SEC Says Functional Role, Not Corporate Structure Determines Exec’s Regulatory Role
The SEC has issued a Report of Investigation asserting its position that an executive of a broker-dealer parent or holding company may be considered a regulated person. In an action against a municipal securities dealer, the SEC determined that the head of the investment bank that supervised the dealer was a deemed “municipal finance professional.” As a result, the firm violated MSRB Rule G-37 for performing underwriting within 2 years of the exec making a related political contribution. The SEC said that the exec had de facto management control because the muni dealer subsidiary did not have a functioning management committee or real Board.
OUR TAKE: Although this Report is in the muni bond context, it has broad implications for all broker-dealers and investment advisers. The SEC argues that functional responsibility determines whether somebody comes within the regulatory group. Thus, functional management of a BD or RIA could subject such exec to supervision and licensing. It could also have an impact on the definition of “access person” for Codes of Ethics.