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The weekly news source for investment management legal and compliance professionals

Government Reversal in ALJ Case May Reverberate Beyond Supreme Court

The decision of the Justice Department to switch sides in a pending Supreme Court appeal involving the status of administrative law judges – and the Commission’s subsequent ratification of its five ALJs as appointed officers rather than continuing to classify them as agency employees – is likely to have ramifications for the SEC and those it regulates beyond the immediate case.
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OIG Turns Spotlight on SEC Exam Program, Data Center Management Problems

Every six months, the SEC’s Office of the Inspector General issues a report to Congress in which it updates its progress in investigating aspects of the Commission’s activities. In its latest report, released December 1, the watchdog arm of the SEC takes aim at, among other things, the Office of Compliance Inspections and Examinations’ investment adviser exam controls, and the agency’s management of its data centers
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Enforcement Unit Chief Named

Daniel Michael is the new chief of the SEC Division of Enforcement’s Complex Financial Instruments Unit, the agency announced December 7. The unit is composed of attorneys and industry experts in various offices nationwide who investigate potential misconduct related to complex financial products and practices involving sophisticated market participants.
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Recent Stories

Don’t Fear the Grinch: Catch Employees Who Violate Holiday Gift Policies

With the holiday season upon us, the question of compliance with gift and entertainment policies and procedures rises anew. Advisory firms with strong cultures of compliance may believe that they have few, if any, violators of their firms’ gift requirements. Yet even with a 99 percent compliance rate, a firm with 100 employees will still have one violator.
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DOL Finalizes18 Month Delay for Fiduciary Rule Exemptions

What everyone expected to happen, happened on November 29. The Department of Labor published in the Federal Register its decision to extend the transition period for compliance with three Fiduciary Rule exemptions by 18 months: from January 1, 2018 to July 1, 2019. It also extended its non-enforcement policy regarding those exemptions for the same time period.
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SEC Brought Fewer Enforcement Actions in 2017, But . . .

Advisers and their attorneys may take some solace from the SEC reporting that fiscal year 2017 saw the agency bring 754 enforcement actions, compared with 868 the year before, but it is far too soon and there are too many facts tied to individual cases to draw any conclusions. Nonetheless, the FY 2017 figures mark the first time the enforcement case total has declined for several years, having risen each year since at least FY 2013, when 676 enforcement actions were brought.
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Clayton Rejects Request to Extend CAT Deadline

SEC chairman Jay Clayton on November 14 issued a nuanced statement?rejecting a request from the national securities exchanges and FINRA to delay the initial deadline of the Comprehensive Audit Trail – better known as the CAT – by a year, and other deadlines by a year or more. His decision leaves at least the short-term implementation of the much-discussed high-tech tool up in the air.
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SEC Settles Cherry-Picking Allegations with Yet Another Adviser

The SEC’s cherry-picking campaign against advisory firms shows no sign of abating. As with its crackdowns on Rule 105 and share-class abuse, the agency is going full throttle against advisers and key employees that misallocate key trading results to themselves or favored clients, leaving other clients with the dregs. A California-based firm and a former executive there are the latest to feel the campaign’s sting
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Clayton Seeks Shorter Agenda with Greater Transparency

The new SEC is gradually taking shape as key executives at the agency make their views known. One recently called for less of a focus on minor infractions, another for a greater focus on retail enforcement and cybersecurity. Now SEC chairman Jay Clayton is perhaps tying it all together with a big ribbon that calls for a shorter agency agenda and greater transparency.
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Think You Don’t Have Custody? Think Again

Some advisers may believe they don’t have to comply with Rule 206(4)-2, the Custody Rule, because they do not possess client assets. Such a belief could get them in trouble, both with clients and with the SEC. Turns out there are at least five types of custody – and only three of them involve asset possession.
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SEC Turning Away from ‘Broken Windows’ Enforcement

It looks like the SEC plans to break fewer windows under chairman Jay Clayton than it did under former chair Mary Jo White. What’s more, there may be less emphasis on seeking admissions of wrongdoing when settling cases. The co-director of the agency’s Division of Enforcement reportedly made both these points in a panel discussion at a recent securities conference.
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SEC Staff Rejects No-Action Request from Adviser Seeking Allocation Permission

Advisory firms seeking SEC staff permission to allocate certain fund operating expenses to other funds it manages – and possibly invest in the funds receiving those allocations – must first obtain a Rule 17d-1 exemptive order to overcome that potential conflict of interest. They should not seek a no-action letter, and they definitely should not begin allocating prior to receiving the exemptive order.
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