Stepping away from the more serious task of covering the “Enforcement Highlights” of financial regulators, such as the U.S. Securities and Exchange Commission, and taking into account that we have not been able to go to the movies all summer, here, in no particular order, are five movies that touch on our industry and are definitely worth streaming to watch one more time:
While the U.S. Supreme Court’s decision in Liu v. SEC limited the SEC’s disgorgement power, it also left open certain complicated issues that are now subject to interpretation.1 As we previously summarized, in an 8–1 vote, the Court held that disgorgement is a permissible equitable remedy for securities fraud under § 78u(d)(5), provided the amount does not exceed a wrongdoer’s net profits and the money is returned to harmed investors.2
In a pair of settlements announced on July 28, 2020, the SEC charged VALIC Financial Advisors (the “Firm”) with two separate sets of violations that allowed the Firm to obtain millions of dollars in fees without providing adequate disclosures about their practices and without having adequate compliance policies and procedures to disclose or protect against conflicts of interest presented by these practices. In total, the Firm agreed to pay approximately $40 million to settle both administrative proceedings. The SEC’s cases arise out of its initiatives:
SEC Chairman Jay Clayton has repeatedly touted his focus on “Main Street.” In doing so, he unleashed the Division of Enforcement’s Asset Management specialty unit on the investment advisory industry and finalized and implemented the “Reg BI” rulemaking, the SEC’s most significant sales practice regulatory development for the brokerage industry in decades. But the Division of Enforcement did not slow down its efforts in one of its core focus areas: the investigation and civil prosecution of accounting fraud by public companies and their senior officers.
What’s New: The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) recently issued a Risk Alert titled “Select COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers” on August 12, 2020. This Risk Alert addressed the following topics:
From mid-March to mid-May, the SEC received more than 4,000 tips, complaints, and referrals. This, according to one of the SEC Co-Directors of the Division of Enforcement, represented a 35% increase over the same period last year. Additionally, as recently confirmed by the Director of the SEC’s New York regional office, the SEC is actively monitoring these tips, complaints, and referrals because it knows that doing so sends an important deterrence message to market participants. While the SEC has many sophisticated market monitoring and other fraud detection tools, tips and complaints provide the Enforcement Staff with valuable leads, which often develop into investigations and enforcement actions in matters that would otherwise may have remained hidden. Undoubtedly, many of these tips and complaints are either directly related to the COVID-19 pandemic or are indirectly related to the resulting economic turbulence. It is foreseeable that this significant uptick in tips and complaints will lead to a significant increase in the number of investigations and enforcement actions.
As we described several weeks ago, the SEC across the agency is going to be vigilant in its efforts to regulate, examine and enforce the federal securities laws regarding coronavirus/COVID-19. More recently, the SEC Division of Enforcement (“SEC Enforcement”) has stepped to the forefront of these efforts.
As the world is navigating through COVID-19 and as we are focused on our health and well-being as we self-quarantine and engage in social distancing to do our part to stop the spread, our markets remain open, active, and volatile, and the U.S. Securities and Exchange Commission (“SEC”) has recently made clear that they will continue to be an active overseer.