Edward Eisert

Senior Counsel

New York


Read full biography at www.orrick.com
Edward G. Eisert, a senior counsel in the New York office, is a member of the Corporate Group. He focuses his practice on investment management, financial products and regulatory compliance.

He represents U.S. and non-U.S. domiciled financial institutions in a wide array of matters spanning his practice specialties. Ed’s experience includes the structuring and re-structuring of private investment funds and other financial products; the formation and operations of investment advisers and broker-dealers; cross-border broker-dealer, investment adviser and bank regulatory issues; and advice regarding applications of blockchain technology and the regulation of digital assets.

Before joining Orrick, Ed was the General Corporate Counsel of Fiduciary Trust Company International, a subsidiary of Franklin Templeton Investments, and also served as the initial AML Compliance Officer of Fiduciary Trust.

Posts by: Edward Eisert

Federal Regulators Issue Key Guidance on Fintech Issues

 

On July 30, 2018, the U.S. Department of the Treasury (“Treasury“) and the Office of the Comptroller of the Currency (“OCC“) provided important guidance on a broad range of issues confronting the fintech industry. Treasury released a long-awaited report titled A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation (the “Treasury Report“).

Following a specific recommendation in the Treasury Report, the OCC formally announced that it would begin to accept applications for special purpose national bank charters, and it provided guidance on the procedures and standards that would govern such applications through the issuance of a Licensing Manual Supplement for Special Purpose National Banks (the “Manual Supplement“). Taken together, the Treasury Report and the OCC announcement reinforce the commitment of the federal government to promote the growth of the fintech industry. Click here to read the full Orrick-authored alert.

SEC Adopts Rules to Enhance Transparency and Oversight of Alternative Trading Systems

 

On July 18, 2018, the Securities and Exchange Commission (“SEC“) voted to adopt amendments to Regulation ATS to enhance operational transparency and regulatory oversight of alternative trading systems (“ATSs”) that trade stocks listed on a national securities exchange.

Certain ATSs will be required to file detailed public disclosures on new Form ATS-N. According to the SEC: “these disclosures are designed to allow market participants to assess potential conflicts of interest and risks of information leakage arising from the ATS-related activities of the ATS’s broker-dealer operator and its affiliates.” Secondarily, the disclosures are intended to inform market participants about how the ATS operates, including order types and market data used on the ATS, fees, the ATS’s execution and priority procedures, and any procedures to segment orders on the ATS.

According to the Fact Sheet published with its Press Release, the SEC stated:

The enhanced disclosures are also designed to enable market participants to compare an NMS Stock ATS to other trading venues and better evaluate the ATS as a potential destination for their orders.

Specifically, Form ATS-N will require an NMS Stock ATS to disclose information regarding:

  • Information about its broker-dealer operator, including identifying information and ownership.
  • ATS-related activities of its broker-dealer operator, and the broker-dealer operator’s affiliates.
  • The manner of operations of the NMS Stock ATS.

The amendments will be published on the Commission’s website and in the Federal Register and will become effective 60 days from the date of publication in the Federal Register. An NMS Stock ATS that is operating pursuant to an initial operation report on Form ATS as of January 7, 2019 will be required to file a Form ATS-N no earlier than January 7, 2019 and no later than February 8, 2019. As of January 7, 2019, an entity seeking to operate as an NMS Stock ATS will be required to file a Form ATS-N.

OCIE Issues Alert Regarding Compliance Issues Related to Best Execution by Investment Advisers

 

On July 11, 2018, the Office of Compliance Inspections and Examinations (“OCIE“) of the Securities and Exchange Commission issued a Risk Alert regarding the most frequent best execution issues cited in adviser exams “to provide investment advisers (“advisers“), investors and other market participants with information concerning many of the most common deficiencies that the staff has cited in recent examinations of advisers’ compliance with their best execution obligations under the Investment Advisers Act of 1940.”

The following is a summary list of the examples provided by OCIE of the most common deficiencies associated with advisers’ best execution obligations.

  • Not performing best execution reviews.
  • Not considering materially relevant factors during best execution reviews.
  • Not seeking comparisons from other broker-dealers.
  • Not fully disclosing best execution practices.
  • Not disclosing soft dollar arrangements.
  • Not properly administering mixed use allocations.
  • Inadequate policies and procedures relating to best execution.
  • Not following best execution policies and procedures.

According to OCIE, the examinations within the scope of this review resulted in a range of actions, including advisers electing to amend their disclosures regarding best execution or soft dollar arrangements, revising their compliance policies and procedures, or otherwise changing their practices regarding best execution or soft dollar arrangements. To read the full text, click here.

SEC Proposes FAIR Act Rules to Promote Research Reports on Investment Funds

 

On May 23, 2018, the Securities and Exchange Commission (“SEC“) proposed rules and amendments intended to promote research on mutual funds, exchange traded funds, registered closed-end funds, business development companies, and similar covered investment funds.

The Commission believes that the proposal would reduce obstacles to providing research on investment funds by harmonizing the treatment of such research with research on other public entities.

If adopted, the proposal would generally establish a safe harbor for a broker or dealer to publish or distribute research reports on investment funds under certain conditions. This proposed safe harbor is similar to a regulatory safe harbor that currently exists for research reports about other public entities.

The public comment period will remain open for 30 days following publication of the proposing release in the Federal Register. Release.

Economic Growth, Regulatory Relief and Consumer Protection Act

 

The “Economic Growth, Regulatory Relief and Consumer Protection Act,” signed by the President on May 24, amends Section 3(c)(1) of the Investment Company Act of 1940 to provide that a “qualifying venture capital fund’ may have as many as 250 beneficial holders of its securities – an increase from 100 beneficial holders.

A “qualifying venture capital fund” is defined to mean “a venture capital fund that has not more than $10,000,000 in aggregate capital contributions and uncalled committed capital, with such dollar amount to be indexed for inflation once every 5 years by the [Securities and Exchange] Commission, beginning from a measurement made by the Commission on a date selected by the Commission, rounded to the nearest $1,000,000.”

The definition of “venture capital fund” set forth in Rule 203(l)-1 under the Investment Advisers Act of 1940 has not been amended. Click here to view the definition.

The following is the text of the relevant amendment.

SEC. 504. SUPPORTING AMERICA’S INNOVATORS.

Section 3(c)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a–3(c)(1)) is amended—(1) in the matter preceding subparagraph (A), by inserting ”(or, in the case of a qualifying venture capital fund, 250 persons)” after ”one hundred persons”; and (2) by adding at the end the following: ”(C)(i) The term ‘qualifying venture capital fund’ means a venture capital fund that has not more than $10,000,000 in aggregate capital contributions and uncalled committed capital, with such dollar amount to be indexed for inflation once every 5 years by the Commission, beginning from a measurement made by the Commission on a date selected by the Commission, rounded to the nearest $1,000,000.'(ii) The term ‘venture capital fund’ has the meaning given the term in section 275.203(l)–1 of title 17, Code of Federal Regulations, or any successor regulation.”

The public law has not been printed yet and so is not available online. The foregoing excerpt is from the attached enrolled version which will become the public law. Release.

Division of Investment Management of the SEC Issues No-Action Letter to SSB

 

On May 8, 2018, the Chief Counsel’s Office of the Division of Investment Management (“IM“) of the Securities and Exchange Commission (the “Commission“) issued a “no-action” letter to South State Bank (“SSB“) with respect to its request that the Staff of IM not recommend enforcement action to the Commission under the anti-fraud provisions of the Investment Advisers Act of 1940, and the rules thereunder, if SSB effected an internal restructuring whereby one of its advisory subsidiaries would be merged into another (the “Surviving Entity”). The merged entity would continue to operate as an operating division of the Surviving Entity (the “Division”) and would continue to use its performance track record to the same extent as it could had the restructuring not occurred.

The grant of relief was based upon representations that: (i) the Division would continue to operate as a separate business division of the Surviving Entity operating under its existing brand; and (ii) the same management team that managed the merged entity would manage the Division and the investment committee of the merged entity would continue to have responsibility for the Division’s investment decisions and recommendations.

A copy of the request and “no-action” letter response can be found here.

SEC Unveils Public Service Announcement to Promote Background Checks on Investor.gov

 

On April 16, the Securities and Exchange Commission (“SEC“) unveiled a public service announcement (“PSA“) to encourage investors to check the background of their investment professional by using the free search tool on Investor.gov before investing. Chairman Clayton stated that:

“Investor education is an important line of defense against fraud and is critical to our efforts to both protect Main Street investors and improve their financial decision making. Through public service announcements, investor alerts and bulletins, and direct outreach, the SEC will continue to focus on empowering investors.” Press Release.

SEC Proposes to Enhance Protections and Preserve Choice for Retail Investors in Their Relationships with Investment Professionals

 

On April 18, the Securities and Exchange Commission (“SEC“) voted to propose a package of rulemakings and interpretations consisting of more than 900 pages that are “designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products.”

As stated in the Commission’s Press Release announcing this action: “Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.”

The Commission also proposed an interpretation to reaffirm and, in some cases, clarify its views of the fiduciary duty that investment advisers owe to their clients.

In addition, the Commission proposed to help address “investor confusion” regarding the nature of their relationships with investment professionals through a new short-form disclosure document dubbed “a customer or client relationship summary” (a “CRS“). The Commission stated that it believes that Form CRS would provide retail investors with “simple, easy-to-understand information” about the nature of their relationship with their investment professional, and would supplement other more detailed disclosures.

Finally, the Commission proposed to restrict certain broker-dealers and their financial professionals from using the terms “adviser” or “advisor” as part of their name or title with retail investors.

In proposing these new regulations the Commission added that: “Taken as a whole, the proposed rules and interpretations would enhance investor protection by applying consistent principles to investment advisers and broker-dealers: provide clear disclosures, exercise due care, and address conflicts of interest. The specific obligations of investment advisers and broker-dealers would be, however, tailored to the differences in the types of advice relationships that they offer.

The public comment period will remain open for 90 days following publication of the documents in the Federal Register.

Proposed Rules: Regulation Best Interest. Form CRS Relationship Summary.

Proposed Interpretation: Standard Conduct for Investment Advisers.

SEC Statement on Potentially Unlawful Online Platforms for Trading Digital Assets

 

On March 7, 2018, the Divisions of Enforcement and Trading and Markets of the Securities and Exchange Commission released a “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”

The Statement noted that: “Online trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings ….”  The Statement then strongly warned that: “A number of these platforms provide a mechanism for trading assets that meet the definition of a “security” under the federal securities laws. If a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.” On this basis, the Statement set out a list of some questions investors should ask before they decide to trade digital assets on an online trading platform.

Swiss FINMA Publishes ICO Guidelines

In guidelines published on February 16, the Swiss Financial Market Supervisory Authority (“FINMA“) sets out how it intends to apply financial market legislation in handling enquiries from initial coin offering (ICO) organizers. The guidelines also define the information FINMA requires to deal with such enquiries and the principles upon which it will base its responses, creating clarity for market participants.

In particular, the guidelines contain very helpful definitions of (i) “Payment Tokens,” which are synonymous with cryptocurrency and have no further functions or links to other development projects, (ii) “Utility Tokens,” which are tokens which are intended to provide digital access to an application or service, and (iii) “Asset Tokens,” which represent assets such as participations in real physical underlyings, companies, or earning streams, or an entitlement to dividends or interest payments — in terms of their economic function, Asset Tokens are analogous to equities, bonds or dividends. That being said, FINMA noted that “hybrid forms are possible”. Release.