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Government Enforcement Exposed - "The GEE"
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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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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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16 Nov 2015 SEC Reduces Dodd-Frank Whistleblower Award for “Unreasonable Delay,” Announces Policy of “More Heavily” Punishing Delay After Award Program’s Implementation

Continuing our coverage of the SEC’s whistleblower award program, the SEC recently announced a notable award order. What is notable about this award is not the size of the bounty, but the fact the SEC reduced the award for “unreasonable delay” in reporting, stating for the first time that “the award could have been higher had this whistleblower not hesitated.”   As we have previously discussed, the Dodd-Frank Act’s whistleblower award program permits the SEC to award whistleblowers a bounty between 10 percent and 30 percent of an enforcement sanction. While this is not the first time the SEC reduced an award due to a claimant’s delay, the SEC had mitigated its prior reductions by noting the delays pre-dated the Dodd-Frank Act. Here, in contrast,…

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08 Oct 2015 Regulation S-P Violation: Are You Prepared For A Cyber-Security Breach?

On Sept. 22, 2015, the Securities and Exchange Commission (SEC) announced the first violation by a registered investment advisor of the so-called Safeguards Rule (Regulation S-P) pertaining to the protection of personally identifiable information from cyber-attack.  This is the first instance of the SEC enforcing Regulation S-P against an investment advisor.   The Regulation, broadly speaking, requires broker-dealers, investment advisers and other financial firms to protect confidential customer information from unauthorized release to unaffiliated third parties. Included in Regulation S-P is the “Safeguard Rule” (Rule 30(a)), which requires financial institutions to, among other things, adopt written policies and procedures reasonably designed to protect customer information against cyber-attacks.  This raises the question:  Are you prepared for a cyber-attack (and the attendant liability)?   In its findings,…

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