On December 29, 2022, in a closely-watched insider trading case, the Second Circuit decided United States v. Blaszczak (“Blaszczak II”).[1] The Supreme Court in January 2021 had vacated and remanded the Second Circuit’s prior decision in light of Kelly v. United States (also known as the “Bridgegate” decision). On remand, a divided panel of the Second Circuit found that trading on the basis of certain confidential government information related to pending regulation does not give rise to violations of the criminal wire fraud and securities fraud statutes.Continue Reading Second Circuit Decision Limits the Ability to Prosecute Instances of Trading on Confidential Government Information
United States
Accelerated Pace and Increased Regulatory Expectations in Enforcement and Compliance Investigations
The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2023”.
The Securities and Exchange Commission (SEC) and Department of Justice (DOJ) ramped up their enforcement efforts in 2022, often in highly coordinated actions, including with other regulatory agencies such as the Commodity…
U.S. SEC Enforcement 2022 Year in Review
By Matthew C. Solomon, Robin M. Bergen, Tom Bednar, Alex Janghorbani, Meghan A. Leibold & Nora J. Vallerini on
The U.S. Securities and Exchange Commission recently announced the Division of Enforcement’s results for fiscal year 2022, the first full year for the Division under the leadership of both Chair Gary Gensler and Director of Enforcement Gurbir Grewal.
Results were up from the year before, with a record $4.2 billion in civil penalties reflecting the…
New Requirements for Outsourcing by Advisers: Proposed SEC Rule Brings More Obligations and Scrutiny
On October 26, 2022, the U.S. Securities and Exchange Commission (“SEC”) proposed a new rule under the Investment Advisers Act of 1940 (“Advisers Act”) imposing due diligence, recordkeeping and reporting obligations on registered investment advisers (“RIAs”) who outsource certain key “covered functions” of the adviser’s business to third parties, including affiliates. The Proposal represents another step toward more substantive regulation of RIAs by the SEC under Chairman Gensler, and will impose real costs and operational risk on RIAs.
Continue Reading New Requirements for Outsourcing by Advisers: Proposed SEC Rule Brings More Obligations and Scrutiny
OFAC and FinCEN Announce Joint Enforcement Action Against U.S.-Based Digital Asset Exchange
By Chase D. Kaniecki, Tom Bednar, Patrick Fuller, Samuel H. Chang, Michael G. Sanders, William S. Dawley & Stephanie Gullo on
On October 11, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and Financial Crimes Enforcement Network (“FinCEN”) announced related enforcement settlements with Bittrex, Inc., a U.S.-based digital asset exchange and hosted wallet services company (the “Company”), to settle violations of U.S. sanctions and the Bank Secrecy Act (“BSA”) and related regulations, respectively.[1] The OFAC Settlement, the largest of OFAC’s digital asset-related enforcement actions to date, and the FinCEN Consent Order collectively result in the Company paying a civil penalty of approximately $30 million. Following OFAC’s release of its “Sanctions Compliance Guidance for the Virtual Currency Industry” (which we wrote about here)[2] and recent revelations regarding prosecution by the U.S. Department of Justice of digital asset-related U.S. sanctions violations (which we wrote about here),[3] this joint OFAC-FinCEN enforcement action illustrates the U.S. government’s continued focus on the digital asset industry’s compliance with U.S. sanctions and the potentially significant penalties parties can face for U.S. sanctions and BSA violations.
Continue Reading OFAC and FinCEN Announce Joint Enforcement Action Against U.S.-Based Digital Asset Exchange
SEC Charges Company Executives with Insider Trading for Allegedly Setting Up 10b5-1 Trading Plan While in Possession of MNPI
By Matthew C. Solomon, Tom Bednar & Sarah Choi on
On September 21, 2022, the Securities and Exchange Commission announced settled insider trading charges against the CEO and the former President and Chief Technology Officer of Cheetah Mobile Inc. (the “Company”), a China-based mobile internet company. The executives allegedly possessed material nonpublic information (“MNPI”) when they set up a trading plan under Rule 10b5-1 of the Securities Exchange Act.
Continue Reading SEC Charges Company Executives with Insider Trading for Allegedly Setting Up 10b5-1 Trading Plan While in Possession of MNPI
SEC and DOJ Charge Employee of Digital Asset Trading Platform and His Associates With Alleged Insider Trading in Digital Assets
By Tom Bednar, Samuel Levander & William S. Dawley on
On July 21, 2022, the Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York charged Ishan Wahi, a former employee of the digital asset trading platform Coinbase (the “Company”), as well as his brother and friend, with engaging in insider trading ahead of certain of the Company’s digital asset listing announcements (i.e., announcements in which the Company publicly discloses the specific digital assets that it plans to make available for trading on its platform), which allegedly generally increase the value of the relevant digital assets.
Continue Reading SEC and DOJ Charge Employee of Digital Asset Trading Platform and His Associates With Alleged Insider Trading in Digital Assets
FDIC Issues Cease and Desist Letters to Companies for Crypto-Related Representations About Deposit Insurance
By Hugh C. Conroy, Jr., Tom Bednar, Brandon M. Hammer & Megan Lindgren on
The last few weeks have seen a significant ramp-up of federal bank regulators’ focus on cryptocurrency companies and their disclosures regarding FDIC deposit insurance, signaling a potential spike in enforcement actions targeted at the crypto sector.
Continue Reading FDIC Issues Cease and Desist Letters to Companies for Crypto-Related Representations About Deposit Insurance
Form PF, Take Two: The SEC and CFTC Propose Further Amendments To Reporting Obligations For Private Equity and Hedge Funds
On August 10, 2022, the U.S. Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) jointly adopted proposed amendments to Form PF that would significantly expand reporting by private equity advisers and hedge fund advisers of both their investments and structures (the “Proposal,” available here). The Proposal is part of an ongoing effort to bolster the SEC’s regulatory oversight of private fund advisers and investor protection efforts, while also purportedly enhancing the Financial Stability Oversight Counsel’s (“FSOC”) ability to monitor systematic risk.
Continue Reading Form PF, Take Two: The SEC and CFTC Propose Further Amendments To Reporting Obligations For Private Equity and Hedge Funds
DFS Enters Consent Order with Robinhood Crypto for Deficiencies in AML, Cybersecurity, and Virtual Currency Compliance
By Lisa Vicens, Tom Bednar, Alex Janghorbani, Anthony M. Shults, Samuel Levander & Mohit Rathi on
On August 1, 2022, Robinhood Crypto LLC (“RHC”) entered into a Consent Order with the New York Department of Financial Services (“DFS”) based on “serious deficiencies” related to anti-money laundering (“AML”), cybersecurity, and virtual currency that were identified in DFS’s examination of RHC covering the period from January to September 2019.
Continue Reading DFS Enters Consent Order with Robinhood Crypto for Deficiencies in AML, Cybersecurity, and Virtual Currency Compliance