Compliance

Compliance professionals don’t think the Dodd-Frank Wall Street Reform and Consumer Protection Act will lead to a significant increase in compliance spending this year and they expect more money will be allocated to technology rather than education and consulting, according to a new study conducted between March and April by National Regulatory Services (NRS).

A former Morgan Stanley Dean Witter stockbroker was sentenced this week to almost five years in prison and ordered to pay his former employer $1.5 million in restitution in connection with fraud charges.

Broker-dealers don’t have to track every message sent through social media -- only ones that relate to business purposes. And unscripted interactions? They can be reported after they occur.

The Securities and Exchange Commission has approved the creation of an interim inspection program related to audits of brokers and dealers.

The Securities and Exchange Commission has approved the creation of an interim inspection program related to audits of brokers and dealers.

A senior employee known as an aggressive workaholic, but who seems stressed, yet rarely takes vacations, declines promotions and zealously protects his business unit from outside scrutiny while personally handling choice vendors may be up to something devious.

A former managing director of the Nasdaq Stock Market was sentenced today to 42 months in prison by a federal judge in Virginia.

The Securities and Exchange Commission has upheld an administrative judge's ruling that a mutual fund trader must pay more than $200,000 in penalties for accepting gifts from broker-dealers to steer trades their way. The regulator didn't buy the trader's excuse that the mutual funds weren't harmed.

SEC Slaps Mutual Fund Trader for Accepting Gifts From BrokersPrinter Friendly Email Reprints Reader Comments Share | August 9, 2011Chris KentourisThe Securities and Exchange Commission has upheld an administrative judge’s ruling that a mutual fund trader must pay more than $200,000 in penalties for accepting gifts from broker-dealers to steer trades their way.Like what you see? Click here to sign up for Securities Technology Monitor's weekly newsletter to get the latest news and analysis that matters to the effective operation of capital markets.The regulator didn’t buy the trader’s excuse that the mutual funds weren’t harmed.The SEC said that Robert Burns, a former equity trader at FMR Co., violated the Investment Company Act of 1940 by accepting the compensation from brokerage firms. Burns had to disgorge about $141,000 and interest of $67,205. He must also pay a civil penalty of $40,000. FMR is a subsidiary of Fidelity Management and Research Company that manages the Fidelity Investments group of mutual funds.Burns, who was dismissed by FMR in December 2004, sent orders to more than fifty brokerage firms. Of those fifty about ten gave him thirty nine gifts such as wine, travel and tickets to concerts, sporting events and theater productions. The gifts, according to the SEC included tickets to the Wimbledon tennis finals in 2002, 2003 and 2004; a case of 1993 Château Pétrus Pomerol wine in December 2003; tickets to see Prince, the Rolling Stones, Bruce Springsteen, Madonna, and several other performers in concert; tickets to games involving the Boston Celtics, Boston Red Sox and New England Patriots and tickets to theater events including "The Lion King," "The Producers," "Avenue Q," and "Hairspray."Burns did not dispute that he received the gifts but insisted that they did not influence his decisions. He argued that the SEC failed to prove that any fund was harmed by paying a higher commission rate than otherwise available so he did not violate the Investment Company Act.However, the SEC countered that Burns had to prove that he did not violate his fiduciary duty. And even if he could do so, he would have to prove the gifts were unrelated to his role as an equity trader.“The record shows and Burns does not contest, that he accepted numerous gifts from multiple brokers to whom he directed and continued to direct securities transactions on behalf of mutual funds to which he, affiliated with the funds’ adviser, owed a fiduciary duty,” wrote the SEC in its ruling on August 5. “We therefore conclude that the division has made a prima facie showing that, in accepting these gifts, Burns’ interest conflicted with that of the investment companies he was advising.”The case involving Burns is the tip of the iceberg in charges filed by the SEC against Fidelity and several of its senior-ranking traders, over the alleged acceptance of bribes in exchange for steering business to select brokerages.Vincent Loporchio, a spokesman for Fidelity in Boston, said that his firm has taken steps to enhance its policies and procedures concerning conflicts of interest."We adopted additional written standards of conduct related to business entertainment and acceptance of gifts; expanded the role of our ethics office responsible for regulatory compliance and established a new level of management oversight for our trading department," he said.

OppenheimerFunds is paying $100 million to settle a class-action lawsuit against two of its funds, the Oppenheimer Champion and the Oppenheimer Core Bond funds

The Securities and Exchange Commission in late July voted unanimously to require large trading firms to identify themselves, so their market activities can be tracked (see Money Management Executive, 8/1/11, page 4).

Barack Obama has missed his chance to see a director of the new Consumer Financial Protection Bureau take office within his first term as president.

Appeals Court Ruling Likely to Delay Dodd-Frank RegsBy Donna Borak, American BankerAugust 3, 2011WASHINGTON — A recent federal appeals court decision is likely to cause the delay of dozens of pending Dodd-Frank Act regulations.Like what you see? Click here to sign up for Financial Planning's daily newsletter to get the latest on advisor market trends, investment management, retirement planning, practice management, technology, compliance and new product development.The U. S. Court of Appeals for D.C. Circuit Court ruled July 22 that the Securities and Exchange Commission did not properly conduct a cost-benefit analysis before finalizing a proxy rule required by the regulatory reform law.The decision serves as a stark warning for all federal regulators tasked with writing the myriad of regulations under Dodd-Frank, and gives the industry and others more leeway to challenge new rules in court. As a result, industry observers said regulators are likely to take more time to ensure they can adequately justify their decisions."The entire Dodd-Frank implementation is at heavy risk because if any of these rules are challenged by the courts, they won't survive," said Hal Scott, Nomura Professor and Director of the Program on International Financial Systems at Harvard Law School.Rules put out by other federal agencies will be "completely attackable under this decision," Scott said.Republicans, who opposed Dodd-Frank and have sought to push back many of its regulations, immediately seized on the ruling, arguing it proved their fears that the new rules would be costly and burdensome to banks and the economy at large."Our regulatory agencies are not undertaking rigorous and deliberate analysis to understand the economic impacts of their actions," said Sen. Richard Shelby, ranking member of the Senate Banking Committee, following the court's decision. "The decision is an unequivocal validation of the concerns that Republicans have raised repeatedly over the past year."At issue is a case brought by the U.S. Chamber of Commerce and Business Roundtable, which claimed the SEC didn't take into account the full costs associated with a new proxy rule. In its decision, Justice Douglas Ginsburg agreed with the industry, saying the SEC had acted "arbitrarily and capriciously" in failing to adequately assess the economic effect of the rule.Ginsburg also said the SEC had "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters."This was not the first time the SEC has lost a case on the same grounds. Unlike other agencies, it is required to show a rule's effect on efficiency, competition and capital formation. "It's a black eye not just for Dodd-Frank, but it's a black eye for the SEC," said Cornelius Hurley, director of the Center for Banking and Financial Law at Boston University.But the impact is likely to go well beyond the SEC. Industry representatives said the banking agencies will be more cautious now as they develop proposals."The immediate impact is that it puts the Dodd-Frank rulemaking under a sharper microscope," said Tom Quaadman, vice president of the Chamber of Commerce's Center for Capital Markets Competitiveness. "There's no question that there's going to be much heightened scrutiny."Randall Kroszner, a former Federal Reserve Board governor and now professor at the University of Chicago, agreed."It is the shot across the bow saying the cost benefit analysis needs to be something done well and should be front and center in assessing the impact of regulations," he said.It also provides Republicans with more ammunition in their battle against Dodd-Frank, giving them more opportunities to showcase the potential costs of the law."This is part of the war of attrition that the Republicans are waging against Dodd-Frank," said Hurley. "Unfortunately, Dodd-Frank is a deeply flawed statute, so they have a lot of opportunities to criticize. The way they are going to kill it is through court challenges and short funding the regulators."Sen. Mike Crapo, R-Ind., joined Shelby in calling the court decision a critical ruling."Regulators charged with implementing the hundreds of Dodd-Frank rules must take this decision as a wakeup call and take the necessary time to get the final rules right by incorporating the meaningful public comments and economic analysis in their proposed rules," Crapo said in a press release.Similarly, several top members of the House Financial Services Committee, including Rep. Scott Garrett of New Jersey, chairman of the capital markets subcommittee, Rep. Jeb Hensarling of Texas and Rep. Randy Neugebauer of Texas, wrote a letter raising concerns to SEC Chairman Mary Schapiro."The court's decision raises fundamental questions about the adequacy of the SEC's rulemaking pursuant to the Dodd-Frank Act and the Commission's exercise of its general rulewriting authority," they wrote in a letter dated July 28.In response to the decision, the SEC has said it is reviewing the case and considering its options.While no decision has been made yet, the agency has the ability to seek a panel rehearing or appeal to the Supreme Court. It could even opt to do nothing, or redo the entire rulemaking process from scratch.Still, the court decision appeared to validate concerns Republicans have raised since before the law was passed.Shelby along with all the Republican members of the Banking Committee urged regulators in a February letter to complete a thorough economic analysis of the hundreds of rules they are required to write under Dodd-Frank.Later, Shelby put more pressure on the issue asking the Inspector Generals for all the respective agencies to conduct a review. The reports found cases were regulators had not adequately conducted an economic analysis of a pending regulation.Observers said lawmakers will be ready to pounce on regulators should their analysis prove faulty or inadequate."I think once people understand the implication of this decision, there's going to be a lot of pressure on the agencies both from industry and the Congress," said Scott. "It's in everybody's interest to stop and take stock and do the kind of cost-benefit analysis that will be required for these rules to survive in the court." WASHINGTON — A recent federal appeals court decision is likely to cause the delay of dozens of pending Dodd-Frank Act regulations.

Reversing a decision of a lower court. U.S. District Court for the Southern District of New York Judge Jed S. Rakoff is allowing a SEC lawsuit against Marc Gabelli, son of Mario Gabelli, to proceed.

The Securities and Exchange Commission is considering requiring money market funds to set aside 1% to 3% of their assets and lifting the $1 net asset value, sources with knowledge of the discussions told Bloomberg News. The SEC may require any fund that did not set aside the capital buffer to revert to a floating NAV within 60 days.

The Securities and Exchange Commission voted unanimously Tuesday to require large traders to register and to share more information. The rule, yet another measure in response to the Flash Crash of May 2010, will take effect in 60 days, with traders given an additional two months to begin registering.

Some insiders speculate that the White House may be open to compromise over the CFPB's structure to win nominee Richard Cordray's confirmation.

The woeful tale of the banking industry and Republicans joining forces to thwart new consumer protection efforts will do more to anger the man on the street in the long run.

Founder and CEO of the Institute for Private Investors talks about where wealthy members are putting their money now.

Our legal expert explains why a book discussing an advisor's investment experience is a no-no.