On June 5, 2017 the Supreme Court dealt a significant setback to the Securities and Exchange Commission (“SEC”) by limiting its power to extract ill-gotten profits from securities laws violators. Ruling 9-0 in Kokesh v. S.E.C., No. 16– 529, — S. Ct. — (June 5, 2017), the Court held that in SEC enforcement actions, “disgorgement” – a form of restitution in which a defendant must pay back wrongful gains – is subject to a five-year statute of limitations.
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Financial Regulators Take Note: The Supreme Court’s Newest Member is a Tough Taskmaster
On April 10, 2017, Neil Gorsuch was sworn in as the Supreme Court’s 113th justice. While his experience on the Tenth Circuit Court of Appeals with cases involving financial regulation may be limited, certain of his decisions reflect an identifiable hostility towards executive agencies that, in his view, act in excess of the powers accorded them by statutory and constitutional law. These decisions suggest that the High Court’s newest justice will keep a close eye on how financial regulators go about their business.
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FINRA Updates Its Sanction Guidelines
Earlier this month, FINRA announced changes to its Sanction Guidelines through Notice to Members 17-13. FINRA’s Sanction Guidelines are used by FINRA disciplinary hearing panels to decide what, if any, sanctions to impose in those enforcement actions in which a rule violation is found. FINRA enforcement staff and members of the defense bar utilize the guidelines in settlement negotiations.
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New York State Department of Financial Services Cybersecurity Regulation Poised to Reshape Existing Regulatory Landscape
In late December, New York State’s Department of Financial Services (“DFS”) released its revised proposed cybersecurity regulation (the “DFS Rule”). While the revisions pare back some of the DFS Rule’s original requirements and add some much needed flexibility, the regulation will still impose many new obligations upon a wide array of financial institutions doing business in New York. The DFS Rule will become effective on March 1, 2017.
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New York State Department of Financial Services Proposes Cybersecurity Regulations for Financial Services Companies
If the New York State Department of Financial Services (“DFS”) has its way, come January 1, 2017, financial services companies that require a form of authorization to operate under the banking, insurance, or financial services laws (“Covered Entities”) will be required to comply with a new set of comprehensive cybersecurity regulations aimed at safeguarding information systems and nonpublic information.
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SEC Steps Up Cybersecurity Enforcement with $1 Million Fine Against Morgan Stanley
The Securities and Exchange Commission’s (“SEC”) recent $1 million settlement with Morgan Stanley Smith Barney LLC (“MSSB”) marked a turning point in the agency’s focus on cybersecurity issues, an area that the agency has proclaimed a top enforcement priority in recent years. The MSSB settlement addressed various cybersecurity deficiencies that led to the misappropriation of sensitive data for approximately 730,000 customer accounts.
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Forward to the Past: NYSE Returns to Regulation
Everything old is new again. On January 1, 2016, the New York Stock Exchange (“NYSE”) – now owned by Intercontinental Exchange, Inc. – will be taking back some of the regulatory responsibilities it yielded to the Financial Industry Regulatory Authority (“FINRA”), starting in 2007 when the NYSE and National Association of Securities Dealers (“NASD”) merged their self-regulatory functions. The goal then was to address inefficiencies and overlap that often resulted from the concurrent oversight by these two self-regulatory organizations (“SROs”).
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