The Government Suffers a Spoofing Setback

Posted on April 27th, by and in CFTC, DOJ, Spoofing. Comments Off on The Government Suffers a Spoofing Setback

On April 25, 2018, a New Haven federal jury acquitted a former trader with a global bank accused of scheming to manipulate the precious metals futures markets with “spoofing,” a trading tactic that involves the use of allegedly deceptive bids or offers to feign the appearance of supply or demand. This appears to be one of the first setbacks for the Department of Justice (“DOJ”), U.S. Commodity Futures Trading Commission (“CFTC”), and futures self-regulatory organizations since they began aggressively investigating and civilly and criminally charging futures traders with spoofing several years ago. After successfully defeating Michael Coscia’s appeal to the U.S. Court of Appeals for the Seventh Circuit, this aggression accelerated with the CFTC’s and DOJ’s coordinated charges in January against several firms and traders. This verdict, however, may cause them to re-visit their aggression and certain strategies.

While it is … Read More »


SEC Cyber Unit Brings Groundbreaking Data Breach Case

Posted on April 27th, by and in Cybersecurity. Comments Off on SEC Cyber Unit Brings Groundbreaking Data Breach Case

On April 24, 2018, the Securities and Exchange Commission (SEC) announced its most significant case ever filed against a respondent for one of the world’s largest data breaches. Albata, Inc., f/d/b/a Yahoo! Inc., (“Yahoo”) settled with the SEC to charges of violating Section 17(a)(2) and 17 (a)(3) of the Securities Act of 1933 (“Securities Act”), amongst other charges, and agreed to various remedies, including a $35 million penalty.

In summary, the SEC alleged that in December of 2014 Yahoo’s information security team learned that Russian hackers stole what was referred to internally as the company’s “crown jewels”: usernames, email addresses, phone numbers, birthdates, encrypted passwords, and security questions and answers for more than 500 million users. Although information relating to the breach was reported to members of Yahoo’s senior management and legal department, Yahoo failed to properly investigate the circumstances of … Read More »


SEC Share Class Selection Disclosure Initiative to Encourage Self-Reporting

Posted on April 6th, by and in Enforcement, SEC Guidance, Self-Reporting. Comments Off on SEC Share Class Selection Disclosure Initiative to Encourage Self-Reporting

On February 12, 2018, the U.S. Securities and Exchange Commission (SEC) announced a “Share Class Selection Disclosure Initiative” (“SCSD Initiative”), led by the Asset Management Unit of the Division of Enforcement (“Enforcement”). To encourage self-reporting and participation in the SCSD Initiative, Enforcement advises in the release that it “will agree not to recommend financial penalties against investment advisers who self-report violations of the federal securities laws relating to certain mutual fund share class selection issues and promptly return money to harmed clients.” Enforcement also warns that it “expects to recommend stronger sanctions in any future actions against investment advisers that engaged in the misconduct but failed to take advantage of this initiative.”

The deadline for self-reporting is June 12, 2018. Firms contacted by Enforcement before the announcement regarding possible violations related to their failures to disclose the conflicts of interest associated … Read More »


Supreme Court Unanimously Holds that Whistleblowers Must First Report to the SEC Before Being Afforded Dodd-Frank Anti-Retaliation Protections

Posted on February 26th, by and in Dodd-Frank, Whistleblower. Comments Off on Supreme Court Unanimously Holds that Whistleblowers Must First Report to the SEC Before Being Afforded Dodd-Frank Anti-Retaliation Protections

In a 9-0 opinion issued on Wednesday, February 21, in Digital Realty Trust v. Somers (2018), the Supreme Court resolved a circuit split by holding that Dodd-Frank’s anti-retaliation provision does not apply to an individual, like Somers, who reported a violation of the securities law internally at his company but did not report the violation to the SEC.

As we have previously written, this case came to the Supreme Court from the Ninth Circuit, affirming the District Court’s holding that Section 78u-6(h), Dodd-Frank’s anti-retaliation provision, did not necessitate reporting a potential violation to the SEC before gaining “whistleblower” status. Somers v. Digital Realty Trust Inc., 850 F.3d 1045 (9th Cir. 2016). The Fifth Circuit had previously come to the opposite holding. Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013). The Supreme Court decided this circuit split and … Read More »


Court Rules that Law Firm’s Oral Summaries to SEC of Interview Notes and Memoranda Constitutes Waiver of Work Product Protection

Posted on December 14th, by and in General. Comments Off on Court Rules that Law Firm’s Oral Summaries to SEC of Interview Notes and Memoranda Constitutes Waiver of Work Product Protection

We previously reported that on October 31, 2017, two former executives from General Cable Corporation (“GCC”) moved to compel Morgan Lewis & Bockius LLP (“Morgan Lewis”) to produce interview memoranda and notes created during an internal investigation of GCC that were subsequently provided to the SEC and an independent auditor. In S.E.C. v. Herrera, et al., No. 17-20301, 2017 WL 6041750 (S.D. Fla. Dec. 5, 2017), the issue before the court was whether Morgan Lewis “waived work product protection when it voluntarily gave the SEC oral summaries of the work product notes and memoranda its attorneys prepared about interviews of its client’s executives and employees.” On December 5, 2017, Magistrate Judge Jonathan Goodman issued a ruling ordering Morgan Lewis to produce the notes and memoranda for the interviews the firm discussed with the SEC.

As a matter of background, GCC retained … Read More »


Ex-Executives Move to Compel Law Firm to Produce Notes from Internal Investigation

Posted on November 17th, by and in General. Comments Off on Ex-Executives Move to Compel Law Firm to Produce Notes from Internal Investigation

On October 31, 2017, two former executives from General Cable Corporation (“GCC”) filed a motion to compel Morgan Lewis & Bockius LLP (“Morgan Lewis”) to produce interview memoranda and notes created during an internal investigation of GCC that were subsequently provided to the SEC and an independent auditor. In S.E.C. v. Herrera, et al., No. 17-20301 (S.D. Fla. filed Jan. 24, 2017), the government alleged that Mathias Francisco Sandoval Herrera (“Herrera”) and Maria D. Cidre (“Cidre”), acting as CEO and CFO of the Latin American operations of GCC, violated various securities laws when they “actively concealed from GCC executive management material inventory accounting errors at the company’s subsidiary in Brazil, including the overstatement of inventory by tens of millions of dollars and allegations of a massive theft by GCC Brazil employees.”

GCC, a global manufacturer of copper, aluminum, and fiber optic … Read More »


Second Circuit Will Not Revisit Opinion Barring Testimony Compelled by Foreign Sovereigns

Posted on November 13th, by and in General. Comments Off on Second Circuit Will Not Revisit Opinion Barring Testimony Compelled by Foreign Sovereigns

On Thursday, the United States Court of Appeals for the Second Circuit refused to revisit a July 2017 decision by a panel of that court in United States v. Allen, which held, among other things, that the Fifth Amendment prohibits the use of compelled testimony in U.S. criminal proceedings, even when the testimony was lawfully compelled by a foreign sovereign. Thursday’s Order is significant because it ensures that the Allen decision is the law of the Second Circuit, and the government’s only remaining option to challenge Allen is to petition the United States Supreme Court for review.

The circumstances in Allen arose in the wake of the well-publicized LIBOR rate manipulation scandal. Among many other prosecutions, the United States sought to prosecute two citizens of the United Kingdom – Anthony Allen and Anthony Conti. Allen and Conti worked in the London … Read More »


Split Second Circuit Affirms Insider Trading Conviction While Rejecting Newman’s “Meaningfully Close Personal Relationship” Requirement

Posted on August 28th, by and in Appellate Decision, Criminal Liability, General, Insider Trading. Comments Off on Split Second Circuit Affirms Insider Trading Conviction While Rejecting Newman’s “Meaningfully Close Personal Relationship” Requirement

On August 23, 2017, the United States Court of Appeals for the Second Circuit affirmed an insider trading conviction against a portfolio manager, and in doing so, held that the “meaningfully close personal relationship” requirement set forth in the Second Circuit’s landmark decision, United States v. Newman, to infer personal benefit “is no longer good law.”

Background

Matthew Martoma (“Martoma”) managed an investment portfolio at S.A.C. Capital Advisors, LLC (“SAC”) that focused on pharmaceutical and healthcare companies. His “conviction[] stem[s] from an insider trading scheme involving securities of two pharmaceutical companies, Elan Corporation, plc (“Elan”) and Wyeth, that were jointly developing an experimental drug called bapineuzumab to treat Alzheimer’s disease.” During the development of bapineuzumab, Martoma arranged for consultation visits paid by SAC with two doctors who were working on the clinical trial. One doctor was the chair of the safety monitoring … Read More »


D.C. Circuit Split on Constitutionality of SEC’s Administrative Judges

Posted on June 27th, by and in Administrative Proceedings. Comments Off on D.C. Circuit Split on Constitutionality of SEC’s Administrative Judges

We previously blogged about the D.C. Circuit’s decision in Raymond J. Lucia Cos v. SEC, which rejected the petitioner’s constitutional challenges to the SEC’s use of administrative law judges that are not appointed by the President. Yesterday, the D.C. Circuit issued a two sentence per curiam order denying an en banc review by an equally divided court.

We noted that the panel’s original opinion was the first appellate ruling of its kind. Although the panel’s decision remains in effect because the full court did not rehear the case, the strength of that ruling is now severely undermined. As we previously reported, the Tenth Circuit has already disagreed with the D.C. Circuit’s panel and held that the SEC’s administrative law judges are subject to the Constitution’s Appointments Clause. Yesterday’s order likely sets the stage for a Supreme Court challenge.


SEC Names Co-Directors of Enforcement

Posted on June 12th, by and in Enforcement, General, SEC Guidance. Comments Off on SEC Names Co-Directors of Enforcement

Last week, the Securities and Exchange Commission (SEC) announced that Acting Enforcement Director Stephanie Avakian and former federal prosecutor Steven Peikin had been named Co-Directors of the Division of Enforcement. In making the announcement, SEC Chairman Jay Clayton advised:

There is no place for bad actors in our capital markets, particularly those that prey on investors and undermine confidence in our economy. Stephanie and Steve will aggressively police our capital markets and enforce our nation’s securities laws as Co-Directors of the Division of Enforcement. They have each demonstrated market knowledge, impeccable character, and commitment to public service, and I am confident their combined talents and experience will enable them to effectively lead the Division going forward.

Prior to being named Acting Director in December 2016, Ms. Avakian served as Enforcement’s Deputy Director since June 2014. Mr. Peikin joins the SEC … Read More »




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