Securities and Exchange Commission announces enforcement initiative directed at reporting violations by public company insiders

2015 ◽  
Vol 16 (1) ◽  
pp. 19-24 ◽  
Author(s):  
Richard J. Parrino ◽  
Peter Romeo ◽  
Alan Dye
Keyword(s):  
Securities And Exchange Commission ◽  
Timely Manner ◽  
Public Companies ◽  
Content Type ◽  
The Past ◽  
Public Company ◽  
The Us ◽  
Securities Laws ◽  
Enforcement Activity ◽  
Disclosure Obligations

Purpose – The purpose of this paper is to review the enforcement initiative announced by the US Securities and Exchange Commission (SEC) in September 2014 directed at reporting violations of the Securities Exchange Act of 1934 (Exchange Act) by public company officers, directors and significant stockholders. The paper considers the notable features of the first round of SEC enforcement actions pursuant to that initiative and proposes measures public companies and their insiders can adopt to enhance compliance with their reporting and related disclosure obligations under the Exchange Act. Design/methodology/approach – The paper examines the SEC’s enforcement initiative against the backdrop of the agency’s enforcement activity since 1990 for violations by public company insiders of the reporting provisions of Sections 13 and 16 of the Exchange Act. The paper summarizes the features of the reporting violations that attracted SEC enforcement interest in the recent proceedings and identifies the factors apparently weighed by the SEC in determining the amount of the penalties sought against those charged with the violations. Findings – The SEC’s latest enforcement actions are unprecedented for insider reporting violations. The new enforcement initiative represents an abandonment by the SEC of its largely passive approach of the past dozen years in which it charged insider reporting violations only when they related to fraud or other major violations of the securities laws. If reporting violations are flagrant, the SEC now promises to target the offenders for enforcement on a stand-alone basis without regard to other possible wrongdoing. The SEC also cautions that, as it did in some of the recent enforcement actions, it may charge companies that promise to assist their insiders in the preparation and filing of their reports, but do not to make the filings in a timely manner, with contributing to the filing failures. Originality/value – The paper provides expert guidance from experienced securities lawyers.

SEC charges “ICO Superstore” as unregistered broker-dealer

2019 ◽  
Vol 20 (1) ◽  
pp. 40-43
Author(s):  
John J. Sikora Jr. ◽  
Stephen P. Wink ◽  
Douglas K. Yatter ◽  
Naim Culhaci
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
The Us ◽  
Recent Developments ◽  
Practical Guidance ◽  
Securities Laws ◽  
Enforcement Activity

Purpose To analyze the settled order of the US Securities and Exchange Commission (SEC) against TokenLot LLC (TokenLot), which was the SEC’s first action charging a seller of digital tokens as an unregistered broker-dealer. Design/methodology/approach Analyzes the SEC’s order within the context of other recent actions by the SEC on cryptocurrencies and digital tokens and discusses future implications of the order in this area. Findings The SEC’s order against TokenLot as an unregistered broker-dealer was a logical next step in its enforcement activity in the cryptocurrency and digital token space.The order demonstrates that the SEC expects firms in the cryptocurrency space to use the well-established constructs of federal securities laws to evaluate their business activities to ensure those activities are legally compliant. Originality/value Practical guidance from experienced securities and financial services lawyers analyzing recent developments in a nascent area of SEC enforcement.

SEC announces new guidance for public company disclosures on cybersecurity risks

2018 ◽  
Vol 19 (4) ◽  
pp. 22-25 ◽  
Author(s):  
Stuart Gelfond ◽  
Una Dean ◽  
Dave N. Rao ◽  
Justin Sedor
Keyword(s):  
Insider Trading ◽  
Public Information ◽  
Securities And Exchange Commission ◽  
Public Companies ◽  
Content Type ◽  
Policies And Procedures ◽  
Public Company ◽  
Corporate Insiders ◽  
Standard Set ◽  
Disclosure Obligations

Purpose To discuss the new guidance on public companies’ disclosure obligations regarding cybersecurity risks and incidents, which was recently unanimously approved by the Securities and Exchange Commission (SEC). Design/methodology/approach Outlines the general disclose requirements and the materiality standard set forth by the SEC, explains specific guidance on public company cybersecurity disclosure, and discusses cybersecurity risk management and insider trading policies. Findings In addition to clarifying the disclosure requirements with respect to cybersecurity issues, the article discusses two additional areas of concern identified by the New Guidance that public companies should consider in the context of cybersecurity and related disclosure. First, public companies must design and maintain policies and procedures to help manage cybersecurity risks and respond to incidents as they occur. Second, public companies should consider adopting insider trading policies that specifically prohibit management and other corporate insiders from trading on the basis of material non-public information regarding a cybersecurity risk or incident. Originality/value Practical analysis of the guidance on disclosure obligations regarding cybersecurity risks and incidents, including discussion surrounding two aspects of cybersecurity not previously addressed in prior SEC staff guidance on the topic.

The SEC meditates on The DAO: tracing the initial arc of cryptosecurities regulation

2019 ◽  
Vol 20 (4) ◽  
pp. 58-67
Author(s):  
Aegis Frumento ◽  
Stephanie Korenman
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
The Us ◽  
Regulatory Principle ◽  
Securities Laws

Purpose The purpose of this paper is to review the first two years of the US Securities and Exchange Commission (SEC) efforts to regulate cryptosecurities to assess the trends of that regulation. Design/methodology/approach The authors review the SEC’s official pronouncements and informal statements about, and its enforcement actions against participants in, various early experiments in cryptosecurities. Findings The SEC has been evolving how to apply the US securities laws to cryptosecurities since its report on The DAO two years ago. When “coins” on a blockchain meet the traditional Howey Test, it is easy to categorize them as “securities.” However, the bedrock regulatory principle that some person must account for violations is frustrated by automated blockchain transactions, where no human is in control. This tension risks a “moral crumple zone” arising around cryptosecurities, in which persons might become liable for violations that they cannot fairly be said to have caused. Originality/value This paper provides valuable information and insights about the beginnings of US regulation of cryptosecurities and how the evolution of that regulation is trending after two years.

SEC enforcement actions under exchange act rule 21F-17

2017 ◽  
Vol 18 (3) ◽  
pp. 1-10 ◽  
Author(s):  
Thomas W. White
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Public Companies ◽  
Content Type ◽  
Employee Communications ◽  
Practical Guidance ◽  
Sec Regulation ◽  
Securities Laws ◽  
Practical Implications

Purpose To review recent enforcement actions in which the Securities and Exchange Commission (“SEC”) enforced Rule 21F-17(a) under the Securities Exchange Act, which prohibits actions to impede whistleblower communications with the SEC, and to identify changes that entities subject to SEC regulation (including public companies, broker-dealers and investment managers) may wish to consider in their employee separation agreements and other documents that may include confidentiality provisions. Design/methodology/approach Examines settled cases since 2015, in which the SEC found that contractual provisions in employee separation agreements and other documents impeded employees from communicating with the SEC staff about possible violations of the securities laws, to identify the types of language that the SEC found to be problematic and the types of provisions that the SEC believes are desirable, if not legally mandated, to protect employee whistleblower rights and avoid impeding communications under Rule 21F-17(a). Findings Beginning in 2015, the SEC has actively enforced Rule 21F-17(a), focusing on provisions in separation agreements and other employee-related documents that potentially prevent employees from reporting legal violations to the SEC. The SEC’s efforts have resulted in settled orders involving alleged violations of the rule. The cases generally allege that provisions in employee separation agreements or other documents violated the rule because they prohibited or chilled employee communications with the SEC about possible legal violations. Practical implications Entities subject to SEC regulation (including public companies, broker-dealers and investment managers) should review their confidentiality agreements with employees and consider whether changes are warranted to address the SEC’s concerns as identified in the Rule 21F-17(a) cases. Originality/value Practical guidance regarding important whistleblower developments from experienced securities lawyer.

SEC “claws back” bonuses and stock sale profits from CFOs of public company charged with accounting fraud

2015 ◽  
Vol 16 (2) ◽  
pp. 38-40
Author(s):  
Mary P Hansen ◽  
Garrett Trego
Keyword(s):  
Securities And Exchange Commission ◽  
Incentive Compensation ◽  
Chief Financial Officers ◽  
Accounting Fraud ◽  
Content Type ◽  
Personal Involvement ◽  
Sarbanes Oxley ◽  
Public Company ◽  
The Us ◽  
Enforcement Authority

Purpose – To explain an increasingly common practice of the US Securities and Exchange Commission (SEC) by which it seeks to “claw back” bonus and incentive compensation paid to CFOs of companies charged with accounting fraud, regardless of the personal involvement, knowledge, or culpability of the CFOs. Design/methodology/approach – This article details the facts underlying a recent SEC accounting fraud settlement through which two former CFOs of a company charged with fraud agreed to repay their bonuses and incentive compensation, despite not having been accused of any wrongdoing. The article goes on to outline the historic use of Section 304(a) of the Sarbanes-Oxley Act of 2002 (SOX), the provision that endows the SEC with this enforcement authority, in search of guidance for when and why the SEC may choose to exercise its authority under this provision. Findings – The SEC’s inconsistent use of its enforcement authority under Section 304(a) leaves chief financial officers potentially subject to individual liability and ill-equipped to modify their behaviour in order to prevent it. Originality/value – This article intends to raise industry awareness about the potential exercise of the broad enforcement power available to the SEC under Section 304(a) and call attention to the lack of guidance provided to corporate officers to avoid liability under this provision.

SEC issues warning to analysts profiting from “short and distort” schemes, opens the door for civil claims

2019 ◽  
Vol 20 (2) ◽  
pp. 34-38
Author(s):  
Perrie Michael Weiner ◽  
Edward D. Totino ◽  
Aaron Goodman
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Market Manipulation ◽  
Securities Fraud ◽  
Content Type ◽  
Short Sellers ◽  
Legal Challenges ◽  
The Us ◽  
Recent Activity ◽  
Enforcement Activity

Purpose To analyze the evolution of market manipulation and fraud by short-sellers and online bloggers and mechanisms available for addressing and remediating the damage caused by such fraud, including recent activity by the US Securities and Exchange Commission (the “SEC” or “Commission”). Design/methodology/approach This article discusses the development of a modern market manipulation and fraud scheme – the “short and distort” – including a review of potential claims by the targeted companies and anticipated impediments to asserting such claims.It further examines the need for regulation and the possibility that the SEC has opened the door for civil claims for this type of fraud. Findings Companies wrongfully targeted by illegitimate short-sellers may pursue claims for securities violations, defamation, business interference, securities fraud and extortion, among other claims.However, each of these claims has had, and still has, both business and legal challenges, as the short-seller’s initial defense tends to be to attempt to prove the truth of their statements to the market or establish those statements as legitimate opinion.The SEC has made the pursuit easier but there is still a long way to go. Originality/value This article contains valuable information about recent SEC enforcement activity and practical guidance from experienced securities lawyers.

SEC focuses on initial coin offerings: tokens may be securities under federal securities laws

2018 ◽  
Vol 19 (1) ◽  
pp. 10-14
Author(s):  
Jeremy I. Senderowicz ◽  
K. Susan Grafton ◽  
Timothy Spangler ◽  
Kristopher D. Brown ◽  
Andrew J. Schaffer
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
The Us ◽  
Recent Developments ◽  
Securities Laws ◽  
Initial Coin Offerings

Purpose To explain the recent determination by the US Securities and Exchange Commission (SEC) with respect to so-called “token sales” or “initial coin offerings” (ICOs) that some tokens may be securities under federal securities laws and to address other recent actions by the SEC with respect to ICOs. Design/methodology/approach Reviews the SEC’s determination that some tokens issued in an ICO may be securities under federal securities laws as outlined by the SEC’s Division of Enforcement in a “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO.” Provides overview of SEC Investor Alert, Investor Bulletin, and recent comments and actions of the Staff regarding investment in ICOs and provides guidance to those interested in participating in an ICO as an investor or issuer. Findings These actions by the SEC make it clear that the SEC is closely monitoring the market for ICOs, and that it wants potential investors and issuers to be aware that it is watching and may take action if it believes the securities laws have been violated. Originality/value Practical overview of recent developments and guidance from experienced securities and financial services lawyers.

COVID-19 considerations for SEC cybersecurity guidance, disclosure, enforcement, and parallel proceedings: navigating the new normal

2020 ◽  
Vol 21 (2/3) ◽  
pp. 111-126
Author(s):  
Aldo M. Leiva ◽  
Michel E. Clark
Keyword(s):  
Securities And Exchange Commission ◽  
Effective Vaccine ◽  
Resource Reallocation ◽  
Securities Litigation ◽  
Public Companies ◽  
Content Type ◽  
Business Operations ◽  
Expert Analysis ◽  
Securities Industry ◽  
Remote Operations

Purpose To examine the COVID-19 pandemic’s effects on regulated entities within the context of cybersecurity, US Securities and Exchange Commission (SEC) compliance, and parallel proceedings. Design/methodology/approach Describes the SEC’s ability to conduct its operations within the telework environment, its commitment and ability to monitor the securities market, its enhanced monitoring of the adverse effects of SEC-regulated companies from COVID-19, its guidance to public companies of disclosure obligations related to cybersecurity risks and incidents, the SEC Office of Compliance and Examinations’s (OCIE’s) focus on broker-dealers’ and investment advisories’ cybersecurity preparedness, the role and activities of the SEC Division of Enforcement’s Cyber Unit, and parallel proceedings on cyberbreaches and incidents by different agencies, branches of government or private litigants. Findings SEC-regulated entities face many challenges in trying to maintain their ongoing business operations and infrastructure due to severe financial pressures, the threat of infection to employees and customers, and cybersecurity risks posed by remote operations from hackers and fraudsters. The SEC has reemphasized that its long-standing focus on cybersecurity and resiliency within the securities industry will continue, including ongoing vigilance over companies’ efforts to identify, assess, and address the inherent, heightened cybersecurity risks of teleworking and the resource reallocation that business need to sustain their operations until a safe and effective vaccine is developed for COVID-19. Originality/value Expert analysis and guidance from experienced lawyers with expertise in securities, litigation, government enforcement, information technology, data protection, privacy and cybersecurity.

Recent civil and criminal enforcement action involving high frequency trading

2015 ◽  
Vol 16 (1) ◽  
pp. 5-12 ◽  
Author(s):  
Matthew Rossi ◽  
Greg Deis ◽  
Jerome Roche ◽  
Kathleen Przywara
Keyword(s):  
High Frequency ◽  
Design Methodology ◽  
High Frequency Trading ◽  
Content Type ◽  
Enforcement Action ◽  
The Past ◽  
Trading Patterns ◽  
Federal Prosecutor ◽  
Enforcement Activity ◽  
Practical Implications

Purpose – To alert high frequency trading firms to the increased regulation and prosecution of manipulative trading practices during 2014 and early 2015. Design/methodology/approach – Reviews four significant proceedings against high frequency trading firms (and/or individuals employed by such firms) and other developments from the relevant government agencies as a possible preview of the enforcement and prosecution of high frequency trading practices in 2015. Provides advice to high frequency trading firms on how to decrease the risk of regulatory or criminal actions against them in this changing environment. Findings – Although the focus on high frequency trading has only recently begun to intensify, firms should be aware of the increased enforcement activity of the past year. These actions, both regulatory and criminal, have already resulted in large penalties and have helped initiate a strengthening of rules and regulations regarding manipulative trading practices, of which firms need to be aware and stay current. Practical implications – High frequency trading firms should be aware of the recent regulatory and criminal actions in order to better evaluate their own practices and controls, to ensure that their trading patterns do not resemble manipulative practices, and to avoid similar actions. Originality/value – Practical guidance from experienced litigators and securities regulatory lawyers, including a former SEC Assistant Chief Litigation Counsel and a former federal prosecutor, that consolidates and describes several recent actions and developments in one piece.

Better ‘Best Execution’

2018 ◽  
pp. 165-196
Author(s):  
Christopher Nagy ◽  
Tyler Gellasch
Keyword(s):  
Securities And Exchange Commission ◽  
Client Expectations ◽  
The Us ◽  
Best Execution ◽  
Public Disclosures ◽  
Investment Advisers ◽  
The Impact ◽  
Disclosure Obligations

This chapter reviews best execution and new disclosure obligations in relation to investment advisers as well as brokers; it also provides an overview of the strategies they use to meet their rapidly changing obligations. Investment advisers and brokers are confronted with increasingly stringent regulatory and client expectations to fulfil their duty of best execution. Regulators in Europe have become active in developing formal best execution obligations, but the US Securities and Exchange Commission (SEC) is lagging behind in providing a clear framework for best execution. This chapter first outlines the analogous best execution obligation for broker-dealers and explores the contours of the SEC’s expectations for investment advisers. It then assesses the impact of new European best execution obligations and the role of public disclosures in aiding the fulfilment of best execution duties. It concludes by examining various strategies used by investment advisers to fulfil their evolving duties.

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