A Compilation Of Enforcement And Non-Enforcement Actions - September 2008

Non-Enforcement Matters

Modernizing and Consolidating Insider Trading

Enforcements

The U.S. Securities and Exchange Commission (SEC), New York

Stock Exchange Regulation Inc. (NYSER), and FINRA announced an

agreement among 10 securities self-regulating organizations to

consolidate surveillance, investigation, and enforcement of insider

trading of equity securities. Prior to the implementation of this

plan, each exchange remains responsible for enforcing its own

(unique) insider trading program. As such, the exchanges must

cooperate with one another to ensure that the exchanges catch

insider trading.

The proposed plan aims at reducing redundancy and eliminating

"gaps" in enforcement from one market to the next. SEC

Chairman Christopher Cox said, "We have immediately published

this proposal for public comment because of its potential to

increase the likelihood that those who engage in insider trading

will be caught and punished. This should send a strong warning to

those who would undermine market integrity and undercut investor

confidence for their own personal gain."

Comments are due 21 days after the plan's formal publication

in the Federal Register.

Use of Shareholder Information for Marketing Purposes

Generally Prohibited

After publication of an article that promoted funds' and

advisers' use of shareholders' identities for marketing

purposes, the SEC issued a letter to correct the article's

premise. In fact, use of shareholder identity for marketing

purposes is generally not allowed.

Funds must enter agreements with financial intermediaries,

whereby financial intermediaries must provide funds with

shareholder identity and transaction information. However, the

privacy rules of the Gramm-Leach-Bliley Act require that those

entities that wish to use shareholder information for marketing

purposes, including funds and advisers, must (1) disclose such

purpose to the shareholder, (2) give the shareholder the option to

opt out, and (3) wait to determine that the shareholder has not

opted out.

Thus, funds may not use shareholder information for marketing

purposes unless the fund has clearly provided for such use in its

privacy policy and the shareholders have not "opted out"

of the information sharing for marketing purposes.

Enforcement Matters

Excessive Fees Not a Violation of Fiduciary Duties in

Recent Case

The Seventh Circuit recently dismissed a lawsuit by investors

claiming that the investment adviser breached fiduciary duties when

the...