The SEC has, for many years, used broker-dealer and associated persons’ failure to create and maintain books and records as a basis for the imposition of serious penalties. In recent actions, it appears to be continuing—and upping the ante on—its enforcement in this area.
Simply stated, it is increasingly imperative for broker-dealers and investment advisory businesses, among other entities, to develop and maintain policies and procedures to ensure that their records are properly created, maintained, and produced to the appropriate agency upon request—including that employees’ communications related to their business should be made only through approved channels, and approved and monitored devices, such that those communications can be maintained and preserved for production as required by federal securities laws and regulatory authorities, and in any pending or threatened litigation.
Continue reading “Ubiquitous Use of WhatsApp and Other Unrecorded Internal Communications Result in Substantial Penalties in Recent SEC, CFTC Actions”
Further to the Securities and Exchange Commission (“SEC” or the “Commission”)’s ongoing review of investment advisers offering wrap fee programs, on December 23, 2020, the Commission announced a settlement with Pruco Securities, LLC (“Pruco”) related to alleged breaches of fiduciary duty in connection with its wrap fee programs. Pruco agreed to pay disgorgement, interest, and civil penalties totaling over $18.2 million to compensate for its alleged breaches of its fiduciary duties to its advisory clients that participated in its wrap fee programs. In short, the SEC alleged that Pruco breached its fiduciary duties and violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 (the “Advisors Act”), and Rule 206(4)-7 thereunder, by failing to disclose certain fees, savings, and revenue sharing payments it received in connection with its wrap fee programs, and the associated conflicts of interest related thereto, and by failing to assess whether the wrap fee programs were and remained suitable for the clients participating in them, as it represented it would.
Continue reading “Wrap Fee Programs Under Continued Scrutiny and Use of Investment Advisory Product Committees”
Ever since the creation of Bitcoin in the late 2000s, the SEC has warned that, depending on the circumstances, “initial coin offerings” (ICOs) involving digital tokens or coins may be subject to regulation under the federal securities laws.1 The SEC has provided “facts and circumstances” guidance regarding whether a particular cryptocurrency offering involves a security. See, e.g., the SEC’s Framework for “Investment Contract Analysis of Digital Assets.” But officials have opined that cryptocurrencies sold only to be used to purchase a good or service, such as Bitcoin or Ethereum, may not be securities.2
Continue reading “Two Recent SEC Cases Involving Cryptocurrency Offerings”