Articles Tagged with SEC

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Another large group in the financial service industry has come forward to oppose authorizing the Federal Industry Regulatory Authority (FINRA) to become the self regulatory organization (SRO) for investment advisers. The American Institute of CPAs (AICPA) has voiced its desire to keep the oversight of investment advisers with the Securities and Exchange Commission (SEC).

The AICPA is the world’s largest association representing the accounting profession. It is interested in the oversight of investment advisers because a number of its members work for firms that are registered or affiliated with a registered investment adviser. Members also provide audit, tax, retirement consulting, plan administration and financial planning services to their clients.
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An independent insurance agent, Glenn Neasham, was convicted on a felony-theft charge in March for selling a complex indexed annuity to an 83-year old client in a California court. He was sentenced to spend ninety days in jail. Prosecutors claimed that Mr. Neasham’s client had exhibited signs of dementia and was not capable of consenting to the transaction.

This case has stirred fear among insurance and securities agents. The state’s then-insurance commissioner stated in 2010, after Mr. Neasham’s arrest, that agents “who steal from vulnerable seniors will not get away with their shameful tricks.” Agents are attracted to indexed annuities because they receive high commissions, which can be 12% or more of the invested amount. As a result of this case and heightened regulatory scrutiny, agents will have to think twice before selling indexed annuities to the elderly. The $14,000, or 8%, commission that Mr. Neasham received was a factor used against him to prove his criminal intent.
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House Financial Services Committee Chairman Spencer Bachus (R-AL) has reintroduced his bill calling for a self-regulatory organization (SRO) for investment advisers. The bill has a Democratic co-sponsor, Rep. Carolyn McCarthy (D-NY), indicating that it may have some bipartisan support. Rep. Bachus said that the bill was drafted in response to a Securities and Exchange Commission (SEC) study which showed that the SEC does not have sufficient resources to adequately monitor and regulate the 12,000 registered investment advisers. The SEC examined only 8% of advisers in 2011, which is significantly less than the 58% of broker-dealers that were examined.

The bill calls for the creation of one or more SROs which would be called a “National Investment Adviser Association” (NIAA). NIAA would report to the SEC, and investment advisers with retail customers would be required to become members. The bill provides an exception from the membership requirement for investment advisers with less than $100 million in assets under management. The bill gives individual states the authority to regulate those investment advisers as long as the states conduct periodic on-site examinations.
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On April 11, 2012, the Securities and Exchange Commission (SEC) announced it will accept comments prior to creating rules required by the Jumpstart Our Business Startups (JOBS) Act. The SEC believes it is important to hear the public’s opinion before releasing proposed rules. It previously requested comments before rulemaking when the Dodd Frank Wall Street Reform and Consumer Protection Act was passed.

The SEC will disclose all information pertaining to the JOBS Act on its website. This will include all meetings with interested parties. The meeting participants must provide an agenda of intended topics in advance, which will be released to the public. The participants will also be encouraged to submit written comments to the public file in order for other interested parties to review the information.
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Two states have created a time-table to help mid-sized firms make the switch from Securities and Exchange Commission (SEC) supervision to state regulated supervision. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act, those investment advisers with $100 million or less but more than $25 million in assets under management will be required to register with the state or states in which they do business instead of the SEC. We have already discussed the switch in Mid-Sized Advisers Should Have Already Commenced Transition. Both Iowa and Missouri are helping mid-sized firms in their state by creating time-tables and providing guidance for the transition.
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As a result of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), mid-sized firms of less than $100 million in assets under management should make the switch from Securities and Exchange Commission (SEC) oversight to state regulatory oversight. Most advisers know that under the newly adopted SEC rules, mid-sized advisers that were SEC registered prior to Dodd-Frank must remain SEC registered through the first quarter of 2012, and then complete their switch to state regulation by June 28, 2012. Firms wishing to switch should have already completed the state registration process to become effective in the state or states in which the adviser is registering.

It was estimated by this time that 3,200 firms would have made the switch to state regulation. However, spokesman John Nester for the SEC announced that as of April 5, a little more than 1,900 firms claimed that they were no longer eligible for SEC registration and needed to make the switch.
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One of the most significant provisions of the Jumpstart Our Business Startups (JOBS) Act is its elimination of the general solicitation ban currently contained in Rule 502 for Rule 506 offerings sold only to “accredited investors.” As a result, hedge funds will be able to advertise to investors through the internet, mass mailings, and other media. Previously hedge funds have been banned from soliciting or advertising their private offerings to the general public. This prohibition has created confusion among hedge fund managers because of uncertainty about the meaning of “general solicitation.”

The JOBS Act requires the Securities and Exchange Commission (SEC) to eliminate the ban on general solicitation and advertising as long as all purchasers are either “accredited investors” or “qualified institutional investors.” An “accredited investor” includes an individual whose net worth is at least $1 million, excluding the value of his/her primary residence or who meets certain income criteria. We have previously discussed the definition of “accredited investor” in Financial Advisers Should Note More Restrictive Accredited Investor Definition. A “qualified institutional investor” includes companies that manage a minimum at $100 million in assets. Under the JOBS Act, the SEC must adopt rules to eliminate the ban on advertising for an offering by a private issuer within 90 days.
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With the passage of the Jumpstart Our Business Startups Act (JOBS Act), the Securities and Exchange Commission (SEC) will be required to create a number of new rules, in addition to the rules already required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The first deadline that the SEC faces under the JOBS Act is adopting rules eliminating the ban on general solicitation of certain private offerings. It will have 90 days to revise Rule 506 of Regulation D to allow those securities to be sold using general solicitation or advertising when all of the purchasers of the securities are “accredited investors.”

The JOBS Act also created a new crowdfunding exemption to registration. The SEC will have 270 days to adopt the rules and regulations effectuating this exemption, as the SEC determines to be necessary or appropriate for the protection of investors. The Financial Industry Regulatory Authority may also adopt rules regulating “funding portals” for issuers.
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The Colorado Securities Division recently declined to issue a no-action letter in connection with a company that intends to educate and train people in stock market trading. Mark Espy, owner of MarkEspyMentorin.com, sent a letter to the Colorado Division of Securities on January 17, 2012 asking for either a no-action letter or the Staff’s clarification that he and his company do not need to be licensed as an investment adviser in Colorado. Espy plans to tutor people on how to use various tools in order to trade in the stock market. The course will be taught through webinars, and students will pay a fee to enroll.

According to Espy, the instruction provided in the course will include curriculum designed to teach various techniques and procedures to measure an equity’s viability for trading or investing, portfolio management, the importance of diversification, explanations of indicators, trading strategies, and building a trading plan, among other topics. Espy has also been approved to teach an adult education class on the stock market at a local community college.
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The President signed the Jumpstart Our Business Startups Act (JOBS Act) on April 5 during a Rose Garden signing ceremony. He called the bill a “game changer” that would remove barriers that prevent small businesses from growing and hiring. He stated that this bill was so important that he “called on Congress to remove a number of barriers that were preventing aspiring entrepreneurs from getting funding.” We have previously discussed the JOBS Act in JOBS Act Passes Both Chambers and Will be Sent to President and House of Representatives Pass Crowdfunding Bill for the Second Time in JOBS Act.

The purpose of the JOBS Act is to provide mechanisms for small businesses to raise capital more easily and efficiently, which proponents say would promote the creation of more jobs. The President stated “because of this bill, start-ups and small business will now have access to a big pool of potential investors – namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.”
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