On November 13, 2023, FINRA filed with the SEC a proposal to amendment to Rule 2210 that would create a tailored exception from the general prohibition on projections in marketing materials and other communications with institutional investors, including marketing decks and pitch books for private placements in investment funds and other securities.

FINRA Rule 2210(d)(1)(F) currently prohibits any member from including a projected performance in a written communication — retail or institutional. The amendment would provide a limited exception for performance projections or targeted returns in written communications distributed or made available only to “institutional investors.” An “institutional investor” is defined in Rule 2210(a)(4) to include banks, insurance companies, government agencies, employee benefit plans, registered investment companies, registered investment advisers, as well as any other person (individual or entity) with total assets of at least $50 million.

In addition, the amendment would permit projections in marketing materials sent or made available only to Qualified Purchasers as defined in Section 2(a)(51)(A) of the Investment Company Act, including an individual, family‑owned company or family‑related trust with more than $5 million in investments.

FINRA noted that the current restriction is intended primarily to protect investors “who are less able to assess the risks and limitations of using projected performances in making investment decisions.”

The exception would be conditioned on the member firm having or making: (1) written policies and procedures reasonably designed to ensure that the communication is relevant to the likely financial situation and investment objectives of the investor and compliance with other applicable requirements; (2) a reasonable basis and records to support the criteria used and assumptions made in calculating the projected performance or targeted return, and (3) prominent disclosure that the projected performance or targeted return is hypothetical in nature and stating that “there is no guarantee that the projected or targeted performance will be achieved.” In addition, the member must provide sufficient information to enable the investor to understand (1) the criteria used and assumptions made in calculating the projected performance or targeted return, including whether it is net of fees and expenses, and (2) the risks and limitations of using the projections or targets in making investment decisions, including reasons why they might differ from actual performance.

FINRA said that the amendment is intended to align broker‑dealers’ obligations with those of investment advisers under the new IA Marketing Rule.

The proposal would not change the current prohibitions with respect to other types of retail communications.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Benjamin Catalano Benjamin Catalano

Benjamin J. Catalano is a securities regulatory and enforcement lawyer and co-head of the Broker Dealer Practice.

Ben has extensive experience advising financial services companies on compliance with all aspects of federal and state securities laws and self-regulatory organization (SRO) rules. He represents…

Benjamin J. Catalano is a securities regulatory and enforcement lawyer and co-head of the Broker Dealer Practice.

Ben has extensive experience advising financial services companies on compliance with all aspects of federal and state securities laws and self-regulatory organization (SRO) rules. He represents clients in securities litigation and enforcement matters. He also conducts internal investigations and reviews for financial services companies and other corporate clients on a broad range of subjects pertaining to their businesses.

He has represented major U.S. and international financial institutions, including J.P. Morgan Chase & Co.; Nomura Securities International Inc.; Instinet LLC; The Bank of New York Mellon Corp.; Pershing LLC; Neuberger Berman; Goldman Sachs; Credit Suise; Société Générale S.A.; Needham & Company, LLC; Cowen & Co. LLC; BNP Paribas Securities Corp.; Calyon Securities (USA) Inc.; HSH Nordbank Securities; Westpac Securities; Banco Espirito Santo de Investimento, S.A.; Banca IMI; Banque Privée Edmund de Rothschild; Apollo Investment Management, LLC; Ares Capital Corp.; Bain Capital; Toronto Stock Exchange; Montreal Stock Exchange; Tokyo Stock Exchange; Cürex Group Holdings, LLC; The Depository Trust and Clearing Corporation; The Depository Trust Company; and National Securities Clearing Corporation.

Securities Law Compliance

Ben advises U.S. and international banks, broker-dealers, investment advisers, exchanges, clearing agencies and other financial intermediaries on compliance with federal securities laws, state blue sky laws, New York Stock Exchange (NYSE), Financial Industry Regulatory Authority (FINRA) and other SRO rules.

He counsels clients and assists them in developing comprehensive compliance and supervisory programs in areas such: as advertising and correspondence; anti-money laundering; cross-border trading under Rule 15a-6; financial reporting; insider trading/information barrier procedures; licensing and registration; net capital, custody, and clearance and settlement, including introducing and clearing broker arrangements; market access; recordkeeping; Regulation M and IPO trading restrictions; Regulation NMS and related market structure issues; research restrictions, disclosures and Regulations AC; soft-dollar and commission sharing arrangements; swaps regulation and compliance.

Securities Litigation and Enforcement

Ben represents clients in securities related litigation, enforcement proceedings and investigations.

Ben has represented financial services companies and individuals in numerous enforcement proceedings before the SEC, NYSE Regulation, FINRA and other SROs in various matters including trading and sales practices, insider trading and market manipulation, trade reporting, research analyst conflicts, net capital compliance, supervision and recordkeeping.

He has represented clients in litigations and arbitrations involving suitability, sales practices, unauthorized trading, fraudulent transfers and derivatives transactions. Ben succeeded in obtaining summary judgment in favor of a broker-dealer that inadvertently transferred stolen stock certificates. In a case of first impression under Article 8 of the Uniform Commercial Code, Decker v. Yorkton Securities, Inc., Court of Appeals of the State of California, 1st Appellate District, the Court held that in order to hold a broker liable to a third party with an adverse claim to securities transferred by the broker, the plaintiff must show that the broker had subjective knowledge of a significant probability of the adverse claim.

Ben also counsels clients in SEC and SRO examinations and reviews.

Internal Investigation and Reviews

Ben frequently is called on to conduct internal investigations, examinations and reviews of business practices, employee conduct, supervisory systems and operations of financial services companies and other corporations.

He has served as or acted on behalf of the SEC or SRO mandated independent consultant or third party examiner in a number of securities industry enforcement matters. He also has conducted numerous investigations, examinations and reviews to assess compliance with regulatory requirements in various areas for broker-dealers, investment advisers, securities exchanges and other financial service providers.

Examples of some of the client matters he has handled include the following:

  • Examination of OTC trading and sales practices by a major broker-dealer in response to an SEC administrative proceeding, NYSE hearing panel decision and NASD Acceptance Waiver and Consent (AWC) mandating retention of an independent consultant
  • Examination of Trade Allocation Policies and Procedures by a major broker-dealer in response to an NYSE hearing panel decision mandating retention of an outside consultant
  • Evaluation of remediation methodology and payments in connection with mutual fund sales subject to NAV transfer programs in response to NASD AWC mandating retention of a Third Party Examiner
  • Examination of trade execution and related functions of designated dealers on a major securities exchange
  • Investigation of possible insider trading by an employee of a broker-dealer
  • Investigation of trading in compliance with NYSE Rule 92 by an NYSE member firm
  • Investigation of possible interpositioning by equity traders of a broker-dealer
  • Review of business practices relating to the sale of auction rate securities by a broker-dealer
  • Review of research distribution and trading practices in compliance with Rule 15a-6 by a major international bank and its U.S. broker-deal affiliate
  • Review of anti-money laundering policies and procedures by a major financial services company and its broker-dealer subsidiaries
  • Review of compliance with Regulation NMS by a major broker-dealer
  • Review of business practices of a primary research facilitator in compliance with federal and industry standards for prevention of the misuse of material non-public information
  • Review and implementation of swap dealer business conduct requirements

Prior to the practice of law, Ben was the chief compliance officer for the Capital Markets Division of PaineWebber Incorporated (now UBS Financial Services, Inc.). He began his career in the legal and compliance division of Drexel Burnham Lambert Incorporated.

Selected Articles and Presentations

“Someone Should Have Done Something! A Critical Examination of Liability for Failure to Supervise under Federal Securities Laws,” The Business Lawyer, Vol. 78, Winter 2022-2023.

“The Promise of Unfavorable Research: Ramifications of Regulations Separating Research and Investment Banking for IPO Issuers and Investors,” The Business Lawyer, Vol. 72, Winter 2016-2017.

“Analysis of the SEC’s MiFID II No-Action Relief,” The National Law Review, January 2018.

“Investment Advisers Act Implications for Client Commission (Soft Dollar) Arrangements – Part I,” February 2014, available at https://www.proskauer.com/video/investment-advisers-act-implications-for-soft-dollar-arrangements-part-1

“Investment Advisers Act Implications for Client Commission (Soft Dollar) Arrangements – Part II,” February 2014, available at https://www.proskauer.com/video/investment-advisers-act-implications-for-soft-dollar-arrangements-part-2

“A Look at Regulations for Non-U.S. Investment Advisers and Portfolio Managers Doing Business in the United States,” The Metropolitan Corporate Counsel, May 2012.

“Regulation of Non-U.S. Broker-Dealers Doing Business in the U.S. – Part I,” The Metropolitan Corporate Counsel, April 2008.

“Regulation of Non-U.S. Broker-Dealers Doing Business in the U.S. – Part II,” The Metropolitan Corporate Counsel, May 2008.

Photo of Robert Sutton Robert Sutton

Robert is a partner of the Private Funds Group and a member of the Corporate Department. He is a seasoned practitioner with over 20 years of experience counseling managers and advisers of private funds on regulatory matters, as well as regulatory issues related…

Robert is a partner of the Private Funds Group and a member of the Corporate Department. He is a seasoned practitioner with over 20 years of experience counseling managers and advisers of private funds on regulatory matters, as well as regulatory issues related to the formation and operation of private equity, credit, real estate, infrastructure, hedge and other private funds.

Rob has a deep knowledge of the market practice of asset managers and in particular, as it relates to Advisers Act-related issues. From some of the largest and most sophisticated firms in the global asset management industry to start-ups and mid-sized firms, Rob’s experience includes a wide spectrum of funds and asset classes across their life cycles. Rob regularly advises on matters in connection with: U.S. investment adviser registration and regulation; Advisers Act and other U.S. securities law issues relating to the formation, marketing and offering of private funds; Identifying and managing conflicts of interest, and addressing related Advisers Act risks, SEC examinations, and exam readiness preparation; Design and implementation of investment adviser compliance policies and procedures; U.S. regulatory issues relating to purchases and sales of investment advisory businesses (minority stake and control stake transactions, buy-side and sell-side representations); Advisers Act and other U.S. regulatory issues relating to private fund restructurings and recapitalizations, strip sales, continuation fund formations and similar transactions; Advisers Act issues relating to the formation of SPACs by investment advisers; and, Investment Company Act status analyses of private fund structures, investment transaction structures and other non-registered investment company structures.

Rob has been recognized by his clients and peers for his extraordinary work, gaining various accolades including mentions in preeminent directories such as The Legal 500.  He is also very active within the private funds industry, contributing to numerous publications and collaborating on several speaking engagements.

Prior to joining Proskauer, Rob was a partner in the Investment Funds Group at Kirkland & Ellis.