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News January 3, 2011 Issue

The Year In Review

2010 was certainly a busy year.

We traded in "Madoff" for "Dodd-Frank Act" and a whole new (first) round of intense rulemakings. The financial industry finally began to get serious about the business of climbing out of the massive hole created by the financial crisis. Credit was still tight, but there was more money in the system (thank you Federal Reserve!) and the hedge funds were buying again.

The SEC got its groove back, only to discover it had to do the work of 800 more staffers with only the 347 (or so) staffers Congress allowed.

The National Bureau of Economic Research declared the "Great Recession" to be over. We want to believe them. Really, we do. Somehow, the confidence isn’t there yet.

2010 lacked some of the tabloid drama of 2009 – no massive marital meltdowns a la Tiger Woods or former South Carolina governor Mark Sanford, only the quiet dignity displayed by Elizabeth Edwards in her very high-profile separation.

Quiet courage seemed to be a theme this year.

Offering much-needed examples of sheer determination’s triumph over adversity, Haitian earthquake survivors, Gulf oil spill survivors, and Chilean mining disaster survivors each in turn captured our attention, our hearts, and sometimes, our dollars.

Perfect timing for a little perspective.

2010 saw a resurgence of SEC enforcement actions, FBI investigations, and federal prosecutions of securities law violations. Whistleblowers were granted new protections, new payoffs and enhanced methods of relaying information.

Tips, complaints and referrals became a new driver for OCIE’s examination program.

Ponzi schemers and insider traders remained high on the SEC’s list of priorities. The SEC still caught them, but without the cachet of really big names, really big money, or even any blood oaths made with Caribbean securities regulators on warm tropical nights.

It was back to the trenches of the SEC’s "core mission," as Chairman Mary Schapiro put it. It was the beginning of keeping our heads down and keeping up with all the new regulations coming over the transom.

So cheers to the retirement of 2010, and bring on 2011. We’ve got a lot of work to do.

Here’s a brief look back at 2010 to give us some of that perspective…


The year gets off to an ominous start with a 7.0 magnitude earthquake in Haiti. The texting of donations goes viral.

Carlo di Florio arrives as OCIE’s new director.

Advisers scramble to comply with the freshly-minted custody rule amendments. The big picture is fairly clear, but the devil is in the details. Questions pour in to the SEC staff, which pledges to update its custody rule FAQs on a rolling basis.


Money market fund reforms arrive. The stable $1 net asset value still reigns. Boards of directors can suspend redemptions to provide for orderly fund liquidation, credit quality requirements are tightened, and a new metric, "weighted average life," is born. More money fund reforms are promised to come.

Paul Volcker urges Congress to adopt his eponymous legislative proposal limiting speculation by banks. If they do not do as he asks, he said, "I may not live to see the crisis, but my soul will come back to haunt you."


The Massachusetts Data Privacy Law goes into effect. Forty-nine other states watch breathlessly to see how many advisers’ heads explode trying to avoid having even one client who is a Massachusetts resident. In the alternative, and without de minimis relief, having that one Massachusetts client requires implementing a litany of policies and procedures to ensure no one knows who that client is.

[One teensy problem – how are they going to enforce it? Right – by example – so don’t be that guy.]

The SEC updates its custody rule FAQs one week in advance of the March 12 compliance deadline.


Icelandic volcano in Eyjafjallajokull erupts, bringing air traffic to a halt for weeks in parts of Europe and across the Atlantic. The U.S. hedge fund industry claims responsibility, saying "serves them right for trying to kick our funds out of the E.U."


On Cinco de Mayo, Greek citizens celebrate having nothing more to lose (new and "drastic" austerity measures) by burning banks and generally rioting in the streets.

The following day, the U.S. responds sympathetically as the national market system "flash crashes." Thousands upon thousands of "clearly erroneous" trades are broken after portions of the market lost almost their entire value in less than five minutes, only to buoy back up in the next five minutes.


Vuvuzela horns swarm the World Cup like a hoard of locusts.


July was quite possibly not only the biggest month of the year for advisers, but also arguably the biggest month of the decade.

President Barack Obama signs into law the biggest overhaul of the nation’s financial regulatory system since the Great Depression, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Among the more than 2,300 pages of required actions by various financial regulators, the SEC alone must generate dozens of reports and develop countless rulemakings – as if they didn’t have enough to do already. Oh, and they’re not getting a bigger budget or self-funding (like they asked) to cope with the massive workload.

The SEC adopts adviser pay-to-play prohibitions. Third-party solicitors survive, provided FINRA comes up with regulations to oversee them.

After ten-plus years of review, the SEC adopts amendments to Form ADV Part 2. The era of the plain English brochure arrives. Brochure supplements are also now required.

Also at long last, mutual fund distribution fee reform is proposed. Rule 12b-1 would be scrapped and replaced by – wait for it – new Rule 12b-2.

The SEC makes adviser representative information publicly available through the IAPD (Investment Adviser Public Disclosure) system.

Advisers hold on and just try to catch their breath.


The world is riveted as 33 miners in Chile become trapped more than a mile below the earth’s surface. Experts from around the world participate in a joint rescue effort, which authorities predict may take three months or more to complete.

OCIE sneaks in a hedge fund sweep while everyone (else) is at the beach.


Bristol Palin goes for the glitter-ball trophy in the latest season of "Dancing With The Stars." In the equivalent of its own glitter-ball trophy, the SEC awards its first million-dollar payoff under its insider-trading whistle-blower authority to Karen Kaiser.

Kaiser, the ex-wife of alleged Microsoft insider trader David Zilkha, was trying to get to the bottom of a $2.1 million payment to Zilkha as part of a nasty divorce and custody proceeding when she discovered compromising emails on an old computer hard drive. "Follow the money," as they say (and "Hell hath no fury")…


The indexed annuities rule formally bites the dust, marking the umpteenth time the D.C. Circuit has directly or indirectly killed an SEC rulemaking.

And speaking of having your lunch handed to you…


Obama gets a "shellacking" (his word) in the mid-term elections, as control of the House swings back to Republicans. Representative John Boehner (R-OH), slated to be the next Speaker, earns the nickname "Weeper of the House" when he can’t stop crying at every public appearance.

George W. Bush, former "Decider" in Chief, releases his book "Decision Points" in an attempt to explain some of them. Sarah Palin "refudiates" her critics.

And speaking of reasons to cry…

Naked access is no more, as rules take effect that require brokers to implement risk management controls for the use of their firm’s unique market access code.

Just to keep morale up over at the SEC, President Obama pledges to freeze federal salaries for the next two years.


Alleged Ponzi schemer and criminal defendant Allen Stanford claims he’s too "heavily medicated" to prepare for his upcoming trial in January.

Various parts of the country get their white Christmas a few days late, only to snarl holiday travelers’ attempts to get home. The blizzard in the northeast prompts the NFL to postpone the Vikings-Eagles game in Philadelphia until the following Tuesday. It is the first time an NFL game is played on a Tuesday night since 1946. (Vikings win, 24-14.)

In a sympathetic move, the SEC delays brochure supplement delivery requirements for certain advisers (see article, this issue).

Yes, 2010 was certainly a busy year, with the promise of an even busier 2011 to come!