United States: A Compilation of Enforcement and Non-Enforcement Actions - 31 March 2015


  • SEC 2015 Rulemaking Geared to Asset Managers
  • Certain Personnel of Registered Municipal Advisers Will Be Subject to Qualification Exams
  • Rulemaking Completed for Reg A+, But Will It Matter?
  • Avoiding Liability for Opinions in Registration Statements


  • Advisor's False Statements About Assets Under Management and Performance Results in SEC Enforcement Action


SEC 2015 Rulemaking Geared to Asset Managers

According to recent statements by David Grim, acting director of the SEC's Division of Investment Management, the SEC is working on several proposed rules that would affect registered investment advisers (RIAs). Those proposals would address: (i) an increase in the amount of data reporting; (ii) greater portfolio composition disclosures; and (iii) the requirement to create plans for severe business disruption for RIAs.

The SEC's rulemaking overall goal is to add to investor protection, according to acting director Grim. Specifically, a new rule would require RIAs to establish written procedures with respect to certain events that would serve to provide an orderly transition of client accounts to one or more other investment advisers when the adviser is unable to service clients. Examples of such events include a material departure of key personnel or the adviser's termination of business.

In order to obtain more data from RIAs, it is possible that Form ADV and Form PF will be revised to capture additional information in order for the SEC to keep informed of changes in a constantly changing industry. In addition, Form N-SAR, which is required to be filed by certain RIAs, may be amended to require additional data and possibly, filed on a more frequent basis with the SEC. The data collection rules are expected to be the first wave of the SEC's 2015 rulemaking process affecting RIAs.

According to Mr. Grim, those mutual funds that include derivative investments may in the future have increased reporting and disclosure requirements due to the risks associated with such investment instruments.

Certain Personnel of Registered Municipal Advisers Will be Subject to Qualification Exams

The SEC recently approved a proposal by the Municipal Securities Rulemaking Board (MSRB) to require qualification examinations for professionals employed by a registered municipal advisor (MA).

The new MSRB regulations establish examination requirements for persons who serve an MA as either a principal or representative. MAs are required to have at least one person designated as a principal to conduct supervisory activities over the MA's municipal advisory activities.

The examinations are expected to be available some time in 2016 after a test pilot period later this year. The amended MSRB Rules G-2 and G-3 provide a one-year grace period during which individuals will be able to take the required examination but still be able to perform municipal advisory activities during that one-year period. An earlier proposal by the MSRB to require representatives to perform 90 days of apprenticeship before they would conduct municipal advisory activities has been abandoned.

Rulemaking Completed for Reg A+, But Will It Matter?

In response to a mandate by Congress under the JOBS Act, the SEC announced on March 25, 2015 the approval of rules to implement the new and supposedly improved securities registration exemption for offerings of up to $50 million in a 12-month period (the so-called "Reg A+" exemption). The newly expanded Reg A+ exemption will be available for use in 60 days from the date of the final rules publication in the Federal Register.

The newly expanded exemption is now divided into two tiers. Tier 1 exempts offerings of up to $20 million (an increase from the current $5 million cap) but such offerings are still subject to state registration requirements. Tier 2 is for offerings of up to $50 million. The reason for non-use of the current Regulation A exemption (for offerings of up to $5 million in a 12-month period) was, in large part, due to the requirement that such offerings needed to be registered in each state in which the securities were offered. Due to the time and expense required by the state registration requirements, issuers largely ignored the Reg. A exemption. Instead, in most cases, issuers conduct a non-public offering under Rule 506 of Regulation D of the Securities Act. State registration requirements are pre-empted by federal law for such offerings.

Supposedly, the Tier 1 offerings, although still subject to state registration requirements, will have a better go at it due to the states' implementation of a new coordinated review program intended to streamline the state registration process. There is a lot of skepticism about the new state program and only time will tell if it results in an easier path for issuers to conduct a Reg A+ offering.

Apparently, state securities regulators are not pleased that Tier 2 Reg A offerings will not be subject to state securities registration requirements when all purchasers in such offerings are "qualified purchasers." Such offerings are also subject to certain enhanced disclosure requirements including audited financial statements.

The JOBS Act included, among other things, the expansion of the Reg A exemption to help spur job growth through the liberalization of certain existing exemptions and the creation of others (i.e., the crowdfunding exemption). Congress believed at the time that the greater variety of exemptions and some decrease of certain requirements to qualify for the use of those exemptions would assist in generating capital by companies and lead to an increase in jobs creation by such issuers. Ongoing criticism by some members of Congress are targeted at the SEC's slow process in implementing final rules to adopt fully the various mandates under the JOBS Act. Case in point is that the final rules for the new crowdfunding exemption have still not been finalized by the SEC. According to the SEC, those rules now have priority and should be implemented within the third calendar quarter of this year.

Whether issuers will utilize the new Reg A+ exemption depends in great part on whether the states can make registration under the Tier 1 exemption truly streamlined. Time will tell whether issuers will be even interested enough to "test the waters" of the Reg A+ exemption.

Avoiding Liability for Opinions in Registration Statements

The recent U.S. Supreme Court decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435 (U.S. Mar. 24, 2015), makes it less likely registered investment companies, and their directors and officers, can be held liable for opinions included in registration statements, even if those opinions later turn out to be incorrect. In order to avoid liability, a registered investment company must have sincerely believed its opinion at the time, and the company must have had a reasonable basis for making the opinion. At the same time, the court's emphasis on providing bases for opinions may add to the difficulty and expense of preparing registration statements.

The case began in 2005 after Omnicare, a provider of pharmacy services for nursing homes, filed a registration statement for an offering of its common stock in which the company said it believed its practice of accepting rebates from pharmaceutical suppliers was legal under federal and state law. When the federal government later sued Omnicare for violating anti-kickback laws, investors filed suit as well, claiming Omnicare's opinion about the legality of its rebate practices was an "untrue statement of material fact" in violation of Section 11 of the Securities Act of 1933. The Sixth Circuit agreed, siding with the investors.

On appeal, the Supreme Court ruled differently, noting that Section 11 liability only arises if the company's registration statement "contained an untrue statement of material fact or omitted to state a material fact required to be stated therein." Unlike statements of fact, however, opinions convey the possibility of uncertainty, and as a result, the Court said, directors and officers are largely immune to Section 11 liability for opinions. But the Court stressed two important exceptions:

  • A company could be held liable if it expresses an opinion it does not honestly hold. By its nature, a statement of opinion asserts that the speaker "actually holds the stated belief." Opinions not genuinely held, therefore, would constitute untrue statements of material fact — that is, the company holds an opinion it does not actually hold — and could lead to liability.
  • A company could be held liable if it expresses an opinion it has no reasonable basis for holding. Reasonable investors assume a company's opinion is backed by an inquiry into the relevant facts, and the resulting opinion "fairly aligns with the information" in the company's possession. If the real facts are contrary to what a reasonable investor might conclude from the opinion, and the company omits these facts from its registration statement, liability could likewise result.

The Court also gave companies guidance for avoiding liability under Section 11 when expressing opinions in their registration statements: A company can shield itself by either (1) disclosing the facts and other relevant information that form the basis for its opinion, or (2) making clear the extent to which the company is uncertain about its opinion.

Investor lawsuits under Section 11 will no doubt continue, but for prudent companies that heed the Supreme Court's advice — making sure their opinions are well stated, carefully hedged, and backed by thoughtful inquiry — the decision in Omnicare should leave directors and officers well protected.


Advisor's False Statements About Assets Under Management and Performance Results in SEC Enforcement Action

In a recently announced enforcement action (In the Matter of Acamar Global Investments, LLC and Rudolph A. Martin, IAA Release No. 4050, March 18, 2015), a former SEC-registered investment adviser and its principal were sanctioned for making material misstatements about the adviser's amount of assets under management and performance regarding its investment models.

According to the SEC's allegations in the matter, the adviser stated that it had more than $150 million of assets under management when it had less than $1 million. The adviser made the misstatement in order to maintain registration with the SEC. Also, according to the SEC's allegations, the adviser stated on its website and in promotional materials performance numbers of its investment models but failed to state that the performance numbers were not based on actual trading. In addition, the one client of the adviser was convinced to invest in the adviser's hedge fund which promptly lost over 90 percent of its value.

The adviser was registered with the SEC until 2014 when it became de-registered. The adviser did not have the required amount of assets under management (registration requires more than $100 million of AUM) to continue registration with the SEC. At the time of de-registration, the adviser's assets under management was about $24.

As a result of the misstatements of material fact, the adviser and its principal violated the "anti-fraud provisions" under Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and with respect to false statements about its hedge fund, violations of Section 206(4) and Rule 206(4)-8 under the Advisers Act.

The parties agreed to settle the enforcement matter by way of an SEC enforcement order that prohibits the adviser and its principal from any further violations of the anti-fraud provisions, bars the principal from association with, among other entities, an investment adviser, and serving in any capacity with, among other entities, an investment adviser.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.