All posts by Ernest Badway

The Dealerization of America by the SEC

February 10, 2024 Ernest Badway Leave a comment

On Tuesday, February 6, 2024, the United States Securities and Exchange Commission promulgated final rules relating to changing the definition of dealer pursuant to the Securities Exchange Act of 1934. See SEC.gov | SEC Adopts Rules to Include Certain Significant Market Participants as “Dealers” or “Government Securities Dealers”. This definitional change is a watershed moment in securities regulation.

Although the SEC has for several years now sought to expand the definition of dealer in certain markets, most notably the convertible debt market, this is the first time the SEC has taken advantage of its rule- making ability to dramatically shift decades of precedent.

NFTs: A New Mechanism for Money Laundering… Uh Oh!

February 8, 2022 Ernest Badway Leave a comment

On February 4, 2022, the United States Treasury Department released a report that indicated non-fungible tokens (“NFTs”), currently, one of the trendiest cryptocurrency structures, may become a new avenue for money launderers and other nefarious ne’er do wells. Those interested in offering NFTs to the public may, ultimately, be required to inquire as to the purchasers of their NFTs. However, in the meantime and in consultation with securities counsel, it may not be a bad idea to start knowing who your customer is now.

New Limits for Qualified Clients

August 9, 2021 Ernest Badway Leave a comment

The SEC adjusted the definition of “qualified clients,” becoming effective on August 16, 2021, pursuant to the Dodd-Frank Act of 2010, requiring such an adjustment for inflation every five years. Investment Advisers Act of 1940 Section 205(a)(1) prohibits an RIA from charging a client a performance-based fee unless the client is a qualified client having a particular new work.

New SEC Division Undertakes 2021 Examination Priorities

March 8, 2021 Ernest Badway Leave a comment

On December 17, 2020, SEC created the Division of Examinations by renaming the now defunct, Office of Compliance Inspections and Examinations, making it the SEC’s 6th Division joining Enforcement, Corporation Finance, Trading and Markets, Investment Management, and Economic and Risk Analysis (DERA).

A couple of months later, the new Examinations Division announced its 2021 examination priorities, carrying on OCIE’s long standing tradition of annually publishing its examination priorities. The publication of these priorities is supposed to provide a framework for those registered persons and entities to prepare for the onslaught of SEC examiners. These priorities will include a focus on climate-related risks; broker and RIA conflicts of interest; Reg BI; FinTech risks; ESG-related risks; proxy voting policies and practices; BCPs; mutual funds; ETFs; municipal securities and other fixed income securities; variable annuities; private placements; and microcap securities.

Leaving is the Hardest Part Especially if You Want to Re-Enter the Securities Industry

March 2, 2021 Ernest Badway Leave a comment

We were recently reminded of how difficult it is to re-register for a position in the securities industry after being barred. https://www.sec.gov/litigation/admin/2021/ia-5682.pdf

On February 9, 2021, the United States Securities and Exchange Commission refused to let a former investment adviser re-register, claiming that the barred adviser had not demonstrated “extraordinary circumstances” to merit re-entry . In particular, the Commission noted that the barred adviser had not paid his penalty, initially, imposed in 2011. The Commission also rejected his arguments that, by working with an actual registered adviser, he would be appropriately supervised. However, the Commission found that the person had failed to submit sufficient evidence to demonstrate this supervision.

As a result, the barred adviser was not let back into the business, demonstrating the difficulty for others, who seek to follow in his path. We are not suggesting it is impossible, but those barred persons interested in re-entering the securities industry should seek out securities counsel prior to making any filing.

Read more here.