Focus Perspective: A Busy Month

Standard of Conduct for Investment Advisers

The SEC continued to receive comments, with most of the later comments (after the cut-off date) from organizations that presumably gathered suggestions from their members and/or constituents: Members of Congress, AARP, NASAA, ABA, and U.S. Chamber of Commerce. As with the comments from registrants and investors, suggestions and criticisms for the proposed rule fell into three categories: too hard, too soft, or just right.


Investor Alert

The SEC issued an Investor Alert on September 5, 2018, “Marijuana Investments and Fraud.” Not that we think any of us would be involved, but the cautions identified in the Alert are targeted at the Main Street investor:
Unlicensed, unregistered sellers. Unlicensed, unregistered persons commit many of the securities frauds that target individual, Main Street investors. Check out the background, including registration or license status, of anyone recommending or selling an investment, using the free simple search tool on
Guaranteed returns. If someone promises you a guaranteed high rate of return on your investment, especially along with a claim of no risk, it likely is a fraudulent scheme.
Unsolicited offers. If someone reaches out to you through social media, email, text, or phone regarding an investment “opportunity,” it may be part of a scam.

The Alert then mentions “Market Manipulation” and cautions the investor to look for these red flags:

Trading suspensions. Check whether the SEC has recently suspended trading of the company’s stock.
Changes to company name or type of business. Research the company and be skeptical if the company has abruptly changed its name, industry, or business plan multiple times.
False press releases. Press releases that seem implausible may indicate that the company’s stock is being hyped solely to drive up its stock price.

Then, the part that we really enjoyed,

“If you are considering investing in a company with operations relating to the marijuana business industry, understand that the company may be criminally prosecuted and this may impact the value of your investment.”

We think that this statement in the prospectus would support a claim of full disclosure.

Read Full Alert

New SEC Commissioner

Elad L. Roisman was sworn in on September 11, 2018 by Chairman Clayton, replacing Michael Piwowar who left in July. Commissioner Roisman has SEC and industry experience, having served as Chief Counsel to SEC Commissioner Daniel Gallagher and prior to that, as a Chief Counsel at NYSE Euronext. Most recently, he was Chief Counsel for the Senate Banking Committee where he was involved in rolling back legislation.

Read Press Release


Two whistleblowers received $39 million from the SEC for providing “critical information and continued assistance that helped the agency bring an important enforcement action.” This was the second largest award since the beginning of the program.

Read Press Release


New SEC Focus

Commissioner Jackson, speaking at George Mason University on September 19, expressed concerns about the U.S. stock markets, in “Unfair Exchange: The State of America’s Stock Markets.”

“So our stock markets—a symbol of American capitalism around the world—are taxing American investors with hidden fees and conflicts of interests. What does it say to mom-and-pop investors when our stock markets are full of abuses like these? The good news is that I’m not the only one concerned about these issues. I believe the Commission is finally ready to take off the kid gloves we’ve been using on our stock exchanges—and start to ask hard questions about our country’s stock market structure.”
First, the SEC proposes to test the effects of rebates on market conditions, one aspect of which will be to have a “no-rebate” bucket to observe how the market responds to the absence of rebates and other incentives.

“Second, our stock markets would benefit a great deal from greater transparency about how exchanges make their money. In particular, a clear and uniform approach to disclosing revenues across exchanges and over time would go a long way in giving investors a clearer view regarding the costs they pay to invest in America’s public companies.”

“Third…It is time for the Commission to have a market-wide conversation about how exchanges make their rules and prices. Exchanges filed more than 1,500 rule-related requests with the SEC in 2017, hundreds related to trading fees, data fees, and order types alone. Each one affects the exchanges’ profits. It is our obligation to ensure that the exchanges’ actions do not unduly burden competition and are fair and reasonable. It’s time for the SEC to get serious about that obligation.”

“Finally, we should take a hard look at whether it makes sense to allow for-profit exchanges to write the rules of the game for their customers and competitors while also enjoying immunity from civil liability…And rulebooks that impose low liability limits even when exchanges are found liable for investor harm also deserve closer scrutiny. We should make sure that our stock exchanges—like all American businesses—are held accountable when they cause harm to the investing public.

Stock market structure is confusing, complex and opaque, so it’s worth taking a moment to remember why this work is so important. America’s stock exchanges are a symbol of the Nation’s greatness, home to the deepest and most liquid capital markets the world has ever known. We cannot allow the most free and transparent markets in the world to be characterized by abuses like these. Our markets are a symbol of who we are, and the Nation deserves better.

So do American investors. The ordinary, middle-class Americans who compete every day to create the hard-earned wealth they entrust to our public companies deserve to know that our stock markets are a product of that same kind of competition.”

Read Full Speech


Our Perspective

Good luck to the SEC staff working on the Best Interest and Standards of Conduct proposals. It’s obvious that they can’t please everyone, but we’re looking forward to seeing the Rules come out, while knowing that it will not be soon, with several hundred comments on the IA side and certainly over a thousand comments on the BD side. Based on his experience, we hope that Commissioner Roisman will be actively involved in this.

We really enjoyed Commissioner Jackson’s speech. We realized that we had a rather simplistic view of the stock markets, but yes, they are profit-making businesses, even though as the Commissioner pointed out, “among our 13 public stock exchanges, 12 are owned by just three corporations.” See footnote 6 in his speech for a list. Although trading is certainly cheaper than it used to be, that doesn’t mean it’s as cheap as it could be. Maybe we don’t need to know how much someone makes on my trades (we are not against folks making a profit), but in this industry, we expect it to be disclosed to us that they are making a profit.


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