Department of Justice

The SEC Enforcement Division 2017 Annual Report: Continued Focus on Individual Wrongdoers and Enhanced Protections for the “Main Street” Investor

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Almost a year into the new administration, the U.S. Securities and Exchange Commission’s Division of Enforcement released its annual report last week, providing a recap of the SEC’s enforcement results over the past 12 months, as well as some insight into its direction for the coming year. Overall, the report suggests that the SEC will increase its focus on addressing harm to “Main Street” investors and that pursuing individuals will continue to be the rule, not the exception.

During fiscal year 2017, the SEC pursued 754 enforcement actions, 446 of which were “stand-alone” actions (as opposed to “follow-on” actions which seek to bar executives from practicing before the Commission or to deregister public companies). This represents a drop from the prior year in which the SEC pursued 784 enforcement actions, 464 of which were stand-alone actions. The bulk of the Division’s 446 stand-alone actions in FY 2017 focused on issuer advisory issues, issuer reporting, auditing and accounting, securities offerings, and insider trading—all areas that saw a relatively similar number of cases in FY 2016. Actions involving public finance abuse represented the only significant decrease in the number of cases versus the prior year. In FY 2016, the SEC brought nearly 100 public finance abuse actions compared to fewer than 20 in FY 2017. READ MORE →

Out of Control: SEC Says Lack of Internal Controls Led to HP Paying More Than $108 Million to Settle FCPA Actions

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On April 9, 2014, the Securities and Exchange Commission announced that Hewlett-Packard had agreed to pay more than $108 million to settle Foreign Corrupt Practices Act actions brought by the SEC and the Department of Justice.  These actions were based on HP’s subsidiaries’ alleged payments of more than $3.6 million to Russian, Polish, and Mexican government officials to obtain or maintain lucrative public contracts.  The settlement is important because it highlights the SEC’s and DOJ’s continued focus on companies’ internal controls, particularly in the FCPA arena.  It also shows that the SEC may be able to use lesser, non-fraud offenses in which the underlying conduct involves a fairly de minimis amount of money to police behavior and subject companies to significant financial consequences. READ MORE →

“Order up!” FIRREA update

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Judge Carter issued his final order on July 16, 2013, following our blog post.  The final order is substantively the same as the tentative order, and denies S&P’s motion to dismiss the case for the same reasons previously set forth.  Judge Carter added a note rejecting Defendants’ argument at the hearing on July 8, 2013 that no reasonable investor or issuer bank could have relied on S&P’s claims of independence and objectivity, because this would beg the question of whether S&P truly believed that S&P’s rating service added zero material value as a predictor of creditworthiness.  Judge Carter’s finding that an issuer bank could be a victim that was misled by S&P’s fraudulent ratings of its own mortgage-backed security products is an interesting development, and one that may open new doors to mortgage-backed securities litigation under FIRREA.

Where There’s Smoke, There’s FIRREA (Part Two)

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We first blogged about the obscure Financial Institutions Reform Recovery Enforcement Act (“FIRREA”) on May 14. As we explained, this statute provides a generous ten-year statute of limitations and a low burden of proof. Just as we predicted, the FIRREA story is beginning to heat up.

The most recent FIRREA litigation involves claims brought under this statute against ratings agency giant Standard & Poor’s. The DOJ sued S&P for $5 billion, accusing it of knowingly issuing ratings that didn’t accurately reflect mortgage-backed securities’ credit risk. S&P’s practices of issuing credit ratings to banks that paid for those services led to an inherent conflict of interest. To reassure banks and investors that its ratings were accurate, S&P issued a “Code of Conduct,” containing promises that it had established policies and procedures to address these conflicts of interest. The DOJ alleged that the “Code of Conduct” statements were false and material to investors.

On July 8, Judge David O. Carter of the Central District of California tentatively denied S&P’s motion to dismiss the case. In his tentative order, Judge Carter explained why S&P’s three arguments for dismissal were unpersuasive. First, he found that the allegedly fraudulent statements regarding the credibility of S&P’s ratings were not “mere puffery” because they were filled with “shalls” and “must nots” that went beyond mere aspirational language. READ MORE →

Federal Trade Commission Announces New Hart-Scott-Rodino Thresholds

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Merge Sign

The Federal Trade Commission has announced the following new Hart-Scott-Rodino (HSR) filing thresholds, which will be effective for transactions closing on or after Feb. 11, 2013.

Any acquisition of voting securities and/or assets requires premerger notification to the FTC and the Department of Justice under the HSR Act and the regulations promulgated thereunder (16 C.F.R. Sections 801 – 803) if the following tests are satisfied and if no exemption applies (15 U.S.C. Section 18a(a)(2)).

Where a premerger notification is required, both parties must file, the acquiring person must pay a filing fee ($45,000 for transactions valued in excess of $70.9 million but less than $141.8 million, $125,000 for transactions valued at $141.8 million but less than $709.1 million or $280,000 for transactions valued at $709.1 million or more) and the parties must observe a 30-day waiting period prior to closing. READ MORE →