February Regulatory Updates from Cari Hopsfenperger at Hardin Compliance Consulting LLC.
Topics include:
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:
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.
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:
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.
In a stark 3-2 vote along political lines, the SEC announced today that it was proposing new rules relating to finders. Essentially, if the proposed rules are, ultimately, approved, the SEC will sharply change the position it has maintained for over 8 decades, allowing unregistered finders to sell securities to the investing public while receiving transaction based compensation. See https://www.sec.gov/news/press-release/2020-248.
If approved, the proposed rules would permit 2 categories of finders. Both types of finders would be allowed to solicit accredited investors for investments in various issuers. There are restrictions on the activities the finders could engage in as well as certain disclosure requirements for one category. Nonetheless, the breadth of the proposed rules is significant because it represents a sea change from the SEC’s previous position that any transaction based compensation paid to persons who solicit investors would require broker-dealer registration.