Tag Archives: Tami Stark

FinCEN and SEC Move Closer to New AML Requirements for Investment Advisers & ERAs

by Joel M. Cohen, Claudette Druehl, Marietou Diouf, Tami Stark, Prat Vallabhaneni, and Robert DeNault

Photos of the authors

Top: Joel M. Cohen, Claudette Druehl, and Marietou Diouf
Bottom: Tami Stark, Prat Vallabhaneni, and Robert DeNault
(Photos courtesy of White & Case LLP)

On May 13, 2024, FinCEN and the SEC jointly proposed a new rule that would require SEC-registered investment advisers and exempt reporting advisers to maintain written customer identification programs (CIPs).  The new rule supplements a proposal in February to impose requirements on investment advisers similar to those that have existed for broker-dealers since 2001, as a means to address illicit finance and national security threats in the asset management industry.

For investment advisers who do not currently have an AML/CFT program, this compliance obligation will create a large shift in the way they operate.  This will require significant legal time and attention, but it will be time well spent considering potential regulatory exposure and likely indemnification obligations which flow through commercial agreements in favor of counterparties.

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Recent Regulatory Announcements Confirm Increased Scrutiny of “AI-Washing”

by Tami Stark, Courtney Hague Andrews, Maria Beguiristain, Joel M. Cohen, Daniel Levin, Darryl Lew, and Marietou Diouf

Photos of authors

Top (left to right): Tami Stark, Courtney Hague Andrews, Maria Beguiristain, and Joel M. Cohen
Bottom (left to right): Daniel Levin, Darryl Lew, and Marietou Diouf (Photos courtesy of White & Case LLP)

In December 2023, we published an alert concerning US Securities and Exchange Commission (“SEC”) Chair Gary Gensler’s warning to public companies against “AI washing” – that is, making unfounded claims regarding artificial intelligence (“AI”) capabilities.[1] It is no surprise that since then regulators and the US Department of Justice (“DOJ”) have repeated this threat and the SEC publicized an AI related enforcement action that typically would not get such emphasis.

In January 2024, the SEC’s Office of Investor Education and Advocacy issued a joint alert with the North American Securities Administrators Association and the Financial Industry Regulatory Authority warning investors of an increase in investment frauds involving the purported use of AI and other emerging technologies.[2] Similarly, the Commodity Futures Trading Commission Office of Customer Education and Outreach issued a customer advisory warning the public against investing in schemes touting “AI-created algorithms” that promise guaranteed or unreasonably high returns.[3]

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How to Avoid Risk of SEC Whistleblower Rule Violations in Connection with Settlement Agreement Confidentiality Provisions

by Tami Stark and Joel M. Cohen

Photos of authors

Tami Stark and Joel M. Cohen (Photos courtesy of White & Case LLP)

The SEC levied charges against a registered broker-dealer and investment adviser that expand the enforcement of the whistleblower protection rule to encompass settlement agreements with clients.[1] This article should be instructive for other registered entities seeking to avoid rule violations when drafting such agreements.

As of the end of the 2023 fiscal year, the SEC has brought twenty-one enforcement actions involving violations of Rule 21F-17 since the Dodd-Frank Act empowered the SEC with the ability to bring actions against persons, including companies, for impeding reports to the SEC.[2] Last year, these actions arose primarily from employment-related agreements that violated the Rule.[3] For example, in September of 2023, the SEC levied a $10 million civil penalty against an investment adviser for using employee agreements that prohibited the disclosure of “confidential information” unless authorized by the company or required by law or an order of a court or other regulatory or governmental body.[4]

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SEC’s Focus on Off-Channel Communications Continues

by Tami Stark, Claudette Druehl, and Robert DeNault

From left to right: Tami Stark, Claudette Druehl, and Robert DeNault. (Photos courtesy of White & Case LLP)

On September 29, the U.S. Securities and Exchange Commission (“SEC”) brought its latest wave of enforcement actions related to “off-channel communications,” charging 10 additional firms with failing to maintain employee communications on personal devices that related to the firms’ business.  Over the past few years, the SEC has charged over 40 registrants in a sweep of off-channel communications actions and has levied over $1.5 billion in penalties.[1]

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How to Avoid Risk of SEC Whistleblower Rule Violations in Connection with Employee-related Documents

by Tami Stark, Maia Gez, Scott Levi, and Tal Marnin

From left to right: Tami Stark, Maia Gez, Scott Levi, and Tal Marnin (Photos courtesy of Covington & Burling LLP)

On February 3, 2023, the US Securities and Exchange Commission (“SEC”) announced that a public company agreed to pay $35 million to settle charges of, among other things, violations of the whistleblower protection rule.[1] Securities Exchange Act of 1934 Rule 21F-17(a) prohibits any person from taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

Since the Dodd-Frank Act provided the Commission with the power to bring actions against persons, including companies, for impeding reports to the SEC, the SEC has brought over 16 enforcement actions for violations of the whistleblower protection rule.[2] As this is the second time in a little over six months that the SEC has brought such an action, it appears to be a continuing area of focus for enforcement.

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