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.

“Luke, I am your father.” (Or not.) Collective False Memory and SEC and FINRA Enforcement Issues from November and December 2020

February 9, 2021 Clifford E. Kirsch, Editor Leave a comment

Often, there are quotes, spellings, symbols, events, or experiences that many of us “know” occurred, but which did not actually happen. This phenomenon is known as the “Mandela Effect,” or “collective false memory.” Its name derives from the false recollection of many people that Nelson Mandela died in the 1980s in prison when, in fact, he lived until 2013. One example of such a false memory is the iconic quote, “Luke, I am your father,” which Darth Vader proclaimed to his son, Luke Skywalker, in the 1980 classic film “Star Wars: Episode V—The Empire Strikes Back.” However, that line was never uttered. The correct quote is, “No. I am your father.”

To be clear, we don’t think the securities regulators have false collective memories—other than, possibly, believing this line: “It’s easy for you to produce that information to us. You can just push a button.” And we don’t think the securities industry has such false memories either—other than possibly believing that the SEC sanctioned firms for using the word “may.” (Wait. That really did happen. ) Nonetheless, we thought it would be fun to explore this phenomenon and see how it fits with enforcement matters. After all, it’s important to examine ourselves and our surroundings to better understand what happened and why.

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.