Last week the SEC settled an enforcement action against Chicago Registered Investment Adviser Tilden Loucks & Woodnorth LLC, its affiliated registered broker-dealer, LaSalle St. Securities, LLC, and Tilden’s retired founder, 87 year-old Ralph B. Loucks. The action was instituted as a result of Tilden’s failure to seek best execution for its clients and its failure to disclose the nature of the commissions charged to clients by the affiliated broker-dealer. The SEC’s order instituting the settlement states that during the time period in question most trades for Tilden’s clients were executed by LaSalle, with commission charges to clients averaging more than $143 per trade despite the fact that the majority of consisted of purchases and sales of large cap equities.

Last week the Enforcement Section of the North American Securities Administrators Association (NASAA) issued its annual enforcement survey, providing an overview of state enforcement efforts in 2011. The survey concludes that 6,121 investigations were conducted by the 48 responding regulators last year, resulting in 2,602 enforcement actions, more than $2.2 billion in investor restitution orders, and criminal jail sentences of 1,662 years. State regulators also reported the withdrawal of nearly 2,800 licenses and the denial, revocation or suspension of another 774 licenses. Of note, of the 2,602 enforcement actions 399 were brought against investment advisory firms, nearly double the prior year.

This week the president of FINRA’s office of dispute resolution, Linda Feinberg, announced the SRO will open its arbitration forum to registered investment advisers. The statement was made at the annual meeting of the Public Investors Arbitration Bar Association where Feinberg indicated FINRA will formally announce the program in the near term. Currently, the forum is available for investor and industry disputes involving broker-dealers. While investment advisers may submit to FINRA arbitration if a claim is brought against them, they are not eligible to affirmatively bring claims in the forum. Unlike the mandatory FINRA arbitration required for broker-dealers, advisers’ use of the forum will be voluntary and require the agreement of all parties to a dispute.

Last month FINRA announced SEC approval of new FINRA Rule 5123. The Rule requires each FINRA member firm selling securities in a private placement to file a copy of any private placement memorandum, term sheet or other offering documents with FINRA within 15 calendar days from the date of sale (or indicate that it did not use any such offering document). The rule becomes effective on December 3, 2012 and applies prospectively to any private placement that begins selling efforts thereafter. The rule exempts certain limited offerings sold solely to institutional, qualified and other sophisticated purchasers.

In a news conference this week, North American Securities Administrators Association (“NASAA”) President and Arkansas Securities Commissioner Heath Abshure sharply criticized the SEC’s proposed rule allowing marketing of private offerings. Mr. Absure, who was joined in the conference by Cristina Martin Firvida of AARP, Heather Slavkin Corzo, AFL-CIO, and Barbara Roper of the Consumer Federation of America, called on the SEC to withdraw the proposal and craft new rules that promote capital formation but do not sacrifice investor protection. As Abshure stated: “Rule 506 offerings already are the most frequent financial product at the heart of state enforcement investigations and actions. Lifting the advertising ban on these highly risky, illiquid offerings, without requiring appropriate safeguards, will create chaos in the market and expose investors to an even greater risk of fraud and abuse. Without adequate investor protections to safeguard the integrity of the private placement marketplace, investors should and will flee from the market, leaving small businesses without an important source of capital.”

The California Court of Appeal recently struck a post-employment non-competition provision in an employment agreement which was part of a broader acquisition deal. The opinion, Fillpoint, LLC v. Mass (August 24, 2012), demonstrates California’s strong public policy in favor of competition and against overly restrictive covenants, including the limitations to the exception to the general policy against such covenants found in California Bus. & Prof. Code Section 16601. That Section specifically allows a non-competition provision in connection with the sale of a business. Quoting an earlier case, the Fillpoint court explained the rationale for this exception to the general rule: Section 16601 “serves an important commercial purpose by protecting the value of the business acquired by the buyer. In the case of the sale of the goodwill of a business it is ‘unfair’ for the seller to engage in competition which diminishes the value of the asset he sold.”

On September 21, 2012, Governor Brown signed Senate Bill 323 (Vargas) (the “Bill”) into law. Specifically, Section 20 of the Bill adds the California Revised Uniform Limited Liability Company Act (“RULLCA”) to the Corporations Code to govern the formation and operation of limited liability companies (“LLCs”). The RULLCA will become operative on January 1, 2014 and replaces the existing Beverly-Killea Limited Liability Company Act.[1]

Last month, the California Court of Appeal in San Francisco issued an opinion in Lickiss v. Financial Industry Regulatory Authority explicitly permitting courts across the state to use an equitable balancing test in order to determine whether a broker’s CRD record can be expunged. The broker in the case, Edwin Lickiss, defeated FINRA’s attempts to have his expungement case thrown out of court after 18 months of litigation. Lickiss is seeking to expunge 17 arbitration matters stemming from a REIT investment he recommended to clients from 1987 to 1991 that ultimately went south, and one FINRA rule violation that was resolved in 1997.

Yesterday the Securities and Exchange Commission instituted administrative proceedings against nationally syndicated radio personality and author Raymond J. Lucia. Lucia is the owner of Raymond J. Lucia Companies, Inc., a former federally registered investment adviser doing business as RJL Wealth Management, and RJL Enterprises, Inc., an entertainment company through which Lucia produces the syndicated radio show, The Ray Lucia Show. The order charges Lucia with spreading misleading information about his “Buckets of Money” strategy at a series of investment seminars for potential clients.

The SEC Whistleblower Program (the “Program”), which became a final rule on August 12, 2011, provides incentives and protection to whistleblowers who provide the SEC with original information about violations of the federal securities laws. Under the Program, an “eligible whistleblower” is entitled to an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC or other regulatory and law enforcement authorities.