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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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Rogue Brokers – Your Past is Showing

On May 16, 2011, the Financial Industry Regulatory Authority (“FINRA”) launched the  FINRA Disciplinary Actions Online database, a new free database system that makes its disciplinary actions available to the public via its website.  The database allows users to search for FINRA actions by several criteria, including case number, document text, document type, action date, and individual/firm name and Central Registration Depository number, 24/7.  Disciplinary action documents such as Office of …

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A tax incentive associated with qualified small business stock (QSBS) was extended for 12 more months as stipulated in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed by President Barack Obama into law on Dec. 17.

The act contains a temporary exclusion for 100 percent of the gain accepted by non-corporate investors from the sale of qualified small business stock that was acquired after Sept. 27, 2010 and before Jan. 1, 2011 for QSBS held for beyond five years.

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Investment Banks Under Fire For Reneging Employee Compensation

In two separate incidents, FINRA recently punished two firms for reneging compensation from their employees. Arbitration found that both Barclays and Merrill Lynch had unfairly decided not to pay employees in the midst of recent mergers and collapses.

Barclays was forced to pay one investment banker $715,000, plus a 4 percent interest change and trial fees, after Lehman Brothers collapsed. The banker had a compensation agreement when he worked for Lehman Brothers, which Barclays attempted to renege upon their acquisition of the firm.

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FINRA Asks For Details When Broker-Dealers Fire Employees

Experts believe that disputes over U-5 termination forms will increase due to a new set of FINRA directives. FINRA’s Regulatory Notice 10-39 warns member firms to be more detailed when completing U-5 forms after firing employees. The notice focuses on a section of the form that asks why an employee is being fired and says that the common response of “broker violated firm policy” is too vague. FINRA now wants …

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Congress Revamps Whistleblower Incentive Program

The U.S. Congress has greatly expanded incentives for whistle-blowers in the financial industry by creating a $451 million fund for reward payments. Prior to the new plan, regulators decided how much to pay insiders for evidence of wrongdoing, which led to only $160,000 in payouts over the last two decades. Despite this, over 90 percent of U.S. Securities and Exchange Commission enforcements have started with a tip from a whistle-blower. …

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On Tuesday, January 25, 2011, the Securities and Exchange Commission (the “SEC”) issued a release announcing the proposed new language of the net worth standard for “accredited investors” under the Securities Act of 1933 (the “1933 Act”).  The proposed amendments will align the standards for determining whether an investor is an “accredited investor” under the 1933 Act Rules 215 and 501 with the changes made by Section 413(a) of the …

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Goldman/Facebook – New Media Invokes Old Laws

Media reports on January 18 indicate that Goldman Sachs has halted its private placement of Facebook stock due to ‘regulatory concerns’ with respect to the enormous publicity the transaction has received in both traditional press and new media. It is a cornerstone of the private placement exemption that no ‘publicity’ is utilized in the transaction in order to demonstrate that no general solicitation has occurred, the foundation of a private …

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Head’s Up for Broker Dealers Conducting Private Placements

According to the FINRA Website, the FINRA Board of Governors took action regarding various rulemaking items at its December 8, 2010, meeting.  The following was announced with respect to private placements: Private Placements The Board considered proposed amendments to expand FINRA Rule 5122 (Private Placements of Securities Issued by Members) to govern all private placements in which a member firm participates (subject to limited exceptions). The fundamental elements of the …

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Reverse Merger Candidates, Take Note

New FINRA Rule 6490 ties into Securities Exchange Act (SEA) Rule 10b-17 (Untimely Announcements of Record Dates) and became effective on September 27, 2010. Over-The-Counter Market (OTC) issuers must now give FINRA at least ten (10) calendar days advance notice of transactions including, but not limited to, any issuance or change to a symbol or name, mergers, acquisitions, dissolutions or other company control transactions, bankruptcy or liquidations.  They must also pay a …

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