Author Archives: Julie Copeland

Recent Disclosure Guidance Highlight Growing Concern Surrounding the Risks of User Assets Held by Various Crypto Custodians

by Sidney P. Levinson, Elie J. Worenklein, Alison Hashmall, Caroline Swett, Lily D. Vo, and Justice H. Walters

Recent turmoil in the cryptocurrency market has brought issues related to crypto-asset custody to the forefront of the crypto currency discourse;[1] in an enormous $1 trillion crypto-asset crash between approximately May 6, 2022 and May 16, 2022, some coins lost up to 99% of their original value.[2]  Many crypto-asset investors are now wondering how their assets may be treated if their crypto-asset exchange of choice were to file for bankruptcy.[3] While this question remains largely unanswered, new guidelines issued on April 11, 2022 by the U.S. Securities Exchange Commission (SEC) regarding platforms that safeguard or hold crypto-assets on behalf of users may require additional disclosures on this topic.

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Compliance Mandates in Civil Settlement Agreements—a New Trend?

by Jacob T. Elberg

Not So Stable: Stablecoin Volatility Causing Turmoil in Crypto Markets

by Andrew S. Boutros, Steven A. Engel, David N. Kelley, Timothy Spangler, Andrew J. Schaffer, and Peter J. McGinley

  • Volatility in the market for so-called stablecoins has led to recent litigation against a stablecoin issuer and Coinbase, the popular cryptocurrency trading platform. That case reflects a broader trend of private investors bringing crypto-based litigation in the United States.
  • The collapse of stablecoin TerraUSD sent ripple effects through cryptocurrency markets earlier this month and raises important questions about potential legal challenges and future regulation of stablecoins.

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Massachusetts Information Security and Privacy Act Sent to “Study”

by Cynthia J. Larose and Daniel J. Connelly

First Digital Asset Insider Trading Indictment

by Arlo Devlin Brown, Nihkil K. Gore, Gerald Hodgkins, Nancy Kestenbaum, Jeremy Newell, Michael Nonaka, Adrian J. Perry, D. Jean Veta, and Juliana Moraes Liu

A former non-fungible token (“NFT”) marketplace employee is facing prosecution by the U.S. Attorney’s Office for the Southern District of New York on one count of wire fraud and one count of money laundering, in an indictment unsealed on June 1, 2022. The Department of Justice (“DOJ”) alleges that the employee perpetrated a scheme to use confidential information from his employer about which NFTs would be featured on the marketplace’s front page to commit insider trading in the featured NFTs for his personal financial gain.

According to DOJ, this is the first insider trading case involving digital assets, and it notably relies on a theory that can be applied to a wide range of digital assets, whether or not the assets are regulated as securities.

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Coming Corporate Criminal Liability for ESG Initiatives

by J.S. Nelson

California Court Strikes Down Law on Board Diversity

by Tania Faransso, Andrew Stauber, and Courtney A. Murray

 

On Friday, May 13, a California Superior Court judge struck down Senate Bill (“SB”) 826—California’s landmark gender diversity law regarding the representation of women directors on the boards of publicly held corporations based in California.  In passing SB 826 in September 2018, California became the first state in the nation to pass such a bill, followed by several other states proposing and passing various bills to increase board diversity in the years since.  In its May 13th decision, the court found that the State failed to offer a compelling interest for the law, rendering the law unconstitutional under the Equal Protection Clause of the California Constitution.  Crest v. Padilla (Cal. Super. 2022), No. 19STCV27561, at 1.

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Fifth Circuit holds the SEC’s administrative adjudications to be unconstitutional

by Greg D. Andres, Uzo Asonye, Martine M. Beamon, Robert A. Cohen, Daniel S. Kahn, Tatiana R. Martins, Paul S. Mishkin, Fiona R. Moran, Paul J. Nathanson, and David B. Toscano

On May 18, the U.S. Court of Appeals for the Fifth Circuit ruled that the SEC’s administrative proceedings are unconstitutional on three independent grounds.  The decision could potentially have a significant impact on the constitutionality of administrative adjudications by other federal agencies as well.

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DOJ Criminal Division Head Kenneth Polite Proclaims that Chief Compliance Officers Have a “powerful role” to Play in Investigators’ Determination of Compliance Monitorships

by Brian R. Michael, Christine Y. Wong, Brian K. Kidd, and Nathaniel R. Mendell

Speaking at a Compliance Week event on May 17, 2022, Assistant Attorney General (“AAG”) Kenneth Polite reaffirmed that companies that “take compliance seriously” can expect a reduced likelihood that investigators will impose a compliance monitorship. Notably, Polite—himself a former Chief Compliance Officer (“CCO”)—told the audience that CCOs should have a “prominent role” in meetings with investigators, and that CCOs should have “true independence, authority, and stature,” with significant access and resources within the company. Polite cited several examples of actions companies can take to effectively demonstrate a commitment to compliance:

  • Develop and maintain a strong compliance program.
  • Compile a demonstrated track record of compliance program effectiveness.
  • Choose a knowledgeable and impressive CCO.
  • Give the CCO access and stature within the business.
  • Put compliance officers front and center in presentations to DOJ

Polite’s remarks were his latest in a series of public statements emphasizing that the Department of Justice (“DOJ” or “Department”) scrutinizes not just the structure of compliance programs, but also leadership, resources, and performance when deciding whether to impose a monitor.

Key Takeaways

  1. Experienced CCOs who demonstrate knowledge and ownership of a company’s compliance program will play a pivotal role in DOJ’s decision whether or not to impose a monitorship.
  2. Compliance programs should be structured, supported, and promoted in a way that meaningfully influences company culture.
  3. DOJ will give significant credit where a company has documented when and how its compliance program effectively detected and prevented violations.
  4. Outside counsel with relevant compliance and enforcement experience can provide valuable assistance to companies in crafting and enhancing successful compliance programs and preparing CCOs for a more prominent role in meetings with investigators.

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Justice Department Revises Cyber Crime Charging Policy to Shield Good-Faith Security Research

by Alex Iftimie, William Frentzen, Brian Kidd, and Reiley Porter

On May 19, 2022, the Department of Justice (DOJ) updated its policy guiding charges under the Computer Fraud and Abuse Act (CFAA), the main law used by prosecutors to charge cyber‑based crimes. The policy changes answer longstanding questions about the language of the CFAA and its potential for broad application. The new policy further refines DOJ’s goals for enforcing the CFAA and establishes as policy DOJ’s longstanding informal position that it will not charge “good-faith security research” as a violation of the CFAA. The new policy also directs that DOJ will not bring CFAA charges in a number of other situations that implicate the Supreme Court’s 2021 decision in Van Buren v. United States[1] and have long concerned courts and legal commentators, such as violations of access restrictions contained in a contractual agreement or terms of service or violations of an employer’s policy against checking sports scores or paying bills at work.

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