SEC

The SEC is focusing its enforcement and investigation efforts on preparers and auditors of financial statements, Mary Jo White tells accountants

Editorial BoardPosted on February 2, 2016

In a recent address, SEC Chair Mary Jo White stated that the SEC had focused its reinvigorated investigation and enforcement efforts on holding preparers and auditors accountable for their work on financial statements. She alerted the 2015 American Institute of Certified Public Accountants (“AICPA”) National Conference to the weighty responsibilities and challenges faced by auditors and preparers, as well as audit committee members, standard setters and regulators, when endeavoring to ensure high-quality, reliable financial reporting.

New Year, New Priorities for the SEC’s Office of Compliance Inspections and Examinations

Danielle Van Wert and Paul RuganiPosted on January 21, 2016

On January 11, 2016, the SEC announced its Office of Compliance Inspections and Examinations (OCIE) priorities for the year . The announcement included several new areas of focus, including liquidity controls, public pension advisers, exchange-traded funds (ETFs), product promotion, and variable annuities. Hedge fund and mutual fund managers, private equity firms, and broker-dealers – in particular those that deal with retirement investments – would be wise to take note of these new areas of interest. As in past years, enforcement actions in these areas are likely to follow.

Overstock Digital Wars: A New Market Awakens

Editorial BoardPosted on December 22, 2015

On the eve of the much anticipated release of Star Wars: The Force Awakens, the SEC approved Overstock Inc.’s plan to issue digital shares. The online retailer plans to issue company stock via bitcoin blockchain–an enormous database running across a global network of independent computers that tracks the exchange of money. Just as the original Star Wars movies released in the late 1970s and early 1980s signaled a monumental shift in special effects in film, Overstock’s plan to issue digital shares may herald a significant shift in the way securities are distributed and traded in the future.

SEC Enforcement Director Tells House Judiciary Committee That Investigation Agencies Should Not Need Warrants to Access Email Data Directly from Internet Service Providers

Amy RossPosted on December 4, 2015

On Tuesday, Andrew Ceresney, Director of the Securities and Exchange Commission’s Division of Enforcement, told the House Judiciary Committee that the Email Privacy Act (H.R. 699) and the Electronic Communications Privacy Amendments Act (S. 356) should not be amended to require prosecutors and civil enforcement agencies to obtain criminal warrants when requesting emails and other electronic data directly from internet service providers (“ISPs”), which include cloud-based storage services. READ MORE →

Investment Firms and Compliance Professionals Beware: SEC Finds Risks Associated with Outsourcing Compliance Function

Editorial BoardPosted on November 17, 2015

On Monday, November 9, 2015, the Office of Compliance Inspections and Examinations (“OCIE”) of the U.S. Securities and Exchange Commission (“SEC”) released results from its evaluation of investment adviser firms’ use of third parties for compliance functions, including outsourced chief compliance officers (“CCO”). Outside CCOs often perform important compliance responsibilities, including updating firm policies and procedures, preparing regulatory filings, and conducting annual compliance reviews. Despite the importance of these functions, the Risk Alert (“Risk Alert” or “Alert”) indicated that several of the outsourced CCOs examined had not implemented effective compliance programs. The Alert, available here, sends a cautionary signal to investment adviser firms considering outsourcing compliance functions. This warning is particularly timely since government agencies, including the SEC, have increased their focus on financial firms’ compliance programs, and on CCOs in particular.

Investing in the Next “Big Thing” Just Got Easier – SEC Promulgates New Crowdfunding Rules

Editorial BoardPosted on November 3, 2015

On October 30, 2015, the United States Securities and Exchange Commission (“SEC”) moved forward in implementing Title III of the JOBS Act and adopted new rules permitting companies to offer and sell securities to all potential investors through crowdfunding. Crowdfunding is the use of small amounts of capital from a large number of investors to finance new business ventures. This method of investment, typically conducted over the internet, is aimed at assisting smaller companies with capital formation by accessing a greater pool of potential investors. The SEC had previously opened crowdfunding investment to “accredited investors” (investors meeting certain net worth and/or investment experience criteria) but these rules permit non-accredited investors, i.e., everyone else, to participate while providing them with additional protection under the federal securities laws. Title III and these rules come in response to the enormous growth of equity crowdfunding through financing platforms such as GoFundMe, Kickstarter or Indiegogo.

Defrauded Defendant Defenseless Against Investors: Ninth Circuit Imputes Scienter of Embezzling CEO to Corporation for 10b-5 Claims

Paul RuganiPosted on October 28, 2015

Malfeasance by a corporate insider against his company has the potential to leave a gaping wound. Facing a securities lawsuit due to that malfeasance is like salt in that wound. Corporations targeted with such lawsuits have turned to the adverse interest exception to try to protect themselves from further liability stemming from the rogue executive’s wrongdoing. But on October 23, the U.S. Court of Appeals for the Ninth Circuit issued a precedent-setting decision rendering that salve unavailable. In In re ChinaCast Education Corp. Securities Litigation, the court held that under the federal securities laws, an executive’s scienter is imputed to the corporation where he “acted with apparent authority on behalf of the corporation, which placed him in a position of trust and confidence and controlled the level of oversight of his handling of the business.” Slip op. at 4.

Another Round of Favorable SEC Settlements, But Only for Underwriters that Self-Reported

William AldermanPosted on October 20, 2015

The SEC has rolled out its second wave of enforcement actions against 22 municipal underwriting firms for alleged securities violations in municipal bond offerings in connection with its Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. As previously reported, the MCDC initiative was announced in March 2014 to address potential securities violations by municipal bond underwriters and issuers. Under this initiative, the SEC offered favorable settlement terms to those who self-reported by the end of 2014.

D.C. Circuit Court “Tunes In” To SEC Administrative Court Debate

Jennifer Lee and Amy RossPosted on October 6, 2015

On September 29, 2015, the D.C. Circuit, the second federal appellate court to recently weigh in on the ongoing debate over SEC administrative actions, ruled in favor of the SEC in Jarkesy v. SEC, holding that federal courts do not have subject matter jurisdiction over challenges to ongoing SEC administrative enforcement proceedings. Notably, and in accord with the Seventh Circuit’s recent decision in Bebo v. SEC, the D.C. Circuit’s decision was narrowly tailored – focusing only on the issue of subject-matter jurisdiction – but not the substantive viability of Jarkesy’s constitutional challenges. The three-judge panel unanimously held that a party to a pending administrative proceeding must first defend against that proceeding, and only once the SEC proceeding concludes may the party seek review by a federal court.

Second Circuit Splits With Fifth Circuit Setting Up Possible Supreme Court Review: Are Internal Whistleblowers Protected Under Dodd-Frank?

Carrie LebigrePosted on September 11, 2015

On September 10, 2015, a divided panel of the Second Circuit issued an opinion in Berman v. Neo@Ogilvy LLC, No. 14-4626 (2nd Cir. Sept. 10, 2015), creating a split with the Fifth Circuit on an issue that has also divided lower federal courts: whether the anti-retaliation provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act apply to tipsters who claim retaliation after reporting internally, or only to those retaliated against after reporting information to the SEC. The Second Circuit, granting Chevron deference to SEC interpretive guidance, held that Dodd-Frank protections apply to internal whistleblowers. This stands in contrast to the Fifth Circuit’s holding in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), where that court found that on their face, the Dodd-Frank anti-retaliation provisions unambiguously limited protection to whistleblowers reporting to the SEC, and that, therefore, the SEC’s contrary guidance was not entitled to deference. Given this Circuit split, Supreme Court review is possible.

Securities Litigation, Investigations and Enforcement