Shearman & Sterling LLP | Government Regulatory Enforcement Blog | Government/Regulatory Enforcement | Regulatory Enforcement Matters
Government/Regulatory Enforcement
This links to the home page
Government/Regulatory Enforcement
FILTERS
  • 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. 
  • 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.
  • 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. 
  • 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.
  • 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 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 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.
  • 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.
  • 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.
  • 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. 
  • 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.
  • 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).
  • 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).
  • 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.
  • 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).
  • SEC’s FCPA Charges Against Executives Dismissed As Time-Barred
     
    07/17/2018

    On July 12, 2018, Judge Nicholas G. Garaufis of the United States District Court for the Eastern District of New York dismissed the Securities and Exchange Commission’s charges against two former executives of a hedge-fund management firm on statute of limitations grounds.  SEC v. Cohen & Baros, No. 1:17-CV-00430 (E.D.N.Y. July 12, 2018).  The SEC originally filed the charges before the Supreme Court’s ruling in Kokesh v. SEC, 137 S. Ct. 1635 (2017), in which the Court held that disgorgement is a penalty subject to the five-year statute of limitations under 28 U.S.C. § 2462.  United States Supreme Court Holds SEC Disgorgement Orders Subject to Five-Year Statute of Limitations, Shearman & Sterling (Jun. 6, 2017).  Relying on Kokesh, the district court held that the SEC’s claims for monetary and injunctive relief were time-barred.  In so holding, the district court contributed to a circuit split regarding the applicability of Section 2462 to certain types of equitable relief.
  • Company Settles With The SEC For Allegedly Failing To File Required Suspicious Activity Reports
     
    07/10/2018

    On July 2, 2018, the Securities and Exchange Commission (“SEC”) filed a one-count complaint in District Court for the Northern District of California against Charles Schwab Corp. (“Schwab” or the “Company”) for allegedly failing to file suspicious activity reports (“SARs”) on questionable transactions by its investment advisers. Securities and Exchange Commission v. Charles Schwab & Co, Inc., No. 18-cv-3942 (July 2, 2018). The same day, without admitting or denying the SEC’s findings, the Company consented to an entry of judgment through which agreed to pay the SEC a civil penalty of $2.8 million. Final Judgment, Securities and Exchange Commission v. Charles Schwab & Co, Inc., No. 18-cv-3942 (July 2, 2018).
  • SEC Settles FCPA Allegations Concerning Allegedly Improper Payments By Company’s Indian Subsidiary
     
    07/10/2018

    On July 2, 2018, Chicago-based spirits maker Beam Suntory Inc. (“Beam Suntory” or the “Company”) agreed to pay $8.2 million to settle Foreign Corrupt Practices Act (“FCPA”) claims brought by the Securities and Exchange Commission (“SEC”) for allegedly improper payments by its Indian subsidiary. In the Matter of Beam Inc., N/K/A Beam Suntory Inc. Admin Proc. File No. 3-18568 (July 2, 2018). This settlement reportedly follows Beam Suntory’s voluntary self-disclosure of the underlying issues to both the SEC and the Department of Justice (“DOJ”); however, there has been no reported resolution by the DOJ.
  • SEC Files Settled Action Concerning Accounting Issues That Led To A Restatement In 2014
     
    07/10/2018

    On July 2, 2018, the Securities and Exchange Commission (“SEC”) entered into a settlement with Houston-based global engineering, construction, and services company KBR, Inc. (“KBR” or the “Company”) over accounting issues that had led KBR to restate its earnings and identify a material weakness in its internal control over financial reporting in 2014. In the Matter of KBR, Inc., Admin Proc. No. 3-18569 (July 2, 2018). The accounting issues centered around the Company’s cost and revenue estimates and its calculation of “work in backlog,” a non-financial accounting metric the Company utilized.
  • SEC Proposes Amendments To Its Whistleblower Program
     
    07/03/2018

    On June 28, 2018, the U.S. Securities and Exchange Commission (“SEC”) proposed amendments to the rules governing its whistleblower program. Press Release, SEC Proposes Whistleblower Rule Amendments, No. 2018-120 (June 28, 2018). Among other things, the proposed amendments would affect the types of whistleblower awards authorized by the SEC’s rules, allow for adjustments of awards in certain cases, adopt a new definition of “whistleblower,” improve the SEC’s ability to bar individuals from making frivolous award claims, and clarify what types of whistleblower submissions constitute “original information.” These proposed amendments, which on balance reflect a modest refinement of the whistleblower program and signal that the essential contours of the program continue to have the strong support of the Commission, are subject to notice and comment by the public and further modification by the SEC.
  • DOJ Announces Formalization Of Policy On Corporate Resolution Penalties 
     
    05/15/2018

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

    Read more
  • SEC Issues $35 Million Fine For Alleged Failure To Disclose Data Breach
     
    05/01/2018

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

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

    04/10/2018


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

  • SEC Levies $18 Million Fine On NYSE And Affiliated Exchanges For Alleged Securities Act And Exchange Act Violations
     
    03/13/2018

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

    Read more
  • Eastern District Of New York Grants Preliminary Injunction In Opinion Backing CFTC’s Authority To Regulate Cryptocurrency
     
    03/13/2018

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

    Read more
  • U.S. Subsidiary Of Dutch Bank Pleads Guilty To Allegations That It Conspired To Obstruct OCC Examination Of AML Program
     
    02/13/2018

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

    Read more
  • DOJ And CFTC Recent Actions Highlight Their Increased Focus On “Spoofing”
     
    02/06/2018
    ​On January 29, 2018, the U.S. Department of Justice (“DOJ”) and U.S. Commodity Futures Trading Commission (“CFTC”) announced settlements with three international financial institutions to resolve claims that traders at those institutions placed false bids to manipulate the precious metals markets, a process referred to as “spoofing.”  Separately, the DOJ filed criminal charges, and the CFTC filed civil complaints, against seven individual traders alleged to have engaged in spoofing, and the owner of a software company alleged to have built a program that was designed to enable the practice. 

    Read more
  • PCAOB And Accounting Firm Employees Charged With Misuse Of Confidential Data To Improve Firm’s Inspection Results
     
    01/30/2018

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

    Read more
  • SEC Charges Advisory Firm For Breaches Of Fiduciary Duties
     
    12/19/2017

    On December 11, 2017, the United States Securities and Exchange Commission (“SEC”) filed a complaint against two investment advisers, Westport Capital Markets, LLC (“Westport”) and its controlling shareholder, Christopher McClure, alleging that the advisers violated various provisions of the Investment Advisers Act of 1940 (“Advisers Act”) by failing to disclose conflicts of interest and receipt of fees and profits related to their investment decisions on behalf of clients, and by failing to seek the best execution for client transactions.  Complaint, SEC v. Westport Capital Mkts. LLC, No. 3:17-cv-02064 (D. Conn. Dec. 11, 2017), ECF No. 1.

    Read more
  • Deputy Attorney General Rod Rosenstein Announces Revised FCPA Corporate Enforcement Policy
     
    12/05/2017

    On November 29, 2017, Deputy Attorney General Rod Rosenstein delivered remarks at the 34th International Conference on the Foreign Corrupt Practices Act (“FCPA”), in which he announced a revised FCPA Corporate Enforcement Policy.  According to Mr. Rosenstein, the Department of Justice’s (“DOJ’s”) new FCPA Corporate Enforcement Policy—an extension of the FCPA Pilot Program rolled out eighteen months prior—is designed both to aid the DOJ’s ability to identify and punish criminal conduct efficiently and also to provide “guidance and increased certainty to companies struggling with the question of whether to make voluntary disclosures of wrongdoing.”  Remarks at 3. 

    Read more
  • Bank Of Tokyo Mitsubishi Sues DFS And Alleges That DFS Has No Investigatory Or Enforcement Authority Over It Since It Is Now Federally Licensed
     
    11/21/2017

    On November 7, 2017, in the midst of a pending examination by, and implementation of previously agreed upon consent orders with, the New York State Department of Financial Services (“DFS”), the Bank of Tokyo Mitsubishi UFJ (“BTMU”), Japan’s largest bank, converted its New York and other U.S. branch office licenses from state to federal licenses. This prompted DFS to issue an order asserting that it still had authority to investigate and prosecute violations of New York law by BTMU.  BTMU then filed suit in the United States District Court for the Southern District of New York seeking to enjoin DFS from exercising any authority over BTMU.  Complaint, The Bank of Tokyo-Mitsubishi UFJ, Ltd. v. Maria Vullo, No. 1:17-cv-08691 (S.D.N.Y. Nov. 8, 2017), ECF No. 1. 

    Read more
  • CFTC Fines Cargill $10 Million For Misreporting Swap Trades
     
    11/14/2017

    On November 6, 2017, the U.S. Commodity Futures Trading Commission (“CFTC”) filed a settled enforcement action against Cargill, Inc. (“Cargill”), an agriculture commodities trader, for allegedly misrepresenting the mid-market marks of swaps to counterparties and in reports to its swap data repository (“SDR”), in violation of the Commodity Exchange Act (“CEA”) and commission regulations.  Cargill consented to the CFTC’s order and agreed to pay a penalty of $10 million, without admitting or denying the Order’s findings.  In the Matter of Cargill, Inc. CFTC No. 18-03 (Nov. 6, 2017).

    Read more
  • CFTC Imposes Sanctions On A Proprietary Trading Firm For Spoofing The Market
     
    10/24/2017

    On October 10, 2017, the Commodity Futures Trading Commission (“CFTC”) filed and settled charges against Arab Global Commodities DMCC (“AGC”), a proprietary trading firm headquartered in Dubai.  Specifically, the CFTC found that one of AGC’s traders had engaged in a market manipulation practice known as spoofing in violation of Section 4c(a)(5)(C) of the Commodity Exchange Act (“CEA”), and that AGC had failed to “implement adequate policies and procedures to monitor” its employees’ trades for potential spoofing.  In the Matter of Arab Global Commodities DMCC, CFTC No. 18-01, 2017 WL 4511098 (Oct., 10, 2017) (“Order”). AGC consented to the Order and agreed to pay a penalty of $300,000 plus post-judgment interest, without admitting or denying the Order’s findings.

    Read more
  • D.C. Circuit Applies Janus To Set Aside SEC Sanctions Against Investment Banker
     
    10/10/2017

    On September 29, 2017, a three-judge panel of the United States Court of Appeals for the D.C. Circuit (“D.C. Circuit”) overturned the Securities and Exchange Commission’s (“SEC”) determination that investment banker Frank Lorenzo had violated Rule 10b-5(b) under the Securities Exchange Act of 1934 (“Exchange Act”) by sending emails that allegedly contained material misrepresentations about a debenture offering that were drafted by his employer.  See Lorenzo v. SEC, No. 15-1202, slip op. at 2 (D.C. Cir. Sept. 29, 2017).  The panel held that, per the Supreme Court’s decision in Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011), Lorenzo was not the “maker” of the alleged misrepresentations in the emails because he had only cut-and-pasted content over which his employer retained “ultimate authority.”  After reversing the SEC’s Rule 10b-5(b) determination, however, a split panel affirmed the SEC’s determination that, by recklessly making use of misleading statements over which he did not have ultimate authority, Lorenzo had violated Rules 10b-5(a) and 10b-5(c), as well as Section 17(a)(1) of the Securities Act of 1933 (“Securities Act”).  The panel then set aside the lifetime industry bar and $15,000 civil monetary penalty that had been imposed on Lorenzo and directed the SEC to reassess the appropriate penalties in light of the panel’s holding that Lorenzo had not violated Rule 10b-5(b).

    Read more
  • SEC’s ALJ Dismisses Fraud Charges In High-Profile Lynn Tilton Case
     
    10/03/2017

    On September 27, 2017, an administrative law judge (“ALJ”) for the United States Securities and Exchange Commission (“SEC”) dismissed the SEC’s administrative proceeding against Lynn Tilton and four Patriarch Partners entities (“Patriarch Partners”) that she owned.  The Commission alleged that Tilton and Patriarch Partners willfully violated Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (“Advisors Act”), and Rule 206(4)-8 thereunder, by overvaluing the loan-assets of certain funds managed by Patriarch Partners and by issuing financial statements that did not comply with generally accepted accounting principles (“GAAP”).  In the Matter of Lynn Tilton, et al., Admin. Proc. File No. 3-16462, Initial Decision Rel. No. 1182 (Sept. 27, 2017).

    Read more
View All