Holland & Hart Securities Blog

The SEC’s Renewed Focus On Internet Fraud

Between 1998 and early 2002, the SEC made it a priority to investigate and prosecute Internet fraud.  The agency established the Office of Internet Enforcement (OIE) to administer the Enforcement Division’s Internet program and review the numerous leads generated from investor tips forwarded to the SEC’s complaint center.[1] 

Wells Notices in NASD Proceedings

Broker-dealers and associated persons regulated by the NASD may receive Wells notices following the conclusion of an examination.  In 1972, the SEC articulated its policy of issuing Wells notices, under which the staff advises persons and entities that it intends to recommend instituting enforcement proceedings against them.  See Securities Act Release No. 5310 (1972) (“Wells Release”). [1] Among other things, an SEC Wells notice typically advises recipients of the legal and factual bases of the charges, and invites them to make a written submission (Wells submission) presenting any defenses and explanations that may apply.  Responses to these notices, commonly known as “Wells submissions,” are a critical component of any defense strategy.   Such submissions may argue that no enforcement action is warranted, or that the staff should pursue lesser charges and more lenient relief than that proposed in the notice.  Importantly, Wells submissions accompany the staff’s enforcement recommendations that are presented to the five SEC Commissioners.

New Rules Requiring SEC Registration of Large Hedge Fund Advisers

Introduction

On December 2, 2004, the U.S. Securities and Exchange Commission (“SEC” or “Commission) adopted a new rule and rule amendments under the Investment Advisers Act of 1940 (“Advisers Act”)[1] that made it much more difficult for advisers of hedge funds to avoid registration with the SEC.  Advisers had until February 1, 2006 to comply with the new rules.  Between January 1, 2005 and the close of business on February 1, 2006, the SEC declared effective 934 investment adviser registrations from hedge fund managers. [2] 

SEC Clarifies Its Stance on Penalizing Corporations, But Uncertainty Remains

        In response to accounting frauds by corporate giants, the U.S. Securities & Exchange Commission (“Commission”) imposed civil penalties as a way to deter similar conduct and demonstrate its commitment to restoring investor confidence.  In 2003 and 2004, federal courts approved a $2.25 billion penalty against WorldCom, a $250 million penalty against Qwest Communications, and a $50 million penalty against Vivendi to settle financial fraud charges against these companies, to name just a few.  In 2004, former Division of Enforcement Director Stephen M. Cutler noted that the $10 million penalty imposed against Xerox in 2002 appeared “antiquated” in light of then-current trends.[1]