SEC

SEC Chairman Testifies About SEC’s Direction and 2016 Cyberattack

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On September 26, 2017, SEC Chairman Jay Clayton testified before the Senate’s Banking, Housing and Urban Affairs Committee regarding the direction of the SEC under his Chairmanship. He also took the opportunity to address the 2016 cyberattack on EDGAR, the agency’s electronic filing system.

As in his first public speech as SEC Chair, in July 2017, Chairman Clayton’s testimony reveals his focus on issues related to cybersecurity, capital formation, and enforcement actions addressing traditional forms of fraud and misconduct. His testimony further reveals his position that regulations should be retroactively evaluated and relaxed as necessary, in order to account for the direct and indirect costs of compliance.

Below are key highlights of Chairman Clayton’s testimony:

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SEC’s 2016 Activity Breaks Enforcement and Whistleblower Records

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Earlier this month, the SEC (the “Agency”) announced that it initiated a record-breaking 868 enforcement actions in fiscal year 2016. This figure – along with other milestones – reflect the Agency’s commitment to expanding the scope and reach of its enforcement programs to pursue an array of federal securities law violations.

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It’s Hunting Season. For Unicorns? Lawsuit Against Theranos Signals Trend In Investors Going After Late-Stage Start-ups

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Map and Compass

Last week brought more bad news for private blood testing company Theranos Inc., as San Francisco-based Partner Fund Management L.P. (“PFM”) launched a suit claiming that it was duped into making a $96.1 million investment in Theranos in February 2014.  The complaint, filed in Delaware Court of Chancery, alleges common law fraud, securities fraud under California’s Corporations Code, and violations of Delaware’s Consumer Fraud Act and Deceptive Trade Practices Act, among other things, against Theranos, its Chief Executive Officer, Elizabeth Holmes, and its former Chief Operating Officer, Ramesh Balwani.

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No Longer a Mirage: FCPA Compliance and Cooperation Has Its Benefits

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On September 12, 2016, the SEC announced that it had reached a settlement with Jun Ping Zhang (“Ping”), a former executive of a Chinese subsidiary of Harris Corporation (“Harris”), regarding alleged violations of the Foreign Corrupt Practices Act (“FCPA”). The settlement was unusual, in that the SEC declined to also bring charges against Harris, an international communications and information technology company.

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Too Good to Be True: Fraudulent Self-Promotion Lands “Prodigy” in Hot Water with SEC

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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.

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The SEC Wins First Jury Trial in a Muni Case: SEC v. City of Miami and Michael Boudreaux

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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.

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SEC Granted Reversal, Remand and Jury Trial from the Ninth Circuit

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court 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 →

SEC Continues to Target Private Equity Firms, Entering Into $52 Million Settlement with Apollo Global Management

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settlement

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.

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The SEC Audit Trail – Several Industry Groups See Problems as Currently Proposed

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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.

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Will It Be Enough?: SEC Amends Rules to Look More Like Federal Court

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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.

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