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  • Bank Of England Imposes Personal Fines On Two Individuals For Failure To Disclose Ongoing Enforcement Actions

    On November 7, 2018, the Bank of England’s Prudential Regulation Authority (“PRA”) handed down rare individual penalties when it imposed fines on two high-level former executives of a UK subsidiary of a Japanese financial institution (the “UK Subsidiary”) for failing to timely inform the PRA of regulatory enforcement matters in the United States.  The PRA levied a fine on the former chair (the “Chair”) of the UK Subsidiary and a former Non-Executive Director of the UK Subsidiary (the “NED”), for violating PRA Statement of Principle 4 by failing to inform the Bank of England that the Chair had been implicated in an enforcement action by the New York State Department of Financial Services (“DFS”) and would likely be subject to certain penalties and restrictions. The PRA concluded that the failure to disclose this information impeded its ability to assess the fitness and propriety of the Chair, and therefore warranted penalties.  The Chair and NED agreed to settle the PRA’s investigation for £22,700 and £14,945, respectively.  See Akira Kamiya, Bank of England Prudential Regulation Authority 1.2 (Nov. 7, 2018) (final notice); Takami Onodera, Bank of England Prudential Regulation Authority 1.2 (Nov. 7, 2018) (final notice).
  • Second Circuit Court Of Appeals Reverses Investment Banker’s Insider Trading Conviction

    On November 5, 2018, the Second Circuit Court of Appeals in a split decision vacated the insider trading conviction of a former Wall Street analyst and remanded the case back to the district court for a new trial. United States v. Stewart, 2018 U.S. App. LEXIS 31207 (2d Cir. Nov. 5, 2018). The analyst was charged with nine counts, including one count of conspiracy to commit securities fraud and tender offer fraud, one count of conspiracy to commit wire fraud, one count of tender offer fraud, and six counts of securities fraud. The trial took place in the U.S. District Court for the Southern District of New York from July 27, 2016, to August 9, 2016, and the analyst was convicted of all nine counts on August 17, 2016. On appeal, the Second Circuit held that the district court erred by excluding key impeachment evidence the defense had sought to introduce.
  • SEC Enforcement Division Releases Report On FY 2018, Highlighting Focus On Cyber And Efforts To Protect Retail Investors

    On November 2, 2018, the U.S. Securities and Exchange Commission (“SEC”) Enforcement Division issued its annual report (“Annual Report”) on enforcement efforts for its 2018 fiscal year.  The SEC brought 821 enforcement actions, an approximately 8.9 percent increase over FY 2017.  The Commission also collected over $3.9 billion in disgorgement and penalties and returned approximately $794 million to harmed investors.  SEC Division of Enforcement, FY 2018 Annual Report (Nov. 2, 2018).  By these metrics, the Commission’s enforcement activity level surpassed FY 2017, and fell just short of its all-time record of 868 enforcement actions in FY 2016.  See Annual Report at 9.  The Report also noted a focus on matters impacting retail investors and those involving cyber-related issues (such as blockchain technology).
  • DOJ Announces Updated Policy On Selection Of Corporate Monitors

    On October 11, 2018, the U.S. Department of Justice (“DOJ”) released an updated policy regarding the selection of corporate monitors. The policy—entitled “Selection of Monitors in Criminal Division Matters” (“Policy”)—is designed to guide the DOJ’s decision-making on whether to require a monitor as part of corporate criminal resolutions.  U.S. DOJ, Selection of Monitors in Criminal Division Matters.  On the same day, Assistant Attorney General Brian A. Benczkowski provided remarks about the Policy at the NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance.  Mr. Benczkowski explained that while the DOJ continues to adhere to the view that “every case will at some stage require a deep look into the sufficiency and proper functioning of the subject company’s compliance program,” the Policy nonetheless recognizes that “the imposition of a monitor will not be necessary in many corporate criminal resolutions, and the scope of any monitorship should be appropriately tailored to address the specific issues and concerns that created the need for the monitor.”  DOJ Press Release, Assistant Attorney General Brian A. Benczkowski Delivers Remarks at NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance.  Thus, the Policy appears to signal a potentially meaningful shift away from the use of monitors by the DOJ, at least in cases involving historical conduct where companies have made meaningful efforts to remediate and invest in corporate compliance programs.
  • SEC Obtains Temporary Restraining Order Halting Initial Coin Offering

    On October 5, 2018, the Securities and Exchange Commission (“SEC”) obtained a temporary restraining order (“TRO”), halting a planned initial coin offering (“ICO”) by a San Diego based company (the “Company”) and its owner in December 2018.  Judge Gonzalo P. Curiel, of the U.S. District Court for the Southern District of California, issued the Order, which also froze defendants’ assets, ordered an accounting, and granted expedited discovery.  SEC v. Blockvest, LLC, et al., No. 3:18-cv-02287 (S.D. Cal Oct. 5, 2018) (the “Order”).  The grounds for this Order included that defendants falsely claimed that the ICO was approved by the SEC and other regulators and that they were audited by a reputable third party firm.  A preliminary injunction hearing is set for October 18, 2018.  In addition to obtaining the Order, the SEC also filed a Complaint against defendants on October 3, 2018, alleging violations of the antifraud provisions of Section 17(a) (1-3) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5(a-c) of the Securities Exchange Act of 1934, as well as the securities offering registration provisions of Section 5(a) and (c) of the Securities Act.  Complaint, SEC v. Blockvest, LLC, et al., No. 3:18-cv-02287 (S.D. Cal Oct. 3, 2018).
  • District Of Massachusetts Denies Motion To Dismiss, Finds Virtual Currency “My Big Coin” Is A Commodity Under Commodity Exchange Act

    On September 26, 2018, Judge Rya W. Zobel of the United States District Court for the District of Massachusetts denied a motion to dismiss a complaint filed by the Commodity Futures Trading Commission (“CFTC”) that alleged fraud in violation of the Commodity Exchange Act (“CEA”) arising out of the “My Big Coin” virtual currency.  See CFTC v. My Big Coin Pay, Inc., Case No. 1:18-cv-10077 (D. Mass. Sept. 26, 2018) (Memorandum of Decision).  The motion to dismiss, filed by various individual defendants, argued principally that My Big Coin is not a “commodity” within the meaning of the CEA, making the CEA’s prohibitions on fraud and market manipulation inapplicable.
  • CFTC Brings New Insider Trading Case In Conjunction With Announcing Insider Trading Task Force

    On September 28, 2018, the Commodity Futures Trading Commission (“CFTC”) filed a civil enforcement action in the Southern District of New York against an introducing broker and one of its associated persons, alleging that they misused material, nonpublic information in connection with block trades of energy contracts on the ICE Futures U.S. market in violation of 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1(a).  CFTC v. EOX Holdings LLC, Case No. 1:18-cv-08890 (S.D.N.Y. Sept. 28, 2018) (Complaint for Injunctive Relief, Civil Monetary Penalties, and Other Equitable Relief).  In conjunction with the enforcement action, James McDonald, CFTC’s Director of Enforcement, announced the creation of a new Insider Trading & Information Protection Task Force.
  • Medical Device Manufacturer Enters Into Second FCPA Settlement In Five Years With SEC

    On September 28, 2018, the Securities and Exchange Commission (“SEC”) announced a settlement with a Michigan-based manufacturer and distributor of medical devices, over allegations that the company had violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”).  The SEC’s order instituting proceedings alleged that the company’s internal accounting controls were insufficient to detect the risk of improper payments in sales of its products in India, China and Kuwait, and that the company’s Indian subsidiary failed to maintain complete and accurate books and records.  See In the Matter of Stryker Corp., Admin. Proc. No. 3-18853 (September 28, 2018).  The company agreed to pay a $7.8 million penalty to settle the SEC’s claims without admitting or denying wrongdoing.  This is the second time in five years that the company has settled with the SEC over alleged shortcomings in its books and records and internal accounting controls.  See In the Matter of Stryker Corp., Admin. Proc. No. 3-15587 (October 24, 2013).
  • Tesla, Musk Settle Tweet-Related SEC Charges

    On September 27, 2018, the United States Securities and Exchange Commission (“SEC”) charged Elon Musk, the Chairman and CEO of Tesla, Inc., a publically-traded California-based technology company that specializes in electric vehicles, with securities fraud in connection with an August tweet, on his personal Twitter page, regarding the possibility of taking Tesla private.  Two days later, on September 29, the SEC announced that it had settled those charges, and had also settled a previously unfiled claim against Tesla itself, for failing to have required disclosure controls and procedures related to Musk’s Twitter activity.  Tesla and Musk neither admitted nor denied the allegations, but each has agreed to pay a civil penalty of $20 million, and Musk has agreed to step down as chairman of the Tesla board for three years.  Musk will remain CEO during this time.  See SEC Press Release, available at (Sept. 29, 2018).
  • SEC Brings Enforcement Action Against Broker-Dealer For Deficient Cybersecurity Procedures

    On September 26, 2018, the United States Securities and Exchange Commission (“SEC”) announced a $1 million settlement with an Iowa-based broker-dealer over allegations that it maintained deficient cybersecurity policies and procedures, which resulted in a 2016 cyber intrusion, in violation of Regulation S-P and Regulation S-ID.  See Press Release, SEC Charges Firm With Deficient Cybersecurity Procedures, No. 2018-213 (Sept. 26, 2018); In the Matter of Voya Financial Advisors, Inc., Admin. Proc. No. 3-18840 (Sept. 26, 2018).
  • Significant Judicial And Enforcement Developments In The Cryptocurrency Space

    This past week saw important developments in the cryptocurrency space with two new regulatory actions, and a significant and much-anticipated decision in a criminal securities fraud action relating to an initial coin offering.
  • Second Circuit Limits Extraterritorial Application of FCPA

    On August 27, 2018, a three-judge panel of the Second Circuit limited the extraterritorial application of the Foreign Corrupt Practices Act (“FCPA”), holding the statute does not apply to foreign nationals who commit crimes outside the U.S. and who lack sufficient ties to U.S. entities.  U.S. v. Hoskins, No. 16-1010 (2d Cir. Aug. 24, 2018).   The panel largely upheld a decision by the United States District Court for the District of Connecticut, which concluded that the government could not evade the statute’s requirement that a foreign person had to act “while in the United States” by charging a retired British executive of a French multinational company with conspiring with persons in the United States to violate the FCPA.  The Court noted, however, that the government could still proceed on an alternative theory that the foreign person acted as an agent of those U.S. persons.
  • SEC Charges Rating Agency With Internal Controls Failures And Ratings Symbols Deficiencies

    On August 28, 2018, the Securities and Exchange Commission (“SEC”) announced two settlements with a rating agency (the “Company”) over allegations that it failed to maintain adequate internal controls and to clearly define and consistently apply credit rating symbols.  The SEC’s order instituting proceedings over internal control alleged that the Company failed to establish and document an effective internal control structure over models that it outsourced from an affiliate and used to rate Residential Mortgage Backed Securities (“RMBS”) from 2010 to 2013.  See In the Matter of Moody’s Investors Service, Inc., Admin. Proc. No. 3-18688 (August 28, 2018).  The SEC’s order instating proceedings relating to rating symbols alleged that the Company assigned ratings for 26 “combo notes” with a total notional value of approximately $2 billion in a manner that was inconsistent with other securities that use the same rating symbols.  See In the Matter of Moody’s Investors Service, Inc., Admin. Proc. No. 3-18689 (August 28, 2018).  The Company agreed to pay a $15 million civil penalty to settle the SEC’s claims relating to internal controls and a $1.25 million civil money penalty to settle the SEC’s claims relating to rating symbols, both without admitting or denying wrongdoing.
  • SEC Lifts Post-Lucia Stay On Pending Administrative Proceedings And Announces Rehearings For Dozens Of Previously Heard Cases

    On August 22, 2018, the Securities and Exchange Commission (“SEC”) announced that it will rehear over fifty cases pending before administrative law judges (“ALJs”) that were stayed following the U.S. Supreme Court’s decision in Lucia v. SEC, 138 S. Ct. 2044 (2018), which held that the SEC’s process for appointing ALJs was unconstitutional.  See Order, In re: Pending Administrative Proceedings (Aug. 22, 2018) (the “Order”).  In Lucia, the Court held that ALJs hired by the SEC are “inferior officers” of the United States and are thus subject to the Constitution’s Appointments Clause, which states that inferior officers may only be appointed by the President, a court, or a department head.  Since the SEC’s ALJs were not appointed in such a manner, the Court held that the respondent in Lucia was entitled to a new hearing before a properly appointed official.  See Shearman & Sterling LLP Need To Know Weekly, United States Supreme Court Reverses and Remands SEC Administrative Proceeding - Finding That SEC Administrative Law Judges are Subject to the Appointments Clause of the Constitution and Were Not Properly Appointed by the SEC (June 26, 2018)
  • FINRA Fines Broker-Dealer $5.5 Million For Violations Of Regulation SHO

    On August 20, 2018, the Financial Industry Regulatory Authority (“FINRA”) announced that it fined a FINRA-regulated broker-dealer $5.5 million over allegations that it violated Regulation SHO under the Securities Exchange Act of 1934, see 17 CFR 242.200-204, by, among other things, failing to properly close out short sale positions when securities were not timely delivered, accepting short sales in restricted securities and at restricted prices, and maintaining a deficient supervisory system.   Press Release, FINRA Fines Interactive Brokers $5.5 Million for Regulation SHO Violations and Supervisory Failures (Aug. 20, 2018); FINRA AWC No. 2014043143401 (Aug. 16, 2018).
  • Former Forex Trader Successfully Avoids Extradition From The UK Through Appeal To UK’s High Court Of Justice

    On July 31, 2018, the High Court of Justice of England and Wales, Queen’s Bench Division, rejected the United States (“U.S.”) government’s request to extradite a former FX trader and the former head of a bank’s foreign exchange (“forex”) cash trading for Europe, reversing a lower court ruling that had granted the request.  Scott v. Government of the United States of America [2018] EWHC 2021 (Admin).  The U.S. Department of Justice (“DOJ”) sought to extradite the trader to face ten counts of wire fraud and one count of conspiracy in the U.S. District Court for the Eastern District of New York for alleged forex-rigging.  The High Court found that extradition was not in the interest of justice, because most of the harm from the alleged crimes was felt in the United Kingdom (“UK”) and because of the trader’s strong connection with the UK. 
  • United States Moves To Dismiss Sole Remaining Charge In Long-Running Securities Fraud Case

    On July 30, 2018, federal prosecutors moved to dismiss the sole remaining charge of securities fraud against former bond trader Jesse Litvak, ending a five-year criminal case during which Litvak was twice convicted after trials on securities fraud charges and both convictions were later overturned on appeal.  Although the government’s decision means there will not be a third trial, the government emphasized in its motion to dismiss the charges that the United States Court of Appeals for the Second Circuit had not accepted Litvak’s argument that the case was legally invalid.  See Government’s Motion to Dismiss Count Four, United States v. Litvak, No. 3:13-cr-00019 (D. Conn. July 30, 2018). 
  • Northern District Of California Certifies Class In Securities Stock Drop Suit, Finding That “In-and-Out” Traders Should Not Be Excluded From The Class Definition

    On July 17, 2018, Judge Jon S. Tigar of the United States District Court for the Northern District of California granted plaintiffs’ motion to certify a class in a securities class action against Twitter, Inc. (the “Company”) and two of its officers. In re Twitter Inc. Securities Litigation, No. 3:16-cv-05314 (N.D. Cal. July 17, 2018). Plaintiffs allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by making materially false and misleading statements regarding user growth and engagement, resulting in a 15 percent stock drop when the Company later disclosed that user engagement was “slowing quite dramatically.” The Court previously had granted in part and denied in part defendants’ motion to dismiss.

  • SEC Announces Settled Enforcement Action Over Failure To Preserve Documents

    On July 17, 2018, the Securities and Exchange Commission (“SEC”) announced a settlement with a New York-based broker-dealer over allegations that the broker-dealer failed to preserve records requested by the SEC and inaccurately reported certain expenses. The SEC’s order instituting proceedings alleged that the broker-dealer failed to preserve records requested by the SEC staff by deleting certain audio files, and failed to maintain accurate books and records regarding certain expenses, in willful violation of Section 17(a)(1) of the Securities Exchange Act, and Rules 17a-3 and 17a-4 thereunder. The broker-dealer agreed to pay a $1.25 million civil penalty to settle the SEC’s claims without admitting or denying wrongdoing. See In the Matter of BGC Financial, L.P., Admin Proc. No. 3-18598 (July 17, 2018).
  • SEC’s FCPA Charges Against Executives Dismissed As Time-Barred

    On July 12, 2018, Judge Nicholas G. Garaufis of the United States District Court for the Eastern District of New York dismissed the Securities and Exchange Commission’s charges against two former executives of a hedge-fund management firm on statute of limitations grounds.  SEC v. Cohen & Baros, No. 1:17-CV-00430 (E.D.N.Y. July 12, 2018).  The SEC originally filed the charges before the Supreme Court’s ruling in Kokesh v. SEC, 137 S. Ct. 1635 (2017), in which the Court held that disgorgement is a penalty subject to the five-year statute of limitations under 28 U.S.C. § 2462.  United States Supreme Court Holds SEC Disgorgement Orders Subject to Five-Year Statute of Limitations, Shearman & Sterling (Jun. 6, 2017).  Relying on Kokesh, the district court held that the SEC’s claims for monetary and injunctive relief were time-barred.  In so holding, the district court contributed to a circuit split regarding the applicability of Section 2462 to certain types of equitable relief.
  • Company Settles With The SEC For Allegedly Failing To File Required Suspicious Activity Reports

    On July 2, 2018, the Securities and Exchange Commission (“SEC”) filed a one-count complaint in District Court for the Northern District of California against Charles Schwab Corp. (“Schwab” or the “Company”) for allegedly failing to file suspicious activity reports (“SARs”) on questionable transactions by its investment advisers. Securities and Exchange Commission v. Charles Schwab & Co, Inc., No. 18-cv-3942 (July 2, 2018). The same day, without admitting or denying the SEC’s findings, the Company consented to an entry of judgment through which agreed to pay the SEC a civil penalty of $2.8 million. Final Judgment, Securities and Exchange Commission v. Charles Schwab & Co, Inc., No. 18-cv-3942 (July 2, 2018).
  • SEC Settles FCPA Allegations Concerning Allegedly Improper Payments By Company’s Indian Subsidiary

    On July 2, 2018, Chicago-based spirits maker Beam Suntory Inc. (“Beam Suntory” or the “Company”) agreed to pay $8.2 million to settle Foreign Corrupt Practices Act (“FCPA”) claims brought by the Securities and Exchange Commission (“SEC”) for allegedly improper payments by its Indian subsidiary. In the Matter of Beam Inc., N/K/A Beam Suntory Inc. Admin Proc. File No. 3-18568 (July 2, 2018). This settlement reportedly follows Beam Suntory’s voluntary self-disclosure of the underlying issues to both the SEC and the Department of Justice (“DOJ”); however, there has been no reported resolution by the DOJ.
  • SEC Files Settled Action Concerning Accounting Issues That Led To A Restatement In 2014

    On July 2, 2018, the Securities and Exchange Commission (“SEC”) entered into a settlement with Houston-based global engineering, construction, and services company KBR, Inc. (“KBR” or the “Company”) over accounting issues that had led KBR to restate its earnings and identify a material weakness in its internal control over financial reporting in 2014. In the Matter of KBR, Inc., Admin Proc. No. 3-18569 (July 2, 2018). The accounting issues centered around the Company’s cost and revenue estimates and its calculation of “work in backlog,” a non-financial accounting metric the Company utilized.
  • Supreme Court Requires Law Enforcement To Obtain Search Warrants Before Accessing Certain Cell Phone Location Data

    On June 22, 2018, in a 5-4 ruling, the United States Supreme Court held that the government’s acquisition of certain cell-site location information (“CSLI”) kept by third parties constitutes a search under the Fourth Amendment that is generally subject to the search warrant requirement. Carpenter v. United States, No. 16-402, 585 U.S. __ (2018). Chief Justice Roberts authored the majority opinion, while Justices Kennedy, Alito, Thomas, and Gorsuch filed separate dissents.
  • Second Circuit Amends Martoma And Reaffirms, But Arguably Still Weakens, Newman’s “Meaningfully Close Personal Relationship” Test In Insider Trading Cases Involving Tips

    On June 25, 2018, a divided three-judge panel of the Second Circuit amended its decision in United States v. Martoma. We previously reported on the facts of Martoma and the panel’s original decision, which held that the Supreme Court abrogated the “meaningfully close personal relationship” test articulated in United States v. Newman. See Shearman & Sterling LLP: Government/Regulatory Enforcement, Divided Second Circuit Panel Abandons Relationship Test From Landmark Newman Decision in Upholding Insider Trading Conviction (Aug. 29, 2017). The panel’s amended opinion, in contrast, holds that Newman’s “meaningfully close personal relationship” test is still valid for determining whether an insider tipper received a personal benefit (and thus breached a fiduciary duty), but also holds that the test will be satisfied upon a showing that (1) the “tipper and tippee shared a relationship suggesting a quid pro quo” or (2) “the tipper gifted confidential information with the intention to benefit the tippee.” United States v. Martoma, No. 14-3599, Dkt. No. 226 (2d Cir. June 25, 2018), at 5-6.

  • SEC Proposes Amendments To Its Whistleblower Program

    On June 28, 2018, the U.S. Securities and Exchange Commission (“SEC”) proposed amendments to the rules governing its whistleblower program. Press Release, SEC Proposes Whistleblower Rule Amendments, No. 2018-120 (June 28, 2018). Among other things, the proposed amendments would affect the types of whistleblower awards authorized by the SEC’s rules, allow for adjustments of awards in certain cases, adopt a new definition of “whistleblower,” improve the SEC’s ability to bar individuals from making frivolous award claims, and clarify what types of whistleblower submissions constitute “original information.” These proposed amendments, which on balance reflect a modest refinement of the whistleblower program and signal that the essential contours of the program continue to have the strong support of the Commission, are subject to notice and comment by the public and further modification by the SEC.
  • United States Supreme Court Reverses And Remands SEC Administrative Proceeding - Finding That SEC Administrative Law Judges Are Subject To The Appointments Clause Of The Constitution And Were Not Properly Appointed By The SEC

    On June 21, 2018, the Supreme Court held that Securities and Exchange Commission (“SEC”) administrative law judges (“ALJs”) are “inferior officers” of the United States, subject to the Appointments Clause of the Constitution. Lucia v. SEC, 585 U.S. ____ (2018).
  • FINRA And SEC Fine Two Entities For Anti-Money Laundering Compliance Deficiencies And Other Violations

    ​On May 16, 2018, the Financial Industry Regulatory Authority (FINRA) announced a $5.3 million fine on a financial services company (ICBCFS) for alleged systemic anti-money laundering (AML) compliance failures, including an alleged failure to have a reasonable AML program in place to monitor and detect suspicious transactions, and alleged financial, recordkeeping, and operational violations involving penny stock shares.  FINRA Fines ICBCFS $5.3 Million for Anti-Money Laundering Compliance Deficiencies and Other Violations, May 16, 2018,  ICBCFS consented to entry of FINRA’s findings without admitting or denying the charges against it.  In a separate but related matter, the U.S. Securities and Exchange Commission (SEC) announced settled charges against a broker-dealer (CCM)—a correspondent of ICBCFS—and ICBCFS for allegedly failing to file Suspicious Activity Reports (SARs) when CCM sold more than $12.5 billion penny stock shares between 2013 and 2014.  In the Matter of ICBCFS, Admin. Proc. No. 3-18488 (May 16, 2018).  The SEC also settled charges against ICBCF for failing to promptly produce documents missing from its productions to the Commission during its investigation, despite repeated requests for the records.  Id.  Without admitting or denying the SEC’s findings, ICBCFS agreed to pay the SEC a civil penalty of $860,000, CCM agreed to pay a fine of $1 million, and CCM's anti-money laundering officer, who allegedly aided and abetted the violations, agreed to pay $15,000.  Id.In the Matter of CCM, Admin. Proc. No. 3-18486 (May 16, 2018); In the Matter of JB, Admin. Proc. No. 3-18487 (May 16, 2018).

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  • DOJ Announces Formalization Of Policy On Corporate Resolution Penalties 

    On May 9, 2018, the U.S. Department of Justice (“DOJ”) released a long-awaited policy regarding corporate enforcement and resolution.  The policy—entitled “Policy on Coordination of Corporate Resolution Penalties” (“Policy”)—will be incorporated into the U.S. Attorney’s Manual.  U.S. DOJ, Policy on Coordination of Corporate Resolution Penalties.  On the same day, Deputy Attorney General Rod J. Rosenstein provided remarks about the Policy at the New York Conference on the Foreign Corrupt Practices Act and at the New York City Bar White Collar Crime Institute.  Mr. Rosenstein explained that the Policy recognizes that companies may be subject to numerous regulatory authorities—both in the U.S. and abroad—which may result in disproportionate penalties.  The Policy generally instructs DOJ attorneys “to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company for the same conduct.”  DOJ Press Release, Deputy Attorney General Rod J. Rosenstein Delivers Remarks.     

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  • Second Circuit Once Again Vacates Bond Trader Jesse Litvak’s Conviction For Securities Fraud

    ​On May 3, 2018, a three-judge panel on the Second Circuit Court of Appeals (“Second Circuit”) vacated former bond trader Jesse Litvak’s conviction on one count of securities fraud, holding that the district court erred in admitting testimony from a counterparty concerning that counterparty’s mistaken understanding of Litvak’s role in the sale of residential mortgage-backed securities (“RMBS”) to it.  United States v. Litvak, No. 17-1464-cr (2d. Cir. May 3, 2018).  Litvak appealed his 2017 jury trial conviction on one count of securities fraud, arguing that his misstatements to the counterparty—which concerned the price at which Litvak had purchased the RMBS he subsequently sold to the counterparty—were immaterial to a reasonable investor.  Further, Litvak contended that the district court erred in admitting portions of testimony from the counterparty’s trader, who erroneously believed that Litvak was acting as the counterparty’s agent in the sale of the RMBS, rather than acting as principal.  While the Second Circuit held that a reasonable jury could have found that Litvak’s misstatements were material, it ruled that the district court materially erred in admitting testimony that suggested Litvak owed a fiduciary duty to his counterparty, and that the error was not harmless.  Accordingly, the panel vacated the conviction and remanded the case, yet again, to the district court. 

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  • SEC Issues $35 Million Fine For Alleged Failure To Disclose Data Breach

    On April 24, 2018, the United States Securities and Exchange Commission (“SEC”) instituted a settled administrative proceeding against Altaba Inc., f/d/b/a Yahoo! Inc. (“Yahoo!”) for allegedly failing to disclose a significant data breach that affected its user accounts, in violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(a) of the Exchange Act.  See In the Matter of Altaba Inc., f/d/b/a Yahoo! Inc., Admin. Proc. No. 3-18448 (April 24, 2018).  As summarized below, the SEC principally imposed a $35 million penalty on Yahoo!, and Yahoo! neither admitted nor denied the SEC’s findings set forth in the administrative proceeding.

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  • Connecticut Jury Acquits Former Trader Of Spoofing-Related Charges

    On April 25, 2018, a jury in the United States District Court for the District of Connecticut acquitted a former trader at a major global banking and financial services company (the “Trader”) of conspiracy to commit commodities fraud.  United States v. Flotron, 3:17-cr-00220, Jury Verdict Form (D. Conn. April 25, 2018).  The U.S. Department of Justice (“DOJ”) also alleged that the Trader committed commodities fraud under 18 U.S.C. §§ 2 and 1348, and spoofing under 7 U.S.C. § 6c(a)(5)(C), but those charges were dismissed before trial on grounds of improper venue.  This trial was the first of its kind for criminal spoofing charges.  A civil case against the Trader, filed by the U.S. Commodity Futures Trading Commission (“CFTC”), remains pending.  See United States v. Flotron, 3:18-cv-00158, Complaint (D. Conn. Jan. 26, 2018).

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  • The Supreme Court Dismisses As Moot Microsoft Case That Had Challenged The Government’s Ability To Obtain Search Warrant For Electronic Data Stored Abroad

    On April 17, 2018, the Supreme Court dismissed United States v. Microsoft, No. 17-12, 548 U.S. ___ (2018) (per curiam), deciding that recently enacted federal legislation had mooted the legal dispute in the case.  The appeal raised the question whether a U.S. based e-mail service provider had to comply with a search warrant issued under Section 2703 of the Stored Communications Act, and disclose to the Government electronic communications that were stored abroad.  As we previously reported, see Shearman & Sterling LLP, The Supreme Court Hears Oral Arguments in United States v. Microsoft, Need-to-Know Litigation Weekly, March, 6, 2018,, the Justices had appeared divided during oral argument and questioned whether they should issue a decision while Congress was considering pending legislation to clarify the issue.  On March 23, 2018, Congress passed the Clarifying Lawful Overseas Use of Data Act (CLOUD Act) as part of the Consolidated Appropriations Act, 2018, Pub. L. 115–141.  As expected, the Supreme Court thus dismissed the Microsoft appeal.

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    CATEGORY: Supreme Court
  • SEC, Under New Safe Harbor, Awards More Than $2.2 Million To Whistleblower Who First Reported To Another Federal Agency

    On April 5, 2018, the Securities and Exchange Commission (“SEC”) announced a whistleblower award of more than $2.2 million in connection with a report of misconduct.  The whistleblower, a former company insider, first reported information to a federal agency other than the SEC, which in turn referred the matter to the SEC, which promptly opened an enforcement investigation.  Subsequently, within 120 days of the original reporting to the other federal agency, the whistleblower reported the same information directly to the SEC.  The resulting SEC enforcement action resulted in monetary sanctions, and the whistleblower received a percentage of the sanctions as an award.  Despite initially reporting to another federal agency, the whistleblower received an award because he or she reported the same information to the SEC within 120 days and subsequently cooperated with the enforcement investigation.

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  • Criminal And Civil Charges Filed In Connection With Initial Coin Offering By Centra Tech


    On April 2, 2018, the U.S. Department of Justice (“DOJ”) and Securities Exchange Commission (“SEC”) announced criminal and civil charges against two startup co-founders for allegedly defrauding and conspiring to defraud investors through the offer and sale of unregistered securities in an initial coin offering (“ICO”).  In separate complaints filed in federal court in the United States District Court for the Southern District of New York, both the DOJ and the SEC alleged that the company’s co-founders orchestrated an elaborate marketing campaign to solicit over $25 million in investments for their digital technology company, Centra Tech.  Complaint, SEC v. Sharma et al., No. 1:18-cv-02909 (S.D.N.Y. Apr. 2, 2018); Complaint, U.S. v. Sharma et al., 18-MAG-2695.  The two men each face four criminal charges of commission and conspiracy to commit securities and wire fraud, as well as permanent injunctions and civil penalties for violating various anti-fraud and registration provisions of the Securities Act of 1933 and Securities Exchange Act of 1934.

  • SEC And FINRA Fine Broker-Dealer, CEO, And Compliance Officer For Failing To File Suspicious Activity Reports

    ​On March 28, 2018, the Securities and Exchange Commission (“SEC”) instituted settled administrative proceedings against broker-dealer Aegis Capital Corporation (“Aegis”), its founder and Chief Executive Officer (“CEO”), and its anti-money laundering compliance officer (“AML CO”) for allegedly failing to file hundreds of Suspicious Activity Reports (“SARs”) between late 2012 and early 2014.  In the Matter of Aegis Capital Corporation, Admin. Proc. No. 3-18412 (Mar. 28, 2018); In the Matter of Kevin McKenna and Robert Eide, Admin. Proc. No. 3-18413 (Mar. 28, 2018).  The SEC also instituted a contested administrative proceeding based on the same allegations against a former Aegis compliance officer.  In the Matter of Eugene Terracciano, Admin. Proc. No. 3-18414 (Mar. 28, 2018).  Separately, the Financial Industry Regulatory Authority (“FINRA”) announced it had settled claims against Aegis based on the same SAR-related allegations.  FINRA Fines Aegis Capital Corp. $550,000 for Anti-Money Laundering and Supervision Rule Violations, Mar. 28, 2018,  In connection with its settlement with the SEC, Aegis admitted to willfully failing to file SARs and was fined $750,000.  In addition, the CEO agreed to pay the SEC a $40,000 fine, and the AML CO agreed to pay the SEC a $20,000 fine.  In connection with the settlement, the individuals neither admitted nor denied the SEC’s allegations. 

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  • Record-Breaking Whistleblowing Awards Continue Incentives To Report Misconduct To The SEC

    On March 19, 2018, the SEC announced three multi-million dollar awards to whistleblowers in connection with reports of misconduct.  SEC Press Release, SEC Announces Its Largest-Ever Whistleblower Awards, No. 2018-44 (Mar. 19, 2018).  One whistleblower received $33 million, which represents the largest SEC whistleblower award in history; the two other whistleblowers will split a $50 million award.  These significant awards continue a trend of rising awards by the SEC, which continues to focus on publicly incentivizing and protecting whistleblowers.

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    CATEGORY: Whistleblower
  • FBI Director States That Companies That Suffer Data Breaches Will Be Treated As Victims For Law Enforcement Purposes

    At a March 7, 2018 Conference on Cyber Security co-hosted by Boston College and the Federal Bureau of Investigation (“FBI”), Director of the FBI Christopher Wray spoke about the FBI’s efforts to combat cyber threats.  Among other topics, Director Wray emphasized the FBI’s policy to treat companies that have experienced a cyber-attack as victims, and encouraged the need for cooperation between the public and private sectors. 

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  • SEC Levies $18 Million Fine On NYSE And Affiliated Exchanges For Alleged Securities Act And Exchange Act Violations

    On March 6, 2018, the United States Securities and Exchange Commission (“SEC”) instituted a settled administrative proceeding against the New York Stock Exchange (“NYSE”), and affiliated national exchanges NYSE American LLC (“American”) and NYSE Arca, Inc. (“Arca”), for allegedly misrepresenting stock prices as “automated,” applying price collars when there was no rule permitting them, failing to maintain sufficient disaster recovery policies, and other conduct in violation of various sections of the Securities Act of 1933 (“Securities Act”), the Securities Exchange Act of 1934 (“Exchange Act”), and various regulations thereunder.  This administrative proceeding arose from five separate SEC investigations and culminated in a $14 million fine against the exchanges.  See In the Matter of New York Stock Exchange LLC, et al., Admin. Proc. No. 3-18388 (Mar. 6, 2018); see also Press Release, NYSE to Pay $14 Million Penalty for Multiple Violations, Rel. No. 2018-31 (Mar. 6, 2018),

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  • DOJ Announces Intent To Apply Principles From FCPA Corporate Enforcement Policy To Other White Collar Contexts 

    At the recent American Bar Association’s National Institute on White Collar Crime, the Department of Justice’s (“DOJ”) Acting Head of the Criminal Division, John Cronan, announced that the Criminal Division will use the FCPA Corporate Enforcement Policy (“the Policy”) as “nonbinding guidance” in other areas of white-collar enforcement beyond the FCPA.  As a result of this expansion, absent aggravating factors, DOJ may more frequently decline to prosecute companies that promptly self-disclose misconduct, fully cooperate with DOJ’s investigation, remediate in a complete and timely fashion, and disgorge any ill-gotten gains.  Indeed, Cronan pointed to the DOJ’s recent decision to decline charges against a global bank, after the bank agreed to pay back $12.9 million in profits the DOJ claimed it obtained as a result of an alleged foreign exchange front-running scheme, as an example of the effect of this new wider application of the Policy.

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  • Eastern District Of New York Grants Preliminary Injunction In Opinion Backing CFTC’s Authority To Regulate Cryptocurrency

    On March 6, 2018, Judge Jack B. Weinstein of the United States District Court for the Eastern District of New York entered a preliminary injunction against a virtual currency company and its owner in connection with an alleged fraudulent virtual currency scheme.  CFTC v. McDonnell, et al., No. 1:18-cv-00361 (E.D.N.Y. Mar. 6, 2018).  Judge Weinstein found that the Commodity Futures Trading Commission (“CFTC”) had shown a reasonable likelihood that defendants would continue to violate the Commodity Exchange Act (“CEA”).  In so ruling, Judge Weinstein became the latest judge to recognize the CFTC’s authority to regulate cryptocurrencies as commodities.

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  • The Supreme Court Hears Oral Arguments In United States v. Microsoft 

    On February 27, 2018, the U.S. Supreme Court heard oral arguments in United States v. Microsoft, No. 17-2.  The case presents the question whether a U.S.-based entity (Microsoft) must comply with a judicially-authorized search warrant that was issued under Section 2703 of the Stored Communications Act by providing overseas data to the U.S. Department of Justice (“DOJ”).

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  • Supreme Court Finds Dodd-Frank Does Not Protect Internal Whistleblowers

    On February 21, 2018, the Supreme Court unanimously held that the anti-retaliation provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) do not cover individuals who do not report violations of the securities laws to the Securities and Exchange Commission (“SEC”).  Digital Realty Trust, Inc. v. Somers, No. 16-1276 (Feb. 21, 2018).  Writing for the Court, Justice Ginsburg explained that Dodd-Frank explicitly defined the term “whistleblower” to include only individuals who report to the SEC and that, when a statute explicitly defines a term, courts must follow that definition.  See 15 U.S.C. § 78u–6(a)(6).  Respondent Paul Somers, who had only reported within his company, was therefore ineligible for Dodd-Frank’s whistleblower protections.  We previously covered the Court’s skepticism of Somers’ position at oral argument.  See Shearman & Sterling LLP:  Government/Regulatory Enforcement, Supreme Court Oral Argument Suggests Skepticism Over SEC Rule Protecting Internal Whistleblowers from Retaliation under Dodd-Frank (Dec. 5, 2017).

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  • Third Circuit Vacates Insider Trading Sentence Based In Part On Third-Party’s Trading

    On February 14, 2018, the United States Court of Appeals for the Third Circuit vacated Steven Metro’s 46-month prison sentence for insider trading and remanded the case to the district court for resentencing.  United States v. Metro, No. 16-3813 (3d Cir. Feb. 14, 2018).  The Third Circuit held that a sentencing court cannot attribute illicit financial gains to an insider trading defendant for purposes of the United States Sentencing Guidelines (the “Sentencing Guidelines”) when the gains are “actually attributable to someone with whom he was not acting in concert and to whom he did not provide inside information.”

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  • U.S. Subsidiary Of Dutch Bank Pleads Guilty To Allegations That It Conspired To Obstruct OCC Examination Of AML Program

    On February 7, 2018, Dutch bank Rabobank’s U.S. subsidiary pleaded guilty to conspiring to impair, impede, and obstruct a review by the Office of the Comptroller of the Currency (“OCC”) of the bank’s anti-money laundering (“AML”) program, agreeing to forfeit more than $368 million as a result.  See United States v. Rabobank, National Association, 18-cr-0614, Plea Agreement (Feb. 7, 2018); DOJ Press Release, Rababank NA Pleads Guilty, Agrees to Pay Over $360 Million, No. 18-148 (Feb. 7, 2018).

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  • DOJ And CFTC Recent Actions Highlight Their Increased Focus On “Spoofing”
    ​On January 29, 2018, the U.S. Department of Justice (“DOJ”) and U.S. Commodity Futures Trading Commission (“CFTC”) announced settlements with three international financial institutions to resolve claims that traders at those institutions placed false bids to manipulate the precious metals markets, a process referred to as “spoofing.”  Separately, the DOJ filed criminal charges, and the CFTC filed civil complaints, against seven individual traders alleged to have engaged in spoofing, and the owner of a software company alleged to have built a program that was designed to enable the practice. 

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  • PCAOB And Accounting Firm Employees Charged With Misuse Of Confidential Data To Improve Firm’s Inspection Results

    On January 22, 2018, the SEC announced civil charges against six certified public accountants for their role in an alleged scheme to misappropriate confidential information from the Public Company Accounting Oversight Board (“PCAOB”) relating to the PCAOB’s planned inspections of an accounting firm, so that the firm could use the confidential information to help it avoid poor inspections.  Press Release 2018-6, SEC, Six Accountants Charged with Using Leaked Confidential PCAOB Data (Jan. 22, 2018).  On the same day, the United States Attorney’s Office for the Southern District of New York (“USAO”) announced the unsealing of an indictment charging five of the six defendants in the SEC action with conspiracy and wire fraud for their participation in the alleged scheme.  Press Release, DOJ, Five Former KPMG Executives and PCAOB Employees Charged in Manhattan Federal Court (Jan. 23, 2018).  The sixth SEC defendant had previously pleaded guilty (and had agreed to settle the SEC’s claims) and is cooperating with the government’s investigation.

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  • HSBC Enters Into Deferred Prosecution Agreement To Settle Charges Arising From Traders’ Alleged FX Front-Running

    On January 18, 2018, HSBC Holdings Plc (“HSBC”) entered into a deferred prosecution agreement with the Department of Justice, Criminal Division, Fraud Section (“DOJ”) pursuant to which it will pay $101.5 million in criminal penalties and disgorgement to resolve two counts of wire fraud under 18 U.S.C. § 1343.  Deferred Prosecution Agreement, United States v. HSBC Holdings Plc, No. 1:18-cr-00030 (E.D.N.Y. 2018), ECF No. 3-2.  The charges arose out of two transactions in 2011 where HSBC foreign exchange (“FX”) traders allegedly engaged in “front-running,” or trading ahead of a client’s trade, to manipulate the price of currency. 

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  • U.S. Supreme Court To Review Ex-CEO’s Appeal Regarding Restitution Of Legal Fees Associated With An Internal Investigation

    On January 12, 2018, the Supreme Court granted certiorari to hear an appeal from a two-judge, Fifth Circuit panel decision regarding whether federal law permits restitution orders in criminal cases to cover the costs of internal investigations that are “neither required nor requested” by the government.  Lagos v. United States, Petition for Writ of Certiorari, p. 8, filed June 15, 2017. Joining six other circuits, the Fifth Circuit held that the Mandatory Victims Restitution Act (“MVRA”) authorizes recovery of the fees incurred during an internal investigation, if such fees were “directly caused by the defendants’” criminal offense.  United States v. Lagos, 864 F.3d 320, 323 (5th Cir. Mar. 17, 2017). This holding conflicts with a 2011 decision issued by the D.C. Circuit, holding that such costs were not recoverable, if the investigation was “neither required nor requested by criminal investigators or prosecutors.”  United States v. Papagno, 639 F.3d 1093, 1095 (D.C. Cir. 2011).  The Fifth Circuit affirmed the district court’s order requiring former CEO Sergio Lagos of USA Dry Van Logistics to cover $5 million in fees GE Capital incurred during its internal investigation related to USA Dry Van’s bankruptcy petition.

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  • The Supreme Court Agrees To Review Appointment Requirements For SEC’s In-House Judges  

    ​On January 12, 2018, the U.S. Supreme Court granted certiorari in Lucia v. Securities and Exchange Commission, No. 17-130, agreeing to resolve a circuit split regarding the appointment process for Securities and Exchange Commission (“SEC”) administrative law judges (“ALJs”).  The case raises significant questions as to whether ALJs constitute inferior officers who must be selected and appointed by the SEC Commissioners themselves (who are politically accountable), or whether they constitute mere employees who can be hired like any other agency employee.  See Shearman & Sterling LLP, D.C. Circuit Court Of Appeals Rejects Constitutional Challenge to SEC’s Use of Administrative Proceedings, Need-to-Know Litigation Weekly, Aug. 15, 2016,;  Shearman & Sterling LLP, Tenth Circuit Splits With D.C. Circuit On Constitutionality Of SEC ALJs, Need-to-Know Litigation Weekly, Jan. 2, 2017,; Shearman & Sterling LLP, In Reversal, SEC Agrees That Its Administrative Law Judges Are Inferior Officers That Require Commission Appointment, But Still Seeks Supreme Court Review To Resolve Circuit Split, Need-to-Know Litigation Weekly, Dec. 12, 2017,

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