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Jamie Lacy

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Jamie Lacy is a member of Winstead’s Business Litigation Practice Group.  Jamie’s Business Litigation Practice focuses on securities litigation and enforcement, white collar-defense, and governmental and internal investigations.  Read More

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The issue of whether the sales of digital assets constitute investment contracts (and therefore securities) remains at the forefront of SEC regulatory issues. Yesterday, in SEC v. Terraform Labs, a federal judge in New York rejected a fellow judge’s recent ruling in SEC v. Ripple Labs[1] that XRP was not a security when sold to the public on secondary markets.

On Monday, U.S. District Judge Jed Rakoff denied Terraform Labs’ motion to dismiss an SEC enforcement action.[2] In that case, the SEC alleged that Terraform Labs and its founder, Do Kwon, defrauded investors and sold digital assets in unregistered securities offerings. In its motion to dismiss, Terraform Labs argued that purchasers of UST did not have an expectation of it being an investment. In allowing the SEC’s case to proceed against Terraform Labs and Kwon, Judge Rakoff declined to follow the recent ruling in SEC v. Ripple.…

Continue Reading Federal Court in Terraform Labs Rejects Ripple Decision

In a recent and highly anticipated decision, a court in the Southern District of New York held that Ripple’s cryptocurrency token – XRP – is not inherently a security.  In a setback to the SEC, the court also held that certain sales of XRP to retail investors through blind “bid/ask” transactions[1] were not securities transactions when considering the economic realities and under the totality of the circumstances.  SEC v. Ripple Labs, Inc., et al.[2] 

The court delivered its decision on these “programmatic sales” of XRP to retail investors, as well as its decisions on “institutional” and other types of sales of XRP, when ruling on competing summary judgment motions.  Even though the court’s rulings were limited to the transactions at issue and could be appealed, its decision undermines the SEC’s current position that it requires no additional authority from Congress to regulate both sales of tokens and cryptocurrency trading platforms. …

Continue Reading Ripple’s Legal Waves: Ripple Summary Judgment Ruling Could Have Wide-Ranging Impact

Last week, the U.S. Securities and Exchange Commission brought five insider-trading cases against a slew of individuals. The U.S. Attorney’s Office for the Southern District of New York also announced parallel criminal charges against the defendants in four of the five cases. These cases contain examples of the classical theory and the misappropriation theory of insider trading.

These cases were the result of close coordination with the SDNY and SEC, and they appear to be the result of an enforcement sweep. Increasingly sophisticated data analytics and market surveillance make it highly likely that those who wish to exploit material nonpublic information will be caught, with severe consequences, including disgorgement, criminal restitution, civil penalties, and incarceration.…

Continue Reading SEC and DOJ Go On An Insider-Trading Enforcement Spree

Action Implicates Attorney-Client Privilege and Other Concerns

Factual Background

On January 10, 2023, the SEC filed a subpoena enforcement action against Covington, a large law firm that was victimized by the so-called Hafnium cyberattack by Chinese state actors.[1]  Hafnium reportedly was engaged in espionage to determine priorities of the incoming Biden administration in November 2020.  The SEC seeks names of Covington clients whose information was accessed by the attackers.  Covington has refused to supply the name of its clients, arguing that such information is protected by the attorney-client privilege and work-product doctrine, and that compliance with the subpoena would be unduly burdensome.…

Continue Reading SEC Files Subpoena Enforcement Action Against Covington & Burling, Seeking Names of Clients Impacted by Chinese State-Sponsored Cyberattack

Recently, in SEC v. Spartan Securities Group, Ltd, et al.[1], a Florida federal court held that the Securities and Exchange Commission (“SEC”) could seek disgorgement and direct funds to the Treasury because the defrauded victims could not be identified.[2]…
Continue Reading Florida District Court Permits the SEC to Pay Disgorgement to the US Treasury Where Victims of the Fraud Could not be Identified

There has been lots of breathless commentary in the financial press and the blogosphere over the SEC’s August 2021 filing of an insider-trading case involving so-called “shadow trading.” Shadow trading as defined in a 2020 academic paper occurs when someone possessing material, nonpublic information (“MNPI”) obtained from his or her employer uses it to trade in the securities of a competitor or economically-linked public company.[1]  This is in contrast to the more usual insider trading, in which the stock being traded is that of the subject company. In Panuwat, the defendant is charged with misappropriating MNPI from his employer and using it to trade in a competitor’s securities.[2]  Earlier this week, a district court in the Northern District of California denied a motion to dismiss the SEC’s complaint, allowing the enforcement action to proceed.[3]
…
Continue Reading SEC Complaint Upheld in Rare – But Not Unprecedented – Shadow Trading Case

“Naked short selling” is often claimed by struggling public companies to be the source of their woes.  But there have been relatively few cases addressing naked short selling.  Recently, however, on   May 19, 2021, the SEC charged a broker-dealer (“BD”) with violating the order-making and locate provisions of Regulation SHO.[1]  Regulation SHO regulates short sales of securities and, broadly speaking, is aimed at minimizing naked short selling, failures to deliver, and other practices.

What is Short Selling?
According to the SEC’s Complaint, “[s]hort selling occurs when an investor borrows a security and sells it on the open market, planning to buy it back later for less money.”[2]  Thus, short sellers profit from a decline in the price of a security.  This is in contrast to “long” investors, who profit from an increase in the price of a security.  Short selling is very risky: losses are unlimited because the price of a security can always increase.

What is Regulation SHO?
Regulation SHO, enacted in 2005, established “locate” and “close-out” requirements.  Rule 200(g) of Regulation SHO requires BDs to mark all orders to sell stock as “long,” “short,” or “short-exempt.”[3]…
Continue Reading SEC Brings “Naked Short Selling” Case

Capital raising through Special-Purpose Acquisition Companies (“SPACs”) has gone through the roof in the last two years.  Last year was by far the single highest deal value for SPACs, and the first quarter of 2021 has already surpassed last year’s total deal value.[1]  Given the explosion of SPAC transactions, often backed by celebrities, it is a safe bet that the SEC will increase its scrutiny of SPACs.

In fact, on March 25, 2021, Reuters reported that the SEC has requested voluntary information from Wall Street banks on SPAC deals.[2]  Whether this inquiry broadens into a full-scale industry sweep remains to be seen, but it is clear that the hotbed of SPAC activity has captured regulatory attention.  Also notable is that the plaintiffs’ bar has been filing lots of cases arising from SPAC transactions, which can be a harbinger of SEC inquiries.  For these reasons, it is important to understand the regulatory risks of these deals.…

Continue Reading SPACs in the Spotlight: Skyrocketing Deal Volume Invites Regulatory Scrutiny

Earlier this week, a near-unanimous[1] United States Supreme Court issued its much anticipated ruling on the SEC’s ability to obtain disgorgement of ill-gotten gains in cases involving securities fraud, FCPA violations, and other securities violations.[2]  Justice Sotomayor, writing for the majority, confirmed in Liu v. SEC[3] that the SEC has the authority to obtain such relief.  The SEC’s authority to obtain disgorgement had seldom been questioned until the Supreme Court itself raised the issue in a footnote in its landmark Kokesh v. SEC decision in 2017.[4]…
Continue Reading Supreme Court Affirms SEC’s Authority to Obtain Disgorgement, But Recognizes Limits on Such Relief