On January 24, 2022, Securities and Exchange Commission Chair Gary Gensler gave a speech at the Northwestern Pritzker School of Law’s Annual Securities Regulation Institute signaling the SEC’s intention to step up its cyber-related regulatory and enforcement efforts.  Gensler described the continued rise in cybersecurity incidents targeting the financial sector as a serious threat to the nation’s economy and critical infrastructure, with costs potentially in the trillions of dollars. Continue Reading SEC Chair Previews Ramp Up in Regulation and Enforcement in the Cybersecurity Context

On January 26, 2022 the U.S. Securities and Exchange Commission (“SEC”) adopted proposed amendments to Form PF that would dramatically expand both the frequency and amount of reporting by private fund advisers and hedge fund advisers (the “Proposal”).  The Proposal is purportedly intended as part of an effort to bolster the Financial Stability Oversight Counsel’s (“FSOC”) ability to monitor systemic risk.  However the breadth of the new reporting requirements goes well beyond this stated objective and captures smaller investment advisers and routine investment activity that appear purely to foster the SEC’s more general objectives – data collection to support examinations, investigations and investor protection efforts relating to exempt reporting advisers.  Indeed, many of the new reporting requirements align to recent risk alerts and statements about proposed rulemaking from the staff and SEC Chair Gensler.  If adopted, these amendments will facilitate more aggressive action by the Enforcement Division as well as the Division of Examinations.

Most notably, the Proposal would introduce a “current reporting” requirement that would  require registered investment advisers to report certain events within one business day of occurrence.  For private equity fund advisers, those events would include: general partner or limited partner clawbacks, adviser-led secondary transactions, removal of a fund’s general partner, termination of a fund’s investment period and termination of a fund.  Current reporting events for large hedge fund advisers would include substantial declines in a fund’s net asset value or unencumbered cash, certain margin events, material changes in prime broker relationships and significant impairments of fund operations.

Please click here to read the full alert memorandum.

Cybersecurity and data privacy continue to be among the most significant legal risks that businesses face today.

Last year brought a series of high-profile cyberattacks on major companies and U.S. infrastructure targets, continuing the trend seen in recent years. Regulators also brought a number of cybersecurity enforcement actions and announced new rules, guidance, and initiatives on ransomware and other cyber-related issues. In addition, after many years of debate, Congress made some progress in crafting legislation that would require certain companies to report significant cyberattacks and ransomware payments to the U.S. federal government. Companies should expect the demands of cybersecurity risk management and oversight to intensify as we enter 2022. Continue Reading 2021 Cybersecurity and Privacy Developments in the United States

On January 14, 2022, the United States District Court for the Northern District of California issued a decision in SEC v. Matthew Panuwat[1] validating the legal theory advanced by the Commission that trading in the securities of a competitor company could form the basis of an insider trading violation where the defendant learned that an acquisition of his employer was imminent.  In denying the defendant’s motion to dismiss the complaint, the court ruled that the SEC had sufficiently pled a claim, marking the first judicial decision concerning alleged insider trading in securities of a company based on material, nonpublic information (“MNPI”) about another company, a practice that has sometimes been referred to as “shadow trading.”   The court’s refusal to dismiss the SEC’s novel legal theory that trading on the basis of MNPI of one company to profit on a securities transaction involving a competitor constitutes actionable insider trading should be considered by companies and individuals as they assess trading decisions and policies. Continue Reading SEC’s “Shadow Trading” Insider Trading Case Allowed to Proceed

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2022”.

The path was paved in 2021 for unprecedented tax developments in the coming years for large businesses, especially for multinationals and investment businesses operating across borders. The year ended with what appeared to be significant progress in the OECD/G-20 “inclusive framework” project, with nearly 140 countries working to fundamentally change some of the ways in which they will tax multinational businesses. 2022 may also bring other new taxes and new tax regimes, amidst enhanced investigations and enforcement action in key jurisdictions like the United States and the European Union.

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For a PDF of the full memorandum, please click here.

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2022”.

2021 was a year of transition for white-collar criminal and regulatory enforcement. As courthouses reopened and trials resumed, newly-installed heads of law enforcement authorities looked to reset priorities and ramp up enforcement in the first year of the Biden administration.  Policy priorities shifted toward enforcement against sophisticated financial institutions, corporates and their executives, in contrast to the previous administration’s focus on retail investors and schemes with identifiable victims.  While the shift at the SEC was more immediately visible with major new enforcement priorities, investigations and resolutions, the DOJ adopted policies and announced new initiatives that will likely only find expression in 2022.

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For a PDF of the full memorandum, please click here.

On December 6, 2021, the Biden Administration issued the “United States Strategy on Countering Corruption”. It is the U.S. government’s first-ever comprehensive anti-corruption plan, and “marks a new chapter” in the country’s efforts to curb graft. If the Administration is successful in executing it, the Strategy may spur a significant increase in anti-corruption investigations and actions. It was issued against the backdrop of heightened focus by the Department of Justice and the Securities and Exchange Commission on anti-corruption enforcement.

Please click here to read the full alert memorandum.

On October 28, 2021, Deputy Attorney General Lisa O. Monaco announced the administration’s first significant changes to the DOJ’s policies on corporate criminal enforcement, highlighting departures from Trump-era policies. The announcement focused on three corporate enforcement policy developments:

  1. Individuals and Corporate Misconduct: to be eligible for cooperation credit, companies must provide the DOJ with all non-privileged information about individuals involved or responsible for the misconduct at issue, regardless of their position, status, or seniority;
  2. Consideration of Prior Misconduct: all prior misconduct will be evaluated as part of the DOJ’s decision-making on proper corporate resolution, whether or not that misconduct is similar to the conduct at issue for a particular investigation; and
  3. Revisions to Corporate Monitorship Guidance: for companies cooperating with the government, there will be no default presumption against corporate monitors. Rather, the decision on whether to impose a corporate monitor will be determined on the facts and circumstances of each case.

This initial set of changes to the DOJ’s corporate enforcement policies signals what most expected from the Biden administration: a renewed and aggressive focus on and approach to corporate misconduct.

Please click here to read the full alert memorandum.

On October 15, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued “Sanctions Compliance Guidance for the Virtual Currency Industry” (the “Guidance”).  The Guidance follows recent guidance and advisory letters directed to the virtual currency industry relating to the risk of facilitating ransomware payments[1] and is OFAC’s most comprehensive virtual currency-specific advisory to date.  In particular, the Guidance directly addresses some simpler interpretive questions, discusses sanctions compliance programs and “best practices,” and provides hints about OFAC’s enforcement priorities going forward. Continue Reading OFAC Issues Sanctions Guidance to Virtual Currency Industry

On September 2 and 3, 2021, the Securities and Exchange Commission (“SEC”) announced settlements with Pareteum Corporation (“Pareteum”) and Kraft Heinz Co.[1] (“KHC”) for accounting fraud following years of alleged accounting improprieties and financial restatements at both companies.  The underlying facts differed in significant ways, including with respect to the alleged involvement of senior executives, but both companies apparently received cooperation credit for their prompt and proactive remediation and cooperation with the SEC Division of Enforcement’s investigations.  The messaging in relation to the announcement of these cases and their timing, coming in the early days of new Enforcement Director Gurbir Grewal’s tenure, is instructive.  We expect the SEC to continue to focus on accounting fraud and to credit companies who provide cooperation in these challenging and resource-intensive investigations.  To see a meaningful increase in the frequency and nature of cooperation, the SEC would be well-served to provide even more explicit guidance on how cooperation results in improved settlement terms.  That said, these recent settlements are helpful in understanding the benefits of cooperation at this time. Continue Reading Two Recent Settlements Highlight Heightened SEC Focus on Accounting Fraud and Potential Benefits of Cooperation