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Christopher Bosch is an associate in the Government Contracts, Investigations & International Trade Practice Group in the firm's New York office.

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

The Office of New York State Attorney General Letitia James (“NYAG”) has filed a lawsuit to shut down technology company Coinseed.  The state has accused the firm of selling unregistered securities in the form of digital tokens and operating as an unregistered broker-dealer while making material misrepresentations about the company, its management team, and fees charged to investors in connection with cryptocurrency trades.
Continue Reading New York Attorney General Sues to Shutter Cryptocurrency Trading Firm Coinseed

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

A recent enforcement action offers a glimpse of the Financial Industry Regulatory Authority’s (“FINRA”) expectations for firms conducting anti-money laundering (“AML”) due diligence and transaction monitoring.  On July 27, 2020, FINRA settled with broker-dealer JKR & Company (“JKR”) over allegations that the firm failed to detect, investigate, and report suspicious activity in four customer accounts in violation of FINRA Rules 3310(a) and 2010.  JKR agreed to a $50,000 fine and a censure to resolve the matter.  The settlement is notable in that FINRA applied transaction monitoring and due diligence expectations common in the banking industry to a broker-dealer.  It also serves as a reminder that FINRA expects member firms to not only establish written AML policies and procedures, but also to put their AML programs into practice in order to meet their regulatory obligations.
Continue Reading FINRA Settlement Highlights Importance of Anti-Money Laundering Due Diligence and Monitoring

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

In response to the outbreak of COVID-19, FINRA has announced that most FINRA staff will be working remotely, but will utilize remote work capabilities to remain “fully operational.” FINRA has also published guidance on its website regarding narrow regulatory relief, business continuity, arbitration, mediation, and disciplinary hearings, membership applications, FINRA-administered exams, events, and investor strategy.
Continue Reading FINRA’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

To gain insight into where the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) have been focusing their oversight and what their priorities will be in 2020, look no further than their recent words and deeds. A common thread running through the recent public statements and enforcement activity of both agencies is a commitment to maximizing the resources at their disposal to expedite resolutions, whether by leveraging technology, deploying multi-pronged approaches, engaging in industry outreach, or coordinating with fellow regulators.
Continue Reading Regulatory Moves Show Financial Watchdogs Working Smarter, if Not Harder

On April 29, 2019, just months into her new job at the New York State Department of Financial Services (“DFS”), acting DFS Superintendent Linda Lacewell announced a significant reorganization within the financial and insurance regulator. The new Consumer Protection and Financial Enforcement Division (the “CPFED”) combines seven previously separate divisions and units – Enforcement, Investigations and Intelligence, the Civil Investigations Unit, the Producers Unit, the Consumer Examinations Unit, the Student Protection Unit, and the Holocaust Claims Processing Office – under a single executive deputy superintendent. Lacewell appointed Katherine Lemire, a former state and federal prosecutor, to head the newly-minted division.
Continue Reading New York DFS Consumer Protection and Financial Enforcement Division: New Name, New Look, Old Mandate

Earlier this month, the Securities and Exchange Commission (“SEC”) took a break from its recent focus on digital assets and the Best Interest fiduciary standard to publish a Risk Alert encouraging investment advisers and broker-dealers to revisit their policies and procedures relating to Regulation S-P (“Reg S-P”) (17 C.F.R. Part 248, Subpart A), which sets out requirements designed to protect customer information and records. The Alert highlights several key compliance issues identified by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) during exams completed in the past two years.
Continue Reading SEC Issues Risk Alert on Customer Privacy Safeguards

Over the past couple of years, the crypto industry has come under heavy scrutiny from skeptical regulators seeking to root out fraud and protect investors amid the initial coin offering boom that generated over $4 billion in 2017. However, this skepticism is starting to give way to a more business-friendly attitude.

Crypto firms have made notable headway with regulators in recent months, securing authorizations to act as custodians of digital assets and working towards approval of the first bitcoin-based exchange traded fund (“ETF”). These developments may reflect an evolving collaborative environment that bodes well for the future of blockchain-based innovations.
Continue Reading Crypto Firms Make Inroads with State and Federal Regulators