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Government Enforcement Exposed - "The GEE"
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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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28 Sep 2015 INSIDER TRADING AND ADMINISTRATIVE COURTS – MORE ON TWO HOT TOPICS THAT HAVE NOW CONVERGED

Since this blog began in January 2014, several topics have garnered substantial ink. These include: (1) the SEC’s apparent growing preference for litigating contested cases on their home turf, administratively, rather than in federal court. (June 19, 2014, July 10, 2014, May 26, 2015, May 22, 2015); and (2) the difficulties the government (both the SEC and DOJ) have encountered bringing insider trading cases and, in particular, the continuing saga of United States v. Newman, in which the DOJ’s petition for writ of certiorari is now pending before the United States Supreme Court. Both these issues continue to generate news, and they even converged recently.   SEC’s Administrative Law Courts   On the administrative court front, the SEC has been criticized repeatedly about the potential…

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11 Aug 2015 WHY NEWMAN MIGHT NOT BE HEADED TO THE SUPREME COURT

In the latest chapter of the United States v. Newman insider trading case, the Solicitor General recently filed its petition for writ of certiorari, asking the United States Supreme Court to hear the case. While the court is unlikely to decide on the government’s petition until the end of the year, the government’s petition may have actually diminished the chances that the Supreme Court will take the case.   As we have discussed previously, April 29, 2014; Dec. 23, 2014; and March 9, 2015, the Second Circuit held last year that an insider trading conviction requires that: (1) an insider tipper act for a “personal benefit” of financial consideration, or something at least akin to monetary gain; and (2) the remote tippee know that the…

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