Category Archives: Securities Fraud

$10 Million Penalty Against D.E. Shaw a Major Step in SEC’s Enforcement of Rule 21F-17(a)

Benjamin Calitri (Photo courtesy of Kohn, Kohn & Colapinto LLP

The SEC recently charged an investment advisor, D. E. Shaw, with Rule 21F-17(a) violations for including clauses in their employment and severance agreements that prohibited whistleblowing. For these violations, D.E. Shaw was fined $10 million. This is a significant development for enforcement of Rule 21F-17(a) as it is over twenty times larger than the previous highest penalty for a Rule 21F-17(a) violation.

It remains to be seen whether sanctions of this size are the new normal for Rule 21F-17(a) actions, but the D.E. Shaw case is undoubtedly a major development. The action dramatically changes the cost-benefit analysis for companies seeking to use contracts to silence whistleblowers and sends a clear message that the SEC is taking violations of Rule 21F-17(a) seriously.

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SEC Charges SolarWinds and Its CISO with Fraud and Internal Controls Failures

by Nicole Friedlander, Anthony J. Lewis, Robert W. Reeder, John B. Sarlitto, Michael S. Drell, and Paulena B. Prager

Left to right: Nicole Friedlander, Anthony J. Lewis, Robert W. Reeder, John B. Sarlitto, Michael S. Drell, and Paulena B. Prager (Photos courtesy of Sullivan & Cromwell LLP)

Complaint Alleges Knowledge and Concealment of Poor Cybersecurity Practices and Heightened Cyber Risks

SUMMARY

On October 30, 2023, the Securities and Exchange Commission (“SEC”) filed a complaint against SolarWinds Corporation (“SolarWinds”) and its Chief Information Security Officer (“CISO”), alleging securities fraud and failures of reporting, internal control over financial reporting, and disclosure controls and procedures, in connection with a compromise of the company’s software product that was publicly revealed in December 2020.[1] The complaint (“Complaint”), filed in the Southern District of New York, alleges that SolarWinds and its CISO misled investors and customers about known, material cybersecurity weaknesses and risks, including several that allegedly enabled the compromise, through which U.S. government networks and corporations were infiltrated in a cyber espionage campaign by the Russian government. The SEC alleges that the defendants made materially false and misleading statements and omitted material facts on SolarWinds’ website and in its blog posts, press releases, initial registration statement (“Form S-1”), quarterly and annual SEC reports, and the current report on Form 8-K in which SolarWinds first disclosed the compromise. The SEC seeks declaratory and injunctive relief, disgorgement, a civil monetary penalty in an unspecified amount, and an order permanently prohibiting the CISO from acting as an officer or director of a public company.

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SEED Findings on the SEC Enforcement Actions Against Public Companies and Their Subsidiaries in Fiscal Year 2023

by Anat Carmy-Wiechman and Giovanni Patti

From left to right: Anat Carmy-Wiechman and Giovanni Patti (Photos courtesy of authors)

In a new report, the NYU Pollack Center for Law & Business, in collaboration with Cornerstone Research, investigated recent trends in enforcement via the Securities Enforcement Empirical Database (SEED). Below, we highlight some of the key findings.

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The Conviction of Sam Bankman-Fried – Yes, Fraud, but also Regulatory Arbitrage

by Maria T. Vullo

Maria T. Vullo (Photo courtesy of the author)

The much-anticipated jury verdict,[1] convicting former FTX CEO Sam Bankman-Fried (SBF) of seven felonies, after less than five hours of deliberations, demonstrates the strength of the prosecution’s case and that juries have no patience for financial fraud. While many reports correctly note that fraud is at the core of the FTX/SBF case, the verdict also sends a clear message that regulatory arbitrage should not be tolerated.

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Former Prosecutors and Industry Experts React to Sam Bankman-Fried Trial Verdict

The NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is following the collapse of FTX and the civil and criminal enforcement actions arising from FTX’s and its founder’s alleged misconduct. In this post, several white collar defense, former federal prosecutors, and cryptocurrency experts, offer their reactions to the verdict in the Sam Bankman-Fried (SBF) trial on November 2, 2023.

Top left to right: William Komaroff, Seetha Ramachandran, David I. Miller, and Ijeoma Okoli
Bottom left to right: Jessica Lonergan, Tarek Helou, Elizabeth Roper, and Chehak Gogia
(Photos courtesy of authors)

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Managing U.S. Enforcement and Civil Risks Relating to ESG Issues: Greenwashing

by Victor L. Hou, Abena Mainoo, Caroline Soussloff, Clara Cibrario Assereto, and Robert Garden

Left to right: Victor L. Hou, Abena Mainoo, Caroline Soussloff, Clara Cibrario Assereto and Robert Garden
(Photos courtesy of Cleary Gottlieb Steen & Hamilton LLP)

Companies face new pressures relating to the potential environmental impact of their products and services. In recent years, ESG has become a focal point about how companies conduct their business and there has been an increase in pledges to reduce greenhouse gas emissions, marketing of environmentally friendly products and reporting on environmental, social and corporate governance/ESG metrics. As with any other statements that companies make, it is important that such statements are substantiated and accurate.

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Crypto Experts React to SEC Coinbase, Binance Enforcement Actions

Editor’s Note: The NYU Law Program on Corporate Compliance and Enforcement (PCCE) is following the SEC’s recent enforcement actions against major digital asset exchanges Coinbase and Binance and Binance’s founder, Chanpeng Zhao. In this post, cryptocurrency experts provide their insights to the SEC’s enforcement actions.

From left to right: Marc Fagel, Ijeoma Okoli, Daniel Payne, and Charles Senatore (photos courtesy of the authors)

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Former Prosecutors React to Superseding Indictment in Sam Bankman-Fried Case

The NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is following the collapse of FTX and the civil and criminal enforcement actions arising from FTX’s and its founder’s alleged misconduct. In this post, several white collar defense attorneys and former prosecutors offer their reactions to the superseding indictment of Sam Bankman-Fried (SBF) obtained on March 27, 2023 by the U.S. Attorney’s Office for the Southern District of New York (SDNY).

Top row from left to right: Rebecca Mermelstein, Mark Racanelli, and Elizabeth Roper
Bottom row from left to right: William Komaroff, Seetha Ramachandran, and Joseph Facciponti (photos courtesy of authors)

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Securities Class Actions: Data, Trends, and Insights

by James Goldfarb, Brendan T. Mangan, Ted Snyder, and Cameron Matheson

From left to right: James Goldfarb, Brendan T. Mangan, Ted Snyder, and Cameron Matheson (photos courtesy of Davis Wright Tremaine LLP)

The number of securities class actions filed last year fell for the fourth year in a row. But these time-consuming, costly litigations still target 5 percent of all S&P 500 companies in an average year, and settlement costs rose in 2022. Those and other insights emerge from annual surveys published by NERA Economic Consulting and Cornerstone Research, two economic-consulting firms.[1] In this post, we summarize the data and trends revealed in those reports. The information highlighted here provides some perspective and benchmarks in terms of industries targeted, litigation length, potential offramps (mainly moving to dismiss or settling), and settlement costs. We conclude with some key takeaways.

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White Collar Defense Attorneys React to DOJ and SEC Enforcement Actions for Misuse of 10b5-1 Plans

Editor’s Note: Recently, both the DOJ and the SEC brought, for the first time ever, criminal and civil insider trading charges against a corporate executive for his alleged fraudulent misuse of a 10b5-1 trading plan, which typically allows corporate insiders to pre-schedule sales of company shares to avoid accusations of insider trading. In this post, several former federal prosecutors and white collar defense attorneys provide their reactions to this case and its implications for future insider trading cases.

Top row from left to right: Brian Jacobs, Gina Parlovecchio, Rachel Maimin, and Kathleen McGee.
Bottom row from left to right: Robert Johnston, Marc Rein, and Katherine Goldstein. (photos courtesy of authors’ respective firms)

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