Securities and Exchange Commission

Will You Blow The Whistle Or Should I? The SEC Grants An Award to a Whistleblower Who Learns of Fraud From Another Employee

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Last week, the Securities and Exchange Commission announced an award payout of between $475,000 and $575,000 to a former company officer who reported information about an alleged securities fraud.  While this is by no means the largest of the 15 payouts the SEC has made since the inception of the whistleblower program in fiscal year 2012 (the SEC awarded approximately $14 million to a whistleblower in October 2013, and roughly $30 million to a foreign whistleblower almost a year later), it is the first time that the SEC provided a whistleblower bounty award under the new program to an officer who learned about the alleged fraud through another employee, rather than firsthand.

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Highlights From SEC Speaks 2015

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Matrix

Securities and Exchange Commission leadership and staff members addressed the public on February 20-21 at the annual “SEC Speaks” conference in Washington, D.C.  Common themes among the numerous presentations included the Commission’s increasing use of data analytics, the Commission’s focus on gatekeepers such as accountants and attorneys, and the Commission’s still incomplete rulemakings mandated by both the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups Act.

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Going for Brokerage: SEC Report Highlights Best (and Worst) Practices in Cybersecurity Preparedness

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cybersecurity

On February 3, 2015, the U.S. Securities and Exchange Commission released a Risk Alert addressing cybersecurity issues at brokerage and advisory firms, along with suggestions to investors on ways they can protect themselves and their online accounts.  FINRA issued a similar, more extensive “Report on Cybersecurity Practices” on the same day.

The National Exam Program Risk Alert, “Cybersecurity Examination Sweep Summary” summarizes cybersecurity practices and policies of 57 registered broker-dealers, and 49 registered investment advisers based on examinations conducted by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”).  These findings should be reviewed by CISOs and CIOs who have responsibility for cybersecurity protection because they highlight best practices and areas ripe for improvement.  It is reasonable to assume that both the SEC and FINRA will expect firms to review the findings and tailor their own internal assessments and practices to improve their cybersecurity posture, accordingly.  They also underscore that the simplest cyber-related scams (phishing, fraudulent e-mail scams, etc.) are still remarkably successful.

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D.C. Circuit to Re-Consider Whether SEC Disclosure Rule Aimed at Curbing Human Rights Abuses in the Democratic Republic of the Congo Violates the First Amendment

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In an interesting and uncommon intersection between securities law, curbing human rights abuses and freedom of speech under the First Amendment, the United States Court of Appeals for the District of Columbia recently agreed to re-consider whether the SEC can require companies to disclose whether their products contain “conflict minerals.” The term “Conflict Minerals” is defined in Section 1502(e)(4) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and refers to certain minerals originating from the Democratic Republic of the Congo (“DRC”), or an adjoining country, that have been used by armed groups to help finance violent conflicts and human rights abuses in those countries. These minerals currently include gold, tin, tatalum, tungsten, and may include any other mineral the Secretary of State determines is being used to finance conflict in the DRC or an adjoining country.

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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 →

Here’s Looking At You, Money Market Funds

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While money market funds did not exist when Humphrey Bogart spoke his famous line in Casablanca, since the 2008 financial crisis, reforming money market funds have been the subject of high drama and intense scrutiny on Capitol Hill. Advocates for reform finally got their long awaited breakthrough last Wednesday, June 5, 2013, when the Securities and Exchange Commission voted unanimously to propose legislation that would reform money market funds. The SEC’s goal with the reform is to make money market funds less susceptible to “runs” that could harm investors.

The SEC’s goal of reform has been in the works for a long time, was championed by former Chair of the SEC, Mary Schapiro, and has been continued by current Chair Mary Jo White. A money market fund is a type of fixed-income mutual fund that invests in debt securities with short maturities and minimal credit risk. They first developed in the early 1970s as an option for investors to purchase a pool of securities that generally provided higher returns than interest-bearing bank accounts. Money market funds have grown considerably since then and currently hold more than $2.9 trillion in assets.

Money market funds seek stability and security with the goal of never losing money and keeping their net asset value (“NAV”) at $1.00. However, many felt reform was necessary after a money market fund “broke the buck” at the height of the financial crisis in September 2008 and re-priced its shares below its $1.00 stable share price to $0.97. Investors panicked and within a few days, investors had pulled approximately $300 billion from similar money market funds. Intervention from the United States Treasury Department prevented further runs on the funds. READ MORE →