Investigations and Enforcement

On December 1, 2020, the Commodities Futures Trading Commission (CFTC) Division of Enforcement published its annual report for Fiscal Year 2020.  According to the report, the Division filed a record number of enforcement actions in 2020 and achieved a number of firsts, despite the unprecedented challenges presented by the COVID-19 pandemic.  In addition, the report provides a number of key insights into the Division’s enforcement concerns in several key areas, including compliance, digital assets, anti-money laundering (AML), market surveillance and its whistleblower program.    
Continue Reading CFTC’s Enforcement Division Announces Record-Breaking 2020 and Outlines Priorities for 2021

A recent enforcement action offers a glimpse of the Financial Industry Regulatory Authority’s (“FINRA”) expectations for firms conducting anti-money laundering (“AML”) due diligence and transaction monitoring.  On July 27, 2020, FINRA settled with broker-dealer JKR & Company (“JKR”) over allegations that the firm failed to detect, investigate, and report suspicious activity in four customer accounts in violation of FINRA Rules 3310(a) and 2010.  JKR agreed to a $50,000 fine and a censure to resolve the matter.  The settlement is notable in that FINRA applied transaction monitoring and due diligence expectations common in the banking industry to a broker-dealer.  It also serves as a reminder that FINRA expects member firms to not only establish written AML policies and procedures, but also to put their AML programs into practice in order to meet their regulatory obligations.
Continue Reading FINRA Settlement Highlights Importance of Anti-Money Laundering Due Diligence and Monitoring

The United States Department of Justice (DOJ) released updated guidance regarding its evaluation of corporate compliance programs on June 1, 2020.  The release comes just over a year since the guidance was last updated in April 2019.  While these latest changes are less extensive than the most recent ones, there are some key differences that suggest the DOJ may be shifting some areas of focus when it comes to its approach to assessing the effectiveness of corporate compliance programs.
Continue Reading DOJ Updates Corporate Compliance Guidance

On May 26, 2020, the Financial Crimes Enforcement Network, (“FinCEN”) issued a notice in the Federal Register updating cost estimates related to compliance with filing suspicious activity reports (SARs).  Under the Bank Secrecy Act, 31 U.S.C. § 5311 et seq., certain businesses providing financial services are required to file SARs upon suspicion that a crime or violation was committed by, at, or through that financial institution (so long as certain dollar thresholds are met), or upon suspicion of insider abuse of any kind.
Continue Reading FinCEN Issues Notice on SARs Filing Figures

In Securities & Exchange Comm. v. Gentile, No. 18-1242, 2019 WL 4686251 (3d Cir. Sept. 26, 2019), the United States Court of Appeals for the Third Circuit took up the question of whether Securities and Exchange Commission (“SEC”) injunctions constitute penalties subject to a five-year statute of limitations. In vacating a district court decision holding that they do, the Third Circuit held in this case of first impression that injunctions properly tailored to prevent future harm are not penalties. However, the opinion did not reach a determination as to whether the specific relief at issue had been so tailored, remanding that decision to the lower court along with the admonition that relief extending beyond the preventative into the punitive may not issue as an injunction. While the Third Circuit’s decision shielded the SEC’s injunctive powers from wholesale subjection to a five-year statute of limitations, it charted what qualifies as appropriate injunctive relief and, ultimately, may operate to curtail unduly broad injunctions.       
Continue Reading Third Circuit Reversal a Pyrrhic Win for SEC in Ongoing Statute of Limitations Saga

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 Exchange Act of 1934, 15 U.S.C § 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 offence 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” matpreliminarerial non-public information; and third, by expanding the definition of “wrongfully obtained” information to include stolen, hacked, and fraudulently obtained information.
Continue Reading New Bill Seeks to Bring Clarity to Insider Trading Law

In Lorenzo v. Securities & Exchange Comm., No. 17-1077, 2019 WL 1369839 (U.S. Mar. 27, 2019), the Supreme Court of the United States (Breyer, J.) held that an individual who did not “make” a false or misleading statement within the meaning of Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011) (blog article here), but instead disseminated it to potential investors with intent to defraud, can be held to have employed a scheme to defraud and/or engaged in an act, practice or course of business to defraud in violation of subsections (a) and (c) of Securities and Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5. This decision broadens the scope of primary liability under Rule 10b-5 beyond those who make false and misleading statements to include those who knowingly “disseminate” (i.e., communicate to potential investors) such false or misleading statements. Although this decision involved an SEC enforcement action, it is likely to be invoked by plaintiffs in private securities litigation to expand the scope of named defendants beyond the issuer and individuals directly responsible for making public statements on the issuer’s behalf.
Continue Reading United States Supreme Court Holds That Knowing Dissemination of False Statements Made by Others Can Constitute Primary “Scheme Liability” In Violation of Rule 10b-5(a) and (c)

In Securities & Exchange Commission v. Jensen, No. 14-55221, 2016 WL 4537377 (9th Cir. Aug. 31, 2016), the United States Court of Appeals for the Ninth Circuit broke new ground by providing the Securities & Exchange Commission (“SEC”) with a new independent cause of action under SEC Rule 13a-14, 17 C.F.R. § 240.13a-14, against a CEO or CFO who certifies false or misleading statements.  The Court also held that the disgorgement remedy authorized under Section 304 of the Sarbanes-Oxley Act, 15 U.S.C. § 7243 (“SOX 304”), applied regardless of whether a restatement was caused by the personal misconduct of an issuer’s CEO and CFO or by other issuer misconduct.  The majority opinion left some important questions unanswered, but Judge Bea, who concurred with the majority’s analysis and holding, wrote separately to clarify the intended scope of the new legal rules announced by the Court’s opinion.
Continue Reading Ninth Circuit Permits SEC to Assert Standalone Claim for False Sarbanes-Oxley Certification and Confirms Disgorgement Remedy Against CEO and CFO Despite Lack of Personal Involvement In Underlying Misconduct

On April 1, 2015, the Securities & Exchange Commission (the “SEC” or “Commission”) fined a public company $130,000 for requiring employees involved in internal investigations to sign a confidentiality agreement that the Commission deemed violative of the whistleblower protections contained in the Dodd-Frank Act.  KBR, Inc., Exchange Act Release No. 74619 (Apr. 1, 2015).  This case was the first brought by the SEC involving anti-disclosure language of this type.
Continue Reading SEC Takes Aggressive Approach to Fortify Dodd-Frank’s Whistleblower Rules

In an effort to keep pace with rapidly accelerating market technology, the Securities & Exchange Commission (“SEC”) has taken steps to expand oversight over high-frequency trading.  On March 25, 2015, the SEC unanimously approved a plan requiring that rapid-fire trading firms register with the Financial Industry Regulatory Authority (“FINRA”).
Continue Reading SEC Requires FINRA Registration for High Frequency Traders