Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

US Court of Appeals for the District of Columbia Circuit Partially Invalidates Conflict Minerals Rule

Posted in SEC/Corporate

On April 14, the US Court of Appeals for the District of Columbia Circuit issued an opinion in the lawsuit challenging the Securities and Exchange Commission’s conflict minerals rule which reversed, in part, the prior decision of the US District Court for the District of Columbia upholding the conflict minerals rule and remanded the case back to the district court for further proceedings. In the opinion, the court found that, to the extent that the conflict minerals rule requires an issuer to disclose that any of its products “have not been found to be ‘DRC conflict free,’” such portion of the rule violates the First Amendment’s prohibition against compelled speech. However, the remainder of the conflict minerals rule, including the provisions requiring issuers to conduct country-of-origin inquiries and due diligence and the lack of any de minimis exception for reporting under the rule, was upheld by the court, as opponents of the conflict minerals rule were unable to convince the court that it should be invalidated as arbitrary, capricious, an abuse of discretion or in excess of the SEC’s statutory jurisdiction. As the decision remanded the lawsuit back to the lower court for further proceedings, a final decision with respect to the invalidated portion of the rule may be delayed for some time. A copy of the court’s full opinion is available here. Continue Reading

FINRA Proposes Rule 2081 to Prohibit “Bargained-For” Expungements

Posted in Broker Dealer

The Financial Industry Regulatory Authority, Inc. (FINRA) filed a proposed rule change with the Securities and Exchange Commission to adopt FINRA Rule 2081 that would prohibit broker dealers and associated persons from conditioning the settlement of a customer dispute on the customer agreeing to expunge the information regarding the dispute from the Central Registration Depository (CRD). On February 13, the FINRA Board of Governors approved the filing of the proposed rule with the SEC. FINRA did not solicit public comment for the proposed rule. The CRD system contains a variety of licensing and registration information, including administrative and disciplinary information about registered personnel. Information accessible by the public through FINRA’s BrokerCheck comes from the CRD system. FINRA acknowledged that it had taken steps to prevent bargained-for expungement as part of a settlement agreement, but it continued to have concerns with respect to such conduct, which would be expressly prohibited by the proposed rule. The effective date of the proposed rule will be 90 days following SEC approval. 

The proposed rule can be found here.

SEC Issues FAQs on Rule 15c3-5 for Broker Dealers with Market Access

Posted in Broker Dealer

On April 15, the Securities and Exchange Commission’s Division of Trading and Markets issued guidance in the form of 19 frequently asked questions (FAQs) on Rule 15c3-5 of the Securities Exchange Act of 1934 (Exchange Act), which requires risk management controls and supervisory procedures for broker dealers with market access. Continue Reading

CME Group Issues Notice Prohibiting Transitory EFRPs

Posted in CFTC

CME Group has issued an advisory notice prohibiting transitory exchange for related positions (EFRPs) on each of the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX) and the Commodity Exchange (COMEX). Pursuant to the advisory notice, transitory EFRPs, which had previously been permitted in CME foreign currency products, NYMEX energy products and COMEX and NYMEX metals products, will no longer be permitted as of June 2, 2014. Continue Reading

SEC Brings Lawsuit Against Hedge Fund Manager for Defrauding Investors

Posted in Litigation

On April 4, the Securities and Exchange Commission filed a complaint against Matthew D. Sample, founder of hedge fund Lobo Volatility Fund, LLC, for fraudulently raising approximately $1 million from five investors. According to the complaint, Sample raised the funds between October 2009 and June 2012 by selling Lobo limited liability units to investors and misrepresented that he would use investors’ money to trade options by employing a propriety trading strategy.  Continue Reading

SEC Alleges Insider Trading by Two Friends in Advance of the Acquisition of The Shaw Group Inc.

Posted in Litigation

On April 3, the Securities and Exchange Commission brought a lawsuit against Walter Wagner and Alexander Osborn, alleging that the two friends realized almost $1 million in profits by illegally trading securities of The Shaw Group Inc. in advance of its acquisition by Chicago Bridge & Iron Company, N.V.  Continue Reading

SEC Issues New FAQs on Conflict Minerals

Posted in Dodd-Frank Developments, SEC/Corporate

On April 7, the Division of Corporation Finance of the Securities and Exchange Commission issued nine new responses to frequently asked questions regarding the disclosure of conflict mineral usage that is required by rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, as discussed in the Corporate and Financial Weekly Digest edition of August 24, 2012. The Division of Corporation Finance released an initial set of FAQs regarding conflict mineral usage on May 30, 2013, which were previously discussed in the Corporate and Financial Weekly Digest edition of June 7, 2013. Continue Reading

SEC Issues Frequently Asked Questions Regarding the Amendments to the Broker-Dealer Reporting Rule

Posted in Broker Dealer

The Securities and Exchange Commission’s Division of Trading and Markets has issued frequently asked questions (FAQ) concerning the amendments adopted on July 30, 2013, to Rule 17a-5 (Broker-Dealer Reporting Rule) of the Securities Exchange Act of 1934 (Exchange Act).  Continue Reading

FINRA Requests Comment on Rules Regarding Communications with the Public and Gifts, Gratuities and Non-Cash Compensation

Posted in Broker Dealer

The Financial Industry Regulatory Authority (FINRA) has issued Regulatory Notice 14-14 and Regulatory Notice 14-15 announcing that it will initiate a review of certain of its rules to ensure that its rules remain relevant and appropriately designed to achieve their objectives. FINRA has indicated that it will prioritize rules for review, taking into consideration a number of factors, including: (i) feedback from FINRA’s Member Relations and Education department as to rules most frequently identified by firms as raising questions or concerns; (ii) input from FINRA’s advisory committees; (iii) observations and experiences of FINRA’s operating departments, including examination findings, enforcement actions, interpretive requests and general questions; (iv) how recently the rule(s) have been amended or subjected to industry feedback; (v) the anticipated length of the review process based on the breadth and complexity of the rule or rule set; and (vi) federal laws, regulations or rules that may preempt or otherwise limit FINRA’s ability to amend rules. Continue Reading

CFTC Extends Relief to FCMs from Certain Commingling Requirements

Posted in CFTC, Dodd-Frank Developments

On April 7, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued CFTC No-Action Letter No. 14-45, extending to June 30 the relief previously granted in CFTC No-Action Letter No. 14-02. This relief is set to expire on April 14. Continue Reading