Compliance Bricks and Mortar for November 17

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


Closing the Door on “Broken Windows” – What Does It Mean for Private Fund Sponsors? by David Wohl

So do these new priorities, combined with the announced reduction of SEC enforcement staff by as much as 7%, herald a more “hands off” approach to private fund regulation by the SEC? The answer is almost certainly no. The issues raised in the past few years relating to private fund sponsors (such as undisclosed conflicts of interest, misallocation of fees and expenses and insufficient compliance policies and procedures) will continue to be the subject of routine examinations by the Private Funds Unit of the SEC’s Office of Compliance Inspections and Examinations (OCIE), and the Enforcement Division’s Asset Management Unit is still tasked with prosecuting misconduct by investment advisers and private funds. This institutional focus on the private fund industry by the SEC pre-dates broken windows and for the time being appears set to outlive it. [More…]


U.S. House Bill Aims to Curtail SEC Staff’s Ability to Obtain Algorithmic Trading Source Code by Christopher Wells, Robert Leonard, Michael Mavrides, Joshua M. Newville, Anthony Drenzek and Lucy Wolf

Specifically, the bill would block SEC staff from compelling a person “to produce or furnish source code, including algorithmic trading source code or similar intellectual property that forms the basis for design of or provides insight to the source code, to the Commission unless the Commission first issues a subpoena.” The Bill was co-sponsored by Representatives Randy Hultgren [R-IL-14]David Scott [D-GA-13] and Luke Messer [R-IN-6].  Various industry groups have submitted a letter in support of the proposed legislation.   [More…]


Does Insider Trading Law Change Behavior? by Menesh S. Patel

The article’s empirical methodology takes advantage of the fact that, while insider trading generally cannot be directly observed, there are indirect measures that can serve as good reflections of insider trading. As my measure of insider trading, I use the run-up in the stock price of merger targets before merger announcements. That run-up is formally calculated using event study methodology (it is a cumulative abnormal return) but the basic idea is intuitive: If there is insider trading in the stock of a merger target in advance of the merger’s public announcement, that trading will be reflected in upward pressure on the target’s share price and cause the price to exceed its expected level, i.e., insider trading will generate abnormal returns. While factors other than insider trading may be involved, a higher run-up represents greater insider trading, all else equal. Financial economists and legal scholars have used the run-up as a measure of insider trading, and studies have empirically demonstrated a connection between the run-up and insider trading. [More…]


Whistleblower: ‘I have now heard from the SFO and SEC’ in The FCPA Blog

I would like to update you on the progress I made with my whistleblower claims since I wrote to you earlier this month. First, I have learned there are a lot of people who want to do the right thing and others who want to help them. [More…]


Wall St. traders secretly used chat rooms to rig Treasury bond prices: suit by Kevin Dugan

The new accusations, leveled by several pension funds and wealthy individual investors, are contained in an expanded class-action suit originally filed in July 2015 — and include an unusual twist: Some of the evidence came from confidential informants and one of the banks sued in the earlier action. That bank is now cooperating with the plaintiffs in the massive civil action, and is providing an in-depth look into how Wall Street allegedly conspired to rig Treasury bond trades. [More…]


SEC Chair Clayton Comments on Initial Coin Offerings (ICOs) by David N. Feldman

Chairman Clayton went a bit further today, going off his script to say that he has yet to see an ICO that doesn’t have “sufficient indicia” of being a securities offering. He also mentioned that the trading platforms could face SEC scrutiny and might have to either register as national securities exchanges or make clear they have an exemption from doing so. [More…]


Your General Counsel is Your CECO? Really? by Joseph E. Murphy, JD, CCEP, CCEP-I

Remember that the CECO is supposed to be someone with authority and a degree of independence. The CECO needs to be positioned to get things done, and should be visible to employees. The CECO runs an extremely important operation whose function is to prevent and detect misconduct throughout the company. So if you plan to tell prosecutors and regulators you have a CECO and it is the GC, can you answer these simple questions? [More…]


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