Category Archives: Standard of Care

Compliance, Enforcement, Standard of Care

When PPP met OBA – An Investigation was Born

February 10, 2021 Ronak V. Patel Leave a comment

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.

ADV Season is Here; Compliance Resources for Brokers and RIAs; Don’t Forget Your CPO Annual Affirmations; SEC Creates 5-Year “Sandbox” for BD Custody of Digital Assets

February 8, 2021 Cari Hopfensperger Leave a comment

February Regulatory Updates from Cari Hopsfenperger at Hardin Compliance Consulting LLC.

Topics include:

Read the full update here.

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.

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.