Corporate Enforcement

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On December 15, 2022, the Financial Crimes Enforcement Network (“FinCEN”) of the Department of the Treasury announced a Notice of Proposed Rulemaking (the “Access Rule NPRM”)[1] to implement the requirements of the Corporate Transparency Act (“CTA”) with respect to access to beneficial ownership information (“BOI”) reported to FinCEN under the CTA.[2] The Access Rule NPRM would implement the CTA’s provisions on who may access BOI held by FinCEN, the circumstances under which access may be granted, and the conditions regarding use, security, and oversight of BOI. Separately, it proposes an approach to the use of “FinCEN identifiers” for corporate entities that FinCEN’s final BOI Reporting Rule left unaddressed.Continue Reading FinCEN Proposes Rule Regarding Access to Beneficial Ownership Information under the Corporate Transparency Act

On December 29, 2022, in a closely-watched insider trading case, the Second Circuit decided United States v. Blaszczak (“Blaszczak II”).[1]  The Supreme Court in January 2021 had vacated and remanded the Second Circuit’s prior decision in light of Kelly v. United States (also known as the “Bridgegate” decision).  On remand, a divided panel of the Second Circuit found that trading on the basis of certain confidential government information related to pending regulation does not give rise to violations of the criminal wire fraud and securities fraud statutes.Continue Reading Second Circuit Decision Limits the Ability to Prosecute Instances of Trading on Confidential Government Information

The U.S. Securities and Exchange Commission recently announced the Division of Enforcement’s results for fiscal year 2022, the first full year for the Division under the leadership of both Chair Gary Gensler and Director of Enforcement Gurbir Grewal.

Results were up from the year before, with a record $4.2 billion in civil penalties reflecting the…

On October 11, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and Financial Crimes Enforcement Network (“FinCEN”) announced related enforcement settlements with Bittrex, Inc., a U.S.-based digital asset exchange and hosted wallet services company (the “Company”), to settle violations of U.S. sanctions and the Bank Secrecy Act (“BSA”) and related regulations, respectively.[1]  The OFAC Settlement, the largest of OFAC’s digital asset-related enforcement actions to date, and the FinCEN Consent Order collectively result in the Company paying a civil penalty of approximately $30 million.  Following OFAC’s release of its “Sanctions Compliance Guidance for the Virtual Currency Industry” (which we wrote about here)[2] and recent revelations regarding prosecution by the U.S. Department of Justice of digital asset-related U.S. sanctions violations (which we wrote about here),[3] this joint OFAC-FinCEN enforcement action illustrates the U.S. government’s continued focus on the digital asset industry’s compliance with U.S. sanctions and the potentially significant penalties parties can face for U.S. sanctions and BSA violations.
Continue Reading OFAC and FinCEN Announce Joint Enforcement Action Against U.S.-Based Digital Asset Exchange

On September 30, 2022, the Financial Crimes Enforcement Network (“FinCEN”) of the Department of the Treasury adopted a final rule (the “Final Rule”) to implement the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”), as part of the Anti-Money Laundering Act of 2020.  The CTA and Final Rule require a range of U.S. entities, and non-U.S. entities registered to do business in the United States, to report information on their underlying beneficial owners who are individuals to FinCEN.  Notably, certain investments advisers exempt from registration and subsidiaries of private fund clients of investment advisers will be subject to these reporting requirements.
Continue Reading FINCEN’s Corporate Beneficial Ownership Reporting Rule: Significance for Investment Advisers

On September 21, 2022, the Securities and Exchange Commission announced settled insider trading charges against the CEO and the former President and Chief Technology Officer of Cheetah Mobile Inc. (the “Company”), a China-based mobile internet company.  The executives allegedly possessed material nonpublic information (“MNPI”) when they set up a trading plan under Rule 10b5-1 of the Securities Exchange Act.
Continue Reading SEC Charges Company Executives with Insider Trading for Allegedly Setting Up 10b5-1 Trading Plan While in Possession of MNPI

On June 13, 2022, the Securities and Exchange Commission charged three Charles Schwab investment adviser subsidiaries—Charles Schwab & Co., Inc.; Charles Schwab Investment Advisory, Inc. (“CSIA”); and Schwab Wealth Investment Advisory, Inc. (“SWIA,” and together with Charles Schwab & Co., Inc. and CSIA, “Charles Schwab”)—with violations of the Investment Advisers Act of 1940 for alleged misconduct associated with its robo-advisor, Schwab Intelligent Portfolios (“SIP”).  Unlike most other robo-advisers, Charles Schwab did not charge an advisory fee for the SIP service.  However, Charles Schwab required its SIP clients to hold pre-set amounts of cash—rather than investing in equities under market conditions where equities were outperforming cash—that was then loaned out by Charles Schwab Bank at higher interest rates than it paid to the SIP clients, resulting in a profitable spread for Charles Schwab and the equivalent of a hidden fee for its clients, since holding cash lowered their returns.  Charles Schwab was ordered to pay almost $46 million in disgorgement, more than $5 million in prejudgment interest, and $135 million as a civil penalty.  The $187 million in total sanctions will be returned to investors.  Charles Schwab also agreed to an independent consultant to conduct a “comprehensive review” of its compliance policies, and agreed to provide ongoing cooperation to the SEC in an unusual provision—a sign that there may be additional charges yet to come.
Continue Reading SEC Brings Robo-Adviser Case Against Charles Schwab for Misleading Clients About Hidden Costs

On June 8, 2022, the SEC announced a notable settlement with national audit firm CohnReznick LLP, charging it with failure to uphold several professional standards during its 2017 audits of two public companies that had previously been sued by the SEC for accounting fraud.  In its order, the SEC specifically alleged that CohnReznick violated professional standards and contributed to materially misleading financial statements by, among other things, failing to exercise sufficient professional skepticism and accepting assertions from company management without sufficient supporting evidence.  The SEC fined CohnReznick $1.9 million, levied fines and suspensions against several of its audit partners, and imposed an independent consultant with a sweeping mandate to demand various audit-related and internal process reforms and veto new audit clients.  This action is consistent with the SEC’s repeated warnings that “gatekeepers” such as auditors are in the agency’s crosshairs.
Continue Reading SEC Imposes Penalties and Sweeping Independent Consultant on CohnReznick for Alleged Audit Failures in Case Underscoring SEC’s Focus on “Gatekeepers”

On June 7, 2022, the Securities and Exchange Commission announced that it had charged software company Synchronoss Technologies, Inc. and seven of its current and former employees in connection with an alleged long-running accounting fraud involving improper revenue recognition of more than $46 million across six quarters.   All of those implicated settled with the SEC and agreed to pay a range of penalties, except for the former CFO and controller, who will litigate against the SEC in New York federal court.  Synchronoss was ordered to pay a $12.5 million penalty.
Continue Reading SEC Accounting Enforcement Action Signals Heightened Focus on Individual Accountability and Puts Public Company Executives on Notice for Potential SOX 304 Reimbursement

U.S. federal and state authorities recently announced actions that are designed to give effect to economic measures taken against Russia and hold accountable those who violate U.S. laws.  These developments suggest that U.S. authorities’ focus on enforcing U.S. sanctions and export controls, anticorruption and anti-money laundering laws, and the growing scrutiny of cryptocurrency, will continue.  They also point to further coordination and cooperation between authorities in the U.S. and other jurisdictions in investigating and prosecuting violations of their respective laws.
Continue Reading Authorities in U.S. Take Steps to Strengthen Enforcement of U.S. Measures Against Russia