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DoL Fiduciary Rule Develpments

Developments keep happening in this seemingly endless saga. See the News column to see recent updates.

Adviser Regulatory & Compliance News

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Excellent Summary/Analysis of the Fiduciary Rule Status

April 8, 2018

Our friends at Eversheds Sutherland recently posted an excellent analysis of the vacatur of the DoL's fiduciary rule and its impact on plan sponsors and plan providers. By extension, advisers need to keep an eye on the continuing developments regarding the rule and SEC efforts in this area as well. We'll keep you posted on key developments. The article is linked to the heading above.

Whistleblowers Must Report to SEC to be Eligible for Awards

March 31, 2018

The United States Supreme Court has ruled that Dodd-Frank’s anti-retaliation provisions apply only to whistleblowers who report the misconduct to the SEC. In the case, the employee brought a claim under Dodd-Frank’s whistleblower anti-retaliation provisions, even though he had not reported to the SEC, because he claimed that he was fired as a result of reporting to management suspected securities law violations. The Supreme Court reversed the decision of the Ninth Circuit based on the plain reading of the statute which defines “whistleblower” as any individual who provides information relating to a violation of the securities laws to the SEC. The Court rejected the SEC rule that expanded anti-retaliation protection to those who only report internally. Looking at legislative history, the Court reasoned that “Dodd-Frank’s award program and anti-retaliation provision thus work synchronously to motivate individuals with knowledge of illegal activity” to report to the SEC.

Adviser Settles Charge that it Inadequately Disclosed Securities Lending Arrangement

March 31, 2018

The SEC charged two investment adviser subsidiaries of Voya Holdings Inc. with failing to disclose conflicts of interest and making misleading disclosures in connection with their practice of recalling securities on loan so their affiliates could receive tax benefits. According to the SEC, Voya Investments LLC and Directed Services LLC served as investment advisers to certain insurance-dedicated mutual funds offered to annuity and life insurance customers through insurance companies affiliated with the advisers. In order to generate additional income for the mutual funds and their investors, the Voya advisers lent securities held by the funds to parties looking to borrow the securities. The Voya advisers recalled loaned securities before their dividend record dates so that the advisers’ insurance company affiliates, which were the record shareholders of the funds’ shares, could receive a tax benefit based on the dividends received. But the SEC stated that the recall practice caused the funds and their investors to lose securities lending income without receiving any offsetting tax benefit. The SEC found that the Voya advisers failed to disclose the conflict of interest to the funds’ board of directors or in the funds’ prospectuses. The Voya advisers agreed to pay approximately $3.6 million to settle the charges, including more than $2 million directly to the affected mutual funds for the benefit of their investors.

SEC Grants Largest Whistleblower Awards

March 19, 2018

The SEC awarded two whistleblowers collectively nearly $50 million and a third whistleblower received more than $33 million. The previous high was a $30 million award in 2014. The awards were made in connection with Dodd-Frank enforcement cases. The SEC stated that it has awarded more than $262 million to 53 whistleblowers since issuing its first award in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. It further noted that whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.