Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter for news affecting the financial services industry.

  • Members of the House Financial Services Committee Weigh in on Rollout of the DOL Fiduciary Rule

    Securities

    On March 17, GOP members of the House Financial Services Committee sent a letter to Acting Labor Secretary Ed Hugler expressing their support for the Department of Labor’s (DOL’s) proposal to delay the implementation of its Fiduciary Rule from April 10 until June 9. The letter asserts, among other things, that a delay is “necessary to review the rule’s scope and assess potential harm to investors, disruptions within the retirement services industry, and increases in litigation, as required by the Presidential Memorandum signed by President Trump on February 3, 2017.” The GOP Members also note that they “have long been concerned with the DOL Fiduciary Rule's impact on retail investors and the U.S. capital markets,” and, have therefore “advocated that the expert regulator—the Securities and Exchange Commission (SEC)—should craft an applicable rule.” 

    Later that day, House Democrats sent their own letter to the Acting Labor Secretary expressing opposition to the DOL’s proposed 60-day delay of its Fiduciary Rule. Specifically, the Democratic members contend that “the rule is reasonable and workable for advisers,” because, among other reasons, “the DOL provided appropriate relief that mitigates industry concerns and compliance costs.”

    Securities DOL Fiduciary Rule fiduciary rule House Financial Services Committee Agency Rulemaking & Guidance Investment Adviser

    Share page with AddThis
  • Proposed FINRA Rule Would Streamline Securities Competency Exams for Industry Professionals

    Securities

    On March 8, the Financial Industry Regulatory Authority (“FINRA”) filed a proposed rule with the SEC to streamline its competency exams for professionals entering or re-entering the securities industry. Currently, only individuals associated with FINRA-regulated firms are eligible to take the qualification exam. The proposed rule would allow individuals with no prior securities industry experience to take FINRA’s Securities Industry Essentials exam, an “important first step to entering the industry,” which would serve to “provide enhanced flexibility and efficiency in [the] qualifications programs, while maintaining important standards and investor protections.” While these individuals would also be required to pass a more specialized knowledge exam—and must be associated with, and sponsored by, a firm—the proposed change would potentially expand the pool of qualified candidates for positions. Further, under this proposal, individuals who transfer to a financial services affiliate of a FINRA-regulated firm may qualify for a waiver that allows their credentials to be reinstated without re-taking their qualification exams, should they return to the industry within a seven-year period and meet the requirements of the waiver program. Currently, a registered individual who transfers for two or more years must re-take an exam to be re-qualified. The proposed rule is under review with the SEC.

    Securities FINRA SEC

    Share page with AddThis
  • Securities-Related Bills Advanced Through Committees in Both Senate and House

    Securities

    On March 9, the Senate Banking Committee and the House Financial Services Committee introduced and advanced five securities-related bills out of committee.  The bills—listed below—now await scheduling for consideration by each chamber in full.

    • S. 327 / H.R. 910 - Fair Access to Investment Research Act of 2017. This legislation will direct the SEC to provide a safe harbor for certain investment fund research reports.
    • S. 444 / H.R. 1219 - Supporting America’s Innovators Act of 2017. This legislation will amend the Investment Company Act of 1940 by expanding “the limit on the number of individuals who can invest in certain venture capital funds before those funds must register with the SEC as ‘investment companies.’”
    • S. 462 / H.R. 1257 - Securities and Exchange Commission Overpayment Credit Act. This legislation will require the SEC to refund or credit excess payments made to the Commission under a 10-year statute of limitations.
    • S. 484 / H.R. 1366 - U.S. Territories Investor Protection Act of 2017. This legislation will amend the Investment Company Act of 1940 to terminate an exemption for companies located in Puerto Rico, the Virgin Islands, and any other possession of the United States.
    • S. 488 / H.R. 1343 - Encouraging Employee Ownership Act. This legislation will increase the threshold for disclosures required by the SEC relating to compensatory benefit plans.

    H.R. 1312 - The Small Business Capital Formation Enhancement Act. The House Financial Services Committee also approved a sixth bill, which seeks to amend the Small Business Investment Inventive Act of 1980 to require an annual review by the SEC of any findings set forth in the annual government-business forum on capital formation.

    Securities Senate Banking Committee House Financial Services Committee SEC

    Share page with AddThis
  • DOJ Fraud Section Unveils New Guidelines on Corporate Compliance Programs

    Financial Crimes

    The DOJ’s Fraud Section recently published an “Evaluation of Corporate Compliance Programs.”  The guidelines were released on February 8 without a formal announcement.  Their stated purpose is to provide a list of “some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program.”  The guidelines are divided into 11 broad topics that include dozens of questions.  The topics are:

    1. Analysis and Remediation of Underlying Conduct
    2. Senior and Middle Management
    3. Autonomy and Resources
    4. Policies and Procedures
    5. Risk Assessment
    6. Training and Communications
    7. Confidential Reporting and Investigation
    8. Incentives and Disciplinary Measures
    9. Continuous Improvement, Periodic Testing and Review
    10. Third Party Management
    11. Mergers & Acquisitions

    According to the Fraud Section, many of the topics also appear in, among other sources, the United States Attorney’s Manual, United States Sentencing Guidelines, and FCPA Resource Guide published in November 2012 by the DOJ and SEC.  While the content of the guidelines is not particularly groundbreaking, it is nonetheless noteworthy as the first formal guidance issued by the Fraud Section under the Trump administration and new Attorney General Jeff Sessions.  By consolidating in one source and making transparent at least some of the factors that the Fraud Section considers when weighing the adequacy of a compliance program, the guidelines are a useful tool for companies and their compliance officers to understand how the Fraud Section and others at the DOJ may proceed in the coming months and years. 

    However, while the guidelines may give some indication of what the DOJ views as a best practices compliance program, they caution that the Fraud Section “does not use any rigid formula to assess the effectiveness of corporate compliance programs,” recognizes that “each company’s risk profile and solutions to reduce its risks warrant particularized evaluation,” and makes “an individualized determination in each case.”

    Financial Crimes Federal Issues Securities DOJ SEC

    Share page with AddThis
  • SEC Settles Fraud Charges in Investment Scheme, Issues Fine of Over a Half-Million Dollars

    Financial Crimes

    On February 14, the SEC announced a settlement with a real estate investment manager based in Arizona over allegations that he defrauded investors. According to the complaint, the investment manager allegedly told investors he would make personal investments in real estate projects which he failed to do, instructed some investors to “falsely state that they were ‘accredited investors’” to avoid registration requirements for the offerings, and falsely represented that he would personally manage the projects when, instead, he entrusted management to a real estate broker who was later imprisoned for other crimes. The settlement requires the investment manager to disgorge $51,358 plus interest of $4,893.98 and pay a penalty of $450,000.

    Financial Crimes Courts SEC Securities

    Share page with AddThis
  • Former Hungarian Telecommunications Executive Settles with SEC

    Financial Crimes

    On February 8th, a former executive of a Hungarian telecommunications company settled a 2011 civil complaint filed by the SEC.  The trial of the remaining co-defendants is scheduled for May 8.  As part of the settlement, the former executive agreed to pay a $60,000 civil penalty and did not admit or deny the SEC’s allegations.  The former executive also admitted that U.S. courts had jurisdiction over the case. The issue of jurisdiction had been contested; in 2013, the court denied the defendants’ motion to dismiss for lack of personal jurisdiction.

    The SEC’s complaint alleged that the former executive, along with two other co-defendants, authorized bribes to Macedonian government officials and others.  In 2014, the SEC dropped allegations regarding payments to government officials in Montenegro, substantially narrowing the allegations in the case.  The company and its parent settled allegations regarding payments to government officials in Macedonia and Montenegro with the SEC and DOJ in 2011.  Prior Scorecard coverage of the company’s investigation can be found here.

    This outcome of this lengthy case illustrates that individual defendants can still achieve relatively favorable outcomes when they choose to litigate FCPA cases, even after the corporate defendants have reached a resolution.

    Financial Crimes Securities DOJ FCPA SEC

    Share page with AddThis
  • Japanese Multinational Electronics Corporation Discloses FCPA Investigation

    Securities

    On February 2, a Japanese multinational electronics corporation disclosed that its U.S. subsidiary was being investigated by the DOJ and SEC for possible violations of the FCPA and other related laws.  According to its press release, the company is cooperating in the investigation and recently began settlement discussions with both agencies.  The countries at issue in the investigation have not been disclosed.

    Although the company had not spoken publicly about the probe until this week, the Wall Street Journal first reported the investigation in 2013.  The subsidiary company makes in-flight entertainment and communication systems for airlines.

    Securities FCPA SEC DOJ Miscellany

    Share page with AddThis
  • Two More Former Hedge Fund Company Executives Charged by SEC in Far-Reaching Bribery Scheme

    Federal Issues

    On January 26, the SEC charged two more former executives at an American hedge fund company with being the “driving forces” behind a massive bribery scheme across Africa that violated the FCPA. The civil complaint, which was filed in the United States District Court for the Eastern District of New York, alleges that the former head of the company’s European office in London, and an investment executive on Africa-related deals, caused “[the company] to pay tens of millions of dollars in bribes to government officials on the continent of Africa.” Specific allegations include that they induced Libyan authorities to invest in the company’s managed funds, and directed illicit efforts to secure mining deals by bribing government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. In announcing the complaint, Chief of the SEC’s FCPA Unit, said the defendants “were the masterminds of the company’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments.” The complaint seeks disgorgement and civil monetary penalties among other remedies.

    The complaint follows the company’s payment last September of $412 million to the DOJ and SEC to settle criminal and civil charges in one of the largest ever FCPA enforcement actions. Previous FCPA Scorecard coverage of the company’s settlement with the DOJ and SEC can be found here.

    Federal Issues Securities Criminal Enforcement FCPA International SEC DOJ Bribery

    Share page with AddThis
  • SEC Investigating Multi-level Marketing Corporation for FCPA Violations in China

    Federal Issues

    On January 20, a Los Angeles-based maker of nutritional supplements and weight management products, disclosed in a Form 8-K filing that it is being investigated by the SEC in connection with the company’s activities in China. The company said it is also conducting its own review and “has discussed the SEC’s investigation and the company’s review with the Department of Justice.” It also said it is cooperating with the SEC but “cannot predict the eventual scope, duration, or outcome of the matter at this time.”

    The announcement comes months after the company agreed last July to pay $200 million in consumer redress to settle Federal Trade Commission allegations that it operated a pyramid scheme and “deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.” The FTC deal also required the company to “fundamentally restructure” its multi-level marketing operations and compensation structure.

    Federal Issues Securities FTC International SEC DOJ

    Share page with AddThis
  • American Casino and Resort Company Pays $7 Million Penalty to Resolve Criminal FCPA Charges

    Federal Issues

    On January 17, Nevada-based gaming and resort company agreed to pay the DOJ nearly $7 million to resolve FCPA charges with a non-prosecution agreement (NPA) in connection with payments from 2006 to 2009 totaling almost $6 million to a business consultant to promote its brand in China and Macau. The company admitted that the payments were made “without any discernable legitimate business purpose,” that its executives had knowingly and willfully failed to implement adequate internal accounting controls to ensure that the payments were legitimate, and that it failed to prevent the false recording of those payments in its books and records, continued to make the payments even after warnings from its finance staff and an outside auditor, and terminated the finance department employee who raised those concerns.

    The $7 million criminal penalty is a 25-percent discount from the bottom of the U.S. Sentencing Guidelines fine range. In announcing the NPA, the DOJ credited the company for its full cooperation in the investigation, including conducting a thorough internal investigation and voluntarily providing evidence and information to the DOJ, and its extensive remedial measures, including expanding its compliance and audit programs and making significant personnel changes. The DOJ found particularly notable that the company no longer employs or is affiliated with any of the individuals implicated in the investigation and hired a new general counsel and new heads of its internal audit and compliance functions.

    In an unusual move, the DOJ’s announcement comes several months after the company resolved similar FCPA claims with the SEC in related proceedings last April. There the SEC filed a cease and desist order against the company and the company agreed to pay a civil penalty of approximately $9 million. The SEC alleged that the company violated the FCPA’s internal controls and books and records provisions in connection with more than $62 million in payments to a consultant operating in China and Macau who did not properly document how the money was used. The company had consented to the SEC’s order without admitting or denying the charges. Previous FCPA Scorecard coverage of the company’s SEC settlement can be found here.

    Federal Issues Securities FCPA International SEC DOJ

    Share page with AddThis

Pages