Chipping Away at SRO Immunity

An interesting decision from the 11th Circuit is making its way into the press. Apparently an investor has decided to sue NASDAQ in an attempt to recover his losses in Worldcom.

I have not reviewed the complaint, but it appears that he has raised two basic claims - one that NASDAQ is liable to him because it continued to list Worldcom, and two, that NASDAQ's advertising was false and misleading, and caused him to buy Worldcom.

While the merits of those claims will be decided later, the interesting part of the caselore is the NASDAQ immunity issues. NASDAQ claimed that the immunity they enjoy for handling government-like regulatory duties should be extended to the claims over the ads. The 11th Circuit ruled that "governmental" immunity did not apply, since the ads did not serve a regulatory, adjudicatory or prosecutorial function.

While NASDAQ is not the NASD, or FINRA, and the decision is perhaps limited by its facts, the chipping away of absolute immunity for private entities acting as government regulators might cause some thought to be put into some of the more extreme regulatory actions.

Self-regulation a danger?

The spread of self-regulation among the
world’s financial exchanges presents dangers for investors because of
‘increased risk for conflicts and future crises’, according to an influential new study.

The findings signal concern that investors could suffer amid
the global rapid convergence of markets and consolidation of securities
exchanges.

Technorati Tags: securities, regulation, nasd, finra

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SEC Considers Changing Reg D

In a move that will have wide-spread implications for issuers seeking to raise capital through a private placement, the SEC is considering significant changes to Regulation D.

The proposals include a new exemption for offerings made to "large accredited investors" and to permit limited advertising to those investors; a clarification of the term "accredited investor"; and a shorter time frame for integration.

The release is 121 pages long, and the comment period ends October 9, 2008.

The SEC Sharpens its Investigative Focus

While everyone has issues with the SEC's policy decisions at one time or another, I believe most securities defense attorneys agree that the SEC Staff does a good job at its job....given its very high turnover and budget restraints.

However, a recurring criticism of the SEC has a whole is that while it is very good at closing the barn doors after the horses are long gone, it is not so good at understanding that the doors are unlocked and wide open.

The Commissioners and senior staff are undoubtedly aware of this. Under budget and under staffed, we can't expect the Staff to conduct enough audits at broker-dealers, public companies, mutual funds, investment advisers, and other registrants, to have a meaningful impact on discovering on going fraud. (Oh, and they want to add hedge funds to the already massive list?).

However, the SEC is focusing on enforcement. The SEC has announced that it has created four special "working groups" to sharpen its enforcement process and bring cases of suspected fraud more quickly and efficiently. The four groups are focuing on subprime issues, hedge funds, insider trading and option back-dating.

I am not quite sure what an investigative focus on hedge funds represents, but we have long suspected an increased focus on hedge funds through back door methods since the SEC's disasterous attempt to regulate hedge fund managers. Insider trading has always been a focus of the Staff, and one would have thought that all of the option backdating cases that could be brought have already been brought.

But subprime? There is an issue that needs investigation, and which will only increase in focus, as investors realize the drubbing they have taken in subprime related investments and start complaining to the regulators and filing arbitrations.