New York Federal Court’s View on Cryptocurrency as Securities

On September 11, 2018, the U.S. District Court for the Eastern District of New York denied[1] a motion to dismiss an indictment of a Brooklyn real estate entrepreneur in relation to two virtual currency investment schemes and initial coin offerings (“ICOs”). The indictment, which charged securities fraud against Maksim Zaslavskiy, was based, in part, on the theory that the cryptocurrencies at issue were securities. In his motion to dismiss, Zaslavskiy argued that this premise was faulty and the ICOs offered by the two companies he owned, REcoin Group Foundation, LLC (“REcoin”) and DRC World, Inc. (“DRC”), were not, in fact, securities. The court, then, was called upon to consider whether the securities laws apply to cryptocurrencies. The court also considered Zaslavskiy’s argument that the securities laws are void for vagueness as applied to cryptocurrencies and token sales. Continue Reading

SEC Tightens Alternative Trading Platform Oversight

On July 18, 2018, the SEC ramped up its oversight of alternative trading systems (“ATSs”) by adopting a series of rule amendments imposing public disclosure requirements on ATSs that trade NMS (“National Market System”) stocks (i.e., stocks listed on a national securities exchange). The amendments also require ATSs to establish written procedures to protect subscribers’ confidential trading information. Initially proposed in 2015, the amendments will take effect on October 9, 2018, per the July 18th Notice of Final Rulemaking. Continue Reading

Expanding CFIUS: New Law Strengthens And Slows Investment Review

This week, you have likely heard about FIRRMA, the Foreign Investment Risk Review Modernization Act, the law that will expand CFIUS. We have written about a number of aspects of the new law as it was being made, including the following:

In this alert, we provide a quick overview of the major points of that law. Continue Reading

Hello, Newman. A Second Circuit Panel Revives U.S. v. Newman’s Personal Benefit Test, Maybe.

On June 25, 2018, the Second Circuit Court of Appeals issued a revised opinion in United States v. Martoma, No. 14-3599, Dkt No. 226. (2d Cir. Jun. 25, 2018) (“Martoma”). While the outcome for Matthew Martoma does not change—his conviction for insider trading still stands—other defendants facing insider trading charges may once again, at least for the present, avail themselves of the Second Circuit’s more stringent personal benefit test under United States v. Newman, 773 F.3d 438 (2d Cir. 2014) (“Newman”). Continue Reading

New York Court of Appeals Rules that Civil Securities Fraud Claims Brought Under Martin Act Are Subject to Three-Year Statute of Limitations

In People v. Credit Suisse Securities (USA) LLC, No. 40, 2018 WL 2899299 (June 12, 2018) (DiFiore, Ch. J), the Court of Appeals for the State of New York ruled that the three-year statute of limitations of Section 214(2) of the New York Civil Practice Law & Rules (“CPLR”) applies to civil enforcement actions brought under the Martin Act (General Business Law article 23-A) on the basis of a “fraudulent practice” as defined in General Business Law § 352(1). In doing so, the Court overruled both the New York Supreme Court and the Appellate Division and rejected the New York Attorney General’s (“NYAG”) attempt to apply a six-year statute of limitations under CPLR 213(8), which governs the limitations period for common law fraud. The Court’s decision narrows the window of opportunity to assert civil securities fraud claims under the Martin Act’s more forgiving standard. Prosecutors wishing to avail themselves of CPLR 213’s generous six-year statute of limitations will now be required to demonstrate their civil securities fraud claims meet all of the elements of common law fraud. Continue Reading

OSD Issues Policy Guidance Rejecting “Sweeps” Data

By memorandum dated June 7, 2018, Shay Assad, DoD’s Director, Defense Pricing/Defense Procurement and Acquisition Policy, has reversed decades of procurement practice that has been embraced by industry and the government alike in attempting to manage the often unmanageable process of providing the government with cost or pricing data that is current, accurate and complete as of the date of agreement on price. Recognizing that inherent “lag time” often makes it impossible for contractors to provide “up to the minute” data in real time at the point when the parties “shake hands,” contractors have customarily performed immediate post-handshake “sweeps” of their databases to provide the government with any data that may have escaped the pre-handshake dragnet. The government, in turn, has customarily accepted the data, evaluated its impact on the price, and negotiated, if and as appropriate, adjustments to the price. The net result was that the government had all the data, its impact on price was addressed, and the contractor avoided liability under the Truth in Negotiations Act and, possibly, under the False Claims Act. Everyone was happy.

Not anymore. Continue Reading

Proposed Rule Would Create a Separate, More Restrictive Standard for “Adequate Price Competition” for the DoD, NASA, and the Coast Guard

On June 12, 2018, the Department of Defense (“DoD”), the General Services Administration, and NASA proposed a new rule that would limit the “adequate price competition” exception to certified cost or pricing data requirements on all DoD, NASA, and Coast Guard procurements. Currently, FAR 15.403-1 prohibits contracting officers from requiring contractors to submit certified cost or pricing data to support a contract action when the contracting officer determines that the prices agreed upon are based on “adequate price competition,” which the regulation defines in one of three ways: Continue Reading

The Future of COTS Procurement: Section 846 Industry Day Highlights

On June 21, 2018, the General Services Administration (“GSA”) and the Office of Management and Budget (“OMB”) held their second Industry Day concerning the implementation of Section 846 of the National Defense Authorization Act (“NDAA”) of 2018 (“Procurement Through E-Commerce Portals,” known hereafter as the “Portals Program”).[1] The Industry Day, GSA’s first since issuing its Phase I implementation plan, provided a unique opportunity for GSA to update the public on its current thinking for the Portals Program. A few highlights from the Industry Day are set out below. Continue Reading

You Might Be an Inside Trader If…You Trade on Your Unconfirmed Suspicions of a Cybersecurity Event Prior to Its Public Revelation or Disclosure

Earlier this year, the SEC released cybersecurity guidance addressing, among other things, the risk of insider trading in the event of a data breach. This risk comes in multiple forms, including the intruders trading on stolen information and insiders trading on the knowledge of the breach itself. The SEC demonstrated its willingness to address the latter situation in the recent insider trading case against Jun Ying, the former chief information officer of Equifax’s United States Information Systems business unit. Continue Reading

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