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Department of Justice Announces New Policy on Coordination of Enforcement Actions and Corporate Penalties

Posted on May 15th, by in DOJ. Comments Off on Department of Justice Announces New Policy on Coordination of Enforcement Actions and Corporate Penalties

The Department of Justice has established a new policy that requires its attorneys to coordinate with one another and with other enforcement authorities when imposing multiple penalties for the same conduct. This policy is likely to protect companies from unfair outcomes resulting from a lack of coordination among the DOJ and other authorities.

I authored an alert that provides an overview of the new policy and discusses the potential impact on companies affected.

Click here to read the alert.


SEC Chief Accountant Shines Spotlight on Audit Committees

Posted on May 10th, by in Accountants, Audit Committees, Board of Directors. Comments Off on SEC Chief Accountant Shines Spotlight on Audit Committees

SEC Chief Accountant Wesley Bricker spoke before the Baruch College Financial Reporting Conference on May 3, 2018. As in recent presentations, Mr. Bricker commenced these remarks by addressing briefly several hot button corporate accounting and disclosure obligations. This discussion included specific mention of the proper application of recently operative revenue recognition rules and the pending adoption of lease and credit loss standards, which will take effect in 2019 and 2020, respectively. Mr. Bricker then reserved a significant portion of his remaining commentary to emphasize the importance and responsibility of one particular group of professionals in advancing the quality of financial reporting: audit committee members.

Mr. Bricker’s initial reference to audit committees arose in the context of non-GAAP financial measures which, as he has stated previously, should be used as a supplement but not a substitute for financial reporting in conformity with … 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 »


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 Freezes $27 Million Related to a Blockchain/Cryptocurrency Acquisition

Posted on April 10th, by in Blockchain, Cryptocurrency, Enforcement, Manipulation, Registration, SEC. Comments Off on SEC Freezes $27 Million Related to a Blockchain/Cryptocurrency Acquisition

On April 6, 2018, the Securities and Exchange Commission (SEC) obtained a court order freezing more than $27 million in proceeds from alleged illegal distributions and sales of restricted shares of a public company, and charged the company, its CEO, and three other affiliated individuals. That same day, the Nasdaq Stock Market said it halted trading in the company’s stock. The SEC’s complaint alleges that shortly after the company began trading on the Nasdaq Stock Market and announced the acquisition of a purported blockchain-empowered cryptocurrency business that its stock price rose dramatically until its market capitalization exceeded $3 billion. The SEC further alleges that the CEO and the three other individual defendants then illegally sold large blocks of their restricted shares to the public while the stock price was excessively elevated and that they collectively reaped more than $27 million … 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 »


The CFTC and DOJ Crack Down Harder on Spoofing & Supervision

Posted on February 6th, by and in CFTC, Civil Penalties, Criminal Liability, DOJ, Spoofing. Comments Off on The CFTC and DOJ Crack Down Harder on Spoofing & Supervision

Last week, the Commodity Futures Trading Commission (CFTC) and Department of Justice (DOJ) filed their most significant and aggressive actions against spoofers and the firms employing them for failing to supervise. The CFTC filed settled actions against each of the global firms for supervisory violations, amongst other charges, and the CFTC charged six individuals with alleged commodities fraud and spoofing schemes. In the parallel criminal actions, the DOJ announced criminal charges against eight individuals (the six charged by the CFTC plus two others). The CFTC’s and DOJ’s coordinated and complex investigative efforts and filings indicate increased aggressiveness by both in this area. Further, these efforts represent the greatest amount of cooperation ever between the CFTC and DOJ. As reported previously in this blog post, with the affirmation of the conviction of high-frequency trader Michael Coscia, we are likely witnessing a … 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 »


SEC Awards More Than $4.1 Million to Whistleblower Despite a Finding that Whistleblower Unreasonably Delayed Reporting Misconduct

Posted on December 5th, by in Whistleblower. Comments Off on SEC Awards More Than $4.1 Million to Whistleblower Despite a Finding that Whistleblower Unreasonably Delayed Reporting Misconduct

The SEC announced earlier today that it has awarded more than $4.1 million to a former company employee who “alerted the agency to a widespread, multi-year securities law violation and continued to provide important information and assistance throughout the SEC’s investigation.” Press Rel. No. 2017-222. To determine an appropriate award amount, the SEC considers a number of criteria that are outlined in the Rule 21F-6 of the Exchange Act, including (1) the significance of the information provided to the Commission, (2) the assistance provided in the Commission action, (3) law enforcement interest in deterring violations by granting awards, (4) participation in internal compliance systems, (5) culpability, (6) unreasonable reporting delay, and (7) interference with internal compliance and reporting systems. 17 C.F.R. § 240.21F-6.

In its Order, the Commission found that the whistleblower’s positive contributions were “somewhat offset” by the whistleblower’s “unreasonable … Read More »






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