On October 15, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued “Sanctions Compliance Guidance for the Virtual Currency Industry” (the “Guidance”).  The Guidance follows recent guidance and advisory letters directed to the virtual currency industry relating to the risk of facilitating ransomware payments[1] and is OFAC’s most comprehensive virtual currency-specific advisory to date.  In particular, the Guidance directly addresses some simpler interpretive questions, discusses sanctions compliance programs and “best practices,” and provides hints about OFAC’s enforcement priorities going forward.
Continue Reading OFAC Issues Sanctions Guidance to Virtual Currency Industry

On August 9, 2021, the SEC issued a cease-and-desist order against digital asset exchange Poloniex, Inc. for allegedly operating an unregistered exchange in violation of Section 5 of the Exchange Act in connection with its operation of a trading platform that facilitated the buying and selling of digital asset securities.[1]

In the cease-and-desist order, the SEC alleged that Poloniex met the definition of an “exchange” because it “provided the non-discretionary means for trade orders to interact and execute through the combined use of the Poloniex website, an order book, and the Poloniex trading engine.”  The SEC also found, based on internal communications, that Poloniex decided to be “aggressive,” ultimately listing token(s) it had internally determined carried a “medium” risk of being considered securities under the Securities Act of 1933 pursuant to the test set forth by the U.S. Supreme Court in SEC v. W.J. Howey.[2]  However, the SEC did not identify what digital asset(s) it determined were securities nor why, simply stating that Poloniex facilitated trading of “digital assets that were investment contracts and therefore securities.”

Without admitting or denying the SEC’s findings, Poloniex agreed to the entry of the order and a payment of $10,388,309 in disgorgement, prejudgment interest, and a civil penalty.
Continue Reading SEC Enforcement Action Against Poloniex Signals Heightened Scrutiny for Crypto Exchanges

On July 13, 2021, the Securities and Exchange Commission (“SEC”) announced a major enforcement action related to a proposed merger between a special purpose acquisition company (“SPAC”) and a privately held target company (“Target”).  This followed numerous warnings by the SEC staff over several months of enhanced scrutiny of such transactions under the federal securities laws.[1]  The respondents, except for the Target’s CEO, settled the action by collectively agreeing to civil penalties of approximately $8 million and to certain equitable relief described below. [2]
Continue Reading SEC Brings SPAC Enforcement Action and Signals More to Come

On May 6, 2021, the United States Government Accountability Office (“GAO”)—an independent, non-partisan congressional watchdog organization—published a report summarizing its study on the impact of the Consumer Financial Protection Bureau’s (“CFPB” or the “Bureau”) reorganization of its fair lending enforcement and supervisory activities.[1]  In 2018, the Trump administration-led CFPB decided to relocate the Office of Fair Lending and Equal Opportunity (the “Office of Fair Lending”) from the Supervision, Enforcement, and Fair Lending Division (“SEFL”) to the Office of Equal Opportunity and Fairness (“OEOF”), a division within the Office of the CFPB Director that plays no role in enforcement.  GAO found shortcomings in the reorganization process and highlighted that the reorganization likely led to a decrease in fair lending enforcement activity in 2018.  GAO ultimately recommended that the Bureau analyze the effects of the reorganization on its enforcement and supervision of fair lending laws, develop performance goals, and take measures to assess its fair lending activities going forward.

While not binding on the CFPB, GAO’s report is significant as it comes at a time when the current administration has signaled that it is motivated to increase enforcement of fair lending laws. Acting CFPB Director Dave Uejio has committed the Bureau to implementing GAO’s recommendations, and Biden’s CFPB Director nominee Rohit Chopra has similarly expressed that he would focus on fair lending.  Likewise, progressive advocates are using the report as an opportunity to apply increased pressure on the Biden administration to become more active in this area.
Continue Reading GAO Recommends CFPB Evaluate Trump Era Fair Lending Reorganization

On April 29, 2021, the Securities and Exchange Commission (the “SEC”) announced settled charges against eight public companies that filed notifications of late filings on Form 12b-25 (more commonly known as “Form NT”) without disclosing in those filings a pending restatement or correction of financial statements.

These settlements are a reminder that filing a Form

Last week, the Second Circuit affirmed the dismissal for lack of Article III standing a proposed class action against a health services provider that mistakenly disclosed personally identifiable information (“PII”).  In its opinion, the Second Circuit held that plaintiffs may establish Article III standing based on an increased risk of identity theft or fraud following an unauthorized disclosure of their data, but that the standard was not met based on the facts presented.  The decision, which is the first time the Second Circuit has explicitly adopted this standard, has potentially important implications going forward for data breach cases.

Continue Reading Second Circuit Articulates Injury Standard in Data Breach Suits

The Biden CFPB has begun a significant expansion in the use of consumer finance enforcement tools to act on behalf of marginalized communities.  On the back of Acting Director David Uejio’s announcement earlier this year of his intention to prioritize cases involving racial equity, and subsequent filing of the Biden CFPB’s first enforcement action against Libre Services for alleged abuse and “unfair practices” involving Spanish-speaking immigrant communities, the CFPB has also signaled a focus on potential violations of fair lending protections for LGBTQ individuals.
Continue Reading The CFPB Broadens Enforcement Reach to Include Protection of LGBTQ Individuals

Conventional wisdom is that under the Biden Administration, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) will pivot to a more muscular approach to enforcement of consumer financial protection laws.  The current leadership has already begun to signal the CFPB’s move towards a more aggressive approach while President Biden’s nomination to lead the agency, FTC Commissioner Rohit Chopra, is considered by the Senate Committee on Banking, Housing, and Urban Affairs.  CFPB Acting Director Dave Uejio has issued a number of statements identifying the agency’s priorities, particularly for the Bureau’s Division of Supervision, Enforcement & Fair Lending (“SEFL”), which are expected to continue—and potentially broaden—under a Chopra CFPB.[1]  The CFPB has already begun to rescind Trump administration policies restricting its enforcement more generally, and has indicated its intent to prioritize the enforcement of potential violations related to the COVID-19 pandemic and racial inequity.
Continue Reading The CFPB’s Much-Anticipated Enforcement Shift Has Begun

As discussed in our prior blog post, earlier this year the Supreme Court vacated and remanded the Second Circuit’s decision in a high-profile insider trading case, United States v. Blaszczak,[1] for reconsideration in light of the Supreme Court’s “Bridgegate” decision in Kelly v. United States.[2]  In Blaszczak, the Second Circuit had previously found that a government agency’s confidential pre-decisional information constituted “property” under Title 18, and that therefore the Blaszczak defendants had committed fraud under the applicable statutes when they obtained the information and traded on it.[3]  However, following that decision, the Supreme Court held in Kelly that a government regulatory interest did not constitute “property” for the purpose of Title 18 fraud statutes.[4]  The Blaszczak defendants filed a petition for certiorari, contending that the Second Circuit’s reading of Title 18 could not be reconciled with the Supreme Court’s holding.[5]  After the Blaszczak defendants filed their petition, the government consented to a remand to the Second Circuit.
Continue Reading DOJ Concedes Error In Title 18 Insider Trading Convictions After Supreme Court’s “Bridgegate” Decision

Last week, John Coates, the Acting Director of the SEC’s Division of Corporation Finance (“Corp Fin”), released a statement discussing liability risks in de-SPAC transactions.

The statement focused in particular on the concern that companies may be providing overly optimistic projections in their de-SPAC disclosures, in part based on the assumption that such disclosures are protected by a statutory safe harbor for forward-looking statements (which is not available for traditional IPOs).  Director Coates’s statement questions whether that assumption is correct, arguing that de-SPAC transactions may be considered IPOs for the purposes of the statute (and thus fall outside the protection offered by the statutory safe harbor).  He therefore encourages SPACs to exercise caution in disclosing projections, including by not withholding unfavorable projections while disclosing more favorable projections.
Continue Reading Acting Director of SEC’s Corp Fin Issues Statement on Disclosure Risks Arising from De-SPAC Transactions