The Securities and Exchange Commission on Monday requested a $1.66 billion budget for fiscal year 2019, a 3.5% increase over the agency’s 2018 request, which would allow the securities regulator to restore 100 positions lost during the 2017 hiring freeze.

The agency’s annual appropriations has remained essentially flat from 2016 to 2018, at $1.6 billion. However, during the same period, securities trading has grown by more than $3 trillion, assets under management by investment advisors has jumped more than $5 trillion, and there’s been a 17% growth in ETFs and mutual funds.

The securities regulator has not yet received its 2018 appropriations.

SEC Chairman Jay Clayton said the FY 2019 budget request “reflects our top priorities of protecting investors and making sure we continue to have the most vibrant and well-functioning capital markets in the world, With the exceptional work and commitment of dedicated staff, the SEC will continue striving to maintain and expand an environment conducive to capital formation while ensuring investor protection.”

The SEC’s FY 2019 budget request would support 4,628 positions.

The agency expects to end 2018 with 4,528 positions. To stay within the SEC budget level of $1.6 billion, the agency imposed a hiring freeze at the beginning of FY 2017 that will continue throughout FY 2018.

Because the SEC permits “few exceptions to the hiring freeze,” the overall staffing level is declining and is expected to drop to 4,528 positions by the end of FY 2018.

The FY 2019 budget request boost would support the hiring of four additional staff positions to expand the agency’s cybersecurity protections, particularly with regard to incident management and response, advanced threat intelligence monitoring, and enhanced database and system security.

The added positions would be information system security officers who can focus on the security of specific systems or programs.

In 2018, the SEC plans to set up a new chief risk officer position to oversee the agency’s enterprise risk program.

The FY 2019 request, according to the agency, would permit it to hire two additional staff positions under the chief risk officer to strengthen and advance the agency’s risk management capabilities.

The agency would also use $45 million of the FY 2019 funds for IT enhancements, and $37 million would be used for a potential relocation of the agency’s New York office.

Forty-one positions would also be restored in the agency’s enforcement division as well as its Office of Compliance Inspections and Examinations.

OCIE has requested to add 24 individuals, of which 13 would be dedicated to investment advisor and investment company exams.

The FY 2019 request would restore 17 positions to enforcement to support key enforcement priorities and provide resources to support and expand the work of two newly created groups–The Cyber Unit and the Retail Strategy Task Force.

Seven staff positions would also be restored under the FY 2019 budget request within the Division of Investment Management.

Encourages IA Self-Reporting & the Prompt Return of Funds to Investors

The SEC’s Division of Enforcement announced a self-reporting initiative that seeks to protect advisory clients from undisclosed conflicts of interest and return money to investors.

Under the Share Class Selection Disclosure Initiative (SCSD Initiative), the Division will agree not to recommend financial penalties against investment advisers who self-report violations of the federal securities laws relating to certain mutual fund share class selection issues and promptly return money to harmed clients.

Under the SCSD Initiative, the Enforcement Division will recommend standardized, favorable settlement terms to investment advisers that self-report that they failed to disc…

Washington D.C., Feb. 7, 2018 —

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) today announced its 2018 examination priorities. OCIE publishes its exam priorities annually to improve compliance, prevent fraud, monitor risk, and inform policy. Of particular interest this year will be matters involving critical market infrastructure, duties to retail investors, and developments in cryptocurrency, initial coin offerings, and secondary market trading.

“I appreciate OCIE’s dedication to maximizing the effectiveness of their resources with a keen eye toward asset verification, market infrastructure, and duties owed to retail investors,” said SEC Chairman Jay Clayton.

“As the markets continually evolve and the products and services available to investors adapt, OCIE remains committed in its risk-based examination program to prioritizing the interests of retail investors and examining those aspects of securities firms posing risks to investors and the proper functioning of our capital markets,” said OCIE Director Pete Driscoll.

This year, OCIE’s examination priorities are broken down into five categories: (1) compliance and risks in critical market infrastructure; (2) matters of importance to retail investors, including seniors and those saving for retirement; (3) FINRA and MSRB; (4) cybersecurity; and (5) anti-money laundering programs.

Compliance and Risks in Critical Market Infrastructure – OCIE will continue to examine entities that provide services critical to the proper functioning of capital markets. OCIE will conduct examinations of these firms which include, among others, clearing agencies, national securities exchanges, and transfer agents, focusing on certain aspects of their operations and compliance with recently effective rules.

Retail Investors, Including Seniors and Those Saving for Retirement – Protecting Main Street investors continues to be a priority in 2018. OCIE will focus examinations on the disclosure and calculation of fees, expenses, and other charges investors pay, the supervision of representatives selling products and services to investors, and the execution of customer orders in fixed income securities. OCIE will continue to monitor the growth of cryptocurrencies and initial coin offerings and examine registrants involved in their offer and sale to ensure that investors receive adequate disclosures about the risks associated with these investments.

FINRA and MSRB – OCIE will continue its oversight of FINRA by focusing examinations on FINRA’s operations and regulatory programs and the quality of FINRA’s examinations of broker-dealers and municipal advisors. OCIE will also examine MSRB to evaluate the effectiveness of select operations and internal policies, procedures, and controls.

Cybersecurity – Each of OCIE’s examination programs will prioritize cybersecurity with an emphasis on, among other things, governance and risk assessment, access rights and controls, data loss prevention, vendor management, training, and incident response.

Anti-Money Laundering Programs – Examiners will review for compliance with applicable anti-money laundering requirements, including whether firms are appropriately adapting their AML programs to address their regulatory obligations.

The published priorities for 2018 are not exhaustive. Further, additional priorities may be added in light of market conditions or as OCIE identifies emerging risks and trends. The collaborative effort to formulate the annual examination priorities starts with feedback from examination staff, who are uniquely positioned to identify the practices, products, and services that may pose significant risk to investors or the financial markets. OCIE staff also seek advice of the Chairman and Commissioners, staff from other SEC Divisions and Offices, the SEC’s Investor Advocate, and the SEC’s fellow regulators.

Washington D.C., Jan. 30, 2018 —

The Securities and Exchange Commission obtained a court order halting an allegedly fraudulent initial coin offering (ICO) that targeted retail investors to fund what it claimed to be the world’s first “decentralized bank.”

According to the SEC’s complaint, filed in federal district court in Dallas on Jan. 25 and unsealed late yesterday, Dallas-based AriseBank used social media, a celebrity endorsement, and other wide dissemination tactics to raise what it claims to be $600 million of its $1 billion goal in just two months.

AriseBank and its co-founders Jared Rice Sr. and Stanley Ford allegedly offered and sold unregistered investments in their purported “AriseCoin” cryptocurrency by depicting AriseBank as a first-of-its-kind decentralized bank offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies. AriseBank’s sales pitch claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies.

The SEC alleges that AriseBank falsely stated that it purchased an FDIC-insured bank which enabled it to offer customers FDIC-insured accounts and that it also offered customers the ability to obtain an AriseBank-branded VISA card to spend any of the 700-plus cryptocurrencies. AriseBank also allegedly omitted to disclose the criminal background of key executives.

“We allege that AriseBank and its principals sought to raise hundreds of millions from investors by misrepresenting the company as a first-of-its-kind decentralized bank offering its own cryptocurrency to be used for a broad range of customer products and services. We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“This is the first time the Commission has sought the appointment of a receiver in connection with an ICO fraud. We will use all of our tools and remedies to protect investors from those who engage in fraudulent conduct in the emerging digital securities marketplace,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, said, “Attempting to conceal what we allege to be fraudulent securities offerings under the veneer of technological terms like ‘ICO’ or ‘cryptocurrency’ will not escape the Commission’s oversight or its efforts to protect investors.”

The court approved an emergency asset freeze over AriseBank, Rice, and Ford and appointed a receiver over AriseBank, including over its digital assets. The SEC intervened to protect the digital assets before they could be dissipated, enabling the receiver to immediately secure various cryptocurrencies held by AriseBank including Bitcoin, Litecoin, Bitshares, Dogecoin, and BitUSD. AriseCoin’s public sale began around Dec. 26, 2017, and was originally scheduled to conclude on Jan. 27, 2018, with distribution to investors on Feb. 10, 2018. The SEC seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties, and bars against Rice and Ford to prohibit them from serving as officers or directors of a public company or offering digital securities again in the future.

The SEC’s investigation was conducted by David Hirsch and supervised by Jessica Magee and Eric Werner in the Fort Worth Regional Office in coordination with the Enforcement Division’s Cyber Unit. The litigation is being conducted by Timothy Evans, Christopher Davis, and Mr. Hirsch, and supervised by B. David Fraser. The SEC appreciates the assistance of the Federal Bureau of Investigation, U.S. Attorney’s Office for the Northern District of Texas, Federal Deposit Insurance Corporation, U.S. Patent and Trademark Office, and Texas Department of Banking.

Investors in the AriseBank ICO who believe they may be a victim are asked to report it to the SEC as a tip or complaint.

The SEC’s Office of Investor Education and Advocacy issued an Investor Alert in August 2017 warning investors about scams of companies claiming to be engaging in initial coin offerings.

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News Release

For Release: Monday, February 5, 2018 Contact(s):

Michelle Ong (202) 728-8464

Mike Rote (202) 728-6912

New FINRA Rules Take Effect to Protect Seniors and Vulnerable Adults from Financial Exploitation First Uniform, National Standards to Protect Senior Investors WASHINGTON — Two FINRA rule changes took effect today addressing the financial exploitation of seniors and vulnerable adults, putting in place the first uniform, national standards to protect senior investors. Firms are now required to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account. In addition, the rule permits FINRA member firms to place a temporary hold on a disbursement of funds or securities when there is a reasonable belief of financial exploitation, and to notify the trusted contact of the temporary hold.

“These important changes, developed in collaboration with our members, provide firms with tools to respond more quickly and effectively to protect seniors and vulnerable investors from financial exploitation,” said Robert L.D. Colby, FINRA’s Chief Legal Officer. “With the aging of the U.S. population, financial exploitation is a serious and growing problem, and protecting senior investors remains a top priority for FINRA.”

The trusted contact person is intended to be a resource for firms in handling customer accounts, protecting assets and responding to possible financial exploitation of any vulnerable investors. The new rule allowing firms to place a temporary hold provides them and their associated persons with a safe harbor from certain FINRA rules. This provision will allow firms to investigate the matter and reach out to the customer, the trusted contact and, as appropriate, law enforcement or adult protective services, before disbursing funds when there is a reasonable belief of financial exploitation. It is a critical measure because of the difficulty investors face in trying to recover funds that they have inadvertently sent to fraudsters and scam artists.

FINRA recently published Frequently Asked Questions to help firms prepare. Shortly after the February 2017 announcement of the approval of these changes, FINRA amended its New Account Application Template, a voluntary model brokerage account form that is provided as a resource to firms when they design or update their new account forms, to capture trusted contact person information.

The rule changes were approved by the SEC in February 2017. FINRA set today as the effective date to provide member firms substantial time to prepare and develop policies and procedures. In addition, FINRA staff met with firms at events throughout the year to help them prepare for the rule changes.

The need for the proposal became clear from discussions with firms and calls into FINRA’s Securities Helpline for Seniors®, which has highlighted some of the issues firms are facing when it comes to senior investors. To date, the helpline has fielded more than 12,000 calls, recovering over $5.3 million in voluntary reimbursements from firms to customers since its launch in April 2015.