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SEC Announces Enforcement Results for FY 2022

The Securities and Exchange Commission today [November 15] announced that it filed 760 total enforcement actions in fiscal year 2022, a 9 percent increase over the prior year. These included 462 new, or “stand alone,” enforcement actions, a 6.5 percent increase over fiscal year 2021; 129 actions against issuers who were allegedly delinquent in making required filings with the SEC; and 169 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders. The SEC’s stand-alone enforcement actions in fiscal year 2022 ran the gamut of … Read more

SEC Says “Control Deficiency” Gave Enforcement Staff Access to Privileged Documents

The Commission has identified a control deficiency related to the separation of its enforcement and adjudicatory functions within its system for administrative adjudications.  When this deficiency was identified, the Chair immediately notified the other Commissioners and directed the staff to undertake remedial measures and commence a comprehensive internal review to assess the scope and potential impact of the issue.  We are now releasing the findings of that review as it relates to two adjudicatory matters currently in litigation in federal court.  In both matters, the review found that agency enforcement staff had access to certain adjudicatory memoranda, but that this

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SEC Staff Discusses Key Considerations on LIBOR Transition

[1]This statement is being issued to remind investment professionals of their obligations when recommending LIBOR-linked securities and to remind companies and issuers of asset-backed securities of their disclosure obligations related to the LIBOR transition.[2]  This statement follows previous staff statements addressing various aspects of the forthcoming LIBOR transition.[3]

In light of the now-certain transition away from LIBOR as a reference rate for a number of different types of investments, including securities, investment professionals should be mindful of their obligations when recommending LIBOR-linked securities (defined for purposes of this statement as any security that uses LIBOR as a

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SEC Announces Enforcement Results for FY 2021

The Securities and Exchange Commission today [November 18] announced that it filed 434 new enforcement actions in fiscal year 2021, representing a 7 percent increase over the prior year. Seventy percent of these new or “stand-alone” actions involved at least one individual defendant or respondent. The new actions spanned the entire securities waterfront, including against emerging threats in the crypto and SPAC spaces. For example, the SEC charged a company for operating an unregistered online digital asset exchange, charged a crypto lending platform and top executives alleging a $2 billion fraud, and brought an action against a special purpose

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SEC Clarifies Investment Advisers’ Proxy Voting Responsibilities

The Securities and Exchange Commission today provided guidance [rules available here] to assist investment advisers in fulfilling their proxy voting responsibilities. The guidance discusses, among other matters, the ability of investment advisers to establish a variety of different voting arrangements with their clients and matters they should consider when they use the services of a proxy advisory firm.  In addition, the Commission issued an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” under the federal proxy rules and provided related guidance about the application of the proxy antifraud rule to proxy voting advice.  Both

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SEC Staff Offers Views on the Transition from LIBOR

Division of Corporation Finance, Division of Investment Management, Division of Trading and Markets, and Office of the Chief Accountant[1]

LIBOR[2] is an indicative measure of the average interest rate at which major global banks could borrow from one another.  LIBOR is quoted in multiple currencies and multiple time frames using data reported by private-sector banks.[3]  LIBOR is used extensively in the U.S.[4] and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other

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SEC Proposes Change to Margin Rules on Security Futures

The Securities and Exchange Commission (SEC) announced today that it has proposed to align the minimum margin required on security futures with other similar financial products.  The proposal—which, if the CFTC votes in favor of, would be a joint CFTC-SEC proposal—would set the minimum margin requirement for security futures at 15 percent of the current market value of each security future.

The SEC and the Commodity Futures Trading Commission (CFTC) (together, the Commissions) have joint rulemaking authority regarding margin requirements for security futures.  In 2002, the Commissions adopted rules establishing margin requirements for unhedged security futures products at 20

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SEC Adopts New Rules on Relationship Between Retail Investors and Financial Professionals

The Securities and Exchange Commission today [June 5, 2019] voted to adopt a package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products.  Specifically, these actions include new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940.

Individually and collectively, these actions are designed to enhance and clarify

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SEC Offers Framework for “Investment Contract” Analysis of Digital Assets

If you are considering[1] an Initial Coin Offering, sometimes referred to as an “ICO,” or otherwise engaging in the offer, sale, or distribution of a digital asset,[2] you need to consider whether the U.S. federal securities laws apply.  A threshold issue is whether the digital asset is a “security” under those laws.[3]  The term “security” includes an “investment contract,” as well as other instruments such as stocks, bonds, and transferable shares.  A digital asset should be analyzed to determine whether it has the characteristics of any product that meets the definition of “security” under the federal securities

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SEC Divisions Set Forth Views on Issuing and Trading Digital Asset Securities

In recent years, we have seen significant advances in technologies – including blockchain and other distributed ledger technologies – that impact our securities markets. This statement[1] highlights several recent Commission enforcement actions involving the intersection of long-standing applications of our federal securities laws and new technologies.

The Commission’s Divisions of Corporation Finance, Investment Management, and Trading and Markets (the “Divisions”) encourage technological innovations that benefit investors and our capital markets, and we have been consulting with market participants regarding issues presented by new technologies.[2]  We wish to emphasize, however, that market participants must still adhere to our well-established … Read more

SEC Proposes Changes to Whistleblower Rule

The Securities and Exchange Commission voted on June 28, 2018, to propose amendments to the rules governing its whistleblower program. The whistleblower program was established in 2010 to incentivize individuals to report high-quality tips to the Commission and help the agency detect wrongdoing and better protect investors and the marketplace.

The Commission’s whistleblower program has made significant contributions to the effectiveness of the agency’s enforcement of the federal securities laws.  Original information provided by whistleblowers has led to enforcement actions in which the Commission has ordered over $1.4 billion in financial remedies, including more than $740 million in disgorgement of

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SEC Adopts New Requirements on Using XBRL Reporting Language for Financial Statements

The Securities and Exchange Commission voted on June 28, 2018, to adopt amendments to eXtensible Business Reporting Language (XBRL) requirements for operating companies and funds.  The amendments are intended to improve the quality and accessibility of XBRL data.

The amendments, which will go into effect in phases, require the use of Inline XBRL for financial statement information and risk/return summaries.  Inline XBRL has the potential to benefit investors and other market participants while decreasing, over time, the cost of preparing information for submission to the Commission.  The amendments also eliminate the requirements for operating companies and funds to post XBRL

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SEC Updates Definition of “Smaller Reporting Companies”

The Securities and Exchange Commission voted on June 28, 2018, to adopt amendments to the “smaller reporting company” (SRC) definition to expand the number of companies that qualify for certain existing scaled disclosure accommodations.

“I want our public capital markets to be a place where smaller companies can thrive and thereby provide our Main Street investors with more access to investing options where our public company disclosure rules and protections apply,” said SEC Chairman Jay Clayton.  “Expanding the smaller reporting company definition recognizes that a one size regulatory structure for public companies does not fit all.  These amendments to the

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SEC Proposes New Approval Process for Exchange Traded Funds

The Securities and Exchange Commission voted on June 28, 2018, to propose a new rule and form amendments intended to modernize the regulatory framework for exchange-traded funds (ETFs), by establishing a clear and consistent framework for the vast majority of ETFs operating today.  ETFs that satisfy certain conditions would be able to operate within the scope of the Investment Company Act of 1940 and to come to market without applying for individual exemptive orders.  The proposal would therefore facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors.

ETFs are hybrid investment products not originally

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SEC Adopts Changes to Disclosure of Funds’ Liquidity Risk

The Securities and Exchange Commission on June 28, 2018, adopted amendments to public liquidity-related disclosure requirements for certain open-end funds.  Under the amendments, funds would discuss in their annual or semi-annual shareholder report the operation and effectiveness of their liquidity risk management programs.  This requirement replaces a pending requirement that funds publicly provide a quantitative end-of-period snapshot of historic aggregate liquidity classification data for their portfolios on Form N-PORT.

The Commission adopted the open-end fund liquidity rule in October 2016 in an effort to promote effective liquidity risk management programs in the fund industry.  Management of liquidity risk is important

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SEC Announces Chair Mary Jo White’s Departure Plans

Securities and Exchange Commission Chair Mary Jo White, after nearly four years as the agency’s head, today announced that she intends to leave at the end of the Obama Administration.  Under Chair White’s leadership, the Commission strengthened protections for investors and the markets through transformative rulemakings that addressed major issues highlighted by the financial crisis.  The Commission also instituted a new approach to enforcement that has resulted in greater accountability and record actions through, among other things, the use of admissions of wrongdoing and enhanced data analytics and technology.

Chair White, who became the 31st Chair of the SEC in … Read more

SEC Announces Enforcement Results for 2016

The Securities and Exchange Commission announced on October 11 that, in fiscal year 2016, it filed 868 enforcement actions exposing financial reporting-related misconduct by companies and their executives and misconduct by registrants and gatekeepers, as the agency continued to enhance its use of data to detect illegal conduct and expedite investigations.

The new single year high for SEC enforcement actions for the fiscal year that ended September 30 included the most-ever cases involving investment advisers or investment companies (160) and the most-ever independent or standalone cases involving investment advisers or investment companies (98).  The agency also reached new highs for … Read more