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Government Enforcement Exposed - "The GEE"
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25 Apr 2018 LUCIA ORAL ARGUMENT HIGHLIGHTS PHILOSOPHICAL TENSIONS

  The Supreme Court heard oral argument Monday in Lucia v. SEC. And while it was not the “cage match” that some hoped for, it did raise important questions. Both the parties’ arguments and the Justices’ questions indicated that the Court has several conflicting issues to resolve in deciding whether SEC ALJs are hired in violation of the Appointments Clause. One of the tensions which got the most attention seemed to be whether SEC ALJs should be “politically accountable” to the President since they are essentially part of the executive branch or whether they should maintain a greater degree of “independence” because they function as adjudicators, akin to Article III judges. The Justices also spent substantial time trying to discern how their decision in Lucia…

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06 Apr 2018 COULD THE SUPREME COURT’S LUCIA ARGUMENT BECOME A CAGE MATCH?

    On April 23, the U.S. Supreme Court will hear what may be one of the most impactful cases for the Securities and Exchange Commission, and perhaps other federal administrative agencies, in a long time.  In Lucia v. SEC, the Supreme Court will hear arguments – including from the U.S. Solicitor General – that the way that the SEC’s administrative law judges (ALJs) are appointed violates the U.S. Constitution’s Appointments Clause.  For prior posts, see [Jan 23, 2018; Jan 16, 2018, Jan 24, 2017, Sept 2, 2016].   The briefing is essentially completed, and as the Solicitor General’s recent request for divided argument suggests, the battle-lines here are untraditional.  In fact, the divergent positions staked out by the three parties that are arguing (to…

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19 Feb 2018 Cybersecurity: CFTC Brings Enforcement Action For Faulty IT System

  This past week, the Commodity Futures Trading Commission (CFTC) settled an enforcement action in which it had alleged that futures commission merchant AMP Global Clearing LLC violated 17 C.F.R. 166.3 (duty of supervision) by failing to diligently supervise implementation of a critical component of its information systems security program (ISSP).  As a result, AMP suffered a cybersecurity breach that led to loss of nearly 100,000 files, including customers’ personal identifying information.  As a result of the settlement, AMP paid a $100,000 fine and, undoubtedly, faces significant other expenses in dealing with the customers for whom it lost private information.  AMP will also have to provide written verification to the CFTC of its efforts to strengthen its network security and ensure compliance with its ISSP….

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23 Jan 2018 First-Time Supreme Court Advocate Appointed to Argue the SEC’s Case in Lucia

  To follow-up on our previous post, on January 18, the Supreme Court appointed Anton Metlitsky of O’Melveny & Myers to argue on behalf of the SEC in Lucia after the Solicitor General abandoned its defense of the SEC’s position in its response to Lucia’s petition for certiorari. This will be Metlitsky’s first argument before the Supreme Court.   According to the National Law Journal, Supreme Court tradition dictates that the Circuit Justice for the circuit that decided the case – here, the D.C. Circuit – picks one of his or her former clerks in these situations. Chief Justice Roberts (Circuit Justice for the D.C. Circuit) selected Metlitsky, one of his former clerks. The article also stated that, according to tradition, the appointment goes to…

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16 Jan 2018 SEC’s Appointments Clause Dilemma Gets Worse

  On January 12, the Supreme Court granted certiorari in SEC v. Lucia, which will decide whether the Securities and Exchange Commission’s (SEC) administrative law judges (ALJs) are appointed consistently with the Constitution’s Appointments Clause. Unfortunately for the SEC, at least right now, no one is arguing that the SEC’s process is constitutional. What the Court does in this case will potentially upend not only the SEC’s ALJ process but other agencies’ as well.   As this blog has explained here and here, there is a clear circuit split on whether the way that the SEC hires its ALJs comports with the Appointments Clause. The Appointments Clause provides:   [The President] shall nominate, and by and with the Advice and Consent of the Senate, shall…

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02 Jan 2018 Supreme Court Addresses Cell Phone Privacy in Carpenter v. United States

  On November 29, 2017, the United States Supreme Court heard oral arguments in the case of Timothy Carpenter v. United States.  During argument, a majority of the justices appeared ready to place new limits on the ability of investigators to track the location of cell phone users.   Carpenter was convicted of masterminding a series of armed robberies (ironically, stealing new smart phones) in Ohio and Michigan.  Officials investigating the case sought records from cell phone providers for 16 different phone numbers, including Carpenter’s.  In so doing, they relied upon the Stored Communication Act (18 U.S.C. 2703).  This 1986 law allows phone companies to disclose records when the government can establish “specific and articulate facts showing that there are reasonable grounds to believe” the…

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09 Nov 2017 SEC Scrutiny Brings Sanity to Hot ICO Market

  Initial coin offerings (ICO) originally became popular because they appeared to hold the promise of easy access to capital, in exchange for a virtual token with some desirable function. For example, Playkey—an online gaming company—is presently raising money by selling tokens that will allow holders to access high powered computer systems for gaming. ICOs have raised more than $3 billion in 2017.   The tokens from these offerings can appreciate in value either because they are limited in number or because they are tied to the growth of the issuer’s enterprise. The Securities and Exchange Commission (SEC) has deemed the later kind of token to be a security. Accordingly, any entity seeking to offer tokens reflecting the value of the enterprise needs to follow…

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25 Sep 2017 Who’s Watching the Watchdog? SEC Deals With Its Own Data Breach

  On Sept. 20, SEC Chairman John Clayton announced that Wall Street’s watchdog, the Securities and Exchange Commission (SEC), was the victim of a cyber hack in 2016. In what ironically amounts to the SEC’s first significant disclosure of its own cybersecurity risks, Clayton stated: “In certain cases, threat actors have managed to access or misuse our systems.” According to Clayton, “[i]n August 2017, the Commission learned that an incident previously detected in 2016 may have provided the basis for illicit gain through trading.”   Hackers apparently exploited a weakness in the SEC’s Electronic Data Gathering, Analysis and Retrieving (EDGAR) system. EDGAR houses financial records for all of the companies listed on stock exchanges in the United States – including domestic and foreign securities issuers and…

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06 Sep 2017 Don’t Let DOJ Defections Fool You: Corporate Conduct Still in the Crosshairs

  Authors: Michael Battle, Roscoe Howard and Patrick Miles   The early months of the Trump administration have brought about the resignations of the two most prominent lawyers behind the U.S. Department of Justice’s recent campaign against corporate wrongdoing. The departures of Deputy Attorney General and Acting Attorney General Sally Yates, and DOJ Compliance Counsel Hui Chen, coupled with the administration’s business-friendly rhetoric, might tempt corporate compliance officers to conclude that the DOJ is shifting its emphasis away from corporate prosecutions.   They shouldn’t. In fact, neither those high-profile defections nor the change in administration is likely to alter the mindsets of the working lawyers in the DOJ’s 94 U.S. Attorney offices. Those prosecutors will not only continue pursuing the same types of cases they…

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02 Aug 2017 Corporate Law Alert – SEC Issues Guidance on Initial Coin Offerings and Cryptocurrencies

  On July 25, the U.S. Securities and Exchange Commission (SEC) issued its most comprehensive public guidance to date on digital assets such as cryptocurrencies and tokens. Key points from the guidance are:   Initial Coin Offerings (ICOs) are required to be registered with the SEC if the digital assets are securities offered or sold in the U.S. Digital assets can be evaluated for securities status using traditional securities law criteria Automated functions through smart contracts or other code remain subject to securities laws Companies dealing in digital assets should consider seeking counsel as to whether the digital assets are securities Companies dealing in digital currencies may need to register as broker-dealers, securities exchanges, or alternative trading systems Companies investing in digital assets and advising on investment…

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