SEC Spanks Canaccord for Research Role

Posted on March 29, 2016 by admin

(JDSupra)In March 2016, the SEC entered into a settlement agreement with Canaccord Genuity a U.S. broker-dealer, which initiated research coverage of an issuer after being invited by the issuer to participate as an underwriter for that issuer’s planned equity offering. The SEC indicated that this is its first action against a broker-dealer for violating Section 5 in this manner. The SEC’s order can be found at the following link: https://www.sec.gov/litigation/admin/2016/33-10059.pdf.

In this case, the issuer cancelled a proposed secondary stock offering for which the broker-dealer was planning to act as the lead underwriter. At that point, the issuer planned another offering, and the broker-dealer was invited to participate as a co-manager. However, according to the SEC, the broker-dealer’s participation was made contingent by the issuer upon the broker-dealer commencing research coverage – a “quid pro quo” – which the investment bank agreed to do. In commencing research coverage, the investment bank rated the stock a “buy,” with a price target that was considerably higher than its then current market price.¹

In issuing the fine, the SEC relied on its traditional guidance as to when a broker-dealer is subject to Section 5(b)(1)’s potential limitations on issuing research. In particular, the SEC has stated that a broker-dealer that publishes research is subject to Section 5(b)(1):

while seeking to participate in the underwriting of the issuer’s securities offering;
after having been invited to participate by the issuer in the underwriting of its securities offering; or
after reaching an understanding with the issuer that it will participate as a managing underwriter in the issuer’s securities offering.

Under these circumstances, the SEC will typically view a research report about the subject company as an improper prospectus. While SEC Rule 139 includes a safe harbor from the definition of “prospectus” for research reports that satisfy the rule, this safe harbor excludes cases such as this one, where the broker-dealer initiated coverage. Here, the SEC deemed the research report to be a prospectus, due to its potential to condition the market. The SEC’s fine in this matter is further indication of regulatory interest in research related supervisory and oversight lapses.

To read the full article, please click here

69 Red Flags Raised Before Action Was Taken Against Ponzi Scheme Involved Broker

Posted on May 20, 2015May 19, 2015 by admin

Brokerdealer.com blog update profiles broker, Jerry A. Cicolani Jr, who just recently was barred from the broker industry. Normally this wouldn’t be unusual, except it took 69 complaints filed against Cicolani before the Finra, or the FBI, finally did something about it. Not only had Cicolani received 69 complaints in his record, but he also was involved in a Ponzi Scheme as well. This brokerdealer.com blog update is courtesy of The New York Times’ Susan Antilla and her article, “Many Years of Overlooked Red Flags Catch Up to Stockbroker“. An excerpt from the article is below.

There are many brokerdealers who are Finra, SEC, and FBI compliant, to find one of those click here.

In most professions, it would take only one or two acts of egregious conduct before troubled employees were shown the door. In the case of one stockbroker who has repeatedly had complaints from investors, it took 69 customer disputes filed over the last 13 years before he was barred from the business.

The stockbroker, Jerry A. Cicolani Jr., had complaint after complaint documented in his formal record. Regulators and employers spotted red flags. Yet the organization primarily responsible for monitoring the nation’s 637,000 brokers, the Financial Industry Regulatory Authority, did not bar Mr. Cicolani until September 2014.

The Securities and Exchange Commission had already sued him, in May 2014, over his role in a Ponzi scheme. His most recent employer, PrimeSolutions Securities, based in Cleveland, fired him a day after that lawsuit was filed. And his customers had lodged complaints as far back as 2002.

To continue reading about the legal implications Mr. Cicolani is now facing, click here

SEC And Finra Team Up To Host BrokerDealer Compliance Outreach Program

Posted on May 11, 2015 by admin

Brokerdealer.com blog update profiling the SEC and Finra announced the opening of registration to attend their National Compliance Outreach Program for BrokerDealers this summer. The program will host regulators and industry professionals as they discuss ideas for compliance structures in the industry. This brokerdealer.com blog update is courtesy of LeapRate’s article, “SEC and FINRA to hold national compliance outreach program for Broker-Deale” by Andrew Saks-McLeod, with an excerpt below.

The Securities and Exchange Commission and the Financial Industry National Regulatory Authority (FINRA) today announced the opening of registration for their 2015 National Compliance Outreach Program for Broker-Dealers. The program is intended to provide an open forum for regulators and industry professionals to discuss compliance practices and exchange ideas on effective compliance structures.

The SEC’s Office of Compliance Inspections and Examinations (OCIE), in coordination with the SEC’s Division of Trading and Markets, is sponsoring the program with FINRA. The program will be held on July 14 at the SEC’s Washington D.C. headquarters and will focus on 2015 priorities for OCIE and FINRA as well as current topics of interest including cybersecurity, anti-money laundering, and firms’ approaches to supervision and sales practices.

“This program provides an invaluable opportunity to facilitate discussions between regulators and industry participants on important issues affecting the brokerage industry, to promote compliance with federal securities laws, and to enhance investor protection,” said Kevin Goodman, National Associate Director of OCIE’s broker-dealer examination program. “Past programs have been well attended and well received, and we look forward to a candid exchange of ideas with participants at our upcoming event.”

To continue reading about this event hosted by the SEC and Finra, click here.

Are You A Fiduciary? SEC’s Attempts to Create More Distinction

Posted on March 31, 2015March 31, 2015 by admin

Brokerdealer.com blog update profiles the financial industry is bubbling thanks to SEC effort to redefine terminology and specifically, who it applies. In this case, the confusion comes in with who is a fiduciary and who isn’t. This blog update is courtesy of The Philadelphia Inquirer columnist, Erin Arvedlund. The excerpt below comes from both Arvedlund’s blog and her Monday column, “Monday Money Tip: Beware financial advisers who are not fiduciaries“.

Before you sign on with a money manager, ask: Are you a fiduciary? If yes, great. If not, go in with your eyes open.

Fiduciaries, by law, have to do the right thing by their clients. No one on Wall Street wants, by law, to have to do the right thing.

Some street professionals are fiduciaries; registered investment advisers generally are, brokers are not.

And the distinction grows every day.

Anyone whose job is to raise sales cannot meet the fiduciary standard, notes Knut Rostad, president of the Institute for the Fiduciary Standard.

“Brokers may provide useful product recommendations, but they cannot meet the fiduciary standard,” Rostad says.

“They can no more provide objective advice about investments than can the Ford car salesman objectively advise on cars. They may be terrific people but, by virtue of what they do, they will most assuredly provide terrible advice.”

The issue is confusing, and Wall Street wants to keep it that way.

Read the entire article from the The Philadelphia Inquirer, here, and for more financial commentary, click here for Erin Arvedlund’s blog.

Will BrokerDealer Top Cop Really Get Tough? Fiduciary or Not?

Posted on March 18, 2015 by admin

BrokerDealer.com blog update profiling behind-the-scenes posturing as to whether the SEC might impose a new standard that imposes the concept of “fiduciary obligation” on brokerdealers is courtesy of extract from March 17 New York Times “SEC Chief May Toughen Rules For Brokers.” Below is the snapshot with credit to NYT reporter MICHAEL J. de la MERCED

The chairwoman of the Securities and Exchange Commission announced on Tuesday that she planned to explore setting a higher standard for brokers in dispensing investment advice, putting the agency in the middle of a potential fight between the Obama administration and the financial industry.

Speaking at a conference hosted by the Securities Industry and Financial Markets Association, one of Wall Street’s main trade groups, the chairwoman, Mary Jo White, expressed her personal support for setting up a so-called uniform standard of fiduciary duty.

Such a move would hold stockbrokers and brokerdealers to a fiduciary duty standard, under which they must put their clients’ interests ahead of their own. Registered investment advisers already fall under that higher bar, while brokers follow a looser “suitability” standard that requires them only to mind customers’ needs and appetite for financial risk.

“I believe the S.E.C. has an obligation” to create a uniform standard, Ms. White told the association’s conference.

Ms. White’s comments were her first public thoughts on the matter, coming months after the chairwoman promised to outline her position on the issue.

The S.E.C. has the authority — but no obligation — to create the new standard, thanks to a provision in the Dodd-Frank financial regulation overhaul. The Obama administration backed a similar initiative by the Labor Department to create a higher standard for brokers who oversee retirement investments.

A new standard from the commission would carry more weight, however, since it would encompass all brokers and not just those who oversee retirement accounts.

Behind the call for a tougher standard is concern that loose rules have potentially cost consumers billions of dollars each year. A memo from the White House that surfaced in January estimated that investors lost between $8 billion and $17 billion from their I.R.A.s last year because of a lack of protections.

To read the entire NYT story, please click here.