These are some compliance related stories that recently caught my attention.
Enforcement Actions Against Advisors Nearly Doubled: NASAA by Melanie Waddell in AdvisorOne
Enforcement actions taken against investment advisory firms by state securities regulators nearly doubled to 399 in 2011—accounting for 15% of all enforcement actions handled by state securities regulators, according to the North American Securities Administrators Association’s (NASAA) annual enforcement report.
The Flaws of Whistleblower Hotlines and Rewards by Matt Kelly in Compliance Week
So the real headache of the SEC’s whistleblower program isn’t that it will threaten “your industry” and put you out of a job; it’s that SEC whistleblower rewards threaten your focus and distract you from doing your job as you think best. Compliance officers have plenty of risks and misconduct to manage already, and the SEC’s whistleblower program pours accelerant onto that already flammable situation. I recall one compliance executive at a real estate firm who received a complaint about possible misconduct in China. “Within 36 hours, I was on the ground in Beijing and stayed there for a week,” that person told me. “It was a wild goose chase, as far as we could tell. Nothing there.”
So the compliance angle here? It’s the difference between two companies in their responses to compliance challenges. Exhibit A is Goldman Sachs and their continuing PR nightmare named Greg Smith. Smith exploded onto the ethics scene with his very public resignation from Goldman Sachs and Op-Ed piece in the New York Times (NYT) in March. The NYT piece castigated Goldman Sachs both internally for their drive towards the all mighty dollar (horror) and their external relationships with their clients, for basically the same reason (horror, horror). This week Smith has made the rounds of several shows including a prominent feature on 60 Minutes to plug his recently released book entitled, “Why I Left Goldman Sachs.”
During this complimentary webcast, hosts Justin Guthrie and Coley McKinstry will give an industry update, discuss specific case studies where ACA has recently assisted private fund managers, and how managers can reduce their risk when presenting performance.
• Industry Update:
o Presence Examinations
o Investor Led Transparency Push
o Implications of SEC Aberrational Performance Inquiry
o Form PF Performance Reporting Requirements
o Implications of SEC Registration
• Case Studies on Performance Reporting:
o Recordkeeping Requirements
o Hypothetical Track-records
o Investor vs. Fund Level Performance
o Side Pockets
o Model vs. Actual Fees
o Private Equity and Real Estate Considerations
• Overview of a Performance Audit
After their presentation, Justin and Coley will take questions and comments from attendees. To register, click here.
The Long Road Back: Business Roundtable and the Future of SEC Rulemaking by Jill E. Fisch, Institute for Law and Economics, University of Pennsylvania Law School
The Securities and Exchange Commission has suffered a number of recent setbacks in areas ranging from enforcement policy to rulemaking. The DC Circuit’s 2011 Business Roundtable decision is one of the most serious, particularly in light of the heavy rulemaking obligations imposed on the SEC by Dodd-Frank and the JOBS Act. The effectiveness of the SEC in future rulemaking and the ability of its rules to survive legal challenge are currently under scrutiny.
This article critically evaluates the Business Roundtable decision in the context of the applicable statutory and structural constraints on SEC rulemaking. Toward that end, the essay questions the extent to which deficiencies in the SEC’s rulemaking process can accurately be ascribed to inadequate economic analysis, arguing instead that existing constraints impede the SEC’s formulation of regulatory policy, and that this failure was at the heart of Rule 14a-11.
Bad rules make bad law, and Rule 14a-11 was a bad rule. This essay argues that the flaws in SEC rule-making are quite different, however, than those identified by the DC Circuit. Moreover, in the case of Rule 14a-11, Congress played a critical role by explicitly authorizing the SEC to adopt a proxy access rule. By substituting its own policy judgment for that of Congress, the DC Circuit threatens not just the ability of administrative agencies to formulate regulatory policy, but the ability of Congress to direct agency policymaking.