Category: Compliance Bricks and Mortar

GPs look for ‘sweet spot’ on co-investment disclosures by Nicholas Donato in Private Funds Management

Part of the SEC’s thinking is that co-investments are being used as marketing tools – so some investor protection is needed to ensure that promises made during fundraising are being fulfilled. Inspectors apparently want to see that every prospective LP is given a heads-up that co-investments are part of the GP’s repertoire – and, ultimately, is given the chance to take part in these deals.

The Clearest Trend in the American Workforce Is Not an Encouraging One by Andrew McAfee

So it feels to me like something else is going on, in addition to the graying of the US workforce — some other forces that are causing more and more people in recent years to go to school, stay in school, go on disability, get discouraged and stop jobhunting, stay home to raise kids or take care of a sick or elderly loved one, or do any of the other things that means they’re no longer categorized as ‘working or looking for work.’

Second Circuit affirms dismissal of compliance officer retaliation suit against Siemens by Richard L. Cassin in the FCPA Blog

Meng-Lin Liu, a Taiwan citizen, said in his lawsuit filed in January 2013 in the U.S. district court in New York that by firing him, Siemens violated the whistleblower anti-retaliation provision of the Dodd‐Frank Act (15 U.S.C. § 78u‐6(h)(1)). The trial court judge, William H. Pauley, III, granted Siemens’s motion to dismiss with prejudice, holding that the anti-retaliation provision doesn’t apply extraterritorially, and that, on the facts alleged by Liu, his civil complaint sought an extraterritorial application of the statute.

4 Reasons Why Private Equity Firms Like KKR Offer the Best of Capitalism by Jonathan Yates in TheStreet

1. Private equity enhances shareholder value – When a private equity firm buys a company, it offers a higher share price.

2. Private equity deals add to the health of the financial markets – Private equity transactions improve the efficiency, and thus the health, of markets by injecting liquidity…[and] capital to entities of all sizes and types, too.

3. Private equity allows companies to better compete – When a private equity group acquires a business, that firm gains access to high-quality resources for managerial, financial, and legal matters. That naturally leads to companies that are managed much more efficiently with access to much more capital and other vital business resources.

4. Private equity opens opportunities for investors – For many private equity transactions, taking the company public is the exit strategy. That offers a greater selection to investors, which leads to more diversity and enhanced risk management, two of the most important considerations for any portfolio.

New York brokerage CEO criminally charged with obstructing SEC by Jonathan Stempel in Reuters

The chief executive of a New York brokerage was criminally charged on Friday with lying to the U.S. Securities and Exchange Commission and faking documents to disguise how his firm did not have enough capital.

 

Nooks and Crannies is by Phil Shirley
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These are some of the compliance-related stories that recently caught my attention.

Lawyers as SEC Enforcement Targets, What a Fund Manager Needs to Know by Jay B. Gould in the Investment Fund Law Blog

In a move that should place securities lawyers and their clients on notice, Commissioner Kara Stein of the Securities and Exchange Commission (“SEC”) recently indicated that lawyers may become targets of SEC enforcement actions when a registrant has been poorly advised by its attorney and the result of that advice ends up harming investors or violating regulatory standards. The SEC has the ability to sanction, fine and bar attorneys and accountants from practicing before the SEC pursuant to SEC Rules of Practice 102(e). As a practical matter, a bar pursuant to Rule102(e) precludes an attorney or an accountant from representing a regulated entity, such as an investment adviser or broker dealer, in any further dealings with the SEC or otherwise.

White & Case discusses DC Circuit’s CFIUS Ruling by Richard J. Burke, Cristina Brayton-Lewis, Tanya Hanna and Ziad Haider in the CLS BLue Sky Blog

The DC Circuit’s ruling constitutes an important albeit narrow victory for foreign investors who have sought greater transparency in the CFIUS review process. While the ruling grants certain due process protections to investors, the CFIUS legal regime remains intact, and the due process to be accorded will still need to be balanced against other interests.

These are some of the other stories that recently caught my attention.

Tips for finding the dirt during due diligence on funds, managers by Liz Skinner in Investment News

Advisers who can describe an exhaustive process of researching the people and firms they recommend their clients invest with stand to gain the trust and confidence of those clients. Regulators, too, like to see a robust approach to due diligence. A hardy due diligence program, though, requires more than an Internet search for problems.

Document-Comparison Etiquette by Ken Adams in Adams on Contract Drafting

When you eventually revise MCSD to its third edition, could you consider adding an appendix that talks about redlining protocol? Here’s what routinely happens to me: I send the other side a draft marked using Microsoft Word’s “track changes” feature. Using that feature, they accept some of my changes, reject others, and make changes of their own that are tracked using the “track changes” feature.

The Franchise Tax Board’s Doing Business Legal Ruling – Ex Nihilo, Aliquid Fit by Keith Paul Bishop in California Corporate & Securities Law

Gotcha! Under Legal Ruling 2014-01, the venture capital fund’s attribute of “doing business” in California is attributed to its members under general principles of partnership law. Therefore, you are doing business in California and must file a tax return and pay taxes and fees.

Dark Pool Class Action Securities Suit Filed Against Barclays by Kevin LaCroix in the D&O Diary

On June 25, 2014, New York Attorney General Eric T. Schneiderman announced (here) that his office had initiated a lawsuit in the New York (New York County) Supreme Court against Barclays and a related Barclays entity, in which the Attorney General alleged that Barclays had “dramatically increased the market share  of its dark pool through a series of false statements to its clients and investors about how, and for whose benefit, Barclays operated the dark pool.” In his complaint, a copy of which can be found here, the Attorney General alleges that contrary to reassurances the bank provided its clients that it had created special safeguards to protect them from “predatory” high-frequency traders, the bank instead operated its dark pool “to favor high-frequency traders.” The complaint, which alleges violation of New York’s Martin Act, accuses Barclays of engaging in a pattern of “fraud and deceit.”

Image of Bricks and Mortar is by Lee Netherton
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These are some of the compliance-related stories that recently caught my attention.

What an Employment Lawyer Can Learn From Minecraft (or Not) by Daniel Schwartz in the Connecticut Employment Law Blog

Minecraft is teaching a whole generation of “kids” (and not so “kids”) about the value of teamwork in a corporate culture.

Moreover, there is now a large segment that will have this joint experience together.  A generation that will come up building things and doing things online in a joint way that many of us will just not understand. At all.

Bribery: Ethical Failure and Competitive Failure by Chris MacDonald in The Business Ethics Blog

That, of course, is one of the big problems with bribery as a business strategy. It doesn’t always work. You may drop an envelope full of cash on a foreign official’s desk, without knowing that someone else has already dropped off an even fatter envelope. And given that bribery is illegal everywhere — even in places where it is reputed to be common — it’s not like you can go complaining to the police that you’ve been cheated. It’s really an extreme case of buyer beware.

Did Dodd-Frank Work? by Joe Nocera in the New York Times

There are many aspects of the law on which Democrats and Republicans disagree. But there is one area in which the two sides are largely in agreement: “Too Big to Fail” is still with us.

Accommodating Employees’ Religious Beliefs: A Primer on “Sincerely Held” by Jared Lucan in the Connecticut Employment Law Blog

While not explicit in the statutory framework, it is also illegal for an employer to refuse to accommodate an employee’s religious belief or practice that may run contrary to an employment requirement, unless such accommodation would cause an undue burden on the operation of the employer’s business.

Sounds simple enough, right?

So what’s the problem? Well for most employers, the problem is determining whether an employee’s religious belief is bona fide. In other words, is the employee’s religious belief “sincerely held?”

Indeed, if a religious belief is not sincerely held, then an employer does not have to provide an accommodation.

Code of Conduct, Compliance Policies and Procedures-Part IV

For you cyclists, the watercolor above is part of Kickstarter project that I’ve supported: Book de Tour by Greig Leach. Can you lend your support?

Book de Tour by Greig Leach

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

Big Settlements Elevate Compliance Officers in WSJ.com’s Risk & Compliance Journal

Recent white-collar settlements are case studies in how compliance officers are ignored, circumvented and sidelined. But that’s likely having the effect of giving these staffers more stature.

Companies Are Outsourcing the Chief Compliance Officer Job by Rachael Louise Ensign in the Wall Street Journal

A handful of companies have cropped up that provide these outsourced CCOs, who may fill the role at a number of companies at once. Proponents of the approach say it allows a smaller company to have the expertise of a full-time, independent compliance professional. But even they concede that the outsourcing option isn’t the best choice for all firms.

House provides SEC with $50 million budget boost

The House of Representatives approved a spending bill Wednesday that denies the Securities and Exchange Commission the funding it says it needs to strengthen investment adviser oversight.

In a 228-195 vote, the House passed a $21.3 billion appropriations bill that funds the SEC, Treasury Department and many other agencies. The measure gives the SEC a $50 million budget increase, about $300 million less than the agency requested. Under the bill, the SEC would operate on a $1.4 billion budget in fiscal 2015, which begins on Oct. 1.

The Absurdity of the Law on Insider Trading by J Robert Brown Jr. in theRacetotheBottom.org

Teaching about insider trading is always a pleasure.  The law in this area is ridiculous.  What seems to be insider trading may not be; what seems like it is often isn’t.   Sometimes the facts of actual cases provide exam style questions that would otherwise seem almost too contrived to be real.

This came up in connection with the SEC’s action against a “group of friends, most of them golfing buddies” that alleged insider trading.  See SEC Charges Group of Amateur Golfers in Insider Trading Ring, Press Release 2014-134.  The complaint is here.

Private Fund Managers as Broker-Dealers and How to Avoid It by Jay B. Gould in the Investment Fund Law Blog

Private equity firms were put on notice last year that they may be subject to registration as broker dealers when David Blass, head of the Division of Markets and Trading at the Securities and Exchange Commission (“SEC”), provided his insights at an industry conference.  Since that time, the SEC has published their examination priorities list, which included the presence exams of new registrants, a portion of which would review that status of private equity fund managers under the broker dealer rules.  Following up on this warning to the industry, the SEC has also targeted unregistered brokers for enforcement action.

 

For you cyclists, the watercolor above is part of Kickstarter project that I’ve supported: Book de Tour by Greig Leach. Can you lend your support?

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

Firms Withdraw as MAs Ahead of Final Rule by Kyle Glazer in The Bond Buyer

Nathan Howard, an attorney who works with municipal advisors, said the many withdrawals are the result of guidance that has made it more clear who is likely to be an MA in the view of the SEC staff. In recent months, the SEC has published two sets of interpretive guidance in the form of “frequently asked questions.” That guidance explained that firms could be exempted from having to register as MAs under some circumstances, including if an issuer had retained its own independent MA, if the firms were responding to a legitimate request for proposals, or if they were offering certain types of advice permissible for their professions. Bond lawyers, for example, would not have to register as MAs as long as they do not cross the line from providing traditional legal services to providing professional financial advice or holding themselves out to be financial experts.

Immigrants From Latin America and Africa Squeezed as Banks Curtail International Money Transfers by Michael Corkery in Dealbook

As government regulators crack down on the financing of terrorists and drug traffickers, many big banks are abandoning the business of transferring money from the United States to other countries, moves that are expected to reverse years of declines in the cost of immigrants sending money home to their families.

New Article Examines Overcriminalization, Plea Bargaining, And The FCPA Africa Sting Case by Lucian Dervan in the FCPA Professor

The Africa Sting Case is one in which a number of defendants proceeded to trial to challenge the government’s theory of the case. Such challenges, however, have become a rarity in today’s criminal justice system. As the Computer Associates case illustrates, even where the government’s aggressive application of broad criminal statutes draws wide attention, most defendants succumb to the powerful incentives plea bargaining offers to forgo trial.

Ethics Creep by Roy Snell in SCCE’s Compliance and Ethics Blog

My point is simple. If you decide to call something or someone unethical every time you disagree with them, you have broadened the definition of ethics to the point the word is now worthless. If you are a compliance and ethics officer and you focus your attention on social cohesion, overtime, and capital punishment, etc., you will become ineffective. We need to focus on preventing, finding, and fixing business ethics issues not management or leadership strategy.

Image of Brick and Plaster Texture is by David Gunter

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

A Committee of Fund Manager Personnel May Not Be Able to Provide the Requisite Consent on Behalf of the Fund for a Principal Transaction by Steve Ganis in Securities Litigation & Compliance Matters

So what constitutes sufficient consent for a principal transaction or an agency cross trade that does not meet the blanket consent exemption? Generally speaking, fund managers may, depending on the circumstances, rely upon a committee of underlying investors or independent third-parties to consent to principal transactions.

What’s the best way to document that training has taken place? by Kortney Nordrum in SCCE’s Compliance & Ethics Blog

It’s a common compliance requirement to train your employees – on safety procedures, regulations, products they are selling, and so forth.  And very often the regulator requires you not just to train but to document your training or confirm understanding.  What is the best way to document that training has taken place?

There are 3 obvious routes:

• Have the instructor take attendance
• Get employees ‘ signatures confirming they have understood training
• Administer a test after the training, so that employees can demonstrate their understanding

Halliburton: U.S. Supreme Court Declines to Overturn Basic, Allows Defendants to Rebut Presumption of Reliance by Kevin LaCroix in The D&O Diary

While the Court’s decision will not alter the securities litigation landscape as much as might have been the case if it had overturned Basic, the Court’s holding that defendants may at the class certification stage seek to rebut the presumption of reliance based on the absence of price impact could have a significant effect on securities litigation. In many cases, plaintiffs may be unable to obtain class certification where in the past they might have been able to have a class certified. In any event, the class certification phase likely will become more costly as the parties dispute the issues surrounding the impact of the alleged misrepresentation on the share price.

Court fight bares SEC insider-trading probe by Kevin McCoy in USA TODAY

SEC investigators are probing whether anyone on Capitol Hill improperly leaked information about the federal Centers for Medicare & Medicaid Services’ final decision on 2014 rates the federal government would pay insurers that offer private Medicare plans.

Formally issued at 4:15 p.m. on April 1, 2013, the rates increased by 3.5%. The surprise decision scrapped the 2.3% rate decline in a preliminary government plan that drew bipartisan congressional opposition.

Approximately 15 minutes before the 4 p.m. market close that day, trading volume and stock prices of some health insurers likely to benefit from the increase “rose precipitously,” SEC attorney Amanda Straub wrote in Manhattan federal court papers filed on Friday.

PEGCC Releases New State and Congressional District Rankings for Private Equity Investment

Private equity firms invested more than $443 billion in U.S.-based companies last year, a 27 percent increase over the previous year, according to the Private Equity Growth Capital Council’s fourth annual investment report, “Private Equity: Top States and Districts.” The analysis, which ranks the top 20 states and congressional districts by investment value and number of investments, found that Texas received the most investment in 2013, topping California, Pennsylvania, New York and Florida.

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

Thinking About the Applicability of SOX Whistleblower Protection to Private Company Employees by Kevin LaCroix in the D&O Diary

Since their 2002 enactment, the whistleblower protections in Section 806 of the Sarbanes-Oxley Act have been presumed to apply only to employees of publicly traded companies. After all, the provisions are entitled “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud.” However, in its March 4, 2014 holding in Lawson v. FMR, LLC (here), the U.S. Supreme Court held that Section 806 protects whistleblowing activity by employees of a private contractor of a public company.

Confronting the Two Faces of Corporate Fraud by Miriam H. Baer in CLS Blue Sky BLog

From this typology, one can see why corporate fraud so often mixes planned and impulsive conduct and why the corporate compliance department is likely to have its hands full: With the exception of the employees in category (a), everyone within the corporation has the potential to contribute to or perpetrate a fraud.

How should a compliance department respond to these prototypes? The latter half of the Article concludes that much of the compliance officer’s work falls within two categories: corporate policing and corporate architecture. The policing approach is the most familiar one: It reduces corporate crime by empowering internal corporate policemen to identify and punish actual and would-be transgressors. The latter approach is different in feel and effect: It encourages corporate personnel to seek out and mitigate problematic situations by adopting different decision-making structures and systems, thereby reducing the opportunity and temptation for fraud. The policing approach is more judgmental and punitive, while the architectural approach is more regulatory and intrusive.

Behold the Burrito Bond by Josie Coz in WSJ.com’s MoneyBeat

London high street fast food outlet Chilango, favored by City types with elastic waistbands, is offering an 8% coupon on a four-year corporate bond that gives some buyers a free burrito* every week for the lifetime of the debt. All you have to do is cough up £10,000 pounds ($16,800) and trust that it is as good at servicing its debt as it is at serving bankers their lunch.
….
It is unclear whether the free burritos come with guacamole. It is also unclear whether anyone genuinely can eat that many burritos.

Bricks and Timber is by Patrick Dalton
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These are some of the compliance-related stories that recently caught my attention.

The key to hedge-fund riches: your retirement dollars by Timothy Spangler in The Guardian

First, there is the misconception that “there are no restrictions on what they can invest in.” This is true. They can invest the same way Sir Richard Branson or your Aunt Edna can invest, if they had the money and the expertise. They are not given a special pass to avoid all of modern Wall Street regulation that applies to ever trader out there. But, since retail investors are excluded, hedge funds don’t have to submit to any of the “bubble wrap” restrictions that the SEC puts on mutual funds and other products meant for retail investors.

SEC, Bitcoin and Unregistered Offerings by Thomas O. Gorman in SEC Actions

Bitcoin has been a much discussed item recently. The virtual currency is a digital representation of value that is traded and can serve as a medium of exchange. There are websites that use it. At one time there was a stock exchange called the Global Bitcoin Stock Exchange which apparently listed shares valued in the medium but is now out of business. And, there are trading platforms that use bitcoin such as the MPEx based in Romania.

Now the Commission has brought an administrative proceeding involving two offerings of unregistered securities valued in bitcoin.

The SEC’s (New) Admissions Policy: Questions and Consequences by Nancy Adams in Securities Litigation & Compliance Matters

Nearly a year has passed since the SEC announced that it would require admissions of wrongdoing as a condition of settling SEC charges in certain cases. Perhaps it can no longer be called a “new” policy. But lawyers are still wrestling with questions about the policy and its consequences – both intended and unintended. How broadly does the new policy apply? How and when should the question of its application be addressed in a case?

FATCA: What it is, and why it may apply to your business by Stephanie Quiñones in The Securities Edge

The Foreign Account Tax Compliance Act (“FATCA”) is a US law designed to counter offshore tax avoidance by US persons. Controversial because of its wide-ranging breadth and application to non-US financial institutions, in the most general sense, FATCA imposes a 30% withholding tax on payments of US source income made to foreign financial institutions (“FFIs”) unless they enter into an agreement with the US Internal Revenue Service (“IRS”) and disclose information about their US account holders.

Massachusetts, Illinois surveying RIAs about cybersecurity by Minda Smiley in Investment News

“Many of the RIAs are smaller and we want to get their input to see what exactly they feel they have and what they might need,” said William Galvin, secretary of the Commonwealth of Massachusetts. “We want to see what kind of protections are in place and if additional protections are needed, we want to prescribe what they should be.”

Do You Want Your Lawyer To Be Horatius Or Atticus Finch? by Keith Paul Bishop in California Corporate & Securities Law

Lawyers should be treated differently from accountants because their roles and professional obligations are fundamentally different. Simply put, lawyers are not gatekeepers. To foist the role of gatekeeper on private attorneys undermines the critical role that lawyers play in our polity as advocates for their clients and checks on the government. The former Soviet Union had lawyers, but they all worked for the government. By labeling lawyers as gatekeepers and threatening enforcement, the government is in effect saying “you work for us”.

Judge Rakoff Reversed by Second Circuit on SEC-Citi case, Still Sort of Wins by David Smyth in Cady Bar the Door

And yet, it turns out Judge Rakoff was wrong the whole time.  By essentially insisting on admissions to the facts alleged in the SEC’s complaint, Rakoff exceeded his authority as a district judge.  According to the Second Circuit today, here is what a court evaluating a proposed SEC consent decree for fairness and reasonableness should assess: (1) the basic legality of the decree, (2) whether the terms of the decree, including its enforcement mechanism, are clear; (3) whether the consent decree reflects a resolution of the actual claims in the complaint; and (4) whether the consent decree is tainted by improper collusion or corruption of some kind.  Of course, a district court may need to make additional inquiry to ensure the decree is fair and reasonable.  Indeed, it shouldn’t be a “rubber stamp.”  But the primary focus should be on ensuring the decree is procedurally proper and take care not to infringe on the SEC’s discretionary authority to settle on a particular set of terms.