Blog Posts Tagged With Decisions/Developments of Note

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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, ... Continue Reading

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) ... Continue Reading

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. ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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 ... Continue Reading

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, ... Continue Reading

SEC Issues Investigative Report on Digital Assets (July 25, 2017)

The SEC released an investigative report addressing digital assets sold by virtual organizations. In the report, the SEC concludes that such sales, sometimes referred to as “Initial Coin Offerings” or “Token Sales,” are subject to federal securities laws. The report stems from an investigation into whether virtual organization The DAO, “blockchain solution company” UG, and related individuals violated the securities laws with unregistered offers and sales of DAO Tokens in exchange for Ether, a ... Continue Reading

SEC Announces Sizable Whistleblower Awards (July 25, 2017, and July 27, 2017)

In July, the SEC announced two whistleblower awards exceeding $1 million. In one case an employee of a government agency was awarded $2.5 million for providing a tip and further assistance that allowed the SEC to address a company’s alleged misconduct. In the second case, a company insider received $1.7 million for providing information that helped the SEC pursue an investigation and enforcement action to address the company’s alleged fraud.

SEC Press Release 7/25

SEC ... Continue Reading

SEC v. Hui Feng et al. (C.D. Ca. June 29, 2017)

The SEC was granted summary judgment on its claims against attorney Hui Feng and the Law Offices of Feng & Associates PC for allegedly operating as unregistered broker-dealers and defrauding Chinese nationals attempting to obtain visas. The ruling stems from a suit filed by the SEC against Feng in December 2015 which alleged that Defendant Feng and his firm sold EB-5 investments to over 100 foreign investors, who were also their legal clients, and directly ... Continue Reading

SEC v. Christopher J. Hall (S.D. Fla. June 28, 2017)

On reconsideration, the District Court for the Southern District of Florida ordered a horse racetrack executive to pay $4.7 million in disgorgement and prejudgment interest for alleged fraud in obtaining loans from a brokerage firm. The SEC alleged that Defendant fraudulently obtained millions of dollars in margin loans from the brokerage company February 22, 2017, a jury returned a verdict against Hall. On April 13, 2017, the court imposed a $225,000 civil penalty but found ... Continue Reading

Kokesh v. SEC (U.S. June 5, 2017)

The Supreme Court ruled that the five-year statute of limitations set forth in 28 U.S.C. § 2462 applies to SEC disgorgement actions. Section 2462 imposes its five-year limitations period on any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.” The Eleventh Circuit previously held in SEC v. Graham that disgorgement is a “forfeiture” such that the statute of limitations applies to actions seeking disgorgement, while the Tenth Circuit held ... Continue Reading

In re Pending Administrative Proceedings (May 22, 2017)

The SEC announced that, in light of the Tenth Circuit’s May 3, 2017 decision denying rehearing en banc in Bandimere v. SEC, it would stay all administrative proceedings assigned to an SEC administrative law judge (“ALJ”) or pending before the Commission on review from an initial decision by an ALJ in cases where a respondent may seek Tenth Circuit review of the final order.  In Bandimere, the Tenth Circuit held that the SEC’s hiring of ... Continue Reading