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August 2013 Archives

President Obama Seeks Action from Regulators on Dodd-Frank Act

Slow progress has been made in the past three years on instituting “critical” parts of the Dodd-Frank Act, according to recent comments by the Obama Administration. President Obama voiced his frustrations with the slow progress of financial overhaul regulations on Monday in a closed-door meeting with federal regulators and lawmakers. He particularly emphasized the need to avoid another financial collapse like 2008, when the market crashed, in part, from risky mortgage lending that created the “housing bubble” in 2006 and 2007.  The Dodd-Frank Wall Street Reform and Consumer Protection Act (or the Dodd-Frank Act) served as a decisive legislative effort to overhaul current financial practices in the marketplace when it was passed into law in 2010. Since that time, however, federal regulatory agencies like the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Federal Reserve have had difficulty in implementing rules within the Act, both internally within agencies and “in the face of opposition from lobbyists for banks that opposed the law.” This push-back from banks continues to underlie the pervasive governmental and consumer aversion to institutions that become “too big to fail.” In addition to this opposition, the Administration emphasized in regulatory meetings that the lack of any efforts to institute the Volcker Rule  is especially disconcerting, which would “prohibit banks from risking institutional money in certain speculative investments.”  While the meeting likely reiterated goals for institutional adoption of the Act, the full implementation of the Act and its rules may not fully be realized well into the future. For additional information, please contact us at [email protected] or (619)298-2880. 

Keeping Up With Form 13F Requirements

 The Securities and Exchange Commission (“SEC”) requires all institutional investment managers that use the U.S. mail (or other means of instrumentality of interstate commerce) in the course of their business, and whom exercise investment discretion on over $100 million or more (Section 13(f) of the Securities Exchange Act of 1934), to report their holdings on a quarterly basis.  This information is reported to the SEC by filing “Form 13F.”  Form 13F is a reporting form that records (1) the number of shares owned in a security, (2) the class of the security, and (3) the fair market value of the security at the end of each calendar quarter.  These filings are done through an SEC-based system called EDGAR (the Electronic Data Gathering, Analysis, and Retrieval System).  The primary purpose of the EDGAR system is to increase the efficiency and fairness of the securities market for the benefit of investors, corporations, and the economy by accelerating the receipt, acceptance, dissemination, and analysis of time-sensitive corporate information filed with the agency.In May of 2013, the SEC implemented changes to the format in which these Forms are filed and to the capabilities of the EDGAR system itself, making the process much more user-friendly and efficient.  As a result of the change, operationally firms will need to:
  1. Submit data for the Information Table (“Table”) to EDGAR for filing via an “XML Notepad” format;
  2. Validate the Table in order to search for errors; and
  3. Upload and view a sample of the document before submitting.   These new features are very valuable, and enable filers to view a snapshot of what is being filed prior to submission, thereby avoiding potential mistakes and the need for future amendments.
To learn more about Form 13F filing requirements, please see the Form’s FAQ section on the SEC’s website.For additional information, please contact us at [email protected] or (619)298-2880.

Recent Cease-and-Desist Orders Issued by the SEC in Regards to Custody Violations

Recently, the Securities and Exchange Commission (“SEC”) issued an Order Instituting Administrative Cease-and-Desist Proceedings against Ronald S. Rollins (“Rollins”) of Plainfield, New Jersey (Rel. 34-70058).  Rollins is the former Chief Compliance Officer (“CCO”) of Comprehensive Capital Management, Inc. (“CCM”), a registered investment adviser firm.  Some of the violations referred to in the Order include: Rollins’ failure to reasonably supervise, aiding and abetting, and failure to comply with CCM’s custody policy.  For purposes of this blog posting, only the last violation will be discussed in greater detail.Rule 206(4)-2 of the Investment Advisers Act of 1940 (the “Act”) requires advisers who have custody of client assets to implement a set of controls designed to protect those assets.  In this context, “custody” means holding – directly or indirectly – client funds or securities, or having any authority to obtain possession of them, in connection with advisory services.In this case, the SEC alleges that from 2003 to 2011, Timothy J. Roth (“Roth”), an employee under Rollins at CCM, stole approximately $16 million from clients of the firm by transferring client assets into a custodial broker-dealer account which he controlled.  The fact that Roth had custody over these client assets was a direct violation of CCM’s written policies and procedures.  The SEC alleges that Rollins failed to reasonably implement CCM’s custody policy, and as such, willfully aided and abetted Roth’s actions in this instance. Even though Rollins was not forced to pay civil penalties due to his financial inability, he still received sanctions including a 12-month suspension for associating w/any industry professional, a 36-month bar from associating in a supervisory capacity for any industry professional, a 12-month prohibition from serving or acting as an employee of any industry professional, and a 12-month suspension from participating in any offering of a penny stock.This case exemplifies that merely developing custody related policies and procedures designed to prevent the violation of regulations is not enough.  Ongoing compliance efforts, such as keeping these policies and procedures current and ensuring that all employees have had a chance to review and understand these policies and procedures, are vital.  All employees of a firm, especially firm supervisors, are responsible for adhering to the written policies and procedures of the firm, and in doing so, can help prevent abuses and misconduct like those of CCM.   For further information on this, or other related topics, please contact us at [email protected] or (619) 298-2880.
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