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Matthew C. Solomon has significant experience in complex and high-stakes civil and criminal matters, having served for 15 years with the U.S. Department of Justice and the U.S. Securities and Exchange Commission—including most recently as the SEC’s Chief Litigation Counsel.

On November 2, the SEC’s Enforcement Division released its annual report detailing the facts and figures of its enforcement efforts in fiscal year 2018.  At first blush, this year’s report looks strikingly similar to those from recent years, as the headline numbers in most categories are nearly indistinguishable from 2015, 2016, and 2017.  This consistency may be surprising given that 2018 is the first such report reflecting exclusively the enforcement priorities of the Commission since it was reconstituted under Chair Jay Clayton.

But a closer examination of the report, including the components feeding into the top-line facts and figures and commentary by Division co-directors Stephanie Avakian and Steven Peikin, reveals a clear shift in priorities by the Division.  These range from a philosophical shift in its mission to the reallocation of resources during a hiring freeze.  We address here the most notable of these subtle but important changes.  Continue Reading Retail, Remedies, Resources and Results: Observations From the SEC Enforcement Division 2018 Annual Report

There have been plenty of press reports about the SEC’s settlement with Elon Musk arising from his tweeting about taking Tesla private.  But the concurrent settlement with Tesla itself provides interesting lessons for disclosure and governance at public companies.

Tesla agreed to pay a $20 million penalty and agreed to several “undertakings” to strengthen its governance and controls including a requirement that it add two independent directors to its Board.  And, under his own settlement, Musk agreed to step down for three years as chairman of the Board of Directors, although he is allowed to continue as CEO.  Continue Reading The Tesla Settlement – What It Means for Other Companies

On August 2, 2018, the U.S. Commodity Futures Trading Commission (the “CFTC”) announced multiple whistleblower awards totaling more than $45 million.[1]  Although this is only the seventh such aggregate award announced by the CFTC since the inception of its whistleblower program in October 2011,[2] it is the Commission’s highest to date, and comes weeks after the agency’s announcement of two such awards last month.  This recent activity, which follows a two-year hiatus during which the CFTC did not grant any whistleblower awards, may signal the Commission’s renewed focus on touting the success of its whistleblower program as well as the conclusion of a number of major CFTC investigations.[3]  It is also in keeping with the Commission’s aggressive pace of enforcement actions in recent months.[4] Continue Reading CFTC Announces Highest Aggregate Whistleblower Award to Date, Totaling More Than $45 Million

Last month, the Supreme Court granted a writ of certiorari in Lorenzo v. SEC,[1] a case where Francis Lorenzo, a registered representative of a broker-dealer, allegedly emailed false and misleading statements to investors that were originally drafted by his boss.  After administrative and Commission findings of liability, a divided panel of the D.C. Circuit determined that, while Lorenzo was not the “maker” of the statements, he did use them to deceive investors, and thereby violated the so-called scheme liability provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.  As described in the petitioner’s motion seeking certiorari, the case presents the question whether, under the Court’s 2011 Janus Capital Group, Inc. v. First Derivative Traders decision,[2] the scheme liability provisions of Rule 10b-5(a) and (c) may be used to find liability in connection with false or misleading statements by persons who are not themselves the maker of those statements and, thus, not liable under the false-and-misleading statements provision of Rule 10b-5(b).[3]  The answer to this question could have implications for the Securities and Exchange Commission’s (“SEC” or “Commission”) Enforcement Division as well as potentially significant implications for private securities litigants who principally rely on Section 10(b) to bring private causes of action sounding in fraud.  Continue Reading Lorenzo v. SEC: Will the Supreme Court Further Curtail Rule 10b-5?

On June 25, 2018, the Second Circuit amended its opinion in United States v. Martoma, an insider trading case that has received significant attention as a vehicle to clarify the “personal benefit” element of tippee liability in insider trading cases in the Second Circuit.  While the Second Circuit again upheld the insider trading conviction of former S.A.C. Capital Advisors portfolio manager Mathew Martoma, this time it appears to have breathed life back into its “meaningfully close personal relationship” requirement for establishing insider trading liability against an individual who receives and trades on confidential information (a “tippee”).  Those  following the evolution of insider trading doctrine should pay close attention to lower courts’ interpretations of the “meaningfully close personal relationship” test, and what prosecutors must show to satisfy this requirement, in the wake of Martoma. Continue Reading Second Circuit Potentially Revives Newman’s “Meaningfully Close Personal Relationship” Test, Amends Martoma Decision

Last week, the Supreme Court ruled in Lucia v. SEC that SEC Administrative Law Judges are “officers” for the purposes of the Constitution’s Appointments Clause.  Not only does the decision require the rehearing of the petitioner’s case, but it leaves unanswered questions for the SEC and other agencies moving forward.  Indeed, another trip up to the Supreme Court on a related constitutional issue involving the ALJs’ civil service protections seems likely.  In the meantime, the SEC and other agencies will be forced to grapple with the legitimacy of their administrative proceedings, potentially impacting their enforcement efforts.

Please click here to read the full alert memorandum.

A recent report in the Wall Street Journal, drawing on a source “familiar with the matter”, indicates that the Securities and Exchange Commission’s Division of Enforcement has launched a probe into whether certain issuers may have improperly rounded up their earnings per share to the next higher cent in quarterly reports. While the SEC has neither confirmed the report nor otherwise disclosed the existence of any such investigation, the Journal reports that the SEC has sent inquiries to at least 10 companies requesting information about such accounting adjustments that could have inflated reported earnings. The targeted companies have not yet been identified. Whether the reported inquiries amount to a broad-based sweep of issuer accounting practices remains to be seen. However, such an investigation would be consistent with SEC Chairman Jay Clayton’s announced enforcement priorities, which include a focus on public-company accounting practices and the protection of retail investors.

Please click here to read the full alert memorandum.

One year ago, the U.S. Supreme Court ruled in Kokesh v. SEC[1] that the U.S. Securities and Exchange Commission’s disgorgement remedy constitutes a “penalty,” and is therefore subject to the five-year statute of limitations in 28 U.S.C. § 2462. As a result, the SEC can no longer seek disgorgement of ill-gotten gains older than five years. The SEC’s Enforcement Division has traditionally relied heavily on the agency’s virtually unfettered disgorgement power in its settled and litigated cases. As expected, Kokesh has forced the division to trim its disgorgement demands in certain cases and to abandon it outright in others. To date, however, the most dire predictions of Kokesh’s impact — that it would lead to the wholesale elimination of the SEC’s disgorgement power and place strict limitations upon other types of so-called “equitable” remedies — have not come to pass. That said, many of the issues commentators raised in the immediate aftermath of Kokesh have not yet percolated up through the appellate courts, and significant uncertainty concerning its full impact remains. What is clear, however, is that, absent congressional intervention, the SEC will face challenges in obtaining the full measure of ill-gotten gains in long-running, resource-intensive investigations.

Continue Reading Kokesh and Its Impact on SEC Enforcement, a Year Later

On April 25, 2018, a jury in the United States District Court in Connecticut acquitted former UBS AG (“UBS”) trader Andre Flotron of conspiring to manipulate the precious metals futures market through “spoofing.”  The verdict, the first acquittal in a criminal spoofing-related case since the practice was outlawed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010, reflects the difficulties the government faces in cracking down on the practice. Continue Reading Acquittal of Former UBS Trader Signals Potential Challenges for Government’s Anti-Spoofing Initiative

On April 24, 2018, Altaba, formerly known as Yahoo, entered into a settlement with the Securities and Exchange Commission (the “SEC”), pursuant to which Altaba agreed to pay $35 million to resolve allegations that Yahoo violated federal securities laws in connection with the disclosure of the 2014 data breach of its user database.  The case represents the first time a public company has been charged by the SEC for failing to adequately disclose a cyber breach, an area that is expected to face continued heightened scrutiny as enforcement authorities and the public are increasingly focused on the actions taken by companies in response to such incidents.  Altaba’s settlement with the SEC, coming on the heels of its agreement to pay $80 million to civil class action plaintiffs alleging similar disclosure violations, underscores the increasing potential legal exposure for companies based on failing to properly disclose cybersecurity risks and incidents.

Please click here to read the full alert memorandum.