American Flag


While you were likely out on vacation or enjoying a neighborhood festival, the City of Chicago’s Paid Sick Leave Ordinance went into effect.

WHAT: The ordinance set the minimum standards for paid sick leave. Employees must work at least eighty (80) hours within any one hundred twenty (120) day period, and if they do, sick days can be used after one hundred eighty (180) days of employment.

WHO (Part 1): Employers who employ four (4) or more employees.

WHO (Part 2):  Commission based employees are covered at the greater of their base rate or the minimum prevailing wage.

WHO (Part 3):  The ordinance is subject to certain exclusions. An example of the same is outside salespeople.

WHEN (Part 1): After July 1, 2017.

WHEN (Part 2):  An employee can use a minimum of forty (40) hours paid sick leave per year.

WHEN (Part 3):  Upon termination or resignation, the employer need not pay unused sick days to the former employee.

HERE: Only employee hours worked within the city limits count towards accrual.

ACCRUAL VS. GRANT: Frontloading, i.e., an immediate grant prevents accrual and carryover. Accrual is different for employers, is subject to the Family Medical Leave Act (“FMLA”). Non-FMLA covered employees are granted forty (40) hours no later than working one hundred eighty (180) days for the employer.

CARRYOVER: If the employer is subject to FMLA, then forty (40) hours can be carried over to the next benefit year, otherwise an employee can carry over twenty (20) hours.

USAGE: A covered employee may use a maximum forty (40) hours of accrued sick leave during a year.



The Financial Industry National Regulatory Authority’s (”FINRA’s”) annual examination letter is out and filled with nuggets. Fear not; the breakdown that that you need is contained below.

New this year is FINRA’s off-site electronic review. This is for firms that are not scheduled for cycle exams in 2017.

  • High Risk and Recidivist Brokers
  1. FINRA has created a “bad boy” dedicated unit to look into these registered reps;
  2. FINRA will examine supervisory procedures, including verification of national search for reasonably available public records to verify Form U-4 information;
  • FINRA will use criteria to detect and prevent future misconduct by so-called “bad boys;” and
  1. FINRA will look for concentration and is concerned with branch and non-branch locations and red flags like change of address or investment objectives by customers of “bad boys.”
  • Senior Investors – FINRA will review controls to protect seniors from improper advice and fraud. It is also concerned with speculation, concerned with senior exploitation by non-licensed personnel and complex products bought in the search for yield.
  • Social Media – FINRA will check for compliance with supervisory and record retention for social media and electronic communication ensuring that broker-dealers capture in the “written once, opened many” or WORM format.
  • Cybersecurity – According to FINRA, adequate cyber security provisions depend upon business model, size and risk profile of the member firm. FINRA will look for lack of proper encryption of data, improper use of portable devices, improper storage of passwords, lack of physical security and deficiency of virus protection and software patches.
  • Suitability and Concentration – Do registered representatives understand the products’ features that they have sold? Is there a concentration in specific investments or sectors in customer accounts?

SEC’s National Examination Priorities for 2016

According to Office of Compliance Inspections and Examinations.


  1. Protecting Retail Investors and Investors Saving for Retirement.

The Securities and Exchange Commission (“SEC”) will continue to focus on whether there is a reasonable basis made for recommendations to investors, supervision and compliance controls, conflicts of interest disclosure and marketing to the groups mentioned above.


  1. Fee Selection and Reverse Churning.

This refers to looking at investment advisers, investment adviser representatives and dually registered broker-dealers and RIAs that offer a variety of fee arrangements to make sure that the recommendation of account types at the beginning of the relationship and in the future serves the best  interest of the investor when looking at fees charged, services provided and disclosures made. Reverse churning is the situation where an account suffers from a dearth of activity, but the account pays a fixed fee.


  • Cybersecurity

The SEC will be following up on its second initiative examining RIAs and BDs cybersecurity controls and compliance.  This will be refined to examine testing and assessment of controls and procedures.  Generally, cybersecurity refers to unauthorized internal and external access to client accounts, trading systems, wrongful asset transfers and data loss.

  1. Bad Apple Brokers

The SEC says that they will use data analytics to examine individuals with a history of misconduct and examine the firms that now employ them.  For instance, if someone was banned from acting as a registered representative and now seeks to be become registered as an investment adviser representative (“IAR”) that could trigger an examination of the new registered investment advisor (“RIA”).


  1. Anti-Money Laundering

The SEC will continue to examine the AML procedures of both introducing and clearing broker-dealers. The will compare the number of suspicious activity reports (“SARs”), those that are late or incomplete with those that would be consistent with the firm’s stated business models. This will also to see if the testing of independent obligation when contrasted with each firm’s business model and to see whether programs adapt, when appropriate to current terrorist financing risks and current money laundering risks.




  1. Private Placements

The SEC will examine Regulation D offerings, including those involving “crowdfunding” as well as the Immigrant Investor Program (EB-5).  This latter provides a path to citizenship for foreign investors who make a qualifying investment into a business in the United States that creates or preserves at least ten (10) permanent full time jobs for a qualified U.S. worker. The SEC will review whether the offerings meet the legal requirements as to disclosure, due diligence and suitability.


Will The SECFINRA Tighten the Belt Around Algorithmic Trading

FINRA wants to increase oversight on Algorithmic traders. A weeks ago, the Financial Industry Regulatory Authority (FINRA) published a regulatory notice titled 15-06.

What the notice was trying to establish was FINRA’s plan to get people associated with the design, development or modifications of algorithmic trading strategies to register with the authority as “Securities Traders.”

Along with the proposal comes seven other similar initiatives to change the structure of the equity markets in the country. A majority of them deal with algorithmic trading strategies, as FINRA wants to expand the supervision and controls of such firms.

The authority defines an algorithmic trading strategy as such: “Any program that generates and routes (or sends for routing) orders (and order related messages, such as cancellations) in securities on an automated basis.”

The regulatory oversight could expand to arbitrage strategies, such as the ones related to index or ETF arbitrage, simultaneous trading in two different securities on the basis of price, and order generation that divides up large orders into smaller ones to reduce the impact of selling or buying on the market.

Regulations may apply to companies that rely on automated trading strategies, including the use of algorithms that make trading more aggressive when volumes are up and those that automatically try to achieve volume-weighted prices.

But FINRA isn’t the only one interested in reigning in the high-frequency traders. Reports suggest that the SEC is also focused on reducing the misconduct by traders who use computer models to put investment strategies into play.

The Securities and Exchange Commission (SEC) has increased its scrutiny of hedge fund managers and quant funds. They have proposed changing some of the regulations concerning high-frequency traders that have achieved a sort of notoriety in the financial sector over the past few years.

However, investors are doing better in the modern day market as compared to the more manual markets, according to Chair of the SEC Mary Jo White. White agrees that the spread and commission have come down over the past decade for institutional as well as retail traders. She also agrees that the trading volumes of high-frequency traders were higher simply because of frequency of trades rather than leverage.

But the SEC is trying to ensure the HFT firms are benefiting investors rather than causing harm and destroying value. The issue of “fairness” is a primary concern when dealing with the HFT firms, according to the SEC.

The recent publication of Martin Lewis’s book Flash Boys has brought the issue to the forefront and the debate surrounding the high-frequency traders has intensified over the past few years. Lewis argues that the market is rigged, a claim refuted by the SEC.

Both the SEC and FINRA are working towards a common goal: controlling the largely disruptive industry of high-frequency traders. The departments are not trying to set the clock back for technology, as some critics says, but rather protect the average investor’s interests.

Crowd Funding

Does the SEC Overstate its Numbers to Appear Tough on Wall St? This Law professor Thinks So

One of the most important duties of the Securities and Exchange Commission is that of looking into the bookkeeping and accounting of major public companies. But if a certain law professor is to be believed, the regulator may be using some fuzzy math of its own.

Many defense attorneys claim that the SEC’s push for more enforcement actions in the month of September is an attempt to beat the previous year’s tally. September being the last month of the fiscal year, this has always been the time when the SEC rolls out more enforcement actions than average.

But this has been an open secret and is widely considered harmless number padding. Urska Velikonja, law professor at Emory University, has studied the enforcement statistics published by the regulator each year and has concluded that the numbers mislead the public with regard to the effectiveness of the regulator’s actions while policing the financial sector.

Velikonja believes that the statistics need to be accurate since they are presented to the press and discussed Congress. She believes that the numbers put out by the commission are inflated in a number of ways. Multiple actions against the same people, for example, were counted multiple times. Cases against companies were counted separately from the cases against the same companies’ executives. This means that there is are substantial number of cases reported that do not require any investigation at all. She is about to publish her work in the Cornell Law Review next year.

Over 15 years, through the fiscal year of 2014, Velikonja has analyzed over 9,679 SEC enforcement actions. She was able to show that the cases reported in September were more than double the average of the other eleven months of the year.

While experts agree that the SEC, like any other organization, may want the number by which its performance is measured to look as strong as possible, the professor’s study shows that there is serious double counting while reporting numbers at the commission.

The recent statistics show that the number of enforcement actions by the SEC is up 50% in 2014 from 2000. However, when derivative cases that were tied to a single investigation were removed, the number of original cases pursued by the SEC appeared to be flat since 2002. According to the paper, somewhere between 23% and 34% of enforcement actions reported had already been counted at least once.

While the SEC Enforcement Director said the study was still “under review,” Velikonja believes that the agency is under pressure to seek more money each year from US lawmakers. State statutes force many government agencies to regularly impress with performance numbers to avoid budget cuts.


FINRA Takes a Closer Look at Annuity Sales

The things we spend our money on tend to change as we get older. There’s a good chance you have a lot more money in your pocket now than you did in your late-teens, but the downside is that you now have to spend it on some not-so-fun stuff.

Utility bills and health insurance, for example, are on absolutely no one’s wish list. Spending your hard-earned money on these kinds of things is pretty boring and unfulfilling, but you simply have no other choice.

Annuities are in that same boring basket. They’re basically an agreement that you’ll pay a certain sum today, and be assured a fixed sum every month from the day you retire to the day you die. Though it might not be very exciting, a constant, guaranteed stream of lifelong income is very appealing, and it’s not a very complicated concept. But most people would rather watch paint dry than calculate the present value of an annuity to see if they’re getting a good deal.

That’s why a lot of people place their trust in financial advisors at their preferred insurance company. And that’s where things can, sometimes, go wrong.

FINRA realized this when the regulator sanctioned MetLife for improper selling practices recently. Turns out the salesforce at the insurance giant were encouraging their clients to swap the annuity they were signed up for. These newer annuities were meant to take advantage of the so-called Section 1035 Exchange, which allows annuity holders to exchange their existing annuities for newer schemes without triggering any tax consequences.

If swapping a complicated financial product for the same complicated financial product because of tax benefits sounds like a bad idea, that’s because it is.

Brokers were pushing these swaps just to get additional commissions. A broker gets between 6% and 7% when a customer either buys a new annuity or swaps their existing one for a new one. And to makes things worse, brokers told their clients that these new annuities would cost them less, when in fact, they were more expensive and lacked some of the features of the existing annuities.

When FINRA dug into the details of this mess, they found that many of the customers were also charged a number of “fees and charges” for this advice, while on the books these services were listed as free. All in all, the “annuity switching” scheme brought in more than $152 million in fees and commissions for MetLife between 2009 and 2014.

This sort of gross misrepresentation was the reason FINRA decided to levy the second largest penalty in history. MetLife paid up close to $25 million in one of the largest settlements of all time: $20 million in fines and $5 million to the victims.

This is also why FINRA is encouraging consumers to enquire about their broker’s fee structure and understand all the features or tax implications before signing onto a new annuity. It’s also worth speaking to an independant financial planner to see if you can get a second opinion.

The SEC & FINRA Have Come Together to Deliver Crowdfunding And Here’s What You Need to Know

More than a year ago, the Securities and Exchange Commission came out with a bold new plan to regulate crowdfunding in America.

The SEC basically promised we would have the final rules for well-regulated crowdfunding under the JOBS Act by October 2015, but no one expected them to actually deliver on this promise. So, when the final rules for the new regulations were actually set out on time, it surprised many experts and showed that regulators saw tremendous potential in this new form of venture funding.

Here’s what you need to know about the official rules of crowdfunding in America.

What is Crowdfunding?

If you’ve ever heard of Kickstarter or a project that was massively successful on it, you already understand how crowdfunding works. Millions of people with credit cards and access to the internet come together to pledge small amounts of cash to projects that they support.

What you’ll notice about this model, besides that it is extremely successful, is that the people who pledge money do so for little to nothing in return. They could be donating as little as $10 just because they believe in the idea or they could put up much more in exchange for a special gift from the creators.

But getting gifts from creators is not nearly as valuable as getting to share in their success story. It makes sense that a financially savvy person would want to become more intimately involved in “the next big thing.”

That’s where equity crowdfunding comes in. It’s the same principle of raising small amounts from many people, but the creator in this case is an entrepreneur and the return is an equity stake in the business.

Equity Crowdfunding

If this sounds like a good idea, that’s because, for many, it is. Crowdcube, a equity crowdfunding website based in the UK, has been helping small entrepreneurs get the funds they need for years now. Seed Equity Ventures is an American firm that does something similar, but it operates under the SEC’s strict Regulation D 506(c) rules for general solicitations.

It is important to understand that the regulators need to closely examine this model, since there are a number of ways it could be vulnerable to abuse. But the SEC seems to have addressed almost all the concerns anyone could have had.

Here is an overview of all the rules they’ve set out that go live in May 2016:

  • A startup cannot raise more than $5 million within a 12-month period (revised up from $1 million).
  • People who want to fund businesses on these platforms must prove their income in a given year.
  • Companies need to make full disclosures about their businesses before seeking funds on crowdsourcing platforms.
  • Platform operators have to do their due diligence before they let a business raise money.

There is, of course, more to the rules than what’s been mentioned here but this brief overview shows us that the SEC is serious about getting crowdfunding startups into the spotlight.