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  • FINRA Fines Broker-Dealer $9 Million For Allegedly Attempting To Influence The Market For Offered Securities
     
    07/06/2022

    On June 23, 2022, FINRA’s Department of Enforcement announced a settlement in which a broker-dealer agreed to pay $3.6 million in fines, $4.77 million in disgorgement, and partial restitution of over $625,000 to resolve the broker-dealer’s alleged misconduct under the Exchange Act and NASD and FINRA Rules in connection with three IPOs and seven follow-on offerings between June 2016 and December 2018 for which the broker-dealer acted as underwriter, as well as for other supervisory and operational violations.
    CATEGORIES : Enforcement MattersFINRA
  • SEC Brings Its First Regulation Best Interest Enforcement Action
     
    06/23/2022

    On June 15, 2022, the Securities and Exchange Commission (“SEC”) filed a complaint in the U.S. District Court for the Central District of California against registered broker-dealer Western International Securities, Inc. (“Western”) and five of its registered representatives (the “Registered Representatives”), alleging that they had violated the Best Interest Obligation under Rule 15l-1(a) of the Securities Exchange Act of 1934 (“Regulation Best Interest” or “Reg BI”) in connection with their recommendations to retail customers to purchase certain unrated debt securities.  This is the first action brought by the SEC to enforce Reg BI, and the litigation could lead to important legal rulings clarifying its scope.
  • SEC Brings Action Against Investment Advisers For Allegedly Misleading Robo-Adviser Clients About Hidden Fees
     
    06/23/2022

    On June 13, 2022, the Securities and Exchange Commission (“SEC”), announced that it had instituted a settled administrative proceeding accusing several investment advisers (the “Advisers”) that focused on robo-advising, and all of which were themselves subsidiaries of a prominent investment adviser, of violating Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 and Section 15(b) of the Securities Exchange Act of 1934.  Broadly, the SEC accused them of failing to invest client cash in ways that their own analyses showed would be optimal for the clients, and instead retaining cash in a way that benefitted the Advisers.  The Advisers did not admit or deny the SEC’s allegations as part of the resolution, but as part of the settlement agreed collectively to disgorge approximately $52 million and to pay a civil monetary penalty of $135 million and were also required to engage an independent consultant and engage in certain other undertakings.
  • Glencore Pleads Guilty And Agrees To $1.1 Billion Penalty To Resolve Manipulation And Foreign Corruption Allegations
     
    06/02/2022

    On May 24, 2022, Glencore International A.G. of Switzerland (“Glencore”), an energy and commodities trading firm, and its affiliates Glencore Ltd. of New York and Chemoil Corporation of New York resolved long-running investigations by the Department of Justice (“DOJ”), the Commodity Futures Trading Commission (“CFTC”), and regulators in the UK and Brazil related to alleged foreign bribery and market manipulation schemes.  The companies agreed to pay total fines and monetary penalties in excess of $1.1 billion, including the largest penalty and disgorgement ever ordered by the CFTC, for conduct that spanned over ten years.  As part of its resolutions with the CFTC and the DOJ, Glencore and Glencore Ltd. have agreed to retain independent compliance monitors for three years and continue to cooperate fully and expeditiously with both enforcement agencies.  In addition to the corporate resolutions, two Glencore former employees have previously been charged.  A Glencore Ltd. senior fuel oil trader, Emilio Jose Heredia Collado, pleaded guilty in March 2021 to one count of conspiracy to engage in commodities price manipulation.  His sentencing is scheduled for June 17, 2022.  Similarly, in July 2021, a senior trader in charge of Glencore’s West Africa crude oil desk pleaded guilty to one count of conspiracy to violate the FCPA and one count of conspiracy to commit money laundering.
  • SEC ESG Fines Investment Adviser For Alleged ESG Misstatements In ESG Task Force’s First Enforcement Resolution
     
    06/02/2022

    On March 4, 2021, the Securities & Exchange Commission (“SEC”) publicly announced the formation of a Climate and Environmental, Social and Governance (“ESG”) Task Force within its Enforcement Division.  This task force was reportedly staffed with 22 Enforcement staff members drawn from SEC headquarters, regional offices and specialized units.  The task force was assembled in response to, among other things, SEC Chairman Gary Gensler’s focus on investigating misstatements related to ESG disclosures.  In remarks by Chairman Gensler on July 7, 2021, he described the SEC as focused on “truth in advertising” and confirming that “funds that market themselves as ‘green,’ ‘sustainable,’ ‘low carbon,’ and so on” were in fact operating consistent with those disclosures.  Approximately 14 months later, the ESG Task Force has announced its debut enforcement action by ordering an investment adviser to pay a $1.5 million fine for alleged misrepresentations related to its ESG practices.
  • Fifth Circuit Holds SEC Administrative Proceedings Are Unconstitutional
     
    05/24/2022

    On May 18, 2022, a divided panel of the U.S. Court of Appeals for the Fifth Circuit issued a significant decision in George Jarkesy and Patriot28 LLC v. SEC, ruling that the use of administrative proceedings by the Securities and Exchange Commission (“SEC”) was unconstitutional because, among other reasons, the Court found that Congress impermissibly delegated the decision of whether to bring enforcement actions as administrative proceedings or district court actions without providing adequate guidance to the SEC.  The decision is limited to the Fifth Circuit and will undoubtedly be appealed, but it raises significant questions about the use of administrative proceedings even beyond the SEC.
    CATEGORIES : Enforcement MattersSEC
  • U.S. Investment Firm Enters $6 Billion Parallel Resolutions With DOJ And SEC Over Allegations Of Fraudulent Conduct By Employees And Related Control Failures
     
    05/24/2022

    On May 17, 2022, the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) announced parallel resolutions with a registered investment advisor (the “Advisor”), resolving criminal and civil securities fraud allegations concerning three portfolio managers’ concealment of downside risks associated with the Advisor’s trading strategy, “Structured Alpha,” and the failure to implement an adequate control function in the Advisor’s Structured Products Group.  United States v. AllianzGlobal Investors U.S. LLC, No. 1:22-cr-00279 (S.D.N.Y); Securities and Exchange Commission v. Tournant, Taylor, and Bond-Nelson, No. 1:22-cv-04016 (S.D.N.Y.).  Three related indictments of former portfolio managers of the Advisor whose conduct contributed to the Advisor’s settlement were also unsealed.  United States v. Gregoire Tourant, No. 22-cr-00276 (S.D.N.Y.); United States v. Trevor Taylor, No. 22-cr-00149 (S.D.N.Y.); United States v. Stephen Bond-Nelson, No. 22-cr-00137 (S.D.N.Y.).
  • Jury Rejects SEC Fraud Claims Against Trader Accused Of Misstatements Over Pricing Commercial RMBS
     
    05/17/2022

    On May 6, 2022, the long-awaited trial between the Securities and Exchange Commission (“SEC”) and James Im (“Im”)—a former Nomura trader—came to an end when a Manhattan federal jury found in favor of Im.  The SEC brought suit against Im in 2017, claiming that he committed securities fraud by making various alleged misstatements to his trading counterparties in connection with trading commercial residential mortgage backed securities (“RMBS”).  The jury’s decision – particularly in a civil trial as opposed to a criminal one – may raise further questions about the government’s multi-year pursuit of misstatements in the commercial RMBS market that began with the Department of Justice’s case against former trader Jesse Litvak.
  • OCC Issues Consent Order Against A Digital Bank
     
    05/04/2022

    On April 21, 2022, the Office of the Comptroller of the Currency (OCC) issued a consent order against Anchorage Digital Bank, a digital asset bank based in South Dakota.  Notably, Anchorage had previously become the first digital asset bank to be regulated by the OCC in January 2021.  In its consent order, the OCC determined that Anchorage had failed to adopt an effective compliance system as required by the Bank Secrecy Act and anti-money-laundering (“AML”) laws, specifically highlighting failures related to “internal controls for customer due diligence and procedures for monitoring suspicious activity, BSA officer and staff, and training.”
  • SEC Announces Settled Enforcement Action Alleging Management Of Earnings Figures To Meet Analyst Estimates
     
    04/27/2022

    On April 18, 2022, the SEC announced it had reached an $8 million settlement with Rollins Inc. (“Rollins”), a nationwide pest control services company, and its CFO for allegedly engaging in improper accounting practices to boost quarterly earnings per share (“EPS”) to meet consensus quarterly estimates.  The SEC found that the CFO directed the company to make certain adjustments to its records in multiple quarters without performing a generally accepted accounting principles (“GAAP”) analysis or memorializing the basis for the changes.  The changes allegedly caused the EPS to go up a penny, allowing the company to meet analysts’ consensus estimates, and the company often publicly touted the consistency of its earnings growth in its press releases and public filings.  Under terms of the settlement, Rollins neither admitted nor denied the SEC's findings and agreed to pay an $8 million civil penalty, while the CFO agreed to pay a $100,000 civil penalty.  However, the action was brought under Section 17(a)(2) of the Securities Act of 1933 as opposed to Section 10(b) of the Exchange Act of 1934, and although both the company and CFO agreed to the entry of a cease-and-desist order, the CFO was not required to agree to an officer or director bar.
  • SEC Commissioner’s Dissent Highlights Challenges In Responding To Whistleblowers
     
    04/19/2022

    On Tuesday, April 12, the U.S. Securities and Exchange Commission (SEC) fined David Hansen, the former Chief Information Officer of NS8, Inc., a Las Vegas-based fraud detection and prevention software firm, approximately $100,000 for interfering with an employee’s ability to communicate with the SEC in violation of Rule 21F-17(a).  The SEC alleged that Hansen violated the rule by restricting the employee’s access to NS8’s IT systems and monitoring his use of corporate computer systems following the employee providing a tip to the SEC about NS8’s corporate practices.  In dissent, SEC Commissioner Hester Peirce said that the application of Rule 21F-17(a) was inappropriate in this case, arguing that restricting the tipster’s access to IT systems and monitoring their use did not impede their ability to communicate with the SEC and was a reasonable step in preventing unauthorized disclosure of NS8’s data to private parties and the media.
  • SEC Proposes New SPAC Disclosure Rules
     
    04/05/2022

    On March 30, 2022, the Securities Exchange Commission (“SEC”) published its long-awaited proposed rules and rule amendments applicable to special purpose acquisition companies (“SPACs”) for comment by May 31.  The stated purpose of the proposed rules, which would impose significant changes to the rules affecting SPACs, is to “more closely align the required financial statements of private operating companies in transactions involving shell companies with those required in registration statements for an initial public offering.”
    CATEGORIES : SECSPACs
  • FINRA Issues Regulatory Notice On The Scope Of Supervisor Liability For Chief Compliance Officers
     
    03/23/2022

    On March 17, 2022, FINRA issued a notice to member firms about Rule 3110 as it pertains to the potential liability of Chief Compliance Officers (CCOs) for failure to discharge designated supervisory responsibilities.  (Regulatory Notice 22-10, “the Notice”).  The Notice provides welcome guidance, clarifying when CCOs will, and will not, be held liable for supervisory violations and explicitly acknowledging that CCOs are generally not responsible for all supervisory activity within member firms.
  • U.S. Attorney General Announces Task Force To Target Russian Sanctions And Additional Resources For White Collar Enforcement
     
    03/08/2022

    U.S. Attorney General Merrick Garland made two announcements this week related to the enforcement of white-collar crime by both individuals and corporations.  First, on March 2, 2022, Attorney General Garland announced the launch of Task Force KleptoCapture, an interagency law enforcement task force dedicated to enforcing sanctions, export restrictions, and economic countermeasures imposed against Russia in response to its military invasion of Ukraine.  Second, on March 4, 2022, the Attorney General discussed additional resources that the Department of Justice (“DOJ”) would devote to the prosecution of white-collar crime.
  • Sweeping New Sanctions: US, EU, UK And Other Countries Target Russia For Ukraine Invasion
     
    03/01/2022

    Over the past week, the United States, European Union, United Kingdom and several other countries imposed rounds of sweeping new sanctions on Russia in response to its invasion of Ukraine. Between February 21 and 23, 2022, the U.S., EU, U.K., Japan and Australia announced an initial round of sanctions after Russia officially recognized two Russian-backed separatist regions of eastern Ukraine—the so-called Donetsk and Luhansk People’s Republics (respectively, “DNR” and “LNR”), and then deployed troops to these regions. The first wave of sanctions targeted Russian sovereign debt, several Russian banks, and a number of Russian “elites” and officials, including Russian Defense Minister Sergei Shoigu. The measures additionally included a trade and investment embargo on the two separatist regions—similar to existing restrictions on Crimea. Germany also announced that it would halt certification of the Nord Stream 2 natural-gas pipeline. The U.S. followed with sanctions on Nord Stream 2 AG, its CEO, and its corporate officers on February 23, 2022.
    CATEGORY : Sanctions
  • SEC Announces Settled Insider Trading Action Against Former Director Of Investor Relations
     
    03/01/2022

    On February 22, 2022, the Securities and Exchange Commission (SEC) announced that John-Michael Havrilla, a former Director of Investor Relations of PAVmed Inc. (PAVmed), a medical device company, had agreed to settle claims of insider trading.  The SEC simultaneously filed a complaint in the Southern District of New York, together with a consent agreement and proposed final judgment wherein Havrilla, without admitting or denying liability, agreed to the imposition of a permanent injunction, civil penalties of $160,230, and a five-year officer or director ban.
  • Cryptocurrency Company Fined $100M In Novel Action Concerning Registration Obligations For Crypto Lending Product
     
    02/24/2022

    On Monday, February 14, 2022, the Securities and Exchange Commission (SEC) charged cryptocurrency lending company BlockFi Lending LLC (“BlockFi”) with failing to register the offers and sales of its retail crypto lending product, violating the registration provisions of the Investment Company Act of 1940, and making certain material misrepresentations regarding the level of risk associated with its product.  To settle the charges, BlockFi agreed to pay a $50 million penalty, cease its unregistered offers and sales of the lending product—BlockFi Interest Accounts (“BIAs”)—and bring its business within the provisions of the Investment Company Act within 60 days.  BlockFi also agreed to pay an additional $50 million in fines to 32 different states to settle similar charges.
  • Second Circuit Reverses Conviction Of Two Traders Accused Of LIBOR Rigging Scheme, Finding Insufficient Evidence Of False Or Fraudulent Statements
     
    02/01/2022

    On January 27, 2022, the United States Court of Appeals for the Second Circuit reversed the convictions of two former traders convicted of wire fraud and conspiracy to commit wire and bank fraud, part of the widely-publicized series of prosecutions for allegedly manipulating the London Interbank Offered Rate (“LIBOR”).  US v. Connolly, No. 19-3806, 2022 WL 244669 (2d Cir. Jan. 27, 2022).  The Court held that although the government had offered evidence that the former traders had sought to impact LIBOR through their submissions, the government had failed to offer sufficient evidence that they did so through fraud.  Because the LIBOR instructions with which the submitters were required to comply called for a hypothetical rate at which the submitting bank could borrow funds, the Court held that if the rate submitted was one a bank could request, be offered, and accept, the submission, irrespective of its motivation, would not be false.  And, in this case, the Court found that there was no evidence that the submitted rates were false under that standard.  Thus, even if the conduct could be perceived as dishonorable, the Court held that the convictions had to be reversed.
  • California District Court Allows Novel SEC Insider Trading Theory To Proceed
     
    01/19/2022

    On January 14, 2022, Judge William Orrick of the United States District Court for the Northern District of California issued an order denying a former biopharmaceutical company executive’s motion to dismiss and allowing the Securities and Exchange Commission (“SEC”) to proceed with a first-of-its-kind insider trading action against a corporate insider for misappropriating confidential nonpublic information related to his employer’s upcoming merger to purchase securities issued by a third company that was not involved in the transaction.
  • Company Acquired By SPAC Agrees To Pay $125 Million To Settle SEC Probe Months After CEO Was Charged With Fraud
     
    01/11/2022

    On December 21, 2021, the Securities and Exchange Commission (SEC) announced that Nikola Corporation—a publicly traded company that develops, manufactures, and sells electric trucks—had agreed to a $125 million settlement agreement to end the SEC’s investigation into claims that the company, both directly and through its former CEO, Trevor Milton, had deceived investors about the company’s ability to build hydrogen-powered vehicles and other issues.  As part of the settlement, Nikola neither admitted nor denied the claims against it, and agreed to continue cooperating with the SEC in its separate investigation into Milton himself.  The SEC previously brought a suit against Milton, who was also charged by the Department of Justice (“DOJ”), and that case remains pending.
  • Federal Court Dismisses SEC Insider Trading Case, Holding That Suspicious Trading Plus Evidence Of Relationship And Communications With Insider Are Insufficient Basis To Get To A Jury
     
    12/21/2021

    On December 13, 2021, U.S. District Court Judge Claude Hilton, of the Eastern District of Virginia, dismissed the Securities and Exchange Commission’s (“SEC’s”) insider trading action against Christopher Clark before the defense put on its case-in-chief.  The Court agreed with defendant’s arguments that the SEC’s evidence was insufficient as a matter of law, even though the SEC was able to present evidence of what it claimed to be (1) suspicious trading patterns, (2) a close relationship with a corporate insider; and (3) communications patterns corresponding to the trading.  Absent actual evidence of a tip, or testimony supporting the SEC’s theory, the Court agreed with defendant that the SEC’s case was simply too speculative.  As the SEC increasingly seeks to use data analytics and circumstantial evidence to prove insider trading cases, the decision is a reminder that Courts may at times decide that more is needed.
    CATEGORY : SEC
  • SEC And CFTC Bring $200 Million Settled Action Against Financial Institution For Alleged Violations Of Record-Keeping Requirements Due To Employee Off-Platform Communications Including WhatsApp And Text Messages
     
    12/21/2021

    On December 17, 2021, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) announced that each had entered into an agreement with J.P. Morgan Securities (the “Company”) to resolve issues related to the Company’s books-and-records obligations.  The agencies alleged that, over a period of several years, the Company failed to maintain and preserve copies of certain communications pursuant to recordkeeping rules for broker-dealer firms, swap dealers and future commission merchants – including WhatsApp and text messages on employee personal devices.  The Company admitted that its conduct was not in compliance with Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-4(b)(4) and 171-4(j) thereunder as well as Section 4(s)(h)(1)(B) of the Commodity Exchange Act and Regulations 166.3 and 23.602, and agreed to pay a total of $200 million to resolve the allegations ($125 million to the SEC and $75 million to the CFTC).
    CATEGORIES : CFTCSEC
  • SEC Enforcement In FY 2021 Included Significant Actions In Traditional And Emerging Areas And Over $1 Billion In Whistleblower Awards
     
    11/24/2021

    On November 18, the U.S. Securities and Exchange Commission (“SEC”) announced its enforcement results for the 2021 fiscal year, which ended on September 30, 2021.  The SEC reported that it filed 434 new enforcement actions in FY2021, a 7% increase over FY2020.  But perhaps the most striking thing about the SEC’s enforcement results for the year was its whistleblowing statistics.  The SEC has now awarded over $1 billion in whistleblower awards, and the SEC highlighted those figures in its press release—announcing that “[t]he SEC’s whistleblower program was critical to these efforts and had a record-breaking year.”
  • Consulting Firm Settles Allegations That It Had Inadequate Procedures For Handling Of MNPI Between Units
     
    11/24/2021

    On November 19, 2021, the Securities and Exchange Commission (“SEC”) announced that an affiliate of McKinsey & Company (“McKinsey”), McKinsey Investment Office Partners, Inc. (“MIO”), had agreed to pay an $18 million penalty for alleged compliance failures in its handling of material nonpublic investment information (“MNPI”).  While the SEC did not allege that MIO had ever improperly used material nonpublic investment information in executing trades, it alleged that MIO’s procedures were inadequate to account for the risk that certain members of its investment committee had access to such information due to other roles they had with McKinsey.  MIO neither admitted nor denied the allegations in resolving the matter through an administrative proceeding.
  • DOJ Announces Major Policy Changes To How It Investigates And Prosecutes Corporate Crime, Signaling A Return To Tougher Enforcement And Individual Accountability
     
    11/03/2021

    On October 28, 2021, at the American Bar Association’s National Institute on White Collar Crime, Deputy Attorney General Lisa O. Monaco announced revisions to the Department of Justice’s policies, all designed to strengthen DOJ’s response to corporate crime.  Deputy AG Monaco outlined major policy changes focused on individual accountability, when cooperation credit will be given to corporations, how corporations’ prior history of misconduct will be evaluated, and when corporate monitors will be imposed.  Deputy AG Monaco said these changes were just the beginning of DOJ’s efforts to further incentivize corporations to embrace a culture of compliance, and she also announced the creation of a new DOJ Advisory Group that will focus on additional potential policy shifts.  Both were also discussed in DOJ’s Memorandum published the same day, titled “Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies.”
  • CFTC Awards Record $200 Million To Whistleblower
     
    10/26/2021

    On October 21, 2021, the Commodity Futures Trading Commission (“CFTC”) announced it would be awarding a whistleblower its largest, publicly-announced single award under the Dodd-Frank whistleblower rewards program—nearly $200 million.  The whistleblower—who sources say worked for a major financial institution—provided extensive information and documents in 2012 that prompted the CFTC, another US regulator, and a foreign regulator to bring sizable enforcement actions related to benchmark manipulation.  The CFTC’s order stated that the whistleblower’s information provided “direct evidence of wrongdoing” and led to a successful enforcement action, and also assisted two other regulatory actions.  The record payment, according to the CFTC, reflects recognition of “a ‘meaningful nexus’ between the information provided and the CFTC’s ability to successfully complete its investigation.”
    CATEGORIES : CFTCWhistleblower
  • New York AG Demands Crypto Platforms Cease Operations
     
    10/26/2021

    On October 18, 2021, New York’s Attorney General (NYAG) issued cease-and-desist letters to two cryptocurrency platforms, demanding that they discontinue all operations in New York within ten days for alleged violations of the Martin Act.  The NYAG’s office also sent requests for information to three other cryptocurrency firms focused on “tethers,” a type of “stablecoin” cryptocurrency that is tied to the US dollar.
    CATEGORIES : CFTCCryptocurrencyNew York
  • Comments At SEC Speaks Conference Suggest Heightened Bar For Cooperation Credit, Return Of Admissions Policy, And Increased Autonomy For Front-Line SEC Enforcement Staff
     
    10/19/2021

    On October 13, 2021, SEC Enforcement Director Gurbir Grewal and Deputy Enforcement Director Sanjay Wadhwa appeared at the Practicing Law Institute’s “The SEC Speaks” conference, an annual conference where Commission leaders provide updates on current initiatives and priorities of the Commission for the coming year.  Director Grewal and Deputy Director Wadhwa’s remarks signaled some potentially significant policy changes, particularly in terms of how they will measure corporate compliance programs and cooperation levels, when the SEC will allow settling defendants to “neither admit nor deny” the allegations brought by the SEC, and the overall autonomy granted to the front-line enforcement staff.   While the impact of any such policy change is uncertain, and will need to be assessed over time, it is an unmistakable shift in tone from the prior administration.
  • Department Of Justice Announces Enhanced Efforts Towards White-Collar Crime Enforcement And Creation Of National Cryptocurrency Enforcement Team
     
    10/13/2021

    In back-to-back speeches last week, senior Department of Justice (“DOJ”) officials emphasized that the Department would devote additional resources and attention to white-collar enforcement actions, with a specific focus on enforcement in the cryptocurrency space.  These initiatives, which contemplate additional corporate enforcement actions, reflect a break from the prior administration’s criminal enforcement priorities, which tended to focus on immigration and violent crime offenses.
  • CFTC Fines Crypto Exchange That Offered Margin Trading For Failing To Register As FCM, Prompting Calls For Further Rulemaking From One Commissioner
     
    10/06/2021

    On September 28, 2021, the Commodity Futures Trading Commission (CFTC) entered an order that imposed a $1.25 million fine on Payward Ventures Inc., which does business as digital asset exchange Kraken, for allegedly failing to register as a futures commission merchant (FCM) and for offering certain margin trading services in violation of Sections 4(a) and 4d of the Commodity Exchange Act (CEA).  Although the decision did not purport to break new legal ground, one CFTC Commissioner, Dawn Stump, noted that the decision “is informed by” the CFTC’s Final Interpretive Guidance on retail commodity transactions involving certain digital assets issued in 2020, and issued a concurring statement calling upon the CFTC to issue rulemaking to clarify and codify that guidance, which is increasingly important in the cryptocurrency space.
  • SEC Vacates $1.6 Million In FINRA Fines Against Broker-Dealer And Officers
     
    09/29/2021

    On September 17, 2021, the Securities and Exchange Commission (“SEC”) vacated $1.6 million in fines and penalties that the Financial Industry Regulatory Authority (“FINRA”) had previously levied against Scottsdale Capital Advisors Corp. (“Firm”) and three of its officers (“Applicants,” collectively).  In 2015, FINRA alleged that the Firm failed to maintain appropriate internal controls and executed sales of unregistered microcap securities for its foreign financial institution customers.  The next year, following a disciplinary hearing, FINRA imposed a $1.5 million fine on the Firm, a lifetime bar on one of the Firm’s officers, and a $50,000 fine and a two-year suspension on the two remaining Firm officers.  In reviewing FINRA’s findings on appeal by the Applicants, the SEC overturned the sanctions after determining that FINRA’s National Adjudicatory Council (“NAC”) applied incorrect legal standards, failed to adequately explain the basis of its conclusions, and conflated applicable regulations in its case against the Firm.
  • SEC Brings Insider Trading Charges Based On Novel Theory
     
    08/26/2021

    On August 17, 2021, the Securities and Exchange Commission (“SEC”) charged a former executive of California-based biopharmaceutical company Medivation Inc. with violating § 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 for allegedly relying upon inside information he obtained through the course of his employment at Medivation to purchase stock of a different company, Incyte Corp., a practice that some academics have dubbed “shadow trading.”  According to the SEC’s complaint—filed in the United States District Court for the Northern District of California—Matthew Panuwat, the then-head of business development at Medivation, purchased short-term, out-of-the money stock options in Incyte Corp., a biopharmaceutical company similar to Medivation, immediately after learning that Medivation would soon announce its upcoming acquisition by Pfizer.  The SEC claims that Panuwat knew that investment bankers engaged by Medivation had cited Incyte as a comparable company in their valuation analysis and that the announcement of Medivation’s sale to Pfizer would likely cause Incyte’s stock price to increase.  This is one of the SEC’s first enforcement actions based on this novel theory, and Panuwat may be expected to vigorously contest not only the facts but the legal underpinnings of the SEC’s complaint.
  • SEC Settles “First-Of-Its-Kind” Action Over “Decentralized Finance” Technology, Alleging Fraud And Unregistered Sales Of Securities
     
    08/19/2021

    On August 6, 2021, the U.S. Securities and Exchange Commission (“SEC”) announced that it reached a $13 million settlement in a cease-and-desist proceeding against Blockchain Credit Partners (“the Company”) and its two owners.  The Company marketed itself as a “decentralized finance” (“DeFi”) technology company that sold two kinds of digital assets: (1) “mTokens,” which were sold as accruing 6.2% interest, and (2) DMM Governance (“DMG”) tokens designed to give holders certain voting rights, a share of excess profits, and the ability to profit from DMG resales in the secondary market.  In its cease-and-desist order (the “Order”), the SEC concluded that both mTokens and DMG tokens were securities because they were offered and sold as investment contracts, claimed that the Respondents violated Section 5(a) and 5(c) of the Securities Act for selling these securities without registering them, and further claimed that the Respondents made certain material misstatements and omissions in connection with the sale of the securities in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder.
  • Cryptocurrency Derivatives Exchange Reaches $100 Million Settlement With CFTC, FinCEN
     
    08/19/2021

    On August 10, 2021, BitMEX, an offshore cryptocurrency derivatives exchange (the “Exchange”), agreed to a $100 million settlement with the U.S. Commodity Futures Trading Commission (the “CFTC”) and the Financial Crimes Enforcement Network (“FinCEN”), resolving claims that the Exchange operated illegally in the U.S. and failed to comply with anti-money laundering (“AML”) laws and regulations.
  • DOJ And SEC File Securities Fraud Charges Against Founder Of Company Acquired By A SPAC
     
    08/03/2021

    On July 29, 2021, the Department of Justice (“DOJ”) announced the unsealing of a criminal indictment against Trevor Milton, the founder, former CEO, and former Chairman of Nikola Corporation, a company that went public in March 2020 through a merger with a special purpose acquisition company (“SPAC”), for allegedly knowingly misleading investors about the company’s ability to build electric and hydrogen-powered vehicles and other green technology.  The SEC filed a parallel civil action against Milton based on the same facts.
  • Financial Institution Settles SEC Claims Related To Allegedly Unsuitable Investments In Complex Exchange-Traded Product
     
    07/28/2021

    On Monday, July 19, 2021, the SEC announced that it had settled an action involving an alleged failure to prevent what the SEC contended were unsuitable investments by the respondent’s clients in a volatility-linked exchange-traded product (ETP).  As part of the settlement, the respondent agreed to pay a civil penalty of $8 million and disgorgement and prejudgment interest of $112,274.
  • SEC Announces Settled Enforcement Action In Connection With SPAC Business Combination
     
    07/20/2021

    On July 13, 2021, the SEC announced its settlement with Stable Road Acquisition Corp. (“Stable Road”), a special-purpose acquisition company (“SPAC”); its CEO; its sponsor; and its proposed merger target, Momentus Inc. (“Momentus”), an early-stage space technology company.  The resolution was based on alleged violations of the federal securities laws stemming from material misstatements and omissions related to Momentus’s space technology and national security concerns surrounding Momentus’s former CEO.  The SEC has brought charges against and is litigating against Momentus’s former CEO, who was not a party to the settlement.
  • FINRA Orders Record $70 Million Financial Penalty For Systemic Supervisory Failures
     
    07/07/2021

    On June 30, 2021, the Financial Industry Regulatory Authority (FINRA) ordered Robinhood Financial LLC (“Robinhood”) to pay a $57 million fine, the highest financial penalty ever ordered in FINRA history, for supervisory failures.  Robinhood will also pay an additional $12.6 million of restitution to users.  In announcing the severe penalty, FINRA attributed it to the “widespread and significant harm suffered by … millions of customers” as a result of Robinhood’s various “systemic supervisory failures.”  Without admitting to the allegations, Robinhood consented to FINRA’s findings and stated that it has “invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams.”
  • Supreme Court Resolves Circuit Split On Meaning Of “Exceeding Authorized Access” In The Computer Fraud And Abuse Act
     
    06/08/2021

    On June 3, 2021, the United States Supreme Court’s decision in Van Buren v. U.S. clarified a controversial provision in the Computer Fraud and Abuse Act (the “CFAA”), which imposes civil and criminal liability on anyone who “intentionally accesses a computer without authorization or exceeds authorized access,” and thereby obtains computer information.  18 U. S. C. §1030(a)(2).  The Court held that “an individual ‘exceeds authorized access’ when he accesses a computer with authorization but then obtains information located in particular areas of the computer—such as files, folders, or databases—that are off limits to him” and rejected the prosecution’s broader reading of the CFAA.  In doing so, the Court resolved a circuit split.
  • UK Court Orders Aerospace Corporation Subsidiary To Pay £30 Million In Saudi Corruption Case
     
    05/04/2021

    On April 28, 2021, an Airbus subsidiary was ordered to pay more than £30 million ($41 million) after pleading guilty to one count of corruption for bribing senior Saudi Arabian officials between 2008 and 2010 in relation to a defense contract between the UK and Saudi Arabia for communications and electronic warfare equipment.  Last year, Airbus entered into one of the largest corporate resolutions in history with the UK Serious Fraud Office (“SFO”), the French Parquet National Financier (“PNF”), and the US Department of Justice (“DOJ”), settling allegations of bribery and corruption for a total payment of €3.598 billion plus interest and costs.  See Airbus Agrees Record-Breaking €3.6 Billion Settlement To Avoid Prosecution.  This year’s resolution, while far smaller, is yet another reminder that, even with the increasing global coordination among enforcement agencies, individual agencies will often resist resolving all open issues at a given moment.
  • Supreme Court Rolls Back FTC’s Ability To Obtain Restitution And Disgorgement
     
    04/28/2021

    ​On April 22, 2021, the Supreme Court held in AMG Capital Management, LLC v. FTC that the Federal Trade Commission (“FTC”) is not authorized to seek monetary relief, such as restitution or disgorgement, in enforcement actions brought directly in federal court without first initiating an administrative proceeding.  The Court’s significant decision overturned the Ninth Circuit’s ruling below and resolved a circuit split in favor of the minority position adopted by the Third and Seventh Circuits.  While the FTC retains the ability to seek such monetary penalties through other avenues, the Court’s decision deprives the FTC of an enforcement tool on which it has heavily relied.  
  • SEC Announces Second-Largest Whistleblower Award In Program’s History
     
    04/20/2021

    On April 15, 2021, the Securities and Exchange Commission (“SEC”) announced a joint award of just over $50 million to a pair of whistleblowers, which represents the second-largest award in the whistleblower program’s history.  The SEC’s press release noted that the two recipients reported on “violations that involved highly complex transactions [that] would have been difficult to detect” without the information they provided.  This $50 million award continues a record-setting pace for the whistleblower program.  The SEC has now awarded over a quarter of a billion dollars to whistleblowers in the first seven months of fiscal year 2021 (“FY2021”) alone, which kicked off with an award of $114 million in October 2020—the largest in the program’s history.
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  • SEC Commissioner Calls For Revisiting Approach To Corporate Penalties
     
    03/23/2021

    On March 9, 2021, Caroline Crenshaw, a Commissioner of the Securities and Exchange Commission (“SEC”) asserted, in a speech before the Council of Institutional Investors, that the SEC has focused excessively on the indirect impact on innocent shareholders at the time of penalty when assessing corporate penalties.  Instead, she called for the SEC to revisit its approach and give less weight to innocent shareholder impact as a mitigant against large corporate penalties.
     
  • SEC’s Whistleblowing Statistics Continue To Set Records Through Pandemic
     
    03/17/2021

    Following the Securities and Exchange Commission (“SEC”) September 2020 amendments to the rules governing its whistleblower program, which we previously discussed in this newsletter, the SEC is on track to shatter its previous records of awards paid out to whistleblowers.  Halfway into its fiscal year (“FY2021”), which started in October 2020, the SEC has already awarded nearly $200 million to whistleblowers, surpassing last year’s record of $175 million paid out to whistleblowers.  And the awards have been sizable:  At the start of FY2021, the SEC issued a record $114 million dollar award; and so far this month, the SEC has already issued two multi-million dollar awards.  If this pace continues, the SEC will be on pace to award in one year the same total amount that it had awarded over the previous nine years, since the inception of the whistleblower program, combined.  In terms of the number of awards paid out, the SEC is also likely to have a banner year:  it has paid out 31 awards so far in FY2021, compared to 39 awards paid out last year.
     
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  • SEC Announces New Enforcement Task Force On Climate And ESG
     
    03/09/2021

    On March 4, 2021, the Securities and Exchange Commission announced the creation of a Climate and ESG Task Force in the Division of Enforcement.  SEC Press Release 2021-42 (March 4, 2021).  The task force, led by Kelly L. Gibson, the Acting Deputy Director of Enforcement, and comprising 22 members, will aim to “develop initiatives to proactively identify ESG-related misconduct.”  Id.  The task force’s initial focus will be the identification of material gaps and misstatements in issuers’ disclosure of climate risks, and “will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”  Id.  It is not clear why the SEC concluded that this specific subject matter merits its own task force, and it is worth noting that recent investigations of climate disclosures by other regulators have faced significant challenges.
     
    CATEGORIES : Enforcement ActionsSEC
  • SEC’s 2021 Examination Priorities Reveal Few Surprises
     
    03/09/2021

    On March 3, 2021, the Securities and Exchange Commission’s Division of Examinations announced its examination priorities for this year.  Each year, the SEC publishes its list of examination priorities to identify areas that it believes present potential risks to investors and the integrity of the U.S. capital markets, and this year’s list is largely as expected.  It reflects an intent to focus on conflicts of interest and questions of whether investment advisors are fulfilling their fiduciary duties, information security and business continuity (something that took on particular importance in the last year as firms were forced to adapt to the pandemic), and various other perennial topics of interest.  The only “new” priority is one that dovetails with other recent announcements from the Commission—an addition of “enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change.”
     
    CATEGORIES : Enforcement ActionsSEC
  • SEC Reverses Position On Accepting Settlement Offers Contingent On Waivers, Creating Once Again Risk That Defendants Will Be Forced To Make Settlement Decisions With Significant Uncertainty
     
    02/18/2021

    On February 11, 2021, the Acting Chair of the Securities and Exchange Commission (“SEC”), Allison Herren Lee, announced that the Division of Enforcement will no longer recommend to the SEC a settlement offer that is conditioned on granting a waiver.  While Acting Chair Lee described this as a return to the SEC’s “long-standing practice” of separately considering settlement negotiations and waiver requests, Allison Herren Lee, Acting Chair, SEC, Statement of Acting Chair Allison Herren Lee on Contingent Settlement Offers (Feb. 11, 2021), the decision is in fact a significant and surprising one that was opposed by two Commissioners and could have broad ramifications for the industry.  It signals, in no uncertain terms, that the SEC is looking to be extremely aggressive in enforcement, will almost certainly be far more stingy in granting waivers in future matters, and is prepared to deal with the consequences.  What remains to be seen is how the industry will respond, as the advanced assurance of waivers from the SEC is often not just a factor in a defendant’s decision to settle—for some defendants it is a critical gating item without which no settlement is possible.
     
  • SEC Reauthorizes Senior Enforcement Officials To Issue Formal Investigation Orders
     
    02/18/2021

    On February 9, 2021, Acting Chair of the Securities and Exchange Commission (“SEC”), Allison Herren Lee, announced that she had authorized senior officers in the SEC’s Enforcement Division to approve the issuance of Formal Orders of Investigation without prior approval from the SEC’s commissioners.  While significantly less surprising and less consequential than her announcement from the same week regarding conditional settlement offers, this reinstatement of delegated authority reflects another instance of swinging the pendulum back in favor of more aggressive enforcement.
     
  • DOJ And SEC Charge Biotech Consultant With Insider Trading, But SEC Passes On Seeking Disgorgement
     
    02/18/2021

    On February 5, 2021, the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) charged Mark Ahn, a consultant to a biotech company, with insider trading based on confidential information that he allegedly learned regarding a proposed acquisition of Dimension Therapeutics, Inc. (“Dimension”).  In parallel civil and criminal actions, the DOJ and SEC allege that Ahn executed trades prior to the public announcement of Dimension’s acquisition, based on material non-public information (“MNPI”) that he obtained through his role as a consultant.  Ahn is facing criminal charges of two counts of securities fraud under 18 USC § 1348 and forfeiture pursuant to 18 USC § 981(a)(1)(C) and 28 USC § 2461(c), along with civil charges of violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and a permanent injunction, civil monetary penalties, and an officer-and-director bar.  Notably, while the DOJ is seeking forfeiture, the SEC is not seeking disgorgement.
     
  • United Kingdom Supreme Court Limits The Serious Fraud Office’s Extra-Territorial Reach
     
    02/11/2021

    On February 5, 2021, the U.K. Supreme Court unanimously ruled that the Serious Fraud Office (the “SFO”), the U.K.’s top anti-fraud agency, lacks authority to compel a foreign company to produce documents to the regulator that are held outside of the U.K.  While this ruling on its face suggests the SFO’s power to investigate foreign entities has been stymied, the decision may not have much effect in practice in light of the other cross-border tools that remain available to the SFO, including the mutual legal assistance (“MLA”) process.
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