NYSE/NASD IPO ADVISORY COMMITTEE ISSUES IPO REPORT AND RECOMMENDATIONS
5.29.2003 The NYSE/NASD IPO Advisory Committee, which was formed in October 2002, is a committee of corporate, financial and academic leaders. The Committee issued a report that proposes the following 20 steps to enhance public confidence in the integrity of the IPO process:
The committee made the following recommendations:
- Require each issuer to establish an IPO pricing committee
of its board of directors - including at least one director
who is independent of management (if any director
qualifies) - to oversee the pricing process.
- Require underwriters to provide to the issuer's pricing
committee all indications of interest before the issuer
determines the IPO price.
- Redress and prevent prohibited IPO laddering.
- Prohibit, for the first trading day following the IPO, the
placing of unpriced orders to purchase an issuer's shares.
- Prohibit the inequitable imposition of ''flipping'' penalties.
- Establish clear parameters for underwriters' sales of
returned shares after secondary market trading
has commenced.
- Raise the SEC's threshold requirement for amendment to
the prospectus from 20% to 40% in cases of increases to the
offering price or number of shares offered.
- Eliminate regulatory impediments to the development of
alternatives to bookbuilding.
- Prohibit the allocation of IPO shares (i) to executive
officers and directors (and their immediate families) of
companies that have an investment banking relationship
with the underwriter, or (ii) as a quid pro quo for
investment banking business.
- Provide that a listed company's code of business conduct
and ethics should include a policy regarding receipt of IPO
shares by the company's directors and executive officers.
- Strengthen existing prohibitions on unlawful quid pro
quo allocations.
- Impose substantive limits on issuers' ''friends and family''
programs.
- Require issuers to make a version of their IPO roadshow
available electronically to unrestricted audiences.
- Require that the underwriter disclose the final IPO
allocations to the issuer.
- Require that the prospectus include a clear description of
lock-up agreements and of whether the underwriter
expects to grant exceptions relating to hedging or
other transactions.
- Reiterate existing requirements that all collars and other
custom derivatives relating to initial insider holdings be
promptly filed electronically with the SEC on Form 4.
- Require improved disclosure regarding exemptions by an
underwriter to an IPO lock-up agreement.
- Require more complete prospectus disclosure about the
nature and size of the issuer's ''friends and family''
program.
- Impose additional requirements to promote the highest
standards of conduct for underwriters, including enhanced periodic internal review by the underwriter of its IPO supervisory procedures; and a heightened focus on the IPO process in SRO
examinations for investment banking personnel.
- Launch an education campaign for new issuers and
IPO investors.
The Report further states that the:
- The IPO process must promote transparency in pricing and avoid aftermarket distortions;
- Abusive allocation practices must be eliminated;
- The flow of, and access to, information regarding IPOs must be improved.
The Report also states that the recommendations are intended to complement the numerous recent legislative and regulatory initiatives, including the Global Settlement among regulators and major investment banks.
Please click http://www.nasdr.com/news/pr2003/release_03_023.html for the press release announcing the report.
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SEC INVESTMENT MANAGEMENT DIRECTOR ROYE GIVES SPEECH AT MUTUAL FUND GENERAL MEMBERSHIP MEETING
5.23.2003 Paul Roye, the SEC's Director of the Division of Investment Management, gave a speech at the Investment Company Institute's General Membership Meeting in Washington, DC, entitled "Proactive Initiatives to Protect Mutual Fund Investors." Mr. Roye stated that the Division of Investment Management has been engaged in a coordinated effort to identify challenges and high-risk areas within the investment management industry and address them before they become significant investor protection issues.
He further stated that the mutual fund industry should redouble its efforts to be proactive in identifying and addressing issues and problems that confront the industry and its investors. He acknowledged the fact that the fund industry already has a good track record of being proactive in various areas.
Please click http://www.sec.gov/news/speech/spch052303pfr.htm for a copy of the speech.
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SEC CHAIRMAN DONALDSON TESTIFIES ON HEDGE FUNDS
5.22.2003 SEC Chairman William Donaldson testified before Congress on the SEC's review of the hedge fund industry. Donaldson said that the SEC study continues and that the staff will prepare a report setting forth its findings and recommendations.
Chairman Donaldson stated that he anticipates that the report will address the key issues that have been a focus of our inquiry, including (1) hedge fund trading strategies and market impact, (2) the increasing availability of hedge fund exposure to retail investors, (3) the disclosures investors receive when investing in hedge funds and on an ongoing basis, (4) the differences between hedge funds and registered investment companies, (5) conflicts of interest, including those created by the fee structures of hedge funds and funds of hedge funds, (6) the role of prime brokers, (7) hedge fund fraud, (8) the regulatory framework applicable to hedge funds, and (9) investor education.
Please click http://www.sec.gov/news/testimony/052203tswhd.htm to access a copy of the testimony.
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SEC ISSUES RULES TO PROTECT THE AUDIT PROCESS
5.20.2003 As directed by section 303 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules to prohibit officers and directors of an issuer, and persons acting under the direction of an officer or director, from taking any action to coerce, manipulate, mislead, or fraudulently influence the auditor of the issuer's financial statements if that person knew or should have known that such action, if successful, could result in rendering the financial statements materially misleading. In the case of registered investment companies, the prohibition covers not only officers and directors of the investment company itself, but also officers and directors of the investment company's investment adviser, sponsor, depositor, trustee, and administrator. The rules are effective June 27, 2003.
Please click http://www.sec.gov/rules/final/34-47890.htm for a copy of the release adopting the rules.
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HEDGE FUND ADVISER SETTLES FRAUD CHARGES
5.20.2003 The SEC settled charges brought against David Mobley, a former adviser to a hedge fund, who had been charged with defrauding investors of $59 million for a seven-year period during the 1990s, and with diverting investor funds to pay for his luxurious lifestyle. A receiver has been appointed to take possession of Mobley's and his hedge funds' assets, to search for hidden assets, and to redistribute funds to defrauded investors. In July 2001, in a related action brought by the U.S. Attorney's Office for the Middle District of Florida, Mobley pleaded guilty to eight felony counts for his fraudulent scheme, was sentenced to seventeen and a half years' imprisonment, and was ordered to pay $76.2 million in restitution. Mobley is currently in prison. He will also be barred from the advisory issue.
Please click http://www.sec.gov/litigation/litreleases/lr18150.htm for a copy of the administrative order.
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ADVISER FOUND TO VIOLATE ADVISERS ACT FOR FAILURE TO DISCLOSE CONFLICTS OF INTEREST IN REFERRAL ARRANGEMENT
5.15.2003 The SEC found that Jamison, Eaton & Wood, Inc. ("Jamison"), a registered investment adviser, violated Section 206(2) of the Investment Advisers Act of 1940 because it failed to disclose to clients the potential conflict of interest it faced in receiving referrals from registered representatives ("RRs") who stood to benefit from providing custody and execution services to those clients, and by failing to disclose to clients other available brokerage options. The SEC found that Jamison received a number of clients through referrals. The brokerage of those clients remained with the referring firms, without disclosure by Jamison of a potential conflict of interest or of other brokerage options, and these Jamison clients paid higher trading commissions. Jamison generally did not ask all of its referred clients to make a decision about brokerage. Although some Jamison clients would likely have stayed with their referring RR's firm, this, in the SEC's view, does not excuse Jamison's failure to make proper disclosures. Even clients who were personally related to a referring RR were entitled to an explanation of the situation and the available brokerage options.
The SEC's examination staff found that, during the period January 1, 1999 to June 30, 2000, these clients paid commissions of about $0.35 per share, while Jamison's other clients paid a "free" commission rate of $0.08 per share through a lower-cost bank clearing service.
Please click http://www.sec.gov/litigation/admin/ia-2129.htm to access a copy of the SEC administrative action.
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SEC DIRECTOR OF INVESTMENT MANAGEMENT GIVES SPEECH AT ADVISERS COMPLIANCE CONFERENCE
5.1.2003 During a speech at the Glasser LegalWorks Seventh Annual Investment Advisers Compliance Conference in New York, New York, Paul Roye, the Director of the SEC's Division of Investment Management, discussed discuss some of the Commission's recent actions and initiatives implicating investment adviser compliance issues.
Mr. Roye also spoke about the new proxy voting rules, proposed custody rule, the overhaul of Part II of Form ADV, and adviser advertising.
Please click http://www.sec.gov/news/speech/spch050103pfr.htm for a copy of the speech.
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