A number of criminal penalties have been added or increased, including a new crime of securities fraud with a maximum penalty of 25 years.
Please click http://www.access.gpo.gov/congress/index.html for copies of the bills and related documents.
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SEC PROPOSES RULE TO EXEMPT CERTAIN STANDARDIZED OPTIONS
7.25.2002 The SEC proposed new exemptions under the Securities Act of 1933 and the Securities Exchange Act of 1934 for most standardized options. The proposals would exempt standardized options issued by registered clearing agencies and traded on a registered national securities exchange or an automated quotation system of a registered national securities association from all provisions of the Securities Act, other than the Section 17 antifraud provision, as well as the Exchange Act registration requirements. The proposals further would clarify that a security futures product that is cleared by a registered clearing agency and traded on a registered national securities exchange or an automated quotation system of a registered national securities association is exempt from the registration requirements of Exchange Act Section 12(g). The proposed rules would ensure comparable regulatory treatment of standardized options and security futures products.
Please click http://www.sec.gov/rules/proposed/33-8114.htm to access a copy of the proposed rule.
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SEC PROPOSES REVISIONS TO ADVISER CUSTODY RULE
7.18.2002 The SEC proposed amendments to Rule 206(4)-2 under the Investment Advisers Act of 1940, which regulates the custody of client assets by investment advisers. The revised rule generally would require advisers that have custody of client assets to maintain those assets with broker-dealers, banks, or other qualified custodians. The proposed amendments would also eliminate the requirement that an independent public accountant conduct an annual surprise examination of client assets in custody, provided that the adviser's custodian sends the adviser's clients a monthly account statement.
The new custody requirements would not be applicable to the accounts of hedge funds that provide audited financial statements annually to investors.
Please click http://www.sec.gov/rules/proposed/ia-2044.htm for the release proposing the amendments.
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SEC APPROVES AFFILIATED MUTUAL FUND MERGER RULE
7.18.2002 The SEC adopted revised Rule 17a-8 under the Investment Company Act of 1940, which permits mergers and other business combinations between affiliated investment companies.
Prior to the adoption of the amendments, Rule 17a-8 allowed affiliated investment companies to merge, but only if they were affiliated solely by reason of having a common investment adviser, common directors, and/or common officers. Rule 17a-8, as amended, will allow investment company mergers regardless of the nature of the affiliation, if the rule's conditions are met.
The revisions are effective July 26, 2002, with a compliance date of October 25, 2002.
Please click http://www.sec.gov/rules/final/ic-25666.htm for the release announcing the administrative action.
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TREASURY DEPARTMENT PROPOSES ANTI-MONEY LAUNDERING RULES REQUIRING CUSTOMER IDENTIFICATION PROCEDURES
7.17.2002 The Department of Treasury and other federal regulators proposed rules under the USA PATRIOT Act to require banks, mutual funds, broker-dealers, futures commission merchants, and other financial institutions to:
- implement procedures designed to identify and verify the identity of customers;
- maintain records of information used to verify a customer's name, address, and other identifying information; and
- determine whether customers appear on any lists of known or suspected terrorists issued by the federal government.
Please click http://www.treas.gov/press/releases/po3263.htm to access more information about the proposed anti-money laundering rules.
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ADVISER ALLOCATES FAVORABLE TRADES TO ITSELF INSTEAD OF CLIENTS
7.11.2002 Schwendiman Partners, LLC, its principals and the SEC settled a matter where the firm allegedly breached their fiduciary duties to advisory clients by taking limited investment opportunities for themselves instead of its clients. In addition, the firm favored certain clients.
Please click http://www.sec.gov/litigation/admin/33-8111.htm to access a copy of the administrative action.
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UNREGISTERED ADVISERS ALLOWED TO SUBMIT DATA TO THOMSON FINANCIAL WHICH WILL BE USED BY BROKER-DEALERS
7.10.2002 The SEC issued a no-action letter allowing private investment fund managers to provide limited information about themselves and their hedge funds to Thomson Financial for inclusion in databases that are used by institutional broker-dealers to market services to those funds. In particular, the unregistered advisers could provide certain contact and biographical information to the Thomson databases, without being deemed to be "holding themselves out generally to the public" as investment advisers as that phrase is used in Section 203(b) of the Investment Advisers Act of 1940.
The Advisers Act generally defines "investment adviser" to be any person who, for compensation, engages in the business of advising others about investing in securities. Section 203(b)(3) of the Advisers Act exempts from the registration requirement any investment adviser who, during the preceding twelve months, has had fewer than fifteen clients and who does not hold itself out generally to the public as an investment adviser.
Thomson Financial successfully argued that the circumstances in which they have deemed investment advisers to be holding themselves out as investment advisers are those in which they identify themselves as investment advisers in communications that they know, or have reason to know, may reach potential advisory clients, or in which they let it be known publicly that they are willing to accept new advisory clients. Thomson Financial successfully distinguished those situations from the circumstances in its proposal because Thomson would make its services available exclusively to broker-dealers and fund managers and then only for the limited purposes and under the limited circumstances stated in the letter.
Please click http://www.sec.gov/divisions/investment/noaction/thomson071002.htm to access the no-action letter.
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PENNSYLVANIA ADVISER BARRED FROM ADVISORY INDUSTRY
7.10.2002 The SEC barred Edward F. Gobora, a resident of Newtown, Pennsylvania, from the advisory industry for defrauding several Merrill Lynch clients by engaging in two improper foreign exchange trading schemes. The first scheme involved delaying the execution of foreign exchange trades on behalf of U.S. registered investment companies and then allocating some of the trades to certain private (non-investment company) clients if the trades became profitable and allocating the trades to the registered investment companies if they became unprofitable. The second scheme involved the misallocation of tactical foreign exchange trades and hedging transactions, with profitable trades allocated to certain registered investment companies and other clients and losing trades allocated to certain other clients.
Please click http://www.sec.gov/litigation/admin/ia-2042.htm to access a copy of administrative release.
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