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Alexander Janghorbani’s practice focuses on complex securities issues, litigation and enforcement, informed by nearly nine years of service with the U.S. Securities and Exchange Commission.

On March 6, 2019, the U.S. Commodity Futures Trading Commission (“CFTC”) Enforcement Division released an advisory (the “Advisory”) on self-reporting and cooperation for violations of the Commodity Exchange Act (“CEA”) that involve foreign corrupt practices.[1]  The Advisory lays out guidelines for companies or individuals “not registered (or required to be registered) with the CFTC” to receive significant cooperation credit for voluntarily and timely disclosing CEA violations involving foreign corrupt practices.[2]  Indeed, where such disclosure is followed by “full cooperation and appropriate remediation” and other measures, the Division of Enforcement will extend a presumption that no civil monetary penalties be imposed.[3]  Moreover, while registrants—which are subject to “independent reporting obligations”—will not benefit from such a presumption, cooperation may still garner “substantial reduction in the civil monetary penalty.”[4]

The Advisory is the latest signal of the CFTC’s efforts over the last two years to more clearly define the benefits of voluntary cooperation with the Agency.[5]  This may indicate that the CFTC is taking an increased interest in corruption cases related to the commodities or swaps markets. Continue Reading CFTC Enforcement Division Issues New Advisory on Self-Reporting and Cooperation

On March 4, a federal judge of the Northern District of California granted a directed verdict motion in favor of Robert Bogucki, the former head of Barclays’ foreign exchange (“FX”) trading desk.  Bogucki went to trial on charges that he had engaged in a “front-running” scheme to manipulate the FX options market in advance of a client’s corporate transaction.  Following the government’s presentation of its case at trial, Judge Charles Breyer acquitted Bogucki, finding that the government had failed to present sufficient evidence such that a reasonable jury could find Bogucki guilty of any fraud charges beyond a reasonable doubt. Continue Reading District Court Acquits Barclays FX Trader of Fraud Charges

On March 4, 2019, the Commodity Futures Trading Commission (“CFTC”) announced a whistleblower award of over $2 million to an individual—unaffiliated with the company the CFTC charged—for providing expert analysis in conjunction with a related action instituted by another federal regulator.  While the Securities and Exchange Commission, which possesses a similar whistleblower award regime,[1] has previously issued awards to multiple claimants for both related actions[2] and to company outsiders,[3] this is the first such award to be granted by the CFTC in either respect.

The award demonstrates the CFTC’s continued commitment to the Whistleblower Program, and to using all available means in conducting enforcement actions.  This award also reflects both the CFTC’s willingness to collaborate with other federal regulators and to rely on external sources of expert data analysis and likely reflects the CFTC’s continued expansion of its Whistleblower Program, both in terms of sources of information and awards granted.  Continue Reading CFTC Issues First Whistleblower Award Originating From Both a Related Action and a Company Outsider

On February 20, the Securities and Exchange Commission (the “SEC” or “Commission”) issued a cease-and-desist order against Gladius Network LLC (“Gladius”) concerning its 2017 initial coin offering (“ICO”).  The SEC found that the Gladius ICO violated the Securities Act of 1933’s (“Securities Act”) prohibition against the public offer or sale of any securities not made pursuant to either an effective registration statement on file with the SEC or under an exemption from registration.[1]  While this is far from the first time that the SEC has found that a particular ICO token meets the definition of a “security” under the Securities Act,[2] this is notably the first action involving an ICO token issuer that self-reported its potential violation.  Due to this, and Gladius’s cooperation throughout the investigation, the SEC stopped short of imposing any civil monetary penalties among its ordered remedial measures. Continue Reading SEC Issues First ICO Enforcement Action Against a Self-Reporting Token Issuer

On February 15, 2019, the Securities and Exchange Commission (the “SEC”) announced that it had settled—on a no-admit, no-deny basis—with Cognizant Technology Solutions Corporation (“Cognizant”) for alleged violations of the Foreign Corrupt Practices Act (the “FCPA”) involving Cognizant’s former president and chief legal officer.[1] The same day, the Department of Justice (the “DOJ”) indicted the two former executives and the SEC filed a civil complaint seeking permanent injunctions, monetary penalties, and officer-and-director bars against them. The DOJ declined to prosecute Cognizant.[2] The DOJ’s declination was in part based on the fact that Cognizant quickly and voluntarily self-reported the conduct, and, as a result of that self-report, the DOJ was able to identify culpable individuals. This settlement reflects the DOJ demonstrating its continued commitment to its FCPA Corporate Enforcement Policy, under which the DOJ has committed to extending significant cooperation credit, up to and including declinations, to companies that provide meaningful assistance to further DOJ investigations. The resolution also reflects the DOJ’s “anti-piling on” policy in action, as the DOJ declination recognized the “adequacy of remedies such as civil or regulatory enforcement actions,” namely Cognizant’s resolution with the SEC, as a factor in declining to prosecute.[3] Continue Reading DOJ Issues Twelfth Declination Letter Under FCPA Cooperation Policy

On January 29, 2019, the SEC announced four settlements with publicly-traded companies for failure to maintain adequate internal control over financial reporting.

None of the companies was charged with making false or inaccurate statements, either about its ICFR or otherwise; indeed, each had repeatedly disclosed material weaknesses in ICFR over many years.

These cases are interesting for at least three reasons:

  • They were announced together to send a message about the SEC’s focus on its agenda to strengthen accounting and controls at public companies.
  • The cases are about controls, and not about disclosure. Material weaknesses in ICFR are not just a disclosure issue: a continuing failure to maintain adequate controls is a violation of law, even if the failure is fully disclosed and there is no other disclosure problem.
  • The cases join several recent instances in which the SEC has shown a willingness to use the internal controls provisions of the Securities Exchange Act of 1934 independently of specific disclosure requirements.

Please click here to read the full alert memorandum.

Last week, in SEC v. Scoville, the U.S. Court of Appeals for the Tenth Circuit held that Dodd-Frank allows the Securities and Exchange Commission to bring fraud claims based on sales of securities to foreign buyers where defendants engage in fraudulent conduct within the United States.

In so holding, the Court concluded that Dodd-Frank abrogated in part the Supreme Court’s rule, announced in Morrison v. National Australia Bank Ltd., that fraud claims under the federal securities laws can only be brought with respect to transactions in securities listed on a U.S. exchange or transactions in other securities in the U.S.  If adopted more broadly, this ruling would restore in government enforcement actions the more expansive conduct-and-effects test that the Morrison Court rejected.

Please click here to read the full alert memorandum.

On January 11, the Second Circuit Court of Appeals denied the appeal of Rajat Gupta, who was seeking to undo his insider trading conviction.  Relying on the Second Circuit’s decision in United States v. Newman, Gupta argued that—to satisfy the requirement that Gupta personally benefit from tipping inside information—the Government must show “a quid pro quo – in which [Gupta] receive[d] an ‘objective, consequential . . . gain of a pecuniary or similarly valuable nature.’”[1]  In other words—intangible benefits should not, standing alone, constitute a personal benefit sufficient to uphold a criminal conviction.  The Second Circuit rejected this argument, finding that the Supreme Court’s decisions in Dirks v. SEC and Salman v. United States foreclosed such a narrow definition of “benefit,” opting instead for a test that looked at “varying sets of circumstances”—including those that involve indirect, intangible, and nonquantifiable gains, such as an anticipated quid quo pro that can be inferred from an ongoing, business relationship—to satisfy the “personal benefit” test.[2]  This case is the latest in a line of decisions—in the Supreme Court, as well as the Second and Ninth Circuits—to reject defendants’ arguments for a narrow definition of the “personal benefit” element of insider trading law based on Newman. Continue Reading Second Circuit Denies Gupta Appeal of Insider Trading Conviction—Continuing to Give Broad Meaning to “Personal Benefit” Requirement

On December 26, 2018, the SEC announced settled charges against ADT Inc. after finding that ADT, in two earnings releases, gave undue emphasis to non-GAAP adjusted EBITDA figures because they identified the relevant GAAP measures only later and much less prominently.

Without admitting or denying the SEC’s factual or legal claims, ADT agreed to an administrative settlement finding violations of Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-11 thereunder, relating to the requirements of Item 10(e) of Regulation S-K that an issuer present “with equal or greater prominence . . . the most directly comparable financial . . . measures” calculated under GAAP when it includes non-GAAP financial measures in filings and certain other reports to the Commission.

This is just the second enforcement action concerning non-GAAP disclosures that the SEC has brought against an issuer in the two-and-a-half years since the issuance of Staff guidance on non-GAAP disclosure requirements, and it is the first during SEC Chair Jay Clayton’s tenure.  It also is the first action related to non-GAAP disclosures finding a violation of only Section 13(a) of the Exchange Act without an accompanying finding that the disclosure in question constituted a material misstatement or omission.

Please click here to read the full alert memorandum.

On Monday, following two reversals of convictions, the U.S. Attorney’s Office for the District of Connecticut moved to dismiss the sole securities fraud claim remaining against former Jefferies bond trader, Jesse Litvak, bringing an end to the 5 1/2-year long case against him.[1]  During the case’s winding procedural path, the Government twice secured convictions against Litvak by jury trial—on the theory that Litvak’s alleged misstatements about his own costs and profit margins for residential mortgage-backed securities (“RMBS”) trades would have been material to the decision-making of a reasonable (and often sophisticated) investor-buyer.  And twice the Second Circuit overturned the convictions on narrow and technical grounds.  Notably, even while seeking to dismiss the remaining charge, the Government maintains in its filing that the Second Circuit’s decisions left undisturbed the soundness of its legal theories—namely that a broker-dealer’s misstatements relating to his own profits to sophisticated counterparties could satisfy the materiality requirement for securities fraud as a matter of law.[2]  Thus, notwithstanding the additional hurdles presented by the Second Circuit’s decisions, the Government’s decision not to pursue yet another trial against Litvak does not signal a death knell for all similar charges in the future, particularly those that are currently pending and arose as part of the Government’s RMBS probe.  But the somewhat torturous history of the Litvak case does highlight the difficulty for the Government in establishing the materiality of alleged misstatements made to sophisticated securities professionals who undertake their own analysis of trades.  Indeed, in many of these RMBS cases, the Government faced an uphill battle from the start, evidenced by its inability to secure convictions in many of them. Continue Reading Two Strikes and You’re Out: The Litvak Saga Comes to an End