Investment Management Legal + Regulatory Update -- October 2013


- Regulatory Updates:

CFTC Adopts “Substituted Compliance” Approach for Registered Investment Companies that are Commodity Pools; SEC’s Final Rules on General Solicitation and Bad Actor Disqualification for Investment Advisers and Broker-Dealers Change Regulatory Landscape; Division of Investment Management: Private Fund Custodians Need Not Maintain Private Stock Certificates; NY Fed to Establish an Overnight Fixed-Rate Reverse Repo Facility Available to Money Market Funds and Others; SEC to Focus on Private Fund Adviser Compliance Procedures in Rule 506(c) Offerings; Affiliated ETFs Mergers Possible Without SEC Order; SEC/FINRA/CFTC Urge Firms to Bolster Business Continuity Plans; FINRA Raises Concerns About Advertising “Free” and “No-Fee” Services; Delayed Effectiveness of Large Trader Reporting for Certain Broker-Dealers; OFR Report: Asset Managers Potentially Threaten Financial Stability; Federal Regulators Tighten Proposals to Require “Securitizers” to Retain Credit Risk; and PCAOB Report Criticizes Broker-Dealer Audit Deficiencies

- Enforcement + Litigation:

SEC Charges Adviser with Misleading Fund Board About Trading Capabilities; Federal Court Questions Whether “Classic Theory” of Insider Trading Applies to Mutual Fund Shares; SEC Sanctions Portfolio Manager for Misleading CCO; SEC Sanctions Adviser for Pushing Class A Shares when Investors Qualified to Buy Institutional Class Shares; Court Tosses ETF Securities Lending Fee Case; SEC Sanctions Non-U.S. Bank for Failure to Register as a Broker-Dealer or Investment Advisers when Existing Clients Relocated to the United States; FINRA Enforcement Action Stresses Procedures for Due Diligence on Private Placements of Investment Funds; FINRA Sweep of Firms’ Compliance with Prospectus Delivery Requirements; and Second Circuit Upholds Dismissal of Case Alleging Disclosure Violations by Leveraged ETFs

Excerpt from CFTC Adopts “Substituted Compliance” Approach for Registered -

Investment Companies that are Commodity Pools In mid-August, the CFTC adopted final rules implementing a “substituted compliance” approach for disclosure and compliance obligations of registered investment companies (RICs) that are also commodity pools. Rather than requiring that RICs comply with the sometimes inconsistent disclosure, compliance and financial reporting regulations of the SEC and the CFTC, the CFTC said that compliance with applicable SEC regulations, with minor adjustments, would be adequate.

Please see full update below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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