As the world is navigating through COVID-19 and as we are focused on our health and well-being as we self-quarantine and engage in social distancing to do our part to stop the spread, our markets remain open, active, and volatile, and the U.S. Securities and Exchange Commission (“SEC”) has recently made clear that they will continue to be an active overseer.
On March 3, 2020, the Supreme Court heard arguments in the case of Liu v. SEC, No. 18-1501. This article summarizes what transpired at the hearing, in which the arguments centered on a challenge to the ability of the U.S. Securities and Exchange Commission (“SEC”) to obtain disgorgement as an “equitable remedy” for securities law violations.
During the oral arguments, the Justices’ questions indicated that they appeared reluctant to entirely do away with disgorgement, but rather their queries focused on whether limitations should be placed on the SEC’s continuing use of disgorgement as an equitable remedy. Specifically, the Justices expressed interest in exploring parameters and limitations regarding how disgorgement is calculated and whether the SEC or defrauded investors are entitled to any disgorged funds.
In February, the Securities and Exchange Commission (SEC) announced a settlement with Diageo plc, a London-based producer of liquor, wine and beer, for failure to make required disclosures of known trends and uncertainties, thereby rendering its required periodic filings materially misleading with respect to its financial results. The enforcement action provided immediate insight into how the Securities and Exchange Commission would act on its recent guidance related to disclosing key performance indicators and other metrics in MD&A reporting. The enforcement action makes it clear that public issuers should expect increased scrutiny of any metrics used to assess business performance and ensure they have appropriate disclosure controls and procedures in place.
Under Siege from the SEC, Steven Seagal Ponies Up to Settle Charges for Promoting an Initial Coin Offering
Steven Seagal just learned the hard way that, unlike the title of his 1988 police action movie, he is not Above the Law. Unfortunately for the prolific action movie star, the SEC took notice of his recent actions and was Out for Justice. In order to avoid a Maximum Conviction, the SEC recently announced that Seagal made the Executive Decision to settle charges brought by the agency related to the actor’s failure to disclose the nature, scope, and amount of compensation he received for promoting an investment in an initial coin offering (ICO) conducted by Bitcoiin2Gen.
The SEC and DOJ have long prioritized insider trading prosecutions. Moreover, insider trading cases frequently involve parallel investigations in which the SEC and DOJ share information and coordinate efforts to collect evidence in support of civil and criminal litigation. Despite some setbacks that prosecutors have faced in recent years as insider trading case law has evolved, there is no sign that either the SEC or DOJ is backing down from vigorously enforcing the law prohibiting insider trading. We have previously blogged about the recent case law changes and their effect on civil and criminal investigations. The Bharara Task Force on Insider Trading was created in late 2018 and released its report on January 27, 2020.
According to a White House budget issued on February 10, 2020, the White House is considering transferring the authority of the Public Company Accounting Oversight Board (PCAOB or Board) to the SEC by 2022 in order to eliminate duplication between the two regulators and to “reduce regulatory ambiguity.” See A Budget for America’s Future.
The Sarbanes-Oxley Act of 2002 established the PCAOB as a nonprofit corporation to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. This was done in response to accounting scandals at major companies such as Enron and Worldcom. The SEC has oversight authority over the PCAOB, including the approval of the Board’s rules, standards, and budget. And, of course, the SEC has authority to broadly enforce the securities laws against, among others, … Read More »
The college football bowl season is upon us, NFL teams are jockeying for playoff seeding, and with the college basketball season underway fans of that game are looking longingly towards March for how their brackets may look for the 2020 tournament. Thus, sports and the gambling associated with it are all around us. In recent years, this gambling has risen from the shadows and is now openly discussed throughout society. So this industry has evolved and continues to evolve, since the times when gamblers needed to travel to Las Vegas or Atlantic City to legally gamble. Over the years, state laws have expanded such that today numerous states allow gambling in some form. Further accelerating this expansion, in the spring of 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act.
Facing a 35-day government shutdown and new restrictions on the ability to recover disgorgement, it would be perfectly understandable if the SEC’s Division of Enforcement suffered a lackluster year. Nevertheless, according to their recently released Annual Report, the Division of Enforcement defied the odds and turned in an impressive year by most metrics. The full report is available here, but we address several key aspects of the report below.
In fiscal year 2019 (which runs from October to September), the SEC reported a total of 862 enforcement actions, including 526 “standalone” actions filed in either federal court or as administrative proceedings, which was its highest number of standalone actions since 2016. The SEC also filed 210 “follow-on” proceedings seeking the barring of individuals based on actions by other authorities or regulators. This number of “follow-on” proceedings matched the prior year’s total, … Read More »
Last week, the Southern District of New York dropped its prosecution of Richard Lee, a former portfolio manager at SAC Capital who, in 2013, entered a guilty plea to trading on material nonpublic information that he gained from corporate insiders. The court recently ruled that Mr. Lee’s guilty plea must be vacated to conform with the ruling in United States v. Newman, 773 F.3d 438, 450-51 (2d Cir. 2014), abrogated on other grounds by Salman v. United States, 137 S. Ct. 420 (2016). Newman held that a tippee who traded on material nonpublic information must have knowledge that the insider acted for personal benefit in disclosing the information. Thus, in 2017, Mr. Lee moved to withdraw his guilty plea on the grounds that (1) he was innocent; (2) had he known additional information, he would not have pleaded guilty; and … Read More »
The SEC’s SCSD Initiative Second Wave and the Applicability of the President’s Recent Executive Order
On September 30, 2019, the SEC ordered an additional 16 self-reporting investment advisory firms to pay nearly $10 million in disgorgement. Some have referred to this as the “second wave” of the SEC Division of Enforcement’s Share Class Selection Disclosure Initiative (“SCSD Initiative”). It’s unclear if there will be another “wave” of SCSD Initiative settlements. What is clear, though, is that the number of self-reporting firms charged by the SEC so far totals ninety-five. When the SCSD Initiative was first announced many anticipated that the tally of firms charged would number in the hundreds, but the number remains under 100.
While the number of self-reporting firms is still significant and indicates that this was an industry issue, it may also signal that many firms elected to take their chances and not self-report. Along those lines, the SEC also announced that same … Read More »