The SEC Adopts New Rule to Prevent Fraud and Manipulation

The Securities and Exchange Commission (SEC) announced on Wednesday it has adopted a new rule to prevent fraud, manipulation, and deception in connection with security-based swap transactions.

A second rule aims at prohibiting influence over Chief Compliance Officers at certain security-based swap entities.

“Any misconduct in the security-based swaps market not only harms direct counterparties but also can affect reference entities and investors in those reference entities,” said SEC Chair Gary Gensler.

“Given these markets’ size, scale, and importance, it is critical that the Commission protect investors and market integrity through helping prevent fraud, manipulation, and deception relating to security-based swaps.

Today’s set of rules will do just that,” he continued.

“The antifraud and anti-manipulation rule adopted today is designed to prevent misconduct in connection with effecting any transaction in, or attempting to effect any transaction in, or purchasing or selling, or inducing or attempting to induce the purchase or sale of, any security-based swap.

The rule takes into account the features fundamental to a security-based swap and will aid the Commission in its pursuit of actions that directly target misconduct that reaches security-based swaps,” the Press Release read.

The final rules will become effective 60 days after the date of publication of the adopting release in the Federal Register.

Read: JPMorgan CEO Urges SEC to Ban Shorting Bank Stocks

Other Recent SEC News

The SEC dismissed 42 pending cases after big mistakes from staff “admitting enforcement breach larger than reported.”

The SEC announced Friday it had dismissed 42 pending enforcement cases after discovering enforcement staff had improper access to materials meant for commission officials ruling on those cases.

“We deeply regret that the agency’s internal systems lacked sufficient safeguards surrounding access to Adjudication memoranda, and we are continuing our work to ensure that, going forward, work product from the Adjudication staff is appropriately safeguarded,” the SEC said in a statement.

“We take this lapse in controls very seriously and are committed to both informing the public about the scope of this issue and preventing any similar lapses in the future,” the agency added.

Law360 was first to report on the SEC’s disclosure.

“The 42 cases were proceedings against individuals and companies being handled within the agency’s in-house courts.

Among the group was the agency’s case against Jeffrey Wada and David Middendorf, two individuals involved in the notorious KPMG cheating scandal,” said Compliance Week.

The SEC described the improper access as effectively an accident, as administrative staff in its enforcement arm worked to track and collect all relevant materials, but some databases were not appropriately safeguarded to wall off adjudication materials.

It added that in most cases, the problematic materials were not uploaded to enforcement staff until after a decision had been handed down, per Reuters.

The agency decided to dismiss all pending cases, primarily against individuals and smaller firms, who were impacted by the improper access.

The SEC also said it was agreeing to lift industry bans on 48 people who had petitioned the SEC for that relief whose cases were also involved in the mistake.

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