All posts by Clifford E. Kirsch, Editor

Eversheds Sutherland With more than 25 years of experience, Cliff regularly counsels clients on the design and distribution of investment products including wrap-fee programs and other advisory products, mutual funds, bank collective investment funds and insurance products. He also focuses on issues related to the design and implementation of compliance programs at financial services firms.

Compliance, Regulatory, Standard of Care

On the right track: Securities & Exchange Commission adopts rules to streamline private offering exemptions

December 2, 2020 Clifford E. Kirsch, Editor Leave a comment

On November 2, 2020, the Securities and Exchange Commission (the SEC) voted to adopt final amendments (the Amendments) ¹ to “simplify, harmonize, and improve certain aspects of the exempt offering framework.” ² The Securities Act of 1933, as amended (the Securities Act), requires that every offer and sale of securities be registered with the SEC, unless an exemption from registration is available. The current exempt offering framework includes ten exemptions or safe harbors from the registration requirements of the Securities Act, each with distinct requirements. The goal of the Amendments is to reduce unnecessary complexity within the exempt offering framework and to allow market participants (including business development companies, or BDCs) to navigate through the exempt offering framework more easily.

To summarize, the Amendments:

clarify the ability of issuers to move from one exemption to another;
revise certain offering and investment limits to address inconsistencies in current rules;
set clear and consistent rules governing offering communications between investors and issuers (e.g., “test-the-waters” and “demo day” activities); and
harmonize certain disclosures, eligibility requirements and bad actor disqualification provisions.

Appeals Court Disregards FINRA Rule in CCO Case

December 1, 2020 Clifford E. Kirsch, Editor Leave a comment

In a recent review of a disciplinary action charging a chief compliance officer (CCO) with committing “should have known” liability, the DC Circuit Court of Appeals, in a per curium opinion, ignored the FINRA rule that the CCO allegedly violated. The decision raises questions about how FINRA will charge firms and compliance officers for “should have known” violations.

Not Dead Yet: Just Flesh Wounds, Suspensions, and Fines (SEC, CFTC, and FINRA Enforcement Actions in September 2020)

November 12, 2020 Clifford E. Kirsch, Editor Leave a comment

The Holy Grail. Knights who say “Ni.” The list goes on and on. (Wink wink, nudge nudge, say no more.) Monty Python, the comedy group, is known for a lot of things. However, what most people don’t know is that if you watch their movies, TV shows and Broadway musical very carefully, you’ll actually learn a lot about compliance and securities enforcement.

To understand what Monty Python can teach us about the SEC, CFTC and FINRA enforcement actions brought in September 2020, read more here.

Compliance, Enforcement, Regulatory

FINRA Panel Stretched Rule 8210 Too Far

November 5, 2020 Clifford E. Kirsch, Editor Leave a comment

A recent 2-1 decision by the Financial Industry Regulatory Authority Office of Hearing Officers stretched Rule 8210 beyond its wording and intent, barring a registered representative in the process.

The case, Department of Enforcement v. Wilfredo Felix, et al., involved several issues, including Felix’s failure to produce his Wage and Income Transcript (IRS transcript), which he could have obtained by submitting an IRS Form.

An IRS transcript is an IRS-created document that shows “most line items” from tax returns, including adjusted gross income. During the investigation, FINRA staff asked Felix to produce his IRS transcripts (a very rare request), which he did not have in his possession, or to sign an IRS Form instructing the IRS to send them to him.

He refused, stating that FINRA’s request went beyond the scope of Rule 8210.

The Show, er, um, Article About Nothing (other than SEC, CFTC, FINRA, and State Securities Enforcement Actions in August 2020)

October 13, 2020 Clifford E. Kirsch, Editor Leave a comment

Everyone knows that Seinfeld, which premiered 31 summers ago, was one of the most popular television sitcoms ever. It was on the airwaves (remember those?) for nine years, nominated for 68 Emmy Awards, winning ten times, including twice for Outstanding Writing in a Comedy Series, winning twice. It was self-identified as a “show about nothing.” Indeed, co-creator Larry David “admonished the writing staff that there would be ‘no hugging, no learning’ in the scripts, and there wasn’t. Ever.” However, despite this warning, those who watched the show know that it was, in fact, a show about a lot, including the following:

A “puffy” shirt;
A low talker, a close talker, and a high talker;
A short-tempered soup restaurant owner who yells, “No soup for you”;
Waiting for a table at a Chinese restaurant;
Contests among friends;
Re-gifting; and
Of course, yada yada yada.

Those who watched the show carefully also know that despite the “no learning” admonition, Seinfeld provided important lessons about topics related to investing and the securities industry. Indeed, the final episode of the first season was called “The Stock Tip,” and 24% of all televisions in America “tuned in” to watch14 (back when we “changed” channels on a “TV”—not on a “screen” and “streaming” was the route tears took down your face when the TV antenna flew off your roof).

Read more here, to explore themes contained in Seinfeld that help explain securities enforcement actions.