On February 7, 2023, the Securities and Exchange Commission’s Division of Examinations (“DOE”), formerly the Office of Compliance Investigations and Examinations (“OCIE”), announced its annual exam priorities. DOE Director Richard R. Best said, “[w]e will emphasize compliance with new SEC rules applicable to investment advisers and investment companies as well as continue our focus on emerging issues and rules aimed at protecting retail investors.”

On December 14, 2022, the Securities and Exchange Commission adopted amendments[1] to Rule 10b5-1 of the Securities Exchange Act of 1934 (“Exchange Act”), and to Regulations S-K and S-T. The final rules substantially expand the insider trading safe harbor requirements of Rule 10b5-1, and impose new reporting and disclosure requirements for directors, officers, issuers, and other persons who implement 10b5-1 trading plans. The final rules became effective February 27, 2023.[2] Smaller reporting companies[3] have an additional six months to comply, until August 27, 2023.[4]

Many employees have faced this situation. You have accepted a new position with a new employer. On your first day, you are handed a stack of forms and documents and asked to review and sign them. It is your first day at the new job and your head is swimming. Aside from tax withholdings, health insurance, and myriad other new employee selections and forms, you most likely are asked to review and sign an Employment Agreement. You are not a lawyer and don’t want to start off on the wrong foot in your new job. You sign the agreements given to you. But if the Employment Agreement contains a non-solicitation and/or noncompete provision, what do you do? Call a lawyer and schedule a meeting the first day of the new job or just sign what you are handed? And if you do sign a noncompete, non-solicitation agreement, will you be bound by what you signed if and when your new employment ends? What are you signing that you may be “stuck with?”

Starting on January 1, 2023, an update to the California Insurance Code took effect requiring certain insurance license holders to include their license number on each email they send that involves their licensed activities. These changes will impact investment advisers, broker-dealers, and other financial professionals who provide insurance services as part of their overall client offerings.

On November 16, 2022, the California Department of Financial Protection and Innovation (“DFPI”) proposed new regulations under the Corporate Securities Law of 1968, which would establish annual continuing education (“CE”) requirements for Investment Adviser Representatives (“IARs”).[ ] As we recently reported[ ], the North American Securities Administrators Association (“NASAA”) designed a set of model rules for state regulators to adopt, and thereby implement, IAR CE requirements that are consistent from state to state.[ ] In its current form, the DFPI’s proposal would result in California adopting a rule substantially similar to the NASAA model rules; however, the comment period for interested persons to argue for changes to the proposed rule remains open until January 16, 2023.[ ]

As part of its mission to protect investors, the Financial Industry Regulatory Authority (FINRA) gathers and discloses certain information about registered financial advisors and brokerage firms registered with FINRA, including financial advisors and broker dealers. FINRA houses this information in various databases, including but not limited its Central Registration Depository (CRD) and its publicly viewable registration information portal, BrokerCheck.

Our firm was one of the principal sponsors of IR Global’s 2022 Annual Conference held in the exciting city of Barcelona last month. Partners Erwin Shustak and Paul Reynolds attended the conference, along with 350 other IR Global members from around the world. The theme of this year’s conference was “Shaping the Future” and speakers and discussion focused on how the pandemic has changed work habits, offices, global business, and impacted other aspects of our professional and business lives.

Each year registered investment advisers (“RIAs”) must undertake a range of compliance tasks and obligations. While tasks can vary dependent upon the operations and registrations of the firm, all RIAs should examine their compliance program no less than annually.

As you know, in 2021, the SEC’s new Marketing Rule became effective with an outside compliance date of November 4, 2022. The new Marketing Rule contains numerous updates to the rules relating to how SEC registered investment advisers (“RIAs”) will need to conduct marketing and advertising activities.

On the tenth anniversary of the 2012 “JOBS Act,” the Senate Banking Committee has proposed a new legislation, the “JOBS Act 4.0.” The new Act could potentially adjust SEC regulations to increase access to high-growth investment opportunities for everyday investors and reduce the costs of raising capital for small businesses. It also could have repercussions for licensed professionals operating pooled investment vehicles or otherwise conducting private investments.

In the wake of the COVID-19 pandemic, California enacted Assembly Bill 85 (“AB 85”) [1] during the 2020-2021 legislative session to make certain changes to the California Revenue Taxation Code[2]. Among those changes was the elimination of the first-year annual tax for Limited Liability Companies (“LLCs”), Limited Liability Partnerships (“LLPs”), and Limited Partnerships (“LPs”), that organize, register, or file with the Secretary of State after January 1, 2021 and before January 1, 2024.

Under both Regulation Best Interest (“Reg BI”) and the Investment Adviser fiduciary standard, firms and financial professionals should provide recommendations only when they have a “reasonable basis to believe that the recommendation or advice is in the retail investor’s best interest.” According to a recent SEC staff bulletin, complying with Reg BI and the fiduciary standard requires broker-dealers and investment advisers to identify and disclose conflicts of interest—particularly those tied to adviser compensation. The common practice of “checking a box” on forms, which generically disclose conflicts to clients, is not enough. [...]

As most of us know, the SEC has remained active during the “COVID Era” and has been continuously examining, investigating, and enforcing the Investment Advisers Act of 1940, as amended (“Advisers Act”). A primary objective of the SEC's Division of Examinations' oversight activities is to determine whether registered investment advisers ("RIAs") are complying with regulatory requirements [...]

Five years ago, Merrill Lynch, Morgan Stanley, UBS, and other large broker-dealers announced sweeping changes to their compensation policies, including a move away from the large, up-front recruiting “transition” bonuses that dominated the recruiting space over the prior decade. Those “bonuses,” often paid in the form of forgivable promissory notes with back- and front-end payouts regularly exceeding $1-2 million, resulted in firms holding billions of dollars in outstanding loans on their balance sheets. [...]

In January 2022, GWG Holdings Inc., promoter of its high-yield bond product GWG L Bonds, reportedly missed $13.6 million in payments to investors on its GWG L bond series. Those bonds raised money to finance the purchase of life insurance policies from policy holders on the secondary market and were offered to investors primarily through independent broker-dealers, including Emerson Equity. [...]

Nondisclosure and confidentiality provisions have become common in employment separation agreements as more people have been speaking up about sexual harassment and discrimination they have faced in the workplace. [...]

Changes to broker expungements in arbitration seemed imminent when FINRA first proposed new rule changes of the expungement process to the SEC for approval. [...]

The Financial Industry Regulatory Authority (“FINRA”) recently announced important changes to its rules which deal with continuing education for registered persons. Updates to FINRA Rules 1210 and 1240 will create the new Maintaining Qualifications Program (“MQP”) [...]

Recent developments in several high-profile, Ponzi scheme cases have renewed questions about the extent of the fallout from investment fraud prosecutions and the importance of due diligence. [...]

On November 18, 2021, the U.S. Securities and Exchange Commission proposed updates to the Securities Exchange Act of 1934 rules for (i) electronic recordkeeping and (ii) prompt production of records. These updates apply to broker-dealers, security-based swap dealers, and major security-based swap participants. [...]