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September 2015 Archives

NASAA Reports State Securities Regulators Took 2,042 Enforcement Actions in 2014

According to the North American Securities Administrators Association (“NASAA”) 2015 Enforcement Report on 2014 Data (the “Report”), state securities regulators conducted 4,853 investigations in 2014 resulting in $405 million in restitution, $174 million in fines and 1,629 years in prison sentences. The primary targets of those state enforcement actions were unregistered individuals followed by unregistered firms. According to the Report, licensed individuals made up 230 of the enforcement actions involving broker-dealer agents, 190 actions involved investment adviser representatives, 156 involved broker-dealer firms, and 146 involved investment adviser firms.The Report concluded that senior citizens are consistently targeted for fraudulent schemes involving unregistered securities such as promissory notes, private offerings or investment contracts.  More than half of the reported enforcement actions in 49 jurisdictions involved seniors. “Seniors remain a top target of investment fraud and protecting seniors from investment fraud and abuse is a key priority of NASAA and its members,” said William Beatty, NASAA President and Washington Securities Director.Beatty also stated that “Investors continue to rely upon their state securities agencies to provide frontline enforcement resources to protect them.” States received over 11,000 complaints from investors in 2014. 2,857 securities licenses were withdrawn and 728 were denied.  Respondents were also required pay almost $42 million in costs or expenses. To Read the report in its entirety, please click here.Most states have provisions designed to eliminate securities-related fraud. Some state laws also may include registration requirements for those securities that are traded within the state.Jacko Law Group, PC (“JLG”) can assist your firm with understanding the significant differences from state to state regarding registration or licensing requirements.For more information or to speak with a securities attorney on this and other related subjects, please contact us at [email protected] or (619) 298-2880.

Three California Men Charged with Fraud Relating to Real Estate Investment Scheme

anti-fraud_enAccording to a Securities and Exchange Commission (“SEC”) complaint filed in Riverside County, California, Paul Ricky Mata (“Mata”), David Kayatta (“Kayatta”) and Mario Pincheira (“Pincheira”) are accused of violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the fraud charges the SEC has instituted an asset freeze.

Legal Risk Management Tip - August 2015: Considerations for Advisors Within the Hybrid Model

Over the past few years, more and more firms are diversifying services and products. In an effort to support this business development and attract new talent, broker-dealers (“BDs”) are permitting associated persons to affiliate with independent, non-affiliated investment advisory firms (“IAs”) and vice-versa, which allows the representative to conduct both brokerage business (as a registered representative or “RR”) through the BD and advisory services (as an investment adviser representative or “IAR”) through the IA. This also allows for greater prospective client development opportunities, which leads to revenue generation.  However, with more diversity come greater compliance challenges that necessitate engagement of legal counsel during particular transactions. This legal tip will provide important information regarding challenges compliance officers have in overseeing the “hybrid” business model, with a case study involving special considerations for supervision of outside business activities and revenue flow.Click here to read the Legal Tip.

Audit Firm Admits to Issuing False and Misleading Audit Opinions

BDO USA (“BDO”), a national audit firm, and five of its partners are facing charges from the Securities and Exchange Commission (“SEC”) in relation to its client General Employment Enterprises (“General Employment”).  According to an SEC press release, BDO ignored red flags and issued false and misleading unqualified audit opinions for General Employment.According to the SEC’s orders instituting settled administrative proceedings against BDO and its partners, during a 2009 audit BDO was informed by General Employment of a $2.3 million 90-day certificate of deposit (“CD”). The CD represented about half of the company’s assets and most of its cash. However, the bank showed no record of the CD. BDO received a series of conflicting and unclear explanations from management regarding the CD but still issued unqualified opinions on the financial statements for General Employment’s 2009 and 2010 annual reports. Andrew Ceresney, Director of the SEC’s Division of Enforcement explained that“Audit firms must train their audit and national office professionals not only to recognize red flags but also to have the resolve to refuse signing off on an audit if there are unresolved material issues.”BDO has admitted to wrongdoing and will pay disgorgement fees of approximately $600,000 in addition to a $1.5 million penalty. BDO will also comply with a plan to improve its quality controls. The five BDO partners agreed to settle charges totaling $75,000. Four of the partners have been suspended from practicing public accounting for varying periods. Two former General Employee CEOs have also agreed to settle separate charges.Jacko Law Group, PC "JLG" assists firms in detecting internal control gaps to help prevent fraudulent activities from occurring in the first place. Please contact us for more information on audits and mock examinations.For more information on this and other related subjects, please contact us at [email protected] (619) 298-2880.

MSRB Seeks to Change Gift Rules

imagesACVIAH4GThe Municipal Securities Rulemaking Board (“MSRB”) is seeking The Securities and Exchange Commission’s (“SEC”) approval to apply business-related gift-giving limitations to its municipal advisors. According to an MSRB press release, the goal of the proposed rule change to MSRB Rule G-20 is to apply the same rules that apply to municipal securities dealers to municipal advisors and their associated persons. It is anticipated the amendments will address potential conflicts of interest created by gift-giving or gratuities connected to municipal advisory activities.“Amending the MSRB’s existing gifts rule would ensure common standards for dealers and municipal advisors that all operate in the municipal securities market,” said MSRB Executive Director Lynnette Kelly. Additional amendments to the rule would include prohibitions on reimbursement of certain expenses by dealers and advisors from the proceeds of an offering of municipal securities.Since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) the MSRB has been tasked with developing a “comprehensive regulatory framework” for municipal advisors. For a listing of all the current rules in development as a result of Dodd-Frank please click here.For interpretive guidance with respect to the proposed rule change or any other MSRB rules and how it may affect your business please contact Jacko Law Group, PC (“JLG”) for assistance.For more information on this and other related subjects, please contact us at [email protected] or (619) 298-2880.
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