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The Department of Labor (DOL) last week published a final rule extending the transition period of the Fiduciary Rule and delaying the second phase of implementation from January 1, 2018 to July 1, 2019. The DOL stated that the primary reason for delaying the rule was to give the DOL necessary time to review the substantial commentary it has received under the criteria set forth in the Presidential Memorandum issued in February of this year, as well as to consider possible changes or alternatives to the Fiduciary Rule exemptions and to seek input from the SEC and other securities regulators.

The Fiduciary Rule was enacted in April 2016, with its applicability date originally set for April 10, 2017. It also provided for a transition period through January 1, 2018 for compliance with certain new and amended Prohibited Transaction Exemptions (PTEs), including the new Best Interest Contract (BIC) exemption. The full requirements of the BIC exemption, including the written contract requirement for transactions involving IRA owners, are not required until the end of the transition period. Continue reading ›

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Earlier this year the Maryland General Assembly amended parts of the Maryland Securities Act and added some new sections to it.  The amendments went into effect on October 1, 2017.  Changes to the Maryland Securities Act include the creation of the Securities Act Registration Fund, adoption of the North American Securities Administrators Association’s Senior Model Act to address financial exploitation of seniors, and changes in fees for certain filing categories.

The amendments added a new section, Section 11-208, which establishes a Securities Act Registration Fund.  The Fund’s purpose is “to help fund the direct and indirect costs of administering and enforcing the Maryland Securities Act.”  The Fund will comprise registration fees, money that the State sets aside for the Fund in its budget, and any money accepted from any other source for the Fund’s benefit.  The Fund cannot be used for any purpose other than administering and enforcing the Maryland Securities Act. Continue reading ›

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On October 3, 2017, the South Dakota Division of Insurance- Securities Regulation published proposed rules which would establish notice filing requirements for federal regulation crowdfunding and Regulation A, Tier 2 offerings.  According to the Division, these rules are being proposed “so the Division may monitor these types of offerings by receiving information about the issuer and the offering.”

The proposed rules governing notice filings for federal crowdfunding offerings would require an issuer who offers and sells securities pursuant to the federal crowdfunding registration exemption to make a notice filing in South Dakota if the following conditions are met: (1) the issuer’s principal place of business must either be in South Dakota or (2) the issuer must plan to sell 50 percent or more of the total offering to South Dakota residents.  As part of the initial notice filing, the issuer would need to include either a completed Uniform Notice of Federal Crowdfunding Offering form or copies of every document filed with the Securities and Exchange Commission.  If the issuer does not use the Uniform Notice of Federal Crowdfunding Offering Form, it would also need to file a consent to service of process form (“Form U-2”), along with a $250 fee.  The notice filing would be effective for a period of twelve months beginning with the filing date.  To renew the notice filing, the issuer would need to file with the Division a Uniform Notice of Crowdfunding Offering form marked “renewal” together with a cover letter asking for renewal, along with a $250 fee. Continue reading ›

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On October 11, 2017, the Iowa Insurance Division announced that it has adopted amendments to the Iowa Administrative Code, adding notice filing requirements for federal crowdfunding offerings and updates to the notice filing requirements for Regulation A, Tier 2 offerings.  In addition, the amendments adopt two policy statements published by the North American Securities Administrators Association (“NASAA”).  The amendments went into effect on November 15, 2017.

Under the amendments, an issuer who plans to make a crowdfunding offering under the federal Securities Act must file notice in Iowa if the issuer has its principal place of business in Iowa or plans to sell 50 percent or more of the total offering to residents of Iowa.  The issuer’s notice filing must include either a completed Uniform Notice of Federal Crowdfunding Offering form (“Form U-CF”) or a Uniform Consent to Service of Process form (“Form U2”).  The issuer must also pay a filing fee of $100.  If the issuer’s principal place of business is in Iowa, the notice filing must be completed as soon as the issuer files its initial Form C filing with the Securities and Exchange Commission.  If the issuer’s principal place of business is not in Iowa but Iowa residents have bought 50 percent or more of the offering’s total amount, the notice filing should be completed “when the issuer becomes aware that such purchases have met this threshold and in no event later than 30 days from the date of completion of the offering.” Continue reading ›

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Earlier this year, the Kansas Court of Appeals affirmed a district court decision holding that Mark R. Schneider (“Schneider”), an investment adviser representative and broker-dealer, violated the Kansas Uniform Securities Act by recommending nontraditional exchange-traded funds (“ETFs”) to a client whose investment objective was to produce income.  Schneider was ordered to pay $94,720.60 in restitution and a $25,000 civil penalty.

For over 20 years, Schneider acted as investment adviser to Mary Lou and Jeffrey Silverman.  Schneider oversaw the Silvermans’ assets, tax returns, and life insurance, and he had discretionary authority over their investments.  In 2010, Mr. Silverman died, and Mrs. Silverman obtained $1,150,000 from Mr. Silverman’s life insurance policy.  In May 2010, Schneider formulated a financial plan to help Mrs. Silverman garner income from investments she would make using the money from the life insurance policy. Continue reading ›

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In August of this year, the Securities and Exchange Commission (“SEC”) issued an Order Instituting Cease-and-Desist Proceedings (“Order”) against Capital Dynamics, Inc. (“CDI”), a New York-based investment adviser.  The SEC alleged that from March 2011 to July 2015, CDI allocated certain expenses to private funds it was advising when the funds’ governing documents did not authorize the funds to pay these expenses.  CDI submitted an Offer of Settlement in conjunction with the Order.

According to the SEC’s complaint, CDI and its affiliates formed the private funds, collectively known as the “Solar Fund,” “to introduce a new investment program focused on clean energy and infrastructure.”  The documents that governed the funds provided that CDI and the funds’ general partners were obligated to pay “normal operating expenses,” such as employee expenditures and fees for specified services.  They could not charge these expenses to the funds. Continue reading ›

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On October 24, 2017, Morgan Stanley declared that it has decided to withdraw from the Protocol for Broker Recruiting (“Protocol”).  Morgan Stanley stated that the Protocol is “replete with opportunities for gamesmanship and loopholes” and that the Protocol is “no longer sustainable.”  It believes that leaving the Protocol will be beneficial for its growth as a company.  However, it is expected that Morgan Stanley’s withdrawal from the Protocol might bring significant consequences to the investment management industry, including potentially the end of the Protocol itself. Continue reading ›

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Earlier this year, Securities and Exchange Commission Chairman Jay Clayton appointed Stephanie Avakian and Steven Peikin as co-directors of the SEC’s Enforcement Division.  In an interview with Reuters, Avakian and Peikin expressed particular concern about cyber threats and how the SEC should make cybersecurity an enforcement priority.  According to Peikin, “The greatest threat to our markets right now is the cyber threat… That crosses not just this building, but all over the country.”

The SEC has expanded of investigations relating to cybercrimes.  There also appears to be an increase in incidents of hackers attempting to gain access to brokerage accounts.  In response, the SEC has begun obtaining statistics about cybercrimes to assess market-wide issues. Continue reading ›

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On October 2, 2017, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Tweed Financial Services, Inc. (“TFSI”), an investment advisory firm, and its proprietor, Robert Russel Tweed (“Tweed”).  The SEC’s complaint alleges that TFSI and Tweed “defrauded their clients by misleading them about how their money had been invested and how poorly those investments were performing.”  According to the SEC, TFSI and Tweed violated the Investment Advisers Act of 1940 by deceiving their clients.

According to the SEC’s complaint, TFSI and Tweed formed Athenian Fund L.P., a private fund, in 2008.  Twenty-four investors placed money in the Athenian Fund, and the fund raised approximately $1.7 million.  The Athenian Fund’s private placement memorandum informed investors that money invested in Athenian Fund would be invested in a master fund that “had been established to trade stocks using an algorithmic trading platform developed by acquaintances of Tweed.”  However, beginning in March 2010, Tweed transferred all of the Athenian Fund’s assets to another fund.  In March 2011, TFSI and Tweed had the Athenian Fund loan $200,000 to a startup software company.  The SEC alleged that these two ventures resulted in the Athenian fund losing approximately $800,000. Continue reading ›

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If you build it, will they come? In the movie Field of Dreams, Kevin Costner’s character Ray Kinsella was promised by a mysterious Voice that if he built a baseball field in the middle of an Iowa cornfield, “they”- ghost baseball players which ultimately included his deceased father – would come. As the formerly cynical, suspicious sportswriter Terrance Mann (James Earl Jones) promised would happen, Ray’s faith in the Voice was rewarded. [1]

The same question might be asked about Crowdfunding Portals, although with decidedly less fantasy and romanticism and no sign of James Earl Jones: If you build it, will they come?

So far, 36 portals have registered with FINRA under Regulation CF, which went effective on May 16, 2016. Two registrations have already been withdrawn, leaving 34 portals in various stages of activity and levels of success.

Continue reading ›
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