On March 26, the Staff of the Division of Trading and Markets of the SEC provided no-action letter relief from the broker-dealer registration requirements of the Securities Exchange Act of 1934 to FundersClub Inc. and its wholly-owned subsidiary in connection with their internet based, Rule 506 compliant securities offerings. FundersClub and its subsidiary are venture capital fund advisers under Rule 203(l)-(1) of the Investment Advisers Act of 1940. The FundersClub no action relief sets forth the Staff’s interpretation of Section 201 of the JOBS Act, which provides an exemption from broker-dealer registration for persons providing certain services in connection with an offering under Rule 506 of Regulation D. In granting the requested relief, subject to numerous conditions, the Staff noted that FundersClub and its subsidiary comply with the JOBS Act, in part, because they and each person associated with them receive no compensation (or the promise of future compensation) in connection with the purchase or sale of securities (transaction-based compensation), rather they receive compensation for their traditional advisory and consulting services, i.e., carried interest. SEC No Action Letter.
Category Archives: Asset Management
SEC Issues FAQs Regarding Rule 15a-6 and Foreign-Broker Dealers
On March 21, the Staff of the Division of Trading & Markets of the SEC published a set of FAQs on Rule 15a-6 under the Securities Exchange Act of 1934, which provides conditional exemptions from Exchange Act broker-dealer registration requirements for foreign broker-dealers that engage in specified activities involving U.S. investors. Among the topics covered are distribution of research to U.S. institutional investors, delivery of confirmations and account statements directly to U.S. counterparties, and the application of prior no-action guidance to chaperoning arrangements with non-affiliated broker-dealers. SEC FAQs.
SEC Charges Private Equity Firm, Former Executive, and Consultant for Improperly Soliciting Investments
On March 11, the SEC announced charges against a private equity firm, a former senior executive of the firm and an individual based solely on the allegation that the individual acted as an unregistered broker-dealer in violation of the Securities Exchange Act of 1934. The parties agreed to settle the charges. The significance of this action is that the SEC did not allege that the parties defrauded clients, but rather only that the individual, who purported to be a “finder” (and not a broker-dealer), engaged in activities that went far beyond merely making initial introductions and, therefore, should have been registered. In turn, the SEC’s order found that the private equity firm “caused” the violation and that the former executive who oversaw the marketing efforts “aided and abetted and caused” the individual’s violation of the registration requirements of the Exchange Act. SEC Press Release.
SEC No Action Relief for Advisory Agreement Amendment Without Shareholder Approval
On February 27, the SEC Division of Investment Management granted no action relief to Emerging Global Advisors, LLC (EGA) and Emerging Global Shares Trust (Trust), allowing EGA to amend its investment advisory agreement with the Trust without obtaining majority shareholder approval as required under Section 15(a) of the Investment Company Act. This no action relief is preconditioned upon (i) the proposed amendments not reducing or modifying the nature and level of advisory services provided by EGA and (ii) the total advisory fees paid to EGA under the amended advisory agreement would not exceed the advisory fees payable under the current agreement. SEC No Action Letter.
SEC Proposes Rules to Improve Systems Compliance and Integrity
On March 7, the SEC proposed Regulation SCI to require certain SROs, alternative trading systems, disseminators of market data under certain National Market Systems plans and clearing agencies exempt from SEC regulation to have comprehensive policies and procedures in place surrounding their technological systems. The proposed Regulation SCI would replace the current voluntary compliance program with enforceable rules designed to better insulate securities markets from vulnerabilities posed by systems technology issues. Comments must be submitted within 60 days after publication in the Federal Register. SEC Release. SEC Proposed Rules.
CFPB Proposed Amendment to Rule on Remittance Transfers
On December 21, 2012, the CFPB issue a proposed amendment to subpart B of Regulation E under the Electronic Fund Transfer Act regarding remittance transfers. The proposed amendment: (i) provides flexibility regarding the disclosure of foreign taxes, as well as fees imposed by a designated recipient’s institution for receiving a remittance transfer in an account; (ii) limits a remittance transfer provider’s obligation to disclose foreign taxes to those imposed by a country’s central government; and (ii) revises the error resolution provisions that apply when a remittance transfer is not delivered to a designated recipient because the sender provided incorrect or insufficient information. Comments must be received within 30 days of publication of the proposed amendment in the Federal Register. CFPB Release. CFPB Proposed Amendment.
SEC No-Action Letter on Definition of “Ready Market” for Foreign Equity Securities
On December 27, 2012, the staff of the SEC Division of Trading and Markets issued a no-action letter setting forth conditions under which broker-dealers may treat certain foreign equity securities as having a “ready market” under the Exchange Act Rule 15c3-1(c)(11)(i). This expands the number of foreign securities eligible as foreign margin stock under Fed Regulation T. SEC No-Action Letter.
FINRA Guidance on Suitability Rule
On December 10, FINRA issued Regulatory Notice 12-55, which provides regulatory guidance in the form of a FAQ regarding customer suitability issues under FINRA Rule 2111. The amendments to the FAQ address the scope of the terms “customer” and “investment strategy.” FINRA Notice.
CFTC No-Action Relief for CPO Registration of Family Offices
On November 30, the CFTC issued a no-action letter stating that the Division of Swap Dealer and Intermediary Oversight will not take enforcement action against the operators of family offices for failure to register as commodity pool operators. CFTC Release. CFTC No-Action Letter.
CFTC No-Action Relief for CPO Registration of Fund of Funds
On November 30, the CFTC issued a time limited no-action letter stating that that the Division of Swap Dealer and Intermediary Oversight will not take enforcement action against the commodity pool operator of a fund of funds for failure to register as such until the later of June 30, 2013, or six months after the effective date (or compliance date, if later) of any revised guidance on the de minimus threshold rules. CFTC Release. CFTC No-Action Letter.