SEC Investment Advisers: Texas says “April Fools!” to Federal Preemption?

On April 1, 2021, the Texas State Securities Board (TSSB) announced the entry of a Consent Order against an SEC registered investment adviser named Independent Financial Group, LLC (“Independent”). The TSSB’s action may represent a large shift in investment adviser regulation and enforcement considerations for SEC-registered investment advisers. (Emphasis on “may.”)

The Investment Advisers Act of 1940 is commonly understood to significantly limit states’ application of their securities laws as to SEC registered investment advisers.

What makes the TSSB action against Independent truly remarkable is that there is no allegation of fraud or deceit by Independent. Instead, the only violation cited is the failure to maintain a reasonably designed supervisory system. Hardly sounds like traditional fraud or deceit.

How is the TSSB’s action possible if federal law largely preempts states from enforcing their securities laws against SEC registered investment advisers? And what does this mean for SEC Registered Investment Advisers?

Read more here.

 

DOL Fiduciary Rule Rises Again, Regulatory Freeze Continues, March Madness – NCAA Players Scammed

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

Topics include:

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New SEC Division Undertakes 2021 Examination Priorities

On December 17, 2020, SEC created the Division of Examinations by renaming the now defunct, Office of Compliance Inspections and Examinations, making it the SEC’s 6th Division joining Enforcement, Corporation Finance, Trading and Markets, Investment Management, and Economic and Risk Analysis (DERA).

A couple of months later, the new Examinations  Division  announced its 2021 examination priorities, carrying on OCIE’s long standing tradition of annually publishing its examination priorities.  The publication of these priorities is supposed to provide a framework for those registered persons and entities to prepare for the onslaught of SEC examiners.  These priorities will include a focus on climate-related risks; broker and RIA conflicts of interest; Reg BI; FinTech risks; ESG-related risks; proxy voting policies and practices; BCPs; mutual funds; ETFs; municipal securities and other fixed income securities; variable annuities; private placements; and microcap securities.

Read more here.

Leaving is the Hardest Part Especially if You Want to Re-Enter the Securities Industry

We were recently reminded of how difficult it is to re-register for a position in the securities industry after being barred. https://www.sec.gov/litigation/admin/2021/ia-5682.pdf

On February 9, 2021, the United States Securities and Exchange Commission refused to let a former investment adviser re-register, claiming that the barred adviser had not demonstrated “extraordinary circumstances” to merit re-entry .  In particular, the Commission noted that the barred adviser had not paid his penalty, initially, imposed in 2011.  The Commission also rejected his arguments that, by working with an actual registered adviser, he would be appropriately supervised.  However,  the Commission found that the person had failed to submit sufficient evidence to demonstrate this supervision.

As a result, the barred adviser was not let back into the business, demonstrating the difficulty for others, who seek to follow in his path.  We are not suggesting it is impossible, but those barred persons interested in re-entering the securities industry should seek out securities counsel prior to making any filing.

Read more here.

New Year, Old Problem: Broker-Dealers Should Evaluate Their Supervision of Personal Device Use

Many companies that transitioned to a work-from-home environment in early 2020 may have reasonably anticipated a return to the normalcy of in-office operations by the end of the year. Yet as 2021 commences, remote work has become the new normal and firms can expect this arrangement to continue through the first quarter of the year, if not longer. While working from home poses challenges for all businesses, it poses unique concerns for broker-dealers whose associated persons are conducting business from their homes. Broker-dealers must remain keenly attuned to the risks posed by work-from-home arrangements, including specifically the risk that registered representatives and other associated persons use their personal devices or other unapproved and unmonitored channels to communicate with clients and conduct business.

Read more here.