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Article
Publication date: 26 August 2014

Mark Fitterman and Ignacio Sandoval

– To describe some of the challenges that the Securities and Exchange Commission (SEC) will face in requiring that high-frequency traders register as dealers.

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Abstract

Purpose

To describe some of the challenges that the Securities and Exchange Commission (SEC) will face in requiring that high-frequency traders register as dealers.

Design/methodology/approach

This paper provides a brief overview of the dealer-trader distinction, an analytical framework under which some high-frequency traders have avoided registration with the SEC as dealers. It then explains the difficulties the SEC will encounter in bringing high-frequency traders within its regulatory umbrella as dealers. In particular, the paper outlines some of the interpretive challenges the SEC encounter as well as challenges to justifying the economics of any proposal.

Findings

While the SEC has yet to formally propose rules in this area, the interpretive vehicle it uses could have repercussions for other market participants that rely on the dealer-trader distinction to avoid having to register as dealers with the SEC.

Originality/value

The paper provides practical insights into the issues the SEC will have to address if it proposes to bring high-frequency traders within its regulatory umbrella as dealers. In addition, it provides a concise overview of the dealer-trader distinction based on statements by the SEC and its staff.

Details

Journal of Investment Compliance, vol. 15 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 3 May 2016

Brian Rubin and Amy Xu

To analyze how the US Securities and Exchange Commission (SEC) has sanctioned broker-dealers (BDs) and registered investment advisers (RIAs) when cybersecurity breaches…

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Abstract

Purpose

To analyze how the US Securities and Exchange Commission (SEC) has sanctioned broker-dealers (BDs) and registered investment advisers (RIAs) when cybersecurity breaches have occurred and to discuss whether the SEC is imposing a strict liability approach.

Design/methodology/approach

Describes the cyber-attack of a small RIA, the remedial steps the RIA took after the attack, the SEC’s enforcement action, why this particular case is noteworthy, and the case’s implications for RIAs and BDs.

Findings

RIAs and perhaps BDs may face strict liability from the SEC if they are victims of cybersecurity attacks.

Practical implications

Firms may want to address the likelihood of an SEC enforcement action if a breach occurs by reviewing recent enforcement actions, SEC reports and statements, and FINRA reports and statements.

Originality/value

Discusses the possible future of SEC enforcement actions regarding cybersecurity breaches.

Article
Publication date: 1 January 1999

Thomas C. Newkirk

As surely as night follows day, the internationalisation of securities fraud has followed the internationalisation of the world's securities markets. As a result, the US…

Abstract

As surely as night follows day, the internationalisation of securities fraud has followed the internationalisation of the world's securities markets. As a result, the US Securities and Exchange Commission has had to develop new investigative and enforcement tools. If a boiler room operator in another country defrauds investors in the US by means of the Internet, the telephone or the mails, the SEC's ability to investigate the activities in the foreign country depends on its ability to obtain information and documents from persons it is able to assert jurisdiction over in the US, or to obtain assistance of its foreign counterparts.

Details

Journal of Financial Crime, vol. 6 no. 3
Type: Research Article
ISSN: 1359-0790

Article
Publication date: 5 May 2015

Richard J. Parrino, Peter Romeo and Alan Dye

The purpose of this paper is to review the enforcement initiative announced by the US Securities and Exchange Commission (SEC) in September 2014 directed at reporting…

280

Abstract

Purpose

The purpose of this paper is to review the enforcement initiative announced by the US Securities and Exchange Commission (SEC) in September 2014 directed at reporting violations of the Securities Exchange Act of 1934 (Exchange Act) by public company officers, directors and significant stockholders. The paper considers the notable features of the first round of SEC enforcement actions pursuant to that initiative and proposes measures public companies and their insiders can adopt to enhance compliance with their reporting and related disclosure obligations under the Exchange Act.

Design/methodology/approach

The paper examines the SEC’s enforcement initiative against the backdrop of the agency’s enforcement activity since 1990 for violations by public company insiders of the reporting provisions of Sections 13 and 16 of the Exchange Act. The paper summarizes the features of the reporting violations that attracted SEC enforcement interest in the recent proceedings and identifies the factors apparently weighed by the SEC in determining the amount of the penalties sought against those charged with the violations.

Findings

The SEC’s latest enforcement actions are unprecedented for insider reporting violations. The new enforcement initiative represents an abandonment by the SEC of its largely passive approach of the past dozen years in which it charged insider reporting violations only when they related to fraud or other major violations of the securities laws. If reporting violations are flagrant, the SEC now promises to target the offenders for enforcement on a stand-alone basis without regard to other possible wrongdoing. The SEC also cautions that, as it did in some of the recent enforcement actions, it may charge companies that promise to assist their insiders in the preparation and filing of their reports, but do not to make the filings in a timely manner, with contributing to the filing failures.

Originality/value

The paper provides expert guidance from experienced securities lawyers.

Article
Publication date: 12 March 2019

Joshua D. Roth and Justin J. Santolli

The purpose of this paper is to analyze the Supreme Court’s decision in Lucia v. Securities and Exchange Commission, 138 S.Ct. 2044 (June 21, 2018).

Abstract

Purpose

The purpose of this paper is to analyze the Supreme Court’s decision in Lucia v. Securities and Exchange Commission, 138 S.Ct. 2044 (June 21, 2018).

Design/methodology/approach

The approach of this paper is to discuss the Securities and Exchange Commission’s (“SEC”) use of Administrative Law Judges (“ALJs”), and the litigation challenging the appointment of those ALJs, culminating in the Supreme Court’s decision in Lucia.

Findings

In Lucia, the Court held that SEC ALJs are “officers of the United States,” and thus subject to the Constitution’s Appointments Clause, which limits the power to appoint “officers” to the President, “Courts of Law” or “Heads of Departments.” Because the ALJ who presided over Lucia’s administrative proceeding was not appointed by the SEC itself, the Court held that the ALJ’s appointment was unconstitutional and ordered the SEC to provide Lucia with a new hearing in front of a new (constitutionally appointed) ALJ.

Practical implications

The Supreme Court’s decision in Lucia provides defense counsel with new ammunition to challenge SEC administrative proceedings. It will likely have a significant effect on many pending and already-concluded SEC administrative proceedings but also leaves open a number of important questions for further litigation.

Originality/value

This paper provides expert analysis and guidance from experienced securities litigators.

Details

Journal of Investment Compliance, vol. 20 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 23 November 2010

David Bayless and David L. Kornblau

The purpose of the paper is to summarize key provisions in the Dodd‐Frank Wall Street Reform and Consumer Protection Act Affecting SEC and CFTC Enforcement.

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Abstract

Purpose

The purpose of the paper is to summarize key provisions in the Dodd‐Frank Wall Street Reform and Consumer Protection Act Affecting SEC and CFTC Enforcement.

Design/methodology/approach

The paper summarizes provisions on new SEC causes of action, including greater power to bring aiding‐and‐abetting claims and authorization to bring cases based on “control person” liability; other new SEC powers, including broader monetary penalty authority in administrative proceedings, a collateral bar that bars a person from any part of the securities business, codification of the SEC's extraterritorial enforcement jurisdiction, and expansion of nationwide service of process to federal court cases; monetary incentives and protections for whistleblowers; increased SEC funding; and CFTC enforcement powers, including a fraud liability provision, expanded liability for manipulation or providing false or misleading information, prohibition of various practices, authority to establish business conduct requirements, nationwide subpoena power, and the ability to seek various sanctions.

Findings

Dodd‐Frank has ramped up the enforcement mandates of the SEC and the CFTC more than at any time since the agencies were created. Their jurisdictional reach is broader, the causes of action they can bring have increased, and the remedies have expanded.

Practical implications

Public companies, regulated entities, and hedge funds, as well as their officers, directors, and employees, should brace themselves and prepare for a significant increase in enforcement activity by both the SEC and the CFTC.

Originality/value

The paper provides expert guidance from experienced financial services lawyers.

Details

Journal of Investment Compliance, vol. 11 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 4 September 2017

Thomas W. White

To review recent enforcement actions in which the Securities and Exchange Commission (“SEC”) enforced Rule 21F-17(a) under the Securities Exchange Act, which prohibits…

179

Abstract

Purpose

To review recent enforcement actions in which the Securities and Exchange Commission (“SEC”) enforced Rule 21F-17(a) under the Securities Exchange Act, which prohibits actions to impede whistleblower communications with the SEC, and to identify changes that entities subject to SEC regulation (including public companies, broker-dealers and investment managers) may wish to consider in their employee separation agreements and other documents that may include confidentiality provisions.

Design/methodology/approach

Examines settled cases since 2015, in which the SEC found that contractual provisions in employee separation agreements and other documents impeded employees from communicating with the SEC staff about possible violations of the securities laws, to identify the types of language that the SEC found to be problematic and the types of provisions that the SEC believes are desirable, if not legally mandated, to protect employee whistleblower rights and avoid impeding communications under Rule 21F-17(a).

Findings

Beginning in 2015, the SEC has actively enforced Rule 21F-17(a), focusing on provisions in separation agreements and other employee-related documents that potentially prevent employees from reporting legal violations to the SEC. The SEC’s efforts have resulted in settled orders involving alleged violations of the rule. The cases generally allege that provisions in employee separation agreements or other documents violated the rule because they prohibited or chilled employee communications with the SEC about possible legal violations.

Practical implications

Entities subject to SEC regulation (including public companies, broker-dealers and investment managers) should review their confidentiality agreements with employees and consider whether changes are warranted to address the SEC’s concerns as identified in the Rule 21F-17(a) cases.

Originality/value

Practical guidance regarding important whistleblower developments from experienced securities lawyer.

Details

Journal of Investment Compliance, vol. 18 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Book part
Publication date: 30 September 2019

Andrea M. Scheetz and Joseph Wall

With the increasing prevalence of awards for reporting fraudulent activity, it is important to learn if there are unintended consequences associated with the language…

Abstract

With the increasing prevalence of awards for reporting fraudulent activity, it is important to learn if there are unintended consequences associated with the language offering such awards. Aside from issues regarding submitting unsubstantiated claims of fraud to the Securities and Exchange Commission (SEC), Section 922 of the Dodd–Frank Act may inadvertently encourage would-be whistleblowers to delay reporting fraud. Potential whistleblowers may choose to delay reporting due to the consideration of alternatives to external reporting, in a misguided attempt to increase the size of an award, or due to their ethical stance on the issues. Using a three-stage mixed methods (experiment, open-ended interviews, and experiment) approach, this study provides evidence that increased knowledge of statutes involving external whistleblowing may result in reporting delays. The data suggest that despite statements from the SEC forbidding this, managers may choose to delay reporting when under the threshold necessary to receive an award. In such a manner, managers may be allowing the fraud to grow to a necessary perceived level over time. As might be expected, the accountants in this study were more cautious, checking to see if internal reporting worked first. Of particular note, 16 individuals indicated that they would never report, with the motivation apparently driven by fear of job loss and/or retaliation. Lastly, the intention to delay or speed up reporting may be very different based on the perception of ethics involved in the decision.

Details

Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78973-370-9

Keywords

Book part
Publication date: 23 September 2013

Nana Y. Amoah

This study investigates the relation between lawsuit attributes that support an inference of fraud and the probability and the size of securities lawsuit settlement. A…

Abstract

This study investigates the relation between lawsuit attributes that support an inference of fraud and the probability and the size of securities lawsuit settlement. A sample of 607 securities lawsuits between 1996 and 2006 is used in the analysis of the probability of settlement and a subsample of 261 lawsuit settlements is used in the analysis of the size of settlement. The empirical results indicate a positive association between the probability of a settlement and accounting irregularity, SEC enforcement action and stock offer. Accounting irregularity and SEC enforcement action are also documented to be positively related to the size of the settlement. The results imply that a stock offer supports a strong inference of fraud and the presence of accounting irregularity and SEC enforcement action in a lawsuit filing strengthens the fraud allegation and increases the likelihood of a settlement. The findings also suggest that the stronger the inference of fraud, the greater the size of the settlement. The results of this study add to our understanding of the determinants of securities lawsuit settlement. Studies using securities litigation as a proxy for fraud can use the results of this study to distinguish between fraud-related and nonfraud-related lawsuits.

Details

Managing Reality: Accountability and the Miasma of Private and Public Domains
Type: Book
ISBN: 978-1-78052-618-8

Keywords

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