Category: SEC Guidance


SEC’s New Guidance on the Use of Administrative Proceedings: “It’s Up to Us.”

Posted on May 12th, by in SEC Guidance. Comments Off on SEC’s New Guidance on the Use of Administrative Proceedings: “It’s Up to Us.”

In an apparent response to criticisms from the defense bar and the federal judiciary, the Division of Enforcement of the U.S. Securities and Exchange Commission (“SEC”) last week issued its first formal guidance on the factors determining whether contested actions will be brought before administrative law judges or in federal district court.

The guidance – contained in a four page memorandum titled “Division of Enforcement Approach to Forum Selection in Contested Actions” that was  issued on May 8, 2015 – does not directly address the various critiques or otherwise offer a defense of the SEC’s sometimes maligned administrative courts.  The SEC instead emphasizes that there is no “rigid formula dictating the choice of forum” and provides a non-exhaustive list of “potentially relevant considerations” used to make these determinations, including whether:

The forum provides for the desired claims, legal theories, and relief applicable … Read More »


Settlement with Large Firm Audit Partner Reaffirms SEC’s Emphasis on Related Party Disclosures

Posted on May 5th, by in Accountants, Private Equity, SEC Guidance. Comments Off on Settlement with Large Firm Audit Partner Reaffirms SEC’s Emphasis on Related Party Disclosures

The SEC’s Division of Enforcement has made a concerted effort in recent months to warn auditors and other corporate “gatekeepers” that it intends to scrutinize the adequacy of related party disclosures in financial filings. This emerging trend continued on April 29, 2015, when the SEC announced the settlement of an enforcement proceeding against McGladrey LLP partner Simon Lesser. See Exchange Act Rel. 74827 (Apr. 29, 2015). Lesser, who served as lead engagement partner during McGladrey’s financial statement audits of investment advisory firm Alpha Titans LLC and several related private funds over a four-year fiscal span, settled claims that he engaged in improper professional conduct within the meaning of Section 4C of the Securities Exchange Act of 1934 and Rule 102(e)(1)(iv)(B)(2) of the SEC’s Rules of Practice. The SEC also alleged that Lesser willfully aided and abetted and caused his audit … Read More »


SEC Releases 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program

Posted on November 21st, by and in SEC Guidance, Whistleblower. Comments Off on SEC Releases 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program

By all accounts, 2014 was a year of tremendous success for the SEC’s Dodd-Frank Whistleblower Program. According to its 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, the SEC paid nine whistleblower awards, including a record $30 million award to a single whistleblower. SEC’s 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program. Sean X. McKessy, the Chief of the Office of the Whistleblower, told Congress that these awards exceeded the number of awards made “in all previous years combined.” In addition, the SEC brought its first enforcement action under the anti-retaliation provisions of the Dodd-Frank Act.

The Annual Report offers more than just numbers, however. Without disclosing whistleblower identities, the Annual Report provides a “profile” of award recipients. Notably, more than 40% of the individuals who received awards were current or former employees of the company about … Read More »


Director of SEC’s Division of Investment Management Provides Insights into Agency’s View of Alternative Mutual Funds and Focus of Upcoming Sweep Exam

Posted on July 11th, by and in Alternative Mutual Funds, OCIE, Office of Compliance Inspections and Examinations, SEC Guidance. Comments Off on Director of SEC’s Division of Investment Management Provides Insights into Agency’s View of Alternative Mutual Funds and Focus of Upcoming Sweep Exam

On June 30, 2014, in remarks to the Practising Law Institute’s Private Equity Forum, Norm Champ, Director of the SEC’s Division of Investment Management, addressed the increase in the number of mutual funds that use alternative investment strategies and the potential risks that the Division of Investment Management has identified with those strategies. See SEC Press Release. Champ’s observations are particularly relevant in light of the Office of Compliance Inspections and Examination’s (“OCIE’s”) announcement that it will conduct a national sweep exam involving between fifteen and twenty alternative mutual funds beginning this summer and continuing into the fall. According to Champ, the exams are intended to produce valuable insight into how alternative mutual funds attempt to generate yield and how much risk they undertake, in addition to monitoring how boards are overseeing the funds’ operations. To that end, Champ said … Read More »


SEC Files First Antiretaliation Enforcement Case Against Hedge Fund Advisory Firm

Posted on June 24th, by and in Dodd-Frank, Neither Admit Nor Deny, SEC Guidance, Settlements, Whistleblower. Comments Off on SEC Files First Antiretaliation Enforcement Case Against Hedge Fund Advisory Firm

In a first of its kind case, the SEC last week charged an investment adviser to a hedge fund with, among other things, retaliating against an employee who reported allegedly illegal trading activity to the agency. The SEC exercised its authority under a Commission rule adopted in 2011 under the Dodd-Frank Act, which permits enforcement actions based on retaliation against whistleblowers.

Under the Exchange Act, employers may not “discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower.” 15 U.S.C. § 78u-6(h)(1)(A). The Act also provides that the Commission “shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial … Read More »


SEC’s OCIE Director Reports Violations Regarding Fees Common at PE Firms

Posted on May 19th, by in Investment Advisers, OCIE, Private Equity, SEC Guidance. Comments Off on SEC’s OCIE Director Reports Violations Regarding Fees Common at PE Firms

In remarks to a group of compliance officers from investment advisers to private equity funds in New York City, Andrew J. Bowden, the director of the SEC’s Office of Compliance Inspections and Examinations, announced that the Exam staff has identified violations and material control weaknesses at more than half of all private equity advisers examined pursuant to the SEC’s recent initiative to examine recently registered advisers (commonly referred to as “Presence Exams”). See Spreading Sunshine in Private Equity.

According to Bowden, OCIE has conducted Presence Exams of more than 150 newly registered private equity advisers since October 2012 and is on track to complete its goal of examining 25% of the new private fund registrants by the end of this year. Bowden noted that private equity funds have historically involved limited transparency, limited investor rights, and significant opportunities for conflicts of interest. … Read More »


SEC to Examine Registered Broker-Dealers’ and Investment Advisers’ Procedures for Countering Cybersecurity Threats

Posted on April 28th, by , , and in Cybersecurity, Office of Compliance Inspections and Examinations, SEC Guidance. Comments Off on SEC to Examine Registered Broker-Dealers’ and Investment Advisers’ Procedures for Countering Cybersecurity Threats

Background and Purposes

On April 15, 2014, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued a “Risk Alert” explaining a new initiative to assess cybersecurity preparedness in the securities industry.  Although not an official rule, regulation or statement of the SEC, the Risk Alert advised that OCIE will be conducting examinations of more than 50 registered broker-dealers and registered investment advisers, regarding their cybersecurity and data security procedures and policies.

OCIE’s cybersecurity initiative is designed to obtain information about the industry’s recent experiences with certain types of cyber threats.  The examinations will focus on the following topics: the firm’s cybersecurity governance, identification and assessment of cybersecurity risks, protection of networks and information, risks associated with remote customer access and funds transfer requests, risks associated with vendors and other third parties, detection of unauthorized activity, and experiences with … Read More »


Recent Charges Against China-Based Companies Demonstrate SEC’s Efforts to Bring More Financial Fraud Cases

Posted on April 23rd, by and in Corporate Disclosures, Financial Fraud, SEC Guidance. Comments Off on Recent Charges Against China-Based Companies Demonstrate SEC’s Efforts to Bring More Financial Fraud Cases

SEC Chair Mary Jo White and Enforcement Director Andrew Ceresney have repeatedly said that financial fraud would be a priority of the SEC’s enforcement program. Two recent cases involving companies with China-based operations may signal a new trend in this area.

On March 11, 2014, the SEC charged animal feed company AgFeed Industries Inc. in a massive accounting fraud scheme. According to the SEC, four company officials–executive chairman Songyan Li, CEO Junhong Xiong, CFO Selina Jin, and controller Shaobo Ouyang–engaged in several tactics to artificially inflate revenue, including creating fake invoices for sales that did not occur and misrepresenting the weight of hogs which resulted in falsely amplified revenues. The SEC alleged that to perpetuate the scheme, the executives kept two sets of company books–an “outside” set that the company provided to its auditors and an “inside” real set that contained … Read More »


The SEC’s Municipalities Continuing Disclosure Cooperation Initiative: Carrot for Issuers & Underwriters, Stick for Individuals

Posted on April 22nd, by and in Cooperation, Individual Liability, Municipal Securities, SEC Guidance, Settlements. Comments Off on The SEC’s Municipalities Continuing Disclosure Cooperation Initiative: Carrot for Issuers & Underwriters, Stick for Individuals

It’s no secret that the SEC is stepping up its enforcement efforts in the estimated $3.7 trillion municipal securities market. In 2012, the Commission published a 165-page report calling for Congress to give it more authority to improve disclosures in municipal bond offerings. See SEC’s Report on the Municipal Securities Market (July 31, 2012). In the last year, the Commission has filed a number of enforcement actions against municipal bond issuers and underwriters based on alleged misstatements or omissions concerning various topics, including: compliance with tax exemption requirements, continuing disclosure obligations, and debt limitations and property values.

Most recently, in March 2014, the SEC launched a new cooperation initiative designed to encourage issuers and underwriters of municipal securities to self-report certain violations of federal securities laws. Under the Municipalities Continuing Disclosure Cooperation Initiative (“MCDC Initiative”), SEC staff will recommend favorable settlement terms … Read More »


SEC Offers Guidance on Use of Social Media Commentary by Investment Advisers

Posted on April 11th, by in Investment Advisers, SEC Guidance, Social Media. Comments Off on SEC Offers Guidance on Use of Social Media Commentary by Investment Advisers

This article was first published by Drinker Biddle’s Investment Management Group and republished here for the benefit of our readers.

On March 28, 2014, the Securities and Exchange Commission (“SEC”), Division of Investment Management, issued guidance that clarifies when it is permissible for an investment adviser or an investment adviser representative (“IAR”) to publish public commentary (“testimonials”) about the investment adviser. In light of the widespread use of social media by consumers, the SEC issued guidance in the form of a Q&A that now generally permits an investment adviser to publish testimonials through social media, so long as such testimonials originally appear on independent, third-party social media sites, are unedited and the investment adviser or its IAR has no direct or indirect influence or control over the independent site or its contents.

Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) … Read More »




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