JLG Legal Tips 2019

Advisory Firm Acquisition Considerations

July 2019

By: Robert Boeche, Esq., Sr. Associate

Robert Boeche Headshot 1
While there are numerous ways for firms, operating in the financial services industry, to grow their business, recently the trend has been to focus more on acquisition versus other means to accomplish growth. It is unclear exactly why this is occurring. Perhaps it’s due to a prolonged strong market, or the ever-increasing amount of regulatory scrutiny surrounding marketing initiatives normally needed to find new clientele. Whatever the cause(s), acquisitions are becoming more prevalent than ever before. Read More.

The California Consumer Privacy Act (CCPA): What You Should Do Now to Prepare

June 2019

By: Michelle L. Jacko, Esq., Managing Partner

Michelle Jacko HeadshotPrivacy safeguards - and how financial institutions are implementing consumer protections - are at the forefront of regulatory focus. For SEC registrants, on April 16, 2019, the Office of Compliance Inspections and Examinations ("OCIE") issued a Risk Alert, "Investment Adviser and Broker-Dealer Compliance Issues Related to Regulation S-P - Privacy Notices and Safeguard Policies" (the "Risk Alert"). This Risk Alert highlighted a number of compliance issues involving Regulation S-P and emphasized the importance of providing compliant privacy and opt-out notices, adopting and implementing effective policies and procedures for safeguarding customer records and information and training on and monitoring of privacy safeguards. Read More.

How Termination events trigger form u5 disclosures

May 2019

By: Robert D. Conca, Esq., Partner

Robert Conca Esq Headshot
Form U5 is the Uniform Termination Notice for Securities Industry Registration used by broker- dealers and investment advisers to report information about a variety of matters regarding a registered representative or investment adviser representative ("associated person") of that firm.1 The information on Form U5 is stored in the Central Registration Depository ("CRD") system, where securities firms and regulatory authorities report a variety of disclosure events regarding associated persons, including civil judicial actions, criminal matters, customer disputes and complaints, employment terminations, internal reviews or investigations of an associated person, financial matters (e.g., personal bankruptcy) and regulatory and disciplinary actions.  Read More.

WSPs: Windsor Street Capital, LP fka Meyers Associates, L.P.

April 2019

By: David Sobel, FINRA Specialist

David SobelIn today’s industry, we can never stress the importance of well-drafted Written Supervisory Procedures ("WSPs") to our clients enough. This month’s Risk Management Tip will discuss a December 2018 case further exemplifying the importance of such matters. As further described below, the firm in question ultimately lost its FINRA hearing, resulting in censures and a fine of $500,000. But fine aside, the peripheral costs of this case – such as time, reputation and legal fees, further expound the damages experienced by the firm. Windsor Street Capital, LP fka Meyers Associates, L.P. Read More.

Succession Planning 101: FAQs to Consider

March 2019

By: Robert Boeche, Esq., Sr. Associate

Robert Boeche Headshot 1What is Succession Planning? Succession planning is a process for determining how one will transfer a business ownership interest when a "succession event" occurs (e.g., upon the death, disability or retirement of a founder or a monetization event).

Why is Succession Planning important? While every firm is unique in ownership and framework, certain similarities exist across such spectrums. Specifically, if a "succession event" occurs, each firm must: (1) ensure that the business operations continue unabated; and (2) properly compensate business owners for the fruits of their efforts in the event of "succession event." Read More.

How Risk Alerts Can Help You Prepare for Your Next Examination

February 2019

By: Michelle L. Jacko, Esq., Managing Partner

Michelle Jacko HeadshotEach year the SEC's Office of Compliance Inspections and Examinations ("OCIE") publishes Risk Alerts as part of its National Exam Program. The intent of the Risk Alert is to remind advisers of their regulatory responsibilities and to advance compliance efforts through education about what OCIE has observed during its examinations in terms or internal control systems, policies and procedures - both good and bad. Read More.

What to Consider When Onboarding New Advisors

January 2019

By: Robert D. Conca, Esq., Partner

Robert Conca Esq HeadshotOver the past several years, Jacko Law Group, PC ("JLG") has seen an increase in the number of financial advisors transitioning from one broker-dealer or registered investment advisory firm to another. Making this type of change in the financial industry requires the navigation of federal and state laws, as well as an understanding of the contractual requirements that may guide the process. Regardless of the reasons for such a change, it is critical for both the onboarding firm as well as the transitioning advisor1 to pay close attention to laws that govern this area as well as any additional restrictions to mitigate risks and potential liability. Read More

JLG Legal Tips 2018

2018 SEC Enforcement Cases: A Year in Review

December 2018

By: Robert Boeche, Esq., Sr. Associate

Robert Boeche Headshot 1The Securities and Exchange Commission's ("SEC's") Division of Enforcement released its Annual Report (the "Report") last month, which discusses enforcement cases for its fiscal year of 2018 (which for the SEC concludes on September 30th). According to the Report, the SEC conducted over 3,150 examinations in FY 2018, resulting in 821 enforcement actions and disgorgements and monetary penalties of roughly $3.95 billion.1 Both the number of enforcement actions total disgorgements/penalties represented increases from FY 2017 when the SEC initiated 754 enforcement actions resulting in disgorgements and monetary penalties of roughly $3.8 billion.2 Enforcement actions also resulted in "nearly 550 bars and suspensions of wrongdoers in FY 2018."3 Read More.

The AML "Fifth Pillar"

November 2018

By: David Sobel, FINRA Specialist

David Sobel HeadshotThose professionals in the financial industry should be familiar with the Anti-Money Laundering ("AML") rules, which that have been in effect since 2003. Through the Bank Secrecy Act "BSA" (31 U.S.C. 5318(g)) and the USA Patriot Act, the government has been able to concentrate efforts on stopping the flow of illegal funds through the monetary world. These ill-gotten funds continue to account for world-wide terrorist financing, tax evasion and general money laundering. As AML laws become more of a staple to financial industry regulation, so too have the acronyms of KYC ("Know Your Client/Customer"), CIP ("Customer Identification Program") and AML CO ("Anti-Money Laundering Compliance Officer") become every day terms. Today, firms can add CDD ("Customer Due Diligence") and EDD ("Enhanced Due Diligence) to that list, which constitutes the "fifth pillar" of AML compliance programs. Read More.

Strategic Considerations for the Transitioning Advisor

October 2018

By: Robert D. Conca, Esq., Partner

Robert Conca Esq HeadshotInvestment adviser representatives and registered representatives (together, "Advisors") face numerous issues when making a move to a different financial services company. Even the strongest relationship with an employer can be strained when a departure occurs as the Advisor is generally attempting to transfer client relationships (and corresponding revenue) to the new company. Jacko Law Group, PC ("JLG") continues to see an increase in this activity, sometimes called "breakaways," where Advisors are forming their own independent businesses or combining with other existing investment advisers and broker-dealers. Read More

Common Compliance Violations Seen in 2018

September 2018

By: Michelle L. Jacko, Esq., Managing Partner

Michelle Jacko HeadshotFor those of us who have been in the regulatory compliance space for some time, we have seen compliance failures evolve as the financial industry continues to change. But two of the subject areas that continue to appear time and time again involve performance advertising and compliance program failures. Moreover, we have seen a series of enforcement cases emerge involving the calculation of advisory fees and inappropriate assessment of expenses. In this month's Legal Risk Management Tip, we will be examining these three areas and focusing on "lessons learned" as a result of recent enforcement actions. Read More.

Mid-Year Enforcement Actions

August 2018

By: David Sobel, FINRA Specialist

David Sobel HeadshotThe SEC and FINRA annually publish a letter outlining priorities for the coming year, which are the primary focuses for examiners upon visiting your shop. On average, it takes 6 months for violations to show up in enforcement actions and longer if it goes to a hearing. Below are some of the more notable FINRA cases of 2018, typically involving an AWC; these are Acceptance, Waiver and Consent ("AWC") with FINRA. Read More.

How Prepared Are You for an SEC Examination?

July 2018

By: Michelle L. Jacko, Esq., Managing Partner

Michelle Jacko Headshot

SEC examinations are on the rise, and the level of intensity during examinations perhaps has never been greater. From our experience, the length of examinations is increasing, particularly if the staff perceives weaknesses in a compliance program. The need for documentation supporting compliance efforts, coupled with training of employees, is essential to demonstrate. Based on this, firms need to be better prepared than ever before. Read More.

The SEC Reminds Advisers of the Importance of Proper Understanding, Disclosure, and Assessment of Advisory Fees

June 2018

By: Robert Boeche, Esq., Sr. Associate

Robert Boeche Headshot 1While it may seem obvious, proper disclosure and assessment of advisory fees is one of the most important aspects of the adviser-client relationship that some advisers are deficient in the eyes of the SEC staff. Disclosures concerning fees are paramount in allowing clients to make informed decisions as to whether to engage an adviser. Consequently, the fees actually assessed by the adviser should mirror those disclosed in advisory contracts and Form ADV. While conceptually this sounds straightforward, advisers continually find themselves in the cross-hairs of regulators for violations regarding fees. As a result, the SEC recently notified the financial industry that fees assessed to clients will be a point of emphasis during reviews. Specifically, the SEC is focusing attention on those advisers who are overcharging clients based upon fee disclosures made as part of the advisory firm's Form ADV and/or client agreement. Read More.

Private Equity Valuations - Best Practices from Lessons Learned

May 2018

By: Robert D. Conca, Esq., Partner

Robert Conca Esq HeadshotPrivate equity valuations present a unique challenge for advisers to private equity and other private funds ("PF Advisers"). Determining the market value of an illiquid portfolio company asset with no active market, and consistently arriving at a reasonable result, is challenging to say the least. Read More

Succession Planning 101: Safeguarding Your Business

April 2018

By: David Sobel, FINRA Specialist

David Sobel HeadshotYou're running a broker-dealer firm, or an investment advisory firm, and business is great. You have a terrific management team and they make sure that everything is running well and being profitable. But what happens if one of the owners or managers leaves or dies? No one likes to think about the worst happening, but if it does, what happens to your well-established company?

Where Do Cryptocurrencies Fit in the Regulatory Landscape?

March 2018

By: Robert Boeche, Esq., Sr. Associate

Robert Boeche Headshot 1Cryptocurrencies have generated a lot of recent press as a result of some currencies experiencing huge gains in value and/or experiencing large volatility. This has prompted industry professionals and investors alike to consider adding cryptocurrencies as part of an overall investment portfolio. Exactly how this can be accomplished will vary based upon the type of cryptocurrency and manner in which it is obtained. Unfortunately, this swelling interest in cryptocurrencies has also resulted in scams from unscrupulous persons seeking to take advantage of this new and developing area. As a result, securities regulators are searching for how to classify cryptocurrencies for regulatory oversight purposes. This article is designed to provide an overview of cryptocurrencies, and how they are currently being assessed by securities regulators. Read More.

Securities Law Issues Involving Crowdfunding Transactions

February 2018

By: Michelle L. Jacko, Esq., Managing Partner

Michelle Jacko Headshot

The challenge for many small businesses is having access to cash when starting their business operations. In 2012, an easier path to capital raising finally emerged. Under Title III of the Jumpstart Our Business Startups (JOBS) Act, Section 4(a)(6) was added to the Securities Act of 1933 ("Securities Act"), which provides an exemption from registration for the offer and sale of securities for certain crowdfunding transactions. Read More.

Hot Topics in Private Equity Regulation: Where to Focus Your Compliance Program Efforts

January 2018

By: Robert Conca, Esq., Partner

Robert Conca One area that continues to be a primary focus for the U.S. Securities and Exchange Commission ("SEC") in recent years is the private equity segment of the financial marketplace. As a continuing trend, the SEC's 2017 Examination Priorities clearly focused on private fund topics and practices. As we begin 2018, the SEC shows no signs of decreasing the scrutiny of private equity advisers ("PE Advisers"). With several years since many PE Advisers were required to register with the SEC, PE Advisers can expect their regulatory examinations to include emphasis on compliance areas that have been the subject of recent SEC guidance which applies more broadly to registered investment advisers of all shapes and sizes. Read More.

JLG Legal Tips 2017

2017 SEC Enforcement Cases: A Year In Review

December 2017

By: Robert Boeche, Esq., Sr. Associate

Robert Boeche Headshot 1As part of its "Fiscal Year 2017 Agency Financial Report" released by the U.S. Securities and Exchange Commission ("SEC") last month, the SEC discussed enforcement cases for its fiscal year of 2017 (which for the SEC concludes on September 30th). According to the Report, the SEC filed 754 enforcement actions in 2017, resulting in disgorgements and monetary penalties of roughly $3.8 billion. From the $3.8 billion, the SEC returned a record $1.0 billion to harmed investors, and ordered over $50 million in payments to whistleblowers. These enforcement actions also led to 625 bars and suspensions in 2017. Read More Here.

This Holiday Season, Review Your Services to Vulnerable Adults

November 2017

By: Michelle L. Jacko, Esq., Managing Partner and CEO

Michelle Jacko HeadshotDuring the Thanksgiving season, many of us spend time reflecting on what we are most thankful for. Immediately, my family, and those closest to me (including my clients), come to mind. As we meditate and think about life's various changes, often we are faced with contemplating the effects and challenges of aging. Certain vulnerabilities can surface, such as diminished capacity and financial exploitation, which require forward thinking and purposeful action. Read More

What To Do If You Receive a FINRA 8210 Letter

October 2017

By: David Sobel, FINRA Specialist

David Sobel HeadshotFINRA Rule 8210 allows FINRA staff and adjudicators the ability to inspect and copy certain books, records and accounts of their member firms and those associated with such member firms. Generally, Rule 8210 is used as a means through which FINRA obtains information for examining, investigating or proceeding against a member firm and its associated persons. Read More.

7 Essential Takeaways from the September SEC Risk Alert

September 2017

By: Robert Conca, Esq., Partner

Robert ConcaOn September 14, 2017, the Securities and Exchange Commission's ("SEC") Office of Compliance Inspections and Examination ("OCIE") released its latest Risk Alert titled "The Most Frequent Advertising Rule Compliance Issues Identified in OCIE Examinations of Investment Advisers" which is based on the results of over 1,000 examinations of registered investment advisers, including examinations in connection with the SEC's "Touting Initiative" focused on accolades used by advisers in marketing materials. Read More

Practical Steps for Assessing Risks

August 2017

By: Michelle L. Jacko, Esq., Managing Partner and CEO

Michelle Jacko HeadshotIn recent years, more and more financial institutions are electing to conduct a risk assessment as part of an annual compliance program check. Not only does a risk assessment help in the development of policies and procedures, but also can serve as a mitigation tool to help identify and proactively address potential threats to lower risk exposure. In this month's Legal Risk Management Tip, we will explore the starting points for creating a risk inventory, provide tips and factors for evaluating risks, discuss tools and systems to use as risk management controls and summarize actions to help support your compliance program. Read More

Choosing The Best Corporate Entity Structure For Your Business

July 2017

By: Robert Boeche, Esq., Sr. Associate

Robert Boeche Headshot 1Selecting the best corporate entity for your business can be daunting. What contributing factors should you consider? This article will provide a roadmap for the selection and creation of a business entity. It will focus on critical factors to consider when forming an entity, types of entities available and important characteristics of such entities. While this article will not discuss every topic that may be pertinent when creating an entity, it will provide entrepreneurs with a framework and practical considerations for doing so. Read More

What You Need to Know About Expungement, Part II:

June 2017

By: David Sobel, FINRA Specialist

David Sobel HeadshotIn the April 2017 Legal Risk Management Tip, What You Need to Know About Expungement, we focused on FINRA expungement as it pertains to customer complaints. Pursuant to Rules 2080 and 2081 and in Arbitrator Rules 12805 and 13805, in order to have a customer complaint removed from the CRD system and your BrokerCheck report, one must demonstrate that: Read More