Category Archives: Standard of Care

Expansion of the pool of accredited investors

On August 26, 2020, the SEC adopted certain amendments that expand the pool of eligible investors in exempt private offerings, which may provide additional sources of capital to business development companies, closed-end funds and other private funds.  The Amendments:

  • expand the definition of “accredited investor” under Regulation D of the Securities Act of 1933, as amended (the Securities Act), to add new categories of natural persons and entities that can qualify, irrespective of their wealth.
  • also expand the entities eligible as “qualified institutional buyers” under Rule 144A offerings to be consistent with the amendment to the “accredited investor” definition.
  • adopt revisions to certain related rules, such as testing the waters under Rule 163B of the Securities Act.

Read more here.

Moving forward under the SEC’s new variable product summary prospectus framework

After more than a decade, the SEC finally adopted a new disclosure framework for registered variable annuity contracts and variable life insurance policies. This sweeping overhaul of the current variable contract prospectus disclosure framework will put variable contract disclosures on a level playing field with mutual funds.

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Why Compliance Officers Have Even More to Worry About

The issues presented by the case are troubling because if the court sustains the disciplinary action, it could lead to 1) dozens of CCOs being charged every year for their firms’ deficient procedures, even if they acted in good faith; and 2) a strict liability standard applying to “should have known” liability.

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Why FINRA’s 529 Plan Self­-Reporting Initiative Matters a Year Later For Participating and Non-Participating Firms

Over a year ago, on January 28, 2019, FINRA announced its 529 Plan Share Class Initiative (the  Initiative) to encourage firms to self-report potential violations of rules governing 529 plan share class recommendations. FINRA’s concern centered around the potential that supervisory programs were not reasonably designed to determine whether representatives were making suitable share class recommendations given the varying time horizons of beneficiaries.   Approximately 100 broker-dealers elected to participate. Other firms decided not to participate. The deadline for participation in the Initiative has long since passed, however, the issues and regulatory concerns underlying the Initiative remain relevant for both participating and non-participating firms.

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Killing Eve (all others are fined or suspended): SEC and FINRA Enforcement Cases in May 2020

In May 2020, one of the most anticipated and watched television shows was Season 4 of Killing Eve. For those who have not seen this award-winning British comedy-drama, it’s about Eve (but not All About Eve), a British intelligence investigator. She becomes obsessed with Villanelle, real name, Oksana Astankova (a psychopath assassin for a mysterious group called The Twelve). Villanelle, in turn, becomes obsessed with Eve. It is a cat-and-mouse game involving rulemaking, rule-breaking, good guys, bad guys, and those in between, much like securities enforcement cases. However, in our world, while we don’t have assassinations by poisonous homemade perfume or by necktie, we do have fines and suspensions, and there are important lessons for compliance officers and other securities professionals (but not so much for hired assassins) contained in the enforcement actions from May 2020.

Read more here.

Additional contributors to this post:

Brian L.
Sarah Razaq