On February 28, the staff of the SEC’s Division of Investment Management (the Staff) released a No-Action Letter (the Letter) stating that the Staff would not recommend enforcement action to the SEC if mutual fund boards do not adhere to certain in-person voting requirements. Mutual fund board members (or Directors) are required to approve, in person (Required Approvals): (i) investment advisory (or subadvisory) contracts; (ii) principal underwriting agreements; (iii) distribution plans; (iv) certain interim advisory contracts; and (v) the selection of independent public accountants (collectively, Fund Agreements).
The Staff’s no-action relief allows for Directors to provide such approvals via telephone, video conference, or other means that allow all participating Directors to communicate with each other simultaneously, under limited circumstances. Specifically, they may do so when: (1) the Directors needed for the Required Approvals cannot meet in person due to unforeseen or emergency circumstances, provided that (i) no material changes to the relevant Fund Agreements are proposed or approved at the meeting; and (ii) the Directors who did not attend the meeting where the approval(s) occurred in person ratify such approval(s) at the next in-person meeting (Category 1 Relief); or (2) the Directors needed for the Required Approvals (i) previously fully discussed and considered all material aspects of the proposed matter at a previous in-person meeting, but did not vote on the matter at that time; and (ii) none of the Directors requests another in-person meeting (Category 2 Relief). Category 1 Relief only applies to board actions where a fund’s board is renewing an existing Fund Agreement. With respect to the selection of the independent public accountant, such accountant must be the same accountant as selected in the immediately preceding fiscal year. Category 2 Relief is applicable to both new approvals and renewals. The Staff previously issued relief addressing individual or one-off emergency scenarios; the Letter will obviate the need to obtain such relief in the circumstances described above.
On March 4, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) on residential Property Assessed Clean Energy (PACE) financing. The Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law in May 2018, directed the CFPB to prescribe certain regulations for PACE financing. The CFPB will consider the information it receives in response to the ANPR to develop a Notice of Proposed Rulemaking. The public will have 60 days to comment after publication of the ANPR in the Federal Register.
On February 27, the CFPB announced its electronic submission system, Collect, through which prepaid account issuers may submit their prepaid account agreements, as required under the final rule issued October 5, 2016. Prepaid account issuers may now register for Collect and upload all prepaid account agreements in effect. In connection with Collect’s launch, the CFPB also released technical specifications to which prepaid account agreements must adhere when uploaded through the Collect website. The final rule goes into effect on April 1, 2019, and all prepaid account agreements offered as of April 1 must be uploaded to Collect by May 1, 2019. More information and the CFPB’s compliance materials for prepaid issuers are available on the CFPB’s webpage on prepaid account agreements.
The Federal Housing Finance Agency (FHFA) has issued a final rule to improve the liquidity of Fannie Mae and Freddie Mac To-Be-Announced (TBA) eligible mortgage-backed securities. The final rule requires Fannie Mae and Freddie Mac to adopt policies to promote aligned investor cash flows on TBA-eligible mortgage-backed securities, as well as on the uniform mortgage-backed security. The uniform mortgage-backed security is a common, fungible mortgage-backed security, eligible for trading in the TBA market for fixed-rate mortgage loans that Fannie Mae and Freddie Mac will begin issuing on June 3, 2019. The FHFA stated that creating the uniform mortgage-backed security market will provide more liquidity for TBA-eligible mortgage-backed securities. FHFA Acting Director Joseph Otting further noted that “[t]his rule demonstrates FHFA's commitment to the success of the UMBS, which will promote liquidity and efficiency in the secondary mortgage market.”
Enforcement & Litigation
On February 27, the U.S. Department of Justice announced the indictment of the founder and principal operator of My Big Coin Pay Inc. by a federal grand jury sitting for the District of Massachusetts for his alleged participation in a scheme to defraud investors by marketing and selling fraudulent virtual currency. The executive was charged with four counts of wire fraud and three counts of unlawful money transactions. Read the Digital Currency & Blockchain Perspectives blog post.
On February 14, the Southern District of California entered a preliminary injunction prohibiting Blockvest LLC, a company set up to exchange cryptocurrencies, and its founder from violating an anti-fraud provision of the federal securities laws. The decision came following the court’s initial denial of a motion for preliminary injunction filed by the SEC last November, when the SEC sought an injunction freezing Blockvest’s assets and barring it from proceeding with a planned initial coin offering and any other securities sales. Read the Digital Currency & Blockchain Perspectives blog post.
Goodwin's Investment Management practice is hosting its 11th Annual Good Run in conjunction with the Investment Company Institute’s (ICI) 2019 Mutual Funds & Investment Management Conference. The conference, sponsored by ICI and the Federal Bar Association, is the fund industry’s premier legal conference. Goodwin's Boston partner, Jamie Fleckner, will be speaking on a litigation panel at the conference. In recognition of those who participate in the Good Run, Goodwin will make a donation to Expect Miracles, a leading advocate in the fight against cancer within the financial services industry. For additional details and to register for the Good Run, click here.