Securities Exchange Commission (SEC)

Last week, Coinbase Global Inc. (“Coinbase”) headed off confrontation with the Securities and Exchange Commission (“SEC”) by announcing it was shelving a much ballyhooed digital asset lending product, Lend.  The announcement came two weeks after Coinbase revealed that it had received a Wells notice from the SEC warning the company of its plans to sue over Coinbase’s planned October Lend launch.

Continue Reading A September to Remember: Coinbase Avoids SEC Clash by Dropping Crypto Lend Product

In Securities & Exchange Comm’n v. Fowler, No. 20-1081, 2021 WL 3083655 (2d Cir. July 22, 2021), the United States Court of Appeals for the Second Circuit upheld a lower court judgment awarding the Securities and Exchange Commission (“SEC”) civil penalties, disgorgement, and injunctive relief in a securities fraud action against a broker engaged in unsuitable and unauthorized high-frequency trading.  The district court entered its judgment following a jury trial finding the defendant guilty of violations of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933.  On appeal, defendant asserted that the action was subject to a five-year statute of limitations imposed by 28 U.S.C. § 2462 despite the parties having entered into tolling agreements.  Defendant also argued that the civil penalties assessed against him were excessive, and the disgorgement award failed to properly account for legitimate business expenses as required by Liu v. Securities & Exchange Comm’n, 140 S. Ct. 1936 (2020).  After reviewing its text and legislative history, the Second Circuit concluded in this matter of first impression that § 2462 is non-jurisdictional and, therefore, the district court had the power to hear the case in light of the parties’ tolling agreements.  The decision is important because it reaffirms the enforceability of tolling agreements between the SEC and its investigative quarries.  The court also rejected defendant’s arguments alleging improper civil penalty and disgorgement calculations.

Continue Reading Second Circuit Upholds Enforceability of SEC Tolling Agreements

A Securities and Exchange Commission (“SEC”) plan to create a registration exemption for certain finders has generated a mixed response.  The nearly 90 comments received by the SEC by the November 12, 2020 close of the comment period reflect a clear divide along predictable lines.  Broker-dealers, issuers, and some practitioners lauded the proposal for bringing regulatory clarity to what has long been a cloudy issue while regulatory groups and investor advocates criticized the plan for allowing unregistered finders to conduct brokerage activities without sufficient investor protection mechanisms.
Continue Reading SEC Proposal to Exempt Finders from Registration Generates Split Reaction

On November 19, 2020, Peter Driscoll, director of the Office of Compliance Inspection and Examination (“OCIE”) of the Securities and Exchange Commission (“SEC”), gave a speech urging advisory firms to empower their Chief Compliance Officers (“CCOs”). The speech, made at the SEC’s annual compliance outreach conference, accompanied OCIE’s Risk Alert, issued the same day, identifying notable deficiencies and weaknesses regarding Registered Investment Advisors (“RIAs”) CCOs and compliance departments. Driscoll’s speech complemented the Risk Alert by outlining the fundamental requirements for CCOs: “empowered, senior and with authority.”
Continue Reading OCIE Director Instructs Advisers to Empower Chief Compliance Officers

For the first time outside of the originating case itself, a federal appeals court was called upon to apply the principles governing disgorgement in SEC enforcement actions established by the United States Supreme Court’s high-profile decision in Liu v. Securities & Exchange Comm’n, No. 18-1501, 2020 WL 3405845 (U.S. June 22, 2020) (see our prior blog article here).  In Securities & Exchange Comm’n v. Yang, No. 19-55289, 2020 WL 4530630 (9th Cir. Aug. 6, 2020), the United States Court of Appeals for the Ninth Circuit reviewed a district court order, issued eighteen months before the Supreme Court spoke in Liu, awarding the SEC disgorgement.  In an unpublished memorandum decision, the Court of Appeals reversed the disgorgement awards and remanded the case to the district court to explicitly determine whether the awards comported with the requirements for such relief under Liu.  The Yang decision drew attention because it served as an example of how the high court’s decision is impacting appellate review of disgorgement awards.  If Yang is any indication, courts of appeal will be remanding cases to district courts with instruction to reach specific findings regarding compliance with Liu’s disgorgement requirements.
Continue Reading Ninth Circuit Reverses SEC Disgorgement Award and Remands in First Decision Post-Liu

On June 16, 2020, the U.S. Court of Appeals for the District of Columbia Circuit held that the Securities and Exchange Commission (“SEC”) lacks the authority to administer a two-year pilot program designed to review the fees and rebate structure used by U.S. stock exchanges.  As discussed in our previous article, major U.S. exchanges, such as New York Stock Exchange, CBOE,  Global Markets, and Nasdaq sought review to challenge the pilot program.  In New York Stock Exchange LLC  v. SEC, No. 19-1042 (D.C. Cir. Jun. 16, 2020), the Court sided with the exchanges, holding that the SEC exceeded its authority by creating a program whose thrust was merely to test whether the current pricing structure was problematic.
Continue Reading D.C. Circuit Rejects SEC’s Program Testing Exchange Fees and Rebates

On Monday, the Supreme Court placed significant limits on the Securities and Exchange Commission’s (“SEC”) ability to seek disgorgement, a powerful tool that often was used more like a penalty than an equitable remedy.  The Supreme Court held the SEC may only seek disgorgement of ill-gotten gains that do not exceed a wrongdoer’s net profits and are awarded for victims under 15 U.S.C. §78u(d)(5)’s provision of equitable relief.  This opinion reaffirms the SEC’s power to seek disgorgement of ill-gotten gains through civil actions as equitable relief, eliminating any doubt created by its prior opinion in Kokesh v. SEC.  However, the Supreme Court left a few key questions for lower courts to decide, such as what may be considered legitimate expenses and deducted from a disgorgement award, and whether the Government can retain the funds disgorged by the defendants.  The resolution of these issues may provide additional relief to future defendants in SEC enforcement cases.
Continue Reading Supreme Court Limits SEC’s Authority to Disgorge Ill-Gotten Gains in Civil Suits

On May 4, 2020, the Securities and Exchange Commission (“SEC”) issued a temporary final rule easing some restrictions on small businesses seeking to raise capital pursuant to Regulation Crowdfunding (“Reg CF”).  The SEC made the move in response to feedback from its Small Business Capital Formation Advisory Committee and other outreach conducted by SEC staff regarding the industry’s urgent need for expedited access to capital while maintaining investor protections as the COVID-19 pandemic persists.
Continue Reading SEC Offers Limited Rule Relief to Spur Small Business Crowdfunding During Pandemic

The SEC has transitioned to a “full telework posture” in response to the outbreak of COVID-19 in the United States.  However, the Commission is taking pains to assure market participants that it is still business as usual at the SEC.  The Commission recently published the SEC Coronavirus (COVID-19) Response on its website, which summarizes, among other things, market monitoring priorities, guidance and targeted assistance and relief, and investor protection efforts the SEC is undertaking in response to the Coronavirus.
Continue Reading The SEC’s COVID-19 Response

The Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) recently issued guidance in connection with firms’ relationships with third-party service providers.  These publications serve as a reminder
Continue Reading SEC and FINRA Signal Renewed Focus on Vendor Management in Two Key Areas: Cybersecurity and Market Access Rule Compliance

The Second Circuit recently took an unexpected plunge into the torrid waters of insider trading law. Following several years of decisions limiting the government’s broad interpretation of what constitutes a
Continue Reading United States v. Blaszczak: Second Circuit Ruling Creates Opening for Significant Increase in Insider Trading Prosecutions