More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- 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.
Stating that the Securities and Exchange Commission’s newly allowed hedge fund and private equity ad rule “sets in motion a much easier path for shady operators and outright crooks,” Massachusetts Securities regulator William Galvin (left) announced Monday that he’s setting up a new unit to monitor crowdfunding activity in the state.
The new unit, to be manned by securities division staff and attorneys, is dubbed the Internet Crowdfunding and Offerings Watch Department, “I-CROWD.” It will monitor not only crowdfunding websites but also advertising of private placements under Regulation D's Rule 506.
“I do not begin to think that one state can monitor and police the Internet,” Galvin said in a statement. “But I am going to take every proactive step I can to protect investors in the Commonwealth from those who would abuse the provisions of the JOBS Act.”
For the benefit of all state securities regulators, the North American Securities Administrators Association established last December a task force on Internet fraud investigations to monitor crowdfunding and other Internet offerings. NASAA spokesman Bob Webster says that he's "not aware of any other individual states" besides Massachusetts that has created a separate crowdfunding unit.
As Galvin notes, the JOBS Act lifted the ban on businesses raising money by advertising private deals which means that hedge funds, private equity funds, angel investments, and other small businesses can advertise on the Internet, social media sites, television and any other outlet.
The JOBS Act, Galvin continued, “will also allow existing crowdfunding sites, such as Kickstarter, as well as other portals to raise equity by selling securities to average, unaccredited ‘mom and pop’ investors without having to fulfill prior federal and state registration or exemption requirements.”
The JOBS Act, Galvin said, “may accomplish its intended purpose of allowing small businesses to raise capital and create jobs--and I hope it does,” but it could also boost fraud.
The I-CROWD unit will:
- Assess the impact of changes in the laws and rules that apply to unregistered offerings;
- Gather data about the types and quantity of public advertising used for unregistered offerings;
- Track how issuers of securities use the new rules that allow general solicitation and advertising of non-public offerings;
- Monitor Portals raising money in the Commonwealth;
- Collect data about the types of offerings presented under the new rules;
- Compile information on how issuers verify whether investors are qualified to purchase such offerings and evaluating those procedures;
- Detect fraudulent offerings early, in order to protect investors; and
- Refer cases for enforcement action when potential fraud is detected.