SEC and PCAOB Leadership Announce Potential Relief to Companies Affected by the Coronavirus

by Betty Moy Huber and Paula H. Simpkins

Last week, senior leaders of the Securities and Exchange Commission (SEC) and the Chairman of the Public Company Accounting Oversight Board (PCAOB) issued a joint statement (Statement) noting the potential effect that the coronavirus may have on reporting companies, reminding companies of their disclosure obligations and notifying companies affected by the virus that they may contact the SEC for guidance or a determination of their eligibility for relief from filing deadlines. The Statement comes in the wake of numerous articles contemplating the virus’ effect on businesses that rely on global supply chains. On Tuesday, one Wall Street Journal commentator posited that “the coronavirus could cause supply-chain disruptions that are unlike anything we have seen in the past 70 years.” Continue reading

Fifteen Ways to Reduce Regulatory and Reputational Risks for Your AI-Powered Applications – Lessons from Recent Court Decisions and Regulatory Activity

by Avi Gesser, Henry Lebowitz, Jeffrey P. Cunard, Jim Pastore, Lisa Zornberg, Luke Dembosky, Anna R. Gressel, and Steve Tegrar

It is only February, but, so far, 2020 looks like it is going to be the year that courts and regulators look seriously at artificial intelligence (“AI”).

Recent developments in both Europe and the United States provide some insight into where AI is likely to face tough scrutiny and ways to mitigate risks of using AI. Continue reading

The Supreme Court Takes on SEC Disgorgement

by Daniel Walfish

One of the Securities and Exchange Commission’s core enforcement powers may soon be overhauled or even scrapped entirely. For fifty years the SEC has sought “disgorgement” of the proceeds of unlawful activity as one of its main remedies in federal court, even though there is no explicit statutory authority for doing so. On March 3, 2020, the Supreme Court will hear oral argument in Charles C. Liu and Xin Wang v. SEC, No. 18-1501, in which the Justices have agreed to consider whether courts can order disgorgement as an “equitable remedy” for a violation of the securities laws. This post discusses the case’s legal backdrop, some of the ways the Court could decide it, and some of its potential consequences. Continue reading

Blaszczak and the Contract-Based Misappropriation Theory of Insider Trading

by Jakob Sebrow

The Second Circuit’s recent decision in United States v. Blaszczak [1] has been read as heralding an expansion of insider trading liability by rejecting the “personal benefit” requirement for insider trading prosecutions under the wire fraud and securities fraud statutes in Title 18 of the U.S. Code (“Title 18”).  While this holding may encourage more insider trading prosecutions under Title 18, Blaszczak also contains dicta that provides support for questioning, and perhaps eliminating, one of the more controversial theories of insider trading—the contract-based misappropriation theory. Continue reading

Proposed Modifications to CCPA Regulations—Top Takeaways

by Jeffrey P. Cunard, Luke Dembosky, Jeremy Feigelson, Avi Gesser, Jim Pastore, Javier Alvarez-Oviedo, Jeremy C. Beutler, H Jacqueline Brehmer, Christopher S. Ford, and Kate Saba

On Friday evening, February 7, the California Attorney General released a new round of proposed changes to the draft regulations implementing the California Consumer Privacy Act. Some thoughts to help guide interested parties through the AG’s dense 32-page release (PDF: 1.25 MB), which redlines the proposed modifications against the prior draft regulations:

Guidance on “Personal Information”

The draft proposes to clarify the definition of “personal information,” which turns on whether the information can be associated or linked with a particular consumer or household. It then provides an example: “[I]f a business collects the IP addresses of visitors to its website but does not link the IP address to any particular consumer or household, and could not reasonably link the IP address with a particular consumer or household, then the IP address would not be ‘personal information.’” Continue reading

Speaker Programs and the Pharmaceutical Industry

by Stephen A. Jonas, Ericka Aiken, and Athena Katsampes

In December 2019, Teva settled with DOJ for $54 million to resolve False Claims Act (FCA) allegations that, among other things, Teva induced physicians to write prescriptions for drugs that treat multiple sclerosis and Parkinson’s disease by paying them as “speakers” or “consultants” in connection with sham speaker programs and events.  The Teva settlement was one of a wave of settlements in 2019 that involved allegations of pharmaceutical companies improperly compensating physicians through sham speaker programs. 

Speaker and educational programs are common tools by which pharmaceutical companies pay healthcare providers, including doctors and nurse practitioners, to speak about the benefits, risks, and best practices of prescribing companies’ drugs.  While most frequently intended to educate the medical community, these programs could give rise to liability under the federal Anti-Kickback Statute (AKS) and FCA if used by companies to induce providers to write prescriptions for companies’ drugs. Continue reading

SEC Office of Compliance Inspections and Examinations (OCIE) Issues Observations on Cybersecurity and Resiliency Practices

by Greg D. Andres, Robert A. Cohen, Neil H. MacBride, Annette L. Nazareth, Margaret E. Tahyar, Leor Landa, Michael S. Hong, Matthew J. Bacal, Daniel F. Forester, and Matthew A. Kelly

The SEC Office of Compliance Inspections and Examinations (OCIE) recently published observations (PDF: 854 KB) related to cybersecurity and operational resiliency practices observed in its examinations. OCIE reiterated its continued focus on cybersecurity issues, citing eight risk alerts related to cybersecurity it has published over the last few years.[1] OCIE conducts examinations for compliance with Regulation S-P and S-ID, which apply to broker-dealers and investment advisers, and Regulation SCI, which applies to exchanges and other SCI entities. The publication provides important guidance to regulated entities about the likely subjects of SEC exams, the expectations of its examiners, and the subjects of potential enforcement referrals. Continue reading

UK Serious Fraud Office Issues Guidance for Evaluating Compliance Programmes, Echoes DOJ Guidance

By Saqib Alam, Shawna Pasquale and Amanda Aikman

On 17 January 2020, the UK’s Serious Fraud Office (the “SFO”) released guidance (PDF: 2.29MB)  on evaluating compliance programmes (the “SFO Guidance”). This is the first time the SFO has issued guidance on how it will assess the effectiveness of an organisation’s compliance  programme. Forming part of the SFO’s internal Operational Handbook, the SFO said it published the guidance in the interests of transparency and with the disclaimer that it should not be relied on as the basis for any legal advice or decision. The SFO Guidance nonetheless serves to assist organisations not only in evaluating the strength of their compliance programmes but also sets out what organisations can expect from the SFO and what remediation measures they should take in relation to their compliance programmes, if they are being investigated by the SFO. Continue reading

Will Banks Continue to Have Privileged Access to the Financial Safety Net?

by Dr. Sebastian Schich

A change in banks’ status may be right around the corner. Traditionally, banks have been considered “special” among financial intermediaries. This status in turn has been seen as justifying the backing of bank activities by a publicly-supported financial safety net. The recent wave of innovations in financial services, however, raises the question of whether that assessment is still valid. Many financial services traditionally offered only by banks are now increasingly being offered by other providers, often in more convenient forms for customers and sometimes also more cheaply. The economic functions performed by banks are being unbundled and offered separately or in rebundled form. To paraphrase a widely-used statement attributed to Bill Gates, while banking is needed, banks might not be. Continue reading

Prioritizing Corporate Culture: Lessons for Companies from the Major League Baseball Sign-Stealing Investigation

By Nathan H. Seltzer, David Berman, Christopher D’Agostino and Nell Perks

On January 13, 2020, Major League Baseball (MLB) Commissioner, Robert D. Manfred, Jr., handed down significant punishment to the Houston Astros organization (the “Ballclub” or “team”), its General Manager Jeff Luhnow and Field Manager A.J. Hinch for sign-stealing by the Ballclub during the 2017 season and playoffs. In addition to a fine and forfeiting draft picks, the General Manager and Field Manager were suspended without pay, meaning they would miss a full season of baseball. Shortly after, the team’s owner, Jim Crane, fired them both, stating that “I have higher standards [ ], and I am going above and beyond MLB’s penalty,” and that while “[n]either one of them started this, [ ] neither one of them did anything about it. … We will not have this happen again on my watch.” Continue reading