Category: Compliance Bricks and Mortar

These are some compliance-related stories that caught my attention.

Availability of Staff Analysis of Market Data Related to Credit Default Swap Transactions from the Securities and Exchange Commission

The staff of the Securities and Exchange Commission today has made available publicly an analysis of market data related to credit default swap transactions. … The SEC staff believes that the analysis of market data has the potential to be informative for evaluating certain final rules under Title VII, including rules that further define “major security-based swap participant” and “security-based swap dealer,” and rules implementing the statutory de minimis exception to the latter definition. Analyses of this type particularly may supplement other information considered in connection with those final rules, and the SEC staff is making this analysis available to allow the public to consider this supplemental information.

SEC Chair Schapiro Urges Senate to Include Additional Investor Protections in House-Passed JOBS Act in Jim Hamilton’s World of Securities Regulation

In a letter to Senate Banking Committee Chair Tim Johnson (D-SD)and Ranking Member Richard Shelby (R-AL), Sec Chair Mary Schapiro said that the Jumpstart Our Business Startups (JOBS) Act, HR 3606, passed by the House would weaken investor protections by, for example, exempting emerging growth companies from the internal control auditor attestation provisions of Section 404(b) of Sarbanes-Oxley. … In the letter, she also noted that SEC rulemaking mandated by HR 3606 is simply not achievable within the indicated time limits. For example, the rulemaking implementing the crowdfunding provisions must be completed 180 days. Chairman Schapiro suggested that a deadline of 18 months would be more appropriate for regulations of this magnitude.

Behind the Standards: Clarifying SAS 70’s Confusing Departure by Dan Zitting in Corporate Compliance Insights

The demise of SAS 70 audits raises questions, confusion and a dose of drama. To gain clarity on the auditing standard’s replacement and its alternatives, it helps for service providers and their customers to understand what went on behind the scenes that caused in this change.

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

SEC commissioner, deputy director in public flap over private funds by Mark Schoeff Jr. in Investment News

Just as a new regulation requiring private-investment funds to register with Securities and Exchange Commission is about to go into effect, an agency official said that the regulator should consider lifting the mandate on some managers because they cater to sophisticated investors.

“I would not anticipate broad exemptive relief at this point,” Mr. Plaze said. “If there are any changes in the area, it will be done in Congress.”

“Accredited Investor” Net Worth Standard: A Small Entity Compliance Guide from the SEC

The accredited investor standards are used in determining the availability of certain exemptions from Securities Act registration for nonpublic and limited offerings, including most offerings under Regulation D. The accredited investor concept identifies investors who are eligible to participate in those offerings of unregistered and illiquid securities. In order to rely on investor status as an “accredited investor,” issuers must know or have a reasonable basis to believe that the investor falls within one of eight categories. The individual net worth standard is one such category.

How FATF Recommendations on Anti-Money Laundering Inform Your Compliance Program by Tom Fox

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. Its mandate is to set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system. In collaboration with other international stakeholders, it also works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

2012 Annual Compliance Obligations: What You Need To Know by: Ildiko Duckor and Peter Chess in Pillsbury’s Investment Fund Law Blog

In light of the current regulatory environment, now more than ever, it is critical for you to comply with all of the legal requirements and best practices applicable to Investment Advisers. The beginning of the year is a good time to review, consider and, if applicable, satisfy these requirements and best practices.

These are some stories that recently caught my attention:

Behind the Crackdown on Insider Trading by Peter J. Henning in the NYtimes.com’s DealBook

One reason prosecutors have pursued it is the explosive growth of hedge funds and investment advisory firms, which trade billions of dollars worth of securities and have a voracious appetite for information about companies. The investment horizon for some firms can measured in hours or days, not years, and rapid-fire trading of large volumes of securities has become more of the norm as they try to squeeze out the last little bit of profit. Any informational advantage can mean enormous gains, and the pressure to perform is relentless, so trading on inside information is a short step for some.

Blackstone dominates 2011 PERE Awards

The flurry of investment and fundraising activity by The Blackstone Group last year has convinced the private equity real estate industry to vote the New York-based private equity and real estate titan to eight wins in the 2011 Global PERE Awards. Other winners include CBRE, Fortress and APG.

This 8-Word Social Media Policy Could Save Your Job by David Coursey in Forbes.com

Don’t lie, don’t cheat, don’t steal, don’t reveal.

Legislative Package Combines Financial Services Committee Bills into JOBS Act

The JOBS Act is designed to help startups and entrepreneurs get off the ground, access investors and create jobs. These initiatives are supported by bipartisan members on both sides of the Capitol, as well as the President’s Jobs Council and the business community.

• H.R. 3606: Reopening American Capital Markets to Emerging Growth Companies Act
• H.R. 2940, the Access To Capital For Job Creators Act
• H.R. 1070, the Small Company Capital Formation Act
• H.R. 2167, the Private Company Flexibility and Growth Act
• H.R. 4088, the Capital Expansion Act
• H.R. 2930, the Entrepreneur Access To Capital Act

[March 1 Was] the Deadline for MA Data Privacy Law  by John H. Lacey in Massachusetts Data Privacy law Blog

On March 1, 2010, two years ago, the regulations associated with the Massachusetts Data Privacy Law went into effect. The regulations, found at 201 CMR 17, require business who possess “Personal Information” (PI) of Massachusetts’ residents to protect that data in fairly specific ways. Arguably, the most important aspect of the regulations was the requirement that all businesses have a “Written Information Security Program” or WISP. …

March 1, 2012 is the deadline for those businesses who possess “PI” to address any third-party contracts where the third-party possesses or otherwise maintains PI on behalf of the business.

SEC Releases Risk Alert on Unauthorized Trading

The Risk Alert issued by the agency’s Office of Compliance Inspections and Examinations (OCIE) notes that although broker-dealers and investment advisers are subject to different regulatory requirements, both face similar risks of financial and reputational losses arising from unauthorized trading.

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

The SEC’s Whistleblower’s Office did not email you

It’s spam, linked to a virus. [Insert joke here…]

Are Auditors Reporting Fraud And Illegal Acts? The SEC Knows But Isn’t Telling by Francine McKenna in re: The Auditors

Section 10A of the Securities and Exchange Act of 1934 requires reporting by auditors to the Securities and Exchange Commission (SEC) when, during the course of a financial audit, an auditor detects likely illegal acts that have a material impact on the financial statements and appropriate remedial action is not being taken by management or the board of directors…..

So I prepared a Freedom of Information Act (FOIA) request in June and then again in October for the same information Congress and the GAO had previously requested from the SEC. The first request I made covered the entire period since the last report to Congress, 2003, until the present. It also referred to a tracking system that the 2003 report said would be implemented to help track these submissions by auditors and the SEC’s actions on them.

AML Moneyball by C.M. Matthews in WSJ.com’s Corruption Currents

As the field of anti-money laundering software vendors gets more and more crowded, it’s not always easy to spot a stud from a dud.

In 2012, financial institutions will spend an estimated $504 million on AML software products. When a bank relies on software to filter AML watch lists or monitor suspicious transactions, there’s a lot of pressure to get it right.

Celent’s survey of AML compliance vendors is a good place to turn to for the confused financial institution (or AML vendors who want to keep up with their competitors). It reads like Moneyball for AML compliance professionals (though it’s doubtful the report has enough crossover appeal for a Hollywood movie).

Conflicts of Interest in Joint Ventures – the Rights of “Consenting Adults” in the Conflict of Interest Blog

The governance and operation of JVs can certainly raise conflict of interest concerns. For an employee of a JV’s co-owner who is either on the JV’s board or is seconded to the JV whose interests to be treated paramount? Given the inherent tension in situations of this sort, those involved have good reason to clearly articulate applicable duties and expectations.

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

The Fallout from the Latest NLRB Salvo on Social Media by Daniel Schwartz In Connecticut Employment Law Blog

[E]very pronouncement from the NLRB is treated as if it is written in stone with lots of suggestions on how to rewrite all of your policies.

The latest was an updated report last month from the NLRB on the topic again.  Rather than jump on board with a quick summary, I’ve decided to take a step back and really look at how significant this report really is.

According to Jon Hyman at the Ohio Employer’s Law Blog, it’s a ”mess.  In a mere 35 pages, the NLRB appears to have ripped the guts out of the ability of employers to regulate any kind of online communications between employees.”

Stressed-Out Compliance Officers May Soon Feel Even More Heat From SEC by Bruce Carton in Compliance Week’s Enforcement Action

Unfortunately, this stress level is about to go even higher for compliance officers at investment firms if the SEC follows through on a recent decision that such compliance officers may themselves be sued as “supervisors.” According to Investment News, the SEC “sees compliance as an area ripe for scrutiny.” At a compliance seminar in January, the SEC Enforcement Division’s Bruce Karpati, co-chief of the Asset Management Unit, said that “compliance programs are front and center for us. There’s going to be more soon on that in terms of enforcement actions.”

Crowdfunding and Other Recent Legislative Initiatives Focused on Capital Raising and Job Creation by Louis A. Bevilacqua, Joseph R. Tiano, Jr., David S. Baxter, Ali Panjwani and K. Brian Joe In Pillsbury’s Investment Fund Law Blog

This article summarizes various legislation introduced in Congress that would make it easier for smaller companies to raise capital and would lessen the regulatory burden on those companies.

2011 Annual FISMA Executive Summary Report (.pdf) from the SEC’s Office of Inspector General

The purpose of this law is to recognize the importance of information security to the economic and national security interests of the United States. The law emphasizes the need for organizations to develop, document, and implement organization-wide programs that provide security for the information systems that support the organization’s operations and assets, as well as information systems that are provided or managed by other agencies, contractors, or other sources.

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

Private Equity Bets On Compliance Market With EthicsPoint Deal by Nick Elliott in WSJ.com’s Corruption Currents

In a further sign of rising demand for compliance services, private equity firm Riverside Co. has signed a deal to acquire EthicsPoint Inc., which it will merge with its existing portfolio companies ELT Inc. and Global Compliance Services Inc.

Treasury Will Work to Satisfy EU Privacy Concerns Regarding Provision of FATCA Information and Gradually Phase In FATCA Regulations in Jim Hamilton’s World of Securities Regulation

The Foreign Account Tax Compliance Act can be implemented in a way that is not overly burdensome when compared to its benefits and, over time, will serve as a complement and a catalyst to the ongoing global efforts to combat offshore tax evasion, said a senior Treasury official. In remarks at the annual meeting of the New York State Bar Association tax section, Acting Assistant Secretary for Tax Policy Emily McMahon said that Treasury is aware that FATCA imposes significant new duties on foreign financial institutions, but also noted that FATCA was enacted in the wake of serious offshore tax evasion.

The Gun Sting Case Defeats and What it means For FCPA Enforcement? Absolutely Nothing! by Tom Fox

In a stunning rebuke of the Department of Justice’s (DOJ) trial strategy, all defendants in the second group of Gun Sting defendants walked out of the federal courthouse, still free. Two defendants were acquitted and the remaining three defendants were granted a mistrial. One defendant was dismissed at the close of the prosecution’s case in December as was the DOJ’s Foreign Corrupt Practices Act (FCPA) conspiracy count against all defendants. So, as the FCPA Professor noted, the DOJ is 0-10 in trial prosecutions in its Gun Sting case. However, that stark number does not tell the full picture of what is going on in enforcement of the FCPA.

What everyone missed in Facebook’s IPO filing in Alison Frankel’s On The Case

The New York Times reported in Dec. 2010 that the SEC was looking into the red-hot secondary market for trading in the privately-held shares of Facebook, Zynga, LinkedIn, Twitter, and some other Internet darlings. The leading market-maker for such trading, SecondMarket, confirmed last January that it had received a voluntary request for information from the SEC (which has never confirmed the investigation). But Facebook is the first company to offer any hard facts about what the agency is probing.

My Favorite Risk Factors in the Facebook S-1 by Seattle lawyer William Carleton

1. The Threat of the Open Web
2. User Disdain for Advertising
3. Conflicts with Independent Developers
4. A Fine Point About Fiduciary Duties

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

 

Ponzi Scheme and Investment Fraud Red Flags by Tracy Coenen in the Fraud Files Blog

How do you know if you’re considering investing in a Ponzi scheme? The promoters will never come out and tell you they are running a pyramid scheme, so the investors have to be smart enough to recognize them on their own. The good news is it is easy to spot a Ponzi scheme.

Here are some red flags about the “investment” you’re considering that might indicate it is a Ponzi scheme. (There were many red flags related to infamous scammer Bernie Madoff.) You can find out more about spotting Ponzi schemes and investment schemes in my book, Expert Fraud Investigation: A Step-by-Step Guide.

Four convicted for commercial (not government) bribery by SFO in thebriberyact.com

Amounting to around £70 million, the contracts affected were for engineering and procurement projects based in Iran, Egypt, Sakhalin Island (Russia), Singapore and Abu Dhabi, over the period 2001 to 2009….The confidential information supplied to bidders was held by companies acting as procurement agents for the projects. It is an industry where individuals who work for such companies often do so on a short term basis. Crucially, the defendants had access to inside information which they passed on to targeted bidding companies who either made, or agreed to make, corrupt payments for the information. Disguised as “consultancy services”, the illicit payments were shared out amongst the co-conspirators.”

Riverside’s Hendrickson wins PEI Leadership Award

Pam Hendrickson receives PEI’s Leadership Award for her work as an industry advocate in Washington DC and for her crucial contributions to Riverside as its chief operating officer. Pam Hendrickson, chief operating officer of global mid-market firm The Riverside Company, was last week awarded the 2012 Leadership Award by Private Equity International sister title Private Equity Manager.

Making Sense of Jones by Scott Greenfield in Simple Justice

Since the opinions were released yesterday morning, the blawgosphere has cranked out a ton of posts about what the Jones v. United States decision means. The majority decision was written by Scalia, with concurrences by Alito and Sotomayor. While it was 9-0 on outcome, it was anything but on rationale.  …

That one justice of nine seems to have some appreciation of the danger ahead, how poorly law developed to deal with normal-sized coaches and full-height constables applies in the digital age, is better than nothing.  But given how the Court broke down here, it’s clearly not good enough.

Does the plant of a GPS device on a car require a warrant? Under the particular facts of Jones, yes. (Addendum: this is the net result, not the holding of the case, which skirted the issue entirely.) Under other facts, who knows. And how does that translate to the next shiny device? Only lone Justice Sotomayor even cares, while the rest seem determined to ignore the digital age at all costs.

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

Bruce Carton’s “2011: The Year in Enforcement” in Securities Docket

2011 was another difficult year for the Securities and Exchange Commission, even though another Madoff or Stanford-like scandal didn’t emerge to bring new embarrassment. Indeed, the SEC seemed to be under attack from all sides throughout the year—by Congress, by the judiciary, by its own inspector general, by private litigation, and, of course, by the media. Here is my look back at 2011, including the good, the bad, and the ugly in the world of securities enforcement.

California Proposes Private Fund Adviser Exemption in Hedge Fund Law Blog

As a general proposition, managers who are located in California must register as an investment adviser if they are providing investment advice for compensation.  There are exemptions from the registration requirement which we have detailed previously.  Because of the changes in the statutes and regulations at the Federal level, the states are changing their laws with respect to adviser registration.  Some states, such as California (see post), have adopted interim orders for certain advisers to address gaps in the Federal and state laws until state laws or appropriate regulations can be adopted.  California is proposing to adopt laws which would exempt many hedge fund managers from registration with the California Securities Regulation Division.

TRACE Global Enforcement Report (.pdf)

International anti-bribery enforcement continues to increase worldwide, as more countries move slowly from
enacting anti-bribery laws to initiating actions to identify and prosecute the individuals and companies who break
them. The TRACE GER 2011 summarizes known international enforcement actions by countries to date. New
developments and ongoing trends are highlighted below…

Here are some compliance-related stories for Friday the 13th:

Regulatory Risk Factors in the Carlyle Group S-1 by Seattle lawyer William Carleton.

The Carlyle Group is preparing to go public. There are some interesting risk factors in the S-1 registration statement relating to use of leverage in investments, continued control of prior owners following the offering, and other topics. But I was drawn to the risk factors having to do with the regulatory environment. It’s a different angle from which to think about the financial crisis, financial regualtory reform, and the scourge of lobbying and campaign contributions.

Lawyers v. Businessmen: Where Are the Bad Men?

In the glamorous/murky/elite/financially rewarding world of commercial law is it clients or lawyers who are the bad guys?  Put another way, does business corrupt law or do lawyers corrupt business?  This is the question that lies at the heart of Parker, Rosen and Nielsen’s paper.   Since the Savings and Loan scandals via WorldCom, Enron and latterly UK’s ownHackgate, corporate wrongdoing is often accompanied by the question, Where were the lawyers?  And as Big Law turns increasingly, well, ‘big’, the “is law a business or a profession” question is posed increasingly nostalgically, usually with deliberate exaggeration and answered only with speculation rather than evidence.  It is refreshing, therefore, to report on a study which is deals with the relationship between law and business empirically and with imagination which also deals with conceptually important questions.