iFDIC 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:
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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.
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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.
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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.
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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.
