Tag Archives: Sullivan & Cromwell LLP

Lorenzo v. SEC — Supreme Court Issues Decision on “Scheme Liability” Under Rule 10b-5

by Sullivan & Cromwell LLP

U.S. Supreme Court Rules That Defendants Can Be Held Primarily Liable for Securities Scheme Fraud for Knowingly Disseminating the Misstatements of Others

Summary

Yesterday, in a widely watched securities case, the U.S. Supreme Court held in Lorenzo v. SEC[1] that a defendant who disseminates the material misstatement of another—and thus cannot be liable under SEC Rule 10b-5(b) for “making” the statement—can nevertheless be liable under other provisions of the securities laws that proscribe “any device, scheme, or artifice to defraud” or “any act, practice or course of business which operates or would operate as a fraud or deceit.”  The Court’s decision may affect long-standing case law in various federal circuits—including those covering New York and California—which had held that alleged frauds solely involving material misstatements or omissions could not be pursued under provisions other than Rule 10b-5(b).  Although Lorenzo potentially broadens the scope of conduct subject to securities fraud liability based on dissemination of material misstatements, the opinion emphasizes certain factual circumstances present in this case that may limit its future application in other circumstances. Continue reading →

National Bank Supervision Manual

by Sullivan & Cromwell LLP

OCC’s New and Revised Sections of Policies and Procedures Manual Relating to Enforcement Actions Suggest Continued Heightened Interest in Actions Against Individuals

Summary

Historically, the Office of the Comptroller of the Currency (the “OCC”) has applied a single set of internal policies and procedures to enforcement actions brought against individuals (institution-affiliated parties (“IAPs”)) and institutions (national banks, federal savings associations, and federal branches and agencies of foreign banks (collectively, “banks”)).  On November 13, the OCC issued a new section to its Policies and Procedures Manual (“PPM”) specific to enforcement actions against IAPs (the “IAP PPM”)[1] and simultaneously updated the existing sections for Bank Enforcement Actions and Related Matters (the “Bank PPM”)[2] and for Civil Money Penalties (“CMPs”) (the “CMP PPM”).[3]  The new IAP PPM generally breaks no new ground, and most changes to the Bank PPM and CMP PPM align those two sections with, and reflect the issuance of, the IAP PPM.  There are, however, several notable additions and modifications to the new and revised sections that serve to improve the clarity and transparency of the OCC’s enforcement action process. 

Beyond those distinctions, the issuance of a standalone IAP PPM suggests a continued, if not increased, focus by the OCC on actions against IAPs going forward, and is consistent with the broader theme, evidenced over the last several years, of regulatory and law enforcement focus on holding individuals accountable in cases of financial institution wrongdoing.[4]  The new OCC IAP PPM suggests a continual focus on holding individuals accountable for corporate misconduct in the financial industry. Continue reading →

New Supervisory Rating System for Large Banking Organizations

by Sullivan & Cromwell LLP

Federal Reserve Establishes a New Rating System for the Supervision of Large Financial Institutions

Summary

On November 2, the Board of Governors of the Federal Reserve System (the “FRB”) issued a final rule (the “Final Rule”) that establishes a new rating system for the supervision of large financial institutions (“LFIs”). The LFI rating system applies to all bank holding companies with total consolidated assets of $100 billion or more; all non-insurance, non-commercial savings and loan holding companies with total consolidated assets of $100 billion or more; and all U.S. intermediate holding companies of foreign banking organizations with total consolidated assets of $50 billion or more.[1] The LFI rating system is designed to align with the FRB’s existing supervisory program for LFIs,[2] enhance the clarity and consistency of supervisory assessments, and provide greater transparency regarding the consequences of a given rating. For LFIs, the new rating system replaces the RFI/C(D) rating system currently used by the FRB for holding companies of all sizes.[3] Continue reading →

Banking Regulators’ Examination Authority Does Not Override Attorney-Client Privilege

by Cleary Gottlieb Steen & Hamilton LLP, Covington & Burling LLP, DavisPolk, Debevoise & Plimpton, Simpson Thacher & Bartlett LLP, Sullivan & Cromwell LLP, and Wilmer Cutler Pickering Hale and Dorr LLP

MEMORANDUM[1]

RE: Bank Regulators’ Legal Authority to Compel the Production of Material That Is Protected by Attorney-Client Privilege

I. Introduction

The attorney-client privilege (the “Privilege”) is deeply enshrined in the common law.[2] In protecting the confidentiality of communications between lawyers and their clients, the Privilege both bars the admission of such communications as evidence in legal proceedings and insulates the communications from compelled disclosure by government authorities. Accordingly, absent an explicit exception, neither courts nor government authorities may require a client or the client’s lawyer to produce or reveal privileged information. Continue reading →