In a June 4, 2015 speech, SEC Chair Mary Jo White highlighted recent activities of the SEC and identified work to be done in the near future. Among the SEC’s accomplishments highlighted by Chair White were: (1) completing the rulemaking efforts mandated by Congress under the JOBS Act and other rulemakings in response to the financial crisis, including rules related to money market reform, asset backed securities and credit rating agencies; and (2) strengthening the impact and message of the enforcement program in a manner that may result in greater public accountability, including changing the no admit-no deny settlement protocol in certain cases. Looking ahead, Chair White stated that, among other things, the SEC is: (1) focusing on risk oversight of the asset management industry by developing a broad set of new initiatives to address the increasingly complex portfolios and operations of the asset management industry in new ways; (2) raising the standard of care for all investment advice to retail investors through, among other things, applying a uniform fiduciary standard of conduct for broker-dealers and investment advisers; and (3) addressing the complex issues raised by the market structure of the equity and fixed income markets through new rulemakings and initiatives, including the formation of the Equity Market Structure Advisory Committee.
FINRA has filed a proposed amendment to FINRA Rule 2210 to require each of a member’s websites to include a readily apparent reference and hyperlink to the member’s BrokerCheck record on: (1) the initial webpage that the member intends to be viewed by retail investors; and (2) any other webpage that includes a professional profile of one or more registered persons who conduct business with retail investors. As proposed the requirement will only apply to members that provide products or services to retail investors.
The Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Bureau of Consumer Financial Protection, and the Securities and Exchange Commission have issued a final interagency policy statement establishing joint standards for assessing the diversity policies and practices of the entities they regulate. Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required each of these agencies to establish an Office of Minority and Women Inclusion (OMWI) to be responsible for all matters relating to diversity in management, employment, and business activities. The Dodd-Frank Act also instructed each OMWI director to develop standards for assessing the diversity policies and practices of regulated entities.
Enforcement & Litigation
On May 22, 2015, the United States Court of Appeals for the Second Circuit, in Madden v. Midland Funding, LLC, held that an assignee of a national bank did not obtain the benefit of preemption under Section 85 of the National Bank Act, which permits a national bank to charge interest at the rate permitted for the most favored lender under the law of the state where the bank is located. As a result, the court concluded that the National Bank Act did not preempt the application of a state usury law to a loan purchased from the bank. In this case, a national bank charged off credit card debt of the Plaintiff-Appellant and sold the debt to a third-party debt purchaser, Midland Funding (Midland). Midland charged an interest rate of 27%, usurious in New York, the state where the borrower resided, but permissible in Delaware, where the national bank was located. Midland claimed the National Bank Act preempted state law and permitted it, as an assignee of a national bank, to charge interest at the rate permitted by the state where the assignor national bank was located. However, the Second Circuit held that, because the debt purchaser was neither a national bank, nor a subsidiary, agent, or entity acting on behalf of one, and because the state law’s application would not significantly interfere with any national bank’s ability to exercise its powers under the National Bank Act, the assignee could not obtain the benefit of preemption. The court did not reach the question whether the choice of Delaware law in the agreement governing the credit card account was enforceable. Counsel for Midland submitted an unopposed motion to extend time to submit a petition for rehearing en banc, extending the deadline for the petition to June 19.
The SEC announced that it has taken action to freeze the assets of two U.S. brokerage accounts connected to schemes to manipulate Avon and other stocks. According to a complaint filed in federal court in Manhattan, the SEC has tracked a filing on its EDGAR system since last month about a false tender offer of Avon stock that originated from an IP address in Bulgaria. The SEC’s complaint alleges that the defendants were able to sell existing positions in Avon issued contracts-for-difference (CFDs) at inflated prices after the EDGAR filing led to a 20 percent increase in the value of the CFDs. The SEC’s complaint charges Strategic Capital Partners Muster Ltd. and Strategic Wealth Investments Inc., which are said to each own one of the brokerage accounts, PTG Capital Partners LTD, which is alleged to have made the EDGAR filing containing the purported Avon tender offer, and Nedko Nedev, a trader in Bulgaria said to have control over at least one of the two frozen accounts, with violating antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933, Sections 10(b) and 14(e) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14e-8. The defendants have also been charged with a similar scheme in 2015 involving Tower Group International Ltd., which involved an alleged false press release instead of an EDGAR filing.