The role of a transfer agent is a unique – and powerful – position in the securities industry. Transfer agents are used by publically traded companies and other issuers “to keep track of individuals and entities owning stocks and bonds [of these companies]” by “recording changes of ownership of securities, maintaining issuers’ security holder records, cancelling and issuing securities certificates, and distributing dividends.” Their place as pseudo-gatekeepers of their client’s securities books and records, and their ability to be “entrusted with millions of [client] dollars,” is a position that the Illinois Stock Transfer Company (“IST”) abused, according to a recent Securities and Exchange Commission (“SEC”) press release.

The Securities and Exchange Commission (“SEC”) recently charged Rafferty Capital Markets (“Rafferty”) with illegally facilitating trades for an unregistered broker-dealer. A May 15, 2014 SEC press release details how Rafferty settled an SEC-charged penalty of $850,000 for perpetrating “illegally arranged trades for an unregistered broker-dealer” and keeping “inaccurate books and records” from mid-2009 to early 2010. Numbering at around 100 asset-backed securities trades, Rafferty – a licensed firm who facilitated the trades for the unregistered (and unnamed by the SEC) firm – received 15% of the more than $4 million in compensation produced from the trades.

The question “how are private equity firms doing?” was asked back in 2012 by the Securities and Exchange Commission’s (“SEC’s”) Office of Compliance Inspections and Examinations (“OCIE”), in response to the growth of this industry. In October 2012, OCIE launched its Presence Exam Initiative (the “Initiative”) for newly registered private equity firms. Now that a year and a half has passed, OCIE Director Andrew Bowden has addressed some of the results and concerns that have arisen thus far in the examination of private equity firms. In this blog post, we will highlight key results and findings provided by Mr. Bowden in his May 6, 2014 speech.

Recently, the California Department of Business Oversight (“DBO”) officially adopted revisions to the California investment adviser custody rule, Section 260.237 of Title 10 of the California Code of Regulations (the “Rule”). According to the DBO, these changes were in response to, and incorporate provisions from, the recently adopted amendments to the Securities and Exchange Commission’s (“SEC’s”) Custody Rule[1] and the North American Securities Administrators Association’s (“NASAA’s”) Model Custody Rule.[2] Notably, changes to the federal custody rule in 2009 prompted changes to the Model Rule by NASAA, which in turn triggered the DBO to enact its recent revisions. According to the DBO, the goal of the Rule’s enactment is to increase uniformity so that regardless of whether an investment adviser registers with the State of California or with the SEC, the adviser will have the same responsibilities with investors afforded the same protections.

The past two months have seen much in the way of political and civil strife in the Ukraine, as Russian forces moved into the Crimea and Eastern regions. After a series of economic sanctions against Russia were instituted by the US in March and early April 2014, by April 28^th, the Treasury Department announced additional sanctions on seven (7) Russian officials and seventeen (17) entities that are owned, controlled by, or have supported senior Russian government officials. This action by the US has specifically aimed to stop Americans with doing any business with the listed officials and entities. More restrictions are yet to come, including penalties assessed to the Russian defense, high technology, and engineering and energy sectors.

There has been a recent flurry of news reports, analysis and webinars in the securities law world around the Securities and Exchange Commission’s (“SEC’s”) Office of Compliance Inspections and Examinations (“OCIE”) proposed 2014 Cybersecurity Initiative. Launched as a major news item this month after the SEC’s OCIE published its April 15, 2014 Risk Alert devoted to the topic, the Cybersecurity Initiative redirects the financial industry’s compliance focus back to SEC examinations, as OCIE purports to conduct exams on “more than 50 registered broker-dealers and registered investment advisers”, focusing specifically on a firm’s “cybersecurity preparedness.”

An important and pervasive online tool has been used to lure investors to a new Ponzi scheme, according to the Securities and Exchange Commission (“SEC”). In a press release dated April 8, 2014, the SEC alleges that Joseph Signore of JCS Enterprises, Inc. and Paul L. Schumack II of T.B.T.I., Inc. colluded to use YouTube videos as promotional devices for selling investments in their proposed high-return product virtual concierge machines (“VCM”s). These VCMs, the videos purported, would be “ATM-like machines that businesses could use to advertise products and services via touch screen and printable tickets or coupons,” and would be accessible at hotels, airports and stadiums, with revenue supposedly generated through businesses advertising in the VCMs. Promising a “300 to 500 percent return within 4 years,” investor’s funds in upwards of $40 million (from 2011 to 2014) were instead used to pay returns to earlier investors and, according to the SEC, these investors “aren’t enjoying the riches touted on YouTube” from the VCMs.

The securities industry became privy once again to a form of manipulative trading – termed “layering” or “spoofing” – through the Securities and Exchange Commission’s (“SEC’s”) recent charges against the Holmdel, N.J.-based firm Visionary Trading, LLC (“Visionary”). According to the SEC’s April 4, 2014 press release, Visionary Trading, its owner, Joseph Dondero, and other owners not only participated in manipulative “layering” trading, but also perpetuated registration violations, including operating an unregistered brokerage firm, and policies and procedures issues that failed to “prevent and detect the improper sharing of commissions between its registered representatives.” We will briefly focus in on the “layering” charges of this case in this blog post.

Last April in a speech to the American Bar Association, the Securities and Exchange Commission's ("SEC") Chief Counsel of the Division of Trading and Markets, David Blass, sent shock waves throughout the investment advisory community when he suggested that employees who market an investment adviser’s private fund may need to be registered representatives of a licensed securities broker-dealer, with the investment adviser being the registered broker-dealer. Even though the Chief Counsel retreated somewhat from this controversial position and the SEC has not published any official clarifying guidance or rulemaking on the matter, the SEC Staff remains focused on broker-dealer issues. Accordingly, it is important for investment advisers to private funds to take note of this focus and maintain awareness of the rules governing their marketing activities.

A St. Petersburg, Florida-based financial services firm was recently charged with inappropriately-calculated fee discounts and inadequate policies and procedures (“P&P”). Charges were filed against Transamerica Financial Advisors (“Transamerica”) by the Securities and Exchange Commission (“SEC”) at the beginning of April 2014. The SEC found, through examinations and a later investigation based on the examination result, that Transamerica falsely offered advisory fee discounts to their clients “when they increased their assets in certain investment programs,” for which they would become eligible for discounts by “aggregat[ing] the values of related accounts.” The aggregation requests for discounted fees were not applied in all client accounts, causing certain “retail investors to overpay for advisory services in thousands of client accounts.”