SEC Release No. IA-3175 March 14, 2011 The SEC published a settled administrative action against an investment advisor relating to (1) the firm's failure to disclose to advisory clients certain financial benefits that its affiliated broker-dealer received; (2) the firm's failure to provide prior written disclosure to clients that it would engage in fixed income transactions on a riskless principal basis ( i.e. rather than as agent); and (3) for failing to adopt and implement policies and procedures designed to prevent violations of the Advisers Act and for failing to maintain and enforce a

FINRA News Release March 22, 2011 FINRA announced a $650K fine against a Texas-based clearing broker dealer for deficiencies in due diligence, risk assessment, and written supervisory procedures that led to one of its correspondent firms creating excessive risk through the entry of improper short sales. The action alleges that the clearing firm allowed the correspondent firm to establish a 2.5 million net short position in a security, which it was unable to meet and which left the clearing firm with an unsecured debit balance of $6.3 million. In connection with the action, FINRA required the

SEC Release No. 34-64099 March 18, 2011 The SEC published a proposal to revise Exchange Act Rule 17Ad-17 to (i) extend to brokers and dealers the rule's requirements to search for lost securityholders; (ii) add a requirement that "paying agents" notify missing security holders in writing that the paying agent has sent the missing holder a check that has not yet been negotiated; (iii) add an exclusion for paying agents from notification requirements when the value is less than $25; and (iv) add a provision clarifying that the written notification requirements have no effect on State escheatment

SEC Release No. 34-64087 March 17, 2011 The SEC published a proposal to "readopt" certain provisions of Exchange Act Rules 13d-3 and 16a-1 in order to clarify that persons who purchase or sell security-based swaps will be within the scope of those rules after the effective date of new Exchange Act § 13(o) (July 16, 2011). The SEC notes that this proposal is only intended to "preserve the existing application of the beneficial ownership rules as they relate to security-based swaps." However, the SEC adds that the staff is also engaged in a project to "modernize" the reporting rules under

FINRA RN 11-13 March 22, 2011 FINRA published a regulatory notice to advise firms of recent amendments to its Sanction Guidelines. The amendments (i) clarify the causation standard for when adjudicators order restitution; (ii) recognize that adjudicators may order ill-gotten gains be paid to injured parties; (iii) reflect that not every factor in the "principal considerations" may be aggravating and mitigating; and (iv) direct adjudicators to consider sanctions imposed by other regulators when imposing new sanctions. The revisions, which are derived from recent case law, are effective