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U.S. Attorney’s Office for the Southern District of New York Announces First-Ever Criminal Bank Secrecy Act Charges Against a U.S.-Based Broker-Dealer

Posted on December 20th, by in Criminal Liability, Deferred Prosecution Agreements, Enforcement. Comments Off on U.S. Attorney’s Office for the Southern District of New York Announces First-Ever Criminal Bank Secrecy Act Charges Against a U.S.-Based Broker-Dealer

On December 19, 2018, the United States Attorney for the Southern District of New York announced criminal charges against Central States Capital Markets, LLC (“CSCM”), a Prairie Village, Kansas-based broker-dealer. CSCM was charged with a violation of the Bank Secrecy Act (“BSA”) based on its willful failure to file a suspicious activity report (“SAR”) in connection with the illegal activities of one of its customers. The charge against CSCM represents the first criminal BSA charge ever brought against a United States-based broker-dealer.

The U.S. Attorney’s Office also announced that CSCM had entered into a deferred prosecution agreement under which it agreed to accept responsibility for its conduct, forfeit $400,000, and enhance its BSA / Anti-Money Laundering(“AML”) compliance program. If CSCM complies with the terms of the agreement,the U.S. Attorney’s Office agreed to defer prosecution for a period of two years, after … Read More »


Department of Justice Announces Important Revisions to the Yates Memo

Posted on December 12th, by and in Cooperation, Corporate Disclosures, DOJ, Self-Reporting. Comments Off on Department of Justice Announces Important Revisions to the Yates Memo

Deputy Attorney General Rod Rosenstein recently announced significant changes to the Department of Justice’s corporate enforcement policy regarding individual accountability, previously announced in the 2015 Yates Memo. The revised policy no longer requires companies who are the target of DOJ investigations to identify all parties involved in potential misconduct before they can be eligible to receive any cooperation credit. This alert examines the updated policy, which should provide companies with greater flexibility in conducting investigations and negotiating dispositions with DOJ in both criminal and civil cases.

Read the full alert.


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.


Another Court Rules Virtual Currencies are Commodities Subject to CFTC Oversight

Posted on October 8th, by in CFTC, Cryptocurrency, Futures. Comments Off on Another Court Rules Virtual Currencies are Commodities Subject to CFTC Oversight

“The definition of ‘commodity’ is broad. Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.” (In re Coinflip, Inc., CFTC No. 15-29 (Sept. 17, 2015)). This has been the view of the Commodity Futures Trading Commission (CFTC) since at least 2015, and the courts increasingly appear to be affirming the Commission’s assertion of jurisdiction over the virtual currency market.

The U.S. District Court for the District of Massachusetts is the latest court to rule that virtual currencies are commodities, and subject to CFTC jurisdiction. (See CFTC v. My Big Coin Pay, Inc, 1:18-CV-10011-RWZ). In My Big Coin, the district court entered an order holding that the CFTC has the power to prosecute fraud involving virtual currency, even in instances where there is no futures contract over the relevant virtual currency.

A “commodity” as defined in the … Read More »


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 »


NFA Proposes Enhanced Disclosure Requirements for Members Engaging in Virtual Currency Activities

Posted on July 27th, by in CFTC, Cryptocurrency, Futures. Comments Off on NFA Proposes Enhanced Disclosure Requirements for Members Engaging in Virtual Currency Activities

The National Futures Association (“NFA”) recently proposed an interpretive notice updating disclosure requirements for its members engaged in virtual currency (i.e. cryptocurrency) activities. Self-Regulatory Organizations are increasingly interested in their members’ activities in the emerging virtual currency market, with the NFA’s notice following on the heels of a FINRA Regulatory Notice encouraging its members to self-report their virtual currency activities. (See here for detail on FINRA’s notice).

The apparent catalyst for the NFA’s recent proposal was the launch of bitcoin futures by the CME and CBOE Futures Exchange in December 2017. Concerned that the growth of the market has attracted investors that may not fully appreciate the substantial risk of loss that may rise from trading virtual currencies, and the NFA’s limited regulatory oversight authority, the NFA developed the enhanced disclosure requirements for members.

According to the NFA’s interpretive notice, virtual currencies … Read More »


OCIE Issues Risk Alert on Issues Related to Best Execution by Investment Advisers

Posted on July 23rd, by in Best Execution, Examinations, Investment Advisers, OCIE, Risk Alert, SEC, SEC Guidance. Comments Off on OCIE Issues Risk Alert on Issues Related to Best Execution by Investment Advisers

Pursuant to their fiduciary duties, investment advisers have certain obligations to seek out “best execution” for client transactions. The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently issued a Risk Alert identifying deficiencies found during examinations of investment advisers’ compliance with their best execution obligations.

In this alert, partner Jim Lundy and associate Kellilyn Greco outline OCIE’s findings, including background on best execution, notable deficiencies, and recommended best practices.

Read the full alert.


SEC says Bitcoin and Ether are not Securities

Posted on June 18th, by in Cryptocurrency, ICO. Comments Off on SEC says Bitcoin and Ether are not Securities

“I believe every ICO I’ve seen is a security and we have jurisdiction and our federal securities laws apply.” Clayton, J., Testimony, Sen. Banking, Housing and Urban Affairs Committee (Feb. 6, 2018). This was SEC Chairman Jay Clayton’s testimony on February 6, 2018 to the Senate Banking Committee in a hearing on the SEC oversight of virtual currencies. The Chair’s sentiments in February were in line with the SEC’s historic approach to asserting jurisdiction over the nascent cryptocurrency marketplace. Beginning as early as 2013, the SEC began issuing investor alerts asserting the Commission’s jurisdiction over cryptocurrencies that functioned as securities. SEC Investor Alert, Ponzi Schemes Using Virtual Currencies, July 1, 2013. This early assertion of jurisdiction has been confirmed through the SEC’s position in the DAO Report, and reinforced through multiple SEC enforcement actions.

Four months after the Chair’s comments before … Read More »






From the Blog:

U.S. Attorney’s Office for the Southern District of New York Announces First-Ever Criminal Bank Secrecy Act Charges Against a U.S.-Based Broker-Dealer

On December 19, 2018, the United States Attorney for the Southern District of New York announced criminal charges against Central States Capital Markets, LLC...

Department of Justice Announces Important Revisions to the Yates Memo

Deputy Attorney General Rod Rosenstein recently announced significant changes to the Department of Justice’s corporate enforcement policy regarding individual accountability, previously announced in the...

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...