Social Media Pump and Dump is Not Illegal (?)
Compliance Building
by Doug Cornelius
2d ago
Pump and Dump schemes brought the fiduciary standard to light. In SEC v Capital Gains Research Bureau the US Supreme Court said a pump and dump scheme by an investment adviser violated its fiduciary duty. More recently, the SEC published an investor alert about Social Media and Investment Fraud. There is a lot of different frauds in there, but one is Fraudsters may use social media to conduct schemes including:  Pump and dump schemes – pumping up the share price of a company’s stock by making false and misleading statements to create a buying frenzy, and then selling share ..read more
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SEC’s “Gag Rule” Survives Another Challenge
Compliance Building
by Doug Cornelius
6d ago
As part of the Wells Report in 1972, the Securities and Exchange Commission adopted its no-admit/no-deny policy. The SEC, in agreeing to settle a case, relinquishes the opportunity to present the case in court. The defendant relinquishes the right to defend the case in court, in the press, and in the eyes of the public. The New Civil Liberties Alliance as part of its many attacks against administrative law has challenged the policy. It started in 2018 with a petition to amend the rule. Six years later, the SEC denied the petition on January 30, 2024. The NCLA also took its legal attack to cour ..read more
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SEC Brings AI Washing Cases
Compliance Building
by Doug Cornelius
1w ago
Back in December, Chair Gensler gave a speech to an AI Summit and warned about companies overstating their use artificial intelligence tools. From there, you can see the SEC approaching the concerns as part of fundraising fraud and marketing fraud. Chair Gensler probably knew that the Securities and Exchange Commission was actively working on two enforcement cases that got announced this week. “the first investment adviser to convert personal data into a renewable source of investable capital” “uses machine learning to analyze the collective data shared by its members to make intelligent inve ..read more
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Private Funds Are Bigger Than Commercial Banks
Compliance Building
by Doug Cornelius
1w ago
The annual Securities and Exchange Commission request for funding from Congress is not generally very interesting. For fiscal year 2025 its seeking $2.6 billion to support over 5,000 full-time equivalents. Some of the stats are interesting. This one caught my eye: Looking at the private funds area, in the last five years, the number of funds has increased 54 percent to approximately 56,000. The assets managed by private fund managers, now at $26 trillion in gross assets, surpasses the size of the entire U.S. commercial banking sector of approximately $23 trillion. Page 4 Those 5,000 FTE cover ..read more
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The SEC Still Hates the Word “May”
Compliance Building
by Doug Cornelius
2w ago
Disclosure of conflicts is a cornerstone is a cornerstone of the regulation of investment adviser. 3D/L Capital Management clearly came up short. 3D/L entered into an arrangement with an ETF manager that would provide a revenue share to 3D/L they labeled an “onboarding fee.” The SEC complaint points out that the onboarding fee creates a conflict, by incentivizing 3D/L to allocate client money to those ETF funds. 3D/L failed to disclose the onboarding fee for two years. Then 3D/L revised its Form ADV Part 2. The SEC was not happy with the wording of the disclosure. The ETF Manager had paid an ..read more
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Corporate Transparency Act Hits a Snag
Compliance Building
by Doug Cornelius
3w ago
On March 1, the US District Court in Northern Alabama ruled that the “Corporate Transparency Act is unconstitutional because it exceeds the Constitution’s limits on Congress’ power.” It’s not clear what effect this ruling is going to have on other parties and other jurisdictions. Congress passed the 2021 National Defense Authorization Act which included a bill called the Corporate Transparency Act (“CTA”). The CTA requires most entities incorporated under State law to disclose personal stakeholder information to the Treasury Department’s criminal enforcement arm. There are two dozen exemption ..read more
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Revisiting Managed Accounts
Compliance Building
by Doug Cornelius
3w ago
SEC IA Rule 204A-1 requires all of an investment adviser’s access persons to report, and compliance to review, their personal securities transactions and holdings periodically. Section (3)(I) has an exception for (3) Exceptions from reporting requirements. Your code of ethics need not require an access person to submit: (i) Any report with respect to securities held in accounts over which the access person had no direct or indirect influence or control; Way back in 2015 the Division of Investment Management released Guidance 2015-03 about what it means for an access person to have no d ..read more
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Happy Leap Day
Compliance Building
by Doug Cornelius
3w ago
Once every four years we get a February 29. 2024 is one of those years. The big compliance impact is for annual and quarterly reporting. If the standard is 90 days after year-end, that is March 30 and not the usual March 31. That is especially relevant for Form ADV. Make sure to get it filed by MArch 30 ..read more
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The One with the Divorce
Compliance Building
by Doug Cornelius
1M ago
We’ve seen many insider trading cases involving friends, spouses, domestic partners, and dates. We can guess what the end result would be. I think the Tyler Loudon case is the first one that has taken us all the way to the end. Tyler and Mrs. Loudon lived in Houston. Mrs. Loudon worked as a mergers and acquisitions manager at BP p.l.c., the big energy company. As many couples did during the pandemic, they worked in home offices and in relatively close proximity to each other. Mrs. Loudon was working on BP’s acquisition of TravelCenters of America. Apparently, Mrs. Loudon shared some of the ac ..read more
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The One With Buzz
Compliance Building
by Doug Cornelius
1M ago
If you can grab the trading symbol “BUZZ” you should be able to make some money with it. Right? A company that owns beehives? or sells honey? or sells honey products? Or social buzz? VanEck Associates wanted to ride the social media wave and created an ETF that would “Track the performance of the 75 large cap U.S. stocks which exhibit the highest degree of positive investor sentiment and bullish perception based on content aggregated from online sources including social media, news articles, blog posts and other alternative datasets.” The investment thesis is that “Investor sentiment h ..read more
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