MCO/Sutherland Webinar Dec 8th 2016. "SEC & FINRA Enforcement Actions: Will 2017 'Trump' 2016"

MyComplianceOffice & Sutherland

Webinar: SEC AND FINRA ENFORCEMENT ACTIONS:

WILL 2017 “TRUMP” 2016?

08th December 2016

“We believe that great governance

is at the heart of great business,

helping to protect and promote your

reputation”.

Brian Fahey, CEO, MyComplianceOffice

[email protected]

SEC AND FINRA

ENFORCEMENT ACTIONS:

WILL 2017 “TRUMP” 2016?Brian Rubin & Adam Pollet December 8, 2016

Polling Question:

Have you been examined by the SEC or

FINRA this year?

Jeopardy Question #1:

This professional athlete was a pioneer not only in his

own sport but perhaps even more in beverage

innovation.

FY 2016 SEC ACTIONS:

The Stats

• Record Number of FY 2016 Enforcement Actions: 868

– 807 actions brought in FY 2015

– 8% increase

• 548 standalone or independent actions

• 195 follow-on administrative proceedings

• 125 delinquent filings

2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of

Cases671 664 681 735 734 676 755 807 868

Change From

Prior Year-- -1% 3% 8% -0.1% -8% 12% 7% 8%

FY 2016 SEC Actions

• Record number of actions brought against Investment Advisers /

Investment Companies (160)

• Will know how many actions brought against Broker-Dealers once Select

SEC and Market Data is released next year.

2008 2009 2010 2011 2012 2013 2014 2015 2016

IA / IC Actions 87 76 113 146 147 140 130 126 160

BD Actions 67 109 70 112 134 121 166 124 --

FY 2016 SEC Actions

• Over $4B in disgorgement and penalties reported in FY 2016

- $4.19B reported in FY 2015

- 5% decrease in disgorgement and penalties

• Third highest amount of disgorgement and penalties reported since the

financial crisis.

• 288% increase in disgorgement and penalties since FY 2008

2008 2009 2010 2011 2012 2013 2014 2015 2016

Fines Assessed $1.03B $2.4B $2.9B $2.8B $3.1B $3.4B $4.16B$4.19B $4B

Change From Prior

Year-- 133% 21% -3% 11% 10% 22% 1% -5%

FY 2016 SEC Actions

FY 2016 SEC ACTIONS:

The Key Cases

BIG CASES FROM “BIG DATA”

• Broker-dealer consented to the entry of an order settling charges

that it failed to adequately educate, train, and supervise its

salesforce about critical aspects of certain complex financial

products resulting in unsuitable sales to retail investors.

• Firm settled on a no admit, no deny basis and agreed to pay more

than $15M in penalties and disgorgement.

• Firm was charged with program-wide violations, as opposed to

customer-based violations, which is a departure from the Staff’s

traditional approach to suitability cases.

• Demonstrates SEC’s focus on using “big data” to build

enforcement cases.

Key 2016 SEC Cases

DON’T GET CONFLICTED

• Commission overturned ALJ’s decision and found that small

investment adviser and two principals negligently failed to fully and

fairly disclose potential conflicts of interest arising from an

arrangement with a mutual fund manager.

• Commission imposed a total of $150,000 in civil penalties against

the firm and its principals for “causing” the violations.

• Despite crediting testimony that the firm’s principals believed that

the fees received were fully disclosed in the firm’s Form ADV and

that there was no evidence of knowing or reckless deception, the

Commission found that the conduct “demonstrated a clear failure to

reasonably fulfill the disclosure obligations of investment advisers.”

• Commission appears to have made an example here.

Key 2016 SEC Cases

WATCH OUT FOR “PERSONAL SERVERS”

• Broker-dealer consented to the entry of an order settling charges

that it failed to protect its customers’ personal information. A firm

employee transferred data for 730,000 accounts to a personal

server, which was later hacked and offered for sale online.

- Firm settled on a no admit, no deny basis and agree to pay a

$1M penalty.

- The firm employee was criminally convicted.

• Relatedly, FINRA fined a separate firm $650,000 for allegedly

failing to reasonably safeguard confidential customer information

stored in the “cloud” leading to a breach by foreign hackers of

information relating to approximately 5,400 customers.

Key 2016 SEC Cases


This actress starred in a “bunch” of roles throughout her

decades-long career but is best known for her role as a

mom on a family-oriented television series.

Polling Question:

Have you reviewed your firm’s policies and procedures related to AML?

2016 FINRA ACTIONS:

The Stats

• Number of cases brought: 1,008 (through November)

• 1,462 cases brought in 2015

• 8% decrease (compared to projected)

• 26% increase in the number of actions since 2008 (compared to

projected)

2008 2009 2010 2011 2012 2013 2014 2015 2016*

Number of

Cases1,073 1,158 1,310 1,488 1,541 1,535 1,397 1,462 1,350

Change From

Prior Year-- 8% 13% 14% 4%

-

0.4%-9% 5% -8%

2016 FINRA Actions: January – November

*projected

• $145 million in fines reported in 2016 (through November)

• $94 million in fines reported in 2015

• 68% increase in fines (compared to projected)

• Highest amount of fines ever.

• 464% increase in fines since 2008 (compared to projected)

2008 2009 2010 2011 2012 2013 2014 2015 2016*

Fines Assessed $28M $50M $45M $68M $78M $57M $134M $94M $158M

Change From

Prior Year-- 79% -10% 51% 15% -27% 135% -30% 68%

*projected


• $41 million in restitution reported in 2016 (through November)

• $96 million in restitution reported in 2015

• 53% decrease in restitution (compared to projected)

• Second highest amount of restitution reported since the financial crisis.

• 650% increase in restitution since 2008 (compared to projected)

2008 2009 2010 2011 2012 2013 2014 2015 2016*

Restitution $6M $8M $6M $19M $34M $10M $32M $96M $45M

Change From

Prior Year

-- 33% -24% 213% 75% -71% 220% 200% -53%

*projected


“Supersized” Fines of $1M+

•2016: 25 supersized fines, $103M in total fines

- Projected: 27 supersized fines, $105M in total fines

•2015: 18 supersized fines, $52.2M in total fines





This musician is best known for his depiction of colorful

precipitation and century-ending parties.

2016 FINRA ACTIONS:

The Key Cases

VARIABLE ANNUITIES

• $20M – Firm allegedly made negligent misrepresentations and

omissions to customers about the costs and guarantees relating to

replacement variable annuities. Firm also ordered to pay $5M in

restitution.

• $6.2M – 8 firms allegedly failed to supervise and provide

reasonable guidance to reps regarding sales to customers of L-

share VAs, in particular, those sold with long-term income riders. 5

firms also ordered to pay $6M in restitution.

Key 2016 FINRA Cases

ANTI-MONEY LAUNDERING

• $17M – 2 affiliate firms allegedly failed to establish and implement

adequate AML procedures, resulting in the failure to properly

prevent or detect, investigate, and report suspicious activity for

several years. AMLCO also sanctioned.

• $1M – Firm allegedly failed to, among other things, search its

accounts and systems to determine whether it maintained any

accounts for persons identified by FinCEN. Firm also ordered to

pay $1M in restitution.


SUITABILITY / DUE DILIGENCE

• $2.25M – Firm allegedly sold non-traditional ETFs without

reasonable supervision and some of these sales were unsuitable.

Firm also ordered to pay $716,000 in restitution.

• $1.05M – Firm allegedly failed to maintain and enforce WSPs,

allowing its reps to recommend unsuitable active trading strategy

that the reps did not understand. Firm also ordered to pay $1.02M

in restitution.



This Presidential Medal of Freedom recipient is often

referred to as the “Greatest” sports figure of the 20th

century.

GENERAL OBSERVATIONS

• New chairperson

• 2 new commissioners

• New presidential administration and Republican controlled Congress

• Likely that the SEC’s historic pace will not continue

• Dodd-Frank

• Use of Whistleblowers

What Will 2017 Bring?

SEC

SPECIFIC POLICIES

• Use of administrative proceedings

• Pursuit of individuals / gatekeepers

• Fewer settlements with admissions

• “Investigate to litigate”

• Use of data analytics

• Conflicts of interest with respect to investment advisers

• Cybersecurity


SEC

GENERAL OBSERVATIONS

• New Chair / CEO

• Historic pace shows no signs of slowing down

• Possibility that FINRA steps in to fill enforcement void at SEC

under new administration


FINRA

POSSIBLE 2017 PRIORITIES

• Anti-Money Laundering

• Senior Investors

• Cybersecurity

• Hiring of problematic brokers

• Discounts / breakpoints

• 529 Planning


FINRA

Q & A

• Manage by alerts not reports

• Dashboards deliver greater oversight

• Custom questionnaire builder

• Continuous updates to the software

• Enhanced control

• 100% data capture

• 24/7/365 support

• Scalable into the future

Highlights

@mycompliance @SecuritiesAttys

Brian Rubin Adam Pollet

Partner Associate

Sutherland Asbill & Brennan LLP Sutherland Asbill & Brennan LLP

[email protected] [email protected]

(202) 383-0124 (202) 383-0812

Thank you

MyComplianceOffice

www.mycomplianceoffice.com

Phone: (866) 951-2279

[email protected]

Sutherland

http://www.sutherland.com

[email protected]

(202) 383-0124

[email protected]

(202) 383-0812

http://www.mycomplianceoffice.com/

mailto:[email protected]

http://www.sutherland.com/



Economy & Finance

MCO/Sutherland Webinar Dec 8th 2016. "SEC & FINRA Enforcement Actions: Will 2017 'Trump' 2016"