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April 2012 Archives

ERISA Rule 408b-2 Disclosure Deadline Looms

The prohibited transaction provisions of ERISA limit arrangements and payments to service providers to ERISA-covered retirement plans, including investment advisers, which may involve conflicts of interest with respect to the use of plan assets.  An exemption from the prohibited transaction limitation is available, however, for the use of ERISA plan assets to pay reasonable compensation for services. In order to provide plan sponsors with the ability to effectively determine what constitutes reasonable compensation, the Department of Labor ("DOL") issued proposed regulations in December, 2007 that require service providers to provide specific disclosures to plan sponsors. After an interim final release in July 2010, final regulations were issued on February 2, 2012 establishing July 1, 2012 as the deadline for initial, required disclosures by plan service providers. The disclosures required by investment advisers, which will allow plan sponsors to make better informed decisions about the services they--as fiduciaries--purchase with plan assets, include:

B-D Corner: FINRA Proposes Simplified Expungement for Reps Not Named in Arbitration

FINRA announced this week it is requesting comment on proposed express procedures that would permit registered representatives who are the "subject of" allegations of sales practice violations made in arbitration claims (but are not named as actual parties to the arbitration) to seek expungement. So-called "subject of" allegations are reported to FINRA's Central Registration Depository ("CRD") system on Forms U4 and U5 in the same way that customer complaint is reported. Under FINRA's current code, these "unnamed persons" have three arduous options to have this information expunged from their CRD records:

SEC Shows Leniency to Whistleblower

In January 2010, the SEC established a formal program to encourage and reward individuals who cooperate with the agency in its enforcement investigations and litigation. On March 19, the SEC’s Enforcement Director, Robert Khuzami, issued a public statement touting the importance of the initiative and its successful use in two related enforcement actions settled in 2011. Khuzami credited the cooperation of a “senior executive” with facilitating the recovery of $217 million to victims and additional penalties of $27.5 million against AXA Rosenberg and Barr M. Rosenberg related to non-disclosed errors in the firm’s quantitative investment process. Relatedly, SEC Chairman Mary Shapiro recently praised the Commission’s whistleblower program for “producing higher quality leads and shortening the length of investigations.”Simultaneously with Khuzami’s statement, the SEC also issued Litigation Release No. 22298 “to provide guidance regarding the circumstances under which individuals may receive credit as part of the SEC’s Cooperation Initiative.” The release outlines four factors considered by the Enforcement Division in its determination not to subject the cooperating AXA Rosenberg executive to enforcement:
  • The executive offered cooperation and voluntarily requested to be considered under the Cooperation Initiative. Further, his position in the organization and close relationship with the wrongdoers allowed him to provide detailed and credible information, which was offered to the Division without a promise of any particular outcome for himself (further enhancing his credibility).
  • The enforcement action was significant, resulting in substantial returns to the victims of the wrongdoing and steep monetary and injunctive penalties against AXA Rosenberg.
  • The executive was found to have advocated for informing AXA Rosenberg’s CEO of the wrongdoing, and his interest in fixing the error helped facilitate quick and successful action against the firm and its principals.
  • Finally, the executive resigned from AXA and retired from the investment advisory industry all together. He was, therefore, no longer in a position to commit future violations of the securities laws.
This recent litigation release, in combination with the Commission’s whistleblower rule providing for significant financial rewards for reporting potential securities law violations, should motivate firms to implement comprehensive and strong internal whistleblowing and reporting procedures.For additional information about such procedures or any other compliance concern, please contact [email protected] or by phone at (619)298-2880.
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