In Securities & Exchange Commission v. Govil, No. 22-1658, 2023 WL 7137291 (2d Cir. Oct. 31, 2023), the United States Court of Appeals for the Second Circuit dealt a setback to the enforcement agenda of the Securities and Exchange Commission (“SEC”) by limiting its ability to seek disgorgement under 15 U.S.C. § 78u(d)(5) and (7) to situations in which the regulator can demonstrate investors have suffered pecuniary harm.Continue Reading Second Circuit Reins in SEC Disgorgement Powers

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

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

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

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

Along with the anti-bribery provisions, the U.S. Foreign Corrupt Practices Act (“FCPA”) contains accounting provisions that apply to publicly traded companies. These provisions require that companies maintain and adhere to internal policies that manage risk and ensure that accurate financial records are maintained. There is no bribery requirement for there to be a violation of these provisions. There is also no foreign conduct requirement. All that is required is that a company have a policy in-place and circumvent that policy to obtain some business advantage (no matter how small). The Securities and Exchange Commission (“SEC”) often initiates investigations based on allegations of foreign bribery, but resorts to the accounting provisions when the alleged bribe cannot be proven (because an internal policy violation can almost always be found and the SEC does not want a company to get off scot-free).
Continue Reading FCPA Accounting Provisions Have Teeth: Halliburton to Pay $29.2 Million to Settle FCPA Charges

As its name implies, the U.S. Foreign Corrupt Practices Act (“FCPA”) was designed to prevent U.S. companies from engaging in foreign bribery. The Department of Justice (“DOJ”) and the Securities Exchange Commission (“SEC”), the U.S. Government agencies charged with enforcing the FCPA, have made great use of the FCPA in this regard. They have secured more than $5 billion in settlements over the past five years. This success has resulted in more expansive views of the FCPA’s reach and innovative arguments to find liability when the alleged misconduct occurred entirely within the U.S. The apparent preference for the FCPA in these situations over other potentially applicable laws is likely due to the ease with which an FCPA violation may be proven. An internal policy violation is all that is needed.
Continue Reading Whatever Happened to the FCPA’s Foreign Conduct Requirement – How the FCPA is Being Used to Police Domestic Conduct and Internal Policy Violations