NASD Seeks Public Comment on Proposed Changes to Business Entertainment Rule Requirements
1.23.2006 The NASD is seeking public comment on proposed standards addressing the obligations of securities firms and individual brokers in connection with business entertainment.
The NASD proposed IM-3060, which outlines written policies and procedures registered firms must adopt, including requirements to:
- determine and define the forms of business entertainment that are appropriate or inappropriate;
- promote conduct that does not undermine the performance of a recipient's duty to his or her employer;
- maintain detailed records of the nature and expense of business entertainment and make such information available to a recipient's employer upon written request;
- establish standards for the supervision, approval and documentation of business entertainment expenses; and,
- periodically monitor for compliance with such policies and procedures, by an independent reviewer where practicable.
Currently, NASD Rule 3060 prohibits any firm or person associated with a firm from giving anything of value in excess of $100. Existing interpretive material states that Rule 3060 does not prohibit "ordinary and usual business entertainment" provided that that entertainment is "neither so frequent nor so extensive as to raise any question of propriety."
The deadline for submitting comments is February 23.
Please click http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_015877&ssSourceNodeId=1372 to access a copy of the NASD release.
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SEC Announces Date for Next CCOutreach Program
1.17.2006 The SEC announced that its annual
CCOutreach Program National Seminar for mutual fund and investment
adviser Chief Compliance Officers will be held on November 14, 2006. The program will be held at
the SEC's Washington, D.C., headquarters. The stated goal of the CCOutreach
program is to enhance compliance by improving communication and
coordination with CCOs.
The CCOutreach National Seminar
in 2006 will include panel discussions with SEC staff and CCO
representatives on the latest compliance developments relevant to
CCOs. The National Seminar will again follow a series of regional
seminars held by Commission examination staff and will address
questions and issues raised at those programs.
Please click http://www.sec.gov/info/ccoutreach.htm for details about the CCOutreach Program Seminars, including the
dates and locations of the regional seminars.
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Independent
Directors Council and ICI Issues Board Governance Practices Survey
1.15.2005 The Independent
Directors Council and Investment Company Institute (ICI) released a summary of the mutual fund board governance
practices surveys over the last ten years. The survy is called "Overview of Fund Governance
Practices 1994 - 2004 (2006)."
The survey focuses on a number of mutual fund board structures and practices common
across the industry. It shows trends over the past 10 years and unique events or factors that may have in uenced a particular practice during the period. Information is also presented on fund assets managed by complexes that participated in each of the biennial studies, the average
fund assets served per director, the average number of funds served, and selected independent director
characteristics.
Please click http://www.idc1.org/getPublicPDF.do?file=fund_gov_practices to access a copy of the report.
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SEC Names Wyderko as the Acting Director
of the SEC's Division of Investment Management
1.12.2006 The SEC named Susan Ferris Wyderko as the Acting Director
of the SEC's Division of Investment Management, which oversees
mutual funds and investment advisers.
Ms. Wyderko has served as the Director
of the Office of Investor Education and Assistance since March 2000.
In that position she is principally responsible for the Commission's
outreach to individual investors, ensuring that their problems and
concerns are known throughout the Commission and considered when the
agency takes action.
She is a 20-year veteran of the SEC. She has held several senior positions within the agency,
including Director of the Office of Legislative Affairs and Acting
Director of Public Affairs. She previously served as a Counsel to
Chairman Arthur Levitt and as an Assistant General Counsel at the
SEC with responsibility for filing briefs with the
Courts of Appeals and the Supreme Court. From 1993 to 1995 she was an
Assistant Chief Litigation Counsel for the Division of Enforcement at
the SEC.
Please click http://www.sec.gov/news/press/2006-8.htm for the press release announcing the appointment.
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SIA Seeks Extension of "Merrill Lynch" Rule Compliance Deadline
1.10.2006 The Securities Industry Association (SIA) submitted a
request to the SEC for an extension of the compliance date for Rule
202(a)(11)-1(b)(2) of the Investment Advisers Act of 1940 until March 31, 2006. Rule 202(a)(11)-1(b)(2), the so-called "Merrill Lynch" rule, when effective, establishes that a
broker-dealer holding itself out as providing financial planning services and/or having discretionary authority over customer accounts is not engaging in services that are solely incidental to brokerage, and, thus, would have to register with the SEC as an investment adviser.
The SIA stated that its broker-dealer members have been working to
achieve compliance with the rule and accordingly have been reviewing and classifying accounts
as “discretionary” within the meaning of the rule, discussing investment options for each account
with clients, and documenting accounts as appropriate.
The SEC in September previously extended the compliance date for the
financial planning portion of Rule 202(a)(11)-1 until January 31, 2006. The SIA stated that "we all recognize, the preparations to comply with the financial planning aspects of the
rule necessarily could not proceed as definitively as could the discretionary brokerage piece,
because of the need for interpretive guidance." Therefore, the SIA requested an extension of the compliance date for the Rule until
March 31, 2006.
Please click http://www.sec.gov/rules/petitions/4-510a.pdf to access a copy of the SIA letter.
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SEC Brings Fraud Charge Against Connecticut Adviser
1.5.2006 The SEC obtained a default judgment
permanently enjoining David M. Faubert and his investment
advisory firm, Faubert Financial Group (FFG), from violating the
antifraud provisions of the securities laws. In
addition, Faubert and FFG were ordered to pay over $7.5 million in
disgorgement and penalties. In its Complaint, the SEC alleged
that from 2000 to the present, Faubert defrauded as many as 15 clients
by telling them he would invest their money in a "fixed account" which
"guaranteed" an 8% return. In many instances Faubert persuaded the
clients to transfer their money from legitimate investments such as
mutual funds or variable annuities into an investment in his "fixed
account" with its "guaranteed" return. However, instead of investing
the clients' funds as promised, Faubert diverted the funds for his
personal use, including the payment of his gambling debts. The
Complaint further alleged that, to conceal the fraud, Faubert
periodically provided the clients with account statements that he had
fabricated. Finally, the Complaint stated that Faubert defrauded the
clients of approximately $2.4 million.
Please click http://www.sec.gov/litigation/litreleases/lr19523.htm for a copy of the administrative action.
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SEC Issues Standards on When It Imposes Civil Penalties
1.4.2005 The SEC issued a statement on how it decides when , and if so to what extent, to impose civil penalties on firms.
In 1990, Congress passed the Securities Enforcement Remedies and Penny Stock Reform Act (the “Remedies Act”), which gave the SEC authority generally to seek civil money penalties in enforcement cases. The penalty provisions added by the Remedies Act expressly authorize the SEC to obtain money penalties from entities, including corporate issuers. These provisions also enhanced the SEC's authority to fine individuals.
The SEC stated that a key question is whether the firm’s violation has provided an improper benefit to the shareholders, or conversely whether the violation has resulted in harm to the shareholders. Where shareholders have been victimized by the violative conduct, or by the resulting negative effect on the entity following its discovery, the SEC is expected to seek penalties from culpable individual offenders acting for a firm.
The need for effective deterrence is another factor. The SEC cited the legislative history of the Remidies Act which also listed fraudulent intent, harm to innocent third parties, and the possibility of unjust enrichment to the wrongdoer as factors as to whether to impose a penalty.
Please click http://www.sec.gov/news/press/2006-4.htm to access a copy of the release.
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Employees of Mutual Fund Transfer Agent Charged with Fraud
1.1.2006 The SEC broght charges against six former officers of Putnam
Fiduciary Trust Company (PFTC), a Boston-based registered transfer
agent, for engaging in a fraudelent scheme. The SEC alleges that beginning in January 2001, the officers defrauded a defined contribution plan client and group of
Putnam mutual funds of approximately $4 million.
The SEC's complaint alleges that the officers' misconduct arose out of PFTC's one-day
delay in investing certain assets of a defined contribution client,
Cardinal Health, Inc., in January 2001. The markets rose steeply on
the missed day, causing Cardinal Health's defined contribution plan to
miss out on nearly $4 million of market gains. According to the
complaint, rather than inform Cardinal Health of the one-day delay or
compensate their client for the missed trading gain, the defendants
decided to improperly shift approximately $3 million of the costs of
the delay to shareholders of certain Putnam mutual funds through
deception, illegal trade reversals, and accounting machinations.
The SEC's complaint further alleges that the officers improperly allowed Cardinal
Health's defined contribution plan to bear approximately $1 million of
the loss without disclosing to Cardinal Heath that they had done so and took steps to cover-up the wrongful conduct. As a result, the
conduct was not discovered until January 2004.
Significantly, the SEC announced that it would not bring any
enforcement action against PFTC because of its swift, extensive and
extraordinary cooperation in the SEC's investigation of the
transactions that are the subject of the SEC's complaint.
PFTC's cooperation consisted of:
- prompt self-reporting,
- an independent internal investigation,
- sharing the results of that investigation with the government (including not asserting any applicable privileges and protections with respect to written materials furnished to the
Commission staff),
- terminating and otherwise disciplining responsible wrongdoers,
- providing full restitution to its defrauded clients,
- paying for the attorneys' and consultants' fees of its defrauded
clients, and
- implementing new controls designed to prevent the
recurrence of fraudulent conduct.
Please click http://www.sec.gov/litigation/complaints/comp19517.pdf for a copy of the administrative order.
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