On September 3, 2020, the Securities & Exchange Commission charged Daniel Kamensky with abusing his fiduciary position as co-chair of the Neiman Marcus Group Unsecured Creditors’ Committee by pressuring a rival bidder to abandon its bid for securities so that Kamensky’s hedge fund could purchase them at a lower price.  The U.S. Attorney’s Office for the Southern District of New York also brought charges against Kamensky for securities fraud, wire fraud, extortion, and obstruction of justice.  The allegations—if proven—are a fascinating story in and of themselves.[1]  But they also serve as an excellent illustration of the pitfalls awaiting Unsecured Creditors’ Committee members who ignore their fiduciary duties.
Continue Reading Charges Against Marble Ridge Capital Founder Illustrate the Pitfalls That Await Members of Unsecured Creditors’ Committees Who Ignore Their Fiduciary Duties

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

Ron Swanson once stated, “There’s only one thing I hate worse than lying—skim milk, which is water that’s lying about being skim milk.”

Today the SEC announced that it has charged Swanson with his second-least-favorite thing: lying in the form of securities fraud.   The SEC alleges that Ronald D. Swanson, the former chief executive officer and general counsel of a company purportedly developing a liquid purification technology, intentionally misled investors from whom he solicited over $2 million between October 2012 and August 2015.
Continue Reading Don’t Cry (or Lie) Over Skim Milk: SEC Charges Ron Swanson with Securities Fraud

By Andrew Schumacher, Brad Monk and John Kincade

The COVID-19 pandemic has caused a sudden disruption to businesses and halted almost all forms of global commerce. Contractual parties, lenders and borrowers, and parties to Merger and acquisition agreements are now closely reviewing their contracts, loan agreements and, in particular, any Material Adverse Change clause (also called Material Adverse Effect) (“MAC”) in the contract to analyze what options they might have. 
Continue Reading What a Business Should Know Before Triggering a MAC Clause Based on COVID-19

By Toby M. Galloway,  Matthias Kleinsasser,  Joe Wielebinski

In sports, it is often said that “winning cures everything.”  The same concept applies to uncovering fraud.  When the economy is strong and most investors are making money, there is little incentive to ask difficult questions about a company’s performance.  Once the economy craters, however, investors begin demanding answers and harsh truths are often revealed.  As Warren Buffett has said, “only when the tide goes out do you discover who’s been swimming naked.”
Continue Reading Fraud in the Time of Covid-19

Securities and Exchange Commission (the Commission) Chairman Jay Clayton today addressed the much anticipated delay to the compliance deadline for Regulation Best Interest (Reg BI), Form CRS and the related transparency obligations in the new regulation by stating there will be NO DELAY of the June 30, 2020 deadline because of the Covid-19 pandemic.¹
Continue Reading The SEC Opts Not to Extend Reg BI and Form CRS Compliance Deadline

This week the Delaware Supreme Court ruled that Delaware corporations may enforce federal forum selection clauses (so-called federal forum provisions or “FFPs”) for lawsuits alleging breaches of the Securities Act of 1933. See Salzberg v. Sciabacucchi, No. 346, 2019, 2020 Del. LEXIS 100 (March 18, 2020). This ruling is significant because Delaware companies can require the filing of ‘33 Act claims, including class actions, in federal court. Federal court is perceived as a more favorable forum than state court, including because of dismissal procedures and the perceived familiarity of federal jurists with the federal securities acts. By statute, for instance, federal courts already have exclusive jurisdiction of claims under the Securities Exchange Act of 1934, i.e. Section 10(b) and Rule 10b-5 actions.

Continue Reading Keeping it All in the Family

The Securities and Exchange Commission (the “Commission”) on Friday, March 13, 2020, granted temporary relief under the Investment Advisers Act of 1940 relative to certain filing and delivery deadlines and other requirements that the adviser cannot meet because of the current COVID-19 pandemic. See INVESTMENT ADVISERS ACT OF 1940 Release No. 5463 (March 13, 2020) (the “Order”).

Continue Reading The SEC Grants Temporary Relief Due to the Coronavirus COVID-19 Pandemic

Hollywood martial arts sensei Steven Seagal was recently karate-chopped by the SEC for his alleged undisclosed payments for Twitter-touting a security that was being offered and sold in an initial coin offering.  In a settled cease-and-desist order, the Moscow-based B movie actor consented to a violation of Section 17(b) of the Securities Act of 1933,

As everyone in the securities industry appreciates, a registered representative’s departure from one broker-dealer firm to join another is a not uncommon event. Such departures, even when voluntary and made on good terms, can and often raise a host of issues. Just last year for instance, FINRA issued Regulatory Notice 19-10 (April 5, 2019), which can be found here.
Continue Reading Risky Business: How Departing Brokers Can Unintentionally Trip Reg. BI