Jina Choi, Michael D. Birnbaum, and Haimavathi V. Marlier are partners at Morrison & Foerster LLP. This post is based on their MoFo memorandum.
In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important SEC enforcement developments from the past month, with links to primary resources. This month we examine:
- A framework for CCO liability;
- Whether scheme liability claims under Rule 10b-5 require more than misstatements or omissions;
- Charges against a former Coinbase product manager in a crypto asset insider trading action;
- A blast of insider trading actions generated by the SEC’s own data analysis; and
- Fines for three financial institutions for inadequate identity theft controls, in violation of Regulation S-ID.
1. SEC Holds Chief Compliance Officer (CCO) Liable for Failing to Implement Policies and Procedures
On July 1, 2022, Commissioner Hester M. Pierce issued a statement in support of a settled administrative hearing brought the day before against Hamilton Investment Counsel LLC (“Hamilton”), a registered investment adviser based in Georgia, and its CCO. Hamilton was found to have violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, which require that registered investment advisers adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act; the CCO was charged with aiding and abetting those violations. Commissioner Pierce’s support of this action is significant given her prior statements setting forth her concerns regarding personal liability for CCOs and her analysis of how one framework could be adopted for this analysis.
The Proposed SEC Climate Disclosure Rule: A Comment from Shivaram Rajgopal
More from: Shivaram Rajgopal
Shivaram Rajgopal is the Roy Bernard Kester and T.W. Byrnes Professor of Accounting and Auditing at Columbia Business School. This post is based on his comment letter submitted to the U.S. Securities and Exchange Commission regarding the Proposed SEC Climate Disclosure Rule.
Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; Does Enlightened Shareholder Value Add Value? (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here), both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe.
This post is based on a comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule by Professor Rajgopal. Below is the text of the letter with minor adjustments to eliminate the correspondence-related parts.
I write in support of your proposed climate risk disclosures. To frame my comments, it is useful to summarize what the climate risk disclosure rule would require registrants to disclose:
My support is based on my assessment of the costs and benefits of the proposal. Let us start with the costs.
1. Compliance costs are not a significant portion of market capitalization
On page 390 of the proposal, the SEC estimates costs in the first year of compliance to be around $640,000 and annual costs in subsequent years to be $530,000 for larger companies. On page 399, the SEC estimates assurance costs for large companies to be around $75,000 to $145,000. A well-done academic paper by Alexander et al. (2013) estimated the average annual costs of complying with section 404(b) for accelerated filers at $1.2 million.
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