LAW FIRM SETTLES WITH NY AG IN “PAY TO PLAY” INVESTIGATION

New York AG Andrew Cuomo continues to obtain significant settlements in his “pay to play” investigation regarding New York pension funds. To date, Mr. Cuomo has obtained seven guilty pleas. Criminal charges are pending against the former Comptroller’s political adviser, Henry Morris. The SEC has a parallel action in litigation. SEC v. Morris, Civil Action 09-CV-2518 (S.D.N.Y. Filed March 19, 2009) (here).

Law firm Manatt Phelps & Phillips, LLP became the latest party to settle with Mr. Cuomo. According to the New York AG, Manatt made introductions and secured meetings on behalf of firms seeking investments from public pension funds in New York, California and in other locations. The law firm and the attorneys involved were not licensed placement agents or securities brokers. Nevertheless, the firm made, and attempted to make, introductions to the New York City pension funds and the New York State Teachers Retirement System. Meetings were arranged involving these two funds, although they did not result in any transactions or the payment of fees to the law firm.

Manatt was only paid for one transaction, according to the New York AG. In 2003, the firm, in conjunction with Platinum Advisors, helped place $25 million by CalPERS in Levine Leichtman Capital Partners Fund III. The law firm and Platinum each received $187,500 in fees from 2004 through 2006.

To resolve the matter, Manatt agreed to pay a $550,000 fine to the State of New York. In addition, the firm will be barred from appearing before any public pension fund in New York for five years. It will also adopt the Attorney General’s Public Pension Fund Reform Code of Conduct and cooperate with the on-going investigation.

THE CHAIRMAN OUTLINES A TIMETABLE FOR DODD-FRANK RULES

The Dodd-Frank Wall Street Reform and Consumer Protection Act is a sprawling piece of legislation. It is also very much a work in progress, requiring hundreds of new rules to be written and dozens of studies. The burden imposed on the SEC is considerable. There are 95 sections requiring the Commission to write rules and 23 others directing the preparation of reports (here).

Chairman Mary Schapiro recently outlined for the Senate Banking Committee the schedule the SEC hopes to follow in meeting its obligations under the Act. Key parts of that schedule include:

• Derivatives: The Title VII rules will be proposed in a series of actions spread over a few months. Proposals will begin in October. The first set of Title VIII rules is expected to be issued in December.

• Hedge funds: The staff is planning to propose rules for registration, exemptions and record keeping between October and December 2010.

• Credit rating agencies: The new office the Act requires is being established now. Personnel are being recruited. The required amendment to Reg FD repealing the exemption for NRSROs has been issued. Rules concerning internal controls, conflicts and methodologies and similar matters should be forwarded to the Commission by the staff “early next year.”

• Corporate governance: Rules regarding “say-on-pay,” disclosures required when a merger or similar transaction is pending, and those concerning how institutional investment managers subject to Exchange Act Section 13(f) voted on certain matters, should be in place by the 2011 proxy season. The staff is expected to forward draft rules to the Commission within the next few weeks. Proposed rules regarding incentive based compensation should be available for Commission consideration by year end along with those concerning the Compensation Committee. The draft rules regarding the new claw back provision are not expected to be available until “the middle of next year” however.

• Asset backed securities: Proposed rules regarding disclosure are expected to be available by the end of this year. The draft rules concerning risk retention should also be available at that time.

• Municipal securities: The new Office of Municipal Securities will be established by the end of October. Certain interim rules were adopted on September 1. The staff is preparing proposed final registration rules for the Commission’s consideration.

The Act also requires that the Commission establish five new offices, including those mentioned above. The timetable for the additional offices is:

• Whistleblower office: This Office will be within the Division of Enforcement and coordinate with the new Office of Market Intelligence. A report will be furnished to Congress on the program on October 30, 2010.

• Investor Advocate: This Office is designed to assist retail investors in resolving significant problems with the Commission or SROs. The SEC has developed a position description and is recruiting.

• Minority and Women Inclusion: This office is responsible for all matters relating to diversity in management, employment and other activities at the agency. A position description has been developed and recruiting should commence shortly.