All posts by Ronak V. Patel

SEC Investment Advisers: Texas says “April Fools!” to Federal Preemption?

On April 1, 2021, the Texas State Securities Board (TSSB) announced the entry of a Consent Order against an SEC registered investment adviser named Independent Financial Group, LLC (“Independent”). The TSSB’s action may represent a large shift in investment adviser regulation and enforcement considerations for SEC-registered investment advisers. (Emphasis on “may.”)

The Investment Advisers Act of 1940 is commonly understood to significantly limit states’ application of their securities laws as to SEC registered investment advisers.

What makes the TSSB action against Independent truly remarkable is that there is no allegation of fraud or deceit by Independent. Instead, the only violation cited is the failure to maintain a reasonably designed supervisory system. Hardly sounds like traditional fraud or deceit.

How is the TSSB’s action possible if federal law largely preempts states from enforcing their securities laws against SEC registered investment advisers? And what does this mean for SEC Registered Investment Advisers?

Read more here.

 

What to Expect from the SEC Under the Biden Administration

We know there will be new leadership at the SEC.  President Biden has already nominated Gary Gensler as the new SEC Chair. Mr. Gensler, who served as chairman of the CFTC under Obama, was widely perceived as an aggressive CFTC chairman during the financial crisis. At that time, this aggressiveness eased progressives’ concerns that President Obama was appointing a Wall Street executive (Gensler is an alumnus of Goldman Sachs) to head the CFTC. Now, opposition to Gensler is more likely to come from conservatives, who may regard him as an overzealous enforcer.

Meanwhile, the Commission is being led by acting Chair Allison Herren Lee.  Chair Lee is a long-time SEC enforcement attorney who also acted as counsel to Commissioner Kara Stein before assuming her position as a commissioner in mid-2019.  She is regarded as pro-enforcement and will be an ally of Mr. Gensler should he be confirmed as Chairman.

What will this new leadership mean for market participants?

Read more here.

When PPP met OBA – An Investigation was Born

The government cannot take action against abuses of the various aid programs associated with the CARES Act without first identifying abuses. In a recent round of inquiries, FINRA sent requests to numerous individuals it has identified as having obtained aid under the CARES Act (e.g., the Paycheck Protection Program (PPP) or Economic Injury Disaster Loan (EIDL)).  According to WealthManagement.com, a FINRA spokesperson has said that “FINRA is proactively looking at registered representatives that obtained loans through undisclosed outside business activities.”

Representatives are required to, at a minimum, notify their firms about their OBAs – if not also obtain written approval of them. FINRA’s use of public information about the PPP loans or the EIDL to flag certain representatives is an interesting approach to identifying and addressing a core requirement – the disclosure of representatives’ outside business activities.

Read more here.