Blog Posts Tagged With Decisions/Developments of Note

CFTC Releases Annual Enforcement Results for Fiscal Year 2018 (Nov. 15, 2018)

The CFTC’s Division of Enforcement released its annual report reviewing enforcement actions from the 2018 fiscal year. According to the report, the Commission brought 83 enforcement actions and obtained more than $950 million in monetary sanctions.  The report noted key initiatives that began or continued during fiscal year 2018, including cooperation and self-reporting, data analytics, and the development of specialized task forces focused on four different substantive areas:  (1) spoofing and manipulative trading, (2) virtual
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United States v. Sean Stewart (2d Cir. Nov. 5, 2018, Contested)

The Second Circuit reversed the insider trading conviction of Defendant, a former investment banking analyst, on evidentiary grounds.  The government alleged that Defendant, his father, and his father’s friend traded while in possession of material, nonpublic information.  At trial, the United States introduced an incriminating prior statement by Defendant’s father and codefendant.  The court refused to admit an allegedly inconsistent statement made to the FBI for impeachment purposes at trial. The Second Circuit vacated Defendant’s
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SEC Enforcement Division Issues Report on Priorities and Fiscal Year 2018 Results (Nov. 2, 2018)

The SEC Enforcement Division issued its annual report outlining its priorities for the coming year and reviewing enforcement actions from the 2018 fiscal year. The Commission brought a total of 821 enforcement actions, including 490 stand-alone actions, and imposed disgorgement and penalties totaling more than $3.945 billion.  Cases concerning investment advisory issues, securities offerings, and issuer reporting / accounting and auditing collectively comprised 63 percent of the Commission’s 490 stand-alone cases.  Additionally, actions initiated by
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SEC Issues Investigative Report on Cyber Threats (Oct. 16, 2018)

The SEC released an investigative report addressing cyber threats that companies should consider when implementing internal accounting controls.  The report stems from SEC investigations into alleged cyber fraud perpetrated against nine public companies.  According to the SEC, personnel from these companies received emails from perpetrators posing as company executives or vendors asking that large sums of money be sent to bank accounts belonging to the perpetrators.  The SEC is not pursuing enforcement actions against the
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SEC v. Mitchell J. Stein (9th Cir. Oct. 11, 2018, Contested)

Action against Defendant, outside counsel to a medical device company, for allegedly engaging in a series of frauds designed to inflate the company’s stock price for his benefit.  The SEC alleges that Defendant falsified purchase orders with fictitious companies in order to increase sale numbers in SEC filings and press releases.  The Ninth Circuit affirmed the district court’s grant of summary judgment in favor of the SEC, finding that Defendant’s conviction in a parallel criminal
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United States v. Hoskins (2d Cir. August 31, 2018)

The Second Circuit held that the FCPA’s anti-bribery provisions do not extend to non-U.S. persons absent a U.S. nexus.  The holding specified that a nonresident foreign national cannot be held liable under the provisions under a conspiracy or accomplice theory if they could not otherwise be held liable under the statute.  The Defendant in the case was a U.K. national employed by a U.S. corporation who had never been to the United States.  The holding
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SEC Proposes Whistleblower Rule Amendments (June 28, 2018)

The SEC voted to propose amendments to the rules governing its whistleblower program.  These amendments address, in part, the Supreme Court’s decision in Digital Realty Trust, Inc. v. Somers, which held that the Dodd-Frank Act’s whistleblower anti-retaliation provisions only apply where a securities violation is reported to the SEC itself.  With respect to whistleblower retaliation protection, the proposed rules would require an individual to report information about possible securities laws violations to the Commission
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Lucia v. SEC (June 21, 2018)

The Supreme Court held that the SEC’s appointment of ALJS violated the Constitution because SEC ALJs are “officers” and thus are subject to the Appointments Clause under the Court’s prior precedent.  This decision may have far-reaching consequences for other federal agencies that utilize ALJs because they are vulnerable to similar Appointments Clause challenges.  Further, while Lucia resolved one constitutional challenge to SEC ALJs, a concurrence by Justice Breyer highlights another significant constitutional question:  whether the
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Digital Realty Trust, Inc. v. Somers (Feb. 21, 2018)

The Supreme Court held that the Dodd-Frank Act’s whistleblower anti-retaliation provisions only apply where a violation of the securities laws is reported to the SEC, and do not extend to situations in which the violation is reported only internally.  In so holding, the Court resolved a circuit split that had left uncertainty over the scope of the provisions.  Individuals who report to the SEC remain covered by the provisions, which allow immediate access to federal
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SEC Announces Self-Reporting Initiative for Rule 12b-1 Fee Disclosures (Feb. 12, 2018)

The SEC’s Division of Enforcement announced its “Share Class Selection Disclosure Initiative,”  offering favorable settlement terms to investment advisers who self-report potential violations relating to certain mutual fund share class selection issues and promptly return money to harmed clients.  Qualifying self-reporting advisers will be eligible for a recommendation from the Division of Enforcement that the Commission accept a settlement imposing a cease-and-desist order, disgorgement with prejudgment interest, and various undertakings, but not imposing a civil
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SEC and CFTC Chairs Testify on Virtual Currency Oversight (Feb. 6, 2018)

SEC Chairman Jay Clayton and CFTC Chairman Christopher Giancarlo testified before the Senate Banking, Housing and Urban Affairs Committee on regulatory and enforcement efforts in connection with Bitcoin and other virtual currencies.  Both officials suggested that a broader, coordinated effort to monitor and regulate these currencies was necessary.  Chairman Giancarlo stated:  “It strikes me that we owe it to this new generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response,
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CFTC v. Southern Trust Metals, Inc., et al. (11th Cir. Jan. 22, 2018)

The Eleventh Circuit held as a matter of first impression that a settlement between a self-regulatory organization (the National Futures Association or NFA) and Defendants did not preclude a subsequent CFTC action brought on the basis of the same action. The court found that equitable estoppel does not apply to a CFTC action where the Defendant entered into a settlement with a self-regulatory organization because (1) the settlement was with a private, nongovernmental organization, (2)
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Robert Jackson and Hester Pierce Sworn in as SEC Commissioners (Jan. 11, 2018)

Robert J. Jackson Jr. and Hester M. Pierce were sworn into office by SEC Chairman Jay Clayton. Their nominations were confirmed by the Senate on Dec. 21, 2017. Commissioner Jackson was previously a professor at NYU School of Law and also taught at Columbia University and served in the Treasury Department. Commissioner Pierce was previously a Senior Research fellow and Director of the Financial Markets Working Group at the Mercatus Center at George Mason University.
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Lucia v. SEC, Petition for Writ of Certiorari (Nov. 29, 2017)

The Solicitor General filed a brief urging the Supreme Court to grant certiorari and settle a circuit split over whether the SEC’s Administrative Law Judges (ALJs) have been unconstitutionally appointed to their posts. The Solicitor General’s brief reversed the agency’s position that its ALJs are employees not subject to the Appointments Clause. In addition, the Solicitor General questioned the validity of statutory restrictions on the removal of ALJs. While the SEC did not sign the
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CFTC Releases Annual Enforcement Results for Fiscal Year 2017 (Nov. 22, 2017)

The CFTC released its annual report reviewing its enforcement actions during fiscal year 2017. The report states that the Commission brought 49 enforcement enforcement-related actions and obtained orders totaling $412,726,307 in restitution, disgorgement, and penalties. The CFTC also issued new cooperation guidelines and new rules to protect whistleblowers, in an effort to strengthen its enforcement program. Of the 49 enforcement actions, 20 involved retail fraud, followed by twelve actions involving market manipulation, seven involving reporting
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Disgorgement for Violating a Federal Securities Law (Nov. 17, 2017)

The IRS has taken the position that disgorgement in securities cases is not deductible. This position is based on the Supreme Court’s decision in Kokesh v. SEC, 137 S. Ct 1635 (2017), in which the Court held that disgorgement imposed as a sanction for violating a federal securities law is a penalty for purposes of the five-year statute of limitations on SEC enforcement actions.

IRS Order
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SEC Enforcement Division Issues Report on Priorities and Fiscal Year 2017 Results (Nov. 15, 2017)

The SEC Enforcement Division issued its annual report outlining its priorities for the coming year and reviewing its fiscal year 2017 enforcement actions. The Commission brought a total of 754 enforcement actions, including 446 stand-alone actions and 196 follow-on actions, and imposed penalties totaling $3.79 billion. Of the Commission’s 446 stand-alone cases, each of investment advisory issues, securities offerings, and issuer reporting/accounting and auditing actions comprised approximately 20% of the total SEC Enforcement actions. The
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SEC Division of Enforcement Co-Directors Provide Remarks on Enforcement Division’s Initiatives and Priorities (Oct. 30, 2017)

SEC Division of Enforcement Co-Directors Stephanie Avakian and Steven Peikin provided remarks at the 2017 Securities Enforcement Forum regarding the Enforcement Division’s new initiatives and priorities. In her remarks, Avakian discussed the recently announced Retail Strategy Task Force and Cyber Unit, but emphasized that despite these new areas of focus, and SEC would not allocate fewer resources to “financial fraud or policing Wall Street.” According to Avakian, the new task force will use data analytics
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SEC Chair Clayton Provides Update on 2016 Cyber Intrusion (Oct. 2, 2017)

SEC Chair Jay Clayton provided an update on the status of the agency’s review and investigation of the 2016 intrusion into the EDGAR system and the agency’s efforts to strengthen its cybersecurity risk profile going forward. According to Chair Clayton, the ongoing investigation of the 2016 intrusion has determined that an EDGAR test filing accessed by third parties as a result of that intrusion contained the names, dates of birth and social security numbers of
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SEC Issues Statement on Cyber Enforcement (Sept. 25, 2017)

The SEC announced the creation of a Cyber Unit which will focus on targeting cyber-related misconduct, such as market manipulation schemes involving false information spread through social media, hacking to obtain material non-public information, violations involving distributed ledger technology and initial coin offerings, dark web misconduct, intrusions into retail brokerage accounts, and cyber threats to exchanges and other critical market infrastructure. “Cyber-related threats and misconduct are among the greatest risks facing investors and the securities
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SEC Chair Clayton Adopts Stance on Cybersecurity (Sept. 20, 2017)

SEC Chair Jay Clayton issued a statement detailing the SEC’s approach to cybersecurity, both as an organization and as a regulatory body, and disclosing a 2016 intrusion by a third party into the SEC’s EDGAR database and filing system. Outlining the SEC’s various data collection points, Chair Clayton revealed that, in August 2017, the SEC learned that a cyber intrusion into its EDGAR system that was previously detected in 2016 may have provided the basis
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United States v. Martoma (2d Cir. Aug. 23, 2017)

The Second Circuit overturned the “meaningfully close personal relationship” requirement for insider trading liability, finding that a corporate insider personally benefits whenever he discloses inside information as a gift with the expectation that the recipient would trade on it or otherwise exploit it for his personal benefit, irrespective of his relationship with the recipient. Previously, under the Second Circuit’s 2014 decision in United States v. Newman, a tipper only met the “personal benefit” requirement
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Susquehanna International Group, LLP v. SEC (D.C. Cir. Aug. 8, 2017)

The D.C. Circuit overturned an SEC order regarding a change to the Options Clearing Corporation (”OCC”) rules, speaking critically of the SEC’s oversight over a clearing agency. The case arose out of the proposal by the OCC, a clearing agency that facilitates trades in options and other financial instruments, to changes its rules regarding fees. Because the OCC is a self-regulatory organization, it had to apply to the SEC for approval of the change, which
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CFTC Chairman and Commissioners Confirmed (Aug. 3, 2017)

The U.S. Senate unanimously confirmed J. Christopher Giancarlo as Chairman of the CFTC. President Trump nominated then Acting Chairman Giancarlo to the position in March. In a statement regarding his confirmation, Giancarlo praised the bipartisan support he received in the Senate and emphasized his commitment to “fulfill the CFTC’s mission to foster open, transparent, competitive and financially sound markets, in a way that best fosters broad-based economic growth and American prosperity.” On the same day,
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