Blog Posts Tagged With Decisions/Developments of Note

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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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” Slock.it UG, and related individuals violated the securities laws with unregistered offers and sales of DAO Tokens in exchange for Ether, a
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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
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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
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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
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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
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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
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CFTC Approves Amendments to Whistleblower Rules (May 22, 2017)

On May 22, 2017, the CFTC unanimously approved amendments to its whistleblower rules.  The amendments seek, among other things, to strengthen the CFTC’s anti-retaliation protections and process for whistleblowers and harmonize the CFTC’s rules with the SEC’s whistleblower programs.  The CFTC’s anti-retaliation authority has been reinterpreted under the Commodity Exchange Act (CEA) to allow both the CFTC and a whistleblower to bring an action against an employer for retaliation.  The amendments also prohibit employers from
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SEC v. Revelation Capital Management, Ltd., et al. (S.D.N.Y. March 27, 2017)

The District Court for the Southern District of New York granted summary judgment on behalf of Defendants accused of violating Rule 105 of Regulation M, finding that Rule 105 (and the U.S. securities laws) did not apply to transactions involving a foreign offering of shares cross-registered on the New York Stock Exchange because they could not be considered domestic transactions under Morrison v. National Australia Bank Ltd.


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Leidos, Inc. v. Indiana Public Retirement System (U.S. March 27, 2017)

The Supreme Court granted certiorari on the question of whether Item 303 of SEC Regulation S-K creates an affirmative duty to disclose that is actionable under Exchange Act Section 10(b) and SEC Rule 10b-5.  The Second Circuit held in Leidos that a corporation could be sued under Section 10(b) and Rule 10b-5 for omitting a statement required under Item 303, which requires corporations to discuss and analyze their financial condition, including any trends or uncertainties
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SEC v. Vincent J. Messina, et al. (9th Cir. March 21, 2017)

The Ninth Circuit held that the SEC can disgorge funds from “relief defendants.”  The relief defendants, who provided legal advice regarding tax, corporate, and immigration matters to clients, received $5 million as a loan from a client who allegedly earned the money as part of a Ponzi scheme.  The Court of Appeals found that the trial court properly had jurisdiction and did not err in determining that the relief defendants received ill-gotten gains and that
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Somers v. Digital Realty Trust Inc. (9th Cir. March 8, 2017)

The Ninth Circuit held that the Dodd-Frank Act’s anti-retaliation provision applies both to individuals who report potential securities violations internally and to individuals who report directly to the SEC.  Plaintiff was fired shortly after making a report to senior management, and the company argued it could not be sued under the Dodd-Frank Act because Plaintiff only made the report internally rather than to the SEC.  In affirming the trial court’s denial of Defendant’s motion to
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U.S. v. Stanley Jonathan Fortenberry (N.D. Tex. March 3, 2017)

An individual was sentenced to 78 months in prison for allegedly operating two investment fraud schemes and obstructing an SEC investigation.  When he pleaded guilty to two counts of mail fraud and one count of obstruction of justice, Defendant admitted that he misled investors and misappropriated investor funds for personal use.  Defendant also faced administrative proceedings before the SEC in 2014.


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SEC Decides Not to Appeal Decision on Collateral Bars (February 23, 2017)

On January 17, 2017, the U.S. Court of Appeals for the D.C. Circuit ruled in Bartko v. SEC (No. 14-1070) that the SEC could not impose collateral bars under the Dodd-Frank Act for conduct that pre-dated the Act’s July 22, 2010 enactment.  In February, the SEC announced that it would not seek further review of the decision.  The SEC also announced that any person or entity covered by the Bartko decision may request an order
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President and Congress Seek to Reform Financial Regulation

On February 3, President Trump issued an executive order entitled “Core Principles for Regulating the United States Financial System.” The order listed several policy principles for the Trump Administration’s system of financial regulation and directed the Secretary of the Treasury to consult with members of the Financial Stability Oversight Council and issue a report to the President, by early June 2017, concerning which existing laws promote or inhibit these core principles.  On February 6, 2017,
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Bandimere v. SEC (10th Cir. December 27, 2016)

The Tenth Circuit set aside SEC sanctions against a businessman, finding that the SEC administrative law judge who imposed them was hired in violation of the Appointments Clause. The Tenth Circuit’s holding that SEC administrative law judges function as inferior officers who should be appointed rather than hired creates a circuit split with the D.C. Circuit, which held the opposite in its August 9, 2016 opinion in Lucia v. SEC.


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Salman v. United States (U.S. December 6, 2016)

The Supreme Court ruled that a tipper who shares inside information with a trading relative or friend has received a “personal benefit.” This is significant because, in order to be found guilty of insider trading, a tipper must receive a personal benefit in exchange for providing tips. The decision rejected the more stringent standard set by the Second Circuit in United States v. Newman, which held that a tipper only receives a personal benefit
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