Last week, the Securities and Exchange Commission (SEC) announced that Acting Enforcement Director Stephanie Avakian and former federal prosecutor Steven Peikin had been named Co-Directors of the Division of Enforcement. In making the announcement, SEC Chairman Jay Clayton advised:
There is no place for bad actors in our capital markets, particularly those that prey on investors and undermine confidence in our economy. Stephanie and Steve will aggressively police our capital markets and enforce our nation’s securities laws as Co-Directors of the Division of Enforcement. They have each demonstrated market knowledge, impeccable character, and commitment to public service, and I am confident their combined talents and experience will enable them to effectively lead the Division going forward.
Prior to being named Acting Director in December 2016, Ms. Avakian served as Enforcement’s Deputy Director since June 2014. Mr. Peikin joins the SEC … Read More »
Acting SEC Chairman Michael Piwowar has apparently revised the staff’s ability to subpoena records and investigative testimony (“formal order authority”) by returning the authority to grant formal order authority to the agency’s Director of Enforcement. While the SEC has not formally recognized this policy shift, multiple sources, including Law360 and the Wall Street Journal, have reported that Acting Chair Piwowar has recently implemented this change, which revokes the delegated authority to regional directors and enforcement associate directors to approve the staff’s requests for formal order authority.
In 2009, under Chair Mary Schapiro and as part of certain initiatives to enhance enforcement’s capabilities in the aftermath of the financial crisis, the SEC delegated its authority to authorize formal order authority to the Director of Enforcement. The Director of Enforcement, in turn, delegated this authority to regional directors and enforcement associate directors. As … Read More »
On February 3, 2017, the United States Court of Appeals for the Eleventh Circuit rejected an accountant’s argument that the imposition of both criminal charges and SEC sanctions on the basis of the same alleged conduct violated the Fifth Amendment’s Double Jeopardy Clause. This appellate court ruling illustrates that defendants in SEC investigations and enforcement proceedings must be mindful that the imposition of civil penalties, disgorgement, and permanent bars do not preclude the prospect of criminal prosecution.
Thomas D. Melvin (“Melvin”), a certified public accountant, agreed in April 2013 to pay the SEC a civil penalty of $108,930 and disgorgement of $68,826 to settle alleged violations of Sections 10(b) and 14(e) of the Securities and Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. According to the SEC, Melvin purportedly had disclosed confidential insider information that he received from a … Read More »
Philadelphia partner Mary Hansen and counsel Stephen Stroup authored an article for Law360 titled “When SEC Knocks: 8 Immediate Actions for Every Company.” The article details the essential steps that an investment company or public company should undertake to best position itself from the outset during an SEC formal or informal investigation. These steps include:
Retaining experienced SEC counsel;
Promptly contacting the SEC staff;
Preserving potentially relevant documents;
Examining pertinent insurance policies;
Assessing external disclosure obligations;
Conducting internal inquiries;
Identifying probable conflicts of interest; and
Weighing the benefits of cooperation.
On January 4, 2017, President-Elect Donald Trump announced that he intends to nominate Walter “Jay” Clayton for Chairman of the Securities and Exchange Commission (SEC). In response, Mr. Clayton stated that, “If confirmed, we are going to work together with key stakeholders in the financial system to make sure we provide investors and our companies with the confidence to invest together in America. We will carefully monitor our financial sector, as we set policy that encourages American companies to do what they do best: create jobs.”
Of the three pillars of the SEC’s mission statement – 1) protect investors; 2) maintain fair, orderly, and efficient markets; and 3) facilitate capital formation – Mr. Clayton’s deep experience as a “dealmaker” most closely aligns with the facilitation of capital formation pillar. Chair Mary Jo White’s primary prior experience as a federal prosecutor, in contrast, … Read More »
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On October 11, 2016, the SEC announced its enforcement results for fiscal year 2016, which ended on September 30th. Press Release No. 2016-212. In total, the SEC continued its trend of increased enforcement activity by filing 868 enforcement actions, a new single-year high, which included “a record 548 standalone or independent enforcement actions” and “judgments and orders totaling more than $4 billion in disgorgement and penalties.” In comparison, the SEC filed 807 enforcement actions (507 standalone or independent actions) in fiscal year 2015, and 755 enforcement actions (413 standalone or independent actions) in fiscal year 2014. Touting its recent successes, SEC Chair Mary Jo White announced in the press release that “[o]ver the last 3 years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to … Read More »
We previously wrote about decisions in SEC v. Graham from the Eleventh Circuit, __ F.3d __, No. 14-13562, 2016 WL 3033605 (11th Cir. May 26, 2016), and the U.S. District Court for the Southern District of Florida, 21 F. Supp. 3d 1300 (S.D. Fla. 2014), considering whether disgorgement claims and other remedies were subject to five-year statute of limitations on actions “for the enforcement of any civil fine, penalty, or forfeiture” codified in 28 U.S.C. § 2462. The Eleventh Circuit affirmed the decision of the lower court that the SEC’s disgorgement claims were time-barred, holding that “disgorgement” is synonymous with the plain meaning of “forfeiture” as it is used in the statute.
On May 6, 2016—shortly before the Eleventh Circuit issued its ruling in Graham—the IRS published non-precedential Chief Counsel Advice (“CCA”) on whether Internal Revenue Code Section 162(f) bars business expense … Read More »
On Monday, September 21, 2015, the Securities and Exchange Commission (SEC) charged a New York-based investment adviser and its affiliated distributor with misusing mutual funds’ assets to pay distribution and marketing expenses outside of an approved Rule 12b-1 plan. These are the first charges brought under the SEC’s recent “distribution-in-guise” initiative that seeks to identify improper use of mutual fund assets to pay distribution-related fees. The adviser and distributor have agreed to settle the charges for approximately $40 million and institute remedial action, without admitting or denying the SEC’s findings.
Under Rule 12b-1 of the Investment Company Act of 1940 (the 1940 Act), any payment for marketing and distribution made out of a fund’s assets must be in accordance with a written Rule 12b-1 plan previously approved by the fund’s board of directors and, where applicable, a majority of its shareholders. … Read More »
On Tuesday, March 24, 2015, the U.S. Supreme Court issued a landmark securities decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, finding that incorrect statements of opinion provided in a registration statement give rise to liability under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k (“Section 11”), if the stated opinion is materially untrue and subjectively disbelieved by the speaker, and, in instances where omission liability is alleged, if the issuer did not have a reasonable basis for the opinion. The decision provides a welcome clarification of the standard of liability for statements of opinion under Section 11 in light of a previous circuit split and ensures that securities plaintiffs will be limited in their ability to, as the Supreme Court put it, “Monday morning quarterback an issuer’s opinions” if … Read More »