Category: SEC Guidance


SEC Tweaks In-House Court Rules

Posted on July 14th, by in SEC Guidance. Comments Off on SEC Tweaks In-House Court Rules

While not directly acknowledging the criticism its in-house courts have received over the past year, the Securities and Exchange Commission (“SEC”) yesterday adopted final amendments to the rules of practice governing its administrative proceedings that were  initially proposed in September 2015. Among other things, these amendments:

Extend the potential length of the prehearing period from the current four months to a maximum of 10 months for the cases designated for the longest timelines;
Allow parties in the cases designated for the longest timelines the right to notice three depositions per side in single-respondent cases and five depositions per side in multi-respondent cases, and to request an additional two depositions;
Clarify the types of dispositive motions that may be filed at various stages of proceedings and the applicable procedures and legal standards for the motions; and
Make additional clarifying and conforming changes to other rules, … Read More »


Second Circuit to Supreme Court on Whistleblowers: Your Turn

Posted on September 14th, by in Dodd-Frank, SEC Guidance, Whistleblower. Comments Off on Second Circuit to Supreme Court on Whistleblowers: Your Turn

The U.S. Court of Appeals to the Second Circuit’s recent decision holding that Dodd-Frank’s “whistleblower” anti-retaliation protections apply to employees who are dismissed after reporting alleged violations internally but before alerting the Securities and Exchange Commission (the “Commission”) creates a Circuit spilt and sets up a potential statutory-interpretation showdown in the U.S. Supreme Court. Berman v. Neo@Ogilvie LLC & WPP Group USA, Inc., slip op. at 2 (2d Cir. Sept. 10, 2015).

The Second Circuit’s decision focuses on the conflict between Dodd-Frank’s definition of “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws of the Commission,” 15 U.S.C. § 78u-6(a)(6) (emphasis added), and the retaliation protection provision of the same statute which through incorporation of the Sarbanes-Oxley Act provides a cause of action to a “whistleblower” terminated after reporting alleged violations to … Read More »


Dodd-Frank 180-Day “Deadline” For SEC to Take Action Not Really a Deadline After All

Posted on July 15th, by in Administrative Proceedings, SEC Guidance. Comments Off on Dodd-Frank 180-Day “Deadline” For SEC to Take Action Not Really a Deadline After All

A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit recently ruled that Section 4E of the Securities Exchange Act of 1934, 15 U.S.C. § 78d-5(a)(1) – which provides that “[n]ot later than 180 days after the date on which [Securities and Exchange Commission (“SEC”)] staff provide a written Wells notification to any person, the [SEC] staff shall either file an action against such person or provide notice to the Director of the Division of Enforcement of its intent not to file an action” – did not bar an administrative action against an individual (Ernest V. Montford, Sr.) and his investment advisory firm (Montford Associates) commenced 187 days after such notification.   Montford & Co. v. SEC, No. 14-1126, slip op. at 2 (D.C. Cir. July 10, 2015).

The appeal stemmed from $860,000 in penalties and disgorgement that the … Read More »


SEC Opens New Funding Options with Regulation A+

Posted on June 19th, by , and in Exempt Offerings, SEC Guidance. Comments Off on SEC Opens New Funding Options with Regulation A+

Regulation A+ goes into effect June 19, 2015, allowing funding of companies by non-accredited investors. Smaller companies can offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure, and reporting requirements. See Amendments for Small and Additional Issues Exemptions under the Securities Act.

The regulations allow two tiers of potential offerings. Tier 1 allows security offerings of up to $20 million in a 12-month period. Tier 2 allows security offerings of up to $50 million in a 12-month period but also requires audited financial statements, annual, semi-annual, and current-event reports, and a limitation on the amount of securities non-accredited investors can purchase of no more than 10% of the greater of the investor’s annual income or net worth. Tier 1 limits offers to not more than $6 million by selling security holders that are … Read More »


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 »




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