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The SEC Lays Down a Bet in a Nevada Court

Posted on December 16th, by and in SEC. Comments Off on The SEC Lays Down a Bet in a Nevada Court

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.


The SEC in 2019: Doing More With Less

Posted on November 15th, by , and in Enforcement, General, SEC. Comments Off on The SEC in 2019: Doing More With Less

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 »


DOJ Drops Insider Trading Charges After Guilty Plea Found Insufficient

Posted on November 14th, by and in DOJ, Insider Trading, SEC. Comments Off on DOJ Drops Insider Trading Charges After Guilty Plea Found Insufficient

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

Posted on October 15th, by and in Disgorgement, Enforcement, SCSD Initiative, Self-Reporting. Comments Off on 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 »


SEC: Here Is When Loss Contingencies Must Be Disclosed and Reserved

Posted on October 2nd, by in Corporate Disclosures, Enforcement, Settlements. Comments Off on SEC: Here Is When Loss Contingencies Must Be Disclosed and Reserved

When confronted with government inquiries, public companies commonly grapple with the issue of when events have escalated to the point that they are subject to disclosure obligations—or, further yet, require recognition as a loss reserve in the financial statements. Is one or both of these requirements triggered when the government initially informs the company of the inquiry’s existence? When the magnitude and frequency of the government’s informational requests provide reasonable notice of a full-blown investigation? When the government rejects the company’s efforts to discontinue the investigation? Or when the government and company commence settlement discussions? While the seminal moment when each of these obligations solidifies can be quite fact-specific, the Division of Enforcement provided its own guidepost last week as to when disclosure and loss recognition become necessary.


SEC Settles Charges of Auditor Independence Violations for $8 Million

Posted on September 27th, by and in Civil Penalties, Disgorgement, Neither Admit Nor Deny, SEC, Settlements. Comments Off on SEC Settles Charges of Auditor Independence Violations for $8 Million

The SEC announced settlements with an auditing firm (the “Firm”) and one of its partners relating to violations of certain auditor independence rules involving nineteen audit engagements with fifteen SEC-registrant issuers.

More specifically, the SEC found the Firm and its partner violated the Commission’s and Public Company Accounting Oversight Board’s (“PCAOB”) auditor independence rules. The alleged conduct involved performing prohibited non-audit services, including exercising decision-making authority in the design and implementation of software relating to one of its issuer client’s financial reporting as well as engaging in management functions for the company. The partner was responsible for supervising the performance of the prohibited non-audit services. Additionally, the SEC charged additional PCAOB-rule violations for failing to notify the clients’ audit committees about the non-audit services. The SEC described these failures as “mischaracterized non-audit services” despite the services involving financial software “that … Read More »


DOJ and CFTC Bring Actions Against Precious Metals Traders

Posted on September 20th, by and in CFTC, Criminal Liability, DOJ, Layering, Parallel Investigations, Spoofing. Comments Off on DOJ and CFTC Bring Actions Against Precious Metals Traders

Recently, the Department of Justice indicted three precious metals traders in the Northern District of Illinois, charging each them with violating the Racketeer Influenced and Corrupt Organization Act (“RICO”), committing wire and bank fraud, and conspiring to commit price manipulation, bank fraud, wire fraud, commodities fraud, and “spoofing.” Two of those traders were also charged with committing commodities fraud, spoofing, and attempted price manipulation and were named as defendants in a civil suit brought by the CFTC in the same court, alleging violations of the Commodity Exchange Act and CFTC Regulations.

Both the indictment and the civil complaint contend that over the course of approximately seven years, the defendants intentionally manipulated the price of precious metals futures contracts by “spoofing,” or “placing orders to buy or sell futures contracts with the intent to cancel those orders before execution.” Specifically, both the … Read More »


Compliance Officers Beware: Your Conversations With the NFA During Examinations Could Lead to Charges

Posted on September 18th, by and in CFTC, Civil Penalties, Enforcement, Misappropriation, Mispresentations. Comments Off on Compliance Officers Beware: Your Conversations With the NFA During Examinations Could Lead to Charges

The U.S. Commodity Futures Trading Commission (“CFTC”) sent a strong message to Chief Compliance Officers (“CCO”) this week when it held a CCO held accountable for lying to the National Futures Association (“NFA”) during an examination. Also, if you did not believe the CFTC’s message about its intention to reach across borders to pursue bad actors, it’s time to reconsider.

Earlier this year the CFTC instituted a civil enforcement action against Phy Capital Investments, LLC and its CEO, Fabio Bretas de Freitas. The firm was formed in 2016 and the CEO solicited participants to invest in a pool to trade commodity futures contracts. According to the CFTC, despite representing to pool participants that it made substantial commodity trading profits, the firm never engaged in any trading activity and instead misappropriated participant funds. The civil charges against the firm and the CEO … Read More »


The SEC Files Another Litigated Disclosure Case – With More Violations

Posted on September 11th, by and in Conflict of Interest, Corporate Disclosures, Disclosures, Enforcement, OCIE, SCSD Initiative, SEC. Comments Off on The SEC Files Another Litigated Disclosure Case – With More Violations

On August 29, 2019, the SEC filed a complaint against a registered investment adviser alleging failures to disclose four categories of conflicts of interest and seeking disgorgement of $10 million in undisclosed compensation. This litigated action was filed within a month of the SEC filing a litigated complaint against another firm alleging failing to disclose material conflicts of interest related to revenue sharing, despite that advisory firm having self-reported pursuant to the SEC’s Share Class Selection Disclosure Initiative (“SCSD Initiative”).

Based on these litigated actions (and despite the SCSD Initiative being over 18 months old), the SEC’s Division of Enforcement continues to focus its investigative and litigation resources on “Main Street” and to aggressively pursue registered investment advisory firms for disclosure violations involving actual or potential conflicts of interest.

In this most recent litigated action, not surprisingly, the SEC’s allegations with respect … Read More »


CFTC v. Kraft

Posted on August 22nd, by in CFTC, Futures, Manipulation, Settlements. Comments Off on CFTC v. Kraft

In a Consent Order entered on August 15, Kraft Foods Group, Inc, and its subsidiary Mondelez Global LLC agreed to pay $16 million to settle the CFTC’s complaint alleging the firms manipulated the December 2011 wheat futures markets. The settlement was thought to have ended the litigation, begun in 2015, however, shortly after the entry of the Consent Order, the firms filed a motion seeking contempt sanctions against the CFTC and Commissioners Berkovitz and Behnam. Kraft’s emergency motion alleges the Commission’s statements, and individual Commissioner statements filed concurrently with the Consent Order violated the terms of the settlement.

The Consent Order contained two unusual aspects. First it contained no factual findings or conclusions of law. Second, it contained a clause limiting the parties’ ability to speak publicly on the litigation.

Under the Consent Agreement, both parties agreed to refrain from making … Read More »






From the Blog:

The SEC Lays Down a Bet in a Nevada Court

The college football bowl season is upon us, NFL teams are jockeying for playoff seeding, and with the college basketball season underway fans of...

The SEC in 2019: Doing More With Less

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...

DOJ Drops Insider Trading Charges After Guilty Plea Found Insufficient

Last week, the Southern District of New York dropped its prosecution of Richard Lee, a former portfolio manager at SAC Capital who, in 2013,...