Federal Prosecutor Faces Accusations that it Used the SEC to Collect Evidence for its Criminal Investigation

Posted on June 21st, by and in Criminal Liability, Parallel Investigations. Comments Off on Federal Prosecutor Faces Accusations that it Used the SEC to Collect Evidence for its Criminal Investigation

In a ruling handed down on Tuesday, a Southern District of New York judge ordered the U.S. Attorney’s Office for the Southern District of New York (“USAO”) to submit a full account of their communications with the SEC after defendant Jason Rhodes accused the USAO of using the SEC to develop its criminal case against him.

Rhodes was charged with four counts, including conspiracy to commit securities fraud and wire fraud, securities fraud, wire fraud, and investment advisor fraud, in what the government alleges was an elaborate $19.6 million scheme to defraud investors. Notably, the charges against Rhodes were brought almost two years after the government charged all other co-conspirators. During that time, the SEC initiated an investigation involving Rhodes.

In a motion filed back in March of this year, Rhodes argued that the USAO may have violated his due process rights … Read More »


The Robare Ruling Regarding “May” Disclosures and “Willfulness”

Posted on May 7th, by , and in Administrative Proceedings, Enforcement, Form ADV, Investment Advisers. Comments Off on The Robare Ruling Regarding “May” Disclosures and “Willfulness”

Over the last year, the SEC has continued to intensify its focus on disclosures from investment advisers on Forms ADV regarding several issues, including—but not limited to—revenue sharing arrangements. Last week, the D.C. Court of Appeals handed down a decision that will likely have significant ramifications for investment advisers and the SEC’s Division of Enforcement (“Enforcement”). In Robare Group, Ltd., v. SEC, the D.C. Circuit upheld the SEC Commission’s decision that the use of the word “may” in a disclosure regarding an investment adviser’s conflicts of interest pertaining to revenue sharing violated the negligence-based fraud provision of Section 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”).
On appeal, The Robare Group, Ltd., a Texas-based investment adviser, argued that the evidence presented by Enforcement in an administrative proceeding did not support the Commission’s ruling, upon review, that their disclosures … Read More »


The SEC Speaks . . . and Cooperation is Key

Posted on April 12th, by , and in SEC, SEC Guidance, Self-Reporting. Comments Off on The SEC Speaks . . . and Cooperation is Key

SEC Speaks, the SEC’s annual conference in Washington, D.C., often provides valuable insight into developments at the agency, as well as pronouncements about policy evolution and enforcement priorities. At this year’s conference, “cooperation” emerged as one of the themes that the SEC has been prioritizing over the past year – and is committed to prioritizing in the future. Indeed, the co-directors of the SEC’s Division of Enforcement remarked that, “cooperation is as important now as it has ever been,” and that the “full range” of remedies are available to entities that provide meaningful cooperation to the SEC. Interestingly, the staff emphasized that the SEC is making a concerted effort to use its press releases and orders to highlight the importance, components, and benefits of cooperation – all in an effort to promote earlier, more meaningful, and more … Read More »


SEC Announces First Whistleblower Awards of 2019

Posted on March 27th, by and in Dodd-Frank, Whistleblower. Comments Off on SEC Announces First Whistleblower Awards of 2019

The SEC announced yesterday that it has awarded more than $50 million to two whistleblowers—specifically, more than $37 million to one whistleblower and more than $13 million to the other. Press Rel. No. 2019-42 These are the first awards announced in 2019, and the first awards announced in more than six months. The $37 million award now ranks as the SEC’s third largest award to date. The two largest awards ($50 million and $39 million) were announced in 2018.

The more than $37 million was awarded to a whistleblower whom the Commission found, as stated in its Order, to have voluntarily provided information that was “highly significant and critical to the success” of the underlying investigations. Indeed, the Commission’s enforcement staff opened a second investigation after meeting with the whistleblower on two separate occasions. The whistleblower continued to meet with enforcement … Read More »


SEC Releases SCSD Self-Reporting Initiative Settlements

Posted on March 12th, by and in Investment Advisers, SCSD Initiative, SEC, Self-Reporting, Settlements. Comments Off on SEC Releases SCSD Self-Reporting Initiative Settlements

On March 11, 2019, the SEC announced and released settlements against 79 self-reporting registered investment advisers (RIAs), touting $125 million being returned to investors. The actions stem from the SEC’s Share Class Selection Disclosure Initiative (SCSD Initiative). The SCSD Initiative incentivized RIAs to self-report violations resulting from undisclosed conflicts of interest, to promptly compensate investors, and to review and correct fee disclosures. Specifically regarding Rule 12b-1 fees, the SEC’s orders found that the RIAs failed to adequately disclose conflicts of interest related to the sale of higher-cost mutual fund share classes when a lower-cost share class was available.

SEC Chairman Jay Clayton commented: “I am pleased that so many investment advisers chose to participate in this initiative and, more importantly, that their clients will be reimbursed. This initiative will have immediate and lasting benefits for Main Street investors, including through improved disclosure. Also, … Read More »


SEC and CFTC FY2018 Results: Looking Back . . . and Looking Forward

Posted on November 29th, by , and in CFTC, Enforcement, SEC. Comments Off on SEC and CFTC FY2018 Results: Looking Back . . . and Looking Forward

Earlier this month, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission issued their annual reports about their Divisions of Enforcement results for fiscal year 2018. Analyzing these reports is a helpful way for us to learn from the recent historical enforcement efforts by both financial regulatory agencies. Also, both reports provide guidance about the divisions’ objectives and initiatives for the upcoming fiscal year and beyond. Below we explore and summarize the important topics covered in both reports.

The SEC issued its FY2018 Annual Report earlier this month. The last several pages categorize and list every action filed by SEC Enforcement during FY2018; this provides a useful reference tool. In addition, this report continues to evolve and provide more information than in years past. Not surprisingly, the report highlights SEC Chairman Jay Clayton’s direction to SEC Enforcement … Read More »


ALJ Deals Blow to SEC’s Fraud Case Against Hedge Fund Manager

Posted on October 24th, by and in Administrative Law Judge, Administrative Proceedings, ALJ, Disclosures, Mispresentations, Scienter. Comments Off on ALJ Deals Blow to SEC’s Fraud Case Against Hedge Fund Manager

An SEC administrative law judge recently rejected some of the SEC’s fraud charges against hedge fund manager RD Legal Capital, LLC and its owner Roni Dersovitz (“Respondents”) by finding that the SEC did not prove that Respondents made certain material misrepresentations and failed to establish that other alleged material misrepresentations were made with scienter. In the Matter of RD Legal Capital, LLC, and Roni Dersovitz, File No. 3-17342, Initial Decision (Oct. 15, 2018). While ALJ Jason S. Patil did conclude that Respondents were liable for negligence-based fraud violations, his rulings with respect to the scienter-based charges and the drastically-reduced penalties he ordered were largely a defeat for the SEC.

Background

In July 2016, the SEC instituted proceedings alleging, among other things, that Respondents defrauded investors by misrepresenting the types of legal receivables in which two funds managed by RD Legal Capital invested. … Read More »


Cyber-Fraud Victim or Securities Law Violator?

Posted on October 23rd, by and in Cybersecurity, SEC. Comments Off on Cyber-Fraud Victim or Securities Law Violator?

The Securities and Exchange Commission (SEC) recently released a report detailing whether or not certain companies that had fallen victim to cyber-related frauds had violated the Securities Exchange Act of 1934 by failing to have proper internal accounting controls. The nine companies investigated by the SEC fell prey to fraudulent “business email compromise” schemes, which are responsible for the highest estimated out-of-pocket losses of any cyber-related crimes in the last five years. The primary question for the SEC was whether or not the companies had failed to enact compliant internal accounting controls that may have prevented such fraud.

This alert details the SEC’s finding and advice for companies in an environment where cybersecurity is increasingly complicated and essential.

Read the full alert.


Second Circuit Rejects Government’s Expansive Theory in Ruling that FCPA Does Not Extend to Foreign Nationals Without U.S. Ties

Posted on August 30th, by and in Foreign Corrupt Practices Act (FCPA), Individual Liability. Comments Off on Second Circuit Rejects Government’s Expansive Theory in Ruling that FCPA Does Not Extend to Foreign Nationals Without U.S. Ties

The Second Circuit ruled on August 24 in United States v. Hoskins that the Foreign Corrupt Practices Act (FCPA) does not apply to foreign nationals who do not have ties to United States entities for bribery crimes that take place outside of U.S. borders. In doing so, the court rejected the government’s broadened theory of prosecution against Lawrence Hoskins, a U.K. citizen and former executive of the U.K.-based subsidiary of Alstom S.A., a global company headquartered in France that provides power and transportation services. United States v. Hoskins, No. 16-1010-CR, 2018 WL 4038192, at *1 (2d Cir. Aug. 24, 2018).

The alleged bribery scheme centers on Alstom S.A.’s American subsidiary, Alstom Power, Inc. (Alstom U.S.), headquartered in Connecticut. Hoskins was one of four Alstom executives charged with facilitating bribes to Indonesian officials in order to help the company win a $118 … Read More »


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 »




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