Insider trading law has remained a subject of significant debate and attention, including with a recent Second Circuit decision addressing the use of 18 U.S.C. §§ 1343 (wire fraud) and 1348 (securities fraud) in insider trading cases[1] and a new insider trading bill that passed the U.S. House of Representatives in December by an overwhelming majority.  Yesterday, a blue ribbon task force headed by Preet Bharara, the former U.S. Attorney for the Southern District of New York, published a report studying the history and current state of insider trading law and proposing reforms that would bring greater clarity and certainty to the law. Continue Reading Task Force Led By Preet Bharara and Cleary Gottlieb’s Joon H. Kim Issues Report Recommending Reforms to Insider Trading Law

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2020”.

SEC Disclosure and Reporting Developments

Recently, the US Securities and Exchange Commission continued to move forward with a number of disclosure effectiveness and simplification initiatives, the details of which are available in our Disclosure Simplification Tracker.

Although many of these changes are administrative in nature, collectively they represent an ongoing shift toward principles-based disclosure. In the coming year, we expect that the practical limits of principles-based disclosure will be tested as the SEC moves to implement its August 2019 proposal for the simplification of the narrative description of the business and risk factor items, and attempts to tackle simplification of the MD&A section, which they have included on their Fall 2019 regulatory short-term agenda.

While we expect these changes will give wider latitude for companies to customize their disclosures, the impact may be less than expected because they will do little to address the underlying legal judgments about litigation and reputational risk management that have shaped the form of current disclosure practices.

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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 2020”.

Enforcement of anti-bribery, sanctions and money laundering laws remains a top priority for US authorities. In 2019, the US Department of Justice and civil regulators issued new or updated policies aimed at increasing incentives for self-reporting by companies. Different agencies also provided additional guidance about compliance programs, including the role of officers and directors in supervising compliance programs.

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

The Second Circuit has made it easier for federal prosecutors to bring insider-trading cases.  In United States v. Blaszczak, decided on December 30, 2019, the Court held that the personal-benefit test—a judge-made rule that the government must prove a tipper expected to receive some benefit in exchange for disclosing confidential information—does not apply to insider‑trading prosecutions brought under certain federal criminal fraud statutes.  The Blaszczak decision thus opens the door to insider-trading prosecutions where a “personal benefit” would be difficult or impossible to prove.  The decision contained another notable holding:  a government agency’s confidential regulatory information can constitute “property,” such that its misappropriation can be the basis for an insider-trading prosecution under the criminal fraud statutes.  This holding—which triggered a dissent by one of the panel members—could facilitate insider‑trading prosecutions involving so-called “political intelligence” consultants, like Blaszczak, who collect and analyze information concerning government agency activity that can be used in making securities trading decisions.

Please click here to read the full alert memorandum.

On January 7, 2020, the U.S. Securities and Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) released its 2020 Examination Priorities (“2020 Priorities”).  While at first blush the themes appear consistent with and predictable from their 2019 priorities, on closer read OCIE has provided some new insights and some unexpected focus areas.  The themes for the 2020 Priorities are:  retail investors, information security, financial technology (“Fintech”) and innovation (including digital assets and electronic investment advice), several areas covering registered investment advisers and investment companies, anti-money laundering, market infrastructure (clearing agencies, national securities exchanges, alternative trading systems, transfer agents), and oversight of the Financial Industry Regulatory Authority and Municipal Securities Rulemaking Board programs and policies.  OCIE also stressed the challenges it faced in light of last year’s government shutdown and resource constraints, as the Division of Enforcement did in its 2019 Annual Report (see our analysis here), and the challenges in examining non-U.S. advisers due to limits that foreign data protection and privacy laws may place on cross-border information transfers.  In this post, we analyze the highlights in and our takeaways from the 2020 Priorities. Continue Reading From the Expected to the Surprises: Highlights of SEC OCIE’s 2020 Priorities

In recent years, numerous senior executives have resigned or been terminated for engaging in undisclosed consensual relationships with subordinates. Such relationships are gaining particular attention in the wake of the heightened scrutiny around workplace behavior, because they raise concerns relating to, among other things, potential power imbalances and conflicts of interest in the workplace. Thus, it is increasingly important for companies to consider whether to institute policies governing close personal relationships, and what those policies might look like. We address a few key considerations to guide those decisions.

Please click here to read the full alert memorandum.

On Tuesday, November 12, 2019, the U.S. Federal Trade Commission (“FTC” or “Commission”) announced a proposed settlement with InfoTrax Systems, L.C. (“InfoTrax”), a third-party service provider, regarding multiple data security failures.  As a result of these security shortcomings, a hacker accessed about one million consumers’ sensitive personal information after more than twenty intrusions into InfoTrax’s network.  This settlement marks one of the first instances in which the FTC has alleged a violation of the FTC Act predicated solely upon the failure to maintain reasonable security measures by a third-party service provider.  The settlement is also notable for a Commissioner’s concurring statement criticizing the settlement’s standard twenty-year term. Continue Reading Latest FTC Data Privacy Settlement May Signal More Direct Approach to Regulating Data Security

On November 6, 2019, the SEC’s Division of Enforcement released its annual report (the “Report”) describing its enforcement actions from fiscal year 2019.[1]  Like prior reports, the Report quantifies the Division’s activities in a number of ways and discusses priority areas going forward.  The Report also brings front-and-center certain challenges the Division has faced – including difficulties navigating recent Supreme Court decisions that call into question the constitutionality of the SEC’s administrative proceedings and the agency’s ability to obtain disgorgement, as well as the impact of the government shut-down and general resource constraints. Continue Reading Headwinds and Shifting Priorities: Beyond the Numbers In The SEC Enforcement Division’s 2019 Annual Report

On November 1, 2019, the Supreme Court granted certiorari in Liu v. SEC to decide whether the Securities and Exchange Commission can obtain disgorgement as an equitable remedy in federal court enforcement actions.

The certiorari grant in this case is unusual, because the circuit courts that have considered the issue have all agreed that the SEC can obtain disgorgement from a district court exercising its equitable authority.

Depending on how the Court rules, this case could have major consequences for the SEC’s enforcement program and even for the inherent equitable powers of Article III courts.

Read the full Alert Memo here.

The final version of the California Consumer Privacy Act of 2018 is coming into view.

On October 10, California’s Attorney General released the long-anticipated draft regulations to implement the CCPA, and on October 12, the Governor signed into law five amendments to the CCPA passed during the 2019 legislative session.  (We previously discussed the CCPA here and the amendments here.)  While the Regulations are currently subject to public comment and may be further modified by the Attorney General in response to such comments, the shape of the law that will come into effect on January 1 seems largely in place.

Given the scope of the Regulations and some unanticipated new requirements they contain, this alert memorandum provides a guide for understanding the Regulations by (i) highlighting some welcome clarifications included in the Regulations; (ii) identifying unexpected new obligations they impose; (iii) describing inconsistencies between the Regulations and the CCPA; and (iv) discussing other provisions in the Regulations that implement the CCPA.

Please click here to read the full memorandum.