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SEC Names Kurt Gottschall Associate Regional Director
On July 20, the SEC named Kurt Gottschall Associate Regional Director of Enforcement in its Denver office. Gottschall began his SEC career in 2000 as a staff attorney and has since served as Branch Chief and Assistant Regional Director. Throughout his career, Gottschall has investigated or supervised numerous enforcement matters related to various securities law violations. The announcement notes several of Gottschall’s career highlights, which include pursuing fraud charges and an emergency asset freeze against promoters of a $30 million Ponzi scheme and a financial fraud case against six executives of an insurance agency franchisor and lender.
FINRA Elects New Chairman of Board of Governors
On July 15, the FINRA Board of Governors elected John J. Brennan as its new Chairman. Effective August 15, Brennan will succeed Richard G. Ketchum, who previously announced his retirement.
SEC Charges Brokerage Firm with AML Failures
On June 1, the SEC announced that a Wall Street-based brokerage firm agreed to pay a $300,000 penalty to settle charges that it failed to sufficiently evaluate or monitor customers’ trading for suspicious activity and to file suspicious activity reports (SARs) in an alleged willful violation of Section 17(a) of the Exchange Act and Rule 17a-8. The broker-dealer was required to have written AML policies and procedures, which outlined specific examples of suspicious activities that, according to the SEC, “should have triggered internal reviews and, in a number of instances, [(SAR)] filings.” According to the SEC, the broker-dealer failed to file SARs on the following activity: (i) accounts that traded an aberrational percentage of a given stock in a particular day; (ii) accounts of entities that had executives charged with criminal securities fraud; (iii) customer trading that was the subject of grand jury subpoenas and regulatory inquiries; (iv) liquidation of securities followed immediately by large cash transfers; (v) transactions in securities that were subsequently subject to SEC trading suspensions; and (vi) rejections by other broker-dealers of attempts by the firm to transfer customers’ securities. Despite these red flags, the brokerage firm failed to file SARs for more than five years. The case represents the SEC’s first against a firm for solely failing to file SARs.
SEC Announces Stephen Cohen's Departure
On June 3, the SEC announced that Stephen L. Cohen, Associate Director of the Enforcement Division, plans to leave the agency later this month. Cohen joined the SEC in 2004 as the Assistant Chief Litigation Counsel in the Enforcement Division, served as a senior advisor to former SEC Chairman Mary Schapiro from 2009 to 2011, and was appointed Associate Director of Enforcement in 2011. Under Cohen’s direction, the SEC brought enforcement actions addressing a variety of market participants’ alleged violations of federal securities laws.
SEC Awards At Least $5 Million to Whistleblower
On May 17, the SEC announced that a former company insider will receive between $5 million and $6 million for providing a “detailed tip” that led the agency to uncover securities violations. According to the SEC, without the whistleblower’s information, the violations would have been “nearly impossible” to detect. Since the SEC started its whistleblower program in 2011, the agency has awarded more than $67 million to 29 whistleblowers. The SEC’s most recent award is its third highest and follows a $3.5 million award announced last week.
FinCEN Proposes Imposing BSA Requirements on Crowdfunding Portals
On April 4, FinCEN issued a proposed rule to amend the definitions of “broker or dealer in securities” and “broker-dealer” under the regulations implementing the BSA. Specifically, FinCEN proposed that the definitions be amended to “explicitly include funding portals that are involved in the offering or selling of crowdfunding securities pursuant to section 4(a)(6) of the Securities Act of 1933.” Intended to help prevent money laundering, terrorist financing, and other financial crimes, the amendments would require funding portals to implement policies and procedures reasonably designed to ensure compliance with the BSA requirements currently applicable to brokers or dealers in securities. Comments on the proposal are due by June 3, 2016.
SEC Announces Senior Staff Changes; New Office of Risk and Strategy
On March 8, the SEC announced a change in senior leadership, naming Robert M. Fisher the Managing Executive of the Office of Compliance Inspections and Examinations (OCIE). Succeeding Peter B. Driscoll, Fisher will be responsible for overseeing the OCIE’s business operations, technology servicers, examiner training, and Tips, Complaints and Referrals programs. The SEC also announced a new Office of Risk and Strategy within its Office of Compliance and Inspections and Examinations, naming Driscoll as its Chief Risk and Strategy Officer. The new office is intended to “consolidate and streamline the OCIE’s risk assessment, market surveillance, and quantitative analysis teams and provide operational risk management and organizational strategy for OCIE.” In his new role as Chief Risk and Strategy Officer, Driscoll will lead the Washington, D.C.-based Investment Adviser/Investment Company examination staff.
In a separate March 10 announcement, the SEC named Anthony S. Kelly Co-Chief of the Enforcement Division’s Asset Management Unit (Unit). Succeeding Julie Riewe, Kelly joins Marshall Sprung to lead the Unit, which focuses on misconduct by investment advisers, investment companies, and private funds.
SEC Announces Regional Directors for Enforcement in Los Angeles Office
On February 9, the SEC named C. Dabney O’Riordan and Alka Patel Associate Directors for Enforcement in the Los Angeles Regional Office. O’Riordan began her SEC career as a staff attorney in the Los Angeles office, has been a member of the agency’s Division of Enforcement’s Asset Management Unit since its 2010 inception, and in 2012 was named Assistant Director of the Division of Enforcement. Similarly, Patel began her career in the Los Angeles office as a staff attorney in 2001, became Assistant Director in 2009, and has served as a member of the Division of Enforcement’s Foreign Corrupt Practices Act since its 2010 inception. During their tenure at the SEC, both O’Riordan and Patel investigated and litigated a number of significant securities law matters. In their new roles, O'Riordan and Patel will oversee enforcement efforts in southern California, Arizona, Nevada, and Hawaii.
SEC Adopts Cross-Border Security-Based Swap Rules
On February 10, the SEC released a fact sheet on rules that would require non-U.S. companies using personnel located in a U.S. branch or office “to arrange, negotiate, or execute a security-based swap transaction in connection with its dealing activity to include that transaction in determining whether it is required to register a security-based swap dealer.” The rules, which the SEC voted to adopt in its February 10 open meeting, are intended to ensure that U.S. and foreign dealers engaging in security-based swap dealing activity in the United States are subject to Title VII of the Dodd Frank Act. In addition, the final rules would exempt certain international organizations – those excluded from the definition of U.S. person in Exchange Act rule 3a71-3(a)(4)(iii) – from the requirement that non-U.S. persons include transactions they arranged, negotiated, or executed using personnel located in a U.S. branch or office in their dealer de minimis threshold calculations. Effective 60 days after publication in the Federal Register, but with a later compliance date, the rules should, according to SEC Chair Mary Jo White, “improve transparency and enhance stability and oversight in the security-based swap market, while reducing potential competitive disparities, lessening the likelihood of market fragmentation, and mitigating the risk that may flow into U.S. financial markets.”
SEC Names Jane Jarcho Deputy Director of National Exam Program
On February 3, the SEC named Jane Jarcho Deputy Director of its Office of Compliance Inspections and Examinations (OCIE). Jarcho will continue to serve as the National Director of the OCIE’s Investment Adviser/Investment Company examination program, a role she assumed in 2013. As the head of the Investment Adviser/Investment Company examination program, Jarcho increased company examinations more than 27% and “targeted areas such as cybersecurity, never before examined investment advisers and investment companies, alternative mutual funds, fixed incomes, and retirement accounts.” Jarcho’s SEC career began in 1990 in the Division of Enforcement, where she held various positions, including Branch Chief, Senior Trial Counsel, and Assistant Regional Director. In 2008, Jarcho joined the OCIE; prior to being named National Director of the office, she served as Associate Director of the Investment Adviser/Investment Company examination program.