Recognized as a Super Lawyer for three consecutive years, Sylvia M. Scott currently serves as a partner and the head of the Securities Regulation Practice Group with Freeman, Freeman & Smiley, LLP, in Los Angeles. Sylvia M. Scott offers guidance on new and changing compliance regulations as a subcommittee member with the National Society of Compliance Professionals (NSCP).
The NSCP provides a number of services for its members, including assistance with creating or finding an existing Roundtable in major cities around the nation. Comprised of local compliance professionals, Roundtables offer professional development and networking opportunities through group meetings designed to supplement online resources and industry conferences. Many Roundtables gather on a quarterly basis, and members reflect that the meetings are among the top ways to remain current in the field.
While the NSCP doesn’t actually host these events, it does partner with autonomous Roundtables nationwide that typically accept new members. The NSCP states that local Roundtables provide numerous benefits to participants because they are often more intimate and interactive than large conferences. Roundtable meetings explore subjects in greater depth and allow members to exchange redacted reports.
Now with nearly three decades of legal experience, Sylvia M. Scott joined Freeman, Freeman & Smiley, LLP, in 2005. As a partner, Sylvia M. Scott leads the firm’s Securities Practice Group, working with brokers and investment advisors in regulatory enforcement matters.
Among the items disbursed by the Financial Industry Regulatory Authority (FINRA) each year is a regulatory and examinations priorities letter. Also referred to as the exam priorities letter, this document outlines the areas upon which FINRA focuses its sweep and cycle examinations. Management must review the letter, whose items should be used to shape risk management procedures. For a larger firm, department heads should also receive a copy of the letter to ensure they meet compliance stipulations within their own respective areas.
Examples of issues addressed in an exam priorities letter include maintaining proper procedures for handling business in complex instruments and private placements. Additionally, the letter may highlight the necessity for eliminating promissory language in procedures that cannot be guaranteed by a firm due to the nature of a volatile investment market.
Named a Super Lawyer three years running, Sylvia M. Scott is a partner with Freeman, Freeman & Smiley, LLP, in Los Angeles, California. With experience supporting compliance professionals in the securities industry, she also serves on the faculty of the National Society of Compliance Professionals and speaks at conferences for the organization. Additionally, Sylvia M. Scott served as a panelist at a recent seminar hosted by her firm for financial advisors.
A complimentary seminar sponsored by Freeman, Freeman & Smiley, Financial Advisors: Safeguard Your Career was ideal for attorneys transitioning to a new brokerage firm or starting out in the field of financial advising. Held in Los Angeles and Orange County, California, the seminar served to help attendees protect their future and know their rights related to a variety of topics, including maintaining a clean industry record, communicating appropriately with clients, and managing promissory notes and transitional compensation. In addition to the moderator, Dan Jamieson, the editor at large of Financial Advisor magazine, panelists included Michael Blumenfeld and Robert Girard II experts in litigation, securities arbitration, and regulatory enforcement.
Sylvia M Scott’s paper titled “With Hedge Funds a Priority of the SEC’s Examination Program, Advisers Need to Know How to Avoid Becoming an ‘Enforcement Referral'” appears in the September/October 2011 issue of National Society of Compliance Professionals (NSCP) Currents newsletter. It lists best and inadvisable practices for hedge fund professionals undergoing an inquiry from the Securities and Exchange Commission‘s (SEC) Office of Compliance, Inspections, and Examinations (OCIE). The list, divided into “dos” and “don’ts,” includes such “dos” as be prepared, familiarize oneself with regulations pertinent to one’s firm, and address miscommunication.
As for “don’ts,” the paper suggests examinees not “wing it” during an interview but provide thoughtful responses, even if that means asking for additional time. One should never lie to regulators or behave in a dilatory manner, which can only make matters worse. Further, individuals should not let deadlines pass without receiving an extension. The above examples represent just a few of the seven recommended “don’ts.”
Scott’s article appeared with materials for the Practicing Law Institute’s 2011 Hedge Fund Enforcement & Regulatory Developments conference.
Both the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) conduct routine and risk based examinations of broker-dealers. Two types of exams include cause, in which case the agency has reason to believe suspicious activity at the firm, and sweeps, during which the regulators check on specific issues and determine how a cross-section of financial firms handles said issues. The SEC and FINRA also perform routine, or cyclical, examinations which focus on financial and operational issues.
All SEC and FINRA examinations should be viewed as non routine and with the utmost seriousness by financial firms. Firms should adopt formal procedures for handling regulatory exams, sweeps and cause investigations. For example, firms should not permit their employees to submit to “casual,” impromptu interviews by regulators. All firms should have a knowledgeable and professional point person to receive and handle all regulatory requests. This is particularly important as the regulators integrate specialists and experts into the examination process.
Firms should also strive to get ahead of problems and diffuse them should they surface. This may lessen the chance of an enforcement referral or a referral to another regulator.
When faced with a never-ending document request that seems to ask for every piece of paper ever generated by your firm, the firm’s point person may have some success in negotiating an extension if there truly is such a need. For example, with smaller firms, it might be physically impossible to meet the deadline. Usually the staff will grant an extension in limited circumstances provided the firm can detail a reasonable basis for the request. If the staff refuses to grant what appears to be a reasonable request, this can be a signal that the staff believes that they have identified a potential emergency that might require an emergency enforcement action. If this is the case, the firm should immediately contact its counsel.
About the Author:
A Partner at Freeman, Freeman & Smiley, LLP, in Los Angeles, Sylvia M. Scott manages the firm’s Securities RegulationPractice Group. In this capacity, she focuses specifically on securities regulation and litigation. Ms. Scott was formerly an enforcement attorney at the SEC and the NASD, now known as FINRA.