In June 2014, the Office of Investor Education and Advocacy at the Securities and Exchange Commission issued an alert cautioning that investment newsletters are often “used to carry out schemes designed to deceive investors.” In particular, the SEC advised investors to be “highly suspicious” of newsletter “promises” of “high investment returns” and to contact the SEC to report potential securities fraud in newsletters and other promotional materials.
In what the SEC called “the first federal jury trial by the SEC against a municipality or one of its officers for violations of the federal securities laws,” a jury in the U.S. District Court for the Southern District of Florida found the City of Miami and its former budget director, Michael Boudreaux, guilty of securities fraud for misrepresentations related to three municipal bond offerings in 2009. Both Defendants are expected to appeal the jury decision.
On August 31, 2016, the SEC caught a break when a Ninth Circuit panel reversed Judge Manuel L. Real’s bench trial verdict for defendants, former corporate officers of the now-defunct Basin Water, Inc., finding that the SEC was wrongfully denied its shot at a jury trial in a securities fraud action involving alleged false reporting of millions of dollars in unrealized revenue. The panel vacated the judgment and remanded for a jury trial, noting that the SEC had not consented to the defendants’ withdrawal of their jury demand, and in fact, consistently demonstrated its objection to a bench trial, preserving its objection all the way to the appellate court. READ MORE
On August 23, 2016, the SEC entered into a settlement that reflects a continuation of its recent trend of increasingly active pursuit of private equity firms, particularly for failing to disclose conflicts of interests and other material information to investors. The SEC entered into a $52.5 million settlement with four private equity fund advisers affiliated with Apollo Global Management LLC (collectively “Apollo”) arising out of insufficient disclosures and supervisory failures.
Last week, several securities industry groups filed critical responses to the SEC’s plan for an audit trail. While most groups that commented on the SEC’s proposed regulation supported implementing the proposal, several had concerns regarding the cost for investors and firms, and the protection of private data.
In a move that will make Securities and Exchange Commission administrative proceedings look more like civil litigation in federal court, on July 13, 2016, the SEC announced that it had adopted amendments to its rules of practice. These rules appear similar to those the Commission proposed last September. For critics of the amendments, they may not go far enough, but the expanded discovery and clarifications regarding dispositive motion practice may address some of the issues previously raised regarding the Commission’s perceived home-court advantage.
On June 27, 2016, SEC Administrative Law Judge Carol Fox Foelak dismissed the Division of Enforcement’s charges against IRA custodian Equity Trust Company in connection with the company’s processing of investments marketed by two convicted fraudsters. Judge Foelak’s decision—a complete defense victory for Equity Trust—shows that while the Division of Enforcement may still win most of its cases in administrative proceedings, it doesn’t win them all.
On June 9, 2016, the Securities and Exchange Commission (‘SEC”) awarded the second largest whistleblower bounty – $17 million – granted under the Dodd-Frank whistleblower rules to date. Previously, the highest whistleblower awards were a $30 million award in September 2014 and a $14 million award in October 2013. The $17 million award comes on the heels of $26 million in whistleblower awards given to five anonymous individuals over the last month alone. These awards serve as a warning to companies that the SEC takes its whistleblower program seriously and will continue to encourage and reward company insiders for coming forward with information that leads to successful enforcement actions. As Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower – a department created by the SEC to give whistleblowers a place to submit their tips – said, “[W]e hope these substantial awards encourage other individuals with knowledge of potential federal securities law violations to make the right choice to come forward and report the wrongdoing to the SEC.”
Last week, the SEC’s Office of Inspector General (“OIG”) released its semiannual report to Congress, which details the OIG’s independent and objective audits, evaluations, investigations and other reviews of the SEC’s programs and operations in order to prevent and detect fraud, waste and abuse in SEC programs and operations, and other vulnerabilities the SEC faces. In the most recent report, the OIG was critical of various programs, but most notably: (1) recommended a new framework to increase the Office of Compliance Inspections and Examinations coverage of registered investment advisors, and (2) informed Congress it was conducting a further evaluation on the SEC’s enforcement investigations to ensure that investigations are coordinated internally and across SEC divisions and offices.
In a move evidencing the SEC’s continued commitment to its whistleblower program, the Commission announced on Friday that it has awarded a whistleblower over $3.5 million for providing information that did not lead to a new investigation, but rather only served to bolster an ongoing investigation. This decision came after the SEC’s Claims Review Staff preliminarily determined that the SEC should deny the whistleblower claim because the information provided by the individual did not appear to “cause Enforcement staff to open the investigation or to inquire into different conduct, nor . . . to have significantly contributed to the success” of the action. But after reviewing the whistleblower’s written response for reconsideration, in addition to factual information from staff in the Division of Enforcement, the Commission changed course, determining that the information indeed “significantly contributed” to the success of the SEC’s action, and approving the award.