Compliance Bits and Pieces for June 8

These are some compliance-related stories that recently caught my attention:

Focus of SRO Hearing Shifts to Regulatory ‘Fatigue,’ SRO Burden for Small Advisors in fi360 blog

At the end of the day, both sides could claim points scored, although it was probably a Pyrrhic victory for SRO opponents. The die is cast for a favorable committee vote sometime this summer. The bill will eventually move to the Senate before gridlock sets in. In the coming weeks, H.R. 4624 will likely be tweaked in the House committee markup, such as adding restraints on costs for small advisers and possibly imposing a cost-benefits analysis on SRO rules. However, the SRO itself will remain intact and faithful to the FINRA governance model. You will not see Ketchum say he can’t live with some amendments. FINRA has plenty of room in the bill for minor concessions. What FINRA can’t afford to lose is market share.

Nasdaq Sets Aside $40 Million to Settle Facebook Claims By MICHAEL J. DE LA MERCED and NATHANIEL POPPER in NYTimes.com’s DealBook

The stock market operator said on Wednesday that it would set aside $13.7 million in cash and pay out the rest in trading rebates to settle disputes by investors arising from technical malfunctions in Facebook’s initial public offering on May 18, the biggest technology I.P.O. ever.

Dirty Dozen: Lawyer Receives Longest-Ever Sentence for Insider Trading by Bruce Carton in Compliance Week’s Enforcement Action

Unlike Raj Rajaratnam, attorney Matthew Kluger was not a billionaire hedge fund founder. Unlike Rajaratnam, Kluger pleaded guilty to the charges of insider trading, sparing the government the expense of a trial. Unlike Rajaratnam, Kluger accepted responsibility for his actions, telling the court he was “terribly, terribly sorry.” Unlike Rajaratnam, Kluger told the court he would “do anything I can to try and regain a modicum of the trust that I destroyed [with] so many people and so many institutions. On Monday of this week, however, U.S. District Judge Katharine Hayden sentenced Kluger to 12 years in prison, one year more than Rajaratnam received and the longest sentence ever handed down for insider trading.

US Hedge Fund Industry Submits White Paper on Shadow Banking to European Commission in Jim Hamilton’s World of Securities Regulation

Hedge funds do not pose systemic risk and regulatory arbitrage risks, said the US hedge fund industry, and thus bank-like regulation of these funds is not necessary. In a white paper on shadow banking submitted to the European Commission, the Managed Funds Association cautioned that bank-like regulation of hedge funds would have the unintended consequence of placing unnecessary restrictions on the activities of hedge funds to the detriment of investors. The white paper detailed a litany of shadow banking characteristics that hedge funds do not share.

New York Court of Appeals: Compliance Officer’s Whistle Blowing Not Protected by Mike Mintz in Martindale.com’s blog

The case, Sullivan v. Harnisch, Slip Op. 03574 ( May 8, 2012) arose out of the termination of a hedge fund officer after he confronted his boss about a series of improper trades. The Court of Appeals had previously recognized an exception to the at-will doctrine in Wieder v. Skala, 80 N.Y. 2d 628 (1992) which involved an attorney who was fired after reporting the unethical conduct of another lawyer at the firm.

SecondMarket weighs in on “verification” of accredited investor status by William Carleton

Quid pro quo for lifting the ban on “general solicitation or general advertising” in Rule 506 offerings, Congress requires companies should “verify” that persons purchasing are, in fact, accredited investors. The thinking is that the current system of self-policing won’t stand up to the onslaught of interest that may follow an offering hyped to the general public. That is, Congress assumes potential purchasers – whipped up into a frenzy on Twitter about a startup likely to be sold next month to Google or Facebook for a billion dollars – will be to prone to lie.



Enterprise Moves to Intrepid
Atop a barge on Wednesday, June 6, 2012, the space shuttle Enterprise was towed on the Hudson River past the Statue of Liberty on its way to the Intrepid Sea, Air and Space Museum, where it will be permanently displayed, .
Image Credit: NASA/Bill Ingalls

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