With its decision in Securities and Exchange Commission v. Keener (May 29, 2024), the U.S. Court of Appeals for the Eleventh Circuit has now twice in the span of four months affirmed a broad interpretation of who is considered a “dealer” for purposes of the securities laws. More specifically, the Eleventh Circuit upheld the Securities and Exchange Commission’s (“SEC”) position that a person engaged in the business of purchasing—for its own account—convertible debt notes from microcap issuers (also referred to as “penny-stock” companies), converting the notes into common stock, and selling that stock in the market meets the definition of a “dealer” under the Securities Exchange Act of 1934 (the “Exchange Act”), and must therefore be registered as a dealer with the SEC. The decision in Keener closely tracked the same Court’s decision in Securities and Exchange Commission v. Almagarby, Microcap Equity Group (February 14, 2024), in which the Eleventh Circuit agreed with the SEC that the plaintiff Almagarby had been acting as an unregistered “dealer” in violation of the Exchange Act by obtaining convertible debt of microcap companies for his own account, converting the debt into common stock, and then selling the stock. 

Continue Reading Keener, Almagarby, and the Scope of the “Dealer” Definition: Potential Implications for Fund Managers and other Investors

On May 16, 2024, the Securities and Exchange Commission (the “Commission” or “SEC”) adopted a final set of amendments (the “Final Amendments”) to Regulation S-P (“Reg S-P”) to require “covered institutions,” which include SEC-registered investment advisers (“RIAs”) and broker-dealers, to adopt an incident response program for incidents involving unauthorized use of or access to customer data.  The Final Amendments also require customer notification where the covered institution determines the compromise of such data could create a reasonably likely risk of substantial harm or inconvenience to an individual identified with the information.  

Continue Reading SEC Adopts Amendments to Reg S-P

On April 24, 2024, President Biden signed into law H.R. 815, a foreign aid bill containing a provision that doubles the statute of limitations (SoL) for civil and criminal violations of U.S. sanctions and other national security programs from five years to ten years.

Continue Reading Statute of Limitations for U.S. Sanctions Violations Extended from Five to Ten years

On April 15, 2024, the Criminal Division of the Department of Justice (“DOJ”) launched the Pilot Program on Voluntary Self-Disclosure for Individuals (“the Individual VSD Pilot Program”), which represents the latest in a string of announcements by DOJ focused on catching companies and individuals that engage in corporate crime.

Continue Reading DOJ Announces New Pilot Program Seeking Voluntary Self-Disclosures from Culpable Individuals Aimed At Uncovering Corporate Misconduct 

On March 27, 2024, the U.S. Securities and Exchange Commission (“SEC”) announced amendments to the Internet Adviser Exemption, which permits investment advisers that provide advisory services through the internet (“Internet Investment Advisers”) to register with the SEC under the Investment Advisers Act of 1940 (“Advisers Act”) if they do not otherwise have enough assets under management to be eligible for registration.[1]  The final rule seeks to address technological and industry advancements since the original Internet Adviser Exemption was adopted in 2002.  The final rule also amends the interactive website requirement, eliminates the exception for advisers with de minimis non-internet clients, and imposes additional reporting requirements for Internet Investment Advisers on Form ADV.

Continue Reading SEC Announces Reforms for Internet Investment Advisers

On March 18, 2024, the SEC announced two enforcement actions against investment advisers for so-called “AI-washing” and violations of the Marketing Rule.  Using the playbook from the Enforcement Division’s “green-washing” cases in the ESG space, the SEC found that the two investment advisers marketed that they were using AI in certain ways, when in fact, the advisers were not. 

Continue Reading SEC Announces “AI-Washing” Cases Against Investment Advisers

On March 6, 2024, the Securities and Exchange Commission (“SEC” or “Commission”) adopted amendments to the disclosure requirements of Rule 605 of Regulation NMS for order executions of stocks listed on a national securities exchange.[1]  The final rule amendments expand the scope of entities that must comply with, and order types and sizes that must be reported under, Rule 605, and requires time-based metrics to be reported at a more granular level.  This is the first substantive update of Rule 605 since it was adopted in 2000. 

Continue Reading SEC Approves Amendments to Enhance Disclosure of Order Execution Information

On February 15, 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) released a notice of proposed rulemaking (the “Proposed Rule”)[1] that would impose anti-money laundering/countering the financing of terrorism (“AML/CFT”) compliance obligations on SEC-registered investment advisers (“RIAs”) and exempt reporting advisers (“ERAs”) pursuant to the Bank Secrecy Act (the “BSA”), taking steps to close a perceived gap in the AML/CFT defenses of the U.S. financial system. FinCEN estimates more than 15,000 RIAs and almost 6,000 ERAs may be covered by the Proposed Rule, including many advisers that are located outside the United States but have registered (or file reports) with the SEC because they have U.S. clients. 

Continue Reading FinCEN Tries Again . . . to Impose AML Requirements on Investment Advisers

The crypto space has witnessed significant activity over the last year and is expected to continue generating new litigation risks in 2024 and beyond. The volatility of cryptocurrency values, the complex nature of the technology, the lack of regulation, and lack of understanding by regulators all contribute to this trend. Crypto-related actions span a wide spectrum, involving regulatory issues to claims brought by individuals or as class actions.

Continue Reading Crypto & Digital Assets