Securities Law Prof Blog

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

Tuesday, January 25, 2011

SEC Proposes Amendment to "Accredited Investor" Definition

The SEC today voted to propose amendments to its rules to conform the definition of "accredited investor" to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The proposed amendments would exclude the value of an individual's primary residence in calculating net worth when determining accredited investor status. The amendments also would clarify the treatment of any indebtedness secured by the residence in the net worth calculation.

Under Securities Act rules, individuals and entities that qualify as "accredited investors" are eligible to participate in certain private and limited offerings that are exempt from Securities Act registration requirements. One of the bases on which individuals may qualify as accredited is having a net worth of at least $1 million, either alone or together with their spouse.  Section 413(a) of the Dodd-Frank Act requires that the net worth calculation for determining accredited investor status must exclude the value of the person's primary residence. This requirement came into effect upon enactment of the Dodd-Frank Act. However, the SEC is proposing to amend its rules to reflect the new standard and clarify the treatment of indebtedness secured by the primary residence in the calculation of net worth.

The new net worth standard must remain in effect until July 21, 2014, four years after enactment of the Dodd-Frank Act. Beginning in 2014, the Commission is required to review the definition of the term "accredited investor" in its entirety every four years and engage in further rulemaking to the extent it deems appropriate.

The Commission is seeking public comments on the proposed rules through March 11, 2011.


January 25, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Monday, January 24, 2011

SEC Probes Goldman's Relationship with Former Massachusetts Treasurer

More bad press for Goldman Sachs -- the Wall St. Journal reports that the SEC is looking into the relationship between Massachusetts former treasurer Timothy Cahill and Goldman Sachs.  Last month the firm fired Neil Morrison, a Boston municipal-finance banker, allegedly for engaging in outside activities without preapproval.  Cahill engaged in an unsuccessful campaign for governor last year.  SEC Probes Goldman's Ties to Former Massachusetts Treasurer

January 24, 2011 in News Stories | Permalink | Comments (0) | TrackBack (0)

SEC's Agenda for Jan. 25 Open Meeting

SEC -- Open Meeting Agenda
January 25, 2011

Item 1: Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commity Trading Advisors on Form PF
Office:  Division of Investment Management

Item 2: Net Worth Standard for Accredited Investors
Office:  Division of Corporation Finance

Item 3: Shareholder Approval of Executive Compensation and Golden Parachute Compensation
Office:  Division of Corporation Finance

January 24, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SEC & Former Innospec CEO Settle FCPA Charges

The SEC settled charges that Paul W. Jennings, a former chief executive officer at Innospec, Inc., violated the Foreign Corrupt Practices Act (FCPA) by approving bribes to government officials to obtain and retain business.  The SEC alleged that Jennings learned of the company's longstanding practice of paying bribes to win orders for sales of tetraethyl lead (TEL) in mid- to late 2004 while serving as the CFO. After becoming CEO in 2005, Jennings and others in Innospec's management approved bribery payments to officials at the Iraqi Ministry of Oil (MoO) in order to sell the fuel additive to Iraq refineries. Innospec used its third-party agent in Iraq to funnel payments to Iraqi officials.

Jennings agreed to settle the SEC's charges against him. The SEC previously charged Innospec as well as its former TEL business director and its agent in Iraq with FCPA violations.

January 24, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

NASAA Statement on SEC Study on Investment Adviser Oversight

NASAA Statement on SEC Study on Investment Adviser Oversight

“We urge Congress to continue its commitment to investors by maintaining the strong system of governmental oversight of investment advisers and ensuring that the SEC has the resources it needs to operate an effective oversight program. Accordingly, we prefer a legislative approach that allows investment adviser oversight to remain under governmental authority because we believe that this approach is in the best interest of protecting investors.

“The oversight of investment advisers has always been an effective partnership between state and federal regulators, both of which are transparent and directly accountable to the investing public. This should not change.

“We share the SEC staff’s concerns about the disadvantages inherent in allowing industry to regulate itself. Our primary concerns with the creation of a new self-regulatory organization (SRO) for the oversight of investment advisers are the lack of accountability, the lack of transparency and the conflicts of interest inherent to the SRO model of regulation.

“The SEC has decades of experience examining investment advisers and enforcing the Investment Advisers Act of 1940. An SRO lacks that experience and expertise and it could lead to a watering down of standards that now apply to investment advisers, such as the fiduciary duty of care and loyalty that advisers owe to their clients. Now is not the time for Congress to consider outsourcing the SEC’s regulatory authority and expanding the financial service industry’s self-regulatory regime to include investment advisers.”

January 24, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

NASAA Statement on SEC Staff Study on Fiduciary Duty

NASAA Statement on SEC Study on the Obligations of Brokers, Dealers and Investment Advisers

“The SEC staff recommendation to apply a fiduciary duty to broker-dealers who provide personalized investment advice about securities to retail customers will have a significant positive impact on investors.

“State securities regulators routinely see the financial devastation caused when the interests of investors do not come first. That is why NASAA has consistently urged policymakers to protect investors by requiring all who provide investment advice about securities to be held to the fiduciary duty currently applicable to investment advisers under the Investment Advisers Act of 1940.

“We look forward to assisting the Commission as it develops new rules to apply a fiduciary standard of care and loyalty to all who provide investment advice to ensure that this standard is as strong as the existing fiduciary duty of the Advisers Act.”

January 24, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

Midwest Corporate Law Scholars Meeting -- June 15 at OSU

Midwest Corporate Law Scholars Meeting
June 15, 2011
The Ohio State University Michael E. Moritz College of Law

The Midwest Corporate Law Scholars Conference (MCLSC) meeting will be Wednesday, June 15th, at The Ohio State University Michael E. Moritz College of Law in Columbus, Ohio. This is the second annual meeting of the MCLSC, and we are opening up the meeting to all corporate law scholars.  Presentations will start in the morning and end late afternoon. There will be an on-campus lunch and breakfast, as well as an informal off-campus dinner Wednesday night following the end of the conference. We welcome all on-topic paper submissions and will attempt to provide the opportunity for all submitted papers to be presented.  Junior scholars are particularly encouraged to submit papers, and we will attempt to assign a commentator for each junior paper presented. 

To submit a presentation, email Profess Eric C. Chaffee at with an abstract or paper by March 15, 2011. Please title the email “MCLSC Submission – {Name}”. If you would like to attend, but not present a paper email Professor Chaffee with an email entitled “MCLSC Attendance”.  Please specify in your email whether you are willing to serve as a commentator. A conference schedule will be circulated in May.

Conference Organizers
Barbara Black
Eric C. Chaffee
Steven M. Davidoff

January 24, 2011 in Professional Announcements | Permalink | Comments (0) | TrackBack (0)

Initial Reactions to SEC Staff's Study on Fiduciary Duty for Advisers and Brokers

For a survey of first opinions on the SEC Staff's Study on Investment Advisers and Broker-Dealers from some key players in the investment adviser and broker-dealer industries, see InvNews, Battle lines drawn after SEC backs fiduciary standard.  The title of the article, however, is a bit hyperbolic.  In fact, the principal conclusion of the Study -- a uniform standard of conduct based on fiduciary principles -- was widely anticipated and generally accepted.  Rather than a battle, we can expect many skirmishes and jockeying for position as the SEC moves ahead to consider implementation.  And Commissioners Casey and Paredes have made it clear that much more empirical work needs to be done before they will sign on to new regulation.

January 24, 2011 in SEC Action | Permalink | Comments (0) | TrackBack (0)

SIFMA on SEC Staff's Fiduciary Duty Study

Here's SIFMA's statement on the SEC Staff's Study on Investment Advisers and Broker Dealers.  Bottom line -- it pretty much got what it wanted.

“SIFMA applauds the SEC in conducting this study on the effectiveness of existing standards of care for broker-dealers and investment advisers and whether there are gaps and overlaps.  This is an issue that will affect how millions of individual retail investors obtain advice from hundreds of thousands of registered representatives and investment advisers.

“We support a uniform fiduciary standard of care for broker-dealers and investment advisers, and upon initial review we believe that the SEC has appropriately articulated a workable comprehensive approach for personalized investment advice for retail customers.  It is especially important that the SEC recognized that any fiduciary standard should not pick business model winners and losers, and that the Commission will need to issue interpretive guidance to allow firms to operationalize this new standard.  

“We also appreciate the Commission’s recognition that as a fiduciary duty is applied to brokers and investment advisers, such a standard should not limit investor choice.  Nevertheless, we remain concerned about the possible effects on broker-dealers' ability to serve customers as this approach is developed and will continue to work with the SEC to ensure that the broker-dealer role is not hindered.

 “In addition, we hope that as the SEC works to implement a comparable standard of care between broker-dealers and investment advisers, it likewise will provide leadership in applying comparable oversight, examination and enforcement to retail registered investment advisers.  Only if a uniform fiduciary standard of care is combined with effective oversight, examination and enforcement program can investor protection truly be achieved.”

January 24, 2011 in SEC Action | Permalink | Comments (1) | TrackBack (0)