Enforcement

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On October 25, 2024, the Securities and Exchange Commission (“SEC”) adopted amendments to certain rules in the Covered Clearing Agency Standards (the “Amendments”) aimed at improving risk management and resilience of covered clearing agencies (“CCAs”).  Although not directly relevant to firms who are participants in one of the clearing agencies, the amendments could result in changes to margin requirements imposed by clearing agencies.  The Amendments:Continue Reading Clearing Agency Participants Take Note: Covered Clearing Agency Resilience Rules Could Bring New Margin Requirements

September 23, 2024, Principal Deputy Assistant Attorney General Nicole M. Argentieri announced revisions to the Department of Justice (“DOJ”), Criminal Division’s compliance guidance, known as the Evaluation of Corporate Compliance Programs (“ECCP”), which is used by DOJ prosecutors to assess the effectiveness of a company’s compliance program in the context of a corporate investigation.[1]  The updated compliance guidance incorporates changes that will focus on a company’s use of Artificial Intelligence (“AI”)[2] and other technologies, its use of data analytics as part of the compliance function, the incorporation of “lessons learned” to continuously enhance corporate compliance programs, and whistleblower reporting.[3] Continue Reading DOJ Announces Revisions to Compliance Guidance Focused on AI, Whistleblower Reporting, and Other Areas

In the past few weeks, the Securities and Exchange Commission (“SEC”) has announced three settled enforcement actions alleging violations of the internal controls provisions of the federal securities laws.  The cases are notable less for the SEC penalties involved—which ranged from no penalty to $400,000—but rather for the other, more dire consequences the companies experienced as a result of internal controls failures, such as financial restatements, delayed SEC filings that led to an exchange delisting, and serious employee misconduct that went unchecked.  The cases underscore the importance of establishing and maintaining effective systems of internal control over financial reporting. Continue Reading Trio of SEC Enforcement Actions Underscores Importance of Internal Controls, Including in M&A Context

Last week brought Securities and Exchange Commission (“SEC”) enforcement developments that, in our view, demonstrate the SEC’s interest in pursuing cases against investment advisers for conduct that would have been restricted under the Private Fund Adviser Rules (“PFAR”) and that the SEC stated in the PFAR adopting release was inconsistent with advisers’ fiduciary obligations.  As expected – and as previewed in our Client Alert on the Fifth Circuit’s decision in June – the SEC clearly still intends to act on the same concerns it raised in PFAR and will use its examination and enforcement tools to scrutinize the same adviser practices that drove the rulemaking.Continue Reading SEC Enforcement Updates – Post-PFAR Developments

There were significant developments last week in two recent criminal enforcement initiatives that were first announced earlier this year.  First, the Department of Justice (“DOJ”) outlined the details of its long-anticipated whistleblower bounty program.[1]  Second, on July 30, 2024, President Biden signed into law a number of amendments to the Foreign Extortion Prevention Act (“FEPA”).[2]  Both of these developments underscore the importance of investing in robust compliance programs and conducting timely investigations of potential misconduct.Continue Reading Two Enforcement Developments: DOJ Launches Whistleblower Awards Pilot Program and Amendments to the Foreign Extortion Prevention Act Are Passed into Law

Earlier this month, the California State Budget released for approval by the state legislature included an updated version of Senate Bill 54 (the “VC Diversity Law”).  The latest version contains several updates to the VC Diversity Law, including revisions to the definition of “covered entity;” that said, as we discuss below, it is not clear that the scope of coverage will meaningfully differ.  The updates also delay the initial reporting date to March 1, 2026 (from the original date of March 1, 2025), and reflect a change to the California governmental division responsible for enforcing the law.Continue Reading California Updates Diversity Reporting Law for Venture Capital Funds to Start in 2026

With its decision in Securities and Exchange Commission v. Keener (May 29, 2024), the U.S. Court of Appeals for the Eleventh Circuit has now twice in the span of four months affirmed a broad interpretation of who is considered a “dealer” for purposes of the securities laws. More specifically, the Eleventh Circuit upheld the Securities and Exchange Commission’s (“SEC”) position that a person engaged in the business of purchasing—for its own account—convertible debt notes from microcap issuers (also referred to as “penny-stock” companies), converting the notes into common stock, and selling that stock in the market meets the definition of a “dealer” under the Securities Exchange Act of 1934 (the “Exchange Act”), and must therefore be registered as a dealer with the SEC. The decision in Keener closely tracked the same Court’s decision in Securities and Exchange Commission v. Almagarby, Microcap Equity Group (February 14, 2024), in which the Eleventh Circuit agreed with the SEC that the plaintiff Almagarby had been acting as an unregistered “dealer” in violation of the Exchange Act by obtaining convertible debt of microcap companies for his own account, converting the debt into common stock, and then selling the stock. Continue Reading Keener, Almagarby, and the Scope of the “Dealer” Definition: Potential Implications for Fund Managers and other Investors

On April 24, 2024, President Biden signed into law H.R. 815, a foreign aid bill containing a provision that doubles the statute of limitations (SoL) for civil and criminal violations of U.S. sanctions and other national security programs from five years to ten years.Continue Reading Statute of Limitations for U.S. Sanctions Violations Extended from Five to Ten years

On March 27, 2024, the U.S. Securities and Exchange Commission (“SEC”) announced amendments to the Internet Adviser Exemption, which permits investment advisers that provide advisory services through the internet (“Internet Investment Advisers”) to register with the SEC under the Investment Advisers Act of 1940 (“Advisers Act”) if they do not otherwise have enough assets under management to be eligible for registration.[1]  The final rule seeks to address technological and industry advancements since the original Internet Adviser Exemption was adopted in 2002.  The final rule also amends the interactive website requirement, eliminates the exception for advisers with de minimis non-internet clients, and imposes additional reporting requirements for Internet Investment Advisers on Form ADV.Continue Reading SEC Announces Reforms for Internet Investment Advisers

On March 18, 2024, the SEC announced two enforcement actions against investment advisers for so-called “AI-washing” and violations of the Marketing Rule.  Using the playbook from the Enforcement Division’s “green-washing” cases in the ESG space, the SEC found that the two investment advisers marketed that they were using AI in certain ways, when in fact, the advisers were not. Continue Reading SEC Announces “AI-Washing” Cases Against Investment Advisers