Securities Law Roundup: Whistleblower Programs, CFTC Rules, Market Timing, Email Fraud, Cybersecurity Risks, and More

For your convenience, a roundup of securities law advisories published recently on JD Supra:

On Whistleblower Programs

Whistleblower Bounty Program: Corporate Compliance Program Considerations [King & Spalding]

“The SEC recently reported to Congress that during the first seven weeks of the program’s operation, it received 334 whistleblower tips, which most commonly focused on market manipulation, corporate disclosures and financial statements, and offering fraud. While the Dodd-Frank whistleblower rules do not specifically require companies to implement new compliance measures, the SEC’s report to Congress serves as a reminder that companies may wish to revisit their compliance programs in light of the considerations discussed below…” Read on»

SEC Launches Whistleblower Bounty Program [Sheehan]

“A whistleblower attempting to claim a bounty under the new law is not required to, but may, first report the matter through the company’s internal compliance procedures. If the whistleblower follows internal compliance procedures, the amount of the bounty awarded to him will be increased. Bounties may be allocated among multiple whistleblowers if each materially adds to the SEC’s base of knowledge about the fraud…” Read on»

Businesses Must Adopt Whistleblower Policies and Procedures to Avoid Liability [Ryan Siney]

“The procedure by which a business must address reports of wrongdoing depends on several factors. For example, companies which are also subject to Sarbanes-Oxley requirements and the Securities and Exchange Commission regulations promulgated thereunder must establish an independent audit committee of the board of directors to review and investigate claims made by whistleblowers. Most audit committees turn to third-parties to handle incoming claims…” Read on»

On the CFTC and Rule 4.5

CFTC Re-Imposes Limitations on Derivative Activities by Registered Investment Companies [K&L Gates]

“Amended Rule 4.5 will require the operators of Registered Funds to either limit such Funds’ use of commodity futures, options, leverage contracts, retail forex contracts, and swaps (together, “commodity interests”) or submit to dual regulation by the CFTC and the Securities and Exchange Commission (“SEC”)…” Read on»

CFTC Tightens Commodity Pool Operator Exemption for Investment Companies [Morrison & Foerster]

“Generally, the 5 percent threshold test requires registered investment companies that hold certain commodity futures, commodity options contracts, or swaps whose aggregate initial margin and premiums exceed 5 percent of the liquidation value of the fund’s portfolio to register as CPOs. The new rules distinguish between use of derivatives for risk management and for bona fide hedging…” Read on»

On Rule 4.13(a)(4)

CFTC Rescinds Widely Used Private Fund Manager Exemption from Commodity Pool Operator Registration, but Retains De Minimis Exemption [K&L Gates]

“The CFTC’s changes will force private fund operators that currently rely on Regulation 4.13(a)(4) (as well as advisors to those funds that currently rely on the exemption from registration as a commodity trading advisor (“CTA”) in CFTC Regulation 4.14(a)(8)) to restrict commodity interest trading to qualify for the de minimis exemption or register as CPOs (and as CTAs for advisors to such funds)…” Read on»

CFTC Adopts Rule Changes and Rescinds Rule 4.13(a)(4) [Dechert]

“The CFTC elected to rescind the Rule 4.13(a)(4) exemption for non-U.S. commodity pool operators and chose not to adopt an alternative exemption for non-U.S. commodity pool operators at this time. This was despite acknowledging that there had been significant comments arguing against this approach and acknowledging that the derivatives activities of non-U.S. commodity pool operators are often subject to the oversight of non-U.S. regulators…” Read on»

CFTC Adopts Significant Changes to CPO and CTA Registration and Compliance Requirements [Katten]

“On February 9, the Commodity Futures Trading Commission adopted by a vote of 4 to 1 (Commissioner Sommers dissenting) final rules amending its Part 4 regulations governing commodity pool operators (CPOs) and commodity trading advisors (CTAs). As discussed at further length below, the amendments…” Read on»

Misc. Other

Court Finds Securities Rules Must Be Clear to Impose Liability [Bracewell & Guiliani]

“A federal district judge refused to impose liability on an investment adviser to a hedge fund and its CEO in an SEC enforcement action because the conduct was not clearly identified as being impermissible… the court ruled that Pentagon and Chester did not violate the anti-fraud provisions by engaging in deceptive mutual fund market timing, a trading strategy premised on the rapid buying and selling of mutual fund shares to exploit short-term pricing inefficiencies, because market timing is not per se illegal” Read on»

Does SEC Have New Methods for Reaching PRC Companies? [Loeb & Loeb LLP]

“A Washington, D.C., federal judge may have given the Securities and Exchange Commission a new tool to extend its reach to companies based in the People’s Republic of China. Magistrate Judge Deborah Robinson recently ordered Shanghai-based auditors Deloitte Touche Tohmatsu CPA Ltd. (DTT) to appear in court and “show cause” why the firm should not be required to comply with an SEC subpoena seeking documents related to DTT’s former client, Longtop Financial Technologies Limited…” Read on»

Regulatory and Case Law Developments Relating to Private Equity Fund Documents [Ropes & Gray LLP]

“Last month, the SEC adopted an amendment to the “accredited investor” standards to reflect the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Safe harbor rules provided by Regulation D under the Securities Act of 1933 allow private placement of interests in private equity funds to ‘accredited investors.’…” Read on»

Securities Industry Practice Alert: Email is Great… Until it is Fraud [Fox Rothschild]

“FINRA recently put brokerage firms on notice of a new email scam involving requests for the withdrawal or transfer of funds. This latest scam should put all broker-dealers on notice to review your policies and procedures governing withdrawal or transfer requests to third-party accounts, particularly if they allow such requests to be made through email…” Read on»

Reporting Cybersecurity Risks – New Obligations for Publicly Traded Companies [Bryan Cave]

“The guidance, CF Disclosure: Topic No. 2 “Cybersecurity,” provides a walkthrough of circumstances in which a company may need to report cybersecurity related matters in their public disclosures. The guiding principle is to disclose incidents that would be considered “material” under disclosure laws and regulations so that investors have important information when making their investment decisions…” Read on»

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