Category Archives: Uncategorized

The Final Rule: Delayed But (Perhaps) Not Denied

On April 4, 2017, the Department of Labor released its final rule postponing the applicability date of its new “investment advice” fiduciary definition and related exemptions. This extension, which was published in the April 7 Federal Register, generally delayed the applicability dates under the rule for 60 days, until June 9, 2017, and also modified limited but important conditions in the rule for 2017.

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Additional contributor to this post:

W. Mark Smithmarksmith@eversheds-sutherland.com

SEC Fines Broker-Dealer for Inadequate Information Barriers

The SEC on February 13, 2017, issued a cease and desist order (Order) and imposed a $100,000 civil penalty against broker-dealer Sidoti & Company, LLC (Broker-Dealer), to settle charges for “failure … to establish, maintain, and enforce written policies and procedures to prevent the misuse of material nonpublic information (‘MNPI’)” by the Broker-Dealer in connection with the trading of a hedge fund (Fund) managed by the Broker-Dealer’s affiliated investment adviser (Adviser). The Broker-Dealer, the Fund and the Adviser were all controlled, through a holding company, by the Broker-Dealer’s founder and CEO, who also headed the Broker-Dealer’s research and investment banking operations and directed trading for the Fund. In response to concerns raised in an SEC examination, the Broker-Dealer implemented written policies intended to prevent the misuse of MNPI by its associated persons in connection with the Fund’s operations. While the new policies attempted to address the CEO’s conflicting roles, the procedures did not ensure enforcement of the new information barriers, and therefore resulted in said Order. The Order is a reminder to registered broker-dealers – as well as registered investment advisers – to consider their business models and organizational structures when designing and implementing information barriers and other procedures to prevent misuse of MNPI, and to take into account activities and responsibilities with respect to affiliated entities, although, notably, the SEC did not charge affiliates – or individuals – in this administrative proceeding. Read More Here

Additional contributors to this post:

Elliott R. Curzon, elliott.curzon@dechert.com

David A. Vaughan, david.vaughan@dechert.com

FINRA Proposal to Permit Investment Planning Illustrations

As an outgrowth of FINRA’s retrospective rule review of its advertising rules, in Regulatory Notice 17-06 FINRA solicits comments on proposed amendments to FINRA Rule 2210 (Communications with the Public) to create an exception to the rule’s prohibition on projecting performance.  The exception would permit a firm to distribute a customized hypothetical investment planning illustration that includes the projected performance of an asset allocation or other investment strategy subject to specified conditions.  Comments on the proposal are due to FINRA by March 27th.  The proposed exception would provide flexibility for depicting hypothetical performance of an asset allocation model or other investment strategy provided the projected performance does not depict any individual security.

Kenneth J. Berman – Contributor

Kenneth Berman, a member of the Investment Management Group, focuses his practice on providing regulatory and compliance advice to financial services firms, particularly investment advisers and sponsors of mutual funds, private equity funds and other pooled investment vehicles. Mr. Berman also counsels mutual fund independent directors and advises operating companies concerning status issues they may face under the Investment Company Act of 1940. He is recognized as a leading lawyer by Chambers USA (2009-2016), where clients note that he is an “impressive” and “great” lawyer who offers “invaluable support throughout the decision-making process.” Mr. Berman is also recommended by The Legal 500 US (2012-2016).

Prior to joining Debevoise, Mr. Berman was Associate Director of the Securities and Exchange Commission’s Division of Investment Management, where he oversaw the division offices responsible for processing applications for exemptive relief under the Investment Company Act and administering the Public Utility Holding Company Act of 1935. He joined the SEC staff in 1988 after several years of private practice. Before becoming Associate Director in 1997, Mr. Berman was Assistant Director of the Division’s Office of Regulatory Policy.

Mr Berman is the co-author of numerous articles, including “What Will The “Eyes And Ears” Of The SEC Choose To See And Hear This Year? OCIE Announces Examination Priorities For 2015,” Vol. 16 No.2, Journal of Investment Compliance, (July, 2015); “Expense Allocation: The SEC Brings Down The Hammer,” Vol. 16 No. 1, Journal of Investment Compliance(May, 2015); “SEC Settles First “Pay-To-Play” Enforcement Action,” Financial Fraud Law Report (October, 2014); “Debevoise & Plimpton Discusses JOBS Act General Solicitations,” The CLS Blue Sky Blog (September, 2014); “Debevoise & Plimpton Discusses Treatment of Special Purposes Vehicles under the Advisers Act,” The CLS Blue Sky Blog (August, 2014); “Good News on ‘Bad Actors’,” PE Manager (March, 2014); “A Touch of Solace for Broker-Dealer Compliance Personnel,” Law360 (November, 2013); “Debevoise & Plimpton Discusses SEC’s Guidance on Supervisory Liability for a Broker-Dealer’s Compliance and Legal Personnel,” The CLS Blue Sky Blog (November, 2013); “Time For Private Equity To Focus On Form PF,” The Deal (June, 2012); “International Survey of Investment Adviser Regulation,” Wolters Kluwer(June, 2012) and “SEC Risk Alert Discusses When Social Media Interactions May Constitute Prohibited Hedge Fund Client Testimonials,” The Hedge Fund Law Report (April, 2012).

Mr. Berman is a frequent speaker at conferences relating to investment company and investment adviser issues. He is a member of the Committee on Investment Management Regulation of the Association of the Bar of the City of New York and served as Chair of that Committee from 2009 to 2012. Mr. Berman is also a member of the American Bar Association (Subcommittee on Investment Companies and Investment Advisers, Subcommittee on Private Investment Entities) and the District of Columbia Bar. Mr. Berman is also an adjunct professor of law in Georgetown University’s LLM program.

Mr. Berman received his J.D. from the University of Chicago Law School, where he was a member of the Law Review, and his B.A. from Dickinson College, where he was elected to Phi Beta Kappa.

Education

-University of Chicago Law School, 1979, J.D.

-Dickinson College, 1976, B.A.

Bar Admissions

-New York

-District of Columbia

Website

David F. Freeman, Jr. – Contributor

David Freeman is head of the firm’s Financial Services practice group. He represents financial institutions, investment managers, and broker-dealers on banking and securities regulatory issues, legislation, mergers and acquisitions, private investment funds, and new product development and documentation. As part of his practice, Mr. Freeman advises domestic and foreign banks, investment management firms, and broker-dealers on compliance with state and federal banking and securities laws, federal commodities laws, and SRO rules.

 

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