OCIE ISSUES RISK ALERT ON PRINCIPAL AND AGENCY CROSS-TRADING COMPLIANCE ISSUES
The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued a risk alert earlier this month from its national examination program warning investment advisers of the most common compliance deficiencies that OCIE found related to principal trading and agency cross transactions under the Investment Advisers Act of 1940 (the Adviser’s Act). As most compliance professionals know, a risk alert is often a precursor to aggressive enforcement action in a particular area and allows the Commission to tell advisers that they were warned. The takeaway: paying close attention to a risk alert is prudent.
STATE ATTORNEYS GENERAL SEEK INJUNCTION AGAINST SEC'S IMPLEMENTATION OF REGULATION BEST INTEREST
In a very unusual lawsuit, attorneys general from seven states and the District of Columbia recently sued the SEC, and its chair, Jay Clayton, for declaratory and injunctive relief seeking to block the effectiveness of Regulation Best Interest (Regulation BI), the recently adopted standard of conduct applicable to broker-dealers doing business with retail customers. The plaintiffs in the case are the states of New York, California, Connecticut, Delaware, Maine, New Mexico, and Oregon, and the District of Columbia. The case was filed in federal court in the Southern District of New York. The attorneys general argue that the SEC was required to impose a higher standard, a fiduciary standard of behavior on broker-dealers doing business with retail investors. They also said that because Regulation BI does not impose fiduciary duties on broker-dealers, the SEC’s rule violates Congressional authority.
DEPARTMENT OF LABOR OKS AUTOMATIC ROLLOVER INTO NEW EMPLOYER’S RETIREMENT PLAN
The Department of Labor (DOL) made it easier to consolidate small retirement account balances with a prior employer into a new employer’s plan, now without the direct involvement of the participant. With many participants lacking adequate private retirement savings, the federal government has permitted retirement plans to automate or default participants to defer income into a 401(k) plan or other investment options. Now comes the automatic rollover between a participant’s old and new employer retirement plans.
The SEC adopted Guidance that 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.
IS PRIVATE EQUITY "READY FOR WARREN?"
Massachusetts Senator and presidential hopeful Elizabeth Warren released perhaps the most ambitious plan the country has ever seen with respect to regulation of the private equity and investment fund industry. She released her plan, dubbed the “Stop Wall Street Looting Act of 2019,” this summer. It takes aim at what Warren sees as private equity “vampires” in an effort to protect the millions of American workers who are employed by private equity-owned companies. In a lead-up to the release of the proposed regulations, Warren pointed to several prominent examples of now-defunct companies that were purchased by private equity firms and overleveraged before subsequently imploding, leaving their workforces unemployed and their suppliers and pensioners unpaid. These examples include former American mainstays like Toys R Us, Radio Shack, Payless Shoes, Sears, and Shopko.
EXPANDING BOARD DIVERSITY REMAINS A PRIORITY
The push for increased diversity on corporate boards ramped up recently when Vanguard, a leader in mutual funds and asset management, released its 2019 Investment Stewardship Annual Report. The report, released on August 30, 2019, urges companies to seek new directors with a broad range of personal characteristics, including gender, race, ethnicity, national origin, and age.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.
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