Insights

In continuing with its efforts to promote greater liquidity and certainty in the U.S. secondary loan trading market, on July 21, 2023, The Loan Syndications and Trading Association, Inc. (the "LSTA") officially released a revised suite of secondary market loan trading forms, which revised forms are effective for LSTA trades entered into on or after such date. 

In its long-awaited decision in Slack Technologies, LLC v. Pirani, 598 U.S. ___, No. 20-200 (June 1, 2023), the Supreme Court ruled that the tracing requirement of Section 11 of the Securities Act of 1933 applies to suits brought by investors in direct listings. Although the ruling definitively resolves an ambiguity in the statutory text, it leaves the door open to adverse consequences for both companies and investors in direct listings.

The Securities and Exchange Commission announced on May 16, 2023 that ten microcap companies violated Regulation A+ and have been ordered to pay civil penalties ranging from $5,000 to $90,000. In a press release, Daniel R. Gregus, Director of the SEC’s Chicago Regional Office, stated, “Companies that choose to benefit from Regulation A as a cost-effective way to raise capital must meet its requirements. These actions stand as a reminder that companies which choose to circumvent Regulation A’s requirements by engaging in prohibited conduct or making fundamental changes to their offerings without qualification will face action by the SEC.”

The United States Supreme Court has unanimously upheld a ruling allowing securities-related claims in state court notwithstanding that the Securities Exchange Act of 1934, as amended (the Act) generally grants exclusive jurisdiction to federal courts for securities litigation. In Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning, No. 14-1132, 578 U.S. __ (2016), decided on May 16, 2016, the Supreme Court allowed short-selling manipulation claims to proceed in a New Jersey state court under New Jersey causes of action. Justice Elena Kagan, writing for the majority, reasoned that the Act’s jurisdictional provision restricts federal court exclusivity for securities claims under the same standards applicable to federal questions in general. The ruling is significant because it provides greater opportunities for plaintiffs to assert securities-related claims in state court under state law legal theories and causes of action.

As part of the efforts of the Saudi Arabian Capital Market Authority (the CMA) to develop the Saudi Arabian capital market and protect investors, and pursuant to the Capital Market Regulations as enacted by Royal Decree Number M/30 dated 2/6/1424 H / 1 August 2003, the Board of the CMA has published draft Investment Accounts Instructions (the Draft Instructions) on the CMA's website to allow concerned and interested parties to provide their comments and observations.

The National Futures Association (NFA) has proposed a new interpretive notice (Proposed Notice) to the Commodity Futures Trading Commission (CFTC) which contains the NFA's standards for Information Systems Security Programs (ISSPs). While the requirement to have an ISSP is not new, the Proposed Notice puts another tool in the NFA's examination toolbox, allowing it to assess penalties for failure to have a conforming ISSP. The Proposed Notice also provides regulatory personnel with a roadmap for  compliance.  

On September 15, 2015, the SEC's Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert specifying cybersecurity examination focus areas for broker-dealers and investment advisers. Following up on the February 2015 OCIE Risk Alert that we described here, this Risk Alert cautions that examiners will evaluate how firms test and implement tailored cybersecurity policies and procedures. 

Since the economic downturn in 2008, the legal market has been in a constant state of change. Companies are demanding budget predictability, shared risk and reward, improved efficiency, more transparency, and a new way to define value, and law firms have rushed to respond. Firms cannot rely on the billable hour as they once did. This development has led to the rise of Pricing Departments whose job it is to manage value-based billing arrangements, profitability, and legal project management. Law firms and in-house counsel need to understand each type of alternative fee arrangement, its strengths and weaknesses, how to accurately scope and budget an engagement, and how to manage it once it has begun.

On May 13, 2015, Marc Wyatt, Acting Director, SEC Office of Compliance Inspections and Examinations (OCIE), delivered an important speech that highlighted legal and compliance topics for investment fund managers.

On March 25, the Securities Exchange Commission (the "Commission") proposed revising Rule 15b9-1 (the "Proposed Rule"), in a move designed to require broker-dealers engaged in proprietary high-frequency trading (HFT) of securities or other applicable products to register with a regulatory association (an "Association"). Since FINRA is the only Association that currently exists, all such HFT firms would be required to register with FINRA. 

On January 13, 2015, the SEC's Office of Compliance Inspections and Examinations (OCIE) published its annual list of examination priorities for investment advisers, broker-dealers and transfer agents. For a copy of the SEC's press release, please see here.

The New Year serves as a good reminder for private fund sponsors, both those that are registered investment advisers (RIAs) with the Securities and Exchange Commission (SEC) and those that are exempt reporting advisers (ERAs), of their periodic regulatory obligations and the prudence of reviewing their compliance policies and procedures. Crowell & Moring's Investment Advisers and Investment Funds teams are pleased to present the following checklist as a reference for such obligations. This update does not represent a comprehensive summary of all of the compliance obligations to which advisers may be subject, which may differ depending on the nature of that adviser's business.

The Saudi Arabian General Investment Authority (SAGIA) is tasked with licensing most foreign capital investments in businesses in Saudi Arabia. In an effort to address ever lengthening license processing times, SAGIA announced in June 2014 that it would be implementing a fast-track license application procedure (the Fast-Track Procedure) for qualified license applicants. After some initial difficulties during its roll-out, the Fast Track Procedure seems now to be providing qualifying applicants with a welcome alternative to SAGIA's often lengthy standard license application procedure.

On July 22, 2014, the Saudi Arabian Capital Market Authority (CMA) announced that foreign financial institutions would be permitted to buy and sell stocks listed on the Saudi stock market in accordance with rules to be adopted by the CMA. The CMA subsequently released its Draft Rules for Qualified Foreign Financial Institutions' Investment in Listed Shares (the Draft Rules) and has solicited opinions and suggestions from investors and other interested parties on the Draft Rules.

On September 30, 2014, the Securities and Exchange Commission (SEC) brought charges against two individuals in a case that reflects the SEC's expansive view of insider trading and poses a cautionary tale to investment managers.

We have observed in recent years a heightened focus by top-notch investment firms on compliance, with talented, empowered chief compliance officers given a broad mandate by their firms to design a robust compliance program. A recent SEC enforcement action again supports the prudence of such focus. In our view, the best investment firms embrace customized compliance programs pursuant to which they and their advisers are always developing policies and procedures that match business developments. Failing to do so means that an investment firm runs the serious risk of a lengthy, expensive enforcement matter that may culminate not only in monetary fines and significant legal bills but a harmed institutional reputation.

On July 22, 2014, the Saudi Arabian Capital Market Authority (CMA) announced that foreign financial institutions will be permitted to buy and sell stocks listed on the Saudi stock market in accordance with applicable CMA rules. Next month, the CMA plans to release draft proposed rules governing the investment by foreign financial institutions in eligible listed stocks and then solicit opinions and suggestions from investors and other interested parties on the CMA's proposed rules. Opinions and proposals on the CMA's draft proposed rules will be welcome for a period of 90 days. The CMA indicated that it will review the opinions and proposals concerning the draft proposed rules by the end of 2014, check the readiness of the Saudi Stock Exchange (Tadawul) to implement the finalized rules, and coordinate with the relevant Saudi government authorities prior to adopting the finalized rules. The CMA plans to open the Saudi stock market to investment by foreign financial institutions in the first half of 2015.

Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") on July 21, 2010. A combination of legislation aimed largely at tightened financial regulation, the Dodd-Frank Act also included a few additional disclosure requirements for public companies. One of the last sections of the Dodd-Frank Act, Section 1503, mandates the public disclosure by public companies of mine safety and health violations and statistics in their filings with the U.S. Securities and Exchange Commission (SEC). While the provision was self-executing upon its August 20, 2010 effective date and was fairly detailed in its disclosure requirements, it also required the SEC to promulgate its own set of rules to administer the disclosure program. Because the SEC needed time to wade through its many Dodd-Frank Act rule promulgation requirements from the outset, consider the best form in which to require the disclosure, and solicit comments from the public, its final SEC rule on mine safety disclosure was not released until December 21, 2011.

In a speech on May 6, 2014, the director of the SEC's Office of Compliance Inspections and Examinations (OCIE) gave valuable insights into the substantive review that the OCIE has been performing on registered private equity fund advisers since implementing the presence exam initiative in October 2012. Perhaps the most striking comment is that more than half of all private equity advisers examined by the OCIE have been found to be violating laws or to have material weaknesses with respect to how they assess fees and expenses. 

On December 18, 2013, the U.S. Securities and Exchange Commission (SEC) announced proposed rules designed to transform Regulation A from a seldom-used, high-effort exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") to a much more useful capital-raising tool for offerings up to $50 million. The proposed rules seek to modernize the current regulatory framework by creating two tiers of offerings, including what is being referred to as "Regulation A+," and in so doing, hopefully increase access to capital for smaller companies. However, the reporting and disclosure requirements are very similar under the proposed rule and the public offering process. It remains to be seen whether companies will view the benefits of Regulation A as outweighing these burdensome disclosure processes, or whether the industry will continue to rely on other exemptions from the registration process.