Deals & People October 21, 2010

FINRA Names Brad Bennett as Head of Enforcement Division

The Financial Industry Regulatory Authority (FINRA) has chosen J. Bradley Bennett as the new Head of Enforcement.  
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Bennett is currently a partner at the Baker Botts law firm in Washington, D.C., and will start at FINRA on January 1, 2011.  He will take over from James Shorris, who has been the interim Chief of Enforcement since Susan Merrill left the organization last March. 

“Brad will bring extensive knowledge and experience in dealing with violations of securities rules to FINRA at this critical time,” said Richard Ketchum, Chairman and CEO of FINRA.  “It is imperative that FINRA aggressively deal with wrongdoing in the industry to help rebuild investor trust and confidence in the markets.” 

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At FINRA, Bennett will be responsible for the management of approximately 300 enforcement staff in 17 offices across the United States and report to FINRA Vice Chairman Stephen Luparello. 

Bennett has been at Baker Botts since 2001, where he specializes in financial and securities law violations. Before joining Baker Botts, he was an attorney at Miller, Cassidy, Larocca & Lewin. He started his career at the Securities and Exchange Commission as a senior attorney in the Division of Enforcement.  He is an adjunct professor of securities regulation at Catholic University’s Columbus School of Law. 

Compliance October 21, 2010

Fiduciary Proposal Shows EBSA Getting with the Times

In a conference call with the media, Phyllis C. Borzi, Assistant Secretary of Labor at the Department of Labor, described the current fiduciary guidelines as being “arcane.”
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In the teleconference, Borzi said the proposed updates to the definition of who is a fiduciary will allow the DoL to better protect plan participants and beneficiaries (see “DoL Broadens Fiduciary Net“).   

She expanded on EBSA’s reasoning for updating fiduciary guidelines in a blog post issued after the call: “Since 1975, despite major changes across the retirement landscape, the definition of a fiduciary for purposes of providing investment advice to employee benefit plans under the Employee Retirement Income Security Act (ERISA), has remained the same.  The current definition requires a cumbersome and fact-intensive five-step analysis to determine who is considered a fiduciary.  This analysis is increasingly difficult to administer in today’s marketplace given the complicated nature of new investment products, a dramatic shift from defined benefit plans to defined contribution plans, and complex inter-relationships between and among plan advisors and their affiliates,” wrote Borzi.   

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Borzi said EBSA’s investigations and enforcement actions “have made it clear that current rules under ERISA and subsequent guidance have hindered the department from protecting participants and establishing who is a fiduciary and who is not.” The proposed rule changes the defenses some entities have used to get out of personal liability for faulty advice or conflicts of interest. 

For example, Borzi said, appraisers providing evalutations for ESOPs; any investment adviser under the Investment Company Act of 1940; and those who hold themselves out as fiduciaries yet use current rules to avoid liability when something goes awry, will always be considered fiduciaries under the proposal. 

The two main implications for those who find themselves a fiduciary under the new definition are that they will be subject to a duty of loyalty and prudence and they will be personally liable for a breach, according to Borzi. She added that the new definition will weed out those who are giving shabby advice. 

Borzi noted the new definition will really help small and medium-sized plans that face liability because they are relying on advice by an entity that could use current rules to avoid fiduciary status. “We will be able to hold accountable those who are really responsible for the plan injury,” she stated.

Fred Wong, senior employee benefits law specialist, and author of the proposed regulation, said it is not designed to treat as a fiduciary a target-date fund investment manager for selecting underlying funds.

Wong also noted that the proposal will not only affect employer-sponsored arrangements, but also those IRAs subject to ERISA, as the rule extends to the Department of Labor’s authority under Section 4975 prohibited transaction rules.

 

 

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