On July 15, 2020, the Department of Justice (“DOJ”) charged Andrew Marnell with bank fraud in connection with $8.5 million worth of Paycheck Protection Program (“PPP”) loans he obtained for fake business expenses, that were then spent on gambling and stock market bets, incurring millions of dollars in losses. See United States v. Marnell, No. 2:20-mj-03313-DUTY (C.D. Cal. Jul. 15, 2020).
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Kate Ross
COVID-19 Judicial Task Force Proposes Protocols to Reinstate Jury Trials
On June 4, 2020, the Jury Subgroup of the COVID-19 Judicial Task Force of the U.S. federal courts issued a report (the “Report”) containing recommendations for conducting jury trials and convening grand juries during the pandemic. Although many federal courts have continued to hold remote hearings and conferences over the last few months, jury trials have largely been suspended across the country to protect the safety of potential jurors and court personnel. However, as government stay-at-home orders are lifted and courts prepare to reopen their doors, advocates have called for the reinstatement of jury trials to maintain litigants’ constitutional rights and preserve public confidence in the courts. Convened to recommend directives and policy changes related to the COVID-19 health emergency, the Task Force is made up of federal judges, clerks, attorneys, and executives from a number of circuits across the U.S.
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Fifth Circuit: Client Identity Not Privileged in IRS Probe
On April 24, 2020, in Taylor Lohmeyer Law Firm PLLC v. United States, the United States Court of Appeals for the Fifth Circuit held that a Texas-based estate and tax-planning law firm (“Taylor Lohmeyer” or the “firm”) could not invoke the attorney-client privilege to quash a summons by the Internal Revenue Service (“IRS”) seeking the identities of firm clients. See No. 19-50506, Dkt. No. 00515394156 (5th Cir. Apr. 24, 2020). In affirming the District Court’s decision, the Court of Appeals ruled that Taylor Lohmeyer could not use the privilege as a “blanket” to circumvent compliance with the summons, but may have viable arguments to shield disclosure of specific documents through the use of a privilege log.
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The SEC’s 2020 Examination Priorities
On January 7, 2020, the Securities and Exchange Commission (“SEC”) released its 2020 examination priorities, an annual report by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) meant to…
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New Bill Seeks to Bring Clarity to Insider Trading Law
On May 7, 2019, Representative James Himes (D-Conn) introduced the “Insider Trading Prohibition Act” (H.R. 2534). The proposed legislation would amend the Securities and Exchange Act of 1934, §§15 U.S. Code § 78a et seq. (the “Act”) by inserting a new section that defines the elements of criminal insider trading.
The bill’s objective is to eliminate the ambiguity of the offense as it is conceived under current law. It would also significantly expand the potential scope of criminal liability for insider trading in several ways: first, by eliminating the existing “personal benefit” requirement; second, by expanding the scienter requirement from willful to reckless use of “wrongfully obtained” material non-public information; and third, by expanding the definition of “wrongfully obtained” information to include stolen, hacked, and fraudulently obtained information.
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“Nanny” Government Rebuffed in Prosecution of Former Barclays Trader
Once again, the Department of Justice’s (DOJ) efforts to hold a trader accountable for misrepresentations made during negotiations met with stiff resistance from the courts. On March 4, 2019, Judge Charles Breyer of the Northern District of California granted Robert Bogucki’s motion to dismiss the indictment in the middle of his criminal trial, ruling that the Government failed to prove that Bogucki’s statements could not possibly amount to fraud because there is no expectation of truth in the discussions between Bogucki and his customer. Judge Breyer’s ruling parallels the Second Circuit’s highly publicized 2018 repudiation of the DOJ’s attempts to prosecute Jessie Litvak, a former bond trader, for similar misrepresentations made in connection with trading residential mortgage-backed securities.
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FINRA ANNOUNCES 2019 REGULATORY PRIORITIES
On January 22, 2019, the Financial Industry Regulatory Authority, Inc. (“FINRA”) released its annual priorities letter highlighting its regulatory program’s points of emphasis for the coming year. The most immediately recognizable difference between this year’s edition and previous ones is that its traditional title, “Examination Priorities,” has been updated to include “Risk Monitoring,” the process by which the self-regulatory organization initially identifies problem areas through surveillance, firm reporting, surveys, questionnaires, and examination findings.
FINRA’s 2019 “Risk Monitoring and Examination Priorities Letter” (the “Letter”) also discusses three entirely new priorities: online distribution platforms, fixed income mark-up disclosure, and regulatory technology. Finally, the Letter lists ongoing areas of focus, and alerts firms that it will continue to assess protocols to handle the risks posed by “bad actors” with problematic regulatory histories.
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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.
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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.
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Supreme Court Resolves Circuit Split on Scope of Whistleblower Protections
On February 21, 2018, the Supreme Court issued a pivotal decision narrowing the definition of a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank,” or the “Act”). In Digital Realty Trust, Inc. v. Somers, the Court unanimously held that to qualify as a whistleblower, a person must first report a securities law violation to the Securities and Exchange Commission (the “SEC”). 583 U.S. __, No. 16-1276, 2018 WL 987345 (Feb. 21, 2018).
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The Numbers Don’t Lie: The SEC Pursues a More Streamlined Enforcement Agenda
One of the most eye-catching items in the recently released 2017 Annual Report of the Enforcement Division of the Securities and Exchange Commission (SEC or the Commission) is the significant decline in enforcement activity from 2017. The report, issued on November 15th and summarizing the agency’s activity from October 1, 2016 to September 30, 2017, has drawn scrutiny from numerous commentators, who view the decline as the result of an ideological shift from the aggressive, prosecutorial style of enforcement of ex-Chairwoman Mary Jo White to a more restrained approach under new Chairman Jay Clayton. However, the SEC insists that despite this shift, it is not “slowing down.”[1] Instead, the SEC has identified new target areas that financial industry professionals should keep in mind.
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