May 19, 2022

Volume XII, Number 139

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Cadwalader Cabinet: December 31, 2021

FDIC Chair Tenders Resignation

On December 31, 2021, FDIC Chair Jelena McWilliams sent a letter to President Joseph R. Biden communicating her intent to resign as Chair of the FDIC effective February 4, 2022.

Chair McWilliams, an appointee of former President Donald J. Trump, has been Chair of the FDIC since June 2018. Ms. McWilliams is currently the sole Republican on the FDIC Board. In the last month, being the Chair but also in the minority of the Board had brought up confrontations with the three Democrats on the Board. These confrontations centered on where control of the FDIC’s agenda really sat.

"The resignation of Chair McWilliams comes as a bit of a surprise. Chair McWilliams had previously stated her desire to serve until the expiration of her term in 2023, but the recent clash between the Chair and the three other members of the FDIC Board may have hastened her resignation.  As currently constituted, it would appear that Marty Gruenberg would become the Acting Chair of the FDIC Board, pending a nomination from President Biden.  As the Federal Deposit Insurance Act limits the makeup of the FDIC Board to three members of one party, if President Biden wished to nominate someone else other than Mr. Gruenberg as Chair, then Mr. Gruenberg would have to leave the Board.  After Ms. McWilliams’s departure, the two vacant seats on the FDIC Board would need to be filled by Republicans or Independents." said Daniel Meade of Cadwalader.

SEC Chair Appoints New Members to Executive Staff

SEC Chair Gary Gensler appointed four new members to the executive staff. New appointees will support policy, enforcement and agency operations.

The appointees are as follows:

  • Corey Frayer (Senior Advisor) - Mr. Frayer will advise Mr. Gensler on policymaking and interagency work relating to the oversight of cryptocurrency and other digital assets. Mr. Frayer previously served as an advisor to the U.S. Senate Committee on Banking, Housing and Urban Affairs, to the House Financial Services Committee and to several other U.S. Representatives.

  • Philipp Havenstein (Operations Counsel) - Mr. Havenstein will serve as counsel on matters pertaining to agency administration, operations and management. Mr. Havenstein had served as a senior advisor in the SEC Office of Human Resources and as an associate legal advisor at U.S. Immigration and Customs Enforcement at the U.S. Department of Homeland Security.

  • Jennifer Songer (Investment Management Counsel) - Ms. Songer will serve as counsel on matters relating to investment companies and their advisors. Ms. Songer previously acted as Branch Chief of the Private Funds Branch in the Division of Investment Management's Rulemaking Office. Prior to that, Ms. Songer worked in the private sector for K&L Gates LLP and Seward & Kissel LLP.

  • Jorge G. Tenreiro (Enforcement Counsel) - Mr. Tenreiro will advise Mr. Gensler on enforcement actions carried out through the SEC Division of Enforcement. Mr. Tenreiro previously served as a staff attorney in the SEC Regional Office in New York and later acted as Senior Trial Counsel. Prior to that, Mr. Tenreiro was an associate with Cleary Gottlieb Steen & Hamilton LLP as well as a law clerk to the Honorable Julio M. Fuentes of the U.S. Court of Appeals for the Third Circuit and the Honorable Allyne R. Ross of the U.S. District Court for the Eastern District of New York.

Representative Settles Charges for Improper Sales of "Steepeners"

A registered representative settled charges for suitability rule violations.

FINRA alleged that the representative advised clients to purchase "steepeners" - financial instruments that typically pay interest at an above-market rate at the beginning of the term and eventually transition to a floating interest rate that is less than the term rate. FINRA previously cautioned against recommending steepeners on the basis that they are "too difficult to understand" for clients, have potential for extended periods of time with little to no interest, and generally do not have a liquid secondary market.

FINRA found that the representative recommended that the client purchase the steepeners without fully understanding the risks, including the potential for no interest to be paid if the yield curve flattens. FINRA found that the representative violated FINRA Rule 2111 ("Suitability"), which requires a "reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [adviser] or associated person" and, as a result, FINRA Rule Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

Although the individual is no longer affiliated with a FINRA-registered member firm, he is still being held accountable under FINRA rules. As a result of these enforcement actions, the individual was (i) suspended from associating with any FINRA member in any capacity for four months and (ii) ordered to pay a $5,000 fine. The effective date of these sanctions has yet to be determined by FINRA.

NFA Charges Firm with Registration and Supervision Violations

The NFA Business Conduct Committee ("BCC") issued a complaint against an introducing broker and its CEO for registration and supervision violations.

In the Complaint, the BCC alleged that the firm began trading in futures as early as 2012, requiring the firm's associated persons ("APs") to pass the Series 3 Examination. The BCC stated that the CEO and four other APs failed to take the Series 3 until 2020, placing the firm and its CEO in violation of NFA Registration Rule 401(a) ("Qualification Testing Requirement").

In addition, the Complaint alleged that the firm failed to properly implement adequate supervision policies. In particular, NFA noted a lack of procedures for (i) reviewing AP communications, (ii) reviewing trades for fraud or manipulation, and (iii) cybersecurity. NFA charged the respondents with violating NFA Compliance Rule 2-9 ("Supervision").

The potential penalties and disqualifications will be determined by the NFA at the conclusion of the proceedings.

Primary Sources

  1. FDIC Press Release: FDIC Chairman Jelena McWilliams Announces Her Resignation

  2. SEC Press Release: Chair Gary Gensler Announces Additions to Executive Staff

  3. FINRA Letter of Acceptance, Waiver and Consent No. 2021071994801

  4. NFA Case No. 21BCC00015

  5. NFA Complaint: BTU Brokers Inc. and Christopher Anthony Ridgeway

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XII, Number 4
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About this Author

At Cadwalader, Wickersham & Taft LLP, we put over 225 years of legal experience and innovation to work for you today. As one of the world's most prominent financial services law firms, we have long-standing client relationships with premier financial institutions, funds, Fortune 500 companies and other leading corporations, and individual private clients. We have earned a reputation for crafting innovative business and financial solutions and developing precedent-setting legal strategies to achieve our clients' goals. The result is simple: We stand out from...

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Daniel Meade Bank Regulation Attorney Cadwalader Washington DC
Partner

Daniel Meade is a partner in Cadwalader’s bank regulatory practice in Washington, DC. He has substantial experience in sophisticated transactional bank regulatory issues, such as bank M&A, the Volcker Rule, bank powers, affiliate transactions, Basel III capital, tying, AML, sanctions, and Bank Holding Company Act issues.  

Dan most recently served as Senior Vice President and Managing Counsel at Wells Fargo, where he led a team providing advice to Wells Fargo’s Regulatory Relations and Government Relations and Public Policy functions....

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