Month: July 2009

SEC to Consider Pay to Play Rule for Investment Advisers

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At the SEC open meeting on Wednesday July 22, the Commission will consider whether to propose a rule to address “pay to play” practices by investment advisers. The proposal is designed, among other things, to prohibit advisers from seeking to influence the award of advisory contracts by public entities through political contributions to or for those officials who are in a position to influence the awards.

You can watch the meeting through the SEC Open Meetings Webcast, starting at 2:00 pm (EDT).

Complying with Massachusetts Data Protection Regulations

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The current deadline for complying with the Massachusetts Data Privacy Law is January 1, 2010. Since the law protects personal data of the citizens of the Commonwealth of Massachusetts, its reach extends well beyond the state borders. TechTarget  recently held a  seminar on 201 CMR 17.

It is tough law to deal with. Even its creators are unsure about what it actually says. At the Compliance Decisions conference, a presenter from the state government overstated the requirements of the law: No easy answers for complying with data protection regulations.

Based on some coverage of the seminar, some interesting items came out.

When it comes to wireless standards: “You have to look at what is considered industry back practices. Specific to a wireless control, don’t go out and look at WEP. Don’t go out and look at WPA. Both of those protocols have been breached. You’ve got to go to WPA2.”

When it comes to compliance and enforcement: “It is true that the attorney general is going to decide what is in compliance or not.”

References:

The Rise in Financial Crime in America

The Economist is reporting that there were over 730,000 counts of suspected financial wrongoing recorded in America last year. Financial institutions filed nearly 13% more reports of fraud compared with 2007. The number of mortgage frauds rose by 23% to almost 65,000.

This poses the classic compliance conundrum: Is there more fraud occurring, or is more fraud being detected/reported?

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Preparing for the strictest privacy law in the nation: MA Privacy Law 201 CMR 17

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Join me for a webinar on the Massachusetts Data Privacy Law.

Knowledge Management Associates, LLC is sponsoring a webinar on Preparing for the Strictest Privacy Law in the Nation: MA Privacy Law 201 CMR 17.

  • I will provide an overview of the law.
  • Roberty Boonstra will share some of his best practices around implementation and compliance with the law.
  • Sean Megley, of Knowledge Management Associates, will provide a look at their SharePoint-based compliance management solution to to address 201 CMR 17.00

The webinar will be on July 29, 2009 from 12:30pm – 1:30pm (Boston time). And it’s free. You can register on their webinar registration page.

Ask for Usernames, Don’t Ask for Passwords

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From a compliance perspective it is good to monitor what your employees are doing in the various social media sites. If you operate in a heavily regulated industry it may not only be a good idea, but be necessary.

Don’t cross the line and ask for the passwords to those accounts. Learn from the City of Bozeman Montana.

Back in June, the City started asking job applicants for the list of social networking sites that they used, their usernames and their passwords. The city of 30,000 people became the subject of online outrage.

I think it is okay to ask employees and job applicant’s for a list of the sites they use. Most HR people include an internet search as part of their background check for job applicants. Focusing on some of the social networking sites is just an evolution in the process. You should investigate your potential employees to see if they are using the proper discretion. After all, if they list you as an employer, what they post will reflect back on your company.

But I think it was improper to require submission of the password. It violates the terms of service for some of these site.  Facebook explicitly prohibits the sharing of a password in its Statement of Rights and Responsibilities. If the City needed to see what the person was posting, then they could require them to be a Facebook friend or the equivalent to gain access to the person’s postings.

One caution in reviewing an applicant’s online profiles is the potential for job discrimination. I think it is better to do this review later in the hiring process, after an interview. The sites can expose information that you are not allowed to use in the hiring process, such as marital status, race and ethnicity. If you find something online that you takes the candidate out of consideration, document it in the file. Print the screen, highlight the offensive information and make it part of the applicant’s file.

If you do ask for the social media usernames, make sure you actually do monitor what is being posted by your employees. Use an RSS feedreader or equivalent to receive updates and store the information.

References:

Image by Darwinek, made available under a GNU Free Documentation License: Flag Map of Montana.

The State of Legal Social Networking

I have been a long time fan of social networking for lawyers. Capturing the conversation among colleagues is one of the best ways of capturing knowledge and finding expertise. Connecting with peers is the best way to stay up-to-date on the law. That was one of the primary reasons that bar associations formed. Can these online networking opportunities be as effective as your local bar association? Are they worth your time?

Here is my take:

lexisnexis
Martindale-Hubbell Connected
11,359 members

Currently, this appears to be the biggest social networking site focused on the legal market. So they come first in this article.

Connected is in the position of being backed by large company with significant resources and lots of substantive legal content. The site’s focus has been on creating a trusted community and validating the identity of the user. This resulted in a lengthy and error prone process for joining the site. (They just revamped the process: New Registration Workflow Launches.)

There is very little substantive legal content. The lure of this platform has been the potential of harnessing the vast Lexis database of substantive legal information to the individual. So far that potential remains untapped. The downside of having a big company behind the site is the slow speed and legacy systems that hamper the development of the site.

There are not many discussions taking place in the platform. The few discussions are focused on social networking itself. They continue that trend by devoting the week of July 20 as Social Media Policy & Guidelines Week. An interesting topic, but it will be subject to the limited audience and participants in this site. The people I would look to for guidance on this topic are not users of the platform.

If you are interested in finding out more about social media policies, the discussions next week may be interesting. But there is much more information and discussion on this topic outside the platform.

legal-onramp

Legal OnRamp
9,242 Members

Legal OnRamp is the most innovative of these sites. It has vibrant conversations with people that I consider to be thought leaders in the business of law.

Legal OnRamp started with a focus on connecting in-house counsel with each other and giving them a platform to collaborate. Then they started allowing private practice lawyers into the platform to help with the collaboration and sharing of information.

Certainly, I joined and contributed because the platform was full of in-house counsel. At the time I joined, I was a private practice real estate lawyer. I stood out as real estate lawyer when most of the other members were focused technology practices and at technology companies. That quickly changed as the membership base grew.

The site does have robust content on substantive legal topics. They require private practice lawyers to submit FAQs on legal topics or otherwise contribute to the content and discussion on the platform. Failing to contribute gets you kicked out of the platform.

I was feeding my old blog (KM Space) into the platform. Now this blog is fed into the platform. It’s interesting to see more robust conversations take place inside Legal OnRamp than on the originating blog itself.

One of the mantras of Legal OnRamp is that the practice of law is changing, so you would expect lots of discussion about how the practice of law changing and how it should change. There are. I would prefer to see more conversation about substantive legal issues. The conversations are interesting. I would just prefer some different conversations.

Legal OnRamp also recently joined forces with the Corporate Executive Board to bring new resources to law department members of the General Counsel Roundtable, a program of the Corporate Executive Board.

legally-minded
Legally Minded
2,000 members

There is very little activity other than new users adding their profiles. This platform is sponsored by the American Bar Association so there was much hope that this site would be able to tie into the big store of information that the ABA holds. So far, that does not seem to be the case. The other thought would be to move some of the email discussion list-serv to the platform. That did not seem to happen.

That leaves the platform as a wasted opportunity by a large legal organization.

lawlink
LawLink
5,000 Members

This platform claims to be the first social network for the legal community. I had not been to the site for months until the recently launched a Twitter Forum, pulling in Tweets from members. Other than this new forum, there is not much activity here. Being first does not make you the best.

LinkedIn-Logo

LinkedIn
88,284 Lawyers
291,500 Attorneys
324,168 listed as being in Legal Services.

Obviously LinkedIn is not limited to the legal community. But there are hundreds of thousands of lawyers and legal industry professionals using the platform to stay connected. For years, LinkedIn groups were merely badges to add to your profile. Now they are robust communities with lots of discussions and news being shared.

The groups rival the size of the legal specific platforms above. For example the Patent Law Group on LinkedIn has almost 4,000 members. The limitation is the inability to collaborate and store information in the group.

SEC Case Against Mark Cuban is Dismissed

The SEC alleged that Dallas Mavericks owner Mark Cuban was involved in insider trading when he sold shares in an Internet search engine company, Mamma.com Inc., after receiving confidential information about a private offering in 2004. The SEC said Cuban avoided a loss of $750,000 by selling his 600,000 shares, which represented a 6.3 percent stake in the company.

U.S. District Judge Sidney A. Fitzwater granted Cuban’s motion to dismissed an civil insider trading lawsuit. Judge Fitzwater gave the Securities and Exchange Commission 30 days to file an amended complaint.

Judge Fitzwater found that the SEC needed to allege that Cuban entered into an agreement (a) not to disclose material, nonpublic information about the offering, and (b) not to trade on or otherwise use the information. In his ruling, Judge Fitzwater wrote that the SEC didn’t accuse Mr. Cuban of promising not to trade based on the confidential information he received. So, the SEC couldn’t hold him liable for illegal insider trading. It is not enough that the person who gave Mr. Cuban the information expected him not to disclose it or act on it.

References:

Christopher Cox Joins Bingham

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Christopher Cox, former Chairman of the U.S. Securities and Exchange Commission, is going to join Bingham McCutchen LLP in their Orange County office.

From 1977 to 1986, Cox worked out of the Orange County office Latham & Watkins. At the time of his retirement in 1986 he was the Partner in Charge of the Corporate Department in that office. Cox was elected to Congress in 1988 from a Congressional District based around Orange County and served for 17 years.

Cox will be part of Bingham’s corporate, mergers and acquisitions, and securities practice.

References:

New Massachusetts Campaign Finance, Ethics and Lobbying Law

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After the well-publicized scandals with Salvatore DiMasi and Dianne Wilkerson, the lawmakers on Beacon Hill passed ethics legislation yesterday banning politicians from accepting gifts and upping the consequences for ethical violations.

The Governor had threatened to veto a sales tax increase unless this act was passed, along with reforms in the pension system and the the transportation network.

Here are some of the highlights of the new ethics law:

Gift Ban

  • Prohibits public officials from accepting gifts of “substantial value” for or because of their position.
  • Bans lobbyists from giving gifts.

Tougher Penalties

  • Increases the maximum punishment for bribery to $100,000 and 10 years imprisonment.
  • Increases the maximum penalties for conflict of interest law violations involving gifts and gratuities, revolving door violations and other abuses to $10,000 and 5 years imprisonment.
  • Increases penalties for a civil violation of the conflict of interest laws from up to $2,000 per violation to up to $10,000 per violation. For bribery, the civil penalty would increase to $25,000.
  • Increases the civil penalty for a violation of the financial disclosure law from $2,000 per violation to $10,000 per violation.
  • Increases the criminal penalty for violating registration-related lobbying rules to up to $10,000 and 5 years imprisonment.

Stronger Lobbying Laws

  • Defines lobbying to include background work, strategizing, research and planning.
  • Expands the revolving door provision to apply to members of the executive branch.
  • Reduces the amount of allowable incidental lobbying from 50 hours in each 6-month reporting period to 25 hours in each 6-month reporting period.

Expanded Enforcement Authority

  • Makes compliance with the Ethics Commission’s summons mandatory.
  • Grants the Secretary of State authority to impose fines and to have the same civil enforcement authority over lobbying violations as the Ethics Commission has over ethics violations.
  • Gives the Attorney General concurrent jurisdiction with the Ethics Commission to enforce civil violations of the conflict of interest laws.

Enhanced Campaign Finance Laws

  • Eliminates arrangements between state political parties and elected officials.
  • Bars individuals from making committee checks to themselves.
  • Requires disclosure of expenditures and sources of funding for any anonymous third-party campaign mailings or ads that support or criticize a candidate or campaign.
  • Increases penalties for late-filed campaign finance reports.

Open Meetings

  • Expands and better defines the requirements of the open meeting law

References:

Private Fund Investment Advisers Registration Act of 2009

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The Department of Treasury released its proposed legislation in increase the regulatory oversight on private investment funds: Private Fund Investment Advisers Registration Act of 2009. The Administration’s legislation would require that all investment advisers with more than $30 million of assets under management to register with the SEC.

This is presumably the Obama plan and becomes the fourth piece of legislation proposed this year to regulate private investment funds. It joins the Hedge Fund Adviser Registration Act of 2009, the Hedge Fund Transparency Act of 2009 and the Private Fund Transparency Act of 2009.

Disclosures to the SEC:

The legislation would grant broad power to the SEC to require the disclosure of information about the fund “as are necessary or appropriate in the public interest and for the assessment of systemic risk by the Board of Governors of the Federal Reserve System and the Financial Services Oversight Council, . . ” This includes:

  • amount of assets under management
  • use of leverage (including off-balance sheet leverage)
  • counterparty credit risk exposures
  • trading and investment positions, and
  • trading practices

Of course is also requires the private fund to allow examinations by the SEC.

Disclosures to Investors:

The legislation would grant broad power to the SEC about the disclosures that need to made by private funds to investors, prospective investors, counterparties, and creditors, of any private fund.  The SEC would be able to require disclosure “as necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk.”

Defining Clients (updated)

The legislation would all the SEC to “ascribe different meanings to terms (including the term ‘client’) used in different sections” of the Investment Advisers Act. This is an attempt to address the demise of the Hedge Fund Rule and allow the SEC to define the investors in private investment funds as “clients” of the fund manager. The courts had ruled that the SEC overstepped their authority when they tried this definition on their own.

I am not a big fan of this approach. The Act would better amending 203(b)(3) to exclude the new term “private fund” from the 15 client rule exemption. I don’t like the idea that a limited partner investor in a private fund could be deemed a “client” of the adviser in addition to the fund itself.

CFTC

The legislation calls for the SEC and CFTC to establish joint rules for investment advisers who are already subject to the CFTC and would now also be regulated by the SEC.

Summary

This legislation is very similar to the Private Fund Transparency Act of 2009 proposed by Senator Reed. It pushed most of the decision-making onto the SEC for the Commission to come up with the disclosure requirements. At this point, it is not clear which of the competing acts will end up becoming law, if any.

References: