The SEC came under scrutiny, including from U.S. Senator Charles Grassley, following an April 25, 2012 front page article in the Wall Street Journal which reported that the Agency had inadvertently revealed the identity of a whistleblower during an inquiry into his former employer.
The investigation involved Pipeline Trading Systems LLC, which runs stock trading platforms under its new name, Aritas Securities LLC. According to the article, an SEC Staff Attorney showed a notebook belonging to the whistleblower to a Pipeline executive during an interview. The executive recognized the handwriting regarding trades, meetings, and phone calls. Pipeline settled with the SEC on October 24, 2011. Read More
Recently, Sean McKessy, chief of the United States Securities and Exchange Commission (“SEC”) Office of the Whistleblower, reported on the increase in whistleblower tips that have come rolling into his newly created department. The SEC began monitoring these tips eight months ago when the final provisions of the Dodd-Frank Act enacted the whistleblower provisions in Section 21F of the Securities Exchange Act. Section 21F of the Exchange Act directs the SEC to make monetary awards to whistleblowers that voluntarily provide original information that leads to successful enforcement action resulting in the imposition of monetary sanctions exceeding $1,000,000. Qualifying whistleblowers can reap between 10 percent and 30 percent of the monetary sanctions. Read More
The United States Supreme Court held on March 26th that the two-year statute limitation for Section 16 insider trading begins to run as the fraudulent trade is or should have been discovered by a shareholder plaintiff. See Credit Suisse Securities LLC et al v. Simmonds. This decision was yet another rebuke to the Ninth Circuit, which had previously held that the limitations period for a Section 16(b) claim could be tolled until the insider actually discloses his or her improper trade to the SEC and shareholders.
Defendant underwriters challenged the Ninth Circuit’s holding, calling it contrary to language of Section 16(b) that indicates the limitation period should begin to run as soon as an insider makes a profit from an illegal short-swing trade. In an unanimous decision penned by Justice Scalia, the Court agreed, noting that if the filing of a Section 16(a) disclosure statement were necessary for Section 16(b) liability to attach, company insiders and underwriters who failed to file a 16(a) disclosure would forever face the possibility of claims under 16(b). The Court held that “the potential for such endless tolling in cases in which a reasonably diligent plaintiff would know of the facts underlying the action is out of step with the purpose of limitations periods in general.” The Court did not reach the larger question of whether Section 16(a) are subject to any equitable tolling and thus remanded the case to the Ninth Circuit for further consideration.
The Credit Suisse case is notable because it was one of 55 nearly identical actions filed over ten days in October 2007 by Vanessa Simmonds, then a 22-year old college student. The cases all alleged Section 16(b) claims against the underwriters and other financial institutions who had participated in IPO’s during the late 1990’s and 2000.
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