The SEC Continues to Jettison Pending Litigated Actions
Summary: The SEC continues to clear out litigated enforcement actions authorized by the Gensler SEC through settlements and dismissals—seemingly on more favorable terms than expected.
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On July 11, the SEC announced that it had filed a joint stipulation with defendants Pinnacle Advisors, LLC and associated individuals to dismiss the SEC’s first-ever case seeking to enforce the Liquidity Rule. We published a memo on the dismissal including takeaways for what the decision might mean for the current SEC’s deregulatory agenda.
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As additional examples, on July 1, the SEC and defendants in the Virtu Financial litigation informed the court that they had reached proposed terms for a settlement; and, on July 2, the SEC and defendants in the SolarWinds litigation informed the court that they had reached a settlement in principle.
Takeaway: The SEC’s recent activities suggest a willingness to resolve pending cases in the federal district courts as it seeks to pare back perceived overreach by the prior Commission in a number of areas. As to newly-filed enforcement actions, the docket reflects a continued focus on straightforward violations, such as offering frauds and the like.
Best Practice Tip: While recent settlements and dismissals may suggest a less aggressive posture with respect to core regulatory obligations (e.g., information barriers (Virtu) and liquidity management (Pinnacle)), advisers should continue to invest in their compliance programs with the mindset that the pendulum will inevitably swing the other way.
FinCEN Extends Effective Date for the AML/CFT Rule for Investment Advisers
Summary: On July 21, FinCEN announced its intent to delay the implementation of the final rule establishing Anti-Money Laundering (“AML”)/Countering the Financing of Terrorism (“CFT”) Program and Suspicious Activity Report (“SAR”) Filing Requirements until 2028—two years beyond the previous expected effective date.
Takeaway: The delay, particularly in light of the indication that the rule will be subject to additional rulemaking, signals that FinCEN likely will revisit the scope of the rule in full.
Best Practice Tip: To the extent new policies, procedures and testing were in the works, it’s reasonable to finish open workstreams but equally reasonable to consolidate and pause that work for the time being given the extra time and uncertainty of where the final AML/CFT rule will land.
Is a New Finders Exemption Back on the Table?
Summary: At the SEC’s Small Business Capital Formation Advisory Committee meeting on July 22, the SEC resurrected discussion of regulation of finders (i.e., persons who facilitate potential investments) last addressed by the Clayton SEC. The discussion and comments from certain Commissioners signal that the SEC is again considering relief for “finders” from burdensome broker-dealer registration requirements.
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This discourse echoes a proposal out of the Treasury Department under the first Trump Administration, which recommended that the SEC, FINRA and the states work to create a regulatory structure for finders; however, the October 2020 proposal was never adopted.
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Chairman Atkins noted that “small businesses seeking to raise less than $5 million in capital can struggle to attract funding from VC firms and institutions” due to the regulatory uncertainty over finders and emphasized that the SEC’s mission is to “unlock, rather than undermine, capital raising.” Commissioner Peirce offered similar remarks.
Takeaway: Expect continued discussion on exemptive relief or other action related to providing clarity for finders, especially with respect to raising capital for small businesses and start-ups. The SEC has signaled it may also be open to no-action relief in the spirit of the rescinded M&A brokers letter.
Best Practice Tip: Any interested parties should start brainstorming for a comment letter either individually or on behalf of industry trade associations.