Editor column

Citation

Tricarico, J.A. and Davis, H.A. (2007), "Editor column", Journal of Investment Compliance, Vol. 8 No. 4. https://doi.org/10.1108/joic.2007.31308daa.001

Editor column

The focus of this journal is laws and regulations that apply to broker-dealers, investment advisers, mutual funds, hedge funds, and other types of investment companies – so we should have a good understanding of just what an investment company is – and is not. Our first article, by Christopher Menconi, is concerned with the boundaries on the definition of an investment company. Mr Menconi explains how a company with a lot of securities on its balance sheet can become an “inadvertent investment company,” the reasoning behind a recent US Seventh Circuit Court decision that rescued National Presto Industries, Inc. from that designation and its regulatory burdens, and how a company that wants assurance that it is not an inadvertent investment company (like a Microsoft or a Yahoo!) can seek an SEC order that declares it to be primarily engaged in a business other than investing in securities. While much of our focus is on current laws and regulations, sometimes we step back and look at the purpose and organization of the compliance function itself. Linda Wolosz discusses the relationships among rules, policies, and procedures, and the types of systems required to make sure policies and procedures are created and distributed in an appropriate manner. Among the topics of continuing interest in this journal are best execution and insider trading. Brandon Becker, Bruce Newman, Andre Owens, Soo Yim, and Christie Oberg discuss the SEC’s view of best execution in the context of net riskless principal trading and, in light of a recent SEC settlement, place particular emphasis on communication and coordination among departments within a firm in the design, implementation, and maintenance of operating systems and compliance policies and procedures. Then Karl Groskaufmanis and Kalman Ochs remind of the ways insider trading laws apply to debt as well as equity securities, particularly for firms represented on creditors’ committees. We move on to two articles concerning securities fraud. P. Benjamin Duke shows how the US Supreme Court’s recent Tellabs decision provides a uniform national standard for evaluating whether factual allegations in a federal securities fraud complain give rise to a “strong inference of scienter,” but still leave some issues unresolved concerning a court’s consideration of factual allegations that may lack sufficient “particularity.” Then Elizabeth Shea Fries and Jackson Galloway discuss the SEC’s new anti-fraud rule for private funds and its application to both registered and unregistered investment advisers – a rule the SEC considered particularly important following the June 2006 Goldstein decision that struck down a requirement for many hedge fund managers to register with the SEC as investment advisers. Next Harry Frischer, Stephen Ratner, Sarah Gold, Gregg Mashberg, and Michael Lazaroff discuss another recent US Supreme Court decision that defines why antitrust laws should not apply to the underwriting of IPOs and, more broadly, how decisions from antitrust courts most likely would produce inconsistent results when applied to securities activities governed by the SEC’s highly specialized and technical set of rules. Stuart Kaswell, Alan Rosenblat and Christopher S. Ha discuss recent amendments to SEC regulation SHO designed to reduce fails to deliver on “threshold” securities and also to eliminate the long-standing price tests, including the “tick test,” that were implemented in the Depression era to restrict short selling in bear markets. This amendment follows a lengthy controversy over the benefits, dangers, and restrictions on short-selling. Next, Adam Gale explains certain state securities legend requirements and shows that, except for Florida, they are never required for Rule 506 private placement memos. Moving to the international side, Angelo Lercara discusses a recent comprehensive memorandum of understanding between the SEC and the German Federal Financial Supervisory Authority ((Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin), another step in the growing trend of cross-border regulatory cooperation. As part of our continuing China coverage, we have an article by Connie Heng, Cao Yanping, Rupert Li and Yang TieCheng on new regulations that permit the issuance of renminbi bonds in Hong Kong. We conclude with a summary of recent actions by the US Financial Industry Regulatory Authority (FINRA).

James A. Tricarico JrConsulting EditorHenry A. DavisEditor