Investigations and Enforcement

In Gabelli v. Securities & Exchange Commission, No. 11-1274, 2013 WL 691002 (U.S. Feb. 27, 2013), the United States Supreme Court, in a unanimous opinion by Chief Justice Roberts, held that the five-year statute of limitations for the Securities & Exchange Commission (“SEC”) to bring a civil suit seeking penalties for securities fraud against investment advisers, codified in 28 U.S.C. § 2462 (“Section 2462”), begins to run when the alleged fraud occurs, not when it is discovered. In so holding, the Supreme Court refused to extend to Government civil penalty enforcement actions the “discovery rule,” which starts the clock on the statute of limitations for civil fraud actions when plaintiff should have reasonably discovered the fraud. The Supreme Court’s decision thus limits the authority of the SEC to seek civil penalties with respect to conduct that occurred more than five years before investigators took action.Continue Reading United States Supreme Court Declines to Apply the “Discovery Rule” to Extend the Five-Year Statute of Limitations for SEC Punitive Fraud Enforcement Actions

At last!  We now have official guidance in one place from the United States Department of Justice and the Securities and Exchange Commission regarding the Foreign Corrupt Practices Act (“FCPA”).  A lengthy memorandum was released November 14, 2012, accompanied by a joint press conference.  Here is a link to the memo: http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdfContinue Reading DoJ and SEC Issue Long-Awaited FCPA Guidance

In SEC v. Apuzzo, 2012 WL 3194303 (2d Cir. Aug. 8, 2012), the United States Court of Appeals for the Second Circuit clarified the standard for finding liability for aiding and abetting under Section 20(e) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78t(e). Under Section 20(e), the Second Circuit held, the Securities and Exchange Commission (“SEC”) need not show that an aider and abettor “proximately caused” the harm on which the primary violation was predicated. Instead, the SEC need only show that the aider and abettor “in some sort associated himself with the venture, that he participated in it as in something he wished to bring about, and that he sought by his action to make it succeed.” In Appuzo, the Second Circuit has clarified that the SEC need only plead this level of participation — and not proximate causation — to adequately allege that an aider and abettor meets the “substantial assistance” prong of Section 20(e).Continue Reading Second Circuit Holds That SEC Need Not Prove “Proximate Cause” for Aiders and Abettors Under Section 20(e) of the Securities Exchange Act of 1934

In Securities & Exchange Commission v. Goble, 2012 WL 1918819 (11th Cir. May 29, 2012), the United States Court of Appeals for the Eleventh Circuit held that the recording of a sham transaction in the corporate books did not constitute “securities fraud” in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Securities & Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5, because “a misrepresentation that would only influence an individual’s choice of broker-dealers cannot form the basis for § 10(b) securities fraud liability.” In so holding, the Eleventh Circuit declined “the SEC’s invitation to expand [the] definition of materiality” to capture the misrepresentation.Continue Reading Eleventh Circuit Reverses In Part Securities Fraud Judgment Against Clearing Broker in an Action Brought by the SEC

On January 6, 2012, the Securities and Exchange Commission (“SEC”) announced that it has modified its settlement policy for enforcement actions that also involve a criminal conviction or admissions by a defendant of criminal violations. Under its new policy, the traditional “neither admit nor deny” language will be deleted from its settlement documents. Instead, the SEC will recite the facts and nature of the related criminal proceeding. Enforcement staff will have the discretion to incorporate into SEC settlement documents any relevant facts admitted by the defendant in the criminal proceedings.Continue Reading SEC Changes Policy on Admitting Guilt in Settlements of Enforcement Actions

In In re Washington Mutual, Inc., No. 08-12229 (MFW), 2011 WL 4090757 (Bankr. D. Del. Sept. 13, 2011), the United States Bankruptcy Court for the District of Delaware denied confirmation of debtor Washington Mutual, Inc.’s (“WaMu”) plan of reorganization.  Standing in the way of confirmation was the equity committee’s motion for leave to file an adversary proceeding against four noteholding hedge funds because of insider trading. The bankruptcy court, in granting the motion, provided guidance to participants in bankruptcy proceedings who might be inclined to purchase or sell stock on information gleaned through the bankruptcy process.
 Continue Reading How to Turn a Bankruptcy Reorganization Into an Insider Trading Charge

In City of Pontiac General Employees’ Retirement System v. MBIA, Inc., 2011 U.S. App. LEXIS 3813 (2d Cir. Feb. 28, 2011), the United States Court of Appeals for the Second Circuit delineated the standard needed to asses how much information a reasonably diligent investor must have about the facts constituting a securities fraud violation before those facts are deemed “discovered” for purposes of triggering the statute of limitations for a claim under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities & Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5.In doing so, the Second Circuit addressed the gap left by the United States Supreme Court in Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1796 (2010) [see blog article here], where the Supreme Court expressly declined to prescribe a list of the facts needed to constitute a securities law violation for purposes of triggering the statute of limitations.
 Continue Reading Second Circuit Clarifies Standard Regarding Knowledge Of Facts That Constitute A Securities Fraud Violation For Purposes Of Triggering The Two-Year Statute Of Limitations For Rule 10b-5 Claims

On October 21, 2010, the Securities and Exchange Commission announced enforcement actions against Office Depot, Inc. and two executive officers for violating Regulation FD by selectively conveying to analysts and institutional investors that Office Depot would not meet analysts’ earnings estimates.Continue Reading SEC Enforcement Action Under Regulation FD For Implicit Communications To Selected Analysts

On August 13, 2010, New York State Governor David Paterson signed into law amendments to New York’s Power of Attorney Law (A.8392-C/S.7288-A) (the "2010 Amendments"). The 2010 Amendments become effective September 12, 2010 and will be retroactive to September 1, 2009, the effective date of the prior amendments to the New York State Power of Attorney Law that caused uncertainty and debate among transactional attorneys due to its onerous requirements and absence of a carve out for certain commercial transactions.
 Continue Reading New York State Amends Power of Attorney Law

With the increasing numbers of companies which were once thought to be giants of industry filing for bankruptcy, more opportunities to purchase major assets are becoming available to savvy buyers looking to expand their business or asset base. The Bankruptcy Code provides debtors with the ability to liquidate all or a part of their assets through court-supervised sales and buyers with the ability to obtain those assets at more favorable prices than they would pay if the sale were consummated outside of a bankruptcy.Continue Reading One’s Crisis is Another’s Opportunity: Section 363 Sales