Financial Services Industry Digest

July 2017

Greensfelder’s Financial Services Industry Digest, July 2017Welcome to Greensfelder's Financial Services Industry Digest. If you have any questions, please contact your regular Greensfelder attorney or any member of our Securities & Financial Services industry group

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State and Federal Fiduciary Duty Developments

June was a busy month on the fiduciary front. Among the developments:

  • On June 1, the SEC requested comment on whether to impose a fiduciary standard on broker-dealers. Read our summary here.
  • The next day, Nevada Gov. Brian Sandoval signed a bill imposing a fiduciary standard on brokers in that state. Read more here.
  • On June 6, the Department of Labor filed its request for information related to the fiduciary rule with the Office of Management and Budget; it is pending review.
  • Parts of the DOL fiduciary rule became effective June 9. Read our previous summaries here and here.
  • The CFP Board released its draft Code of Ethics and Standards of Conduct, which would require CFP professionals to act in a fiduciary capacity any time they offered financial advice, instead of only when they create financial plans. 

Supreme Court Limits SEC

In Kokesh v. SEC, the U.S. Supreme Court unanimously held that the SEC must commence actions seeking disgorgement within five years of the date the claim accrued. The opinion in Kokesh follows the 2013 decision in Gabelli v. SEC that held that a five-year statute of limitations applied to actions for statutory monetary penalties. Kokesh resolved a circuit split about whether disgorgement constituted a penalty, holding that the five-year statute of limitations applies because “disgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of [28 U. S. C. §2462].”

Divided D.C. Circuit Upholds SEC Administrative Judges

In Lucia v. SEC, the D.C. Circuit denied a petition for review in which the underlying issue is the constitutionality of the SEC-appointed administrative law judges when the court deadlocked 5 to 5.  The decision leaves in place a 2016 opinion from the court in which the court denied Lucia’s petition for review of the SEC’s decision.  The legal question is whether SEC ALJs are employees or officers who must be appointed in accordance with the Appointments Clause under Article 2 of the US Constitution.  The Lucia decision conflicts with Bandimere v. SEC in the Tenth Circuit, increasing the chances that the Supreme Court will weigh in to resolve this circuit split.


SEC Speeches: SEC Chair Jay Clayton offered remarks to the Investor Advisory Committee, highlighting the following areas:

  • Promoting more transparent bond markets for retail investors, including more work to be done around pre-trade price transparency
  • Ongoing efforts to simplify and enhance the tools available to help investors conduct background searches on their investment professionals
  • Detecting and punishing fraud remains a high priority, including efforts to educate investors
  • Reversing the decline in the number of U.S. IPOs

He also testified in the House regarding the Commission’s budget.  His remarks highlighted the agency’s increasing use of technology and analytics, which was also the topic of the acting chief economist’s speech in June.

SEC appointments: Stephanie Avakian, acting director of enforcement, and Steven Peikin, a partner at Sullivan Cromwell, were appointed co-directors of enforcement. They said in an interview they plan to make cyber crime a major focus. The SEC also appointed:

  • Keith Cassidy as associate director of the Technology Controls Program in the Office of Compliance Inspections and Examinations
  • Robert Evans III as deputy director in the Division of Corporation Finance
  • Kelly L. Gibson as associate regional director for enforcement in Philadelphia
  • Kathryn A. Pyszka as associate regional director for enforcement in Chicago

New FINRA Chairman: The FINRA Board of Governors unanimously elected as Chairman William H. Heyman, vice chairman and chief investment officer of The Travelers Companies, Inc., effective July 18.

FINRA guidance: FINRA CEO Robert Cook gave a speech about protecting investors from bad actors in which he announced that FINRA “intend[s] to reinforce and clarify firms’ existing supervisory obligations concerning brokers they employ that have disciplinary histories” in guidance FINRA will issue soon. The guidance is expected to address both how to identify brokers that pose a higher risk as well as the elements of supervising such brokers.

Protecting seniors: NASAA marked World Elder Abuse Awareness Day by releasing a new study on broker-dealer practices and procedures related to senior investors. 


The SEC filed suit against Alpine Securities for alleged failures related to SAR filings, including omitting required red-flag information from almost 2,000 SAR filings and failing to file at least 250 SARs within 30 days. Press release  |  Complaint

FINRA barred John Batista Bocchino, a former Morgan Stanley Smith Barney registered representative, for concealing approximately $190 million in Venezuelan bond trades from the firm. Order

A FINRA hearing panel barred Jim Seol for selling $100 million in EB-5 investments through an outside business activity he failed to report to his employing firm. Decision

Read FINRA’s June report of monthly disciplinary actions here.


FINRA has three open comment periods that close July 14:

  • Regulatory Notice 17-14 – As part of the FINRA360 initiative, FINRA is requesting comment on the effectiveness and efficiency of its rules, operations and administrative processes governing broker-dealer activities related to the capital-raising process.
  • Regulatory Notice 17-15 – regarding proposed amendments to FINRA Rule 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements) to make substantive, organizational and terminology changes to the rule intended to modernize and clarify it.
  • Regulatory Notice 17-16 – regarding proposed amendments to FINRA Rule 2241 (Research Analysts and Research Reports) and FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports) to create a limited safe harbor for specified brief, written analysis distributed to eligible institutional investors that comes from sales and trading or principal trading personnel but that may rise to the level of a research report (desk commentary).

FINRA issued Regulatory Notice 17-22 regarding disruptive quoting and trading activity.  FINRA also filed five proposed rule changes with the SEC:

  • SR-FINRA-2017-017 on potential fee disputes related to the Consolidated Audit Trail
  • SR-FINRA-2017-019 to extend to July 18, 2018, the implementation of FINRA Rule 4240 (Margin Requirements for Credit Default Swaps)
  • SR-FINRA-2017-021 to amend FINRA Rule 7730 to make available a new TRACE Security Activity Report
  • SR-FINRA-2017-023 to amend FINRA Rule 6730 (Transaction Reporting) to provide a temporary exception to permit member alternative trading systems (ATSs) and member subscribers to report aggregate trade information to TRACE for certain transactions in U.S. Treasury Securities
  • SR-FINRA-2017-024 to update rule cross-references and make non-substantive technical changes to certain FINRA rules

FINRA also established an Innovation Outreach Initiative to better understand fintech’s impact on the securities industry. FINRA’s Blockchain Symposium on July 13 is part of this initiative. FINRA also issued a Research Note on Securitized-Asset Liquidity. 

If you have any questions, please contact your regular Greensfelder attorney or any member of our Securities & Financial Services industry group.

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