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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 violations…

287

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: 1 December 1994

Rocco R. Vanasco

Highlights the role played by the Securities and Exchange Commission(SEC), the New York Stock Exchange (NYSE), the American Institute ofCertified Public Accountants (AICPA), The…

5958

Abstract

Highlights the role played by the Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE), the American Institute of Certified Public Accountants (AICPA), The Institute of Internal Auditors (IIA), the Treadway Commission, and other professional organizations in furthering the establishment of audit committees in the USA. In the international arena, the UK Cadbury Committee, the Australian Borsch Committee, and the Canadian Macdonald Commission have influenced the widespread use of corporate audit committees in their respective countries. The guidelines on audit committees set by the IIA, AICPA, SEC, and the Treadway Commission have had a tremendous impact worldwide. Cultural differences may, however, limit the formation and effectiveness of audit committees globally even though auditing is a relatively homogeneous profession. The Institute of Internal Auditors, as an international professional association, may wish to consider the cultural dimensions of corporate governance in formulating professional internal auditing standards dealing with the structure and functions of audit committees internationally.

Details

Managerial Auditing Journal, vol. 9 no. 8
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 1 October 2006

Andrew P. Cross

The purpose of this paper is to provide professionals in the global financial services industry with a useful summary of the proposed rules set out in April 2006 by two US…

188

Abstract

Purpose

The purpose of this paper is to provide professionals in the global financial services industry with a useful summary of the proposed rules set out in April 2006 by two US regulatory agencies – the Commodity Futures Trading Commission and the Securities and Exchange Commission.

Design/methodology/approach

The paper begins with background information regarding this regulatory structure and concludes with an overview of the proposed rules.

Findings

The issuance of these proposed rules is part of the continuing evolution of the regulatory structure in the US related to securities‐based futures contracts and is, therefore, best understood within that broader context.

Originality/value

The discussion of the proposed rules situates the continuing evolution of the securities‐based futures contracts in the broad context of the US regulatory structure.

Details

Journal of Financial Regulation and Compliance, vol. 14 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 July 2006

George R. Kramer and Alan E. Sorcher

To examine whether the New York Stock Exchange (NYSE) in its recent rule changes has provided the appropriate separation between its supervisory authority and the management of…

Abstract

Purpose

To examine whether the New York Stock Exchange (NYSE) in its recent rule changes has provided the appropriate separation between its supervisory authority and the management of the Exchange.

Design/methodology/approach

Describes the regulatory and governance structure proposed by the NYSE in connection with its public offering; discusses policy objections the security industry has made to the proposal, reviews responses by the NYSE and the Securities and Exchange Commission (SEC) to those objections; and discusses what steps might be on the horizon to better rationalize the regulatory and business side of the new for‐profit NYSE.

Findings

The NYSE's proposal should provide for regulatory consolidation with the NASD. The proposal heightens the conflict between a for‐profit exchange and its regulatory function. The proposal governance structure ignores the fact that NYSE LLC is the Exchange and has plenary authority over NYSE regulation. The proposal does not provide fair representation for members. The proposal does not provide appropriate treatment of market data.

Originality/value

Provides a comprehensive view of recent changes to the NYSE's regulatory and governance structure and issues raised by the securities industry in response to those changes.

Details

Journal of Investment Compliance, vol. 7 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 1 February 1998

Philip Summe and Kimberly A. McCoy

Throughout the history of commerce, individuals have searched for informational advantages that will lead to their enrichment. In a time of global capital markets, 24 hours a day…

Abstract

Throughout the history of commerce, individuals have searched for informational advantages that will lead to their enrichment. In a time of global capital markets, 24 hours a day trading opportunities, and a professional services corps of market experts, informational advantages are pursued by virtually every market participant. This paper examines one of the most vilified informational advantages in modern capital markets: insider trading. In the USA during the 1980s, insider trading scandals occupied the front pages of not only the trade papers, but also quotidian tabloids. Assailed for its unfairness and characterised by some as thievery, insider trading incidents increased calls for stricter regulation of the marketplace and its participants. In the aftermath of the spectacular insider trading litigation in the USA in the late 1980s, many foreign states began to re‐evaluate the effectiveness of their own regulatory structures. In large part, this reassessment was not the produce of domestic demand, but constituted a response to American agitation for increased regulation of insider trading.

Details

Journal of Financial Crime, vol. 5 no. 4
Type: Research Article
ISSN: 1359-0790

Article
Publication date: 14 September 2010

Henry A. Davis

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in April, May, and

Abstract

Purpose

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in April, May, and June 2010.

Design/methodology/approach

The paper provides excerpts from FINRA Regulatory Notice 10‐18, Master Accounts and Sub‐Accounts; 10‐22, Regulation D Offerings; 10‐23, Trade Reporting and Compliance Engine (TRACE); 10‐24, Trade Reporting; 10‐27, Customer Complaint Reporting; and 10‐30, Trading‐Pause Pilot Program; provides summaries of selected disciplinary actions.

Findings

(10‐18) If a firm has notice that the sub‐accounts of a master account have different beneficial ownership (but does not know the identities of the beneficial owners) or the firm is privy to facts and/or circumstances that would reasonably raise the issue as to whether the sub‐accounts, in fact, may have separate beneficial owners, then the firm must inquire further and satisfy itself as to the beneficial ownership of each such sub‐account. (10‐22) A broker‐dealer has a duty – enforceable under federal securities laws and FINRA rules – to conduct a reasonable investigation of securities that it recommends, including those sold in a Regulation D offering. (10‐23) On February 22, 2010, the SEC approved the second major proposed expansion of TRACE to include Asset‐backed Securities as TRACE‐Eligible Securities, to require the reporting of Asset‐backed Securities transactions and to establish reporting fees. (10‐27) Starting on July 1, 2010, the beginning of the third calendar quarter, firms must use revised and new product codes to report statistical information regarding written customer complaints relating to annuities and life settlement products. (10‐30) On June 10, 2010, FINRA began a pilot program in which it will halt trading otherwise than on an exchange with respect to securities included in the S&P 500® Index where the primary listing market has issued a trading pause due to extraordinary market volatility. Selected disciplinary actions: FINRA announced that it has settled charges with two additional firms relating to the sale of auction rate securities (ARS) that became illiquid when auctions froze in February 2008. FINRA announced that it has fined five broker‐dealers a total of $385,000 for the illegal sale of more than 8 billion shares of penny stock on behalf of their customers.

Originality/value

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org.

Details

Journal of Investment Compliance, vol. 11 no. 3
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 actions to…

202

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

Article
Publication date: 8 October 2019

Arthur L. Zwickel, Keith D. Pisani and Alicia M. Harrison

The purpose of this paper is to provide investment advisers, broker dealers, individual investors and other securities firms with a current and detailed summary of the reporting…

Abstract

Purpose

The purpose of this paper is to provide investment advisers, broker dealers, individual investors and other securities firms with a current and detailed summary of the reporting regime under Sections 13 and 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) and guidance on how to comply with the disclosure requirements of the U.S. Securities and Exchange Commission (the “SEC”) on Schedule 13D, Schedule 13G, Form 13F, Form 13H and Forms 3, 4 and 5.

Design/methodology/approach

The approach of this paper discusses the transactions or beneficial ownership interests in securities that trigger a reporting requirement under Section 13 and/or Section 16 of the Exchange Act, identifies the person or persons that have the obligation to file reports with the SEC, details the information required to be disclosed in the publicly available reports, and explains certain trading restrictions imposed on reporting persons as well as the potential adverse consequences of filing late or failing to make the requisite disclosures to the SEC.

Findings

The SEC continues to provide updated guidance on the disclosure requirements under Sections 13 and 16 of the Exchange Act, which individual investors and securities firms – largely insiders – must take into account when filing any new or amended reports on Schedule 13D, Schedule 13G, Form 13F, Form 13H and Forms 3, 4 and 5.

Originality/value

This article provides expert analysis and guidance from experienced securities lawyers.

Article
Publication date: 1 July 2006

Stuart J. Kaswell, Alan Rosenblat and Michael L. Sherman

To describe and analyze in detail an Interpretive Release (the “2006 Interpretation”) approved on July 12, 2006 by the US Securities and Exchange Commission (“SEC”) regarding the…

Abstract

Purpose

To describe and analyze in detail an Interpretive Release (the “2006 Interpretation”) approved on July 12, 2006 by the US Securities and Exchange Commission (“SEC”) regarding the soft dollar safe harbor under Section 28(e) of the Securities Exchange Act of 1934.

Design/methodology/approach

Following a brief discussion of the history of soft dollars, describes and analyzes in greater detail relevant aspects of the 2006 Interpretation, including an explanation of the three‐part test concerning the use of soft dollars to pay for products and services under the safe harbor, a discussion of “mixed use” items, further detail on soft dollar arrangements, an explanation of liabilities and obligations of managers and broker dealers, and an implementation timeline.

Findings

Under the 2006 Interpretation, a money manager may rely on the safe harbor to acquire products or services only upon satisfaction of each part of a three‐part test. First, does the product or service meet the eligibility criteria of Section 28(e)(3)? Second, does the eligible product or service provide lawful and appropriate assistance in the performance of relevant responsibilities? Finally, may the money manager properly conclude, in good faith, that the commissions paid are reasonable in relation to the value of the research and brokerage products and services provided by the broker (in relation either to the particular transaction or to the money manager's overall responsibilities with respect to discretionary accounts)? The 2006 Interpretation also is relevant to broker‐dealers who may receive soft dollars. Under Section 28(e), a money manager can pay soft dollars only to broker‐dealers who “provide” research or brokerage services and “effect” transactions. Under the 2006 Interpretation, the circumstances under which broker‐dealers will be seen as “providing” services and “effecting” transactions will be interpreted more broadly than under past interpretations, allowing brokers and money managers greater flexibility to structure soft dollar and commission‐sharing arrangements in a manner that will better serve the interests of investors.

Originality/value

Provides a detailed analysis of the 2006 Interpretation concerning soft dollars.

Details

Journal of Investment Compliance, vol. 7 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 16 March 2010

Andre E. Owens, Soo J. Yim, Beth A. Stekler and Cristie L. March

The purpose of this paper is to explain rule changes proposed by the Securities and Exchange Commission designed to address regulatory concerns related to “dark pools” of…

274

Abstract

Purpose

The purpose of this paper is to explain rule changes proposed by the Securities and Exchange Commission designed to address regulatory concerns related to “dark pools” of liquidity.

Design/methodology/approach

The paper explains the background and policy issues related to dark pools, discusses the SEC's amended definition of “bid” or “offer” under Regulation NMS to include “actionable indications of interest” (“actionable IOIs”), outlines a proposed reduction of the average daily trading volume threshold that triggers a public display of ATS orders from 5 percent to 0.25 percent, discusses a proposal to require an alternative trading system (“ATS”) to disclose its identity in real time on its reports of executed trades, and explains proposed size‐discovery exclusions to the changes detailed above.

Findings

The paper finds that the proposed rules represent the Commission's attempts to improve the NMS without inhibiting the use or continued technological development of trading strategies that are consistent with NMS goals.

Originality/value

The paper provides a clear explanation of complex market mechanisms and proposed rules by experienced financial institution and securities lawyers.

Details

Journal of Investment Compliance, vol. 11 no. 1
Type: Research Article
ISSN: 1528-5812

Keywords

21 – 30 of over 19000