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Federal Reserve Board Regulation P – Privacy of Consumer Financial Information – Overview & Sum ....

  • Industry: SEC Compliance

The US Federal Reserve Board’s Regulation P or Privacy of Consumer Financial Information (12 CFR 216) regulates the use of nonpublic personal information about consumers by financial institutions.

This article gives a brief overview and summary of Regulation P requirements.

Corporate and Criminal Fraud Accountability Act – Overview and Summary of Requirements

  • Industry: SEC Compliance

Sections 801 to 807 of the Sarbanes Oxley Act of 2002 are known collectively as the Corporate and Criminal Fraud Accountability Act. The Act details criminal penalties for securities fraud and protects employees-turned-whistleblower of publicly traded companies from retaliatory actions by their employers.

This article gives an overview and summary of requirements of the Corporate and Criminal Fraud Accountability Act.

SEC Proposes Ban on Magnetar-Like Deals

  • Industry: SEC Compliance

The Securities and Exchange Commission yesterday unveiled proposed rules to ban hedge funds and banks from assembling risky securities, marketing them to investors and then immediately betting against their own creations, reaping profits when they fail. The rule would also ban firms from setting up risky securities for the benefit of an undisclosed third party.

This article gives details of the proposed rules.

Federal Housing Finance Agency Files Lawsuits against 17 Financial Institutions Including BoFA, ....

  • Industry: SEC Compliance

On September 2, the Federal Housing Finance Agency (FHFA) filed lawsuits against 17 financial institutions for allegedly misrepresenting mortgages in securities filings.

This article details the reasons for the lawsuits, response to the FHFA’s actions and likely impact.

SEC Accused of Destroying Documents, Violating Federal Record Management Policy

  • Industry: SEC Compliance

The Securities and Exchange Commission was accused of destroying documents pertaining to inquiries at an early stage, in violation of federal record management policy.

This article gives the background to the issue and details of the federal regulation the SEC is accused of violating.

SEC’s New Whistleblower Program Goes into Effect

  • Industry: SEC Compliance

The SEC’s new whistleblower program came into effect on August 12, 2011. As part of this program, the agency also unveiled a website to help people report violations of federal securities laws and apply for a financial award.

This article discusses the background, highlights of the program, the final rule and response from industry.

International Financial Reporting Standards (IFRS) – Background, Requirements for Financial Sta ....

  • Industry: SEC Compliance

The International Financial Reporting Standards or IFRS are a set of financial reporting standards, interpretation and framework issued by the International Accounting Standards Board. Worldwide, a number of countries have adopted or are in the process of adopting these standards, making it mandatory for profit making entities to comply with them.

This article primarily describes the background, requirements for financial statements and disclosures, and the status of adoption of the IFRS in various countries.

Foreign Corrupt Practices Act – Background, Provisions and Sanctions

  • Industry: SEC Compliance

The Foreign Corrupt Practices Act (FCPA) of 1977 was created to implement stricter regulations against bribery. The act also includes requirements for transparency in accountancy under the SEC Act. It was signed into law by President Jimmy Carter and further amended in 1998 to include the International Anti-Bribery Act. The FCPA makes it illegal for a citizen or corporation of the United States or a person or corporation acting within the United States to bribe or seek advantage from a public official in another country.

Former CEO of Innospec Charged for Role in Bribery Scheme

  • Industry: SEC Compliance

The Securities & Exchange Commission (SEC) on Jan 24, 2011 charged a former CEO of Innospec, Inc., with violating the Foreign Corrupt Practices Act (FCPA) by approving bribes to government officials to mobilize and retain business.  Innospec is a manufacturer and distributor of fuel additives and other specialty chemicals.  

According to SEC, Paul W Jennings, when he was the CFO, knew of his company’s practice of paying bribes to bag orders for sale of tetraethyl lead (TEL) during the period mid-2004 to late-2004.  After be-coming the CEO in 2005, he and others from the management approved bribery payments to officials of the Iraqi Ministry of Oil (MoO) to bag orders.  The company released the payments through its third-party agent in Iraq.

Regulations and Innospec’s Violations

SEC will act against individuals who commit bribery and sign false SOX certifications and other docu-ments to cover up the wrongdoing.

The SEC's complaint alleges that from 2004 to February 2009, Jennings signed annual certifications that were provided to auditors where he falsely stated that he had complied with Innospec's Code of Ethics incorporating the Company's FCPA policy. Jennings also signed annual and quarterly personal certifica-tions pursuant to the Sarbanes-Oxley Act of 2002 in which he made false certifications concerning the company's books and records and internal controls.

Jennings has consented, without admitting or denying the SEC's allegations, to the entry of a final judgment that permanently enjoins him from violating Sections 30A and 13(b) (5) of the Securities Exchange Act of 1934 and Rules 13a-14, 13b2-1 and 13b2-2 there under, and from aiding and abetting Innospec's violations of Exchange Act Sections 30A, 13(b) (2) (A) and 13(b)(2)(B). Jennings will disgorge USD 116,092 plus prejudgment interest of USD 12,945, and pay a penalty of USD 100,000 that takes into consideration Jennings's cooperation in this matter.




SEC Study Favors Fiduciary Standard for Brokers Too!

  • Industry: SEC Compliance

A Securities and Exchange Commission (SEC) study recommends that the same fiduciary standard be applied to brokers and financial advisers, according to a published media report.  But the SEC’s two Republican members argued that the study did not present enough evidence to support such a conclusion, according to the report, published Saturday on the Wall Street Journal’s web site.  

The bone of contention is whether brokers should be held to the same fiduciary standard that already governs investment advisers.  The fiduciary standard requires investment advisers to put their clients’ interests before their own. But brokers must only make sure that the products they sell are suitable for clients. The Dodd-Frank financial reform legislation says that the SEC can hold brokers to the fiduciary duty standard.  According to the report, the two Republican commissioners, namely Kathleen Casey and Troy Paredes were not opposed to establishing a common fiduciary standard for brokers and advisers, but wanted the SEC to do more work to demonstrate that such a change would not hurt investors.

A lot is in the public domain about the standards to which financial advisers are held, in the context of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included a provision requiring the SEC to study the oversight of brokers and registered investment advisers (RIAs). Brokers oppose the fiduciary standard, because it will be costly to implement and leave certain lower-end consumers without an affordable choice.

But there is a way out of this stalemate.  If the consumer is in the market for a financial product and knows what he wants to buy, he can approach the broker.  If he is looking for advice in his best interests, he should look for a fiduciary.




Regulation of Asset-backed Securities: SEC Approves New Rules

  • Industry: SEC Compliance

The Securities & Exchange Commission (SEC) voted on Jan 20, 2011 to adopt two sets of new rules. The said rules are meant to help revive the important asset-backed securities (ABS) market by encouraging better disclosure for investors. The first set of rules requires issuers of asset-backed securities to disclose the history of the requests they received and the repurchases they made related to their outstanding asset-backed securities. The second set of rules requires issuers of asset-backed securities to conduct a review of the assets underlying those securities.  

Disclosure for Asset-Backed Securities Related to Representations, Warranties and Repurchase

Section 943 of the Dodd-Frank Act requires the SEC to prescribe regulations on the use of representa-tions and warranties in the market for asset-backed securities. The final rules approved on Jan 20, 2011, and proposed in October 2010, implement Section 943.

Requirements of the Final Rules (adopted new rules)

The final rules require:

  • Disclosure of Repurchase History on New Form ABS-15G
  • Disclosure of Repurchase History in Prospectuses and Ongoing Reports
  • Disclosure in Any Report Accompanying a Credit Rating by an NRSRO

Issuer Review of Assets Underlying Asset-Backed Securities

Section 945 of the Dodd-Frank Act requires the Commission to adopt rules regarding the review of as-sets, such as loans, underlying asset-backed securities. The final rules approved today, which were proposed in October 2010, implement Section 945.

Requirements of the Final Rules (adopted new rules)

The final rules require:

  • Issuers of ABS in Registered Offerings to Perform a Review of the Assets
  • Issuers of ABS to Disclose Information about their Reviews

Any registered offering of ABS commencing with an initial offer after Dec. 31, 2011, must comply with the new rules if they're adopted by the Commission.



New York-Based Penny Stock Promoter Charged with Fraud

  • Industry: SEC Compliance

On Jan 14, 2011, the Securities & Exchange Commission (SEC) charged an upstate New York-based penny stock promoter Christopher Wheeler and his affiliated website with fraud for failing to disclose that he was paid by certain issuers to promote their stock. Simultaneously he liquidated millions of his own shares and profited by at least USD 2.95 million.  

According to SEC, Wheeler received compensation at various times in 2007 and 2008 to promote several thinly-traded penny stocks on his website.  The website claimed it had compiled a long list of successful stock picks which afforded an opportunity to investors to make a fortune.  Wheeler featured the issuers’ stock on his website, recommending that investors purchase the securities.  He posted lofty price predictions for the stock without any reasonable basis.  The promotional efforts often led to dramatic but temporary increases in the volume of shares traded and the price of the issuers’ securities.  Once the prices went up, Wheeler dumped shares from his personal brokerage account onto the market.  


Wheeler and concealed from investors that Wheeler was paid to hype the very stocks that he was unloading from his own account.  Securities laws require stock promoters to disclose their compensation so investors can make informed decisions about the credibility of the information they are being provided. Wheeler’s failure to disclose that he was paid by certain issuers to promote their stock thus violated the securities laws.  

The SEC's complaint seeks a final judgment permanently enjoining Wheeler and from future violations of the federal securities laws, and an order permanently barring Wheeler from participating in any offering of penny stock, requiring the defendants to pay financial penalties, and requiring the defendants and North Coast to disgorge all ill-gotten gains plus prejudgment interest.



Security-Based Swap Transactions: SEC Proposes New Rule

  • Industry: SEC Compliance

On Jan 14, 2011, the Securities & Exchange Commission (SEC) voted to propose a rule to define how certain security-based swap transactions are acknowledged and verified by the parties thereto. Under the rule, SBS entities should furnish to their counterparties a trade acknowledgement detailing transaction-specific information. It is another step by the SEC to raise the transparency associated with the security-based swap market. SBS entities should provide their counterparties with an electronic record containing the security-based swap transaction-specific information.

Specifically, the SBS entity would:

  • Provide a trade acknowledgment to its counterparty in a security-based swap transaction within 15 minutes, 30 minutes or 24 hours of execution, depending on whether the transaction is executed or processed electronically.
  • Electronically process security-based swap transactions if the SBS entity has the ability to do so.
  • Have written policies and procedures in place that are reasonably designed to obtain verification of the terms outlined in the trade acknowledgment.

Additionally, it would:

  • Specify which SBS entity is responsible for providing the trade acknowledgment.
  • Permit an SBS entity to satisfy the requirements of the proposed rule by processing the transaction through the facilities of a registered clearing agency.
  • Identify the transaction details that must be included in the trade acknowledgement.
  • Provide limited exemption from the requirements of Rule 10b-10 under the Exchange Act for SBS entities that are also brokers.


The new rule, Rule 15Fi-1, is being proposed under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Act generally authorizes the SEC to regulate security-based swaps. Among other things, the new law gives the SEC the authority to establish standards for the confirmation and documentation of security-based swap transactions entered into by SBS entities.



Alcatel-Lucent charged with FCPA violations

  • Industry: SEC Compliance

The Securities and Exchange Commission (SEC) has charged Paris-based telecommunications company Alcatel-Lucent, S.A. with violating the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials to illicitly win business in Latin America and Asia. The company is to pay over $137 million to settle these charges levelled by SEC and the US Department of Justice (DOJ).


The SEC has alleged that Alcatel’s subsidiaries bribed $8 million to government officials through consultants who did little or no legitimate work, in order to obtain or retain extremely lucrative telecommunications and other types of contracts. Alcatel has to pay $45 million to settle SEC’s charges and another $92 million to settle the criminal charges against it levelled by DOJ.

Robert Khuzami, Director of the SEC’s Division of Enforcement said, “Alcatel’s bribery scheme was the product of a lax corporate control environment at the company,” and added, ““Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business.”

According to the complaint lodged by the SEC in the Southern District of Florida, Alcatel had bribed government officials in Costa Rica, Honduras, Malaysia and Taiwan between December 2001 and June 2006. A subsidiary of Alcatel had provided at least $14.5 million to consulting firms in Costa Rica through sham consulting agreements for being used in the bribery ply. Various high-level government officials in Costa Rica received at least $7 million to ensure that Alcatel obtains or retains three contracts to provide telephone services in Costa Rica. Government officials were also bribed in Honduras to obtain or retain five telecommunication contracts. An Alcatel also bribed Taiwanese government officials for winning a contract for supplying railway axle counters to the Taiwan Railway Administration.


The SEC has primarily accused Alcatel-Lucent of violating Section 30A of the Securities Exchange Act of 1934 which prohibits from making illicit payments to foreign government officials, through subsidiaries and agents, in order to obtain or retain business. Besides, it has also violated Section 13(b)(2)(B), Section 13(b)(2)(A) and Section 13(b)(5)of the Exchange Act.

Alcatel has received an injunction to pay $45.372 million to disgorge the wrongfully obtained profits and has been ordered to comply with certain undertakings, including an independent monitor for a three-year term. However, this settlement is subject to court approval.


With operations in more than 130 countries, Alcatel-Lucent is a transformation partner of service providers, enterprises and strategic industries such as defense, energy, healthcare, transportation and governments all over the world, providing solutions to end-users. It leverages the technical and scientific expertise of Bell Labs, one of the leading names in the communications industry. The company combined two entities — Alcatel and Lucent Technologies — in 1986.



Municipal Advisors’ Registration with SEC to be made Mandatory

  • Industry: SEC Compliance

Registration of municipal advisors is now being made mandatory by the Securities and Exchange Commission in line with the Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, registration with the Municipal Securities Rulemaking Board (MSRB) will also be made necessary.

The definition of a municipal advisor includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and certain swap advisors that provide municipal advisory services.

The proposed rule would require the following forms to be submitted for various proceedings:

  • Form MA to register a municipal advisory firm
  • Form MA-I to register an individual municipal advisor.
  • Form MA-W if the said firm or individual wants to withdraw registration.
  • A non-resident municipal advisory firm (and any non-resident general partner or managing agent of a municipal advisory firm) to submit Form MA-NR in order to appoint an agent for service of process.                                                                                                                             

(Municipal advisors would also be required to provide disciplinary history information and update it regularly.)

In recent times, the SEC has been engaged in significant rulemaking with emphasis on the following aspects:

  • Strengthening oversight of investment advisers
  • Security-based swap reporting and dissemination
  • Security-based swap data repositories
  • Security-based swap fraud
  • Security-based swap conflict
  • Reporting of pre-enactment security-based swaps
  • Asset-backed securities
  • Whistleblower (constitutes a program and a set of rules aimed at encouraging individuals to provide the SEC with high-quality tips that lead to successful enforcement actions.)
  • Pay-on-Pay (includes a set of rules that would enable shareholders to cast advisory votes on executive compensation and "golden parachute" arrangements.)
  • Specialized disclosures (covers rules requiring new disclosures about mine safety, conflict minerals from the Congo, and payments to governments by the extractive industry.)



SEC Decides on Rules for Resource Extraction Issuers Under Dodd-Frank Act

  • Industry: SEC Compliance

The Securities & Exchange Commission (SEC) decided today to suggest rules, as desired by the Dodd-Frank Act, to require resource extraction issuers to disclose payments made to the U.S or foreign gov-ernments.

Requirements of the Suggested Rules

The suggested rules require a resource extraction issuer to disclose certain payments made to a foreign government, including sub-national governments, or the US federal government. Additionally, the resource extraction issuer should disclose payments made by a subsidiary or another entity controlled by it.  The resource extraction issuer will be subject to disclosure if it is otherwise required to provide consolidated financial information for the subsidiary or other entity in its financial statements included in its Exchange Act reports. 

The resource extraction issuer has to disclose payments that are made to promote the commercial development of oil, natural gas, or minerals and that are not de minimis.  Exploration, extraction, processing and export, or the acquisition of a license for any such activity also fall under the purview of the definition of commercial development of oil, natural gas, or minerals. 

The types of payments related to commercial development activities that must be disclosed include:

  • Taxes
  • Royalties
  • Fees (including license fees)
  • Production Entitlements
  • Bonuses

The Extractive Industries Transparency Initiative (referenced in the statutory definition of payment) suggests the payments to be disclosed.  The types of payments furnished above are generally consistent with what EITI has suggested. 

The resource extraction issuer should furnish the information annually in its Exchange Act annual report through two exhibits – one exhibit in investor-friendly text format and the other in eXtensile Business Reporting Language (XBRL).

SEC will consider public comments on the suggested rules until Jan 31, 2011 before deciding whether to adopt the suggested rules.


SEC Charges RAE Systems with Violation of the Foreign Corrupt Practices Act (FCPA)

  • Industry: SEC Compliance

The Securities and Exchange Commission (SEC) charged San Jose-based, RAE Systems Inc with violation of the Foreign Corrupt Practices Act (FCPA). It made payments amounting to USD 400,000 to Chinese officials to bag major government contracts worth approximately USD 3 million in revenue, for its gas and chemical detection products. The payments were made through two of its Chinese joint ventures, RAE-KLH (Beijing) Co., Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co., Ltd. (RAE-Fushun). RAE garnered USD 1.1 million plus in illicit profits.


Investment of Proceeds of Municipal Securities – SEC Censures Bank of America Securities for Ri ....

  • Industry: SEC Compliance

The SEC is the regulator of the US capital market. When investors purchase municipal securities, the issuer parks the proceeds in reinvestment products until such time as they are required. Bank of America Securities (BAS) was recently censured by the SEC for rigging bids.

This article describes the background and regulatory violations that led this SEC action.

CFTC and SEC Joint Study Open to Comments on the Joint Study on the Feasibility of Requiring th ....

  • Industry: SEC Compliance

The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are preparing a joint study on “the feasibility of requiring the derivatives industry to adopt standardized computer-readable algorithmic descriptions which may be used to describe complex and standardized financial derivatives.”

Generous Rewards for Informers under the New Whistleblower Program from SEC

  • Industry: SEC Compliance

The Securities and Exchange Commission (SEC) launched a new whistleblower program to boost their efforts to uncover fraud. This program offers individuals compensation for valuable tips/leads that are considered critical to the agency. The rule comes under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The procedure is clear-cut, mapping out a transparent process for prospective whistleblowers on how to qualify for the award, provide information and stake their claim for the award.

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