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 July 11, 2018 the U.S. Department of Justice (“DOJ”), Bureau of Consumer Financial Protection (“CFPB”), the Securities and Exchange Commission (“SEC”) and the Federal Trade Commission (“FTC”) announced the establishment of a new Task Force on Market Integrity and Consumer Fraud (the “Task Force”).[1]  Deputy Attorney General Rod Rosenstein made the announcement on behalf of the Task Force, joined by Acting Director Mick Mulvaney of the CFPB, Chairman Jay Clayton of the SEC and Chairman Joe Simons of the FTC. Continue Reading DOJ Announces New Inter-Agency Task Force on Market Integrity and Consumer Fraud

On June 27, 2018, Equifax Inc., the credit reporting agency, agreed to implement stronger data security measures under a consent order with the New York State Department of Financial Services (“NYDFS”) and seven other state banking regulators.[1]  The order imposes detailed duties on Equifax’s Board of Directors in response to criticisms raised by the regulators during an examination of Equifax’s cybersecurity and internal audit functions.  The examination followed the company’s massive 2017 data breach, which exposed sensitive personal information of nearly 148 million customers.  Equifax agreed to the order without admitting or denying any charges of “unsafe or unsound information security practices.” Continue Reading State Regulators Reach Settlement With Equifax in Connection With Massive Data Breach

On June 22, 2018, the United States Supreme Court decided Carpenter v. United States, in which it held that the government must generally obtain a search warrant supported by probable cause before acquiring more than seven days of historical cell-site location information (“CSLI”) from a service provider. Noting “the deeply revealing nature of CSLI, its depth, breadth, and comprehensive reach, and the inescapable and automatic nature of its collection,” the Court held that an individual “maintains a legitimate expectation of privacy in the record of his physical movements captured through CSLI” that warrants Fourth Amendment protection. While the Court sought to construe its decision narrowly, the reasoning of the majority and Justice Gorsuch in his dissent raise significant questions about whether and to what extent individuals may have a reasonable expectation of privacy or possessory interest in other sensitive personal data held by third parties beyond the CSLI at issue in Carpenter.

Please click here to read the full alert memorandum.

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

On June 13, 2018, in its latest decision in a long-running litigation, the U.S. District Court for the District of Columbia considered the applicability of certain exemptions under the Freedom of Information Act (“FOIA”) to documents sought by journalists relating to the actions of the independent compliance monitor that Siemens AG was required to retain under the terms of its 2008 plea agreement for violations of the Foreign Corrupt Practices Act (the “FCPA”).  Broadly speaking, although the court concluded that portions of the documents that related to Siemens’ business operations and the DOJ’s analysis of the monitor’s activities were exempted from disclosure, the court also required the DOJ to produce other portions of those materials and to reevaluate, based on the court’s decision, whether additional materials had to be disclosed.  The decision, and the lengthy litigation over the application of FOIA to these materials, highlight the complexity of identifying the boundaries of the FOIA protection applicable to the typically sensitive and confidential information companies provide to compliance monitors and the risk that such information later will have to be disclosed once it is in the hands of the government.  Continue Reading Recent District Court Decision on Applicability of FOIA to Siemens FCPA Monitorship Documents Provides Guidance on Scope of Possible Disclosures

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.

On June 1, 2018, the U.S. Securities and Exchange Commission (“SEC”) issued a press release announcing settlements for $75,000 each with 13 private fund advisors for violating their disclosure obligations under Rule 204(b)-1 under the Investment Advisers Act of 1940.  Rule 204(b)-1, adopted to increase transparency in the U.S. financial system and identify risks to financial stability, implemented provisions of Title IV of the Dodd-Frank Act and requires that SEC-registered investment advisers with at least $150 million in private fund assets under management file Form PF with the SEC. Continue Reading SEC Settles With Private Funds For Rule 204(b)-1 Disclosure Violations

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 May 30, 2018, the Federal Reserve Board approved a 373-page notice of proposed rulemaking that represents a first step toward simplifying and clarifying the Volcker Rule.

The other four agencies responsible for implementation are expected to approve the notice in the coming days. The linked alert memorandum provides a brief summary of our headline takeaways.

Please click here to read the full alert memorandum.