Compliance Bits and Pieces for September 28

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

Mass. Securities Chief Urges SEC to Establish Accredited Investor Methods under JOBS Act Reg. D Measure in Jim Hamilton’s World of Securities Regulations

In a letter to the SEC, the Massachusetts Securities Commissioner and Secretary of the Commonwealth William Galvin said that in the proposed regulations implementing the JOBS Act elimination on the ban on general solicitation under Regulation D the Commission has failed to meet its obligations under Section 201 of the JOBS Act to establish methods for issuers to use to verify that investors are accredited. In his view, this failure will put the interests of retail investors and savers at risk in unprecedented ways. This failure will also place unnecessary burdens on issuers, who could benefit from the Commission’s guidance on this important obligation. Also, the SEC’s failure to adopt meaningful requirements for the Rule 506( c) exemption will impede state and federal enforcement in virtually all cases involving unregistered offerings.

Private Equity Firms’ Use of Management Fee Waivers in Compliance Avenue

Potential Federal Tax Ramifications of Converting Management Fee to Carried Interest. The management fee is generally paid quarterly and treated as ordinary income for tax purposes, while “carried interest” generally qualifies for long-term capital gain treatment. Because ordinary income is taxed at a maximum federal rate of 35% currently, whereas capital gain is currently taxed at 15%, one tax benefit resulting from the “conversion” of management fee to carried interest is a significant reduction in the firm’s tax bill.

SEC Charges Goldman Sachs, Former Banker With ‘Pay-to-Play’ Violations by Bruce Carton in Compliance Week

The SEC announced today that it has filed a “pay-to-play” case against Goldman, Sachs & Co. and one of its former investment bankers. The SEC alleges that Goldman and Neil M.M. Morrison, a former vice president in the firm’s Boston office, made undisclosed campaign contributions to then-Massachusetts state treasurer Timothy P. Cahill while he was a candidate for governor.

Massachusetts seeks to deny registration to adviser by Dan Jamieson in Investment News

Massachusetts has filed a complaint against a midsize adviser for allegedly misstating assets under management.

When CCR applied for Massachusetts registration in June, the state began a “detailed review” of its prior regulatory filings with the Securities and Exchange Commission, Massachusetts regulators said in a complaint released Tuesday.

State examiners found “an illogical and inconsistent pattern in reporting assets under management,” the state said in a release.

For several years, CCR showed assets under management of “precisely $25 million” despite changes in the number of clients, said Brian McNiff , a spokesman for the Massachusetts Securities Division.

SEC Charges Investment Bank Analyst with Illegally Tipping College Friend About Nonpublic Merger Deals

The SEC alleges that Jauyo “Jason” Lee, who worked in the San Francisco office of Leerink Swann LLC, gleaned sensitive nonpublic information about the deals from unsuspecting co-workers involved with those clients and by reviewing various internal documents about the transactions, which involved medical device companies. Lee tipped his longtime college friend Victor Chen of Sunnyvale, Calif., with the confidential information, and Chen traded heavily on the basis of the nonpublic details that Lee had a duty to protect. Chen made more than $600,000 in illicit profits, which was a 237 percent return on his initial investment. Bank records reveal a pattern of large cash withdrawals by Lee followed by large cash deposits by Chen, who then used the money for the insider trading.

The National Labor Relations Board Sheds Useful Light on Key Social Media Policy Provisions by Philip L. Gordon in Littler’s Workplace Privacy Counsel blog

Between summer 2011 and spring 2012, the National Labor Relations Board’s (NLRB) Acting General Counsel drew substantial attention in his direction by publishing three lengthy Advice Memos, which expressed his views on the application of the National Labor Relations Act (NLRA) to social media policy provisions and employers’ discipline based on employees’ personal social media content. These memoranda, however, revealed only the litigation positions that the NLRB’s cadre of enforcement attorneys would take in this new and evolving area of the law. The views expressed in the memos did not, and do not, bind the Board. Last week, however, the Board issued an opinion, which, albeit not analyzing the employer’s social media policy per se, revealed the Board’s thinking on several employment policies commonly found in employers’ social media policies. Costco Wholesale Corporation, 358 N.L.R.B. No. 106 (Sept. 7, 2012).

Angel Capital Association weighs in on SEC proposed rule on general solicitation and accredited investor verification by William Carleton

The most controversial aspect of the SEC’s proposal has been its lack of any definitive safe harbor by which an issuer can be certain it has satisfied the amorphous “reasonable steps” standard of proposed Rule 506(c).

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