Tag: SEC enforcement

SCOTUS Declines Petition on Insider Trading Ruling

Brad S. Karp is chairman and partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum.

Today [October 5, 2015], the United States Supreme Court declined to hear the petition for a writ of certiorari (the “Petition”) filed by the United States Department of Justice (“DOJ”) in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), a landmark decision that dismissed indictments against two insider trading defendants. By declining to hear the Petition, the Supreme Court ensured that the Second Circuit’s decision in Newman will remain binding in the Second Circuit and influential across the country.

As we explain below, two of Newman’s holdings are particularly important: first, that the government must prove that a remote tippee knew or should have known of the personal benefit received by a tipper in exchange for disclosing nonpublic information; and second, that the benefits alleged by the government in United States v. Newman were not sufficient to support a conviction, as they were not sufficiently “consequential.”


Asset Managers: AML ready?

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Jeff Lavine, Adam Gilbert, and Armen Meyer. The complete publication, including footnotes and appendix, is available here.

On August 25th, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed anti-money laundering requirements for US investment advisers. The proposal requires advisers that are registered with the Securities and Exchange Commission (SEC) to establish anti-money laundering (AML) programs, to report suspicious activities related to money laundering and terrorist financing, and to comply with other sections of the Bank Secrecy Act (BSA).

If finalized as proposed, the impact of these new requirements will vary. Advisers owned by bank holding companies (BHCs) are already subject to similar requirements that are applicable to their BHC parents and enforced by the Federal Reserve. These advisers will nevertheless likely experience an increase in regulatory oversight, as the proposal now allows the SEC to enforce AML requirements.


Announcement of New Rulemaking Database

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent public statement, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Strong regulations are central to the Commission’s mission. For more than 80 years, we have used rulemaking to establish a comprehensive framework for our securities markets that protects investors, enhances market integrity, and promotes capital formation. The rulemaking process is the means through which the Commission responds to the ever-changing securities markets, targets and attacks harmful practices in those markets, and meets the goals mandated by Congress. Our rules provide important standards against which we assess compliance in our examinations and hold wrongdoers accountable in our enforcement actions.


U.S. Enforcement Policy and Foreign Corporations

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, David GruensteinRalph M. LeveneDavid B. Anders, and Lauren M. Kofke.

We recently reported on a new U.S. Department of Justice policy which expanded expectations for corporate cooperation in white collar investigations. While the initial wave of attention given to the DOJ pronouncement focused on U.S. companies, this new policy is also important for all companies with operations in the U.S. or whose activities otherwise bring them within the long arm of U.S. enforcement jurisdiction. Underscoring the relevance of these new policies to non-U.S. companies, Deputy Attorney General Yates noted in her remarks announcing the new policy that among “the challenges we face in pursuing financial fraud cases against individuals” is the fact that “since virtually all of these corporations operate worldwide, restrictive foreign data privacy laws and a limited ability to compel the testimony of witnesses abroad make it even more challenging to obtain the necessary evidence to bring individuals to justice.”


Circuit Split on Dodd-Frank Act Whistleblower Provision

Aaron M. Katz and Eva Ciko Carman are partners at Ropes & Gray LLP. This post is based on a Ropes & Gray Alert.

On Thursday, September 10, 2015, the United States Court of Appeals for the Second Circuit issued its highly anticipated decision in Berman v. Neo@Ogilvy LLC. The plaintiff-appellant, Daniel Berman, had been the finance director of Neo@Ogilvy. Mr. Berman’s lawsuit alleged that Neo@Ogilvy had unlawfully terminated him because he had reported internally, to senior company officers, supposed violations of GAAP and other accounting irregularities. The question of law presented was whether the Dodd-Frank Act’s whistleblower anti-retaliation provision offers protection to an employee who, like Mr. Berman, is fired after he reports possible financial misconduct internally but before he makes a report to the SEC. The district court had answered that question in the negative and dismissed Mr. Berman’s wrongful termination lawsuit. On appeal, the SEC, participating as amicus curiae, argued that the Dodd-Frank Act’s statutory language is ambiguous and that the SEC’s agency regulation answering that question in the affirmative, Exchange Act Rule 21F-2, is a reasonable interpretation of the statute. The Second Circuit agreed with the SEC, thereby creating a circuit split on the issue and raising the possibility that the Supreme Court will soon weigh in.


DOJ Adopts New Requirements for Corporations Seeking Credit for Cooperation

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, Ralph M. LeveneWayne M. CarlinJonathan M. Moses, and David B. Anders.

In an important development for corporations responding to federal investigations, the Department of Justice announced on September 10, 2015 revisions to its Principles of Federal Prosecution of Business Organization (“Principles”). The new policies, set out in a memorandum authored by Deputy Attorney General Sally Yates and sent to federal prosecutors across the nation, instruct prosecutors to focus their efforts to secure evidence against individuals responsible for corporate wrongdoing. The memorandum (accessible here) specifically encourages increased attention by DOJ attorneys on considering cases against individual wrongdoers, and also establishes additional guidelines that federal prosecutors and civil enforcement attorneys must follow in conducting and resolving corporate investigations.


D.C. Circuit Rules Against Conflict Minerals Disclosure Requirement

The Honorable Mario Mancuso is a corporate partner and of the International Trade and Investment Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Mancuso, Michael T. Gershberg, and Jocelyn Ryan.

On August 18, 2015, a divided three-judge panel of the U.S. Court of Appeals for the D.C. Circuit confirmed its earlier ruling striking down part of the Securities and Exchange Commission’s (“SEC”) Conflict Minerals Rule (the “Rule”) as unconstitutional. Nat’l Ass’n. of Mfrs. v. SEC, No. 13-5252 (D.C. Cir. Aug. 18, 2015). The court again held that requiring issuers to describe their products as “not been found to be ‘DRC conflict free’” in reports filed with the SEC and posted on issuers’ websites violates the First Amendment.

The Decision

The ruling dealt only with the requirement in the Rule that issuers characterize their products using the label “not been found to be ‘DRC conflict free,’” and the court held that this requirement amounts to compelled speech in violation of the First Amendment’s right to freedom of speech. The decision is a narrow one and leaves unaffected the remaining disclosures required under the Rule, such as disclosure of facilities used by the issuer, country of origin of the issuer’s products and the efforts undertaken by the issuer to obtain such information.


D.C. Circuit Court Upholds Conflict Minerals Decision

Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

In the ongoing challenge to the SEC’s conflict minerals rule, the D.C. Circuit Court of Appeals, in a 2-1 decision, issued an opinion on August 18 upholding its April 2014 finding that a key aspect of the rule violates constitutional free-speech guarantees, a decision we discussed in this client newsflash.

Last year, the SEC asked the D.C. Circuit to rehear the case in light of the outcome of an unrelated First Amendment lawsuit, American Meat Institute v. United States Department of Agriculture, which addressed the proper standard of review for compelled commercial speech. Stating that it saw no reason to change its analysis in light of the American Meat decision, the court affirmed that it would adhere to its original judgment that portions of the Dodd-Frank Act, under which the rule was promulgated, and the SEC’s final rule, “violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be ‘DRC conflict free.’’”


Enhancing the Commission’s Waiver Process

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Requests for waivers from regulatory disqualifications remain a topic of considerable import—and lively debate—for the Commission. Such requests are typically made when certain individuals or entities become involved in Commission enforcement actions. One consequence of these enforcement actions can be that an entity or individual is automatically disqualified, as mandated by Congress, from conducting certain activities, or from relying on certain exemptions from registration. Commission rules allow entities and individuals subject to such disqualifications to approach the SEC staff and seek a waiver from these prohibitions. This post discusses how the Commission could strengthen its protocols for handling such waiver requests and provide enhanced transparency and clarity on the Commission’s waiver process. In addition, this post discusses the benefit of a more flexible and calibrated approach to waivers.


Federal Court Injunction Against SEC Prosecution

John J. Falvey, Jr. and Daniel J. Tyukody are partners in the Securities Litigation & White Collar Defense Group at Goodwin Procter LLP. This post is based on a Goodwin Procter Financial Services Alert.

A federal judge in Manhattan recently granted a preliminary injunction against the Securities and Exchange Commission in the latest of a series of rulings raising issues with the SEC’s use of in-house proceedings before its administrative law judges (“ALJs”) rather than proceed with its charges in federal court. The SEC has prevailed more frequently in its administrative proceedings than it has in federal court, where defendants have more robust procedural rights. This ruling by a judge in the Southern District of New York indicates the federal courts’ ongoing concerns with the SEC’s increased preference for administrative proceedings before its own ALJs. But the SEC has the ability to correct the constitutional flaw that the court found to exist with its appointments of ALJs, suggesting that this and similar rulings will likely only raise a short-term disruption of the SEC’s use of its in-house courts.


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