All items from Securities and Financial Sector Legal Review

New York Attorney General Eric T. Schneiderman yesterday penned an New York Daily News op ed criticizing high speed trading as using “questionable practices” and “driving up the cost for other purchasers of stock.”
Schneiderman’s op ed, available here, comes on the heels of his statements last month calling for “tougher regulations and market reforms intended to eliminate the unfair advantages commonly provided to high-frequency trading firms at the expense of other investors.”
The AG’s March 18th Press Release stated:

Posted 2 weeks 1 day ago

Associate Krista Giannattasio co-authored this post.
A.   Reform on the Horizon for the Uniform Unclaimed Property Act
The Uniform Unclaimed Property Act (UUPA) was promulgated with the intention of abolishing the common law on abandoned property.  The UUPA provides a system for transferring intangible personal property and personal property in safety deposit accounts, held by an entity other than the rightful owner, to the state when it is deemed abandoned by the rightful owner.  The act was originally promulgated in 1954 by the Uniform Law Commission (ULC) as the Uniform Disposition of Unclaimed Property Act.  It was amended in 1966 and wholly revised in 1981 to become the UUPA.  The UUPA was last revised in 1995 and is due for a revision.  In anticipation of the revision, the Drafting Committee of the UUPA has noted 76 issues for consideration and has requested comments by April 22, 2014.
A  statement of the issues can be found here.
B.   PCAOB No Longer Pursuing Mandatory Audit Rotation in the United States

Posted 2 weeks 2 days ago

Associate Alina Mejer co-authored this post.

  1. SEC Enforcement Chief Speaks to Washington Post

Andrew Ceresney, the enforcement chief at the SEC, spoke with the Washington Post regarding his agenda. Ceresney discussed a new policy initiative which involves demanding admissions of wrongdoing in certain matters. The criteria the SEC will consider when deciding whether to demand admissions include harm to large numbers of investors, significant risk to investors and/or the markets, and situations where admissions would put investors on notice in future dealings with defendant in a way that is unambiguous. Additionally, Ceresney noted that the SEC will boost its enforcement efforts under the recently created Financial Reporting and Audit Task Force which focuses on detecting misconduct involving accounting and financial reporting disclosures, as well as audit failures.
The article can be found here.

Posted 6 weeks 5 days ago

Law Clerk Alina Mejer co-authored this post.

  1. SEC Technology Budget Slashed in Half

 In mid-January, Congress removed $50 million that the Securities and Exchange Commission had set aside for technology initiatives. The decision is a setback for the SEC as it had hoped to beef up its tools for spotting violations such as illegal trades and accounting fraud. Congress did not offer a reason explaining its decision.
More information about the budget cuts can be found here.
SEC Announces 2014 Examination Priorities
The SEC announced its examination priorities for 2014. Among the issues it will focus on are financial institutions, including investment advisers and investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds, and transfer agents. The priorities were selected by senior exam staff and managers and other SEC divisions and offices in consultation with the chair and other commissioners. The analytics used to select the priorities included:

Posted 10 weeks 5 days ago

The New York Times reported an increase in federal class-action securities suits in 2013, compared to the prior year.  According to a study from Cornerstone Research and Standford Law School, Plaintiffs filed 166 suits in 2013, up 9 percent compared to the 152 actions filed in 2012.
The Times speculates that “fewer companies on the New York Stock Exchange and the NASDAQ mean fewer companies to target.”
Notably, while the number of cases increased, the total damages sought by the 2013 suits was the lowest since 1998:
While the amount of cases increases slightly last year, the amount of money at stake shrank drastically. In 2013, Cornerstone estimated that all the suits combined could award as much as $279 billion to plaintiffs, the lowest level since 1998. That represents a 31 percent drop from 2012 levels, and a 57 percent drop from the historical average.
The Times quoted Joe Grundfest, a professor at Standford, who stated that “In a rising market, you simply don’t have losses that are as large.”

Posted 11 weeks 4 days ago

BrokerCheck will soon include information about registered national securities exchanges’ members and their associated persons that use the Central Registration Depository (“CRD”) for registration purposes.  As explained by the Securities and Exchange Commission (“SEC”) in its release approving Financial Industry Regulatory Authority, Inc.’s (“FINRA’s”) proposed rule change,

BrokerCheck provides the public with information on the professional background, business practices, and conduct of FINRA member firms and their associated persons. The information that FINRA releases to the public through BrokerCheck is derived from the CRD system, the securities industry online registration and licensing database. FINRA member firms, their associated persons, and regulators report information to the CRD system via the uniform registration forms.

Posted 14 weeks 4 days ago

Krista Giannattasio co-authored this post.
A.  SEC Removes References to NRSRO Ratings in Certain Rules and Forms
On December 27, 2013, the SEC announced that it had adopted amendments to eliminate references to credit ratings by nationally recognized statistical rating organizations (NRSROs) in certain rules and forms.  The changes were required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The SEC press release, as well as the affected rules and forms, can be found here.
B.   SEC Issues Staff Report on Public Company Disclosure

Posted 14 weeks 4 days ago

Law clerk Emi Briggs co-authored this article.
1. SEC Announces First Deferred Prosecution Agreement with Individual
On November 12, the Securities and Exchange Commission announced a deferred prosecution agreement with former hedge fund administrator, Scott Herkis. Herkis’ voluntary cooperation aided the SEC in filing an enforcement action against Heppelwhite Fund LP manager Berton M. Hochfeld for misappropriating over $1.5 million. The terms of the agreement state that Herckis aided and abetted Hochfeld’s securities law violations and among other prohibitions must not provide any services to any hedge fund for five years and must disgorge the approximately $50,000 in fees he received for serving as Hochfeld’s fund administrator.  The SEC press release can be found here.
2. SEC Hints at Transition to New COSO Framework

Posted 19 weeks 2 days ago

Associate Aartie Manansingh co-authored this article.
1. SEC Chair Mary Jo White Delivers Speech on Disclosure Reform
SEC Chair May Jo White recently delivered a speech regarding reporting rules and suggested that regulators review whether investors are faced with “information overload” and whether investors are better served by streamlined disclosures.  “I am raising the question . . . as to whether investors need and are optimally served by the detailed and lengthy disclosures about all of the topics that companies currently provide in the reports they are required to prepare and file with us,” White said before the National Association of Corporate Directors.  “We must continuously consider whether information overload is occurring as rules proliferate and as we contemplate what should and should not be required to be disclosed going forward.”  The full remarks can be accessed here.

Posted 21 weeks 5 days ago