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The Securities and Exchange Commission (SEC) has issued new rules for broker-dealers requiring them to search for securities holders if they lose contact with them.  The rules require for the first time that broker-dealers attempt to find securities holders that they have lost touch with.  Broker-dealers and other participants in the securities market must also notify people who have not processed checks that were issued to them in association with their securities.

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FINRA and BBB Take Action Against Investment Scams

The Financial Industry Regulatory Authority (FINRA) Investor Education Foundation has joined forces with the Better Business Bureau (BBB) to launch a new website, BBB Smart Investing, which is intended to help investors avoid unlicensed brokers and fraudulent investment schemes.
The website, located at www.bbb.org/smartinvesting, combines the consumer outreach of BBB with the extensive knowledge of FINRA.

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FINRA Took Significant Action in 2012

The Financial Industry Regulatory Authority (FINRA), the independent regulator of securities firms, accomplished much in 2012 in the areas of detecting fraud, developing cross-market surveillance and improving transparency in securities markets.  The regulator also assessed $68 million in fines and ordered $34 million in restitution to customers during 2012, a record amount.

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Four bills that reduce regulatory red tape and could make it easier for small businesses to raise capital have passed in the U.S. House of Representatives and are waiting in the Senate for approval. Two of those bills deal specifically with fundraising. House members proposing these bills said less regulatory restriction and better access to capital is the best way to help small companies grow. H.R. 2940 proposes allowing small private companies to solicit investors through advertising. The SEC’s ban on solicitation is said to shrink the pool of investors in small companies…

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FINRA Rule 5123 (“Rule 5123” or the “Rule”) becomes effective on December 3, 2012 and will apply prospectively to private placements that begin selling efforts on or after this date. Rule 5123 requires a member firm of the Financial Industry Regulatory Authority (“FINRA”) selling an issuer’s securities in a private placement to file with FINRA a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used by the firm. Under the Rule, the FINRA member firm must file the disclosure documents within 15 calendar days of the date of the first sale or indicate that it did not use any such offering documents.

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The Securities and Exchange Commission recently changed policies to exclude home value from net worth as it determines whether an individual can invest in some securities offerings that are unregistered. SEC rules allow some people to qualify for limited and private offerings without registration or specific disclosures if the sales are only to “accredited investors”. These “accredited investors” can qualify for these opportunities by having a net worth of at least $1 million, amongst other qualification factors.

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Company spinoffs were all the rage last year with even more expected in 2012. From toy and technology companies to food distribution and agriculture companies, 2011 was a record year for businesses wanting to break up into smaller, perhaps more profitable entities. The market has been busy for several reasons. Since the market has been weak, companies are being more creative to build value for their investors. Some “activist investors” even push company management to separate the high-growth part of the business from the rest of the company. The uptick in spinoffs may also be a result of a slow IPO market.

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SEC Suggests Cybersecurity Disclosures

A new guidance document from the Securities and Exchange Commission may cause some companies to rethink their approach when disclosing cybersecurity risks.

The SEC’s Division of Corporate Finance issued the guidance document, which is not a new regulation, to offer guidance on how existing disclosure obligations apply to cybersecurity risks. Since many companies are relying heavily on digital technology to conduct business, the guidance document could prove to play a key role in the future of disclosures.

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The Washington, D.C. Circuit Court of Appeals ruled that the Securities and Exchange Commission’s (SEC) new proxy access rule 14a-11 is “arbitrary and capricious” and thus invalidated the rule. The DC Circuit Courts decided in Business Roundtable v. SEC that the SEC’s rule had unsupported assertions and arguments.

The SEC proxy access rule states that public companies need to provide shareholders with information regarding shareholder-backed candidates when board of directors are going to be voted on. The Business Roundtable and U.S. Chamber of Commerce said this rule violates the Administrative Procedure Act…

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SEC Finalizes New Whistleblower Rules

The United States Securities and Exchange Commission recently updated its whistleblower program to provide monetary incentives to employees who report misconduct within their companies directly to the government. The Dodd–Frank Wall Street Reform and Consumer Protection Act, passed last July, required the SEC to pay 10 to 30 percent of any monetary sanctions over $1 million levied after company misconduct to the whistleblower who reported it.  Congress hopes the law will encourage employees to alert the government to fraud and mismanagement.

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