Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, January 22, 2011

SEC Staff Study Recommends Uniform Fiduciary Standard for Investment Advisers and Broker-Dealers

Today the SEC released the Study on Investment Advisers and Broker-Dealers required by Section 913 of the Dodd-Frank Act.  As virtually everyone expected, the Study recommends adoption of a uniform fiduciary standard for investment advisers and broker-dealers who provided individualized advice to retail investors.  As is ever the case, however, the "devil is in the details," and the Study is short on specifics. 

 The Report is a staff report and expressly states it does not set forth the views of the Commission.  The two Republican Commissioners (Casey and Paredes) opposed the release of the Study in its present form because, in their view, "a stronger analytical and empirical foundation than provided by the Study is required before regulatory steps are taken that would revamp how broker-dealers and investment advisers are regulated." 

First, it is important to remember what section 913 required the SEC to do.  Section 913 requires the agencyto conduct a study to evaluate:
• The effectiveness of existing legal or regulatory standards of care (imposed by the Commission, a national securities association, and other federal or state authorities) for providing personalized investment advice and recommendations about securities to retail customers; and
• Whether there are legal or regulatory gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for providing personalized investment advice about securities to retail customers that should be addressed by rule or statute.

The Study recommends establishing a uniform fiduciary standard for investment advisers and broker-dealers when providing investment advice about securities to retail customers that is consistent with the standard that currently applies to investment advisers under Advisers Act Sections 206(1) and (2), subject to two important limitations set forth in the statute.  Section 913 explicitly provides that the receipt of commission-based compensation, or other standard compensation, for the sale of securities does not violate the uniform fiduciary standard of conduct applied to a broker-dealer and  that the uniform fiduciary standard does not require broker-dealers to have a continuing duty of care or loyalty to a retail customer after providing personalized investment advice.

The Study sets forth the following recommendations for implementing a uniform fiduciary standard:

"Implementing the Uniform Fiduciary Standard: The Commission should engage in rulemaking and/or issue interpretive guidance addressing the components of the uniform fiduciary standard: the duties of loyalty and care. In doing so, the Commission should identify specific examples of potentially relevant and common material conflicts of interest in order to facilitate a smooth transition to the new standard by broker-dealers and consistent interpretations by broker-dealers and investment advisers. The Staff is of the view that the existing guidance and precedent under the Advisers Act regarding fiduciary duty, as developed primarily through Commission interpretive pronouncements under the antifraud provisions of the Advisers Act, and through case law and numerous enforcement actions, will continue to apply.

"Duty of Loyalty: A uniform standard of conduct will obligate both investment advisers and broker-dealers to eliminate or disclose conflicts of interest. The Commission should prohibit certain conflicts and facilitate the provision of uniform, simple and clear disclosures to retail investors about the terms of their relationships with broker-dealers and investment advisers, including any material conflicts of interest.

"The Commission should consider which disclosures might be provided most effectively (a) in a general relationship guide akin to the new Form ADV Part 2A that advisers deliver at the time of entry into the retail customer relationship, and (b) in more specific disclosures at the time of providing investment advice (e.g., about certain transactions that the Commission believes raise particular customer protection concerns).

"The Commission also should consider the utility and feasibility of a summary relationship disclosure document containing key information on a firm’s services, fees, and conflicts and the scope of its services (e.g., whether its advice and related duties are limited in time or are ongoing).

"The Commission should consider whether rulemaking would be appropriate to prohibit certain conflicts, to require firms to mitigate conflicts through specific action, or to impose specific disclosure and consent requirements.

"Principal Trading: The Commission should address through interpretive guidance and/or rulemaking how broker-dealers should fulfill the uniform fiduciary standard when engaging in principal trading.

"Duty of Care: The Commission should consider specifying uniform standards for the duty of care owed to retail investors, through rulemaking and/or interpretive guidance. Minimum baseline professionalism standards could include, for example, specifying what basis a broker-dealer or investment adviser should have in making a recommendation to an investor.

"Personalized Investment Advice About Securities: The Commission should engage in rulemaking and/or issue interpretive guidance to explain what it means to provide “personalized investment advice about securities.”

"Investor Education: The Commission should consider additional investor education outreach as an important complement to the uniform fiduciary standard."

The Study then addresses the related issue of harmonizing the regulation of investment advisers and broker-dealers:

"Harmonization of Regulation: The Staff believes that a harmonization of regulation—where such harmonization adds meaningful investor protection—would offer several advantages, including that it would provide retail investors the same or substantially similar protections when obtaining the same or substantially similar services from investment advisers and broker-dealers. The following recommendations address certain other areas where investment adviser and broker-dealer laws and regulations differ, and where the Commission should consider whether laws and regulations that apply to these functions should be harmonized for the benefit of retail investors:

"Advertising and Other Communications: The Commission should consider articulating consistent substantive advertising and customer communication rules and/or guidance for broker-dealers and investment advisers regarding the content of advertisements and other customer communications for similar services. In addition, the Commission should consider, at a minimum, harmonizing internal pre-use review requirements for investment adviser and broker-dealer advertisements or requiring investment advisers to designate employees to review and approve advertisements.

"Use of Finders and Solicitors: The Commission should review the use of finders and solicitors by investment advisers and broker-dealers and consider whether to provide additional guidance or harmonize existing regulatory requirements to address the status of finders and solicitors and their respective relevant disclosure requirements to assure that retail customers better understand the conflicts associated with the solicitor’s and finder’s receipt of compensation for sending a retail customer to an adviser or broker-dealer.

"Supervision: The Commission should review supervisory requirements for investment advisers and broker-dealers, with a focus on whether any harmonization would facilitate the examination and oversight of these entities (e.g., whether detailed supervisory structures would not be appropriate for a firm with a small number of employees) and consider whether to provide any additional guidance or engage in rulemaking.

"Licensing and Registration of Firms: The Commission should consider whether the disclosure requirements in Form ADV and Form BD should be harmonized where they address similar issues, so that regulators and retail investors have access to comparable information. The Commission also should consider whether investment advisers should be subject to a substantive review prior to registration.

"Licensing and Continuing Education Requirements for Persons Associated with Broker-Dealers and Investment Advisers: The Commission could consider requiring investment adviser representatives to be subject to federal continuing education and licensing requirements.

"Books and Records: The Commission should consider whether to modify the Advisers Act books and records requirements, including by adding a general requirement to retain all communications and agreements (including electronic information and communications and agreements) related to an adviser’s “business as such,” consistent with the standard applicable to broker-dealers."

Finally, while Congress mandated a study of this issue, it did not mandate that the SEC engage in rulemaking.  It remains very much to be seen whether and when the SEC will take up rulemaking.  Certainly Commissioners Casey and Paredes have made clear their view that additional empirical research is needed before adoption of any rules.

January 22, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Friday, January 21, 2011

SIGTARP: Citi Bailout Increased Moral Hazard

The Special Inspector General for the TARP Program released, on Jan. 13, 2011, a Report on Extraordinary Financial Assistance Provided to Citigroup, Inc. (Download SIGTARP.ExtraordinaryAsstnceCitigroup).  While it generally gives high marks to the government's efforts in bailing out Citigroup, it concludes with two significant reservations:

First, the conclusion of the various Government actors that Citigroup had to be saved was strikingly ad hoc....  Given the urgent nature of the crisis surrounding Citigroup, the ad hoc character of the systemic risk determination is not surprising, and SIGTARP found no evidence that the determination was incorrect.

Nevertheless, the absence of objective criteria for reaching such a conclusion raised concerns about whether systemic risk determinations were being made fairly and with consistent criteria. Such concerns could be addressed at least in part by the development, in advance of the next crisis, of clear, objective criteria and a detailed road map as to how those criteria should be applied....

Second, the Government’s actions with respect to Citigroup undoubtedly contributed to the increased moral hazard that has been a direct byproduct of TARP. While the year-plus of Government dependence left Citigroup a stronger institution than it had been, it remained, and arguably still remains, an institution that is too big, too interconnected, and too essential to the global financial system to be allowed to fail.  When the Government assured the world in 2008 that it would not let Citigroup fail, it did more than reassure troubled markets – it encouraged high-risk behavior by insulating risk takers from the consequences of failure.

Unless and until institutions like Citigroup can be left to suffer the full consequences of their own folly, the prospect of more bailouts will potentially fuel more bad behavior with potentially disastrous results. Notwithstanding the passage of the Dodd-Frank Act, which does give FDIC new resolution authority for financial companies deemed systemically significant, the market still gives the largest financial institutions an advantage over their smaller counterparts by enabling them to raise funds more cheaply, and enjoy enhanced credit ratings based on the assumption that the Government remains as a backstop. And because of the prospect of another Government bailout, executives at such institutions might be motivated to take greater risks than they otherwise would.

The Dodd-Frank Act was intended in part to address the problem of institutions that are “too big to fail.” Whether it will successfully address the moral hazard effects of TARP remains to be seen, and there is much important work left to be done.... [I]t underscores a TARP legacy, the moral hazard associated with the continued existence of institutions that remain “too big to fail.” It also serves as a reminder that the ultimate cost of bailing out Citigroup.


January 21, 2011 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Thursday, January 20, 2011

SEC Adopts Final Rules Requiring Issuer Review of ABSs

The SEC adopted new requirements in order to implement Section 945 of the Dodd-Frank Act. The new rule requires any issuer registering the offer and sale of an asset-backed security (“ABS”) to perform a review of the assets underlying the ABS. The SEC also adopted amendments to Item 1111 of Regulation AB that would require an ABS issuer to disclose the nature of its review of the assets and the findings and conclusions of the issuer’s review of the assets.

January 20, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Staff Releases Study on Investment Adviser Exams; Walter Expresses Support for SRO Option

Section 914 of the Dodd-Frank Act mandates that the SEC conduct a study to review and analyze the need for enhanced examination and enforcement resources for investment advisers.  The statute requires the examination of: (1) the number and frequency of examinations of investment advisers by the Commission over the five years preceding the date of the enactment (2) the extent to which having Congress authorize the Commission to designate one or more self-regulatory organizations (each, an “SRO”) to augment the Commission’s efforts in overseeing investment advisers would improve the frequency of examinations of investment advisers; and (3) current and potential approaches to examining the investment advisory activities of dually-registered broker-dealers and investment advisers (“dual registrants”) and registered investment advisers that are affiliated with a broker-dealer. The Study must also include a discussion of the regulatory or legislative steps that are recommended or that may be necessary to address the concerns identified in the Study. 

On Jan. 19 the SEC released the Study (Download 914studyfinal), which is a product of the Staff of the Division of Investment Management.  The Commission has officially expressed no view regarding the Study's analysis, findings or conclusions, although as discussed below Commissioner Walter has expressed her view independently.

The SEC reports that while the number of registered investment advisers (RIAs) and the assets managed by them have grown significantly over the past six years, the number of OCIE staff has declined over the same period.  As a result, the number and frequency of examinations have also declined during this period.

 While the anticipated decline in the number of RIAs (resulting from the increased numbers of investment advisers that will be regulated by the states) could result in a greater percentage of RIAs being examined, because of new examination obligations created by Dodd-Frank, the staff believes that the SEC will not likely have sufficient capacity to conduct effective examinations of RIAs with adequate frequency without an adequate source of stable funding.

The Study sets forth three options that Congress should consider in order to strengthen the examination program.  Specifically, it discusses:

  1. imposing user fees on RIAs to fund their examinations by OCIE;
  2. authorizing one or more SROs to examine, subject to SEC oversight, all RIAs; and
  3. authorizing FINRA to examine dual registrants for compliance with the Advisers Act.

The Study goes on to analyze the ability of user fees and one or more SROs to augment the SEC's regulation of RIAs.  It also analyzes alternatives to the current approach of examining dual registrants and RIAs that are affiliated with a broker-dealer.

The Study concludes by recommending that Congress consider the three options outlined above.

SEC Commissioner Elisse Walter released a statement (Download Walterletteron914Study) in which she expressed her disappointment with the result:

Although I voted to release the study, for the first time in my tenure as a Commissioner, I feel that it is necessary for me to write separately in order to clarify and emphasize certain facts, and ensure that Congress knows that the current resource problem is severe, that the problem will only be worse in the future, and that a solution is needed now. I have spent many years considering these issues, and have definite and clear views on them.

She goes on to state that "unfortunately, the study's description and weighing of the alternatives is far from balanced or objective."  In her view, the Study states the benefits of a user fee option without making clear that many of these benefits would be achieved under the SRO option.  The Study also attributes virtually no disadvantages to the user fee option, but many disadvantages to the SRO and FINRA dual registrant options.  She goes on to advocate for the SRO model and concludes:

Through NSMIA we have precedent, albeit limited, indicating that periodic reallocation of responsibilities for the regulation of investment advisers from the Commission to the states is not a long-term solution to enhancing the Commission’s examination and enforcement resources. We also have precedent, spanning more than seven decades, that SROs can significantly enhance the Commission’s examination and enforcement resources relating to its regulated entities. And this can and has been done through a structure in which the Commission retains and exercises comprehensive oversight and supervision of SROs. The SRO model can also be used to buttress scarce resources at the state level.
We need to address this issue now. It must not be relegated to another day—as has happened in the past. For far too long, in the investment advisory area, the Commission has been unable to perform its responsibilities adequately to fulfill its mission as the investor’s advocate, and investment advisory clients have not been adequately protected. This must change.

FINRA released the following response to the Study:

The SEC has thoughtfully evaluated the need for additional oversight of investment advisers and has rightly concluded that having the ability to leverage SRO resources could be advantageous to assisting the Commission. We agree with the SEC that an SRO can augment government oversight programs through more frequent examinations. As we have consistently stated, customers of investment advisers would benefit from the additional protection afforded by SRO oversight. Investors deserve the same level of protection regardless of whether they are dealing with a broker or investment adviser.  We also appreciate the SEC's recognition that SROs have played an important role in protecting investors in the regulation of broker-dealers



January 20, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)


The SEC today adopted new rules related to representations and warranties in asset-backed securities offerings. The final rules require securitizers of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests. They also require nationally recognized statistical rating organizations to include information regarding the representations, warranties and enforcement mechanisms available to investors in an asset-backed securities offering in any report accompanying a credit rating issued in connection with such offering, including a preliminary credit rating.

January 20, 2011 in SEC Action | Permalink | Comments (1) | TrackBack (0)

SEC Charges New York Investment Firms with Fraud

The SEC today charged three affiliated New York-based investment firms and four former senior officers with fraud, misuse of client assets, and other securities laws violations involving their $66 million advisory business.  The SEC alleges that the operation’s investment adviser William Landberg and president Kevin Kramer — through the firms West End Financial Advisors LLC (WEFA), West End Capital Management LLC (WECM), and Sentinel Investment Management Corporation — misled investors into believing that their money was in stable, safe investments designed to provide steady streams of income. However, in reality West End faced deepening financial problems stemming from Landberg’s failed investment strategies. When starved for cash to meet obligations of the West End funds or for his personal needs, Landberg misused investor assets, fraudulently obtained more than $8.5 million from a bank, and used millions of dollars from an interest reserve account for unauthorized purposes.  According to the SEC, the misconduct occurred from at least January 2008 to May 2009.

The SEC also charged West End’s chief financial officer Steven Gould and controller Janis Barsuk for their roles in the scheme.

 The SEC charged Landberg, Kramer, Gould, WEFA, WECM, and Sentinel with violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. In addition, Landberg, WEFA, WECM, and Sentinel are charged with violating the antifraud provisions of the Investment Advisers Act of 1940. Kramer, Gould, and Barsuk are charged with aiding and abetting violations of the Advisers Act. Barsuk is also charged with aiding and abetting violations of the antifraud provisions of the Exchange Act. The SEC seeks to enjoin each defendant from future violations of the securities laws as well as monetary relief, the imposition of an independent monitor, and certain other sanctions.

January 20, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC Releases Study on Enhancing Investment Adviser Exams

The SEC released its report(Download 914studyfinal) on investment adviser examinations required by Dodd-Frank section 914 late yesterday, after I had blogged about its delay.  I will report on the SEC's findings later today.

January 20, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 19, 2011

SEC Releases Agenda for Next Open Meeting

SEC Open Meeting - January 25, 2011 
The subject matter of the Open Meeting will be:

The Commission will consider whether to adopt rules to implement Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires shareholder advisory votes to approve the compensation of executives, or say-on-pay votes, and the frequency of shareholder say-on-pay votes. Section 951 also requires shareholder advisory votes to approve certain agreements and understandings concerning executive compensation that is based on or otherwise relates to the acquisition, merger, consolidation, sale or other disposition of all or substantially all of the assets of an issuer, and requires enhanced disclosure of these golden parachute arrangements.
The Commission will consider whether to propose rule amendments that would implement Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the definition of "accredited investor."
The Commission will consider whether to propose a rule under the Advisers Act establishing reporting obligations for advisers to private funds to implement the requirements of Sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

January 19, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC, DOJ Charge Off ShoreCompany with Life Settlement Bonding Fraud

The SEC charged Provident Capital Indemnity Ltd. (PCI), its president, and its purported outside auditor with conducting a massive life settlement bonding fraud.  According to the SEC, PCI is an offshore company located in Costa Rica that provides financial guarantee bonds on life settlements and claims to protect investors’ interests in life insurance policies by promising to pay the death benefit if the insured lives beyond his or her estimated life expectancy. From at least 2004 to March 2010, PCI issued approximately 197 bonds backstopping numerous bonded offerings of investments in life insurance policies with a face value of more than $670 million. The PCI bonds were a material component of numerous third-party life settlement offerings in the U.S. and abroad.

The SEC alleges that PCI, its president Minor Vargas Calvo (Vargas), and purported outside auditor Jorge L. Castillo misrepresented PCI’s ability to satisfy its obligations under its bonds. They made material misrepresentations about the assets that backed PCI’s bonds, PCI’s credit rating, the availability of reinsurance to cover claims on PCI’s bonds, and whether PCI’s financial statements had been audited.

The U.S. Attorney’s Office for the Eastern District of Virginia and the Fraud Section of the Department of Justice’s Criminal Division also announced simultaneously a parallel criminal action against the defendants and the arrests of Vargas and Castillo.

According to the SEC’s complaint, a life settlement investment is illiquid and open-ended without a bond because the investment’s payout date and return are dependent upon the date of the insured’s death. PCI’s bonds offered a fixed maturity date for the investments because PCI’s bond obligated PCI to pay investors (directly or indirectly through the life settlement issuer) the face value of the underlying insurance policy by a date certain if the insured lived past his life expectancy date.

January 19, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Chiesi Pleads Guilty in Galleon Insider Trading Case

Danielle Chiesi, a former consultant to hedge fund New Castle Funds and a key figure in the insider trading case involving Galleon Group founder Raj Rajaratnam, pleaded guilty today to three counts of conspiracy.  She admitted receiving tips about a number of companies, including IBM and Sun Microsystems, and passing them on to her boss and others in the hedge fund industry.  A former IBM executive pleaded guilty last year.  Mr. Rajaratnam maintains his innocence and awaits trial next month.

WSJ, 'Deeply Ashamed': Ex-Consultant Chiesi Pleads Guilty in Galleon Probe

NYTimes, Chiesi Pleads Guilty in Galleon Insider Case

January 19, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 18, 2011

Dodd-Frank Releases Risk Retention Study on Securitization Market

The Dodd-Frank Act requires the Chairman of the Financial Stability Oversight Council (FSOC) to issue a study on the Dodd-Frank Act’s risk retention requirements within 180 days of enactment.  This risk retention study was delivered to Congress on January 18, 2011 and examines the ways that risk retention, also known as “skin in the game,” can help reform the securitization market, protect the public and the economy against irresponsible lending practices, and facilitate economic growth by allowing for safe and stable credit formation for consumers, businesses, and homeowners.

January 18, 2011 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

FSOC Approves Volcker Rule and Concentration Limit Studies

The Financial Stability Oversight Council (FSOC) convened its third meeting today at the U.S. Department of the Treasury and approved a study and recommendations regarding the Volcker Rule; a study and recommendations regarding the concentration limit for large financial firms; a Notice of Proposed Rulemaking (NPR) regarding designations of nonbank financial companies for heightened supervision; and the minutes of the FSOC’s previous meeting, held on November 23, 2010.   

January 18, 2011 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

GAO Issues Report on Role of Governmental Accounting Standards in Muni Markets

The GAO issued a report on Dodd-Frank Wall Street Reform Act: Role of the Governmental Accounting Standards Board in the Municipal Securities Markets and Its Past Funding.  Here is the summary:

Stakeholders viewed GAAP-basis financial statements as highly useful for assessing the quality of municipal securities. Several analysts, issuers, and other stakeholders stated that GAAP-basis financial statements are comprehensive. Analysts generally agreed that, while GAAP-basis financial statements are important, they are not the only source of information they use to assess the quality of municipal securities, nor does the use of GAAP necessarily equate to a high-quality security. Several stakeholders believed that GAAP-basis financial statements are associated with lower borrowing costs, although others stated that it is difficult to attribute lower costs to the use of GAAP alone. Stakeholders stated that GAAP-basis financial statements are complex and expensive to prepare, particularly for small, infrequent issuers. Stakeholders generally agreed that governments are not always timely in issuing audited financial statements, making them less useful to analysts and other users, although a few stakeholders maintained that other publicly available information compensates for the lack of timeliness. The Financial Accounting Foundation, the parent organization of GASB and FASB, is a private-sector non-stock corporation qualified as a tax exempt organization under section 501(c)(3) of the U.S. Internal Revenue Code. The Foundation's mission is to establish and improve financial accounting and reporting standards to foster financial reporting that provides decision-useful information to users of financial reports. Through its Board of Trustees and its executive management, the Foundation oversees FASB and GASB, including the standards boards' procedures for due process and maintaining independence. Under the bylaws of the Foundation, the Governmental Accounting Standards Advisory Council, a standing advisory committee of GASB, is responsible for providing technical and other support to GASB, including consulting with GASB on a variety of matters, such as major technical issues and providing input on GASB's agenda of projects and assigning of priorities. The Foundation is responsible for the oversight, administration, and finances for GASB and FASB. The Foundation currently receives its funding from subscription and publications revenues, accounting support fees for FASB pursuant to the Sarbanes-Oxley Act of 2002, and voluntary contributions in support of GASB. The Dodd-Frank Wall Street Reform and Consumer Protection Act granted SEC the authority to require a registered national securities association to establish (1) a reasonable annual support fee to adequately fund GASB, and (2) rules and procedures to provide for the equitable assessment and collection of the support fee from the members of the national securities association. As of January 4, 2011, SEC had not acted on this authority. According to the Foundation's annual reports, in 1981, the Foundation established a Reserve Fund, which is currently intended to (1) provide the Foundation, FASB, and GASB with sufficient reserves to fund expenditures not funded by accounting support fees or subscription and publication revenues; (2) operate the Foundation, FASB, and GASB during any temporary or permanent funding transition periods; and (3) fund any other unforeseen contingencies. The Foundation's Trustees have adopted a policy establishing a targeted year-end Reserve Fund balance equal to 1 year of budgeted expenses for the entire organization, including the Foundation, FASB, and GASB, plus a working capital reserve equal to one quarter of the net operating expenses for the entire organization. Reserve Fund investments are unrestricted assets of the Foundation. Reserve Fund year-end balances for 2006 through 2009 were $51.9 million, $54.6 million, $51.0 million, and $54.4 million, respectively.



January 18, 2011 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

GAO Releases Study on Financial Planners

The GAO is another federal agency that has responsibilities under Dodd-Frank to prepare studies on various consumer and financial issues.  It recently released its report on financial planners, Regulatory Coverage Generally Exists for Financial Planners, but Consumer Protection Issues Remain.  Here is the summary:

Why GAO Did This Study
Consumers are increasingly turning for help to financial planners—individuals who help clients meet their
financial goals by providing assistance with such things as selecting investments and insurance products, and managing tax and estate planning.  The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that GAO study the oversight of financial planners. This report examines (1) how financial planners are regulated and overseen at the federal and state levels, (2) what is known about the effectiveness of this regulation, and (3) the advantages and disadvantages of alternative
regulatory approaches. To address these objectives, GAO reviewed federal and state statutes and
regulations, analyzed complaint and enforcement activity, and interviewed federal and state government entities and organizations representing financial planners, various other arms of the financial services industry, and consumers.

What GAO Recommends
GAO recommends that (1) NAIC assess consumers’ understanding of the standards of care associated with the sale of insurance products, (2) SEC assess investors’ understanding of financial planners’ titles and designations, and (3) SEC collaborate with the states to identify methods to better understand problems associated specifically with the financial planning activities of investment advisers. NAIC said it would consider GAO’s recommendation and SEC provided no comments.

January 18, 2011 in Other Regulatory Action | Permalink | Comments (0) | TrackBack (0)

Jill Gross's Take on Gretchen Morgenson's Take on Securities Arbitration

Jill Gross has an interesting blog at the Indisputably blog site critiquing Gretchen Morgenson's column in Sunday's New York Times, in which Morgenson details the efforts of a brokerage firm to complicate an arbitration proceeding by bringing a judicial action to pursue a counterclaim against a nonparty to the arbitration agreement.  Jill wonders if Morgenson, a longtime critic of securities arbitration, has seen the light.  Both the blog and the column are worth reading.

January 18, 2011 in Securities Arbitration | Permalink | Comments (0) | TrackBack (0)

Monday, January 17, 2011

Steve Jobs Will Take a Medical Leave

Apple's Steve Jobs announced that he is taking a medical leave of absence.  A survivor of pancreatic cancer, he received a liver transplanat in 2009.

WSJ, Apple CEO Jobs to Take Medical Leave

NYTimes, Apple Says Steve Jobs Will Take a New Medical Leave

January 17, 2011 in News Stories | Permalink | Comments (2) | TrackBack (0)

Goldman Closes Facebook Investment to U.S. Clients

Goldman Sachs announced that its U.S. clients will not have the opportunity to invest in the Facebook private placement because the deal had attracted so much attention from the press and scrutiny from the SEC.  In a statement Goldman stated it was concerned that "the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law."

NYTimes, Goldman Limits Facebook Investment to Foreign Clients

WSJ, Goldman to Offer Facebook Shares Only to Non-U.S. Clients

January 17, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

Sunday, January 16, 2011

Baker on OTC Derivatives

Regulating the Invisible: The Case of Over-the-Counter Derivatives, by Colleen Baker, Notre Dame Law School, was recently posted on SSRN.  Here is the abstract:

In this Article, I focus on the regulation of the over-the-counter (OTC) derivative markets. I argue that current reform proposals and draft legislation fall short of constructing the linked domestic and international frameworks needed to successfully regulate the OTC derivative markets. The purpose of my Article is to propose and defend such a framework. Because of the inseparability of the domestic and international aspects of this issue, I argue that in addition to increased prudential supervision and regulation, the regulation of OTC derivative markets requires interwoven domestic and international systems for regulatory cooperation. This recommendation has two parts. First, Congress should create a framework of regulatory cooperation between the SEC and the CFTC through a regulatory joint venture. Second, I argue for an international framework of regulatory cooperation using a system of public-private partnerships to coordinate regulation of OTC derivatives in the global marketplace.

January 16, 2011 in Law Review Articles | Permalink | Comments (0) | TrackBack (0)