SEC Members Discuss Agency’s Core Mission, New Penalty Policy, and Private Offerings in the Wake of General Solicitation

SEC Member Presses Regulator to Stick to Its Core Mission When Figuring Out Priorities
Securities and Exchange Commission member Daniel Gallagher wants the regulator to focus more on its mission when determining its regulatory agenda. He said that the SEC’s three mandates must always be considered: maintaining markets that are efficient and fair, making capital reform happen, and protecting investors.

Speaking at a AICPA/SIFMA Financial Management Society Conference, Gallagher said the agency should remove credit rating references from its rules, start reassessing the US market structure, put into place proxy advice reform, set up a new Regulation A Plus exemption, take a closer look at fixed-income regulatory issues, and reassess its disclosure regime. He believes that excessive credit rating dependence was a central cause for the failure of securitized products that led to the 2008 economic crisis. Gallagher says that the SEC should have taken out the credit ratings references years before the Dodd-Frank Wall Street Reform and Consumer Protection Act.

SEC Commissioner Aguilar Praises Agency’s’ Enforcement Approach, Wants New Penalty Policy
Securities and Exchange Commissioner Luis Aguilar wants the regulator to rework its penalty guidelines so it more properly focuses on the seriousness of conduct and deterrence. At the Securities Litigation and Regulatory Enforcement Seminar, Aguilar said that while the 2006 Statement Concerning Financial Penalties pays attention to whether a company benefitted or investors sustained harm from an alleged violation, he now thinks that the agency should adopt a new statement that factors in the types of misconduct and violation that occurred, the history and background of the defendant, any attempts at remediation and self-reporting, and the impact on parties that are not the corporation. The SEC official said these statements are his own.

Aguilar also said that as the regulator gets more comfortable with mandating that there be admissions of guilt, he expected that the SEC would in future ask for stronger admissions. Aguilar acknowledged that the agency’s modification of its policy so that now not all defendants can just settle without denying or admitting wrongdoing is a “positive.” However, he said, the Commission should also make sure that certain defendants admit to what laws they specifically violated, as well as acknowledge their fault in any wrongful conduct.

With Ban on General Solicitation Lifted, Private Offerings Are in Demand
The SEC says that with the bar on general solicitation no longer in place it has been notified about issuers wanting to sell nearly $1 billion of private offerings via the new exemption. Pursuant to the Jumpstart Our Business Startups Act’s Title II, the SEC adopted a rule that would let private placement issuers under the 1933 Securities Act Regulation D Rule 506 and Rule 144A advertise their offerings widely as long as only sophisticated investors are the ones solicited. According to SEC Division of Corporation Finance Director Keith Higgins, there already have been at around 170 offerings in which issuers have indicated that they will engage in general solicitation.

With the ban gone, the opening of an investment round can be publicly advertised via mass communication methods, including online media and social media. However, only accredited investors are allowed to take part in the funding round (although under Regulation D Rule 506 (b) offering, which involves private fundraising, there can be up to 35 non-accredited investors as long as a pre-existing relationship exists).

If you feel you are the victim of Securities Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

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Lawmakers & Industry Folk Address the DOL Amending the Definition of Fiduciary, Reg A Plus Offerings, Oversight, Rogue Brokers, and Expungement Rules

US House Passes A Bill Prohibiting the US Labor Department DOL From Amending Its Definition of “Fiduciary” Until SEC’s Uniform Conduct Standard is Established
A bill that would not allow the Department of Labor to amend its rules regarding the definition of the term “fiduciary” until after Securities and Exchange Commission adopts its own rule that places broker-dealers and investment advisers under a uniform standard of conduct has passed in the US House of Representatives. The DOL has been trying to revise its definition of “fiduciary” in the Employee Retirement Income Security Act (ERISA). Those who voted to prohibit revising the definition have been worried about possibly ending up with two rulemakings that were inconsistent with one another.

Reg A Plus Offerings and Their Oversight Get Capitol Hill Debate
At a Senate Banking Committee’s Securities, Insurance, and Investment Subcommittee hearing about developments involving the Jumpstart Our Business Startups Act, discussion ensued about Reg A Plus offerings. The SEC has yet to put out a proposal about “Reg A Plus,” which is the term used by its staff to refer to the new Reg A threshold.

Per the JOBS ACT’S Title IV, the SEC has to put in place a rule that will give exemption to certain offerings of up to $50 million (the current Reg A exemption is $5 million). While Reg A plus offerings would be exempt from SEC registration, they will have to adhere to state level registration unless found on a national securities exchange or sold to a “qualified purchaser.” Already, some in the industry are calling for a “workable definition” of what constitutes a “qualified purchaser” so that certain offerings would be exempt from state registration requirements.

There are those who believe that Reg A Plus offerings would benefit “Main Street businesses” that are not the likeliest candidates for other JOBS Act provisions. That said, the existing blue sky registration process puts in place additional limitations and burdens that might discourage those who would use a new Reg A Plus exemption.

Meantime, the North American Securities Administrators Association has put out a proposal (and is seeking comment) on streamlining the review of Reg A Plus offerings by the states. NASAA says long standing state policies will have to be modified and a “peel back” of certain requirements is necessary to make the offerings more viable.

Sen. Markey Worries About Rogue Brokers, Expungement of Violations from Public Records
In letters to the SEC and the Financial Industry Regulatory Authority, US Sen. Edward Markey (D-Mass) expressed his concerns about the high rate of broker-dealers that are able to get certain complaints removed from their records. Markey co-authored the bill that eventually led to the creation of FINRA’s BrokerCheck, which is the online database that provides information about the records of broker-dealers and brokers that the public can access. However, he worries that with such a high expungement rate for these advisers, investors are not getting an accurate picture of these people’s records.

The senator from Massachusetts believes that expunging settlement deals from a broker’s records should be prohibited. Meantime, FINRA said it has started to make changes to preserve the integrity of its BrokerCheck system and enhance investor protections.

Markey also voiced worry about a report in the Wall Street Journal noting that millions of dollars in arbitration awards aren’t paid because some firms file for bankruptcy instead. Markey wants the SRO to make brokerage firms carry insurance to cover arbitration awards. He is dismayed that there are thousands of brokers who keep selling securities even after being kicked out by FINRA. He told the SRO that it needs to do a better job of finding “rogue brokers” who stay in business even though they’ve been expelled.

The Resolution Law Group represents individual and institutional investors that have sustained losses from broker fraud. Contact our stockbroker fraud law firm today.

The Resolution Law Group: SEC Lifts Ban on General Solicitation

Beginning today, September 23, the SEC’s ban on general solicitation is no longer in effect. Those raising funds for corporations can now publish equity offerings on websites for crowdfunding, as well as blog and tweet about them. The move comes in the wake of the Jumpstart Our Business Startups Act, which was passed last year.

That said, even with the lifting of the general solicitation ban, raising funds for companies will likely remain a difficult endeavor. Funds can only be raised from investors that are accredited, and now, the latter will have to show proof that they fulfill the wealth criteria for accreditation by having an income greater than $200K during the last two years or a net worth of $1M (the value one’s primary residence is not included.)

Would-be fundraisers will need to provide extensive disclosure of offerings not just to the Commission, but also to the public, and there will be tight restrictions and the risk of penalty of a yearlong fundraising ban for violations. Also, in order to avail of being able to engage in general solicitation, startups will have to file a Form D with the regulator at least 15 days prior to starting to solicit. An amended Form D will have to be turned in within 30 days after the termination of an offering.

Still, there are those in the crowdfunding industry that believe that allowing for general solicitation should open up opportunities not just for businesses and entrepreneurs, but also for over 8.7 million accredited investors. Some expected there to be an increase in parties registering as accredited investors.

If you suspect that your investment loses are due to securities fraud, please contact The Resolution Law Group today.

The Resolution Law Group: SEC Lifts Ban on General Solicitation

Beginning today, September 23, the SEC’s ban on general solicitation is no longer in effect. Those raising funds for corporations can now publish equity offerings on websites for crowdfunding, as well as blog and tweet about them. The move comes in the wake of the Jumpstart Our Business Startups Act, which was passed last year.

That said, even with the lifting of the general solicitation ban, raising funds for companies will likely remain a difficult endeavor. Funds can only be raised from investors that are accredited, and now, the latter will have to show proof that they fulfill the wealth criteria for accreditation by having an income greater than $200K during the last two years or a net worth of $1M (the value one’s primary residence is not included.)

Would-be fundraisers will need to provide extensive disclosure of offerings not just to the Commission, but also to the public, and there will be tight restrictions and the risk of penalty of a yearlong fundraising ban for violations. Also, in order to avail of being able to engage in general solicitation, startups will have to file a Form D with the regulator at least 15 days prior to starting to solicit. An amended Form D will have to be turned in within 30 days after the termination of an offering.

Still, there are those in the crowdfunding industry that believe that allowing for general solicitation should open up opportunities not just for businesses and entrepreneurs, but also for over 8.7 million accredited investors. Some expected there to be an increase in parties registering as accredited investors.

If you feel you are the victim of Securities Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

The Resolution Law Group: Former SEC Commissioner Wants SEC Shareholder Proposal Process Revamped

Ex-Securities and Exchange Commissioner Paul Atkins wants the agency to rework its shareholder proposal rule, including the process that the staff employs to determine when issuers can leave the proposals out of their proxy materials. Atkins pointed to the recent increase in shareholder proposals that are pressing companies to reveal their political spending even though the majority of shareholders oppose such resolutions. He spoke against special interest groups using these proposals to push their agendas.

Atkins made his comments during an interview with BNA. Referring to the no-action process that lets SEC staff figure out the major issues that end up on issuers’ proxies for shareholders to vote on, he said that this action was very subjective and doesn’t have much transparency, actual due process, or accountability.

Under the SEC’s 1934 Securities Exchange Act Rule 14a-8, its shareholder proposal rule, the procedures that eligible investors can have their proposals included in the proxy materials of a company are laid out. The rule also lets issuers leave out proposals in certain, limited situations. (Still, issuers have to tell the SEC Division of Corporation of Finance why the proposal is being left out) and the staff can then grant no-action relief.

Just a couple of years ago, the Commission was reviewing the US proxy voting system’s inner workings. On July 14, 2010, the regulator put out a concept release seeking public comment on the transparency, accuracy, and efficiency of the voting process. (Recommendations that the shareholder proposal process be modified have been making their way through the SEC on numerous occasions in the last three decades.)

Still, supporters of the shareholder proposal process stand by it, believing that it is a key communication channel between shareholders and corporations. Also, considering all the changes coming down under the JOBS Act and the Dodd-Frank Act, they don’t think that now is the time to tinker with it.

Institutional Investor Securities Fraud
At The Resolution Law Group, our securities lawyers have decades of combined experience in securities law and the securities industry. We represent institutional and individual investors and clients that “opt out” of class actions. Our institutional investment fraud law firm represents corporations, high net worth individuals, partnerships, private foundations, banks, charitable organizations, financial firms, municipalities, large trusts, school districts, retirement plans, and others that have sustained substation losses impacting hundreds, perhaps even thousands of individuals.

The Resolution Law Group seeks to recover damages and losses sustained from negligence, securities fraud, and other illegal and improper actions committed by financial firms and/or their representatives in the investment and sale of financial instruments and the management of investors assets.

If you suspect that you are the victim of securities fraud, do not hesitate to email or call please contact The Resolution Law Group at (203) 542-7275 for a confidential, no obligation consultation. Our securities fraud attorneys are here to help institutional investors recoup losses that are a result of a financial scam or negligence. Your consultation with us is free.

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The Resolution Law Group: Congress Regulates the Securities Regulators

At a hearing in the US House of Representatives about putting the Jumpstart Our Business Startups Act into effect, Rep. Patrick McHenry (R-N.C.) expressed worry that the Securities and Exchange Commission has lost the power to enforce the private offerings general solicitation ban because the rulemaking for the statutory deadline has come and gone. Per the JOBS Act’s Title II, the SEC could write rules to lift the ban for offerings that take place under Rule 144A and Regulation D Rule 506.

The SEC, which put out a proposal, has yet to make a final rule. SEC Chairman Elisse Walter defended the agency’s actions, noting that a comment period is normal. The Commission has been criticized by Republicans and industry members, who contend that its decision to vote on a proposal instead of interim final rules is a way of kowtowing to investor groups. Walter maintains that she has always favored notice and comment rulemaking to put a provision into effect (per the Administrative Procedure Act).

Meantime, Rep. Maxine Waters (D-Calif.), a ranking member of the House Financial Services Committee, once again introduced a bill that would use industry user fees to fund the SEC’s investment adviser examinations. HR 1627 would make advisers under the Commission’s oversight pay fees to cover the “funding gap” in the oversight program. A similar bill that she previously had presented did not move forward, in part because it was competing with former Committee Chairman Spencer Bachus (R-Ala.)’s legislation to place investment advisers under the oversight of a regulator. That bill, too, did not progress.

There has been a lot of disagreement over investment adviser oversight. Per a Dodd-Frank Wall Street Reform and Consumer Protection Act-mandated study in 2011, SEC staff made that recommendation that advisers either be brought under SRO oversight or the agency should be allowed to use user fees to improve its program. The North American Securities Administrators Association and The Investment Adviser Association have both expressed a preference for the user fee option. They oppose the SRO oversight alternative.

Although Walter isn’t pushing for one option or the other, in the interest of investors, she said a solution must be chosen. SEC Chairman Walter believes that Congress needs to take action to fund its investment adviser examination program so that the choice could be effective one. Currently, the SEC examines only about 8% of registered investment advisers each year, while the regulator or the Financial Industry Regulatory Authority examine about 50% of brokerage firms.

Walter is concerned that this will become a bigger problem unless something is done because more new entities, including municipal advisors, will also be subject to the SEC’s examination program. Speaking at the North American Securities Administrators Association Public Policy Conference on April 16, Walter said that unless significant modifications are made, the SEC cannot fulfill its mandate to examine investment advisers.

The Resolution Law Group P.C. is a securities fraud law firm that represents investors throughout the US.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud