On January 26, Reuters reported SEC probes into registered investment advisers and their compliance with the custody rule for digital assets. Investment advisers should be ready to respond to any SEC inquiry and take the opportunity to review their own processes and disclosures such as, among other things:
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.
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
On April 1, 2021, the Texas State Securities Board (TSSB) announced the entry of a Consent Order against an SEC registered investment adviser named Independent Financial Group, LLC (“Independent”). The TSSB’s action may represent a large shift in investment adviser regulation and enforcement considerations for SEC-registered investment advisers. (Emphasis on “may.”)
Continue Reading SEC Investment Advisers: Texas says “April Fools!” to Federal Preemption?
As we discussed in our recent post “What to Expect from the SEC Under the Biden Administration,” market participants can expect a more vigorous SEC enforcement program under the new administration. President Biden’s nominee to chair the SEC, Gary Gensler, was known as a tough enforcer while serving as chairman of the CFTC during the financial crisis. If confirmed as SEC Chairman by the Senate, Mr. Gensler is sure to bring an assertive approach to SEC enforcement.
Continue Reading What Investment Advisers and Fund Managers can Expect from the SEC Under the Biden Administration
The dust has settled on the 2020 election, and the Biden administration has begun pressing forward with its policy objectives. Critical to achieving such objectives is the Democrats’ control of both the House of Representatives and the Senate, albeit by the narrowest of margins after the Democratic senatorial candidates won their run-off elections in Georgia. As a result of the Georgia elections, Vice President Harris will be able to cast the tie-breaking vote in the case of a deadlock in the Senate. What does the change in administrations mean for SEC enforcement?
Continue Reading What to Expect from the SEC Under the Biden Administration
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
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