Financial Regulatory Forum

U.S. SEC set to monitor private equity funds, official says

By Stuart Gittleman

NEW YORK, May 8 (Thomson Reuters Accelus) - Many of the world’s top private equity funds will soon be examined by the U.S. Securities and Exchange Commission, Carlo di Florio, director of OCIE, the SEC’s Office of Compliance Inspections and Examinations, said.

Fourteen of the 50 largest hedge fund advisers in the world, and 18 of the 50 largest private equity funds in the world, are newly registered with the SEC under the Dodd-Frank Act, di Florio said at a private fund compliance conference in Manhattan last week.  (more…)

U.S. compliance officers need clarity on status as ‘supervisors,’ industry professionals say

By Stuart Gittleman

NEW YORK, May 8 (Thomson Reuters Accelus) – The U.S. Securities and Exchange Commission’s dismissal of failure-to-supervise proceedings against a broker-dealer’s general counsel did little to ease compliance officers’ concerns over their potential for acting in a supervisory capacity, according to leading industry professionals.

In January the SEC in a one-one split dismissed charges against the lawyer, Theodore Urban, for failing to prevent, detect and stop a stock fraud conducted by a registered representative at the broker, Ferris Baker Watts, and a customer of the firm. (more…)

The U.S. JOBS Act and non-U.S. companies: changes to the offering process and compliance challenges

By Robert Evans, Thomson Reuters Accelus contributing author

NEW YORK, May 8 (Thomson Reuters Accelus) – In April 2012, the U.S. securities laws changed significantly with the Jumpstart Our Business Startups Act, also known as the JOBS Act. The JOBS Act is deregulatory, easing some of the rules for companies seeking to access the U.S. capital markets. The offering process for SEC-registered IPOs is changing as a result and the U.S. Securities and Exchange Commission staff is working on further rule changes. Publicity restrictions will be eased for private placements and Rule 144A offerings. Offerings of up to $50 million will be exempted from registration. These changes pose interesting compliance challenges.

NON-U.S. COMPANIES ACCESSING U.S. CAPITAL MARKETS

Non-U.S. companies accessing the public U.S. equity capital markets for the first time after December 8, 2011 may benefit from the JOBS Act changes. To qualify, a company must have annual revenues of less than $1 billion. Issuers in this new category are called emerging growth companies (EGCs). The most significant changes to the securities offering process for EGCs include:

    Communications: A company making a public offering in the United States and its underwriters are strictly limited by the U.S. Securities Act of 1933 in their ability to communicate about the offering. No offers, written or oral, are permitted before a registration statement is filed with the SEC. Only oral offers, or offers made with a compliant prospectus, are permitted after filing but before the registration statement is declared effective. Under the JOBS Act, EGCs, directly or through representatives they authorize, may now test the waters with qualified institutional buyers (QIBs) and institutional accredited investors (IAIs). That is, without violating the pre-filing and waiting period restrictions, they may communicate with those potential investors to gauge whether they might be interested in an SEC-registered securities offering. EGCs and underwriters that test the waters remain subject to potential securities law liability for those communications, including for any material misstatement or omission. As a result, issuers and investment banks are likely to be cautious in testing the waters. Communications will be oral (which can include use of slides or flip books that are not left with investors). If written materials are used, they will likely be limited to information from the registration statement. Because the JOBS Act creates a limited carve-out to the Securities Act restrictions on communication, there will be compliance challenges. For example, market participants will need to ensure that testing the waters communications are limited to QIBs and IAIs and only used in offerings by EGCs. Also, investors may have to agree to treat information confidentially to avoid market abuse and selective disclosure concerns. Confidential submission of registration statements: In December 2011, the SEC staff severely limited access to confidential submission of registration statements, which had been available to all first time non-U.S. issuers that qualified as foreign private issuers. The JOBS Act gives that access back to issuers that qualify as EGCs prior to pricing of their first SEC-registered sale of equity securities. EGCs are required to include the initial confidential submission and all confidentially submitted amendments as exhibits to a publicly filed registration statement no later than 21 days before the road show. The December 2011 SEC staff policy still allows some non-U.S. issuers to confidentially submit draft registration statements if they meet the conditions outlined in the policy and either are not EGCs or do not take advantage of any benefit available to EGCs. Draft registration statements submitted confidentially must be substantially complete at the time of initial submission, including exhibits and a signed audit report covering the fiscal years presented in the registration statement. Financial statements and selected financial data: An EGC need only provide two years of audited financial statements in its initial public offering of common equity securities registered with the SEC, rather than the three years that are generally required. Instead of five years of selected financial data, an EGC need only present selected financial data for periods beginning with the earliest audited period presented in its IPO registration statement. Although the JOBS Act only refers to the disclosure rules for U.S. domestic issuers, EGC foreign private issuers may follow these reduced disclosure requirements. Research reports: The JOBS Act makes it easier for investment banks to write research reports about EGCs. Pre- JOBS Act and under the current rules for non-EGCs, underwriters in an IPO cannot publish research in advance of the IPO or during a 40-day quiet period after pricing and may not publish research for 15 days before and after the release or expiration of any lock-up agreement. There are also restrictions limiting contact between bankers and research analysts designed to separate investment banking from research in investment banks.

The JOBS Act:

Switzerland says goodbye to light touch regulation

By Rachel Wolcott

LONDON, May 3 (Thomson Reuters Accelus) - These days even the Swiss are fed up with their bankers. The financial crisis has riled Swiss citizens to the point that the Alpine country’s reputation for light-touch financial regulation will soon be a thing of the past. In a direct democracy such as Switzerland, where every citizen can vote on laws and even propose them, the people have spoken. What they have said is: we want more rules and regulation for bankers and asset managers.

“In the past people were against regulations which seemed too restrictive, but this is changing. The public mood is still critical vis-à-vis the banks and the culture of big bonuses for board of directors and management. Now we may see overregulation also because of the immediate political pressure facing a direct democracy,” Marc Raggenbass, head of the regulatory, compliance and legal practice at Deloitte in Zurich, told Thomson Reuters. (more…)

Wal-Mart bribery scandal seen undermining effort to soften U.S. anti-corruption statute

By Brett Wolf

ST. LOUIS, May 2 (Thomson Reuters Accelus) – News that Wal-Mart may have tried to cover up bribes paid by its Mexico unit will make it difficult for Congress to weaken an anti-bribery statute loathed by the U.S. business community, at least in the short term, sources say.

“My conclusion is that the Wal-Mart article makes it impossible to change the Foreign Corrupt Practices Act at the moment,” said Peter Henning, a professor at Wayne State University Law School. (more…)

Report: Q & A – Why New York is the nation’s top online fraud center, and which transactions are riskiest

By Connie Loizos

NEW YORK, April 23 (PeHUB) – If you’re wondering which city in the country is the epicenter of online fraud, it’s New York.

So says ThreatMetrix, a seven-year-old company that combats online fraud by “fingerprinting” the devices used to commit it. The firm has convinced roughly 700 customers – which represent more than 5,000 Websites – to employ its cybercrime-fighting services. (Thomson Reuters is among them.) (more…)

Bank ‘mystery shoppers’ can help ensure adherence to abusive practice rules, expert says

By Ted Knutson

WASHINGTON/NEW YORK, April 17 (Thomson Reuters Accelus) - The use of “mystery shoppers” and focus groups to test the compliance of bank employees has broadened beyond the traditional topic of lending discrimination to now include uncovering and avoiding violations of unfair, deceptive and abusive practice, an industry consultant said.

Paul Lubin, senior director at Treliant Risk Partners, said such testing can raise bank revenue as well as help to insure employees are adhering to rules. (more…)

EXCLUSIVE: Ernst & Young to oversee high-stakes review of Citibank transactions, sources say

By Brett Wolf

NEW YORK, April 12 (Thomson Reuters Accelus) - Citibank has retained Ernst & Young to supervise a regulator-mandated review of the bank’s transactions that will seek to determine the degree to which alleged compliance failures allowed drug traffickers or other criminals to launder money, sources familiar with the arrangement said.

The results of this high-stakes process will likely play a key role in determining the size of any fine the regulator ultimately levies against the South Dakota-based bank, the sources said. (more…)

Enforcement against Citibank serves as reminder that compliance counts in product development

By Brett Wolf

NEW YORK, April 12 (Thomson Reuters Accelus) - A financial institution’s anti-money laundering team must have the authority to question account relationships and business plans, and any objections must be taken seriously. That was one of the key lessons to be learned from the last week’s regulatory enforcement action against Citibank over AML weaknesses, experts said.

A provision of the cease-and-desist (C&D) order, levied by the Office of the Comptroller of the Currency (OCC), obliges Citibank to ensure that its compliance staff has the authority to implement a Bank Secrecy Act compliance program “and, as needed, question account relationships and business plans.”  (more…)

JOBS Act provision opens door to hedge fund advertising, trade group urges caution

By Emmanuel Olaoye

NEW YORK, April 9 (Thomson Reuters Accelus) - A little known provision of the new small-business capital JOBS Act opens the door to advertising by hedge funds, but an industry organization cautioned members that the advertisements must still comply with state laws and other regulations.

Firms registered with the U.S. Commodity Futures Trading Commission or state regulators should seek legal advice before advertising to the public to avoid the threat of enforcement, Ron Geffner, vice president at the Hedge Fund Association and partner at the law firm Sadis & Goldberg, told Thomson Reuters. (more…)

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