Category Archives: Securities and Exchange Commission (SEC)

Securities and Exchange Commission Releases Public Statement on Cybersecurity

By Nicolas H.R. Dumont, Hillary H. Holmes, Lori Zyskowski and Ron Mueller

On Wednesday, September 20, 2017, Chairman Jay Clayton of the U.S. Securities and Exchange Commission (the “Commission”) released a public statement addressing cybersecurity risks.

Chairman Clayton’s statement is part of an ongoing effort to communicate the Commission’s approach to cybersecurity in connection with the May 2017 assessments of the Commission’s internal cybersecurity and of its approach to cybersecurity as a regulatory agency. Continue reading

Trump v. Obama: U.S. SEC Anti-Corruption Enforcement Actions Scorecard

by Stephen Choi and Mitu Gulati

Sometimes, a graph says it better than words.

Below, is a graph by month of new Securities and Exchange Commission (SEC) enforcement actions under the Foreign Corrupt Practices Act (FCPA) against public companies and subsidiaries.  Using data from the Securities Enforcement Empirical Database (SEED), a collaboration between NYU and Cornerstone Research, we track SEC FCPA actions from January 2016 through the end of the SEC fiscal year on September 30, 2017.  SEED defines a public company as a company with stock that trades on the NYSE, NYSE MKT LLC, NASDAQ, or NYSE Arca stock exchanges at the start date of the SEC enforcement action.  We divide our months based on whether the action was initiated under the Obama Administration (blue) or the Trump Administration (red). Continue reading

Do Compliance Officers Have A Growing Target On Their Backs?

by Patty P. Tehrani, Esq.

Have you noticed the number of articles and blogs covering the troubling trend of personal liability for compliance officers and Chief Compliance Officers (CCOs) in the financial services sector?  While anyone entering this industry knows it is highly regulated and replete with regulatory requirements, the growing liability of its compliance professionals is worrisome. Those responsible for overseeing their firm’s compliance program have many duties, and now more than ever find themselves on the receiving end of enforcement actions. This is evident in expanded corporate probes of compliance professionals or increasing regulatory expectations cited in speeches and proposed regulations.

Compliance professionals are concerned about facing personal liability especially when it is for non-rogue behavior.[1] As a result, I thought this trend warranted a closer review. Continue reading

Other People’s Money: SEC Disgorgement After Kokesh

by Daniel R. Walfish

Should individuals sued by the Securities and Exchange Commission (SEC) have to give up, or “disgorge,” corporate gains resulting from a fraud, or just their own direct gains? In an August 29 summary order, SEC v. Metter,[1] the Second Circuit avoided wrestling with this question, but it may be one of the next major battles in the wake of the Supreme Court’s June 5, 2017 decision in Kokesh v. SEC, 137 S. Ct. 1635. Kokesh held that the disgorgement remedy in SEC enforcement actions is a “penalty” for purposes of the five-year limitations period for the “enforcement of any civil fine, penalty, or forfeiture.” 28 U.S.C. § 2462. Many have assumed, on the basis of a footnote in Kokesh, that courts will soon be considering whether they have authority to order disgorgement at all in SEC enforcement actions. That issue certainly lurks, but I suspect that courts first will revisit the proper scope of the remedy, including whether a court may force a defendant to “disgorge” ill-gotten gains that the defendant did not personally receive but that went to third parties, such as individuals and entities associated with the defendant. Continue reading

SEC Leadership Discusses Continuing Priorities

by Mary Jo White, Andrew J. Ceresney, Kara Novaco Brockmeyer, Robert B. Kaplan, Julie M. Riewe, Jonathan R. Tuttle and Arian M. June

SEC Chairman Jay Clayton, Co-Directors of Enforcement Stephanie Avakian and Steven Peikin, and Acting Director of the Office of Compliance, Inspections and Examinations (“OCIE”) Peter Driscoll participated in a panel discussion on Tuesday, September 5, at NYU Law School. The moderated discussion, followed by questions from the audience, was titled “The Securities and Exchange Commission: Priorities Going Forward.”

In sum, the SEC officials emphasized that investors should expect no major shift from the SEC in terms of enforcement or examinations. While there has been some discussion in recent months of frauds victimizing retail investors, there will not be a major paradigm shift in the kinds of cases the Commission will focus on. The panelists also spent a significant amount of time discussing cybersecurity and cyber-related enforcement actions, as well as the SEC’s increased use of big data in investigations and examinations. Continue reading

Insights for All Companies from the SEC’s Cybersecurity Examination of Regulated Financial Entities

By Sabastian V. Niles and Marshall L. Miller

In August 2017, the Office of Compliance Inspections and Examinations (“OCIE”) of the Securities and Exchange Commission released the results of its second Cybersecurity Initiative, which examined cybersecurity-related preparedness and implementation efforts by 75 regulated financial entities.  The resulting OCIE Risk Alert depicts an industry demonstrating heightened sensitivity to cyber risks, but also experiencing gaps between policy ambition and day-to-day execution, and confronting growing pains associated with accelerated change, including the introduction of significant new policies and procedures that may lack focus or consistent implementation.  While the Risk Alert directly addresses the cybersecurity procedures of broker-dealers, investment advisers, and other SEC-regulated entities, companies in all industries should consider assessing their practices with respect to the issues highlighted by the SEC. Continue reading

SEC Administrative Law Judges: The Sequel

by Gregory Morvillo

This is the time of year for sequels.  June rolls around and the summer movie slate starts to hit local theatres.  Guardians of the Galaxy, Vol 2.  This year, sequels are the big thing:  everything from the second Guardians of the Galaxy, to the fourth Pirates of the Caribbean film, to the umpteenth Alien movie and more.  Tis the season … for sequels.

With that in mind, I thought I’d do my own sequel.  Back in February, I wrote a blog piece on the state of the law as it relates to the litigation over SEC Administrative Law Judges.  As, I’m sure you know, all good sequels recap the previous incarnation without belaboring the point so here goes:  a circuit split is brewing.  In Lucia v SEC, the D.C. Circuit held that SEC ALJs are not inferior officers and do need not be constitutionally appointed. Thereafter, the Tenth Circuit, took the exact opposite position in Bandimere v. SEC.  ALJ’s are inferior officers under Article III and if not appointed by the head of a department, are unconstitutionally presiding over cases before them.  While it is not as exciting as seeing an old Luke Skywalker at the end of Star Wars: The Force Awakens, it is, in fact, where we left off in February.

Another rule about sequels is that to be any good something new has to happen.  Staying true to my theme here, that means something must be new in the fight over the constitutionality of the administrative law process?  The new here are dueling petitions for re hearing en banc in both the D.C. and Tenth Circuits.  In the most basic terms, it means that the loser in both appeals wanted a sequel of their own on the appellate level; before proceeding to the Supremes. Continue reading

The SEC’s Enforcement Record against Auditors

by Simi KediaUrooj Khan, and Shivaram Rajgopal

Given the high incidence of financial misrepresentation over the past two decades, there is continued interest in understanding the contribution of different gatekeepers in deterring and detecting financial misrepresentation. There is little agreement, however, on the role and responsibility of these gatekeepers, especially that of the auditor.  On the one hand, the audit industry asserts that it is not possible for the auditor to detect intentional fraud by company executives.  On the other hand, is the view exemplified by Steven M. Cutler, former Director of the SEC’s Division of Enforcement, following the collapse of Enron: “While I believe the causes of this phenomenon [seemingly unprecedented corporate fraud] are multiple, a significant contributing factor was the laxity of the so-called gatekeepers — the accountants, lawyers, research analysts, board members and others controlling access to our capital markets. Perhaps foremost among these is the auditor.Continue reading

Denials and Admissions in Civil Enforcement – Looking Beyond the SEC

by Verity Winship and Jennifer K. Robbennolt

Should agencies require admissions of guilt from the targets of civil enforcement?  The SEC’s policy of letting enforcement targets settle while neither admitting nor denying allegations provoked judicial rebukes and a public debate. But the SEC is only the tip of the iceberg. Administrative agencies rely heavily on settlement as a key enforcement tool.  Admissions of guilt—or, more commonly, declarations that nothing is admitted—form part of these settlement agreements and the underlying negotiations.

Our recent article, Admissions of Guilt in Civil Enforcement, uses the explicit debate over the SEC’s practices to draw attention to the high (and mostly unexamined) stakes of admissions for civil enforcement throughout the administrative system. Continue reading

SEC Private Equity Enforcement:  A More Aggressive Approach

by Andrew J. Lichtman and Howard S. Suskin

Over the last several years, the Securities and Exchange Commission (“SEC”) has targeted private equity funds for various fee allocation arrangements and conflicts of interest.  Rather than describing the fee practices as fraudulent, which would require a showing of scienter, the SEC has concluded that the private equity advisers committed disclosure violations.  However, a recent proceeding in which the SEC secured a settlement based on both breach of fiduciary duty and fraud may foreshadow a more aggressive approach.  Some context first. Continue reading