REPORT ON ACTIVITIES FISCAL YEAR 2014
 


Office of the 

Investor 

Advocate 

U.S. SECURITIES AND EXCHANGE COMMISSION
 

The Office of the Investor Advocate was 

established pursuant to Section 915 of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010, as 

codified under Section 4(g) of the Securities 

Exchange Act of 1934, 15 U.S.C. § 78d(g). 
OFFICE OF THE INVESTOR ADVOCATE 

REPORT ON ACTIVITIES
 


FISCAL YEAR 2014 

THE OFFICE OF THE INVESTOR ADVOCATE was established pursuant to Section 915 of the 

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), 

as codified under Section 4(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), 

15 U.S.C. § 78d(g). Exchange Act Section 4(g)(2)(A)(ii) provides that the Investor Advocate be 

appointed by the Chair of the U.S. Securities and Exchange Commission (the “Commission” or 

the “SEC”) in consultation with the other Commissioners and that the Investor Advocate report 

directly to the Chair.1 On February 24, 2014, SEC Chair Mary Jo White appointed Rick A. 

Fleming as the Commission’s first Investor Advocate. 

Exchange Act Section 4(g)(6) requires the Investor Advocate to file two reports per year with 

the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on 

Financial Services of the House of Representatives.2 A Report on Objectives is due not later 

than June 30 of each year, and its purpose is to set forth the objectives of the Investor Advocate 

for the following fiscal year.3 On June 30, 2014, the Office of the Investor Advocate issued its 

first Report on Objectives (the “2014 Report on Objectives”). The 2014 Report on Objectives 

contains a summary of the Investor Advocate’s primary objectives for Fiscal Year 2015, beginning 

October 1, 2014.4 

A Report on Activities is due no later than December 31 of each year.5 The Report on Activities 

shall describe the activities of the Investor Advocate during the immediately preceding fiscal 

year. Among other things, the report must include information on steps the Investor Advocate 

has taken to improve the responsiveness of the Commission and self-regulatory organizations (“SROs”) to investor concerns, a summary of the most serious problems encountered by 

investors during the reporting period, identification of Commission or SRO action that was taken 

to address those problems, and recommendations for administrative and legislative actions to 

resolve problems encountered by investors.6 

The instant Report on Activities will describe the activities of the Office of the Investor Advocate 

from its inception to the end of Fiscal Year (“FY”) 2014, a period of seven months. Specifically, 

the reporting period for this Report on Activities runs from February 24, 2014 to September 30, 

2014 (the “Reporting Period”). 

Disclaimer: Pursuant to Section 4(g)(6)(B)(iii) of the Exchange Act, 15 U.S.C. § 78d(g)(6)(B)(iii), this 

Report is provided directly to Congress without any prior review or comment from the Commission, any 

Commissioner, any other officer or employee of the Commission, or the Office of Management and Budget. 

Accordingly, the Report expresses solely the views of the Investor Advocate. It does not necessarily reflect the 

views of the Commission, the Commissioners, or staff of the Commission, and the Commission disclaims 

responsibility for the Report and all analyses, findings, and conclusions contained herein. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | iii

 

CONTENTS
 


MESSAGE FROM THE INVESTOR ADVOCATE . . . . . . . . . . . . . . . . . . . . . . 1



REPORT ON ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3



Most Serious Problems Encountered by Investors and Recommendations
 


Inventory of Problems Identified, Recommendations Made by the
 


Steps Taken to Improve Investor Services and Responsiveness . . . . . . . . . . . . . 4



for Administrative or Legislative Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 4



Private Placement Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5



Variable Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7



Non-Traded Real Estate Investment Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . 8



Binary Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10



Reverse Churning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10



Investor Advocate, and Actions Taken by the Commission or SROs . . . . . . . . . . 11



SUMMARY OF IAC RECOMMENDATIONS AND SEC RESPONSES . . . . . . . . . . . 13



End Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18



REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | v
To a large degree, investors rely on the 

regulatory system to keep them safe from 

advisers who would violate their trust. 

Make no mistake—governmental 

examinations of advisory firms are a 

critical part of the regulatory structure 

upon which investors depend. 
MESSAGE FROM THE
 


INVESTOR ADVOCATE
 


The Office of the Investor Advocate was 

created at the SEC on February 24, 2014. 

After consultation with each of the 

Commissioners, Chair Mary Jo White appointed 

me to serve as the Commission’s first Investor 

Advocate. It is an honor to be entrusted with this 

responsibility. 

In these first months of our existence, the Office 

has gradually grown to six staff members, and we 

have begun to perform three core functions. In 

April 2014, the Office assumed responsibility 

for providing staff and operational support to 

the SEC’s Investor Advisory Committee. On 

September 5, 2014, we announced the appointment of Tracey L. McNeil as the agency’s first 

Ombudsman, fulfilling a mandate of the DoddFrank Act. And since day one, we have been 

working hard to provide a voice for investors as 

policies are considered at the Commission, at selfregulatory organizations, and in Congress. 

By statute, I am required to file two reports per 

year—a Report on Objectives due by June 30 

and a Report on Activities due by December 31. 

The Report on Objectives looks ahead and lays 

out a policy agenda for the upcoming fiscal year, 

while the Report on Activities looks back at the 

prior fiscal year and reports on our actions, our 

policy recommendations, and the responses of the 

Commission and SROs to those recommendations. 

Because this Report on Activities covers only a 

portion of FY 2014, it is less comprehensive than 

the reports we will file in the future. 

As a brand new Office, 

much of my time in FY 

2014 was focused on 

building staff and attending 

to the myriad of details 

involved in starting the 

new Office. We also began 

engaging in outreach 

efforts, meeting with 13 

organizations that represent 

a variety of investor 

interests and 10 organizations that represent various 

aspects of the industry. Based on those meetings, as 

well as on numerous SEC staff briefings covering 

a wide variety of topics, we developed a policy 

agenda for FY 2015 and have begun to study those 

issues in greater depth. 

In light of these activities, we have not yet reached 

the point where we have begun to make policy 

recommendations concerning all of the issues 

on our agenda. There is, however, one notable 

exception. In the 2014 Report on Objectives, filed 

on June 30, 2014, I recommended that Congress 

provide sufficient resources to enable the SEC to 

conduct an adequate number of investment adviser 

examinations. 

This is an issue that does not require a great deal of 

study to understand. In FY 2014, the SEC examined 

approximately 10 percent of investment advisers, 

which equates to an examination cycle of once 

every 10 years.7 This level of coverage is simply 

inadequate to protect investors from fraudulent or 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 1
 

abusive practices like excessive or undisclosed fees, 

unauthorized trading, or outright theft. 

Investors who seek the services of a registered 

investment adviser are attempting to do the right 

thing with their savings. These investors are 

not chasing exorbitant returns in a fly-by-night 

investment opportunity. Moreover, fraudulent or 

abusive practices by an investment adviser can be 

very difficult for an individual investor to detect, 

particularly if the adviser goes so far as to falsify 

account statements or other records. As I’ve seen 

throughout my career, most investment advisers live 

up to their fiduciary duty to clients, but a few “bad 

apples” can shatter the fragile retirement dreams of 

numerous clients. 

To a large degree, therefore, investors rely on the 

regulatory system to protect them from advisers 

who would violate their trust. Make no mistake— 

governmental examinations of advisory firms are a 

critical part of the regulatory structure upon which 

investors depend. 

Recognizing the potential for a few bad actors to 

sully the reputation of all advisers, the advisory 

industry itself has supported increased funding for 

the SEC to conduct a greater number of investment 

adviser examinations. Indeed, as noted in the 

2014 Report on Objectives, the advisory industry 

has been supportive of “user fees,” whereby the 

SEC would require advisers to pay an annual fee 

specifically to fund additional investment adviser 

examinations. 

It is encouraging that Congress recently took an 

important step forward in providing additional 

funding to the SEC for FY 2015. In the coming 

months, my Office will monitor the SEC’s use of 

these resources and, while recognizing the many 

important and competing demands for those funds, 

we will advocate for a significant allocation to 

enhance the oversight of investment advisers. 

We will also evaluate the impact of these increased 

resources in shortening the examination cycle for 

investment advisers. In reality, the recent increase 

in funding, while helpful, is likely insufficient to 

provide the full level of examination coverage that 

is needed. Therefore, we will assess any remaining 

need and will continue to explore potential 

efficiencies and funding mechanisms to further 

enhance investor protection in this area. 

I am pleased to submit this first Report on Activities 

on behalf of the Office of the Investor Advocate, 

and I would be happy to answer any questions 

from Members of Congress. Congress has entrusted 

the Office of the Investor Advocate with important 

responsibilities, and we look forward to providing 

a strong, reasoned voice for investors as policies are 

considered in the coming year. 

Sincerely, 

Rick A. Fleming 

Investor Advocate 

Rick A. Fleming 

Investor Advocate 

2 | OFFICE OF THE INVESTOR ADVOCATE 
REPORT ON ACTIVITIES
 

Functions of the Investor Advocate Reporting Obligation 

According to Exchange Act Section 4(g)(4), 15 According to Exchange Act Section 4(g)(6) 

U .S .C . § 78d(g)(4), the Investor Advocate shall: (B), 15 U .S .C . § 78d(g)(6)(B), the Investor 

(A) assist retail investors in resolving signifi- Advocate shall submit to Congress, not later 

cant problems such investors may have than December 31 of each year, a report on the 

with the Commission or with SROs; activities of the Investor Advocate during the 

immediately preceding fiscal year . This “Report 

(B) identify areas in which investors would on Activities” must include the following: 

benefit from changes in the regulations 

of the Commission or the rules of SROs; (I) appropriate statistical information and full 

and substantive analysis; 

(C) identify problems that investors have 

with financial service providers and (II) information on steps that the Investor 

investment products; Advocate has taken during the reporting 

period to improve investor services and 

(D) analyze the potential impact on investors the responsiveness of the Commission and 

of proposed regulations of the Commis- SROs to investor concerns; 

sion and rules of SROs; and 

(III) a summary of the most serious problems 

(E) to the extent practicable, propose to the encountered by investors during the 

Commission changes in the regulations reporting period; 

or orders of the Commission and to Congress any legislative, administrative, or (IV) an inventory of the items described in 

personnel changes that may be appropri­ subclause (III) that includes— 

ate to mitigate problems identified and (aa) identification of any action taken by 

to promote the interests of investors . the Commission or the SRO and the 

result of such action; 

(bb) the length of time that each item has 

remained on such inventory; and 

(cc) for items on which no action has 

been taken, the reasons for inaction, 

and an identification of any official 

who is responsible for such action; 

(V) recommendations for such administrative 

and legislative actions as may be appropriate to resolve problems encountered by 

investors; and 

(VI) any other information, as determined 

appropriate by the Investor Advocate . 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 3
 

STEPS TAKEN TO IMPROVE INVESTOR 

SERVICES AND RESPONSIVENESS 

Exchange Act Section 4(g)(6)(B)(ii)(II) requires 

the Report on Activities to include information on 

steps the Investor Advocate has taken during the 

Reporting Period to improve investor services and 

the responsiveness of the Commission and SROs 

to investor concerns. During FY 2014, the Investor 

Advocate has taken significant steps to accomplish this objective.8

 Most notably, the Investor 

Advocate appointed the SEC’s first Ombudsman. 

Section 919D of the Dodd-Frank Act, as codified 

in Exchange Act Section 4(g)(8), 15 U.S.C. 

§ 78d(g)(8), requires the Investor Advocate to 

appoint an Ombudsman who will act as a liaison 

in resolving problems that retail investors may have 

with the Commission or an SRO. The Ombudsman 

also will establish safeguards to maintain the confidentiality of communications with investors. 

On September 5, 2014, the Investor Advocate 

announced the appointment of Tracey L. McNeil 

as Ombudsman.9 Ms. McNeil assumed her new 

duties effective September 22, 2014, and she has 

been working to establish appropriate systems for 

the intake and resolution of investor inquiries. 

Exchange Act Section 4(g)(8)(D) requires the 

Ombudsman to submit a semi-annual report to 

the Investor Advocate that describes the activities 

and evaluates the effectiveness of the Ombudsman 

during the preceding year (the “Ombudsman’s 

Report”). The Investor Advocate, in turn, is 

required to include the Ombudsman’s Report 

within the Investor Advocate’s reports to Congress. 

The Investor Advocate’s next Report on Objectives, 

due June 30, 2015, will include the first Ombudsman’s Report. 

In addition to hiring an Ombudsman to improve 

the Commission’s responsiveness to investor 

concerns, the Investor Advocate has taken steps 

to raise the profile of the SEC’s Investor Advisory 

Committee (the “IAC” or “Committee”). By 

statute, the Investor Advocate is a member of the 

IAC,10 and the Office of the Investor Advocate has 

accepted responsibility for providing operational 

and staff support for the Committee. Office of the 

Investor Advocate staff have facilitated numerous 

meetings between IAC subcommittees and agency 

staff, and the Investor Advocate routinely ensures 

that policymakers are aware of IAC recommenda

tions regarding matters of critical importance to 

investors. For instance, the Office will conclude 

each of its reports to Congress with a summary 

of IAC recommendations and the Commission’s 

responses to those recommendations. This Report 

on Activities is no exception. 

MOST SERIOUS PROBLEMS 

ENCOUNTERED BY INVESTORS 

AND RECOMMENDATIONS 

FOR ADMINISTRATIVE OR 

LEGISLATIVE ACTION 

Among the statutory duties of the Investor 

Advocate enumerated in Exchange Act Section 

4(g)(4), the Investor Advocate is required to 

identify “problems” that investors have with 

financial service providers and investment products. 

Exchange Act Section 4(g)(6)(B) mandates that 

the Investor Advocate, within the annual Report 

on Activities, shall provide a summary of the most 

serious problems encountered by investors during 

the preceding fiscal year. The statute also requires 

the Investor Advocate to make recommendations 

for such administrative and legislative actions as 

may be appropriate to resolve those problems.11 

­

4 | OFFICE OF THE INVESTOR ADVOCATE 
 

To determine the most serious problems related to 

financial service providers and investment products, 

staff of the Office of the Investor Advocate have 

reviewed information from the following sources: 

§ Investor Alerts and Bulletins issued by the SEC, 

the North American Securities Administrators 

Association (“NASAA”), and the Financial 

Industry Regulatory Authority (“FINRA”) 

during FY 2014; 

§ SEC enforcement actions and FINRA 

disciplinary actions during the Reporting Period; 

§ The 2014 NASAA Enforcement Report;12 

§ Data summarizing inquiries and complaints 

from investors submitted to the SEC’s Office of 

Investor Education and Advocacy; and 

§ SEC and SRO staff reports providing guidance 

and interpretations relating to investment 

products. 

The table below lists certain problematic products 

or practices during FY 2014 as reported by 

the SEC, NASAA, and FINRA. Although not 

exhaustive, the lists reflect some of the enforcement 

concerns of these organizations. Details regarding 

these products and practices are available on these 

organizations’ websites. 

Each of these products and practices presented 

problems for investors during the Reporting Period. 

However, based upon our review of the resources 

described above and conversations with numerous 

knowledgeable individuals, this Report on Activities 

identifies three of those products and practices that 

appear to have been the most problematic in FY 

2014: private placement offerings, variable annuities, 

and non-traded real estate investment trusts. 

In our review, we also considered products and 

practices that did not result in a significant number 

of enforcement actions during the Reporting 

Period but nevertheless represent emerging risks to 

investors. Two of these areas of growing concern 

are binary options and a practice known as 

“reverse churning.” 

Private Placement Offerings 

The Securities Act of 1933 (the “Securities Act”) 

prohibits an issuer from offering to sell its securities 

unless the offering has been registered with the 

SEC or qualifies for an exemption from the 

registration requirement.16 Regulation D under 

the Securities Act provides a series of exemptions 

under which companies may raise capital from 

investors without having to comply with the regis

tration requirement.17 The most commonly used 

exemption under Regulation D is found in Rule 

SEC13 NASAA14 FINRA15 

§ Non-traded REITs § Binary Options § Bitcoin—Virtual Currency 

§ Variable Annuities § Marijuana Industry Investments § High-Yield CDs 

§ Virtual Currency § Stream-of-income Investments § Variable Annuities 

§ Binary Options § Digital Currency & Cybersecurity Risks § Bonds—Reverse 

§ Private Placement § Regulation D/Rule 506 Private Offerings Convertibles 

Offerings § Pyramid and other Ponzi Schemes § Pre-IPO Offerings 

§ Real Estate Schemes, Including Those Using § Frontier Funds 

Promissory Notes § Private Placements 

§ Affinity Fraud § Public Non-traded REITs 

§ Internet Fraud, including Social Media and § Retirement Accounts 

Crowdfunding 

§ Oil & Gas Investments in the Fracking Era 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 5
 

 

 

506, which provides an exemption for offerings 

sold primarily to accredited investors.18 While a 

securities offering that is registered with the SEC is 

called a public offering, an offering that is exempt 

from SEC registration under Rule 506 is often 

referred to as a private placement offering.19 

Private placements are investment offerings that 

are highly illiquid, generally lack transparency and 

have little regulatory oversight.20 The securities 

offered in a private placement are considered 

illiquid because they cannot be resold without registration or an exemption from registration,21 and 

most securities acquired through private placements 

are considered “restricted securities” that must be 

held for at least a year before they can be resold.22 

Thus, in a private placement, retail investors risk 

being unable to access their invested funds when 

needed.23 This illiquidity also could negatively 

impact the price at which a retail investor would be 

able to resell the securities.24 

While public offerings are subject to the registration 

requirement, private placements, by contrast, are 

not reviewed by federal or state regulators. In 

a private placement offering, there is no presale 

review process to ensure that the risks associated 

with the securities being offered and other material 

facts about the entity raising capital are adequately 

disclosed to investors. While the offerings are 

subject to the antifraud provisions of state and 

federal law, which means that the issuer must 

disclose all material facts to investors, post-sale 

recovery of funds lost in a private placement may 

be difficult or impossible.25 

During the Reporting Period, the SEC litigated a 

private placement case that illustrates the potential 

for harm in these types of offerings. In SEC v. 

AIC,

26 a Richmond, Virginia-based financial 

services holding company, a subsidiary brokerage 

firm, and their chief executive officer were found 

liable for fraud and were required to pay nearly 

$70 million.27 The SEC’s complaint alleged 

that the defendants conducted an offering fraud 

while selling AIC promissory notes and stock to 

numerous investors, many of whom were elderly 

or unsophisticated brokerage customers.28 In 

particular, the complaint alleged that the defendants misrepresented and omitted material information about the investments when pitching them 

to investors, including the safety and risk associated 

with the investments, the rates of return, and how 

the proceeds would be used by AIC.29 

Private placements have also attracted attention at 

the state level. State securities regulators report that 

they frequently receive complaints from investors 

who have been victimized in private placements conducted under Rule 506.30 According 

to NASAA, offerings under Rule 506 ranked as 

the most common product or scheme leading to 

enforcement actions by state securities regulators 

in 2011 and 2012.31 Indeed, “[i]n those two years 

alone, NASAA members recorded 340 enforcement 

actions involving Rule 506 offerings, and private 

placements are commonly listed on [NASAA’s] 

annual list of top investor traps.”32 

In addition to enforcement actions, the SEC 

has alerted investors to the dangers of private 

placement offerings. Among other things, the 

Commission has encouraged retail investors to 

research thoroughly the validity of these potential 

investments and to be wary of high-pressure sales 

tactics.33 The SEC has cautioned that, if an issuer 

fails to answer an investor’s questions adequately, 

the investor should “consider this a warning 

against making the investment.”34 

6 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

 

 

The Investor Advocate has not yet made any formal 

recommendation to the Commission regarding 

administrative actions that may alleviate the 

problems associated with private placements. The 

Investor Advisory Committee, however, has issued 

a set of relevant recommendations.35 Among other 

things, the IAC recommended that the Commission 

adopt changes to Form D and make the filing of 

the form a precondition for claiming the Rule 506 

exemption. In addition, the IAC recommended that 

the Commission require the filing of all advertising 

or solicitation materials that are used in connection 

with an offering under Rule 506(c).36 

Recently, the IAC recommended that the 

Commission reconsider the definition of an 

“accredited investor.”37 To satisfy Rule 506, 

an issuer can sell securities to no more than 35 

non-accredited investors, so the definition of 

an accredited investor constitutes an important 

limitation of Rule 506. The IAC recommended 

that the Commission should “carefully evaluate 

whether the accredited investor definition, as it 

pertains to natural persons, is effective in identifying a class of individuals who do not need the 

protections afforded by the [Securities] Act.”38 

To the extent that the existing definition is not 

fulfilling this purpose, the IAC recommended that 

the Commission initiate a rulemaking to amend 

the definition.39 According to the IAC, the revised 

definition should enable individuals to qualify as 

accredited investors based on their financial sophistication, or the Commission should consider alternative approaches such as limitations based upon a 

percentage of the investors’ assets or income.40 

On July 10, 2013, the SEC proposed a rule to 

enhance the Commission’s ability to evaluate the 

development of market practices in Rule 506 

offerings and to address concerns that may arise 

from the use of general solicitation in offerings 

under Rule 506(c).41 The proposed rule would 

amend Form D and require the filing of the form as 

a condition of the exemption.42 The Commission 

has twice sought public comment on the rule 

proposal, which remains pending.43 

Variable Annuities 

A variable annuity is an investment product with 

insurance features.44 It allows an investor to select 

from a menu of investment choices, typically mutual 

funds, within the variable annuity. At a later date— 

such as retirement—it allows the investor to receive 

a stream of payments over time.45 The value of the 

variable annuity will depend on how those underlying investment choices perform.46 Because variable 

annuities are considered securities under federal law, 

they are registered with the SEC and sales must be 

conducted through entities and individuals who are 

regulated by the SEC and FINRA.47 

While similar to mutual funds, variable annuities 

offer some investment features that mutual funds 

do not. First, variable annuities allow an investor 

to receive periodic payments for the rest of his or 

her life or for the life of the investor’s spouse.48 

Second, variable annuities offer additional features, 

often for purchase, thereby allowing investors 

to personalize the product.49 One such feature 

is a death benefit, whereby a named beneficiary 

receives an amount equal to at least the investor’s 

purchase price if the investor dies before the insurer 

begins issuing payments.50 In addition, investors 

pay no taxes on any income and investment gains 

generated from the investments held in the variable 

annuities until money is withdrawn.51 

Variable annuities offer various features, some of 

which are quite complex, making it challenging for 

some investors to understand what is being recommended for them to buy.52 For instance, there are 

fees associated with variable annuities that may 

not be readily apparent to many retail investors: 

surrender charges,53 mortality and expense risk 

charges,54 administrative fees,55 underlying fund 

expenses,56 and charges for special features.57 

Some financial professionals may attempt to attract 

investors by offering variable annuities with bonus 

credit features.58 However, bonus credits are not 

usually free—insurers charge investors for bonus 

credits by imposing higher surrender charges or 

longer surrender periods compared to similar 

variable annuities with no bonus credits.59 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 7
 

 

During the Reporting Period, investors encountered a number of problems involving variable 

annuities. In many cases, the problems were not 

intrinsic to variable annuities per se, but rather 

to sales practices or certain collateral features of 

the products. For example, on July 31, 2014, a 

broker agreed to settle SEC charges alleging that 

he had orchestrated a variable annuities scheme 

designed to profit from the imminent deaths of 

the terminally ill.60 Specifically, the broker had 

sold variable annuity contracts with death benefit 

and bonus credit features to wealthy investors and 

designated the terminally ill patients as annuitants 

whose death would trigger a benefit payout.61 

Anticipating that the patients would soon die, 

he marketed the annuities as opportunities for 

investors to reap short-term investment gains.62 

Among other admissions made by the broker in the 

settlement, he knew that if the “stranger annuitants” did not die within a matter of months, his 

customers would be locked into unsuitable, highly 

illiquid long-term investment vehicles that they 

would be able to exit only by paying substantial 

surrender charges.63 He also submitted at least 14 

trade tickets containing materially false statements 

concerning how long his clients intended to hold 

their annuities while knowing that his broker-dealer 

would not have approved his annuities sales if he 

had provided truthful information concerning his 

customers’ intention to use the annuities as shortterm investment vehicles.64 The broker agreed to 

settle the SEC charges against him by paying more 

than $850,000, admitting wrongdoing, and being 

barred from the securities industry.65 

Another area of concern involves the tax-free 

exchange of variable annuities. Section 1035 of the 

U.S. tax code66 governs these tax-free exchanges, 

often known as “Section 1035 Exchanges.” It 

allows an investor “to exchange an existing annuity 

contract for a new annuity contract without paying 

any tax on the income and investment gains in [his 

or her] current variable annuity contract.”67 

Section 1035 Exchanges can benefit some 

investors.68 For instance, new developments in 

features now offered in variable annuities may 

provide investors an annuity that offers more 

preferable features than the one they already own, 

such as different annuity payout options, a larger 

death benefit, or a broader selection of investment 

choices.69 However, some financial professionals 

try to generate sales by persuading investors to 

engage in these exchanges, even when the exchange 

is not advisable because of surrender charges or 

other features that offset the benefits.70 

An additional area of concern involves deceptive 

or high-pressure sales tactics.71 Some financial 

professionals have an incentive to recommend 

variable annuities because they may earn higher 

commissions for selling variable annuities than they 

would for selling other securities products.72 This 

incentive may lead salespersons to engage in tactics 

such us “limited-time offers”73 or “free lunch” 

seminars.74 

Because the problems associated with variable 

annuities are related primarily to sales practices 

or certain collateral features of the products, the 

Investor Advocate has not made any recommendations for changes to rules or regulations governing 

their sale. Problems in this area can be addressed 

through continued enforcement of existing rules 

and ongoing investor education efforts. 

Non-Traded Real Estate 

Investment Trusts 

Congress established real estate investment trusts 

(“REITs”) in 1960 to allow retail investors to 

invest in large-scale income producing real estate.75 

Investments in REITs make it possible for retail 

investors to earn a share of the income produced 

through commercial real estate ownership, without 

actually having to purchase the property directly.76 

Generally, a REIT is a company that owns, and 

typically operates, income-producing real estate or 

real estate-related assets.77 Most REITs specialize 

in a certain type of real estate, such as apartment 

8 | OFFICE OF THE INVESTOR ADVOCATE 
 

communities or office buildings.78 REITs are 

unlike other types of real estate companies in that 

a REIT must acquire and develop its real estate 

properties mainly to operate them as part of its 

own investment portfolio, instead of reselling those 

properties once they have been developed.79 To 

qualify as a REIT, a company must have most 

of its assets and income connected to real estate 

investment and must distribute at least 90 percent 

of its taxable income in the form of dividends to 

shareholders annually.80 

There are two general types of REITs: traded and 

non-traded.81 Traded REITs are registered with the 

Commission and are publicly traded on a securities 

exchange.82 Non-traded REITs are registered with 

the Commission but are not publicly traded.83 

Non-traded REITs share similarities with traded 

REITs: both invest in real estate, are subject to the 

same qualification requirements, and are required 

to make regular SEC disclosures, which are made 

publicly available through the Commission’s 

EDGAR database.84 

Despite their similarities, non-traded REITs differ 

from traded REITs in important ways.85 For 

example, investing in non-traded REITs can involve 

significant up-front costs, which can lower the value 

of the underlying investment substantially.86 In 

addition, non-traded REITs typically have external 

managers who may be paid high fees by the REIT 

for conducting activities that are not necessarily 

aligned with the interests of shareholders.87 

Non-traded REITs generally are illiquid because, 

by definition, they are not publicly traded on 

an exchange.88 As a result, there is no trading 

market to establish pricing, and retail investors 

may encounter valuation complexities.89 Unlike 

publicly-traded REITs, non-traded REITs often 

make distributions in excess of their taxable income 

using borrowed funds and offering proceeds.90 

This can deflate share value and reduce the cash 

available to purchase additional income-generating 

properties.91 Nonetheless, the longstanding 

industry practice has been to value the shares of 

non-traded REITs at a constant dollar value per 

share—for example, $10 per share—on customer 

account statements, despite the use of significant 

capital for non-real estate purposes.92 

On October 10, 2014, the Commission approved 

a proposed rule change by FINRA relating to the 

valuations for certain securities, including unlisted 

REIT securities, on customer account statements.93 

Generally, the proposed rule change would require 

broker-dealers to include in customer account statements a per share estimated value for an unlisted 

REIT “developed in a manner reasonably designed 

to ensure that the per share estimated value is 

reliable.”94 

In approving FINRA’s proposed rule change, the 

Commission found, among other things, that 

the rule was “designed to address longstanding 

concerns with the current industry practice of 

displaying a REIT security’s immutable offering 

price as its per share estimated value on customer 

account statements throughout the offering period” 

(which could span several years), notwithstanding 

the fluctuation in value of the REIT security during 

that period.95 The Commission stated that it 

believed that FINRA’s proposed rule change would 

“greatly improve the accuracy and transparency of 

the value of . . . REIT securities and, in turn, better 

protect the investing public.”96 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 9
 

 

Binary Options 

A binary option is a type of options contract in 

which the payout depends entirely on whether 

the underlying asset—for instance, a company’s 

stock—rises above or falls below a specified 

amount.97 Investors betting on a company’s stock 

movement face an all-or-nothing outcome when the 

option expires.98 Binary options are significantly 

different from more conventional options99 in that 

binary options have different payouts, fees, risks, 

and an entirely different liquidity structure and 

investment process.100 

A substantial portion of the binary options 

market takes place through internet-based trading 

platforms that are not necessarily complying with 

applicable U.S. regulatory requirements.101 In 

fact, only a fraction of the binary options market 

is subject to oversight by United States regulators, 

such as the SEC and the Commodity Futures 

Trading Commission.102 The number of internetbased binary options trading platforms has risen 

sharply in recent years.103 This proliferation has led 

to an increase in the number of investor complaints 

regarding fraudulent promotion schemes involving 

binary options trading platforms.104 There are 

at least three categories of complaints: refusal to 

credit customer accounts or reimburse funds to 

customers; identity theft; and manipulation of 

software to generate losing trades.105 

Many binary options trading platforms may be 

operating in violation of other applicable laws and 

regulations.106 Binary options that are considered 

securities may not be offered or sold unless the 

offer and sale have been registered with the SEC 

or qualify for an exemption from the registration 

requirement.107 If an unregistered offering is 

not exempt, then the offer or sale of the binary 

option would be illegal.108 Moreover, some trading 

platforms may be operating as unregistered broker­


binary options. At present, it appears that problems 

in this area can be addressed through aggressive 

enforcement of existing rules. 

Reverse Churning—Migration of 

Commission-Based Brokerage Accounts 

to Fee-Based Wrap Accounts 

Since the 1990s, there has been a trend among 

broker-dealers to migrate customers from 

commission-based accounts—in which brokerdealers generally earn commissions only when they 

execute trades—into accounts with fees that are 

based upon a percentage of assets in the account.110 

Some broker-dealers, perhaps experiencing pressure 

from decreasing trade volumes and declining 

commission rates, have decided to transform their 

choppy, transaction-based compensation into 

a steadier, more predictable revenue stream by 

switching brokerage accounts to fee-based wrap 

accounts that offer advice and no-commission 

trading for one bundled asset fee.111 By making this 

switch, they no longer have to execute a trade to 

earn a fee.112 

A commission-based fee system may create an 

incentive for “churning”—a practice in which 

an unscrupulous registered representative makes 

excessive transactions in an account in order to 

generate more commissions.113 Asset-based fees, 

dealers.109 

The Investor Advocate has not yet determined 

that changes in rules or regulations are needed 

to combat the growing problems associated with 

10 | OFFICE OF THE INVESTOR ADVOCATE 

in contrast to commission-based fees, remove this 

incentive to generate trading commissions.114 

An asset-based system, however, can present the 

risk that a broker-dealer will ignore the client’s 

account because the firm will earn a fee regardless 
 

of whether a transaction occurs.115 This practice 

sometimes develops when a broker-dealer (usually 

dually registered as an investment adviser) transfers 

the account of a client who trades infrequently 

from a commission-based account into an account 

with asset-based fees.116 This “reverse churning” 

can result in neglected clients who receive limited 

service and who seldom trade even if certain transactions may be advisable for them.117 

Recently, the Commission has been “looking for 

undisclosed and unmitigated conflicts [of interest 

involving] the trend among dually registered firms 

to move their clients’ assets from commission-based 

brokerage accounts to fee-based wrap accounts.”118 

While there may be compelling and legitimate 

reasons for such a move, there also have been 

instances where the benefits to the client are not so 

clear.119 Examples of questionable switches from 

commission-based fee systems to asset fee-based 

wrap accounts include the following:120 

§	Securities are purchased, and portfolios are 

constructed or reconstructed, in commissionpaying brokerage accounts at significant expense 

to the client, and then promptly transferred to 

a fee-based wrap account in which the client 

could have executed the same trades without 

paying commissions.121 

§	Accounts that consist mainly or entirely of cash 

or cash equivalents earning a few basis points 

are transferred into a fee-based wrap account 

charging up to nearly three percent of assets 

under management and continue to remain 

invested in cash.122 

§	Assets sit in a fee-based account for years 

without a single transaction occurring, or sales 

are effected only to generate proceeds to pay the 

asset-based fee.123 

The migration of commission-based fee accounts 

to asset-based systems is a widespread practice 

that may not always withstand scrutiny as being 

in the best interests of a client.124 Indeed, “dual 

registrants [in particular must] consider whether 

the recommendation to move from a brokerage 

account to an advisory account is consistent with 

fiduciary obligations and whether the move is in 

the client’s best interests.”125 

The Investor Advocate does not believe that 

changes in rules or regulations are required to 

address the problem of reverse churning. Rather, 

aggressive enforcement action, particularly with 

respect to enforcing the fiduciary duty of an 

investment adviser who accepts and oversees a 

fee-based account, should be sufficient to deter this 

type of unethical practice. 

INVENTORY OF PROBLEMS 

IDENTIFIED, RECOMMENDATIONS 

MADE BY THE INVESTOR ADVOCATE, 

AND ACTIONS TAKEN BY THE 

COMMISSION OR SROS 

Exchange Act Section 4(g)(6)(B)(ii)(IV) requires the 

Report on Activities to include an “inventory” of 

the most serious problems encountered by investors 

during the reporting period. The inventory will 

identify the recommendations made by the Investor 

Advocate to resolve those problems.126 The statute 

mandates that any such recommendations include a 

description of the following items: 

§	any action taken by the Commission or an SRO, 

and the result of such action; 

§	the length of time that each item has remained 

on such inventory; and 

§	for items on which no action has been taken, the 

reasons for inaction and an identification of any 

official who is responsible for such action. 

The Office of the Investor Advocate was created 

on February 24, 2014, nearly midway through FY 

2014. Because the instant report is the first Report 

on Activities to be submitted to Congress, there are 

no preexisting items to include in an inventory. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 11

SUMMARY OF IAC
 


RECOMMENDATIONS AND
 


SEC RESPONSES



Investor Advisory Committee . Front row from left to right: Hester Peirce; Joseph V . Carcello; Ann Yerger; Jean Setzfand; Darcy Bradbury; 

Craig Goettsch; Adam Kanzer . Back row from left to right: Rick Fleming; Alan Schnitzer; Kurt Schacht; Barbara Roper; Roger Ganser; 

Stephen Holmes; Steven Wallman; Damon Silvers . (Not pictured: J . Robert Brown, Jr .; Eugene Duffy; James Glassman; Joseph Grundfest; 

Roy Katzovicz; and Anne Sheehan) . 

Congress established the Investor Advisory 

Committee to advise and consult with 

the Commission on regulatory priorities, 

initiatives to protect investor interests, initiatives to 

promote investor confidence and the integrity of 

the securities marketplace, and other issues.127 The 

Committee is composed of the Investor Advocate, 

a representative of state securities commissions, 

a representative of the interests of senior citizens, 

and not fewer than 10 or more than 20 members 

appointed by the Commission to represent the 

interests of various types of individual and institutional investors.128 

Exchange Act Section 39 authorizes the Committee 

to submit findings and recommendations for review 

and consideration by the Commission.129 The 

statute also requires the SEC “promptly” to issue a 

public statement assessing each finding or recommendation of the Committee and disclosing the 

action, if any, the Commission intends to take with 

respect to the finding or recommendation.130 While 

the Commission must respond to the IAC’s recommendations, it is under no obligation to agree with 

or act upon the recommendations.131 

In its reports to Congress, including this one, the 

Office of the Investor Advocate summarizes the 

IAC recommendations and the SEC’s responses 

to them.132 This report covers the eight sets of 

recommendations that the IAC has made from its 

inception to the end of FY 2014.133 Two additional 

recommendations that the IAC adopted in October 

2014 fall beyond the scope of this report.134 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 13
 

The Commission and its staff have taken interim 

or final action on four of the IAC’s eight recommendations; namely, those regarding tick sizes, 

Title II of the JOBS Act, target date retirement 

funds, and structured data. In addition, SEC 

Chair Mary Jo White has informed the IAC that 

Commission staff is working on the remaining 

IAC recommendations.135 

SEC responses to IAC recommendations may 

take various forms. If an IAC recommendation 

pertains to a current rulemaking, the Commission’s 

proposing release or the adopting release may 

constitute the Commission’s response. If an IAC 

recommendation involves no current rulemaking, 

Chair White has indicated that the Commission 

would respond with a written statement.136 

The Commission may be pursuing initiatives 

that are responsive to IAC recommendations 

but have not yet been made public. Commission 

staff—including staff of the Office of the Investor 

Advocate—are prohibited from disclosing 

nonpublic information.137 Therefore, any such 

initiatives are not reflected in this Report on 

Activities. 

CROWDFUNDING 

At its meeting on April 10, 2014, the IAC adopted 

a package of six recommendations for the SEC 

to strengthen its proposed rules to implement the 

crowdfunding provisions of the JOBS Act.138 The 

Committee stated that its recommendations would 

better ensure that investors understand the risks 

of crowdfunding and avoid unaffordable financial 

losses. Among other things, the Committee recommended that the SEC: 

§	Adopt tighter limits on the amount of money 

that investors could invest in crowdfunding; 

§	Strengthen the mechanisms for the enforcement 

of the investment limits in order to better 

prevent errors and evasion; 

§	Clarify and strengthen the obligations of 

crowdfunding intermediaries to ensure that 

issuers comply with their legal obligations; 

clarify the requirements for background checks; 

clearly affirm the right of portals to “curate” 

offerings; and consider a tiered regulatory 

structure based upon factors such as the size of 

offering, investment limits, and participation 

by individuals with a record of securities law 

violations; 

§	Enhance the effectiveness of educational 

materials for investors; 

§	Replace the proposed definition of electronic 

delivery with a stronger definition that, at a 

minimum, requires disclosure of a specific URL 

where required disclosures can be found; and 

§	Replace its proposal to eliminate application 

of the integration doctrine with a narrower 

approach. 

These recommendations relate to proposed rules 

that are still under consideration.139 Chair White 

informed the Committee at its meeting on 

July 10, 2014 that Commission staff was reviewing 

comments received during the comment period 

and developing recommendations for final rules. 

She added that the Commission’s response to the 

Committee’s recommendations would be reflected 

in the adopting release for the final rules. 

DECIMALIZATION AND TICK SIZES 

On January 31, 2014, the IAC adopted a resolution 

opposing any test or pilot programs to increase 

the minimum quoting and trading increments 

(“tick sizes”) in the securities markets.140 The 

resolution argued that larger tick sizes would 

harm retail investors by raising prices and would 

not improve the research coverage or liquidity of 

small-cap companies. The resolution urged the SEC 

to maintain its current policy on decimalization 

and to focus on other ways to enhance liquidity 

and capital formation without sacrificing investor 

protections. However, should the SEC decide to 

pursue a pilot program of increasing tick sizes, 

the IAC recommended a short “sunset” on the 

pilot unless benefits are proven to outweigh the 

costs; a careful evaluation of costs and benefits to 

investors, with a particular focus on retail investors; 

14 | OFFICE OF THE INVESTOR ADVOCATE 
From left to right: Investor Advocate Rick Fleming, Commissioner Kara M . Stein, Commissioner Luis A . Aguilar, Chair Mary Jo White, 

Commissioner David M . Gallagher, and Commissioner Michael S . Piwowar 

and the piloting of other competition-based 

measures designed to encourage trading and capital 

formation. 

On June 24, 2014, the Commission directed the 

national securities exchanges and FINRA to submit 

a plan for a pilot program to test a tick size of 5 

cents per share in three groups of securities.141 On 

August 25, 2014, the SROs submitted a plan for a 

12-month pilot program that would widen the tick 

sizes for certain stocks. The pilot program would 

consist of stocks with a market capitalization of $5 

billion or less, an average daily trading volume of 

one million shares or less, and a closing share price 

of at least $2 per share. The pilot would include 

one control group and three test groups, with 400 

securities in each test group.142 

At the IAC meeting on October 9, 2014, Chair 

White encouraged the Committee’s further feedback on both the broader policy considerations and 

the particulars of the pilot design.143 On November 

7, 2014, the Commission opened a public comment 

period on the tick size plan and pilot program, with 

comments due by December 22, 2014.144 

LEGISLATION TO FUND INVESTMENT 

ADVISER EXAMINATIONS 

On November 22, 2013, the IAC recommended 

that the SEC request legislation from Congress 

that would authorize the Commission to impose 

user fees on SEC-registered investment advisers 

to provide a scalable source of funding for more 

frequent compliance examinations of advisers.145 

The IAC asserted that the examination cycle for 

SEC-registered investment advisers was “simply 

inadequate to detect or credibly deter fraud.” 

Although the Commission has not taken a formal 

position on user fees, its Fiscal Year 2015 budget 

request identified increased examinations of 

investment advisers as a top priority. The request 

called for sufficient appropriations to add 316 

positions to the examination program in the 

SEC’s Office of Compliance Inspections and 

Examinations.146 

BROKER-DEALER FIDUCIARY DUTY 

On November 22, 2013, the IAC adopted a set 

of recommendations encouraging the SEC to 

establish a fiduciary duty for broker-dealers when 

they provide personalized investment advice to 

retail investors.147 The Committee preferred 

to accomplish this objective by narrowing the 

exclusion for broker-dealers within the definition 

of an “investment adviser” under the Investment 

Advisers Act of 1940. As an alternative, the 

Committee recommended the adoption of a 

rule under Section 913 of the Dodd-Frank 

Act to require broker-dealers to act in the best 

interests of their retail customers when providing 

personalized investment advice, with sufficient 

flexibility to permit certain sale-related conflicts of 

interest that are fully disclosed and appropriately 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 15
 

 

 

managed. In addition, the Committee recommended the adoption of a uniform, plain English 

disclosure document to be provided to customers 

and potential customers of broker-dealers and 

investment advisers. The document would disclose 

information about the nature of services offered, 

fees and compensation, conflicts of interest, and 

the disciplinary record of the broker-dealer or 

investment adviser. 

The SEC’s response to these recommendations 

is pending. 

UNIVERSAL PROXY BALLOTS 

On July 25, 2013, the IAC adopted a recommendation urging the SEC to explore the relaxation 

of the “bona fide nominee rule” (Rule 14a-4(d) 

(1)) to provide proxy contestants with the option, 

but not the obligation, to use Universal Ballots in 

connection with short slate director nominations.148 

The IAC also encouraged the Commission to hold 

one or more roundtable discussions on the topic. 

At the IAC meeting on October 9, 2014, 

Chair White informed the Committee that the 

Commission would hold a roundtable early 

in 2015 on a number of proxy-related issues, 

including universal ballots. 

DATA TAGGING 

At its meeting on July 25, 2013, the IAC adopted 

a recommendation for the SEC to promote the 

collection, standardization, and retrieval of data 

filed with the SEC using machine-readable data 

tagging formats.149 The Committee urged the SEC 

to take steps to reduce the costs of providing tagged 

data, particularly for smaller issuers and investors, 

by developing applications that allow users to enter 

information on forms that can be converted to 

machine-readable formats by the SEC. In addition, 

the IAC recommended that the SEC give priority 

to the data tagging of disclosures on corporate 

governance, including information about executive 

compensation and shareholder voting. 

The Commission has incorporated the collection 

of structured data into several recently adopted 

and proposed rules. For example, the Commission 

adopted rules on September 4, 2014, to require 

loan-level disclosure for asset-backed securities in 

XML format so investors may more easily access 

and analyze data about the asset pool. Recently 

proposed new rules governing “crowdfunding”150 

and amendments to Regulation A151 also include 

requirements for issuers to file certain key financial 

information in an XML format. In addition, Rule 

30b1-7 under the Investment Company Act of 

1940 requires money market funds to file Form 

N-MFP within five business after the end of each 

month—and the information required by the form 

must be data-tagged in XML format and filed 

through EDGAR.152 

As Chair White has indicated, consistent with 

the IAC’s recommendation to reduce the costs 

of providing structured data, Commission 

staff is considering a new filing method called 

“Inline-XBRL.”153 This new technology would 

effectively eliminate the need for companies to 

reconcile separate HTML and XBRL versions of 

the financial statement content, thus reducing the 

possibility of rekeying or similar errors. Instead, 

Inline-XBRL would allow companies to integrate 

(or embed) the XBRL tagging of the financial statements directly into their standard HTML formatted 

10-K and 10-Q filings. In addition, Commission 

staff is working on a prototype viewer to allow 

users to display and search the integrated XBRL 

tagging while viewing the familiar HTML version 

of the financial statements. 

The Commission’s new Chief Economist and 

Director of the Division of Economic and Risk 

Analysis (“DERA”), Dr. Mark Flannery, dedicated 

his inaugural speech to the topic of structured 

data. On September 30, 2014, he spoke of the 

Commission’s efforts to expand the public’s access 

to the financial data submitted to the SEC by 

market participants, including work on utilizing 

Inline-XBRL. Dr. Flannery also referred to a recent 

DERA assessment of the usage of custom tags,154 

as well as an analysis of calculation errors in XBRL 

submissions. The latter analysis led the Division 

16 | OFFICE OF THE INVESTOR ADVOCATE 
 

of Corporation Finance to issue a “Dear CFO” 

letter to several companies that had failed to 

include all required calculation relationships in 

their XBRL data.155 

TARGET DATE MUTUAL FUNDS 

On April 11, 2013, the IAC adopted recommendations for the Commission to revise its proposed 

rule regarding target date retirement fund names 

and marketing.156 The package of five IAC recommendations pertained to a 2010 SEC proposal 

that would, among other things, require marketing 

materials for target date retirement funds to include 

a table, chart, or graph depicting the fund’s asset 

allocation over time (i.e., an “asset allocation 

glide path”).157 

As either a replacement for or supplement to 

the SEC’s proposed asset allocation glide path 

illustration, the IAC recommended that the 

Commission develop a glide path illustration 

that would be based on a measure of fund risk. 

To promote comparability between funds, the 

IAC recommended the adoption of standard 

methodologies to be used in glide path illustrations. In addition, the IAC urged the Commission 

to require clearer disclosure about the risk of loss, 

the cumulative impact of fees, and the assumptions 

used to design and manage the funds. 

On April 3, 2014, the Commission reopened the 

comment period on the proposed rule in order to 

seek public comment on the IAC’s recommendations to adopt a risk-based glide path illustration 

and the methodology to be used for measuring 

risk.158 The comment period closed on June 9, 

2014, and a final rule has not yet been adopted. 

GENERAL SOLICITATION AND 

ADVERTISING 

On October 12, 2012, the IAC adopted a set of 

seven recommendations concerning rulemaking 

to lift the ban on general solicitation and advertising in offerings conducted under Rule 506.159 

The IAC asserted that the recommendations 

would strengthen investor protections and 

enhance regulators’ ability to police the private 

placement market. 

On July 10, 2013, the SEC took three related 

actions.160 First, the Commission adopted a final 

rule permitting general solicitation and advertising 

in Rule 506 offerings.161 Second, it adopted a 

final rule disqualifying offerings involving felons 

and other bad actors.162 Third, it proposed an 

additional rule to enhance the Commission’s ability 

to evaluate the development of market practices 

in Rule 506 offerings and to address concerns that 

may arise because the ban on general solicitation 

was lifted.163 

Taken together, the two final rules and the 

proposed rule generally reflect consideration of the 

IAC recommendations. However, the majority of 

the IAC recommendations relate to the proposed 

rule, which has not yet been adopted. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 17
 

End Notes 

1 	 Exchange Act § 4(g)(2)(A)(ii), 15 U.S.C. § 78d(g) 

(2)(A)(ii) (2012). 

2 	 Exchange Act § 4(g)(6), 15 U.S.C. § 78d(g)(6). 

3 	 Exchange Act § 4(g)(6)(A)(i), 15 U.S.C. § 78d(g)(6) 

(A)(i). 

4 	 The 2014 Report on Objectives is incorporated 

herein by reference. SEC, Office of the Investor 

Advocate, Report on Objectives, Fiscal Year 2015, 

(June 30, 2014), available at http://www.sec.gov/ 

reportspubs/annual-reports/sec-office-investoradvocate-report-on-objectives-fy2015.pdf. 

5 Exchange Act § 4(g)(6)(B)(i), 15 U.S.C. § 78d(g)(6) 

(B)(i). 

6 	 Id. 

7 	 SEC, Agency Financial Report Fiscal Year 2014, at 

54 (2014), available at http://www.sec.gov/about/ 

secpar/secafr2014.pdf. 

8 	 On October 31, 2014, the Investor Advocate filed 

a comment letter with the Municipal Securities 

Rulemaking Board (the “MSRB”). In the letter, 

the Investor Advocate recommended that the 

MSRB assign a higher long-term priority to price 

transparency in the municipal securities market. 

This letter was submitted after the Reporting 

Period—a copy is available at http://www.sec.gov/ 

advocate/msrb-letter-103114.pdf. 

9 	SEC, Press Release: Tracey L. McNeil Named 

as SEC’s First Ombudsman (Sept. 5, 2014), 

http://www.sec.gov/News/PressRelease/Detail/ 

PressRelease/1370542869949. 

10 	 Exchange Act § 39(b)(1)(A), 15 U.S.C. § 78pp(b) 

(1)(A). 

11 	 Exchange Act § 4(g)(6)(B)(ii)(V), 15 U.S.C. § 

78d(g)(6)(B)(ii)(V). 

12 	NASAA, NASAA Enforcement Report: 2014 

Report on 2013 Data (Oct. 2014), http://www. 

nasaa.org/wp-content/uploads/2011/08/2014­

Enforcement-Report-on-2013-Data_110414.pdf. 

See also NASAA, Top Investor Threats (Nov. 12, 

2014), http://www.nasaa.org/3752/top-investorthreats/. 

13 	 This list of problematic products identified by the 

SEC is based on staff analysis of the alerts and 

bulletins issued by the SEC’s Office of Investor 

Education and Advocacy during FY 2014. 

14 See NASAA, Top Investor Threats, supra note 12. 

15 This list of problematic products is based on staff 

analysis of the alerts and bulletins issued by FINRA 

for investors during FY 2014. 

16 Securities Act of 1933, Pub. L. 73-22, c. 38, Title 

I, § 5, 48 Stat. 77 (May 27, 1933), codified as 

amended at 15 U.S.C. § 77e. 

17 NASAA, Issue Brief: Private Placement Offerings 

(2013), http://www.nasaa.org/issues-and-advocacy/ 

private-placement-offerings/. 

18 Id. 

19 SEC, Investor Bulletin: Private Placements 

Under Regulation D (Sept. 2014), http://investor. 

gov/news-alerts/investor-bulletins/investorbulletin-private-placements-under-regulation-d#. 

VEgQIzYpCUl (explaining that generally, private 

placements are not subject to some of the laws and 

regulations that are designed to protect investors, 

such as the comprehensive disclosure requirements 

that apply to registered offerings). See also SEC, 

Investor Alert: 10 Red Flags That an Unregistered 

Offering May Be a Scam (Aug. 2014), http:// 

investor.gov/news-alerts/investor-alerts/investoralert-10-red-flags-unregistered-offering-may-bescam#.VEVZ7TYpCUl. 

20 	 See NASAA, Top Investor Threats, supra note 12. 

21 	SEC, Investor Bulletin: Private Placements Under 

Regulation D, supra note 19. 

22 	 Id. 

23 	 Id. 

24 	FINRA, Private Placements—Evaluate the 

Risks Before Placing Them in Your Portfolio 

(Sept. 17, 2013), http://www.finra.org/Investors/ 

ProtectYourself/InvestorAlerts/PrivateOfferings/ 

P339650. 

25 	SEC, Investor Bulletin: Private Placements Under 

Regulation D, supra note 19. 

26 	 SEC v. AIC, Inc. et al., No. 3:11-CV-176-TAVHBG, 2014 WL 3810667 (E.D. Tenn. Oct. 22, 

2013). 

27 SEC, SEC Obtains Nearly $70 Million Judgment 

Against Richmond, VA.-Based Firms and CEO 

Found Liable for Defrauding Investors, (Aug. 1,

2014), http://investor.gov/news-alerts/press-releases/

sec-obtains-nearly-70-million-judgment-againstrichmond-va-based-firms-ce#.VG-WgjZOmUk.

18 | OFFICE OF THE INVESTOR ADVOCATE 
28 	 Id. 

29 Id. 


30 Comment Letter, A. Heath Abshure, NASAA, 


RE: NASAA Comments in Response to Release 

Nos. 33-9416, 34-69960, IC-30595 (File No. 

S7-06-13), “Amendments to Regulation D, Form 

D and Rule 156 under the Securities Act” (Sept. 

27, 2013), http://www.nasaa.org/wp-content/ 

uploads/2011/07/NASAA-Comment-Letter-reForm-D.pdf. 

31 	 See NASAA, Issue Brief: Private Placement 

Offerings, supra note 17. 

32 	 Id. 

33 	SEC, Investor Bulletin: Private Placements Under 

Regulation D, supra note 19. 

34 	 Id. 

35 	 SEC, Recommendation of the IAC Regarding 

SEC Rulemaking to Lift the Ban on General 

Solicitation and Advertising in Rule 506 Offerings: 

Efficiently Balancing Investor Protection, Capital 

Formation and Market Integrity (Oct. 12, 

2012), http://www.sec.gov/spotlight/investoradvisory-committee-2012/iac-general-solicitationadvertising-recommendations.pdf. 

36 	 Id. 

37 	SEC, Recommendation of the IAC: Accredited 

Investor Definition (Oct. 9, 2014), http://www.sec. 

gov/spotlight/investor-advisory-committee-2012/ 

investment-advisor-accredited-definition.pdf. 

38 	 Id. 

39 	 Id. 

40 	 Id. 

41 	 Amendments to Regulation D, Form D and Rule 

156, Securities Act Release No. 9416 (July 10, 

2013) [78 FR 44806 (July 24, 2013)]. 

42 	 Id. at 44808. 

43 	 Amendments to Regulation D, Form D and Rule 

156, Re-Opening of Comment Period, Securities 

Act Release No. 9458 (Sept. 27, 2013) [78 FR 

61222 (Oct. 3, 2013)]. 

44 SEC, Variable Annuities: What You Should Know, 

at 3 (Sept. 2007), http://www.sec.gov/investor/ 

pubs/sec-guide-to-variable-annuities.pdf; See also, 

FINRA, Investor Alert: Variable Annuities: Beyond 

the Hard Sell, at 1 (Aug. 2009), http://www. 

finra.org/web/groups/investors/@inv/documents/ 

investors/p125846.pdf (explaining that “[i]f the 

payments are delayed to the future, [it is a] deferred 

annuity. If the payments start immediately, [it is an] 

immediate annuity.” Of concern here are deferred 

variable annuities). 

45 SEC, Variable Annuities: What You Should Know, 

supra note 44, at 3. 

46 Id. 

47 FINRA, Investor Alert—Variable Annuities: 

Beyond the Hard Sell, supra note 44. See also 

NASAA, Informed Investor Alert: Annuities (Nov. 

2010), http://www.nasaa.org/2692/informedinvestor-alert-annuities/ (noting that “variable 

annuities are considered to be securities under 

federal law and the laws of some states. Certain 

states consider variable annuities to be strictly 

insurance products, while other states consider 

them to be both insurance and securities. In states 

where variable annuities are regulated by both the 

state’s insurance and securities regulator, variable 

annuities must be registered with both state 

regulators.”). 

48 SEC, Investor Bulletin: Variable Annuities—An 

Introduction, at 2 (Feb. 2014), http://investor.gov/ 

sites/default/files/ib_var_annuities_0.pdf. 

49 Id. 

50 Id. This is considered a benefit if, at the time of 

death, the account value is less than the guaranteed 

amount. Id. 

51 Id. When money is withdrawn, investors are taxed 

on the earnings at ordinary income tax rates, rather 

than at lower capital gains tax rates associated with 

other investments, i.e. mutual funds. Id. There also 

is a 10% federal income tax penalty if money is 

withdrawn before an investor turns 59 1⁄2 years old. 

Id. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 19
 

 

 

 

 

 

52 FINRA, Investor Alert—Variable Annuities: 

Beyond the Hard Sell, supra note 44, at 2. 

53 See SEC, Variable Annuities: What You Should 

Know, supra note 44, at 10. Surrender charges are 

a type of sales charge that an insurance company 

assesses if an investor withdraws money from 

a variable annuity within a certain period after 

a purchase payment (known as the “surrender 

period,” which is typically within 6 to 8 years, but 

sometimes as long as 10 years). Id. Typically, the 

surrender charge is a percentage of the amount 

withdrawn, and declines gradually until the 

surrender period no longer applies. Id. 

54 Id. at 11. Mortality and expense risk charges 

are equal to a certain percentage of an investor’s 

account value, usually about 1.25 percent per year. 

Id. They are used to compensate the insurance 

company for the insurance risks it assumes under 

the annuity contract. Id. Profit from these charges 

is sometimes used to pay the insurer’s costs of 

selling the variable annuity, such as a commission 

paid to the financial professional for selling the 

variable annuity to an investor. Id. 

55 Id. Administrative fees may be deducted from an 

investor’s account to cover record-keeping and 

other administrative expenses. Id. Administrative 

fees may be charged as a flat account maintenance 

fee or as a percentage of the total account value. Id. 

56 Id. at 12. Investors indirectly pay underlying fund 

expenses, which are fees and expenses imposed 

by the mutual funds that underlie the investment 

choices for a variable annuity. Id. 

57 Id. Some variable annuities offer special features 

for additional fees or charges, such as a guaranteed 

minimum income benefit, long-term care insurance 

or principal protection. Id. 

58 Id. at 14. 

59 Id. (“Variable annuities with bonus credits may 

carry a downside, however—higher expenses 

that can outweigh the benefit of the bonus credit 

offered.”). See also SEC, Investor Bulletin: Variable 

Annuities—An Introduction, supra note 48, at 

4 (stating that “some products take back the 

bonus under certain conditions, for example if a 

death benefit is paid, or if [an investor] make[s] a 

withdrawal”). 

60 Press Release, SEC, Architect of Variable 

Annuities Scheme Agrees to Pay $850,000, 

Admit Wrongdoing, and Be Barred From 

Securities Industry, (July 31, 2014), http:// 

www.sec.gov/News/PressRelease/Detail/ 

PressRelease/1370542573818. Michael A. 

Horowitz, Exchange Act Release No. 72729, 2014 

WL 3749703 (SEC July 31, 2014). 

61 Press Release, supra note 60. 

62 

63 

Id. 

Id. 

64 Id. 

65 Id. 

66

67 

26 U.S.C. § 1035. 

SEC, Variable Annuities: What You Should Know, 

supra note 44, at 13. 

68 

69 

70 

FINRA, Investor Alert: Should You Exchange Your 

Variable Annuity?, at 2 (March 2006), http://www. 

finra.org/web/groups/investors/@inv/@protect/@ia/ 

documents/investors/p125849.pdf. 

SEC, Variable Annuities: What You Should Know, 

supra note 44, at 13. 

FINRA, Investor Alert: Should You Exchange Your 

Variable Annuity?, supra note 68, at 2. 

71 NAIC, Consumer Alert: Annuities and Senior 

Citizens, http://www.naic.org/documents/ 

consumer_alert_annuities_senior_citizens.htm. 

72 FINRA, Investor Alert: Should You Exchange 

Your Variable Annuity?, supra note 68, at 2. 

73 NAIC, Consumer Alert: Annuities and Senior 

Citizens, supra note 71. 

74 NASAA, Informed Investor Alert: Annuities, supra 

note 47. 

75 SEC, Investor Bulletin: Real Estate Investment 

Trusts (REITs), at 1 (Dec. 2011), http://investor. 

gov/sites/default/files/REITs.pdf. 

76 

77 

Id. 

Id. 

78 Id. 

79 

80 

Id. 

Id. 

20 | OFFICE OF THE INVESTOR ADVOCATE 
81 FINRA, Investor Alert – Public Non-Traded REITs 

– Perform a Careful Review Before Investing 

(Aug. 2012), http://www.finra.org/Investors/ 

ProtectYourself/InvestorAlerts/REITS/P124232. 

82 SEC, Investor Bulletin: Real Estate Investment 

Trusts (REITs), supra note 75, at 2. 

83 Id. 

84 FINRA, Investor Alert – Public Non-Traded REITs 

– Perform a Careful Review Before Investing, 

supra note 81. 

85 For a comparison of traded REITs and non-traded 

REITs, see SEC, Investor Bulletin: Real Estate 

Investment Trusts (REITs), supra note 75, at 2-3. 

86 Id. at 4. 

87 Id. 

88 Id. at 3. (“Although non-traded REITs usually 

offer share redemption programs, these are 

typically subject to significant limitations and may 

be discontinued at the discretion of the company. 

Investors may have to wait to receive a return of 

their capital until the company decides to engage 

in a transaction, such as the listing of the shares 

on an exchange or a liquidation of the company’s 

assets.”). 

89 Id. at 3-4. (“Non-traded REITs typically do not 

provide an estimate of their value per share until 

18 months after their offering closes, but this 

may be years after [an investor has] made [an] 

investment.”). 

90 Id at 4. 

91 Id. 

92 Notice of Filing of Proposed Rule Change Relating 

to per Share Estimated Valuations for Unlisted DPP 

and REIT Securities, Exchange Act Release No. 

71545 (Feb. 12, 2014) [79 FR 9535, 9536 (Feb. 

19, 2014)]. 

93 Order Approving FINRA Proposed Rule Change 

Relating to Per Share Estimated Valuations for 

Unlisted DPP and REIT Securities, Exchange Act 

Release No. 73339 (Oct. 10, 2014) [79 FR 62489 

(Oct. 17, 2014)]. 

94 Id. 

95 Id. at 62491. 

96 Id. 

97 SEC, Investor Alert: Binary Options and Fraud, at 

1 (June 2013), http://investor.gov/sites/default/files/ 

Binary-Options-and-Fraud_0.pdf. 

98 Press Release, SEC, SEC Warns Investors About 

Binary Options and Charges Cyprus-Based 

Company with Selling Them Illegally in the 

U.S, (June 6, 2013), http://www.sec.gov/News/ 

PressRelease/Detail/PressRelease/1365171575220. 

99 SEC, Investor Alert: Binary Options and Fraud, 

supra note 97. 

100 See generally, Id. 

101 Id. 

102 Id. 

103 Id. 

104 Id. 

105 Id. at 2-3. 

106 Id. at 3. 

107 Id. 

108 Id. 

109 Id. 

110 See Arthur B. Laby, Fiduciary Obligations of 

Broker-Dealers and Investment Advisers, 55 

Villanova L. Rev. 701, 739-40 (2010) (discussing, 

among other things, compensatory schemes of 

broker-dealers and investment advisers). 

111 Andrew J. Bowden, Director, Office of Compliance 

Inspections & Examinations, SEC, People 

Handling Other Peoples’ Money, Investment 

Adviser Association Compliance Conference (Mar. 

6, 2014) (transcript available at http://www.sec. 

gov/News/Speech/Detail/Speech/1370541260300). 

112 Id. 


113 Laby, supra note 110. 


114 Id. at 740. 


115 Id. 


116 See, e.g., Mary Jo White, Chair, SEC, Remarks 

at National Society of Compliance Professionals 

National Membership Meeting (Oct. 22, 2013) 

(transcript available at http://www.sec.gov/News/ 

Speech/Detail/Speech/1370539960588). 

117 See Laby, supra note 110, at 740. 

118 Bowden, supra note 111. 

119 Id. 

120 Id. 

121 Id. 

122 Id. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 21
 

123	 Id. 

124	 Id. 

125	 Norm Champ, Director, Div. of Inv. Mgmt., 

Remarks to the 2014 Mutual Funds and 

Investment Management Conference (Mar. 17, 

2014) (transcript available at http://www.sec.gov/ 

News/Speech/Detail/Speech/1370541168327). 

126	 Exchange Act § 4(g)(6)(B)(ii)(IV) does not explicitly 

require the Investor Advocate’s recommendations 

to be included within this inventory, but § 4(g)(4) 

(E) requires the Investor Advocate, to the extent 

practicable, to recommend to the Commission and 

Congress any changes in regulations or statutes 

to address problems identified by the Investor 

Advocate. Furthermore, § 4(g)(4)(E) requires the 

Investor Advocate to analyze proposed rules and 

regulations of the Commission and SROs and to 

identify areas in which investor would benefit from 

changes in the rules and regulations. 

127	 Exchange Act § 39(a), 15 U.S.C. § 78pp(a). 

128	 Id. 

129	 Exchange Act § 39(a)(2)(B), 15 U.S.C. 

§ 78pp(a)(2)(B). 

130	 Exchange Act § 39(g), 15 U.S.C. § 78pp(g). 

131	 Exchange Act § 39(h), 15 U.S.C. § 78pp(h). 

132	 According to Exchange Act Section 4(g)(6)(B)(ii), 

15 U.S.C. § 78d(g)(6)(B)(ii), a Report on Activities 

must include several enumerated items, and it may 

include “any other information, as determined 

appropriate by the Investor Advocate.” 

133	 All IAC Recommendations are available at 

http://www.sec.gov/spotlight/investor-advisorycommittee-2012.shtml. 

134	 The recommendations concern the Accredited 

138	 SEC,Recommendation of the IAC: Crowdfunding 

Regulations (Apr. 10, 2014), http://www.sec. 

gov/spotlight/investor-advisory-committee-2012/ 

investment-adviser-crowdfunding-recommendation. 

pdf. 

139	 Crowdfunding, Securities Act Release No. 9470 

(Oct. 23, 2013) [78 FR 66427 (Nov. 5, 2013)]. 

140	 SEC,Recommendation of IAC: Decimalization 

and Tick Sizes (Jan. 31, 2014), http://www.sec.gov/ 

spotlight/investor-advisory-committee2012/investment-adviser-decimilizationrecommendation.pdf. 

141	 Order Directing the Exchanges and the Financial 

Industry Regulatory Authority To Submit a Tick 

Size Pilot Plan, Exchange Act Release No. 72460 

(June 24, 2014) [79 FR 36840 (June 30, 2014)]. 

142	 Letter from Brendon J. Weiss, Vice President, 

NYSE Group, Inc. et al, Re: Plan to Implement a 

Tick Size Pilot Program (Aug. 25, 2014), http:// 

www.sec.gov/divisions/marketreg/tick-size-pilotplan-transmittal-letter.pdf; BATS Exchange, Inc. et 

al, Plan to Implement a Tick Size Pilot Program, 

http://www.sec.gov/divisions/marketreg/tick-sizepilot-plan-final.pdf. 

143	 Mary Jo White, Chair, SEC, Opening Remarks 

at the IAC Meeting (Oct. 9, 2014) (transcript 

available at http://www.sec.gov/News/PublicStmt/ 

Detail/PublicStmt/1370543132802). 

144	 Notice of Filing Proposed National Market 

System Plan to Implement a Tick Size Pilot 

Program on a One-Year Pilot Basis, Exchange Act 

Release No. 73511 (Nov. 3, 2014) [79 FR 66423 

(Nov. 7, 2014)]. 

145	 SEC,Recommendation of the IAC: Legislation 

to Fund Investment Adviser Examinations (Nov. 

22, 2013), http://www.sec.gov/spotlight/investoradvisory-committee-2012/investment-adviser­ Disclosure of Preliminary Voting Results, both 

Investor Definition and Impartiality in the 

available at http://www.sec.gov/spotlight/investor­ examinations-recommendation-2013.pdf. 

advisory-committee-2012.shtml. 

135	 Transcript of SEC IAC Meeting, at 12 

(Apr. 10, 2014). 

136	 Mary Jo White, Chair, SEC, Remarks at the 

Meeting of the IAC (July 25, 2013). 

137	 17 C.F.R. §§ 200.735-3(b)(2)(i), 230.122 (2014); 

Exchange Act § 24(b), 15 U.S.C. § 78x; 5 U.S.C. 

§ 552a(i)(1; SECR18-2, Section 8.5 (Nonpublic 

Information) (July 31, 2005). 

146 Testifying in support of the budget request, 

Chair White stated, “There is an immediate and 

pressing need for significant additional resources 

to permit the SEC to increase its examination 

coverage of registered investment advisers so as to 

better protect investors and our markets.” Mary 

Jo White, Chair, SEC, Budget Hearing: Before H. 

Subcomm. on Fin. Service & Gen. Gov’t of the H. 

Comm. on Appropriations, 113th Cong. (Apr. 1, 

2014) (transcript available at http://docs.house.gov/ 

meetings/AP/AP23/20140401/102004/HHRG-113­

AP23-Wstate-WhiteM-20140401.pdf). 

22 | OFFICE OF THE INVESTOR ADVOCATE 
 147 SEC, Recommendation of the IAC: Broker-Dealer 

Fiduciary Duty (Nov. 22, 2013), http://www.sec. 

gov/spotlight/investor-advisory-committee-2012/ 

fiduciary-duty-recommendation-2013.pdf. 

 148 SEC, Recommendations of the Investor Advisory 

Committee Regarding SEC Rulemaking to 

Explore Universal Proxy Ballots, http://www.sec. 

gov/spotlight/investor-advisory-committee-2012/ 

universal-proxy-recommendation-072613.pdf 

(adopted July 25, 2013). 

149 SEC, Recommendations of the Investor Advisory 

Committee Regarding the SEC and the Need 

for the Cost Effective Retrieval of Information 

by Investors, http://www.sec.gov/spotlight/ 

investor-advisory-committee-2012/data-taggingresolution-72513.pdf (adopted July 25, 2013). 

150 Crowdfunding, supra note 139. 

151 Proposed Rule Amendments for Small and 

Additional Issues Exemptions Under Section 3(b) 

of the Securities Act, Securities Act Release No. 

9497 (Dec. 18, 2013) [79 FR 3926 

(Jan. 23, 2014)]. 

152 Money Market Fund Reform; Amendments to 

Form PF, Securities Act Release No. 9616 (July 23, 

2014) [79 FR 47736, 47944 (Aug. 14, 2014)]. 

153 Mary Jo White, Chair, SEC, Testimony on 

“Oversight of the SEC’s Agenda, Operations and 

FY 2015 Budget Request,” Before H. Subcomm. 

On Fin. Services & Gen. Gov’t of the H. Comm. 

On Appropriations, 113 Cong. (Apr. 29, 2014) 

(transcript available at http://financialservices. 

house.gov/uploadedfiles/hhrg-113-ba00-wstatemwhite-20140429.pdf). 

154 Staff of the SEC, Div. of Risk & Economic 

Analysis, Observations of Custom Tag Rates (July 

7, 2014), available at http://www.sec.gov/dera/ 

reportspubs/assessment-custom-tag-rates-xbrl.html. 

155 See SEC, Div. of Corp. Fin., Sample Letter Sent to 

Public Companies Regarding XBRL Requirement 

to Include Calculation Relationships (July 2014), 

http://www.sec.gov/divisions/corpfin/guidance/xbrlcalculation-0714.htm. 

156 SEC, Recommendation of the IAC: Target Date 

Mutual Funds (Apr. 11, 2013), http://www.sec.gov/ 

spotlight/investor-advisory-committee-2012/iacrecommendation-target-date-fund.pdf. 

157 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Exchange 

Act Release No. 9126 (June 16, 2010) [75 FR 

35920 (June 23, 2010)]. 

158 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Securities 

Act Release No. 9570 (Apr. 3, 2014) [79 FR 19564 

(Apr. 9, 2014)]. 

159 SEC, Recommendation of the IAC Regarding 

SEC Rulemaking to Lift the Ban on General 

Solicitation and Advertising in Rule 506 Offerings: 

Efficiently Balancing Investor Protection, Capital 

Formation and Market Integrity, supra note 35. 

Title II of the JOBS Act requires the SEC to lift the 

ban on general solicitation and advertising in Rule 

506 securities offerings. Jumpstart Our Business 

Startups Act, Pub. L. No. 112-106, sec. 201(a), 

126 Stat. 306, 313 (2012). 

160 At the IAC meeting on July 25, 2013, Chair White 

provided the IAC with a chart mapping each of its 

recommendations to the corresponding text in the 

Commission’s proposed and final rule releases. 

161 Eliminating the Prohibition Against General 

Solicitation and General Advertising in Rule 506 

and Rule 144A Offerings, Securities Act Release 

No. 9415 (July 10, 2013) [78 FR 44771 

(July 24, 2013)]. 

162 Disqualification of Felons and Other “Bad Actors” 

from Rule 506 Offerings, Securities Act Release 

No. 9414 (July 10, 2013) [78 FR 44729 

(July 24, 2013)]. 

163 Amendments to Regulation D, Form D and Rule 

156, supra note 41. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 4 | 23
OFFICE OF THE INVESTOR ADVOCATE 

U .S . Securities and Exchange Commission 

100 F Street NE 

Washington, DC 20549 

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