Legal Risk Management Tips

As part of its “Fiscal Year 2017 Agency Financial Report” released by the U.S. Securities and Exchange Commission (“SEC”) last month, the SEC discussed enforcement cases for its fiscal year of 2017 (which for the SEC concludes on September 30th).  According to the Report, the SEC filed 754 enforcement actions in 2017,[1]  resulting in disgorgements and monetary penalties of roughly $3.8 billion.[2]  From the $3.8 billion, the SEC returned a record $1.0 billion to harmed investors, and ordered over $50 million in payments to whistleblowers.[3]  These enforcement actions also led to 625 bars and suspensions in 2017.[4] 

Selecting the best corporate entity for your business can be daunting. What contributing factors should you consider? This article will provide a roadmap for the selection and creation of a business entity.  It will focus on critical factors to consider when forming an entity, types of entities available and important characteristics of such entities.  While this article will not discuss every topic that may be pertinent when creating an entity, it will provide entrepreneurs with a framework and practical considerations for doing so.

New regulatory developments seem to occur with ever-increasing frequency.  The past twelve months in particular have seen a bevy of new rules, regulations and guidance that will have significant impacts on the daily practices of advisers.  With so much new information being promulgated by regulatory bodies, it could be quite easy to miss ones that could have a substantial impact on your business.      

Each year, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) publishes an examinations priorities letter so that its registrants will know of those areas that are of particular focus and are deemed potentially higher risk.  On January 12, 2017, the SEC released its priorities,[1] which continue to focus on protection of retail investors, servicing retirement and elderly investors and assessment of market-wide risks. 

As part of its “Fiscal Year 2016 Agency Financial Report” released by the U.S. Securities and Exchange Commission (“SEC”) last month, the SEC discussed enforcement cases for its fiscal year of 2016 (which concluded on September 30th).  According to the Report, the SEC once again set a new record for the number of enforcement actions filed in a fiscal year, having filed a record 868 enforcement actions in 2016, representing an increase of about seven percent (7%) from the number of actions brought in 2015.  Of the 868 enforcement actions, a record 160 were cases involving investment advisers or investment companies.[1]

You’re walking down the street one day when it suddenly hits you – the perfect idea for a mobile application (“app”).  This is the app that’s going to change everything.  This app is straightforward, user-friendly and something that everyone wants and needs.  After frantically searching every corner of the internet to check if something like this is already in the market, and finding nothing, you decide it’s time for you to start a business around this great idea.  Having never owned or operated a business before, you start wondering what you should be thinking about when getting your business off the ground.  This article will help summarize some of the more immediate items you should consider when setting up your business.

There are a variety of reasons why financial firms choose to partner with external third-party service providers (“TPSPs”) for the performance of essential tasks, rather than performing such tasks internally.  Such reasons often include, but are not limited to, the financial firm’s experience in performing certain tasks, cost/time restrictions and common industry practice.  Regardless as to the impetus for these relationships, regulators require financial firms to conduct initial and ongoing due diligence on TPSPs. This article will discuss the legal requirements of financial institutions to perform due diligence on TPSPs, examine recent enforcement cases where financial firms failed to properly perform such diligence and offer guidance on what financial institutions should consider when performing due diligence on service providers.

For Registered Investment Advisers (“RIAs”), acquiring another investment adviser’s practice can often serve as an efficient means for quickly increasing the assets under management and profitability of the RIA, while also adding scale and efficiency to client services.  However, in light of the numerous regulatory and corporate considerations involved in such corporate combinations careful analysis and planning should be conducted prior to entering into a definitive agreement.  Not only will the acquiring RIA face legal and compliance obstacles, but the selling RIA often has a personal connection to the business being sold that needs to be considered. 

As part of its “Fiscal Year 2015 Financial Report” released by the U.S. Securities and Exchange Commission (“SEC”) last month, the SEC discussed how “first-of-their-kind” and “high impact” cases highlighted a strong year of enforcement actions.  According to the report, the SEC ended the fiscal year of 2015 (which for the SEC concludes on September 30th) having filed a record 807 enforcement actions, representing an increase of seven percent (7%) over the prior year’s number of enforcement actions.  Of the 807 enforcement actions, a record 507 were independent actions for violations of federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC, or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.

In Part 1 of our Considerations for Forming and Operating a California LLC series, we discussed the entity structure of an LLC and initial considerations that should be taken including jurisdiction, the operating agreement and default rules including new rules for formation, duties owed by members, members’ authority, ownership interests and indemnification. In Part 2 we will explore tax treatment, other entities, raising capital, and staying compliant.