On September 30, 2020, amidst a blizzard of cases filed at the end of the Securities and Exchange Commission’s fiscal year, the SEC announced a settlement with BGC Partners, Inc. (“BGC”) involving allegedly misleading disclosures concerning how it calculated a key non-GAAP financial measure (“NGFM”).[1]   This settlement is the latest in a string of enforcement actions relating to what the SEC views as improper uses of NGFMs.  In advance of year-end reporting, this action is a useful reminder to companies to carefully consider the SEC guidance and recent enforcement actions related to NGFMs.  At least 95% of all Fortune 500 companies publish NGFMs, and the SEC has indicated that it will be reviewing NGFMs with particular scrutiny this year-end in light of the challenges of reporting on performance during the COVID-19 pandemic. Continue Reading SEC Brings Enforcement Action Against Global Brokerage Company, Finding False and Misleading Statements In Connection With Non-GAAP Financial Measures

Over the weekend, former Vice President Joseph R. Biden, Jr. was declared the winner of the U.S. presidential election. Although President Trump has yet to concede and press reports suggest he will continue to make his case in court, thoughts have turned to what the Biden administration will mean for federal regulation of business and finance.

In many ways, the future will depend on whether the centrist, coalition-building Biden of yesteryear will show up, or if he will embrace the more progressive wing of the Democratic party that has since grown in influence. Below we lay out our initial reactions on how the Biden presidency is likely to reshape the corporate landscape.

If you have any questions, please feel free to contact the authors listed below or your regular contacts at the firm. Continue Reading What to Expect From the Biden Administration

On the eve of the U.S. presidential election last week, the SEC Enforcement Division released its annual report for fiscal year 2020 (the “Report”), providing an overview of the Division’s enforcement figures, developments, and areas of focus in what Director Stephanie Avakian described as “the most challenging year in recent memory.”[1]  This past year has marked, together with the longest shutdown in government history the year prior, a challenging but reasonably productive time for the SEC’s enforcement program.  Just as last year’s report highlighted the Division’s struggles during the fiscal shutdown, the final annual report of the Clayton-led SEC focuses on the significant disruption the COVID-19 pandemic has caused to the Division’s operations, investigations, and priorities, including the suspension of testimony for several months, establishment of a Coronavirus Steering Committee, and redirection of resources toward COVID-related fraud.  This time around, however, the Division could not avoid a drop-off in the number of enforcement cases, which seems attributable at least in part to the pandemic and its profound impact on the SEC’s operations. Continue Reading From Government Shutdown to COVID-19: SEC Enforcement Division Releases Final Chapter of Jay Clayton-led SEC

Late last week – for the first time in 40 years – the SEC announced a settlement of an internal controls case against an issuer arising from its repurchase of its own shares. The SEC found that Andeavor bought back $250 million of stock without first engaging in an adequate process to ensure that the company did not have material non-public information (MNPI) related to on-again, off-again takeover negotiations with Marathon Petroleum Company. Andeavor, now a subsidiary of Marathon, was ordered to pay a $20 million penalty and to cease and desist from future violations of the Securities Exchange Act’s internal controls provisions.

This case is a wake-up call – particularly in the current environment where stock buybacks are frequent market occurrences – that the SEC will be monitoring such activity, scrutinizing companies’ controls and decision-making when the buyback coincides with market-moving events, and bringing cases with potentially meaningful penalties even where there is no finding that the company violated the federal securities laws’ antifraud provisions by actually trading on the basis of MNPI.

Please click here to read the full alert memorandum.

On October 1, 2020, the SDNY District Court issued an important ruling in U.S. v. Halkbank, holding that foreign state-owned entities (“SOEs”) can be subject to criminal jurisdiction in the United States.

The Court denied the defendant Turkish state-owned bank’s motion to dismiss an indictment charging it with conspiracy, bank fraud, and money laundering in connection with allegedly processing $20 billion in Iranian oil and gas proceeds through the U.S. and international financial systems in violation of U.S. sanctions against Iran.

With this decision, the SDNY joins three Circuit courts that have addressed the unsettled issue by ruling that the Foreign Sovereign Immunities Act (“FSIA”) does not preclude a U.S. court from exercising criminal jurisdiction over a foreign sovereign instrumentality.

The Halkbank Court went a step further, rejecting Halkbank’s defenses related to common-law sovereign immunity, constitutional due process, and extraterritoriality. In addition to expanding the scope of liability that foreign SOEs may face in U.S. court, the decision is also notable for its strengthening of prosecutorial discretion on questions of foreign sovereign immunity.

Please click here to read the full alert memorandum.

On September 17, 2020, SEC Commissioner Hester Peirce gave a speech that focused on potential issues raised by investment advisers that—while purporting to follow environmental, social and governance (“ESG”)-labeled investment strategies—did not, in Commissioner Peirce’s words, “walk the ESG walk.”[1]  Her comments are the latest reminder that, while the SEC has continued to struggle with whether to mandate specific ESG disclosures, there seems to be consensus behind the SEC’s focus on determining whether advisers’ disclosures concerning ESG are sufficiently accurate and understandable.  Thus, asset managers would be well served to review and, where warranted, enhance their ESG-related disclosures and compliance policies in an area where the SEC’s Enforcement Division may well be looking to bring cases. Continue Reading Despite Disagreements, SEC Commissioners Emphasize Need for Clear Disclosure by ESG Funds

On September 15, 2020, the Securities and Exchange Commission issued a cease‑and‑desist order against Unikrn, Inc. concerning its 2017 initial coin offering  of UnikoinGold .  The SEC found that the Unikrn ICO violated the prohibition in Section 5 of the Securities Act of 1933 against the unregistered public offer or sale of securities.  The SEC imposed several remedies, including requiring Unikrn to permanently disable the UnikoinGold token and a civil money penalty of $6.1 million. Continue Reading SEC Issues Enforcement Action Against Unikrn, Inc. for its ICO, Prompting Rare Public Dissent from Commissioner Hester Peirce

On September 10, 2020, the Division of Enforcement (“Division”) of the Commodity Futures Trading Commission (“CFTC”) released guidance (“CFTC Guidance”) outlining factors the Division will consider when evaluating compliance programs in connection with enforcement actions. The CFTC Guidance ties into guidance released by the Division in May directing staff to consider an entity’s compliance program when recommending a penalty or other resolution as part of an enforcement action.

Please click here to read the full alert memorandum.

On September 3, 2020, the Antitrust Division of the DOJ issued a revised Policy Guide to Merger Remedies, following shortly after it announced a reorganization of its civil enforcement to create an Office of Decree Enforcement and Compliance.

The Policy Guide to Merger Remedies largely codifies a trend towards strengthening of the Division’s preference for structural remedies—such as divestitures—over conduct remedies—such as firewalls. This revision now expressly states that “[s]tructural remedies are strongly preferred in horizontal and vertical merger cases because they are clean and certain, effective, and avoid ongoing government entanglement in the market” (emphasis added), responding to a perception within the bar that vertical mergers (involving firms at different levels of the distribution chain that do not compete directly) are more amenable to conduct-only remedies. The Policy Guide also lays out conditions when the Division may accept a conduct-only remedy: (1) a transaction generates significant efficiencies that cannot be achieved without the merger; (2) a structural remedy is not possible; (3) the conduct remedy will completely cure the anticompetitive harm, and (4) the remedy can be enforced effectively.

Please click here to read the full alert memorandum.

Background

On August 20, 2020, the Department of Justice (“DOJ”) announced that it had charged Joseph Sullivan, the former Chief Security Officer (“CSO”) of Uber Technologies Inc. (“Uber”), with obstruction of justice and misprision of a felony for allegedly attempting to cover up Uber’s 2016 data incident during the course of an investigation by the Federal Trade Commission (“FTC”).  While the DOJ and federal law enforcement have generally treated corporate hacking targets as victims in connection with data breaches, the charges against Sullivan reinforce that they will actively pursue any violations of federal law that are committed by entities or individuals during the course of responding to such incidents. Continue Reading DOJ Charges Former Uber Executive for Alleged Role in Attempted Cover-Up of 2016 Data Breach