The North American Securities Administrators Association (“NASAA”) recently released a set of examination findings which identify the common compliance deficiencies for state registered investment advisers.

Presently, the Securities and Exchange Commission (SEC) prevents companies from issuing shares for capital unless they register with the SEC. However, a House panel recently approved legislation sanctioning “crowdfunding.” The legislation would allow new businesses to raise up to $5 million, with individual contributions capped at $10,000 (or 10% of an investor’s annual income), without registering with the SEC. The Entrepreneurial Access to Capital Act, HR 2930 is sponsored by Rep. Patrick McHenry (R-NC), who explained that it will create jobs by connecting entrepreneurs to the everyday investor.

A recent decision by the United States Court of Appeals for the Second Circuit found that the Financial Industry Regulatory Authority (“FINRA”) has no legal authority to bring an action in court to collect fines imposed on its members. This decision exposes a noticeable gap in FINRA’s enforcement powers; it can levy fines, but it cannot seek enforcement concerning collection of those fines in court.

On October 12, 2011, the SEC, together with the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), issued proposed regulations implementing Section 619 of the Dodd-Frank Act, popularly referred to as the “Volcker Rule.” Among other things, the Volcker Rule generally (i) prohibits banking entities from engaging in short-term proprietary trading activities; and (ii) limits banking entities from investing in or having certain relationships with a hedge fund or private equity fund.

On September 29, 2011, the SEC issued a Risk Alert warning of concerns regarding trading through sub-accounts, and offered
suggestions to help the securities industry address those risks.

In 1997, the SEC adopted Rule 3a-4 of the Investment Company Act of 1940 (the “Rule”) which provides a non-exclusive safe harbor to exclude certain similarly-managed accounts, such as model portfolios, from the definition of an investment company (e.g., a mutual fund).

As discussed in a previous Jacko Law Group, PC Legal Risk Management Tip, in October of last year the Department of Labor (the “DOL”) published a proposed rule that would amend the definition of "fiduciary", and would significantly expand the categories of persons who would be deemed to be fiduciaries subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). On Monday, however, the DOL announced that it will re-propose the rule, and stated that this decision was in part a response to requests from the public, including members of Congress and the financial services industry, that the DOL allow an opportunity for more input on the proposed rule.

Recently, Congressmen Spencer Bachus, Chairman of the House Financial Services Committee, circulated a draft bill entitled The Investment Adviser Oversight Act of 2011 (the "Bill"). If introduced and passed, the Bill will amend the Investment Advisers Act of 1940 to require both federal and state-registered investment advisers to become a member of a national investment adviser association (“NIAA”). Among other things, the Bill provides for the NIAA to implement rules designed to prevent fraudulent and manipulative acts, protect investors, and outlines how the NIAA may apply to register as the overseer of investment advisory industry. Importantly, the Bill also lists exemptions for investment advisers with assets of 90% or more attributable to the following types of clients from having to become a member of the NIAA:

As discussed in a previous blog posting, investment advisers must comply with Rule 206(4)-3 (the “Rule”) of the Investment Advisers Act of 1940 when using solicitors. Notably, in July 2008, the SEC issued a no-action letter (the “Letter”) which provided additional guidance to Rule 206(4)-3’s applicability. In this Letter, the SEC stated that Rule 206(4)-3 generally does not apply to a RIA's cash payment to a person solely to compensate that person for soliciting investors or prospective investors for, or referring investors or prospective investors to, a private fund managed by the adviser. In support of this interpretation, the SEC noted that:

The 5.8 magnitude earthquake that shook large portions of the eastern seaboard on August 23^rd should serve as a useful reminder to registered investment advisers and broker-dealers to review and update their business continuity plans.