On December 20, 2024, the Securities Exchange Commission announced that it had settled with multiple entities for failing to timely file Forms D for several unregistered securities offerings in violation of Rule 503 of Regulation D under the Securities Act of 1933 (the “Securities Act”). [1] These entities include:

In December of last year, I was fortunate to try a case in the Delaware Court of Chancery, generally regarded as the world’s foremost court for the resolution of intra-corporate disputes. This article will provide some background about the Court and discuss its practices and procedures, a number of which make it a highly desirable forum for matters within its jurisdiction and expertise.

On August 28, the Financial Crimes Enforcement Network (“FinCEN”), within the U.S. Treasury Department, issued a final rule, the Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers (“Final Rule”), which extends certain anti-money laundering (“AML”) compliance obligations to most investment advisers (“RIAs”) registered with the Securities and Exchange Commission (“SEC”), and investment advisers that report to the SEC as exempt reporting advisers (“ERAs”).

FINRA recently announced in Regulatory Notice (“Reg. Notice”) 24-12, amendments to Rule 3240 (the “Rule”) which generally prohibits borrowing from or lending to customers by registered persons. These amendments include: modernizing the "immediate family" definition; narrowing exceptions for personal and business relationships; and introducing stricter notice and approval requirements for permissible arrangements. In addition, the Rule’s scope now extends to arrangements made before and after the broker-customer relationship, with new obligations on member firms to assess risks associated with such arrangements. These amendments will take effect on April 28, 2025 (the “Compliance Date”).

On October 21, 2024, the U.S. Securities and Exchange Commission (SEC) Division of Examinations released its annual examination priorities for the fiscal year 2025, outlining areas of risk and focus for market participants. As in past years, the SEC’s areas of focus include upholding fiduciary obligations, avoiding conflicts of interest, and cybersecurity. The SEC’s newer areas of focus include ensuring proper use of artificial intelligence (AI) and private fund adviser regulations. The SEC’s priorities reflect both longstanding concerns and emerging risks in the financial markets.

The Supreme Court's decision in SEC v. Jarkesy (“Jarkesy”) curtails the Securities and Exchange Commission’s (SEC) use of SEC-appointed judges in its enforcement actions. Jarkesy sets a new precedent for how regulatory enforcement actions might be adjudicated moving forward, not only for SEC actions, but also enforcement actions across other regulatory agencies, including the Financial Industry Regulatory Authority (FINRA). Such potential ramifications of this ruling are detailed below.

On April 25, 2024, with the enactment of the final version of its Retirement Security Rule (the "Final Rule"), the Department of Labor (“DOL”) imposed a fiduciary standard under the Employee Retirement Income Security Act of 1974 (“ERISA”) that it believes will "uniformly apply to all investment advice that is provided to [retirement investors], concerning the investment of their retirement assets.”

On May 16, 2024, the Securities and Exchange Commission (“SEC”) adopted significant amendments to Regulation S-P (“Reg S-P”). Among other changes, these amendments require covered institutions to create written policies and procedures for incident response programs addressing unauthorized access to or use of customer data.

As we have highlighted, on March 27, 2024, the Securities and Exchange Commission (“SEC”) amended the internet adviser exemption by requiring functional websites and prohibiting in-person clients. The amendments aim to modernize the 22-year-old rule’s investor protections and address what the SEC considers significant compliance gaps by advisers relying on the exemption.

Managing Partner, Erwin J. Shustak, recently sat down with Chad Franzen of the Rise25.com Podcast to discuss how Erwin decided, at a young age, he wanted to be a lawyer and the path that brought him to his legal career that has spanned four decades. Watch the podcast by clicking on the logo image below. Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.Attorney Erwin J. Shustak can be reached in the firm’s San Diego office at (619) 696-9500.

On March 27, 2024, the Securities and Exchange Commission (“SEC”) adopted amended rules regarding the registration requirements that apply to internet investment advisers. This anticipated announcement follows other public announcements demonstrating the SEC’s focus on the internet adviser issues.

Beginning January 2024, several new laws began to take effect, impacting various professionals - specifically those U.S. businesses and entities who file documents with the secretary of state. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) began accepting Beneficial Ownership Information Reports (“BOI’s” or “BOI”) in January in an effort to increase transparency surrounding entity ownership. Those who fail to comply could receive significant penalties – including fines and/or imprisonment.

On August 23, 2023, the Securities and Exchange Commission (“SEC”) adopted new rules regarding the regulation of private funds and their advisors, providing an update to the existing compliance rules already in place for investment advisers.

On February 6, 2024, the Securities and Exchange Commission (“SEC”) adopted Rules 3a5-4 and 3a44-2 (“Final Rules”) defining the phrase “as a part of a regular business” and identifying activities that would cause people within certain activities to be “dealers” or “government securities dealers.”

Being fired is never easy, but it is a particularly challenging and uncertain time for licensed financial advisors and their clients. Within 30 days of the termination, the advisor’s prior firm must file a Form U5 with the Financial Industry Regulatory Authority (FINRA), which provides information about the circumstances of the termination. In this blog post, we explore what advisors can expect if they are fired and the implications of the Form U5 filing.

Being fired is never easy, but it is a particularly challenging and uncertain time for licensed financial advisors and their clients. Within 30 days of the termination, the advisor’s prior firm must file a Form U5 with the Financial Industry Regulatory Authority (FINRA), which provides information about the circumstances of the termination. In this blog post, we explore what advisors can expect if they are fired and the implications of the Form U5 filing.

As described in our prior article on the Requirements of New Prohibited Transaction Exemption PTE 2020-02, on December 18, 2020, the U.S. Department of Labor’s Prohibited Transaction Exemption 2020-02 (the “Exemption”) became effective. Among other things, this rule requires advisers relying upon this exemption to perform an annual Retrospective Review (the “Review”). The Exemption requires that the Review be reasonably designed to: (1) detect and prevent violations of the Impartial Conduct Standards, and (2) achieve internal compliance with the Policies & Procedures enacting those Impartial Conduct Standards. The Review consists broadly of two components, the methodology and the results, which are to be memorialized as part of a written report.

The California Department of Financial Protection and Innovation (“DFPI”) has censured a subsidiary entity of Morgan Stanley, Morgan Stanley Smith Barney FA Notes Holdings, LLC (“MSSBFA”) and issued a $1 million fine for acting as an unlicensed, unregistered lender within the State of California.

First Republic Bank’s May 1, 2023, collapse marked the largest U.S. bank failure since the 2008 Great Recession, when Washington Mutual imploded. Regulators were forced to step in, and J.P. Morgan Chase acquired the bank’s deposits and a majority of its remaining assets. First Republic’s 84 branch offices will remain open, at least for now, having been rebranded as JPMorgan Chase Bank. But what about the hundreds of financial advisors affiliated with First Republic’s subsidiary broker-dealer and investment advisory firms?

On April 12, 2023, the SEC approved long-anticipated changes to FINRA’s expungement rules that will make the expungement process more challenging, and likely more expensive, for registered representatives. While the SEC has approved the new rules, FINRA has not yet announced when they take effect.