On October 16, 2018, the Securities and Exchange Commission released a Report of Investigation that cautioned public companies to consider cyber threats when designing and implementing internal accounting controls.  The report was based on an investigation of nine victims of email cyber-fraud schemes for potentially failing to have adequate internal accounting controls, in violation of the Securities Exchange Act of 1934.  The report highlights the need for companies to reassess their controls in light of the current cybersecurity risk environment.  By describing the remedial steps taken by the investigated companies, it further provides guidance about the key areas that companies should consider when assessing their own policies and procedures.
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On September 27, 2018, the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) filed parallel actions in federal court against an internet dealer that sold “contracts for difference” (CFD) based on securities and commodities margined with bitcoin.  The actions, which were assisted by the Federal Bureau of Investigation and the Department of Justice, signal continued coordination among federal agencies to police market activity involving financial transactions in cryptocurrencies.
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Over the past year, the U.S. Securities and Exchange Commission (“SEC”) has increasingly scrutinized initial coin offerings (“ICO”) and certain digital assets.  On September 20, 2018, the SEC’s Enforcement Division co-Director, Stephanie Avakian, gave a speech in which she addressed the Division’s approach to dealing with these new forms of tradeable assets.  This speech came only days after the SEC settled its first case charging an unregistered broker-dealer for facilitating the sale of digital tokens from several ICOs since the 2017 DAO Report.  In her speech, Avakian provided three key insights into the Division’s enforcement strategy.
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On Tuesday, September 11, 2018, Judge Raymond J. Dearie of the Eastern District of New York issued a decision holding that Initial Coin Offerings (“ICO”) may qualify as securities offerings and therefore be subject to the criminal federal securities laws.  This ruling came as two U.S. regulators—the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”)—announced separate actions under securities laws against companies engaged in the cryptocurrency marketplace, including the sale of digital tokens.  As the popularity of cryptocurrencies grows and businesses and entrepreneurs increasingly turn to ICOs to raise capital, these developments may serve as guideposts for how cryptocurrencies and ICOs will be viewed by courts and federal regulators in cases to follow.
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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. 
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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.
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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.
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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

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.

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On April 18, 2018, the Securities and Exchange Commission (“SEC”) proposed Regulation Best Interest under the Securities Exchange Act of 1934 to establish a new “best interest” standard of conduct for broker-dealers when making a recommendation of any transaction or investment strategy involving securities to a retail customer. The SEC also proposed an interpretation to