguards Rule include:


Privacy and Opt-Out Notices.  OCIE staff observed registrants that did not provide Initial Privacy Notices, Annual Privacy Notices and Opt-Out Notices to their customers.

Lack of policies and procedures.  OCIE staff observed registrants that did not have written policies and procedures as required under the Safeguards Rule.

Policies not implemented or not reasonably designed to safeguard customer records and information, including:

• Personal devices.  Policies and procedures that did not appear reasonably designed to safeguard customer information on personal devices.
• Electronic communications.  Policies and procedures that did not address the inclusion of customer personally identifiable information (“PII”) in electronic communications.
• Training and monitoring.  Policies and procedures that required customer information to be encrypted, password-protected, and transmitted using only registrant-approved methods were not reasonably designed because employees were not provided adequate training on these methods and the firm failed to monitor if the policies were being followed by employees. 
• Unsecure networks.  Policies and procedures that did not prohibit employees from sending customer PII to unsecure locations outside of the registrants’ networks.
• Outside vendors. Registrants failed to follow their own policies and procedures regarding outside vendors.
• PII inventory.  Policies and procedures that did not identify all systems on which the registrant maintained customer PII.
• Incident response plans.  Written incident response plans that did not address important areas, such as role assignments for implementing the plan, actions required to address a cybersecurity incident, and assessments of system vulnerabilities
• Unsecure physical locations.  Customer PII that was stored in unsecure physical locations, such as in unlocked file cabinets in open offices.
• Login credentials.  Customer login credentials that had been disseminated to more employees than permitted under firms’ policies and procedures.
• Departed employees.  Instances where former employees of firms retained access rights after their departure and therefore could access restricted customer information.

The Risk Alert is intended to highlight for firms risks and issues that OCIE staff has identified.  In addition, the Risk Alert describes risks that firms may consider to (i) assess their supervisory, compliance, and/or other risk management systems related to these risks, and (ii) make any changes, as may be appropriate, to address or strengthen such systems. [Please login to the IA Act UnwrappedTM Examination Tools Database/2019 Information to access the OCIE Risk Alert.] Top 


SEC Names Deputy Chief Counsels of the Division of Investment Management


Sara Cortes and David P. Bartels have been named Deputy Chief Counsels of the Division of Investment Management. As Deputy Chief Counsels, Ms. Cortes and Mr. Bartels will join a leadership team and staff that are responsible for responding to requests for legal and policy guidance, evaluating applications for exemptive relief, coordinating international and legislative technical assistance, and running the division’s enforcement liaison program. Ms. Cortes will oversee the exemptive applications program and Mr. Bartels will oversee the enforcement liaison program. They will share responsibility for staff legal guidance by the Chief Counsel’s Office.

Ms. Cortes has been a member of the division’s Rulemaking Office since 2013, serving most recently as Assistant Director and head of the Investment Adviser Regulation Office. In that capacity, she has led the development of recommendations for rulemaking and other policy initiatives under the Advisers Act of 1940.

Mr. Bartels has served in a number of capacities in the Division of Investment Management, most recently as Senior Policy Advisor to Director Dalia Blass. His work has encompassed rulemaking, applications for exemptive relief, and requests for legal and policy guidance across diverse subjects under the Investment Company Act and the Advisers Act of 1940.

"I am excited for Sara and David to take on these new leadership roles. I have worked with both of them for many years and I am delighted that the Chief Counsel’s Office will benefit from their extensive experience, deep knowledge of the 1940 Acts and thoughtful leadership skills. They are highly respected by their peers and will be a fantastic addition to the division’s senior leadership team,” said Dalia Blass, Director of the Division of Investment Management.

“I have had the opportunity to work closely with both Sara and David since my return to the Commission. Each is an excellent lawyer with a breadth of experience and demonstrated good judgment. They will be tremendous assets to the important work of the Chief Counsel’s Office on behalf of investors,” said Paul G. Cellupica, Deputy Director and Chief Counsel of the Division of Investment Management.

"The staff of the Chief Counsel’s Office is remarkably talented, and it’s an honor to be part of such a dedicated team,” said Ms. Cortes and Mr. Bartels. “We’re excited about this opportunity to continue serving Main Street investors while working on the kinds of innovative requests that have helped make the U.S. asset management markets vibrant.”

Before joining the Division of Investment Management, Ms. Cortes was Counsel and Senior Adviser to Chairman Elisse Walter. She first joined the agency in the Legal Policy Group of the Office of General Counsel in 2009, advising the Commission on enforcement matters. In 2017, Ms. Cortes received the Commission’s Exceptional Service Award for her leadership on the Commission’s Investment Company Reporting Modernization initiative. Prior to joining the SEC, Ms. Cortes was Counsel in the Legal Division of the Board of Governors of the Federal Reserve System as an enforcement and litigation attorney. Ms. Cortes began her legal career in private practice at Cleary Gottlieb Steen & Hamilton LLP. Ms. Cortes earned her J.D. and Master of Science of Foreign Service, magna cum laude, from Georgetown University and her bachelor’s degree in international studies and French from Rhodes College in Memphis, Tennessee.

Mr. Bartels joined the division in 2010, starting in the Investment Adviser Regulation Office, where he received the Commission’s Law and Policy Award for work on private fund adviser reporting. Mr. Bartels was Branch Chief in the Exemptive Applications and Chief Counsel’s Offices from 2011-2016, focusing on exchange-traded funds, business development companies, funds of funds, and affiliated transactions. Mr. Bartels also served as counsel to Commissioner Kara M. Stein, advising on a wide range of matters under the federal securities laws and supporting the Commission’s Diversity Council. Prior to joining the Division, Mr. Bartels worked in the corporate practice at Sullivan & Cromwell LLP, where he advised clients on securities offerings, mergers and acquisitions, and other corporate transactions. Mr. Bartels received his law degree from Yale Law School and his bachelor’s degree from SUNY Buffalo.  Top

New SEC Campaign Educates Investors on Where and How to Get Answers

On April 8, 2019 the SEC unveiled a public service campaign to empower Main Street investors to take control of their financial future. The public service announcement (PSA) encourages investors to use the free tools and unbiased information available on the SEC’s online resource for investor education−Investor.gov−to get answers to their questions about investing.

“Main Street investors around the country have consistently told me two things: one, that they wish they were better informed about investing, and two, they wish they had started investing earlier. Asking the right questions of yourself and of those who provide financial services is key to getting started and staying on the right track,” said SEC Chairman Jay Clayton. “Whether you’re an experienced investor or new to the market, Investor.gov can help you identify questions and find answers.”

“This campaign is another way to maximize our education efforts to make investors aware of the information they need to make smart saving and investing decisions,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy. “Starting early and creating a financial plan is the best way to secure your financial future, and Investor.gov is a great place to start.”

The PSA highlights people from various walks of life asking questions about investing topics, such as planning for retirement, reading a 10-K, checking out the background of an investment professional, and understanding fees, IPOs, hedge funds, 529 plans, compound interest, and more. It concludes with asking the question, “Where do I start?” encouraging investors to go to Investor.gov to get answers to their most commonly asked questions.

Additional information on the PSA can be found at: https://www.investor.gov/additional-resources/specialized-resources/public-service-campaign

More than 12 million new users have accessed Investor.gov since it launched in October 2009.  The SEC expanded its outreach program in 2016 to include PSAs to reach and educate more investors.  Top  

COO Fraudulently Caused Advisory Firm to Overbill Clients
Inflated salary by hundreds of thousands of dollars per year

The SEC filed charges against the former Chief Operating Officer (COO) of a Commission-registered investment adviser for aiding and abetting the advisory firm's actions to overbill its clients as part of a fraudulent scheme to improperly inflate his own pay.

According to the SEC's complaint, between 2011 and December 2018, former COO Richard T. Diver, a resident of Spring Lake, New Jersey, engaged in an illicit scheme to steal approximately $6 million from his employer. Diver, whose duties included managing the advisory firm's payroll and client billing functions, allegedly inflated his salary by hundreds of thousands of dollars per year. As part of this scheme, Diver defrauded investors by causing the investment adviser to overbill more than 300 investment advisory client accounts by approximately $750,000, for the purpose of generating additional revenue. As alleged in the complaint, Diver used this revenue to finance his inflated salary and when confronted by the investment adviser's CEO in December 2018, Diver confessed to having carried out the scheme.

The SEC's complaint, filed in federal district court in Manhattan, charges Diver with aiding and abetting the investment adviser's violations of the antifraud provisions in Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC is seeking a judgment ordering permanent injunctive relief, disgorgement plus prejudgment interest thereon and civil monetary penalties against Diver.

Separately, the United States Attorney's Office for the Southern District of New York announced criminal charges against Diver.

The SEC's investigation has been conducted by Gerald Gross, James Hanson, and Paul Gizzi of the New York Regional Office, and the litigation will be handled by Messrs. Gizzi and Hanson. The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the United States Attorney's Office for the Southern District of New York and the U.S. Postal Inspection Service. [Please
login to IA Act UnwrappedTM Enforcement Case Database to view Litigation Release No. LR-24434 SEC v. Richard T. Diver]   Top 


IA Charged with Stealing Millions from Private Fund


On March 28, 2019 the SEC revoked the registration of a Seattle area-based registered investment adviser and barred its principal from the securities industry for stealing money from a private fund the adviser managed. The remaining assets will be liquidated and placed in a fund for distribution to harmed investors.

According to the SEC’s order, Dennis Gibb, the owner of Sweetwater Investments Inc., stole more than $3 million from Sweetwater Income Flood LP, a private fund Sweetwater managed, to pay for personal expenses, including his mortgage and car payments, and to keep Sweetwater’s business afloat. To hide his theft and convince investors to put even more money into the fund, he sent fraudulent account statements and tax documents to investors. The false documents showed, in the aggregate, that there was $7.8 million in the fund, when there was actually only about $1.8 million. Gibb also falsely reported in SEC filings that Income Flood had been audited, and that Sweetwater had over a billion dollars in assets under management, when it really had only $73 million. Gibb failed to hire an independent auditor or have a surprise verification of the fund’s assets conducted. Gibb’s fraud was discovered by the SEC’s San Francisco Office of Compliance Inspections and Examinations staff when they conducted an examination of Sweetwater.

“The diligence of the SEC’s regional examination staff was critical in uncovering Gibb’s fraud,” said Erin Schneider, Associate Director for the SEC’s San Francisco Regional Office. “As a result, the remaining funds will be preserved and returned to harmed investors.”

The settled order finds that Gibb and Sweetwater violated the anti-fraud and custody provisions of the federal securities laws and made false statements in SEC filings. The SEC’s order also finds that Gibb and Sweetwater are liable for disgorgement of money stolen, plus prejudgment interest.

In a parallel action, the U.S. Attorney’s Office for the Western District of Washington announced that Gibb pleaded guilty to criminal charges. [Please
login to IA Act UnwrappedTM to view Release No. IA-5215 In the Matter of Dennis Gibb and Sweetwater Investments, Inc.] Top 


SEC Adopts Rules to Implement FAST Act Mandate to Modernize and Simplify Disclosure


On March 20, 2019, the Commission voted to adopt amendments to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies. These amendments are expected to benefit investors by eliminating outdated and unnecessary disclosure and making it easier for them to access and analyze material information. 

The amendments, consistent with the Commission’s mandate under the Fixing America’s Surface Transportation (FAST) Act, are based on recommendations in the staff’s FAST Act Report as well as a broader review of the Commission’s disclosure rules. The amendments are intended to improve the readability and navigability of company disclosures, and to discourage repetition and disclosure of immaterial information. Specifically, the amendments will, among other things, increase flexibility in the discussion of historical periods in Management’s Discussion and Analysis, allow companies to redact confidential information from most exhibits without filing a confidential treatment request, and incorporate technology to improve access to information on the cover page of certain filings.

“Investors will benefit from the SEC staff’s exemplary work to improve disclosure,” said SEC Chairman Jay Clayton. “The amendments adopted today demonstrate our focus on modernizing our disclosure system to meet the expectations of today’s investors while eliminating unnecessary costs and burdens.”

The amendments relating to the redaction of confidential information in certain exhibits will become effective April 2, 2019. The rest of the amendments will be effective May 2, 2019, except that the requirements to tag data on the cover pages of certain filings are subject to a three-year phase-in, and the requirement that certain investment company filings be made in HTML format and use hyperlinks will be effective for filings on or after April 1, 2020.

FACT SHEET
FAST Act Modernization and Simplification of Regulation S-K
March 20, 2019

Action


The Commission voted to adopt amendments to modernize and simplify certain disclosure requirements in Regulation S-K, and related rules and forms, in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information.

Highlights


Among other things, the amendments:

The amendments also include parallel amendments to several rules and forms applicable to investment companies and investment advisers, including amendments that require certain investment company filings to include a hyperlink to each exhibit listed in the exhibit index of the filings and be submitted in HyperText Markup Language (HTML) format.

What’s Next?

The amendments will be effective May 2, 2019, except that the amendments relating to the redaction of confidential information in certain exhibits will become effective April 2, 2019. The requirements to tag data on the cover pages of certain filings are subject to a three-year phase-in, depending on the nature of the filer. All investment company registration statement and Form N-CSR filings made on or after April 1, 2020 must be made in HTML format and comply with the rule and form amendments pertaining to the use of hyperlinks.  Top 


SEC Charges IA and Former COO with Defrauding Client


On March 15, 2019, the SEC charged Talimco LLC, a registered investment adviser, and Grant Gardner Rogers, the former chief operating officer of the firm, with manipulating the auction of a commercial real estate asset on behalf of one client for the benefit of another.  

According to the SEC’s order, in or about April 2015 while selling a commercial real estate asset on behalf of a collateralized debt obligation client, Talimco and Rogers were aiming to acquire the asset for another client, a private fund.  Talimco and Rogers owed its selling client a fiduciary duty, which included an obligation to take steps to use its best efforts to maximize the price obtained for the asset by identifying willing bidders.  However, rather than seek out multiple bona fide bidders, the order finds that Rogers used the firm’s affiliated private fund client for one bid and convinced two unwilling bidders to participate in the auction by giving assurances that the bidders would not win the auction.  As a result of this manipulation, Talimco’s private fund client was the highest bidder and acquired the asset, only to then later sell it for a substantial profit.  Talimco and Rogers’s conduct deprived the selling client of the opportunity to obtain multiple bona fide bids for the asset and maximize their profit. 

“By rigging the auction, Talimco and Rogers failed to fulfill their fiduciary duty to their client,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “Investment adviser firms are expected to have controls in place to detect and disclose conflicts of interest.  This action evidences the vigilance of the SEC’s exam and enforcement staff in identifying investments advisers that exploit client relationships and harm investors.”

The settled orders find that Talimco and Rogers violated Section 206(2) of the Investment Advisers Act.  Without admitting or denying the findings in the order, Talimco consented to a cease-and-desist order, a censure, disgorgement of its fees of $74,000 plus prejudgment interest of $8,758.80 and a penalty of $325,000.  Rogers, who also did not admit nor deny the findings, consented to a cease-and-desist order, a 12-month industry suspension, and a $65,000 fine. [Please
login to the IA Act UnwrappedTM Releases Database to view Release Nos. IA-5202 In the Matter of Talimco, LLC and IA-5201 In the Matter of Grant Gardner Rogers]  Top


Engaging on Non-DVP Custodial Practices and Digital Assets


On March 12, 2019, the Division of Investment Management issued a letter to Karen Barr, President of the Investment Adviser Association. The Division invites input from all interested parties on application of Custody Rule 206(4)-2 to digital assets and related compliance questions. The staff believes that questions surrounding Non-DVP trading, as well as additional questions and issues the staff has identified regarding the Custody Rule over the past 15 years, should be considered by the Commission. As such, amendments to the Custody Rule are on the SEC’s long-term unified agenda.

To inform future steps and in light of growth in the variety and complexity of the types of securities and other assets commonly utilized by registered investment advisers that settle on a Non-DVP basis, the staff, through the Division’s Analytics Office, has launched an initiative to gather information on Non-DVP practices.

In the March, 2019 Letter to the IAA, the Division suggests that investment advisers should refer back to 2009 amendments of the Custody Rule (Release No. IA-2968) and the accompanying Interpretive Release (Release No. IA-2969) to reduce the risk of misappropriation, and reminds advisers of their obligation to safeguard clients’ assets. The Division notes that IAs should review their internal controls to reduce the risk of misappropriation or loss and address these issues in their compliance policies and procedures.

In February 2017, the Division of Investment Management issued Guidance Update 2017-01: Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority, which discussed the Custody Rule. Following that Guidance Update, investment advisers and other market participants raised issues regarding the regulatory status of investment adviser and custodial trading practices that are not processed or settled on a delivery versus payment (“Non-DVP”) basis.

The staff is welcoming engagement from advisers, other market participants, and the public on these issues, as well as on questions regarding the application of the Custody Rule to digital assets, and whether revisions to the Custody Rule could be helpful in addressing any of the above topics.

Division staff is concerned about the risks of misappropriation inherent in Non-DVP arrangements. Where trading or settlement does not occur through a delivery versus payment arrangement, there is a heightened risk that an investment adviser could misappropriate funds or securities in its client’s custodial account. The Commission has noted that “[a]n [investment] adviser that holds clients’ stock certificates or cash, even temporarily, puts those assets at risk of misuse or loss.” The lack of a corresponding transfer of securities or client funds into the custodial account reduces the effectiveness of the custodian as an independent safeguard.

Apart from the Custody Rule, investment advisers have an obligation to safeguard clients’ assets. Accordingly, registered investment advisers also have an obligation to review internal controls to reduce the risk of misappropriation or loss, and should address this risk in their compliance policies and procedures required by Rule 206(4)-7 under the Advisers Act.

In complying with these obligations, investment advisers who issue instructions to a broker-dealer or a custodian to effect or to settle trades through Non-DVP arrangements may find it useful to look to the procedures and controls set forth in the 2009 amendments to the Custody Rule and accompanying interpretive release to reduce the risk of misappropriation described above.

Please
login to IA Act UnwrappedTM Regulatory Database Custody Rule 206(4)-2 to access the full text of the Letter to the IAA, IA Guidance Update 2017-01, all Adopting, Amending and Interpretive Releases and associated information. Top   

SEC Share Class Initiative Returning More Than $125 Million to Investors
79 IAs Who Self-Reported Agree to Compensate Investors Promptly, Ensure Adequate Fee Disclosures

The SEC announced settled charges against 79 investment advisers who will return more than $125 million to clients, with a substantial majority of the funds going to retail investors.  The actions stem from the SEC’s Share Class Selection Disclosure Initiative, which the SEC’s Division of Enforcement announced in February 2018 in an effort to identify and promptly correct ongoing harm in the sale of mutual fund shares by investment advisers.  The initiative incentivized investment advisers to self-report violations of the Advisers Act resulting from undisclosed conflicts of interest, promptly compensate investors, and review and correct fee disclosures.  The orders issued today address advisers who directly or indirectly received 12b-1 fees for investments selected for their clients without adequate disclosure, including disclosures that were inconsistent with the advisers’ actual practices.

The SEC’s orders found that the investment advisers failed to adequately disclose conflicts of interest related to the sale of higher-cost mutual fund share classes when a lower-cost share class was available.  Specifically, the SEC’s orders found that the settling investment advisers placed their clients in mutual fund share classes that charged 12b-1 fees – which are recurring fees deducted from the fund’s assets – when lower-cost share classes of the same fund were available to their clients without adequately disclosing that the higher cost share class would be selected.  According to the SEC’s orders, the 12b-1 fees were routinely paid to the investment advisers in their capacity as brokers, to their broker-dealer affiliates, or to their personnel who were also registered representatives, creating a conflict of interest with their clients, as the investment advisers stood to benefit from the clients’ paying higher fees.

History of Share Class Selection-Related Violations of the Federal Securities Laws

Investment advisers, as fiduciaries, have an obligation to make full and fair disclosure to clients and prospective clients concerning their material conflicts of interest, including conflicts arising from financial incentives, and to act consistently with those disclosures.  This principle is reflected in Form ADV, which reminds advisers of their general obligation to fully disclose material facts relating to their advisory business and specifically requires disclosure concerning the compensation and fees that advisers and their supervised persons receive, including from asset-based charges and service fees.

In light of these obligations, since at least 2013, the Commission has charged investment advisers with failing to disclose conflicts of interest and failing to implement reasonably designed policies and procedures relating to mutual fund share classes, in violation of the Investment Advisers Act.  In those cases, the Commission generally required the investment advisers to pay disgorgement and penalties, and to distribute the funds to harmed clients.  In 2016, the Commission’s Office of Compliance Inspections and Examinations issued a Risk Alert specifically addressing share class disclosure and cautioning investment advisers to examine their policies and procedures.  FINRA has similarly addressed share class selection issues with brokers, imposing censures and fines on brokers that failed to provide adequate disclosures.

Division of Enforcement’s Share Class Selection Disclosure Initiative


In February 2018, the SEC’s Division of Enforcement announced the creation of the Share Class Selection Disclosure Initiative to address ongoing concerns that, despite the fiduciary duty imposed by the Advisers Act, an OCIE risk alert, Form ADV reminders, and numerous individual Commission enforcement actions, investment advisers were not adequately disclosing, or acting consistently with the disclosure regarding, conflicts of interest related to their mutual fund share class selection practices.  These disclosure failures caused harm to investors, particularly retail investors, including being deprived of the ability to make informed investment decisions when purchasing higher-cost share classes.  The initiative, which was managed by the Asset Management Unit, enabled investment advisory firms to avoid financial penalties if they timely self-reported undisclosed conflicts of interest, agreed to compensate harmed clients, and undertook to review and correct their relevant disclosure documents.  To assist advisers evaluating their eligibility for the initiative, the Division of Enforcement issued answers to frequently asked questions, which provided detailed information about the eligibility of advisers to participate, calculation of disgorgement, and other aspects of the initiative.

The SEC staff is continuing to evaluate self-reports that were received from investment advisers prior to the initiative cut-off date.

Comments of Chairman Jay Clayton and Enforcement Co-Directors Stephanie Avakian and Steven Peikin

“The federal securities laws impose a fiduciary duty on investment advisers, which means they must act in their clients’ best interest,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.  “An adviser’s failure to disclose these types of financial conflicts of interest harms retail investors by unfairly exposing them to fees that chip away at the value of their investments.”

“The initiative leveraged the expertise of the agency in crafting an efficient approach to remedy a pervasive problem,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.  “Most of the advisory clients harmed by the disclosure practices were retail investors, and in just a year’s time, we made tremendous headway in putting money back into their hands while significantly improving the quality of firms’ disclosures.”

“Investment advisers play a vital and trusted role in our markets.  They offer a wide array of products and services to our retail investors, ranging from one-time advice on a model investment portfolio to comprehensive planning combined with continuous investment advice and other services.  Regardless of the scope and duration of the investment advisory services, investment advisers are fiduciaries and, as such, their duties of care and loyalty require them to disclose their conflicts of interest, including financial incentives,” said SEC Chairman Jay Clayton.  “I am pleased that so many investment advisers chose to participate in this initiative and, more importantly, that their clients will be reimbursed.  This initiative will have immediate and lasting benefits for Main Street investors, including through improved disclosure.  Also, I am once again proud of our Division of Enforcement for their vigorous and effective pursuit of matters that substantially benefit our long-term, retail investors.”

Summary of Settlement Terms

The SEC’s orders found that the settling investment advisers violated Section 206(2) and, except with respect to state-registered only advisers, Section 207 of the Investment Advisers Act of 1940 by:

• Failing to include adequate disclosure regarding the receipt of 12b-1 fees; and/or
• Failing to adequately disclose additional compensation received for investing clients in a fund’s 12b-1 fee paying share class when a lower-cost share class was available for the same fund.

Without admitting or denying the findings, each of the settling investment advisers consented to cease-and-desist orders finding violations of Section 206(2) and, except with respect to state-registered only advisers, Section 207.  The firms also agreed to a censure and to disgorge the improperly disclosed fees and distribute these monies with prejudgment interest to affected advisory clients.  Each adviser has also undertaken to review and correct all relevant disclosure documents concerning mutual fund share class selection and 12b-1 fees and to evaluate whether existing clients should be moved to an available lower-cost share class and move clients, as necessary.  Consistent with the terms of the initiative, the Commission has agreed not to impose penalties against the investment advisers.

The Share Class Selection Disclosure Initiative is being led by the Division of Enforcement’s Asset Management Unit under the direction of Dabney O’Riordan, AMU’s Chief, and is being coordinated by SEC Assistant Director Jason Burt, attorneys Ronnie Lasky and Brian Basinger, and industry expert John Farinacci.  The settlements announced today were coordinated by SEC attorneys Stephen Donahue, Michael Adler, Robert Baker, Cynthia Baran, Michael Moran, William Donahue, Paul Montoya, David Benson, Anne Blazek, Emlee Hilliard-Smith, Michelle Munoz Durk, Andrew Shoenthal, Kara Washington, John Mulhern, Barbara Gunn, Frank Goodrich, Adam Aderton, Corey Schuster, Melissa Robertson, Jessica Neiterman, Donna Norman, Janene Smith, Ivonia Slade, Charles Davis, Max Polonsky, Kate Zoladz, Payam Danialypour, Adam Schneir, Al Tierney, Panayiota Bougiamas, Karen Willenken, Brendan McGlynn, Oreste McClung, Christine R. O’Neil, Jeremy Pendrey, Jessica Chan, Heather Marlow, and Ariana Torchin, and industry expert Dan Pines.  The Division appreciates the substantial assistance provided by the Office of Compliance Inspections and Examinations, which has for years identified deficiencies on these issues; and the Division of Investment Management.

Firms Charged (Release Nos. IA-5123 through IA-5199)

•Ameritas Investment Corp.
•AXA Advisors LLC
•BB&T Securities LLC
•Beacon Investment Management LLC
•Benchmark Capital Advisors LLC
•Benjamin F. Edwards & Co. Inc.
•Blyth & Associates Inc.
•BOK Financial Securities Inc.
•Calton & Associates Inc.
•Cambridge Investment Research Advisors Inc.
•Cantella & Co. Inc.
•Client One Securities LLC
•Coastal Investment Advisors Inc.
•Comerica Securities Inc.
•Commonwealth Equity Services LLC
•CUSO Financial Services LP
•D.A. Davidson & Co.
•Deutsche Bank Securities Inc.
•EFG Asset Management (Americas) Corp.
•Financial Management Strategies Inc.
•First Citizens Asset Management Inc.
•First Citizens Investor Services Inc.
•First Kentucky Securities Corporation
•First National Capital Markets Inc.
•First Republic Investment Management Inc.
•Hazlett, Burt & Watson Inc.
•Hefren-Tillotson Inc.
•Huntington Investment Company, The
•Infinex Investments Inc.
•Investacorp Advisory Services Inc.
•Investmark Advisory Group LLC
•Investment Research Corp.
•J.J.B. Hilliard, W.L. Lyons LLC
•Janney Montgomery Scott LLC
•Kestra Advisory Services LLC
•Kestra Private Wealth Services LLC
•Kovack Advisors Inc.
•L.M. Kohn & Company
•LaSalle St. Investment Advisors LLC
•Lockwood Advisors Inc.
•LPL Financial LLC
•M Holdings Securities Inc.
•MIAI Inc.
•National Asset Management Inc.
•NBC Securities Inc.
•Next Financial Group Inc.
•Northeast Asset Management LLC
•Oppenheimer & Co. Inc.
•Oppenheimer Asset Management Inc.
•Park Avenue Securities LLC
•PlanMember Securities Corporation
•Popular Securities LLC
•Principal Securities Inc.
•Private Portfolio Inc.
•ProEquities Inc.
•Provise Management Group LLC
•Questar Asset Management Inc.
•Raymond James Financial Services Advisors Inc.
•Raymond Lawrence Lent (d/b/a The Putney Financial Group, Registered Investment Advisors)
•RBC Capital Markets LLC
•Robert W. Baird & Co. Incorporated
•Ryan Financial Advisors Inc.
•SA Stone Investment Advisors Inc.
•Santander Securities LLC
•Select Money Management Inc.
•Silversage Advisors
•Sorrento Pacific Financial LLC
•Spire Wealth Management LLC
•SSN Advisory Inc.
•Stephens Inc.
•Stifel, Nicolaus & Company Incorporated
•Summit Financial Group Inc.
•Syndicated Capital Inc.
•TIAA-CREF Individual & Institutional Services LLC
•Transamerica Financial Advisors Inc.
•Trustcore Financial Services LLC
•Wells Fargo Clearing Services LLC
•Wells Fargo Advisors Financial Network LLC
•Woodbury Financial Services Inc.

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BB&T to Return More Than $5 Million to Retail Investors and Pay Penalty Relating to Directed Brokerage Arrangements


The Commission announced that BB&T Securities has agreed to return more than $5 million to retail investors and pay a $500,000 penalty to settle charges that a firm it acquired misled its advisory clients into believing they were receiving full service brokerage services in-house at a discount while significantly less expensive options were available externally.

According to the SEC’s order, Valley Forge Asset Management used misleading statements and inadequate disclosures about its brokerage services and prices to convince customers to choose the in-house broker.  Despite promises of a high level of service at a low cost, the SEC’s order finds that Valley Forge did not provide any additional services to advisory clients using its in-house brokerage than it did to advisory clients who chose other brokerages with significantly lower commission rates.  According to the order, Valley Forge charged commissions averaging roughly 4.5 times more than what clients would have paid using other brokerage options, and the firm obscured the price difference by claiming that it was giving clients a 70 percent discount off of its supposed retail commission rate.

“Valley Forge put its own interests ahead of its advisory clients, causing them to spend more money unnecessarily by portraying inaccurate costs and benefits of using its in-house brokerage,” said Kelly L. Gibson, Associate Director of Enforcement in the SEC’s Philadelphia Regional Office.  “Dual registrants and advisers with affiliated broker-dealers must accurately disclose all conflicts of interest arising from their brokerage arrangements.  The SEC’s examination and enforcement programs will continue to identify these types of violations and return money to harmed retail investors as quickly as possible.”

The SEC’s order finds that BB&T Securities as the successor in interest to Valley Forge violated Sections 206(2) and 207 of the Investment Advisers Act of 1940.  Without admitting or denying the findings, BB&T Securities consented to a cease-and-desist order, a censure, and agreed to pay disgorgement of $4,712,366 and prejudgment interest of $497,387, which it will distribute to affected current and former clients through a Fair Fund, as well as a $500,000 penalty.  BB&T Securities has ended Valley Forge’s existing directed brokerage program by amending its cost structure and its disclosures. [Please
login to IA Act UnwrappedTM to view Release No. IA-5119 In the Matter of BB&T Securities, LLC, as successor-in-interest to Valley Forge Asset Management, LLC ]  Top 

 


SEC Names Gabriel Benincasa as Its First Chief Risk Officer

Strengthens SEC’s Risk Management & Cybersecurity Efforts

Gabriel Benincasa has been named the Commission’s first Chief Risk Officer.  This position was created by SEC Chairman Jay Clayton to strengthen the agency’s risk management and cybersecurity efforts. As Chief Risk Officer, Mr. Benincasa will coordinate the SEC’s continued efforts to identify, monitor, and mitigate key risks facing the Commission.  Working within the SEC’s Office of the Chief Operating Officer, he will also serve as a key adviser on other matters related to enterprise risks and controls.  Julie Erhardt, who had been serving as Acting Chief Risk Officer while the SEC completed its recruitment efforts, will return to her role as Deputy Chief Accountant for Technology and Innovation in the Commission’s Office of the Chief Accountant.

“Establishing the Chief Risk Officer position at the SEC is an important step forward in our continuing efforts to strengthen the agency’s risk management program,” said Chairman Jay Clayton.  “Gabe is an experienced senior leader with deep risk, legal, compliance, and financial markets expertise.  I am certain we will benefit from his advice and insights.  I also want to thank Julie for giving us a running start on this initiative.”

“I look forward to working with Gabe to maintain a robust risk management program at the agency,” said Ken Johnson, the SEC’s Chief Operating Officer.  “Gabe’s strong background in risk management positions him well to help the SEC continue to evaluate a wide range of current and emerging challenges, whether related to our markets, cybersecurity, or our own operations.”

Mr. Benincasa added, “It is an honor to serve America’s investors and markets as the SEC’s first Chief Risk Officer.  I look forward to joining the team and building upon existing programs to help the agency tackle current and future challenges.”

Mr. Benincasa brings to the SEC significant experience in senior leadership roles in risk and compliance in the financial sector. He began his legal career as an attorney at Davis Polk & Wardwell before working for Morgan Stanley and other financial firms. He has served in roles including as Director of Enterprise Risk Management and Vice Chair of the Risk Control Committee for a financial services holding company; Deputy Global Head of Operational Risk Management for an investment bank; General Counsel and Chief Compliance Officer for an institutional asset management company; and Global Head of Compliance for a financial technology company. Mr. Benincasa is an attorney and a Certified Public Accountant. He earned his J.D. from Fordham Law School and a Bachelor’s in Business Administration from Baruch College.  Top 

SEC Names Vanessa Countryman Acting Secretary

The Commission announced that Vanessa Countryman has been named Acting Secretary.  Ms. Countryman will replace Brent Fields, who is stepping down as Secretary effective March 11, 2019, to accept a position in the Commission's Division of Investment Management.

For the past five years, Ms. Countryman has served as Chief Counsel in the Division of Economic and Risk Analysis (DERA), where she has actively participated in numerous significant rulemakings, ensuring the effective use of economic analysis across the agency. Between 2010 and 2012, Ms. Countryman served as Counsel to two SEC Commissioners, where she provided legal advice on regulatory and enforcement matters.

Within the SEC, the Office of the Secretary plays a central role in ensuring the effective processing of Commission business.  Office staff, among other things, review all documents submitted to the Commission, track documents submitted to the Commission, schedule Commission meetings in accordance with the Government in the Sunshine Act, maintain records of official Commission actions, and provide public notice of those actions on the SEC.gov website and in the Federal Register.

"I appreciate Vanessa's willingness to step into the role of Acting Secretary during this time," said SEC Chairman Jay Clayton. "Her deep knowledge of agency procedures and strong relationships with Commissioners and senior staff across the divisions and offices will help ensure the Commission continues to run smoothly."

Ms. Countryman added, "It is a great honor to be asked to serve in this role. I look forward to working with and supporting the Office of the Secretary's exceptional team to carry out the Commission's work on behalf of investors."

Prior to joining the SEC, Ms. Countryman practiced law at Gibson, Dunn & Crutcher LLP, representing clients in regulatory matters. Ms. Countryman earned her J.D. from the University of Chicago.  She earned a Master's degree from Oxford University and a B.A. from Columbia University.  Top 


SEC Cancels Registration - Firm Has Not Met Conditions of the Internet Adviser Exemption under the Advisers Act


Ajenifuja Investments, LLC is registered with the SEC in reliance on rule 203A-2(e) (the “Internet adviser exemption”) under the Advisers Act. An investment adviser must register with the Commission unless it is prohibited from doing so under section 203A of the Advisers Act or is exempt from registration under section 203 of the Act. Rule 203A-2 provides exemptions from the prohibition on Commission registration in section 203A of the Act, including the “Internet adviser exemption.”

An adviser is eligible for registration under the Internet adviser exemption if the adviser provides investment advice to all of its clients exclusively through the adviser's interactive website, except that the adviser may advise fewer than 15 clients through other means during the preceding 12 months.

Ajenifuja has not met the conditions of the Internet adviser exemption, as Ajenifuja has not had an interactive website for the more than three years during which it has been registered as an Internet adviser, and has not otherwise been engaged in business as an investment adviser.

Section 203(h) of the Advisers Act permits the Commission to cancel the registration of an adviser that is prohibited from registering with it or is not engaged in business as an investment adviser. Having provided notice to Ajenifuja of the intended cancellation and granted Registrant’s request for a hearing, the Commission has determined to cancel Registrant’s registration with the Commission pursuant to section 203(h) of the Act.

In addition, the Commission finds that Ajenifuja may not claim eligibility pursuant to the Internet adviser exemption to forestall deregistration.  [Please login to IA Act UnwrappedTM to view Release No. IA-5110 Ajenifuja Investments, LLC; Order Cancelling Registration Pursuant to Section 203(h) of the Investment Advisers Act of 1940, Feb. 12, 2019]   Top 


Court Dismisses Appeal Filed by Former F-Squared CEO -
Affirms SEC’s Judgment

On January 15, 2019 the United States Court of Appeals for the First Circuit dismissed the appeal filed in May 2018 by Howard B. Present, co-founder and former CEO of investment management firm F-Squared Investments. In March 2018, a federal judge ordered Present to pay over $13 million after a federal jury returned a verdict against him for making false and misleading statements to investors as the public face of F-Squared.

The SEC charged Present and F-Squared in 2014 with misleading investors about the AlphaSector strategy, the flagship product of F-Squared which Present launched in the wake of the financial crisis. F-Squared agreed to pay $35 million and admit wrongdoing to settle the agency's charges, but Present opted to contest the SEC's charges. After a three-and-a-half week trial, the jury deliberated for less than one day before finding Present liable on all of the agency's charges against him.  [Please
login to IA Act UnwrappedTM to view Litigation Release LR-24384 SEC v. Howard B. Present (01/28/2019) and Release No. IA-3988 In the Matter of F-Squared Investments, Inc. (12/22/2014)]   Top 

Division of Investment Management Announcement Regarding Recommencement of Operations

The Division of Investment Management is resuming normal operations. We anticipate addressing filings, exemptive and guidance requests based on when an item was amended or initially filed. In other words, absent compelling circumstances, we expect to address matters in the order in which they were received.  If your filing or other request has become more urgent, please contact the relevant office noted below:

Exemptive applications and staff guidance—Chief Counsel’s Office: 202-551-6825 or IMOCC@sec.gov
Disclosure filings—Disclosure Review Office: 202-551-6921 or IMDRAO@sec.gov
Accounting Issues—Office of the Chief Accountant: 202-551-6918 or IMOCA@sec.gov

If your question is with respect to the status of a pending Investment Adviser Registration (Form ADV), please contact the Office of Compliance Inspections and Examinations at OCIERegistrationsinquiries@sec.gov or 202-551-7250.

The Division is resuming responses to questions and guidance requests, including with respect to investment adviser interpretive issues (IARDLIVE email box), Form PF (FORMPF email box), accounting matters (IMOCA email box), and general interpretive questions (IMOCC email box).  During the lapse in funding, we received a number of requests in each of these boxes which the staff has yet to review. Our response time for pending and new inquiries may be longer than ordinary.  If such a request has become more urgent, please feel free to contact us again and include the reason why you believe expedited treatment is necessary. Otherwise, we will generally respond to requests in the order received.

We are resuming normal review of filings by investment companies, including post-effective amendments, proxy statements and Form N-14 filings.  During our transition to normal operations, staff may require more time in delivering comments to registrants. 

Consistent with the Division’s Questions and Answers in connection with its statement regarding Actions During a Lapse in Appropriations and Government Shutdown, some registrants may have omitted or removed delaying amendments from their registration statements. We will consider requests to accelerate the effective date of those registration statements if they are amended to include a delaying amendment prior to the end of the 20-day period and acceleration is appropriate.  In cases where we believe it would be appropriate for a registrant to amend to include a delaying amendment, we will notify that registrant.   

The Division’s normal activities include providing no-action guidance under Exchange Act Rule 14a?8 with respect to shareholder proposals.   We generally expect to respond to these requests in the order received.  We recognize that companies may have impending print deadlines or that negotiations may have changed the need for the staff’s views. Please notify the staff at IMshareholderproposals@sec.gov as soon as possible of any timing constraints or changes in circumstances that could help us prioritize our responses.  Top 

OCIE Announcement Regarding Recommencement of Operations

The Office of Compliance Inspections and Examinations (OCIE) is returning to normal operations.  During the agency’s lapse in appropriations, OCIE maintained staff available to respond to emergency situations involving market integrity and investor protection, and to continue to monitor critical market infrastructure entities for system disruptions, intrusions and compliance issues in the interest of protecting property.   

In general, OCIE anticipates resuming examinations, including those that were in-progress prior to, as well as those that were postponed during, the lapse in appropriations.

OCIE also anticipates addressing filings, submissions and requests for staff action based on when an item was submitted, including initial registrations of an entity with the Commission.  OCIE generally expects to address matters, particularly new registrations, in the order in which they were received.

OCIE staff members will be communicating with registrants about rescheduling postponed examinations as well as completing in-progress examinations in the coming weeks.  OCIE staff members are available to answer questions relating to examinations, filings and other federal securities law matters, but their response time may be longer than ordinary.  If you require assistance on an expedited basis, please submit your request, contact information and the reason you believe expedited treatment is necessary to OCIEemergency@sec.gov.    Top 

SEC Resumes Normal Operations

The Securities and Exchange Commission is currently open, fully staffed and focused on its mission. A statement from SEC Chairman Jay Clayton can be found below. Additional information from certain SEC Divisions and Offices regarding their transition to normal operations will be posted on the SEC's website in coming days.

Information for Contractors - With a short term Continuing Resolution signed into place, all contracts are now in full performance (no suspension) and should be back to normal operations as soon as possible. Contractors should contact their CORs and CO's to renew normal operations and find solutions to problems caused by the lapse in appropriation. Thank you for your continued support of the SEC.

Statement Regarding Recommencement of Normal Operations
Chairman Jay Clayton
Jan. 26, 2019


The Securities and Exchange Commission has resumed normal staffing levels and is returning to normal operations.

Over the past 30 days, with a limited staff, we followed our Operations Plan Under a Lapse in Appropriations and Government Shutdown.  This plan focused on monitoring the functioning of our markets and, as necessary to prevent imminent threats to property, taking action.  I commend our staff for their dedication to this task.  They performed admirably and, as always, with a keen focus on the interests of our Main Street investors.

Our approximately 4,500 employees are now returning to their posts in our Washington, D.C. home office and our 11 regional offices.  The leaders of our Divisions and Offices, in consultation with various members of our staff, are continuing to assess how to most effectively transition to normal operations.  Certain of these Divisions and Offices, including our Divisions of Corporation Finance, Trading and Markets, Investment Management and our Office of Compliance Inspections and Examinations, will be publishing statements in the coming days regarding their transition plans. These statements regarding our transition to normal operations will be available at www.sec.gov.

In closing, a personal note:  I have noted in the past that our people are our greatest asset.  They bring experience, expertise and commitment to work every day for the benefit of our economy, our markets and, most importantly, our investors.  The past 30 days have underscored just how true that is.  It is my privilege to welcome back the full team.    Top



Lapse in Appropriations Forces Stays in All Pending Administrative Proceedings


The SEC has experienced a lapse in appropriations. Absent an appropriation, SEC Staff is prohibited from performing the ongoing, regular functions of government except in very limited circumstances, including “emergencies involving the safety of human life or the protection of property." Effective immediately, the Commission stays all pending administrative proceedings initiated by an order instituting proceedings that set the matter down for a hearing before either an administrative law judge or the Commission. [Please
login to the IA Act UnwrappedTM Releases Database to view Release No. IA-5101 In re: Pending Administrative Proceedings] Top

In the Midst of Gov't Shutdown SEC Brings Charges in EDGAR Hacking Case

The SEC announced charges against nine defendants for participating in a previously disclosed scheme to hack into the SEC’s EDGAR system and extract nonpublic information to use for illegal trading. The SEC charged a Ukrainian hacker, six individual traders in California, Ukraine, and Russia, and two entities. The hacker and some of the traders were also involved in a similar scheme to hack into newswire services and trade on information that had not yet been released to the public. The SEC charged the hacker and other traders for that conduct in 2015.

The SEC’s complaint alleges that after hacking the newswire services, Ukrainian hacker Oleksandr Ieremenko turned his attention to EDGAR and, using deceptive hacking techniques, gained access in 2016. Ieremenko extracted EDGAR files containing nonpublic earnings results. The information was passed to individuals who used it to trade in the narrow window between when the files were extracted from SEC systems and when the companies released the information to the public. In total, the traders traded before at least 157 earnings releases from May to October 2016 and generated at least $4.1 million in illegal profits.

“International computer hacking schemes like the one we charged today pose an ever-present risk to organizations that possess valuable information,” said Enforcement Division Co-Director Stephanie Avakian. “Today’s action shows the SEC’s commitment and ability to unravel these schemes and identify the perpetrators even when they operate from outside our borders.”

“The trader defendants charged today are alleged to have taken multiple steps to conceal their fraud, including using an offshore entity and nominee accounts to place trades,” said Enforcement Division Co-Director Steven Peikin. “Our staff’s sophisticated analysis of the defendants’ trading exposed the common element behind their success, providing overwhelming evidence that each of them traded based on information hacked from EDGAR.”

The SEC’s complaint alleges that Ieremenko circumvented EDGAR controls that require user authentication and then navigated within the EDGAR system. Ieremenko obtained nonpublic “test files,” which issuers can elect to submit in advance of making their official filings to help make sure EDGAR will process the filings as intended. Issuers sometimes elected to include nonpublic information in test filings, such as actual quarterly earnings results not yet released to the public. Ieremenko extracted nonpublic test files from SEC servers, and then passed the information to different groups of traders.

The SEC’s complaint alleges that the following traders received and traded on the basis of the hacked EDGAR information:

• Sungjin Cho, Los Angeles, California
• David Kwon, Los Angeles, California
• Igor Sabodakha, Ukraine
• Victoria Vorochek, Ukraine
• Ivan Olefir, Ukraine
• Andrey Sarafanov, Russia
• Capyield Systems, Ltd. (owned by Olefir)
• Spirit Trade Ltd.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced related criminal charges.

The SEC’s complaint charges each of the defendants with violating the federal securities antifraud laws and related SEC antifraud rules and seeks a final judgment ordering the defendants to pay penalties, return their ill-gotten gains with prejudgment interest, and enjoining them from committing future violations of the antifraud laws. The SEC also named and is seeking relief from four relief defendants who profited from the scheme when defendants used the relief defendants’ brokerage accounts to place illicit trades. Top 

Custody Violations – Auditors Failed to Have Relevant Knowledge, Training & Experience

On January 9, 2019, the Commission issued Release No. IA-5100 In the Matter of Katz, Sapper & Miller, LLP, and Scott C. Price, CPA.  This matter involves improper professional conduct by Respondents in completing audits pursuant to Section 206(4) of the Advisers Act and Custody Rule 206(4)-2. In January 2013, Mohlman Asset Management Fund, LLC (“MAMF”), a former SEC-registered investment adviser, engaged KSM to audit the financial statements of two pooled investment vehicles MAMF advised, Mohlman Asset Management Fund 2010, LLC (“Fund I”) and Mohlman Asset Management Fund II, LLC (“Fund II”) (collectively, “the Funds”). The first engagement in 2013 covered Fund I from its inception in 2010 and Fund II from its inception in 2011 to December 31, 2012, which is the Funds’ fiscal year-end.

MAMF engaged KSM to audit the Funds in 2014, 2015, and 2016, covering the Funds’ fiscal years ending on December 31, 2013, 2014, and 2015. The first engagement in 2013 and the second in 2014 also included KSM drafting the Funds’ 2012 and 2013 year-end financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States. The audits were supposed to be conducted in accordance with generally accepted auditing standards (“GAAS”) in the United States established by the AICPA Auditing Standards Board. MAMF engaged KSM to conduct the audits in an effort to enable MAMF to comply with an exception to the Custody Rule because MAMF had custody of client assets invested in the Funds. Audits performed pursuant to the Custody Rule exception require SEC independence.

Unbeknownst to MAMF, KSM and Price, the audit partner on all of the engagements, failed to meet the requirements of the Custody Rule in conducting their audits of the Funds. KSM was not independent because it prepared the Funds’ 2012 and 2013 year-end financial statements and then audited them. As a result, Respondents KSM and Price caused MAMF’s 2012 and 2013 violations of the Custody Rule.

KSM and Price also engaged in improper professional conduct within the meaning of Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice by failing to: (a) have relevant knowledge, training and experience; (b) issue a modified opinion with respect to Fund II’s 2013 and 2014 year-end financial statements, even though they should have been aware of a related party transaction and a loan that had not been properly disclosed in the financial statements; and (c) exercise due professional care. In addition, KSM failed to establish sufficient quality control standards.

In determining to accept the Offers, the Commission considered remedial acts undertaken by Respondents and cooperation afforded the Commission staff. KSM already has taken steps to improve its policies, procedures, and training, including hiring an Audit Director to provide oversight and training for KSM’s Custody Rule audits; revising its quality control policies and procedures – including client acceptance – and requiring SEC-specific training, twice yearly for all Financial Services Group members. Price played a significant role in KSM’s remediation efforts, including, but not limited to, standardizing workpapers and procedures for fund audits and engagements performed under the Custody Rule and drafting new policies and procedures. Price is also the person who discovered the SEC independence standards applied to the Funds’ audits and caused the engagement team to apply those standards to the audits performed for the Funds in 2015 and 2016.
[Please login to IA Act UnwrappedTM to view Release No. IA-5100 In the Matter of Katz, Sapper & Miller, LLP, and Scott C. Price, CPA]  Top 


OCIE Status during Government Shutdown

 
During the shutdown, the processing of registrations and all non-emergency examinations and other work will be deferred and staff will be unavailable.  A very limited number of personnel will be able to respond to emergency situations involving market integrity and investor protection, including law enforcement.  If you have an OCIE-related emergency you may contact OCIE at: OCIEemergency@sec.gov or 202-551-6200. Top 

Division of Investment Management Unavailable during Government Shutdown
Limited Staff Available to Answer Questions Relating to Fee Calculations for Filings


“Due to the government shutdown, the Division of Investment Management will not be available to respond to any questions about pending matters. Please understand that regulations require us to cease our regular activities and our ability to respond to questions may be limited by those regulations. In case of an emergency, please send an email to IMemergency@sec.gov or call 202-551-6720."

"During the shutdown, the Division will not be in a position to act upon any requests for acceleration of the effective date of a pending registration statement or qualification of a pending offering statement until the SEC receives appropriations to fund its operations. Investment companies can continue to make filings on EDGAR during this time. A significant percentage of filings submitted by registered investment companies are in the form of post-effective amendments to registration statements. Many of these filings, pursuant to rules promulgated under the 1933 Act (e.g., Rule 485 for open-end funds), become effective automatically either immediately upon filing or following the passage of a certain number of days. These filings will become effective automatically after the entire time period set forth in the applicable rules until the SEC returns to open and operational status."

"A limited number of staff members are available to answer questions relating to fee calculations for filings. If you require assistance in calculating a fee for a filing you will make during the shutdown period, submit your request and contact information to IMEmergency@sec.gov.

We will follow the procedures set forth by the Division of Corporation Finance described here, as applicable, with regard to the acceleration of initial registration statements and other types of filings made by registered investment companies during the federal government shutdown. Please direct questions about individual filings to Bill Kotapish (202-551-6756) from Dec. 27 – Jan. 4 and Christian Sandoe (202-551-6949) after Jan. 4.” [From the Divison of Investment Management webpage on www.sec.gov.] "

The IARD (Investment Adviser Registration Depository) continues to accept new or pending investment adviser applications but they will not be processed. The system also will continue to accept annual Form ADV filings.

No interpretive guidance or exemptive relief will be issued by the Division of Investment Management during the shutdown. 

Click HERE to read about the SEC Operational Plan in place during the Government Shutdown.Top 


SEC Charges Two Robo-Advisers with False Disclosures

SEC's first enforcement actions against robo-advisers

On December 21, 2018, the Commission instituted settled proceedings against two robo-advisers for making false statements about investment products and publishing misleading advertising.  The proceedings are the SEC’s first enforcement actions against robo-advisers, which provide automated, software-based portfolio management services.

An SEC order found that Redwood City, California-based Wealthfront Advisers LLC (formerly known as Wealthfront Inc.), a robo-adviser with over $11 billion in client assets under management, made false statements about a tax-loss harvesting strategy it offered to clients.  Wealthfront disclosed to clients employing its tax-loss harvesting strategy that it would monitor all client accounts for any transactions that might trigger a wash sale – which can diminish the benefits of the harvesting strategy – but failed to do so. Over a period of more than three years during which it made this disclosure, wash sales occurred in at least 31 percent of accounts enrolled in Wealthfront’s tax loss harvesting strategy. The SEC’s order also found that Wealthfront improperly re-tweeted prohibited client testimonials, paid bloggers for client referrals without the required disclosure and documentation, and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws.

A separate SEC order found that New York City-based Hedgeable Inc., a robo adviser which had approximately $81 million in client assets under management, made a series of misleading statements about its investment performance.  According to the order, from 2016 until April 2017, Hedgeable posted on its website and social media purported comparisons of the investment performance of Hedgable’s clients with those of two robo-adviser competitors.  The performance comparisons were misleading because Hedgeable included less than 4 percent of its client accounts, which had higher-than-average returns.  Hedgable compared this with rates of return that were not based on competitors’ actual trading models.  The SEC’s order also found that Hedgeable failed to maintain required documentation and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws.

“Technology is rapidly changing the way investment advisers are able to advertise and deliver their services to clients,” said C. Dabney O’Riordan, Chief of the SEC Enforcement Division’s Asset Management Unit.  “Regardless of their format, however, all advisers must take seriously their obligations to comply with the securities laws, which were put in place to protect investors.”  A bulletin published by SEC’s Office of Investor Education and Advocacy contains additional information about robo-advisers.

The SEC’s order against Wealthfront found that the adviser violated the antifraud, advertising, compliance, and other provisions of the Investment Advisers Act of 1940.  Without admitting or denying the SEC’s findings, Wealthfront consented to the entry of the SEC’s order censuring it, requiring it to cease and desist from further violations, and imposing a $250,000 penalty.

The SEC’s order against Hedgeable found that the adviser violated the antifraud, advertising, compliance, and books and records provisions of the Investment Advisers Act of 1940.  Without admitting or denying the SEC’s findings, Hedgeable consented to the entry of the SEC’s order censuring it, requiring it to cease and desist from further violations, and imposing an $80,000 penalty. [Please
login to IA Act UnwrappedTM to view Release Nos. IA-5087 In the Matter of Hedgeable, Inc., and IA-5086 In the Matter of Wealthfront Advisers' also refer to the IA Act UnwrappedTM Examination Tools Database for reposts of the following related information: Robo-Advisers IM Guidance Update 2017-02 (originally published 02/23/17); Investor Bulletin: Robo-Advisers SEC Investor.gov (originally published 02/23/17).]    Top 

 

Headline News

SEC Clarifies Investment Advisers' Proxy Voting Responsibilities and Application of Proxy Rules to Voting Advice

Read more...

 

SEC Releases Videos on Choosing and Working with a Financial Professional

Part of new campaign to help investors understand key differences between IAs & BDs
Read more...


SEC Charges IA with Failing to Disclose Financial Conflict of Interest
Read more...


SEC Charges Recidivist IA for Failing to Disclose Conflicts of Interest

Read more...

 

Updates

Brightline Solutions updates IA Act UnwrappedTM on a daily basis. Recent updates are listed below. Click HERE for a more detailed summary of the information.

IA-5327 In the Matter of Patrick L. O’Connor

IA-5326 In the Matter of Yehuda Belsky, AKA "Jay Bell"

IA-5325 Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers
Added to the IA Act UnwrappedTM Releases Database and to Interpretive Releases under Regulatory Database Rule 206(4)-6

34-86721 Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice
Exchange Act Release linked to IA Act UnwrappedTM Regulatory Database Rule 206(4)-6 Proxy Voting Description Tab

SEC Clarifies IA’s Proxy Voting Responsibilities and Application of Proxy Rules to Voting Advice 
Information added to the IA Act UnwrappedTM Regulatory Database Rule 206(4)-2 Plain English Description Tab

IA-5324 In the Matter of Financial Sherpa, Inc. and James L. Beyersdorf

IA-5323 In the Matter of Thomas Gillons

Request for amendment to Form ADV, Part 1A, Item 5, Section E
Public Petition for Rulemaking linked to IA Act UnwrappedTM Regulatory Database Rule 204-1 Plain English Description Tab

IA-5322 In the Matter of Christopher D. Dougherty

LR-24563 SEC v. Craig Rumbaugh, Rumbaugh Financial Inc., and Desert Strategic Equity, LLC

IA-5321 In the Matter of Chris Kubiak

IA-5320 In the Matter of Michael J. Frew

IA-5319 In the Matter of MVP Manager LLC

IA-5318 In the Matter of Jeremy Joseph Drake

IA-5317 Notice of Intention to Cancel Registrations of Certain Investment Advisers

IA-5316 In the Matter of Sean Kelly

IA-5315 In the Matter of JDC-JSC LP

IA-5313 In the Matter of Kendall J. Groom, CPA

IA-5314 In the Matter of The Robare Group, Ltd., Mark L. Robare, and Jack L. Jones, Jr.

LR-24550 SEC v. Commonwealth Equity Services, LLC

IA-5312 In the Matter of Jonathan Brosk

IA-5311 In the Matter of Christopher Plaford
LR-24548 SEC v. Christopher Plaford

IA-5310 In the Matter of Timothy M. Rooney, Sr.

IA-5309 In the Matter of John Sherman Jumper

IA-5308 In the Matter of William Harper Minor, Jr.

IA-5307 In the Matter of N. Gary Price

IA-5306 In the Matter of Foundations Asset Management, LLC, Michael W. Shamburger, and Rob E. Wedel

Observations from Examinations of Investment Advisers - Compliance, Supervision, and Disclosure of Conflicts of Interest
OCIE Risk Alert
Added to the IA Act UnwrappedTM Examination Tools Database/2019 Information

IA-5305 In the Matter of Account Management, LLC, Christopher de Roetth and Peter de Rotth

IA-5304 In the Matter of Henry J. Wieniewitz, III

IA-5303 In the Matter of Swapnil Rege

IA-5296 Release Intentionally Omitted by SEC

LR-24539 SEC v. Paul Alar and West Mountain, LLC

IA-5302 In the Matter of Salus, LP et al.

LR-24533 SEC  v. Richard Vu Nguyen, et al.

Staff Statement on Opportunity Zones: Federal and State Securities Laws Considerations  
SEC and NASAA Explain Application of Securities Laws to Opportunity Zone Investments 
Added to the IA Act UnwrappedTM Examination Tools Database/2019 Information