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Government Enforcement Exposed - "The GEE"
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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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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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31 Jul 2017 SEC Chairman Announces 8 Core Principles

  In his first public speech since becoming the U.S. Securities and Exchange Commission (SEC) chairman, Jay Clayton shared his eight core principles that he indicates will guide his oversight of the agency, with an emphasis on the “Main Street” investor. This speech is significant because it provides insight into how the agency may balance benefits to investors against costs to the markets under the commission’s enforcement and regulatory powers.   However, he also emphasized part of his plan to help individual investors is by increasing the public investments available to them. To that end, Clayton reminded companies considering IPOs that the JOBS Act benefit of submitting draft registration statements confidentially and gradually phasing in reporting obligations, previously available only to emerging growth companies, now…

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12 Jun 2017 U.S. Supreme Court Delivers Blow Limiting SEC Disgorgement Power

  In a unanimous opinion authored by Justice Sonia Sotomayor and issued on June 5, the U.S. Supreme Court reversed a decision of the U.S. Court of Appeals for the Tenth Circuit, holding that SEC disgorgement constitutes a penalty under 28 U.S.C. § 2462, thereby making such actions subject to the five-year limitations period for “an action, suit or proceeding for the enforcement of any civil fine, penalty or forfeiture.” In the case, Kokesh v. Securities and Exchange Commission , the court found the “SEC disgorgement… bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not compensate.”   The ruling resolves a circuit split and will have a far-reaching impact…

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24 Jan 2017 The SEC’s Appointments Clause Dilemma

  The U.S. Securities and Exchange Commission (SEC) has an Appointments Clause problem. Actually, it has two. Currently, the Commission’s ability to make decisions is limited in two ways: (1) as of last Friday, there are now only two sitting Commissioners, including no SEC Chairperson, rather than the full complement of five; and (2) a recent federal appellate court decision declaring the SEC’s process of hiring administrative law judges (ALJs) unconstitutional, thus casting doubt on the many activities those judges perform. Until these can be resolved, the agency’s ability to function generally, and in particular its ability to act as an enforcement agency, may be compromised.   The Appointments Clause of the Constitution states:   [The President] shall nominate, and by and with the Advice and…

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18 Oct 2016 Ceresney Warning: Expect Continued SEC Enforcement Activity Regarding Municipal Securities

  In the keynote address at the 2016 Securities Enforcement Forum last week, Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, made clear that the SEC will continue and even expand its focus on the public finance market, particularly in the municipal securities area.   Ceresney noted that enforcement activity in the municipal securities arena has increased substantially. In the 10 years from 2002 to 2012, the SEC filed enforcement action against 6 government entities, 6 obligated persons and 12 public officials. In contrast, the Commission has filed enforcement actions against 76 government entities, 13 obligated persons and 16 public officials in the last 3 1/2 years.   The SEC has been conducting well-publicized enforcement sweeps in the area. Perhaps the most well-known…

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07 Sep 2016 SEC Changes Some of Its Procedural Rules After Constitutional Challenges

  In our last post, we discussed some of the constitutional challenges to the Securities and Exchange Commssion’s (SEC) in-house tribunal. Though these challenges have thus far been unsuccessful, they appear to have prompted the SEC to amend some of its rules of practice to address at least some of the criticisms leveled against its administrative proceedings.   One persistent criticism has been that the length of time from initiation of administrative proceedings through hearing is substantially too short. Previously, an ALJ’s initial decision had to be filed no more than 300 days from the service of the order instituting proceedings. However, the SEC has now increased the time between its initial filing in an enforcement action and the hearing (at least in “appropriate” cases)….

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02 Sep 2016 D.C. Circuit Affirms Constitutionality of SEC’s In-House Tribunals

  The U.S. Court of Appeals for the D.C. Circuit recently became the first appellate court to conclude that the U.S. Securities and Exchange Commission’s (SEC) in-house administrative tribunals are constitutional and do not violate the Appointments Clause.   The constitutionality of the SEC’s in-house administrative courts has been questioned repeatedly since the Dodd-Frank Act dramatically expanded the kinds of cases the SEC could litigate on its home turf and the kinds of remedies it could obtain there, including against entities the SEC does not traditionally regulate. Since Dodd-Frank, the SEC has made no bones about its increased attraction to litigating cases in-house that it previously brought in federal district court. The SEC benefits from a shorter timeframe from initiating the action to its conclusion,…

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29 Apr 2016 Accounting Fraud Getting Increased Attention from the SEC and Class Action Counsel

Accounting and financial disclosure issues are increasingly becoming the focus of litigation – both with the Securities and Exchange Commission (SEC) and the plaintiffs’ class action bar – according to recent pronouncements from the SEC and a leading research firm that tracks securities class actions.   Last week, the SEC announced two financial fraud cases against companies and their former executives, accusing them of various accounting failures that gave investors inaccurate views of company finances. These cases appear to be among the fruits of the SEC’s Financial Reporting and Audit Task Force, created in 2013 to strengthen the SEC’s efforts to identify securities law violations relating to the preparation of financial statements, issuer reporting and disclosure and audit failures. The Task Force’s efforts have taken…

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08 Feb 2016 SEC Completes Municipal Underwriter “Enforcement Sweep”

We have previously reported on the SEC’s Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, pursuant to which municipal securities issuers and underwriters could obtain favorable settlement terms if they self-reported any instances in which there had been inaccurate statements in a final official statement about continuing disclosure compliance. Last week, the SEC announced that it had completed the municipal underwriter “enforcement sweep” portion of that initiative with the filing of enforcement actions against another 14 underwriters. With the actions filed back in June 2015 and September 2015, this brings the total number of underwriting firms charged to 72, a number which represents, according to Andrew J. Ceresney, Director of the SEC’s Enforcement Division, 96 percent market share for municipal underwritings.   In the orders instituting cease…

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