More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
President Obama’s picks to be the two new Commissioners at the Securities and Exchange Commission voiced their support during their confirmation hearing Thursday for SEC Chairwoman Mary Jo White’s recent announcement that she’d be changing the agency’s “neither admit nor deny” settlement policy by seeking admissions of guilt in some of the more egregious cases.
Sen. Elizabeth Warren, D-Mass., said at the Senate Banking Committee hearing—which also considered the nomination of Rep. Mel Watt, D-N.C., to be the director of the Federal Housing Finance Agency and two other nominees—that requiring admission of guilt in some cases “is an important step” for the agency and “shows that SEC will show some backbone in certain cases.”
Warren then asked Kara Stein, an aide to Sen. Jack Reed, D-R.I., who was nominated to replace SEC Commissioner Elisse Walter, and Michael Piwowar, an economist on the Senate Banking Committee’s staff who was nominated to replace Troy Paredes, whether they supported White’s decision.
Piwowar replied that he agreed, as the SEC’s policy has been on “autopilot” for too long. “Enforcement should be on a case-by-case basis,” he said. Stein said she also agreed, echoing Piwowar’s sentiment that “nothing should be on autopilot.”
Both Piwowar and Stein's nominations are expected to be approved.
As reported by Reuters, White said at the annual CFO Network event hosted in Washington on Tuesday by The Wall Street Journal that the SEC is “going to in certain cases be seeking admissions going forward. I think ... public accountability in particular kinds of cases can be quite important, and if we don't get them, then we litigate them.”
In a June 17 email to the SEC’s enforcement staff, the enforcement division’s co-directors, George Canellos and Andrew Ceresney, said that the agency had begun to review its settlement approach “to ensure we make full and appropriate use of our leverage in the settlement process, including a discussion of the neither admit nor deny approach. While the no admit/deny language is a powerful tool, there may be situations where we determine that a different approach is appropriate.”
From discussions with White and the commissioners, Canellos and Ceresney said that the types of cases where admissions of guilt could be in the public interest include “misconduct that harmed large numbers of investors or placed investors or the market at risk of potentially serious harm; where admissions might safeguard against risks posed by the defendant to the investing public, particularly when the defendant engaged in egregious intentional misconduct; or when the defendant engaged in unlawful obstruction of the commission’s investigative processes.”
In such cases, “should we determine that admissions or other acknowledgement of misconduct are critical, we would require such admissions or acknowledgement, or, if the defendants refuse, litigate the case,” the two enforcement directors said.
Both Canellos and Ceresney said, however, that they “recognize that insisting upon admissions in certain cases could delay the resolution of cases, and that many cases will not fit the criteria for admissions.” For these reasons, they added, “no-admit-no-deny settlements will continue to serve an important role in our mission and most cases will continue to be resolved on that basis. We will also continue to strongly defend our discretion to reach such settlements in response to inquiries from courts.”
Check out SEC Changes Policy on Admission of Guilt in Fraud Cases on AdvisorOne.