According to the North American Securities Administrators Association (“NASAA”) 2015 Enforcement Report on 2014 Data (the “Report”), state securities regulators conducted 4,853 investigations in 2014 resulting in $405 million in restitution, $174 million in fines and 1,629 years in prison sentences. The primary targets of those state enforcement actions were unregistered individuals followed by unregistered firms. According to the Report, licensed individuals made up 230 of the enforcement actions involving broker-dealer agents, 190 actions involved investment adviser representatives, 156 involved broker-dealer firms, and 146 involved investment adviser firms.

According to a Securities and Exchange Commission (“SEC”) complaint filed in Riverside County, California, Paul Ricky Mata (“Mata”), David Kayatta (“Kayatta”) and Mario Pincheira (“Pincheira”) are accused of violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the fraud charges the SEC has instituted an asset freeze.

Over the past few years, more and more firms are diversifying services and products. In an effort to support this business development and attract new talent, broker-dealers (“BDs”) are permitting associated persons to affiliate with independent, non-affiliated investment advisory firms (“IAs”) and vice-versa, which allows the representative to conduct both brokerage business (as a registered representative or “RR”) through the BD and advisory services (as an investment adviser representative or “IAR”) through the IA. This also allows for greater prospective client development opportunities, which leads to revenue generation. However, with more diversity come greater compliance challenges that necessitate engagement of legal counsel during particular transactions. This legal tip will provide important information regarding challenges compliance officers have in overseeing the “hybrid” business model, with a case study involving special considerations for supervision of outside business activities and revenue flow.

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BDO USA (“BDO”), a national audit firm, and five of its partners are facing charges from the Securities and Exchange Commission (“SEC”) in relation to its client General Employment Enterprises (“General Employment”). According to an SEC press release, BDO ignored red flags and issued false and misleading unqualified audit opinions for General Employment.

The Municipal Securities Rulemaking Board (“MSRB”) is seeking The Securities and Exchange Commission’s (“SEC”) approval to apply business-related gift-giving limitations to its municipal advisors. According to an MSRB press release, the goal of the proposed rule change to MSRB Rule G-20 is to apply the same rules that apply to municipal securities dealers to municipal advisors and their associated persons. It is anticipated the amendments will address potential conflicts of interest created by gift-giving or gratuities connected to municipal advisory activities.