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Interacting with the SEC

04 Apr

Seal of the U.S. Securities and Exchange Commi...

Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

In working with public clients in the micro-cap arena, Rhodes Holdings LLC (“RHL”) interacts with many companies that have had the SEC investigate different aspects of their business dealings (as a public company).  As part of our due diligence on these clients before we agree to work with them, RHL determines if there are any on-going SEC investigations, informal or formal, that could point to the company being a “pump and dump scheme” or a company involved with fraud.  What we have found is in the past, the SEC never formally closed either their formal or informal investigations or queries, so the companies and individuals never really knew if their good names were cleared.

In comes the Dodd-Frank statue (I never really thought much about it, but here is a piece of legislation that has a silver lining)…

SEC Enforcement Investigation and Compliance Examination and Inspection Deadlines Enforcement

Under the Dodd-Frank statute, the SEC staff is given 180 days after issuing a “Wells Notice” to either
file an action or notify the Director of Enforcement that the staff does not intend to pursue an action; this deadline can be extended for one 180-day period. (Section 929U)

The Text of the Dodd-Frank Act
International Association of Risk and Compliance Professionals (IARCP)

Dodd Frank Act Section 929U
SEC. 929U. DEADLINE FOR COMPLETING EXAMINATIONS, INSPECTIONS AND ENFORCEMENT ACTIONS.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 4D the following new section:

‘‘SEC. 4E. DEADLINE FOR COMPLETING ENFORCEMENT INVESTIGATIONS AND COMPLIANCE EXAMINATIONS AND INSPECTIONS.

‘‘(a) ENFORCEMENT INVESTIGATIONS.—

‘‘(1) IN GENERAL.—Not later than 180 days after the date on which Commission staff provide a written Wells notification to any person, the Commission staff shall either file an action against such person or provide notice to the Director of the Division of Enforcement of its intent to not file an action.

‘‘(2) EXCEPTIONS FOR CERTAIN COMPLEX ACTIONS.—Notwithstanding paragraph (1), if the Director of the Division of Enforcement of the Commission or the Director’s designee determines that a particular enforcement investigation is sufficiently complex such that a determination regarding the filing of an action against a person cannot be completed within the deadline specified in paragraph (1), the Director of the Division of Enforcement of the Commission or the Director’s designee may, after providing notice to the Chairman of the Commission, extend such deadline as needed for one additional 180-day period.

If after the additional 180-day period the Director of the Division of Enforcement of the Commission or the Director’s designee determines that a particular enforcement investigation is sufficiently complex such that a determination regarding the filing of an action against a person cannot be completed within the additional 180-day period, the Director of the Division of Enforcement of the Commission or the Director’s designee may, after providing notice to and receiving approval of the Commission, extend such deadline as needed for one or more additional successive 180-day periods.

My take

The key here is that a Wells Notice needs to be issued, which in information investigations rarely is forthcoming.  All in all though, this is a step in the right direction.

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