Enforcement

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On August 21, 2018, the Commodity Futures Trading Commission (the “CFTC”) unanimously approved final amendments (the “Amendments”) to its regulations governing chief compliance officer (“CCO”) duties and annual compliance report requirements for swap dealers, major swap participants and futures commission merchants (together, “Registrants”) (the “CCO Rule”).

The Amendments seek to streamline and clarify the CCO…

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

On July 18, 2018, the U.S. Securities and Exchange Commission (the “SEC” or “Commission”) voted to approve a final rule (the “Final Rule”) amending Regulation Alternative Trading System (“Regulation ATS”) to require alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks (“NMS Stock ATSs”) to file with the SEC new Form ATS-N to begin operations or, for currently operating ATSs, to continue operations.  Form ATS-N will provide for enhanced disclosures regarding the ATS’s operations and relationship with its broker-dealer operator relative to current Form ATS and will be publicly available.  Importantly, unlike under the November 2015 proposal (the “Proposed Rule”), the SEC would automatically deem the Form ATS-N submissions to be effective after the review period, unless the Commission found it to be ineffective.
Continue Reading SEC Reforms Regulation ATS to Improve Trading Transparency

A federal district court in California has become the latest court to hold that the 10-year statute of limitations under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) for offenses “affecting a financial institution” extends to offenses committed by banks and their employees, not just offenses committed against them.  The decision is the latest chapter in a long-running debate between the Government and financial institutions that has played out in a series of federal court decisions over the last three years regarding interpretation of FIRREA.  While this is not the first decision to hold that the 10-year limitations period applies to offenses by financial institutions, it is the first outside of the Second Circuit.
Continue Reading California District Court Holds that FIRREA’s 10-Year Statute of Limitations Reaches Risks Caused to Financial Institutions by Their Own Employees

On July 11, 2018, the Securities and Exchange Commission’s (“Commission”) Office of Compliance Inspections and Examinations (“OCIE”) published a risk alert describing common deficiencies that OCIE staff observed in recent examinations regarding advisers’ compliance with their obligation under the Investment Advisers Act of 1940 (the “Advisers Act”) to seek “best execution” of client transactions.  This obligation is a specific component of advisers’ general fiduciary duties owed to clients and requires an adviser to execute transactions so that “the client’s total cost of proceeds in each transaction is the most favorable under the circumstances.”  Though what constitutes “best execution” lacks a uniform definition, the staff continues to maintain the well-settled principle that an analysis of whether a broker-dealer provides best execution should be qualitative based on the nature of the broker-dealer’s services, and that the lowest price does not necessarily equate to best execution.  The risk alert nonetheless clarifies and reiterates particular practices that the staff considers inconsistent with an adviser’s best execution obligation. 
Continue Reading OCIE Risk Alert Focuses on “Best Execution” and Investment Advisers

During the course of the last month, the Securities and Exchange Commission (“SEC”) brought two enforcement actions related to inadequate disclosure of perquisites.  In early July, the SEC issued an order finding that, from 2011 through 2015, an issuer failed to follow the SEC’s perquisite disclosure standard,[1] which resulted in a failure to disclose approximately $3 million in named executive officer perquisites.[2]   In addition to the imposition of a $1.75 million civil penalty, the SEC order mandated that the issuer retain an independent consultant (at its own expense) for a period of one year to conduct a review of its policies, procedures, controls and training related to the evaluation of whether payments and expense reimbursements should be disclosed as perquisites, and to adopt and implement all recommendations made by such consultant.
Continue Reading Recent SEC Enforcement Actions on Inadequate Perquisite Disclosure

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,…