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2020 EXAMINATION PRIORITIES Office of Compliance Inspections and Examinations
In January 2020, the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) announced their examination priorities for the fiscal year 2020. The publication provides an assessment of how these new rules will affect companies; anticipated risks and policy matters arising from market and regulatory developments. OCIE examinations focus on comprehensive and high-quality reports from organizations, with the purpose of promoting and improving compliance. In 2020, the OCIE will prioritize the examination of certain practices, products, and services to protect investors.
2020 Risk Monitoring and Examination Priorities Letter
The Risk Monitoring and Examination Priorities Letter evaluates the areas of focus for FINRA’s examination programs; while providing practical considerations to support firms in their compliance with FINRA rules. FINRA will consider certain factors when reviewing a firm’s: direct market access controls, supervision of digital channels, compliance with Reg BI, digital asset activities, liquidity management practices, technology governance programs, IPO practices, general procedures and control. These considerations may not apply to all firms and should not be read to create obligations beyond those in federal securities laws and regulations.
Annual Letter from Larry Fink of BlackRock
BlackRock has $8.7 trillion AUM. So, securities issuers pay close attention to Larry Fink’s and Blackrock’s investment priorities.
Fifth Circuit issues preliminary injunction against Texas Bar for unconstitutional actions
Fifth Circuit issues preliminary injunction against Texas Bar for unconstitutional actions (LA)
Financial Advisers and Investors Face a Crazy Quilt of State Regulations
New state rules come on top of federal requirements. If you’re confused, you aren’t alone. The muddle of state regulation traces to the SEC’s adoption of a less-strict investor-protection measure than some had argued for.
Investment Adviser Advertising Rule Effective Date is May 4
The Investment Adviser Advertising Rule has been published in the Federal Register. I attach it. Thus, the effective date is May 4, 2021.
Reuters: U.S. SEC should revisit disclosure requirements on diversity - acting chair
I can see the argument that diversity statistics may be something that institutional investors (many of whom have diverse investors or beneficiaries) may want to have. If Vanguard/BlackRock/Fidelity etc. went on the record saying that they want this disclosure to better serve their diverse investors and beneficiaries, that would be a good thing. There also may be some studies tying diversity to better performance, but I am not up to speed on the academic literature in this area.
Richard Latham
Denny Crawford reports that her predecessor as Texas Securities Commissioner, Richard Latham, passed away last month. (Denny was Richard’s general counsel at the agency).
SEC Acting Chair: Public Input Welcomed on Climate Change Disclosures
In light of demand for climate change information and questions about whether current disclosures adequately inform investors, public input is requested from investors, registrants, and other market participants on climate change disclosure.
SEC charges FINRA-LICENSED Broker with Section 15(a) violation
I attach and here is a link to a recent SEC follow-on order against a registered broker who sold away. https://www.sec.gov/litigation/admin/2021/34-91289.pdf?utm_medium=email&utm_source=govdelivery I was a bit confused as to how someone constructively became unlicensed by selling securities not approved by his firm.
SEC Corp Fin Sample Letter to Companies Regarding Securities Offerings During Times of Extreme Price Volatility
The Division of Corporation Finance recognizes the importance of capital formation, including during times of market volatility and when an issuer’s own securities are experiencing extreme price volatility. The Division also cautions that such market and stock volatility can create risks for both companies and investors. These risks can be particularly acute when companies seek to raise capital during periods with: • recent stock run-ups or recent divergences in valuation ratios relative to those seen during traditional markets, • high short interest or reported short squeezes, and • reports of strong and atypical retail investor interest (whether on social media or otherwise).
SEC Division of Examinations 2021 Examination Priorities (attached)
The Securities and Exchange Commission’s Division of Examinations today announced its 2021 examination priorities, including a greater focus on climate-related risks. The Division will also focus on conflicts of interest for brokers (Regulation Best Interest) and investment advisers (fiduciary duty), and attendant risks relating to FinTech in its initiatives and examinations. The Division publishes its examination priorities annually to provide insights into its risk-based approach, including the areas it believes present potential risks to investors and the integrity of the U.S. capital markets.
SEC increases Emerging Growth Company Revenue Threshold, leaves Crowdfunding threshold unchanged.
Per the attached release, the SEC has increased the Emerging Growth Company maximum revenue threshold to $1,235,000,000. The Crowdfunding threshold is unchanged.
SEC kills contingent offers of settlement
The SEC will no longer allow contingent offers of settlement – that is an offer of settlement contingent on the granting of bad actor waivers. Acting Chair Lee seems to have the position that allowing contingent offers of settlement means that bad actor waivers can be priced in settlement discussions.
SEC Proposes Improvements to Governance of Market Data Plans
On January 8th, 2020, the Securities and Exchange Commission has proposed a new order to address issues regarding the dissemination of market data that affect the efficiency and fairness of our markets. The SEC is seeking public commentary on the following proposals, (1) order to modernize the governance of National Market System plans; (2) amendments to the existing plans filed by the plan participants, addressing conflicts of interest and the protection of confidential information; (3) amendments to the existing equity data plans (introduction of the “New Consolidated Data Plan”). After considering any comments received on the proposed order, the Commission will consider what actions to take.
SEC Proposes to Codify Certain Consultations and Modernize Auditor Independence Rules
In December 2019, the Securities and Exchange Commission (SEC) has announced a proposal to update certain provisions within the Commission’s Auditor Independence rules. These proposed amendments generally focus on those relationships or services that are more likely to pose threats to an auditor’s objectivity and impartiality. The proposed rules aim to provide a framework that will enhance both investor protection and market integrity. Some of the amendments include: (1) defining an affiliate of the audit client; (2) adding certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships; (3) shorten the look-back period for domestic first-time filers in assessing compliance with the independence requirements. Also, there will be a comprehensive discussion about the potential economic effects of the proposed amendments, such as the impact on capital formation, competition, and efficiency. The SEC invites commentary on these proposed amendments. This can be done via email rule-comments@sec.gov, including the File Number S7-26-19 on the subject line or send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. Please bear in mind that all submissions should refer to File Number S7-26-19.
SEC report says SEC Ombudsman neglected duties
Findings Related to the Former SEC Ombudsman The U.S. Securities and Exchange Commission (SEC) Office of Inspector ...
SEC Risk Alert on Investment Adviser Rule
The SEC issued a risk alert on Monday (attached) about the new SEC’s Investment Adviser marketing rule, which becomes effective on November 4, 2022. It is worth a read.
Supreme Court rejects petition on extension of broker-dealer registration beyond secondary markets
From Wolters Kluwer: Supreme Court denies review of two unremarkable securities cases, one involving broker-dealer registration and second case involving the application of the investment contract definition to LLC interests.
Texas Securities Act Amendment filed!
The attached recodified Texas Securities Act amendment was filed today in both the House and the Senate. As a reminder, the recodified TSA becomes effective next January. The bill would amend the recodified Texas Securities Act civil liability provisions to remove cross-references to TSA provisions that impose no duties on private actors.
TSA amendment proposal received press in Texas Lawyer
The Texas Lawyer buried the Securities Committee’s bill in the last two paragraphs of the story. Perhaps that is a sound use of editorial discretion?
Ambac Assurance Corporation (Segregated Account) §4(C); §5(F), 11/23/2010
Wisconsin Insurance Commissioner required Ambac to establish a Segregated Account following losses inAmbac's insurance portfolio and resulting downgrades of its financial ratings. The insurance commissioner was appointed rehabilitator of the Segregated Account. A Segregated Account is considered a separate insurer. The Segregated Account proposed to issue notes in connection with the satisfaction of claims against the Segregated Account. The identity or number of ultimate beneficial holders of the notes could not be determined. The issuance of the notes was subject to the approval of a court. The staff confirmed that the §5.F exemption was available for the issuance of the notes pursuant to a court order rehabilitation plan, even though the notes were not issued by the company itself, nor by a successor to the company, as the Segregated Account was considered a separate insurer.
American Pharmacy Cooperative, Inc.; §7; §12; No Action Recommended, 7/18/2000
No action recommended to require registration of shares of American Pharmacy Cooperative, Inc., An Alabama corporation qualified to do business in Texas (the “Cooperative”) that was formed to enable member retail pharmacists (“Members”) to aggregate buying power in negotiating discounts to purchase pharmaceutical products from manufacturers. Each Member would be required to purchase 100 shares of the Cooperative for $1,500. The only benefit of share ownership would be access to lower prices for pharmaceutical products. The shares would be non-transferable and not entitled to any dividends, though each Member would be entitled to patronage dividends based on that Member's annual volume of business done with the Cooperative. The staff also recommended no action to require registration as dealers of the personnel of the Cooperative who offer and sell shares to independent pharmacists in Texas.
American Pharmacy Service Corporation; §7; §12; No Action Recommended, 6/29/2001
Your letter and supplemental materials indicate that American Pharmacy Services Corporation ("APSC" or "Cooperative"), a Kentucky corporation, was formed for the purpose of enabling member retail pharmacists ("Members") to aggregate their buying power in negotiating discounts on the purchase of pharmaceutical products from the manufacturers of such products. According to your letter, the Cooperative intends to obtain Members in Texas by making an offering of shares of common stock of APSC ("Shares") and patronage dividend certificates of indebtedness ("Certificates") to certain pharmacies located in Texas, inviting them to become Members of the Cooperative. The primary benefit of being a Member, as stated in your letter, is the lower prices received on pharmaceutical products.