Category Archives: Standard of Care

Compliance, Enforcement, Regulatory, Standard of Care

SEC Moves in a Very Different Direction on Finders

October 8, 2020 Ernest Badway Leave a comment

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.

Compliance, Regulatory, Standard of Care

Expansion of the pool of accredited investors

September 22, 2020 Clifford E. Kirsch, Editor Leave a comment

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.

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

September 22, 2020 Clifford E. Kirsch, Editor Leave a comment

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.

Why Compliance Officers Have Even More to Worry About

July 21, 2020 Clifford E. Kirsch, Editor Leave a comment

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.

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

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

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.

Read more here.