Recent Enforcement Action
The requirement that financial firms preserve books and records is nothing new. But how do such firms keep track of employees’ communications on applications like Signal or WhatsApp? Continue Reading Financial Regulators Focus on Preservation of Ephemeral Messaging
Corporate officers and directors sometimes view having a Rule 10b5-1 trading plan as an impenetrable barrier to facing insider-trading charges. But a recent case announced by the SEC demonstrates that such plans are not bulletproof.[1] If an executive enters into such a plan while in possession of material nonpublic information, insider-trading charges could ensue. Continue Reading SEC Charges Public Company Executives with Insider Trading Despite Trading Through Purported Rule 10b5-1 Trading Plans
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
On May 3, the SEC announced that the Cyber Unit in the Division of Enforcement is renamed the “Crypto Assets and Cyber Unit” and will expand by 20 positions to approximately 50 positions.[1] Regulation of digital assets has been a key initiative of SEC Chair Gary Gensler, who previously chaired the CFTC.
The press release emphasizes the explosion of crypto markets in recent years and says that the Crypto Assets and Cyber Unit will be vital to protect investors and efficiently regulate financial markets. The expanded unit will concentrate on investigating securities violations relating to: Continue Reading SEC Expands and Renames Cyber Unit to “Crypto Assets and Cyber Unit”
On April 5, the Public Company Accounting Oversight Board levied a $100,000 fine against Scott Marcello, the former Vice Chair of Audit at KPMG. The penalty is noteworthy for two reasons: (1) it’s the largest monetary penalty ever levied by the PCAOB in a case settled with an individual; and (2) it’s the first matter in which the PCAOB has sanctioned someone for failure to reasonably supervise, despite being authorized to impose sanctions on this basis under the Sarbanes-Oxley Act of 2002 (SOX). See Section 105(c) of the Sarbanes-Oxley Act of 2002 (SOX). Continue Reading The PCAOB Brings First Failure-To-Supervise Case
On March 16, the SEC filed a municipal bond fraud case against Crosby Independent School District and its former CFO in a $20 million bond offering.[1] Crosby is a suburb of Houston, Texas. The SEC also charged the district’s outside auditor with improper professional conduct and suspended her from appearing or practicing before the Commission with a right to reapply after three years. Continue Reading SEC Settles Municipal Bond Fraud Case Against Texas School District and Former CFO, and Suspends External Auditor
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
It’s not a secret that, under the Biden administration, the Securities and Exchange Commission has prioritized enforcement of disclosures concerning Environmental, Social, and Governance Issues (ESG), going so far as to form an enforcement task force to examine misconduct related to these disclosures. Recently, the SEC’s Fort Worth regional office reportedly launched an investigation into ESG disclosures by underwriters relating to investments in the oil-and-gas and firearm industries. Continue Reading SEC’s Fort Worth Regional Office Investigating Underwriter Disclosures on Environmental, Social, and Governance Issues
On December 20, 2021, the SEC[1] and DOJ[2] each announced fraud charges against five Russian nationals. The five defendants are charged with a multiyear scheme of hacking into service providers that help public companies make quarterly and annual filings with the SEC through the EDGAR filing system. By hacking the service providers, the defendants allegedly obtained material nonpublic information (MNPI) regarding earnings releases before those releases were made public. The defendants then allegedly traded ahead of the release of the MNPI, reaping profits of some $82 million in the process. Continue Reading SEC and DOJ Bring Parallel Civil and Criminal Charges Against Five Russians for $82 Million Hack-And-Trade Scheme
The United States Securities and Exchange Commission recently charged two individuals— Florida residents, Suyun Gu, and his friend, Yong Lee—for their involvement in allegedly fraudulent wash sales involving out-of-the-money options in “meme stocks.” So-called “meme stocks” [1] are stocks that were being actively promoted on social media in early 2021. Continue Reading SEC Charges Case Featuring Alleged Wash Sales Involving Options of “Meme Stocks”