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  • DOJ Introduces Guidance Over Inability-to-Pay Claims
     
    10/17/2019

    On October 8, 2019, the Department of Justice (“DOJ”) issued a memorandum (“Memorandum”) providing guidance on how the DOJ’s prosecutors will handle inability-to-pay claims from companies, intending to provide companies—and prosecutors—with a better understanding of how to evaluate and address these claims.  Memorandum to All Criminal Division Personnel from Brian A. Benczkowski regarding Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty (Oct. 8, 2019).  Assistant Attorney General Brian A. Benczkowski announced the Memorandum, stating that it does not provide any new methodology, but rather merely “puts a lot more meat on the bones” of how these claims are analyzed.  Assistant Attorney General Brian A. Benczkowski Delivers Remarks at the Global Investigations Review Live New York (Oct. 8, 2019).

     
  • DOJ Charges Three Traders Under RICO In Alleged Spoofing Scheme
     
    09/24/2019

    On September 16, 2019, an indictment was unsealed revealing that the Department of Justice (“DOJ”) has charged three traders at a global banking and financial services company with conspiracy to engage in a pattern of racketeering activity under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and other federal crimes, by allegedly engaging in a scheme to manipulate prices for precious metals futures contracts over an eight-year period.  Indictment, Case No. 19-cr-669 (N.D. Ill. Aug. 22, 2019).  The same day, the Commodity Futures Trading Commission (“CFTC”) brought a parallel civil suit against two of the traders.  See Complaint, Case No. 19-cv-6163 (N.D. Ill. Sept. 16, 2019).  According to the DOJ and the CFTC, the traders engaged in the unlawful practice of “spoofing” by placing orders to buy or sell futures contracts with the intent to cancel the orders before execution and influence the prices of those futures contracts.  While the DOJ and CFTC have brought a number of spoofing charges in recent years, it is unclear why the DOJ saw fit to bring this set of charges under RICO—an aggressive move that the DOJ may use to try to paint with a broader brush in introducing evidence at trial. 
  • Reargument Sought On Whether Shareholders Can Be Victims Of FCPA Violation For Purposes Of Criminal Restitution
     
    09/17/2019

    On August 28, 2019, Judge Garaufis of the United States District Court for the Eastern District of New York held that investors in a mining company, Africo Resources Ltd. (“Africo”), could seek restitution from a defendant under the Mandatory Victims Restitution Act (“MVRA”) for harm caused by the corporation’s bribery scheme.The defendant is a subsidiary operating in Africa (“African Subsidiary”) of an asset manager.The African Subsidiary recently moved for reargument of the Order.
  • Options Clearing Corporation Enters Into Settlements With SEC And CFTC Over Risk Management Policies
     
    09/10/2019

    On September 4, 2019, the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) announced they had entered into settlements with Options Clearing Corporation (“OCC”) regarding its alleged failure to maintain adequate policies to manage its financial risk, operational requirements, and information-systems security.  The case represents the first time the CFTC has brought an enforcement action for violations of the Core Principles applicable to Derivatives Clearing Organizations (“DCO”) and the SEC’s first charges relating to violations of its clearing agency standards.  Pursuant to the orders, OCC agreed to pay a combined penalty of $20 million to the CFTC and the SEC.
  • Second Circuit Limits The Application Of McDonnell v. United States And Declines To Extend The Potential Scope Of Liability In FCPA Cases
     
    08/13/2019
    On August 9, 2019, the United States Court of Appeals for the Second Circuit denied the appeal by a Chinese real estate developer of his 2017 conviction arising from the alleged bribery of United Nations (“UN”) officials.  U.S. v. Ng Lap Seng, No. 18-1725 (2d Cir. 2019).  In affirming the conviction, the Second Circuit ruled that the holding in McDonnell v. United States—in which the Supreme Court held that prosecutors must prove that a bribe is paid in exchange for an “official act” in cases involving the federal anti-bribery statute (18 U.S.C. § 201)—does not apply to prosecutions under the Foreign Corrupt Practices Act (“FCPA”).  The Second Circuit clarified in its ruling that the FCPA and the anti-corruption law aimed at protecting federal funding, known as Section 666, are written differently and target a broader set of bribery goals than the federal anti-bribery statute that was at issue in McDonnell.
  • Technology Company Resolves DOJ And SEC FCPA Allegations, With Hungary Subsidiary Entering Three-Year, Monitor-Free NPA
     
    07/30/2019

    On July 22, 2019, the United States Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) announced that they had resolved allegations of Foreign Corrupt Practice Act (“FCPA”) violations against Microsoft Corporation and one of its wholly owned subsidiaries, Microsoft Magyarország Számítástechnikai Szolgáltató és Kereskedelmi Kft. (“MS Hungary” and, together with Microsoft Corporation, “Microsoft”).  As part of the settlement, Microsoft agreed to pay a total of approximately $25 million to the DOJ and the United States Securities and Exchange Commission (“SEC”), and MS Hungary entered into a three-year non-prosecution agreement (“NPA”).  See Non-Prosecution Agreement, Microsoft Magyarország Számítástechnikai Szolgáltató és Kereskedelmi Kft. (July 22, 2019); DOJ Press Release, Hungary Subsidiary of Microsoft Corporation Agrees to Pay $8.7 Million in Criminal Penalties to Resolve Foreign Bribery Case (July 22, 2019); In the Matter of Microsoft Corporation, Exchange Act Release No. 86421 (July 22, 2019).
  • FINRA Releases New Guidance On Extraordinary Cooperation Credit
     
    07/23/2019

    On July 11, 2019, FINRA provided additional guidance on obtaining extraordinary cooperation credit to supplement its prior enforcement guidance.  FINRA Regulatory Notice 19-23, FINRA Investigations: FINRA Supplements Prior Guidance on Credit for Extraordinary Cooperation (July 11, 2019).  The new guidance does not represent a significant expansion or material change from previous guidance, but rather seeks to clarify areas of potential uncertainty. 
  • In Significant Shift, SEC Will Consider Offers Of Settlement And Collateral Waiver Applications Together
     
    07/09/2019

    On July 3, 2019, Chairman Jay Clayton of the Securities and Exchange Commission (“SEC”) issued a Statement Regarding Offers of Settlement (the “Public Statement”) to announce a significant shift in the SEC’s process of considering settlement offers and requests to waive collateral consequences of such settlements.  SEC Public Statement, Statement Regarding Offers of Settlement (2019).  Chairman Clayton stated that he recognized “that a segregated process for considering contemporaneous settlement offers and waiver requests may not produce the best outcome for investors in all circumstances,” and thus announced “that a settling entity can request that the Commission consider an offer of settlement that simultaneously addresses both the underlying enforcement action and any related collateral disqualifications.”  Id.
  • French Oil And Gas Company And U.S. Subsidiary Fined $296 Million Over Alleged Foreign Bribery Schemes Involving Brazil And Iraq
     
    07/02/2019

    On June 25, 2019, the Department of Justice (“DOJ”) announced that it had entered into a three-year deferred prosecution agreement (“DPA”) with TechnipFMC PLC to settle allegations of Foreign Corrupt Practices Act (“FCPA”) violations in Brazil and Iraq, while requiring TechnipFMC’s U.S. subsidiary, Technip USA, to enter a guilty plea.  United States v. TechnipFMC plc, 19 Cr. 278 (E.D.N.Y. June 25, 2019); United States v. Technip USA, Inc., 19 Cr. 279 (E.D.N.Y. June 25, 2019).  The resolution is yet another example of U.S. prosecutors cooperating with foreign prosecutors, as Brazilian prosecutors entered into a simultaneous resolution with the company.
  • SEC Files Contested Complaint Over Unregistered $100 Million Initial Coin Offering, In Case That Could Clarify Application Of Registration Requirements To Cryptocurrency
     
    06/11/2019

    On June 4, 2019, the U.S. Securities and Exchange Commission (“SEC”) sued Kik Interactive Inc. (“Kik”) for conducting an unregistered offering of $100 million of digital tokens.  See U.S. Securities and Exchange Commission v. Kik Interactive Inc., No. 19-cv-5244 (S.D.N.Y. June 4, 2019).  The case has already generated substantial publicity, as Kik previously published a Wells submission it had lodged with the SEC urging against an enforcement action.  Kik has argued that the digital tokens it offered were currency, not securities, and that in any event proceeding through enforcement is improper in the face of uncertainty as to how the securities laws apply to initial coin offerings (“ICOs”).  The SEC has taken increasingly forceful positions that ICOs require registration, and this case may test the limits of its arguments.
  • SEC Awards $3 Million To Two Whistleblowers Who First Made Internal Reports, Even Though Reporting To SEC Was Not “Voluntary”
     
    06/11/2019

    On June 3, 2019, the U.S. Securities and Exchange Commission (“SEC”) announced a joint award of $3 million to two whistleblowers who the SEC stated provided information that led to a successful enforcement action aimed at protecting retail investors.  SEC Press Release, SEC Awards $3 Million to Joint Whistleblowers, No. 2019-81 (June 3, 2019).  According to the SEC, both whistleblowers reported the alleged violations internally before reporting to the SEC.  Interestingly, the Commission found that neither whistleblower was legally entitled to the award because their submissions were not “voluntary,” but the SEC relied on its discretion to issue the award regardless in an apparently conscious effort to further incentivize whistleblowing.  SEC Whistleblower Award Proceeding, File No. 2019-7 (June 3, 2019).
    CATEGORY: Whistleblower
  • D.C. Circuit Clarifies “Willfulness” Requirement For Investment Advisers Act Violations, In Decision With Possible Ramifications For SEC Sanction Authority
     
    05/07/2019


    On April 30, 2019, the United States Court of Appeals for the District of Columbia Circuit vacated an aggregate $150,000 in fines that the U.S. Securities and Exchange Commission (“SEC”) had levied against an investment advisory firm (the “Firm”) and its three owners.  The fines were brought over alleged failures to disclose conflicts of interest to Firm clients related to its fee arrangements.  Although the D.C. Circuit agreed with the SEC that the Firm acted negligently in failing to properly disclose certain fee arrangements, it held that such negligent conduct could not as a matter of law constitute “willful” conduct within the meaning of the Investment Advisers Act of 1940 (“Advisers Act”).  See The Robare Group, Ltd., et al. v. SEC, No. 16-1453, (D.C. Cir. April 30, 2019).  Accordingly, the D.C. Circuit remanded the case for reconsideration of the appropriate sanctions in a decision that could prompt the SEC to alter charging language for certain cases given that so much of its sanction authority requires a finding of “willful” conduct.

  • DOJ Criminal Division Announces Updated Corporate Compliance Program Guidance
     
    05/07/2019


    On April 30, 2019, the United States Department of Justice, Criminal Division (“DOJ”), released an updated version of its guidance on “Evaluation of Corporate Compliance Programs” (“Compliance Program Guidance”).  This replaces the first version of this guidance, which was issued in February 2017 by the Fraud Section of the DOJ.  In keeping with the prior version, the latest updates still contain a list of general questions for prosecutors to ask when assessing a company’s ethics and compliance program, rather than a formal rubric or checklist for compliance.  The newly released version, however, goes further by providing more detail and concrete explanations for what prosecutors expect effective compliance programs to entail.  U.S. Department of Justice, Criminal Division, Evaluation of Corporate Compliance Programs (Apr. 30, 2019).
     

  • DOJ And SEC Announce Resolution Of FCPA Investigation That Spanned Over Fifteen Countries With NPA, Monitor, And Over $231 Million In Disgorgement And Fines
     
    04/09/2019

    On March 29, 2019, the U.S. Department of Justice (“DOJ”) and U.S. Securities and Exchange Commission (“SEC”) announced that they had reached resolution with a German-based major worldwide provider of medical equipment and services (the “Company”), in connection with alleged bribery payments and books and records violations in more than fifteen different countries.  See In the Matter of Fresenius Medical Care AG & Co. KGaA, Admin. Proc. No. 3-19126 (Mar. 29, 2019); Press Release, SEC Charges Medical Device Company with FCPA Violations, No. 2019-48 (Mar. 29, 2019).  In aggregate, the Company agreed to pay in excess of $231 million in disgorgement and penalties, and also agreed to the imposition of a compliance monitor for two years.  And as part of a non-prosecution agreement with the DOJ, the Company admitted responsibility for willfully violating the Foreign Corrupt Practices Act (“FCPA”) and agreed that the facts described by the DOJ were true and accurate.  See Non-Prosecution Agreement, Fresenius Medical Care AG & Co. KGaA (Feb. 25, 2019); Press Release, Fresenius Medical Care Agrees to Pay $231 Million in Criminal Penalties and Disgorgement to Resolve Foreign Corrupt Practices Act Charges (Mar. 29, 2019).
  • SEC Awards Total Of $50 Million To Two Whistleblowers In A Single Action, While Denying Five Other Claimants
     
    04/09/2019

    On March 26, 2019, the SEC announced two multi-million dollar awards to whistleblowers who made reports of misconduct that led to a successful enforcement action after denying claims of five other whistleblowers in the same case (only two appealed the preliminary determination denying their application).  SEC Press Release, SEC Awards $50 Million to Two Whistleblowers, No. 2019-42 (Mar. 26, 2019).  One whistleblower received $37 million, which represents the third-largest SEC whistleblower award in history, while the other whistleblower received a $13 million award, a difference apparently based on the speed with which each reported the misconduct to the SEC and the relative value of their information.  These significant awards continue a trend of rising awards by the SEC, and the number of whistleblowers in the action highlights the degree to which the SEC has successfully incentivized whistleblowers. Since 2012, the SEC has now awarded approximately $376 million to 61 whistleblowers, with an average award of over $6 million.
    CATEGORY: Whistleblower
  • SEC Settles Charges Against Investment Advisers And Returns $125 Million To Investors
     
    03/19/2019

    On March 11, 2019, the Securities and Exchange Commission (“SEC”) announced that it had settled charges against 79 investment advisers as part of its Share Class Selection Disclosure Initiative (the “Initiative”), which was created to incentivize investment advisers to self-report possible securities law violations to the Commission.  As a result of the settlements, more than $125 million will be returned to clients, a substantial majority of which is going to retail investors. 
  • DOJ Revises FCPA Corporate Enforcement Policy
     
    03/19/2019

    On March 8, 2019, the Department of Justice (“DOJ”) released a revised version of its FCPA Corporate Enforcement Policy (the “Policy”), which provides enforcement and practice guidance to DOJ prosecutors and was formally incorporated into the U.S. Attorneys’ Manual in November 2017.  United States Attorneys’ Manual, FCPA Corporate Enforcement Policy Section 9-47.120 (as of Mar. 15, 2019).  Assistant Attorney General Brian A. Benczkowski announced the revisions to the Policy in a speech at the American Bar Association’s National White Collar Crime Institute in which he highlighted the DOJ’s commitment to transparency and the need to ensure its “ongoing process of refinement and reassessment.”  DOJ Press Release, Assistant Attorney General Brian A. Benczkowski Delivers Remarks at the 33rd Annual ABA National Institute on White Collar Crime Conference (Mar. 8, 2019).  Important changes to the Policy include expansion of the Policy in the context of mergers and acquisitions, as well as softening the DOJ’s approach to software that does not retain communications.
  • CFTC Announces Further Incentives For Self-Reporting, Cooperation For Unregistered Individuals And Entities, While Highlighting Focus On Foreign Corruption
     
    03/12/2019

    On March 6, 2019, the head of the U.S. Commodity Futures Trading Commission’s (“CFTC’s”) Enforcement Division, James McDonald, announced a new policy related to the benefits of self-reporting foreign corrupt practices-related violations of the Commodity Exchange Act by market participants who are not registered with the agency.  McDonald announced that, absent aggravating circumstances, the enforcement division will recommend a deal without civil financial penalties for companies and individuals who self-report misconduct, cooperate with the agency, and reform the bad behavior at issue (including payment of disgorgement and restitution).
  • Telecommunications Provider & Subsidiary Enter Into Settlement, Deferred Prosecution Agreement And Plea Agreement With SEC And DOJ For FCPA Violations In Third Recent Enforcement Proceeding Involving Uzbek Telecommunications Market
     
    03/12/2019

    On March 6, 2019, the Securities and Exchange Commission (“SEC”) announced that it was settling allegations that Russian telecommunications company Mobile Telesystems Pjsc (“MTS”) violated anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in order to increase its business in Uzbekistan.  Without admitting or denying the SEC’s allegations, MTS agreed to pay a civil penalty of $100 million to the SEC and retain an independent compliance monitor for at least three years.  Mobile Telesystems PJSC, Exchange Act Release No. 85261 (Mar. 6, 2019).  The same day, the Department of Justice (“DOJ”) announced it had entered into a deferred prosecution agreement (“DPA”) with MTS pursuant to the Department’s FCPA Corporate Enforcement Policy and a plea agreement with MTS’s subsidiary, Kolorit Dizayn Ink LLC (“Kolorit”), for one count of conspiracy to violate the anti-bribery and books and records provisions of the FCPA.  Deferred Prosecution Agreement, United States v. Mobile TeleSystems PJSC (S.D.N.Y. 2019); Plea Agreement, United States v. KOLORIT DIZAYN INK Limited Liability Company (SDNY 2019).  Pursuant to the DPA, MTS agreed to a fine and restitution of $850 million.  The DOJ has agreed to credit MTS’s $100 million civil penalty to the SEC towards this amount.
  • Federal Judge Acquits Former FX Trader on Charges Related to Alleged Front-Running and Price Manipulation
     
    03/12/2019

    On March 4, 2019, the U.S. District Court for the Northern District of California acquitted a former sell-side foreign exchange trader on all counts brought against him arising from his alleged misuse of confidential client information in connection with a large foreign currency exchange trade.  After the completion the government’s case, the trader moved for acquittal as a matter of law.  The Court ruled that, viewing the evidence in the light most favorable to the government, the jury could not reasonably find the defendant guilty beyond a reasonable doubt and granted the motion.  The essence of the Court’s decision was that the government had not established that the defendant, who was engaged in arm’s-length transaction with a customer, owed the customer the duties the government’s case assumed.  USA v. Bogucki, No. 18-00021, slip op. at 12 (N.D. Cal. Mar. 4, 2019).  As discussed further below, the Court’s treatment of the concept of a sell-side trader “pre-positioning” (often referred to as “pre-hedging”) ahead of a customer’s trade is notable.  The line between front-running/misuse of confidential information and appropriate pre-hedging, while always inherently case and situation specific, has been at the forefront of multiple criminal and civil regulatory investigations and cases in recent years.
  • CFTC Settles Spoofing Charges Against Trader Without Monetary Penalty
     
    03/05/2019

    On February 25, 2019, the Commodity Futures Trading Commission (“CFTC”) settled spoofing charges brought against a former trader who pleaded guilty to similar criminal charges last year brought by the U.S. Department of Justice. In the Matter of Krishna Mohan, Admin. Proc. No. 19-06 (Feb. 25, 2019). The CFTC alleged that the trader participated in a years-long spoofing scheme in which he placed buy or sell orders he intended to cancel in a variety of futures with the purpose of stimulating supply or demand and personally profiting from the resulting price swings. The CFTC required the trader to admit to engaging in manipulative and deceptive schemes as part of the settlement, but the CFTC has not imposed monetary sanctions against him.
  • CFTC Declines To Appeal Ruling That It Failed To Prove Artificiality In Market Manipulation Action
    03/04/2019

    On February 27, 2019, the Commodity Futures Trading Commission (“CFTC”) announced that it would not appeal a November 2018 decision in U.S. Commodity Futures Trading Commission v. Donald R. Wilson, et al., No. 1:13-cv-07884 (S.D.N.Y. Nov. 30, 2018), by Judge Richard J. Sullivan of the United States Court of Appeals for the Second Circuit, who was sitting by designation on the United States District Court for the Southern District of New York. Judge Sullivan’s decision, which came after a bench trial of claims that defendant DRW Investments LLC (“DRW”) had manipulated the price of a certain swap future in violation of the Commodities Exchange Act (“CEA”), entered judgment for DRW on all claims and found that the CFTC had failed to prove that DRW’s challenged bids were at artificial prices.
  • Technology Services Company Enters Into FCPA Settlement With SEC, While SEC And DOJ Charge Two Former Executives With FCPA Violations
     
    02/20/2019

    On February 15, 2019, the Securities and Exchange Commission (“SEC”) announced a settlement with a New Jersey-based technology company (the “Company”) over allegations that the Company violated the anti-bribery, books-and-records, and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”).  In the Matter of Cognizant Technology Solutions Corporation, Admin Proc. No 3-19000 (Feb. 15, 2019).  Without admitting or denying the allegations, the Company agreed to pay disgorgement and prejudgment interest of approximately $19 million and a civil monetary penalty of $6 million to the SEC to resolve the agency’s claims.  The same day, the Department of Justice (“DOJ”) issued a letter announcing that it had declined to prosecute the Company pursuant to the Department’s FCPA Corporate Enforcement Policy.  Finally, the DOJ announced that the Company’s former president and chief legal officer were indicted on criminal charges relating to their alleged involvement, and the SEC filed a civil complaint against the same two executives, in United States District Court for the District of New Jersey.
  • After Second Look, Judge Grants SEC Bid for Preliminary Injunction Halting Initial Coin Offering
     
    02/20/2019

    On February 14, 2019, Judge Gonzalo P. Curiel of the United States District Court for the Southern District of California reversed his November 2018 decision and granted a motion for preliminary injunction filed by the Securities and Exchange Commission (“SEC”) seeking to halt a planned initial coin offering (“ICO”) by a San Diego based company (the “Company”) and its owner in December 2018. SEC v. Blockvest, LLC, et al., No. 3:18-cv-02287 (S.D. Cal. Feb 14. 2019) (the “Order”). Judge Curiel held that the Company’s digital tokens, which were allegedly offered as part of a fraudulent ICO, met the definition of a “security” followed by courts since the Supreme Court’s decision in SEC v. W.J. Howey Co. This shift in outcome from the Court’s November 2018 decision highlights the fact-specific nature of the inquiry used by courts to determine whether a given distribution of crypto assets constitutes an offer of a security.
  • Tenth Circuit Holds That Dodd-Frank Act Granted SEC Extraterritorial Authority
     
    02/11/2019

    On January 24, 2019, the United States Court of Appeals for the Tenth Circuit affirmed a decision by the United States District Court for the District of Utah holding that the Dodd-Frank Act of 2010 grants the Securities and Exchange Commission (“SEC”) authority to enforce extraterritorially the antifraud provisions of the federal Securities Act of 1933 and the Securities Exchange Act of 1934.  SEC v. Scoville, No. 17-CV-4059 (10th Cir. 2019).  Months before the Dodd-Frank Act was passed, the Supreme Court in Morrison v. National Australia Bank, 561 U.S. 247, 265 (2010), held that, given the general presumption against extraterritorial application of U.S. laws and the lack of clear indicia of congressional intent to the contrary, the federal securities laws did not apply extraterritorially.  But the Tenth Circuit concluded in Scoville that the Dodd-Frank Act “affirmatively and unmistakably” evidenced Congress’s intent to allow the SEC and the U.S. to enforce the federal securities laws whenever the “conducts-and-effects” test is met, effectively rendering Morrison inapplicable to SEC and other government enforcement actions while not disturbing its impact on private securities actions. 
  • FINRA Issues 2019 Annual Risk Monitoring and Examination Priorities Letter, Highlighting Potential Areas Of Enforcement Risk
     
    01/29/2019

    On January 22, 2019, the Financial Industry Regulatory Authority (“FINRA”) issued its annual letter describing its current risk monitoring and examination priorities.  See FINRA, Risk Monitoring and Examination Priorities Letter (Jan. 2019).  Although there are no major surprises in terms of priorities, firms would be well-advised to review the letter to ensure that their own compliance policies are meeting with FINRA’s expectations.  Indeed, the letter can arguably read as a roadmap to potential future enforcement activity, particularly when coupled with FINRA’s recent efforts to restructure internally to increase efficiency and coordination among its enforcement teams.
  • Second Circuit Re-Affirms Insider Trading Conviction Of Rajat Gupta
     
    01/15/2019

    On January 7, 2019, the United States Court of Appeals for the Second Circuit affirmed — for the second time — the insider trading conviction of Rajat Gupta. Gupta v. United States, No. 15-2707 (2d Cir. Jan. 7, 2019). In a collateral attack to his conviction, Gupta argued that the jury instructions in his case were infirm given the Circuit’s decision in United States v. Newman (since abrogated). There, the Circuit held that to the extent a personal benefit may be inferred through a personal relationship between a tipper and tippee, there must be a “meaningfully close personal relationship.”1 The Second Circuit denied Gupta’s appeal on two grounds — that his failure to preserve his objection to the jury instructions was not excused, and that the instructions did not prejudice Gupta.
  • Rental Car Company Enters Into Settlement With The SEC Related To Alleged Accounting Errors
     
    01/08/2019

    On December 31, 2018, the Securities and Exchange Commission (“SEC”) announced that a public rental car company (the “Company”) had agreed to pay a $16 million civil penalty to settle allegations of inaccurate financial reporting and accounting errors.  See In the Matter of Hertz Global Holdings, Inc. and The Hertz Corporation, Admin. Proc. File No. 3-18965 (Dec. 31, 2018).  The allegations arose out of a restatement the Company filed on July 16, 2015, which restated the Company’s annual, quarterly, and periodic reports from February 2012 to March 2014, as well as certain data in filings from 2008, 2010, and 2013.  Notwithstanding the prior restatement, the Company neither admitted nor denied wrongdoing.
  • Fourth Depositary Bank Settles SEC Allegations Of Improper Handling Of Pre-Release ADRs
     
    01/08/2019

    On December 26, 2018, the Securities and Exchange Commission (“SEC”) announced that a fourth depositary bank (“the Bank”) had agreed to pay a civil monetary penalty and disgorgement totaling $135.1 million to resolve allegations that the Bank violated federal securities laws by issuing American Depositary Receipts (“ADRs”) on “pre-release” without taking reasonable steps to ensure that the broker-dealers to whom it was issuing the ADRs, or their counterparties, beneficially owned the requisite number of foreign securities underlying the ADRs.  See In the Matter of JPMorgan Chase Bank, N.A., Admin. Proc. File No. 3-18963 (Dec. 26, 2018).  The SEC alleged that the Bank’s conduct violated Section 17(a)(3) of the Securities Act.  As with all prior entities charged in the SEC’s investigation, the Bank neither admitted nor denied wrongdoing. 
  • Following Bench Trial, Southern District Of New York Finds That CFTC Failed To Prove Artificiality And Enters Judgment For Defendants In Market Manipulation Action
     
    12/11/2018

    On November 30, 2018, Judge Richard J. Sullivan of the United States Court of Appeals for the Second Circuit, sitting by designation on the United States District Court for the Southern District of New York, issued a decision following a 2016 bench trial presided over by Judge Sullivan before his elevation to the Second Circuit in an action brought by the United States Commodity Futures Trading Commission (“CFTC”) against DRW Investments LLC (“DRW”) alleging that DRW had manipulated the price of a certain swap future in violation of the Commodities Exchange Act (“CEA”).  U.S. Commodity Futures Trading Commission v. Donald R. Wilson, et al., No. 1:13-cv-07884 (S.D.N.Y. Nov. 30, 2018).  The Court entered judgment for DRW on all claims, finding that the CFTC failed to prove that DRW’s challenged bids were at artificial prices.
    CATEGORY: Judicial Opinions
  • Second Circuit Affirms Insider Trading Conviction And Vacates Restitution Order Of Sports Gambler Billy Walters
     
    12/11/2018

    On December 4, 2018, the United States Court of Appeals for the Second Circuit affirmed the insider trading conviction, judgment, and order of forfeiture of professional sports gambler Billy Walters, while simultaneously vacating and remanding the $8.89 million restitution order that had been entered against him in light of the Supreme Court’s decision in Lagos v. United States, 138 S. Ct. 1684 (2018).  U.S. v. Walters, et al., No. 17-2373 (2d Cir. Dec. 4, 2018).
  • SEC Loses Bid For Preliminary Injunction Halting Initial Coin Offering After Judge Questions Whether It Involved Securities
     
    12/05/2018

    On November 27, 2018, Judge Gonzalo P. Curiel of the U.S. District Court for the Southern District of California denied a motion for preliminary injunction filed by the Securities and Exchange Commission (“SEC”) seeking to halt a planned initial coin offering (“ICO”) by a San Diego based company (the “Company”) and its owner in December 2018.  SEC v. Blockvest, LLCet al., No. 3:18-cv-02287 (S.D. Cal Nov. 27, 2018) (the “Order”).  Judge Curiel held that, due to disputed issues of material facts, and without full discovery, he could not determine whether the tokens issued by the Company constitute a “security” under the Securities Exchange Act of 1934.
  • OFAC Identifies Digital Currency Addresses Of Iran-Based Financial Facilitators, Highlighting Its Focus On Sanctions Compliance In Crypto Space
     
    12/05/2018

    On November 28, 2018, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) imposed sanctions pursuant to its cyber-related sanctions program on two Iranian individuals for their role in facilitating ransom payments made in bitcoin.  In doing so, OFAC also identified the digital currency addresses associated with both individuals, which marks the first time that OFAC has published digital currency addresses linked with specific individuals. OFAC’s cyber-related sanctions program was created on April 1, 2015 and targets persons responsible for or complicit in malicious cyber-enabled activities.
  • DOJ Scales Back Yates Memo Policy For Corporate Cooperation
     
    12/05/2018

    On November 29, 2018, Deputy Attorney General Rod Rosenstein announced revisions to the Department of Justice (“DOJ”) policy on individual accountability for corporate wrongdoing, which was originally announced in the Yates Memo of September 2015.  U.S. DOJ, Remarks at the American Conference Institute's 35th International Conference on the Foreign Corrupt Practices Act.  In response to concerns that the policy could lead to wasted resources and impede resolutions, Mr. Rosenstein announced that the revised policy requires that companies identify all individuals who were substantially involved in a potential crime in order for companies to receive cooperation credit in criminal investigations; the policy established in the Yates Memo, on the other hand, required companies to provide information on all individuals who were involved in potential misconduct, no matter how insubstantial their role.
  • ICO Issuers Settle With The SEC Over Unregistered Coin Offerings
     
    11/20/2018

    On November 16, 2018, the U.S. Securities and Exchange Commission (“SEC”) instituted separate settled administrative proceedings against Carrier EQ Inc., d/b/a AirFox (“AirFox”) and Paragon Coin Inc. (“Paragon”) for failing to register initial coin offerings (“ICOs”) they had conducted as securities offerings.  See In the Matter of CarrierEQ, Inc., D/B/A/ AirFox, Admin Proc. File No. 3-18898 (Nov. 16, 2018); In the Matter of Paragon Coin Inc., File No. 3-18897 (Nov. 16, 2018).  The actions against AirFox and Paragon mark the first time that the SEC has imposed civil penalties for standalone registration violations in connection with ICOs, and serve to reconfirm the SEC’s view that many digital tokens will constitute securities.
  • Bank Of England Imposes Personal Fines On Two Individuals For Failure To Disclose Ongoing Enforcement Actions
     
    11/13/2018

    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
     
    11/13/2018

    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
     
    11/06/2018

    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
     
    10/23/2018

    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
     
    10/16/2018

    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
     
    10/09/2018

    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
     
    10/09/2018

    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
     
    10/09/2018

    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
     
    10/02/2018

    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 https://www.sec.gov/news/press-release/2018-226 (Sept. 29, 2018).
  • SEC Brings Enforcement Action Against Broker-Dealer For Deficient Cybersecurity Procedures
     
    10/02/2018

    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
     
    09/18/2018

    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
     
    09/05/2018

    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
     
    09/05/2018

    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
     
    08/28/2018

    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
     
    08/28/2018

    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).
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