Posts Tagged ‘Investment advisers’

SEC Guidance May Lessen Investment Adviser Demand for Proxy Advisory Services

Editor’s Note: Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. This post is based on a Sidley update.

Recently issued SEC staff guidance addresses concerns that have been raised about proxy advisory firms by emphasizing that the investment adviser that retains and pays a proxy advisory firm is uniquely positioned to monitor the proxy advisory firm and is required to actively oversee the firm if it wants to benefit from the firm’s services to discharge its fiduciary duty. As a result of the greater oversight exercised by all of their investment adviser clients, the proxy advisory firms will presumably respond by enhancing their policies, processes and procedures, as well as the transparency of these policies, processes and procedures. In turn, the corporate community may indirectly benefit to some degree.

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SEC Charges Hedge Fund Adviser for Prohibited Transactions and Retaliating Against Whistleblower

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday July 27, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from David A. Vaughan and Catherine Botticelli, Partners at Dechert LLP, and is based on a Dechert legal update authored by Mr. Vaughan, Ms. Botticelli, Brenden P. Carroll, and Aaron D. Withrow.

The U.S. Securities and Exchange Commission (SEC or Commission) issued a cease and desist order on June 16, 2014 (the Order) against Paradigm Capital Management, Inc. (Paradigm) and its founder, Director, President and Chief Investment Officer, Candace King Weir (Weir). [1] The Order alleged that Weir caused Paradigm’s hedge fund client, PCM Partners L.P. II (Fund), to engage in certain transactions (Transactions) with a proprietary account (Trading Account) at the Fund’s prime broker, C.L. King & Associates, Inc. (C.L. King). Paradigm and C.L. King were allegedly under the common control of Weir. The Order further alleged that, because of Weir’s personal interest in the Transactions and the fact that the committee designated to review and approve the Transactions on behalf of the Fund was conflicted, Paradigm failed to provide the Fund with effective disclosure and failed effectively to obtain the Fund’s consent to the Transactions, as required under the Investment Advisers Act of 1940 (Advisers Act).

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2014 Mid-Year Securities Enforcement Update

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday July 20, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Marc J. Fagel, partner in the Securities Enforcement and White Collar Defense Practice Groups at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication; the full publication, including footnotes, is available here.

Our mid-year report one year ago presented an exciting opportunity to discuss a time of great change at the SEC. A new Chair and a new Director of Enforcement had recently assumed the reins and begun making bold policy pronouncements. One year later, things have stabilized somewhat. The hot-button issues identified early in the new SEC administration—admissions for settling parties, a growing number of trials (and, for the agency, trial losses), and a renewed focus on public company accounting—remain the leading issues a year later, albeit with some interesting developments.

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SEC Staff Releases Guidance Regarding Proxy Advisory Firms

Posted by Amy L. Goodman, Gibson, Dunn & Crutcher LLP, on Thursday July 3, 2014 at 9:21 am
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Editor’s Note: Amy Goodman is a partner and co-chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. The following post is based on a Gibson Dunn alert.

On June 30, 2014, the staff of the Securities and Exchange Commission’s (the “Commission”) Division of Investment Management and Division of Corporation Finance (the “Staff”) issued much-anticipated guidance regarding proxy advisory firms, in the form of 13 Questions and Answers. Published in Staff Legal Bulletin No. 20 (“SLB 20″), available at http://www.sec.gov/interps/legal/cfslb20.htm, the Staff’s guidance addresses both (1) investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms (Questions 1-5), and (2) the availability and requirements of two exemptions to the proxy rules often relied upon by proxy advisory firms (Questions 6-13).

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The Untouchables of Self-Regulation

Editor’s Note: Andrew Tuch is Associate Professor of Law at Washington University School of Law.

The conduct of investment bankers often arouses suspicion and criticism. In Toys “R” Us, the Delaware Court of Chancery referred to “already heightened suspicions about the ethics of investment banking firms” [1] ; in Del Monte, it criticized investment bankers for “secretly and selfishly manipulat[ing] the sale process to engineer a transaction that would permit [their firm] to obtain lucrative … fees”; [2] and, more recently, in Del Monte, it criticized a prominent investment banker for failing to disclose a material conflict of interest with his client, a failure the Court described as “very troubling” and “tend[ing] to undercut the credibility of … the strategic advice he gave.” [3] While the investment bankers involved in the cases inevitably escaped court-imposed sanctions, because they were not defendants, they also escaped sanctions from the Financial Industry Regulatory Authority (FINRA), the regulator primarily responsible for overseeing their conduct.

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SEC Provides Guidance to Investment Advisers on Use of Social Media

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday May 4, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from James T. Lidbury, partner and co-head of the Mergers & Acquisitions practice at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Rajib Chanda.

In response to the prevalence of social media sites featuring consumer reviews of various types of businesses, on March 28, 2014, the SEC’s Division of Investment Management published an IM Guidance Update to address concerns arising from the rating of investment advisers on such social media sites (the “Guidance Update”). Specifically, the Guidance Update clarifies the application of the testimonial rule to social media sites featuring consumer reviews, such as Yelp and Angie’s List, and sets forth the parameters for the use of such sites by investment advisers in connection with their marketing materials.

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An Informed Approach to Issues Facing the Mutual Fund Industry

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday April 10, 2014 at 9:22 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the Mutual Fund Directors Forum’s 2014 Policy Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As a practicing securities lawyer for more than thirty years, I have in the past advised boards of directors, including mutual fund boards, and I am well acquainted with the important work that you do. I also understand the essential role that independent directors play in ensuring good corporate governance. As fiduciaries, you play a critical role in setting the appropriate tone at the top and overseeing the funds’ business. Thus, I commend the Mutual Fund Directors Forum’s efforts in providing a platform for independent mutual fund directors to share ideas and best practices. Improving fund governance is vital to investor protection and maintaining the integrity of our financial markets.

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The Separation of Ownership from Ownership

Editor’s Note: Matteo Tonello is managing director of corporate leadership at The Conference Board. This post relates to an issue of The Conference Board’s Director Notes series authored by Arthur H. Kohn and Julie L. Yip-Williams; the complete publication, including footnotes, is available here.

The increase in institutional ownership of corporate stock has led to questions about the role of financial intermediaries in the corporate governance process. This post focuses on the issues associated with the so-called “separation of ownership from ownership,” arising from the growth of three types of institutional investors, pensions, mutual funds, and hedge funds.

To a great extent, individuals no longer buy and hold shares directly in a corporation. Instead, they invest, or become invested, in any variety of institutions, and those institutions, whether directly or through the services of one or more investment advisers, then invest in the shares of America’s corporations. This lengthening of the investment chain, or “intermediation” between individual investor and the corporation, translates into additional agency costs for the individual investor and the system, as control over investment decisions becomes increasingly distanced from those who bear the economic benefits and risks of owners as principals. The rapid growth in intermediated investments has led to concerns about the consequences of intermediation and the role of institutional investors and other financial intermediaries in the corporate governance process. These concerns are particularly relevant against a background of increasing demands for shareholder engagement and involvement in the governance of America’s corporations.

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SEC Sanctions Adviser, Broker-Dealer and Their Owner Over ETF Trades

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday November 17, 2013 at 9:11 am
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Editor’s Note: The following post comes to us from Eric R. Fischer, partner in the Business Law Department at Goodwin Procter LLP, and is based on a Goodwin Procter Financial Services Alert by Jackson B. R. Galloway.

The SEC settled claims against a registered investment adviser (the “Adviser”), its affiliated broker-dealer (the “Broker-Dealer”), and the founder, owner, and president of each (the “CEO”) that related to (1) investments in Class A shares of underlying funds made by funds managed by the Adviser (the “Funds”) and (2) commissions paid by the Funds to the Broker-Dealer for trades in exchange-traded funds (“ETFs”). Without admitting or denying its findings, the Respondents agreed to the settlement order (the “Order”), available here, which this post summarizes.

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FINRA Issues Report on Broker-Dealer Conflicts of Interest

Posted by Annette L. Nazareth, Davis Polk & Wardwell LLP, on Sunday November 10, 2013 at 9:00 am
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Editor’s Note: Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Davis Polk client memorandum.

On October 14, 2013, FINRA issued a Report on Conflicts of Interest. The report summarizes FINRA’s observations following an initiative, launched in July 2012, to review conflict management policies and procedures at a number of broker-dealer firms. The report focuses on approaches to identifying and managing conflicts of interest in three broad areas: enterprise-level conflicts governance frameworks; new product conflicts reviews; and compensation practices.

While the report does not break new ground or create or alter legal or regulatory requirements, it offers insight into the approach that FINRA expects firms to take in implementing a robust conflict management framework. In particular, the report identifies effective practices that FINRA observed at various firms. Broker-dealers should use this report as a basis for reviewing and potentially strengthening their policies and procedures relating to managing conflicts of interests.

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