Sadis & Goldberg LLP

New SEC Personnel Emphasize More Focused Adviser Examinations


The U.S. Securities & Exchange Commission ("SEC") has significantly increased its examination and enforcement efforts in recent times. SEC examinations may be routine or based on specific cause. Cause examinations typically begin with an unannounced visit from the SEC. The purpose of the SEC examinations are to protect investors by determining whether advisers are complying with the law, adhering to the disclosures that they have provided to their clients, and maintaining appropriate compliance programs to ensure compliance with the law. While few businesses expect to become the subject of government investigations, it happens every day. Planning for an SEC examination is a critical part of an adviser's operations and preparation is vital.

 

The SEC will continue to hire and appoint experienced personnel designed to strengthen SEC examinations. On January 4, 2010, Mr. Carlo V. di Florio was named the Director of the SEC's Office of Compliance Inspections and Examinations ("OCIE"), which was formerly headed by Lori Richards. Mr. di Florio was formerly with PricewaterhouseCoopers ("PwC"), where he was a partner in the Financial Services Regulatory Practice and one of the PwC's national leaders in corporate governance, enterprise risk management, and regulatory compliance and ethics. As head of OCIE, Mr. di Florio is required to oversee the SEC's nationwide examination programs for investment advisers, broker/dealers, mutual funds, credit rating agencies, and self-regulatory organizations among other entities. Mr. di Florio has experience with investigating corporate fraud, corruption, conflicts of interest and money laundering and has directed international teams and engagements across numerous jurisdictions around the world.[1]

 

"A strong inspections and examinations unit is instrumental to the SEC's investor protection efforts. Investors rely on our examiners to ensure that their financial professionals comply with the law," said SEC Chairman Mary Schapiro, in a statement. "Carlo brings the energy, insight, and experience necessary to ensure that we keep pace with the rapid changes in the industry and continue to build upon the reforms of the past year."[2]

 

Mr. di Florio will also work closely with the SEC's recently created investigative units and their leaders as follows: asset management, headed by Bruce Karpati and Robert Kaplan; market abuse, led by Daniel Hawke; structured and new products, Kenneth Lench; foreign corrupt practices, Cheryl Scarboro; and municipal securities and public pensions, Elaine Greenberg.

 

Remember, the best time to consider your options is before you get the call. We advise our clients with regard to registration, compliance obligations, informal inquiries, no-action letters, examinations, formal investigations and enforcement actions. We also draft compliance manuals, create internal controls and perform mock audits. Please feel free to contact Daniel G. Viola at 212.573.8038 (or dviola@sglawyers.com) regarding your compliance needs or with any questions.

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[1] http://www.sec.gov/news/press/2010/2010-1.htm

[2] Id.

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November 14, 2009 is the Deadline to File Updated Disclosure Information on Form U4s


 

The Form U4 was amended to include additional disclosure questions. All associated persons of broker-dealers and certain investment adviser representatives must file an updated Form U4 answering the additional disclosure questions. Form U4s must be updated by November 14, 2009. States oversee their own Form U4 filing requirements for registered investment adviser representatives and Form U4 compliance requirements should be reviewed on a state-by-state basis.

To make the revised Form U4 filing process less onerous for broker-dealers, FINRA Rule 1010 permits broker-dealers to file amendments related to the new Form U4 disclosure section without obtaining the manual signature of associated persons, subject to certain conditions. Broker-dealers must use reasonable efforts to (1) provide the associated person with a copy of the amended disclosure information and (2) obtain the associated person's written acknowledgement (which may be electronic) that the information has been received and reviewed. Such written acknowledgments should be retained in order to satisfy the record retention requirements set forth under Rule 17a-4 of the Securities Exchange Act of 1934.

If you would like additional information, please do not hesitate to contact Daniel G. Viola at (212) 573-8038, dviola@sglawyers.com.

 

 

 

  

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New Massachusetts Privacy Protection Requirements


On January 1, 2010, new regulations will become effective in Massachusetts that will require businesses, including private investment funds and investment advisers, which store personal information of Massachusetts residents to take specific steps to safeguard such information. These regulations, entitled "Standards for the Protection of Personal Information of Residents of the Commonwealth" (the "Privacy Regulations"), apply to the storage of data in paper or electronic format. Personal information is considered to be the combination of a name along with a Social Security number, bank account number, credit card number or state issued identification card number. Businesses that maintain such personal information about residents of Massachusetts will be required to implement, maintain and monitor a detailed, written information security program. Computer system security requirements include administering secure user authentication protocols, secure access control measures and firewalls and maintaining current security software. In addition, such businesses must establish and maintain a security system that, wherever technically feasible, encrypts any personal information that is stored on portable devices, transmitted wirelessly or conducted on public networks.

Massachusetts added the "technical feasibility" standard to the regulation in August to make the rule more consistent with federal law and to take reasonableness into account. Encryption is considered to be "technically feasible" if "there is a reasonable means through technology to accomplish a required result." (Frequently Asked Questions Regarding 201 CMR 17.00 http://www.mass.gov/Eoca/docs/idtheft/201CMR17faqs.pdf.) Whenever encryption is not technically feasible, best practices should be implemented to protect personal information, such as not sending emails that contain personal information.

Although the Privacy Regulations specify elements that should be incorporated into an information security program, because the regulations may be difficult for small businesses to implement to the same extent as large businesses, small businesses are permitted to tailor their programs. Factors that small businesses may consider in the implementation of their program include: (1) the size, scope and type of business; (2) the amount of available resources; (3) the amount of data stored by the business; and (4) the need for security and confidentiality of information.

Through the Privacy Regulations, Massachusetts is placing the onus on businesses to proactively prevent breaches of private data by requiring the implementation of specific data protection and compliance standards.

If you have any questions as to how the Privacy Regulations apply to your business, please do not hesitate to contact Daniel G. Viola at (212) 573-8038, dviola@sglawyers.com.

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