On August 18, 2017, the Securities and Exchange Commission (“SEC”) announced that broker-dealer Banca IMI Securities Corp. (“BISC”), an indirect, wholly-owned U.S. subsidiary of Italian bank Intesa Sanpaolo SpA, agreed to pay more than $35 million to settle claims that it violated federal securities laws when it requested the issuance of, and received, pre-released American Depositary Receipts (“ADRs”) from various banks without possessing a corresponding number of underlying foreign shares or taking reasonable steps to ensure that such shares were held by the customers on whose behalf it was obtaining the pre-released ADRs, as required by its contracts with issuing banks.  In the Matter of Banca IMI Securities Corp., Admin. Proc. File No. 3-18118 (Aug. 18, 2017).  The SEC alleged that this conduct violated Section 17(a)(3) of the Securities Act of 1933 and reflected a failure by BISC to supervise reasonably its securities lending desk personnel, as required under Section 15(b)(4)(E) of the Securities Exchange Act of 1934.  This is the second such settlement the SEC has announced this year.  See In the Matter of ITG Inc., Admin Proc. File No. 3-17770 (Jan. 12, 2017).

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On August 15, 2017, KPMG LLP (“KPMG”) and one of its engagement partners settled claims brought by the U.S. Securities and Exchange Commission (“SEC”) that they violated Section 4C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102 of the SEC’s Rules of Practice in connection with KPMG’s 2011 audit of the financial statements of Miller Energy Resources, Inc. (“Miller Energy”).  In the Matter of KPMG LLP and John Riordan, CPA, Admin. Proc. File No. 3-18110 (Aug. 15, 2017).  This is the second SEC enforcement action to grow out of the Miller Energy financial statements. 

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On August 7, 2017, the Seventh Circuit upheld the conviction of Michael Coscia, founder of Panther Energy Trading LLC, for a market manipulation tactic known as “spoofing,” under Section 6c(a)(5)(C) and 13(a)(2) of the Commodity Exchange Act.  United States v. Coscia, No. 16-cr-3017 (7th Cir. Aug. 7, 2017).  Coscia’s conviction is the first of its kind under this statute, which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 and prohibits “bidding or offering with the intent to cancel the bid or offer before execution.”  The Seventh Circuit rejected Coscia’s claim that the statute was unconstitutionally vague and found that Coscia’s conviction was supported by sufficient evidence. 

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On August 8, 2017, the Government moved to dismiss all charges against Benjamin Wey, the CEO of New York Global Group charged with securities fraud, wire fraud, conspiracy, and money laundering.  United States District Court Judge Alison Nathan of the Southern District of New York accepted the government’s motion the same day, and all charges against Wey were accordingly dismissed.  United States v. Wey, No. 1:15-cr-00611 (S.D.N.Y. Aug. 8, 2017) (nolle prosequi).  The Government’s decision was expected after Judge Nathan suppressed all of the evidence obtained during the government’s execution of court-ordered search warrants, United States v. Wey, No. 1:15-cr-00611 (S.D.N.Y. June 13, 2017) (“Opinion”), which is discussed in detail below.  Judge Nathan’s suppression opinion is notable for its judicial findings – which could have broader ramifications in motion practice related to searches in white collar cases – and for the drastic remedy ordered by the court.  Further, the Government’s decision to accept the sweeping suppression, instead of challenging the landmark decision on appeal, is strong support for the belief that Judge Nathan’s opinion represents a critical shift in search warrant application requirements.

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On August 1, 2017, Cadaret, Grant & Co., a Delaware investment adviser and broker-dealer, settled claims brought by the United States Securities and Exchange Commission (“SEC”) that it violated various provisions of the Investment Advisers Act of 1940 (“Advisers Act”) by failing, among other things, to invest its clients in lower-fee share classes of certain mutual funds and to disclose conflicts of interest regarding its incentives to invest clients in higher-fee share classes.   In the Matter of Cadaret, Grant & Co., Inc., Admin. Proc. File No. 3-18087 (Aug. 1, 2017).

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On July 12, 2017, both the Department of Justice (“DOJ”) and Securities and Exchange Commission (”SEC”) filed insider trading charges against a research scientist who allegedly traded upon confidential information obtained from his wife.  See Press Release, Manhattan U.S. Attorney And FBI Assistant Director Announce Insider Trading Charges Against Spouse Of Lawyer At International Law Firm, Rel. No. 17-213 (July 12, 2017), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-and-fbi-assistant-director-announce-insider-trading-charges-0; Press Release, SEC Files Inside Trading Charges Against Research Scientist Aiming to Avoid SEC Detection, Rel. No. 2017-125 (July 12, 2017), https://www.sec.gov/news/press-release/2017-125.  The DOJ’s criminal complaint includes two securities fraud charges and one wire fraud charge, see United States v. Yan, 17-mag-5156 (July 12, 2017), while the SEC’s complaint charges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 14(e) of the Exchange Act and Rule 14e-3 thereunder.  SEC v. Yan et al., 17-cv-05257 (S.D.N.Y. July 12, 2017).
 

On July 27, 2017, the Securities and Exchange Commission (“SEC”) brought an enforcement  action against Halliburton Company, a Houston-based oilfield services corporation.  Specifically, the SEC alleged that Halliburton violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by utilizing a local Angolan company to obtain business from the Angolan state oil company.  In the Matter of Halliburton Company and Jeannot Lorenz, Admin. Proc. No. 3-18080 (July 27, 2017) (“Order”).  Without admitting or denying the alleged conduct and charges, Halliburton agreed to pay approximately $29.2 million to settle SEC charges stemming from the long-running investigation which commenced in 2011.  As part of the Order, former Halliburton Vice-President Jeannot Lorenz, who allegedly spearheaded the conduct that formed the basis for the company’s settlement, agreed to pay a $75,000 penalty for “causing” the company’s underlying violations, circumventing internal accounting controls, and falsifying books and records.

On July 19, 2017, the United States Court of Appeals for the Second Circuit overturned the convictions of Anthony Allen and Anthony Conti, former traders at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (“Rabobank”) who played roles in Rabobank’s London Interbank Offered Rate (“LIBOR”) submission process.  United States v. Allen, et al., No. 16-939.  The Second Circuit held that each defendant’s Fifth Amendment right against self-incrimination had been violated because the indictments and convictions were obtained in part based on their own testimony, which had been obtained involuntarily (though lawfully) when they were compelled to testify in a separate investigation conducted by the financial regulator in the United Kingdom.  Id. at 80.  Even though the government did not use Allen’s and Conti’s compelled testimony directly against them, either in the grand jury testimony or at trial, one of the government’s key witnesses had seen their compelled testimony; and the Second Circuit concluded that the government could not demonstrate, under Kastigar v. United States, 406 U.S. 441 (1972), that his testimony was not tainted or that the use of his testimony was harmless.  The Second Circuit’s decision in Allen will create numerous and wide-ranging potential pitfalls for U.S. prosecutors, who increasingly find themselves investigating potential crimes across borders and in conjunction with foreign criminal and regulatory authorities, many of whom allow for compulsory witness statements.

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On July 12, 2017, the U.S. Court of Appeals for the Second Circuit overturned the district court’s decision to unseal the report of a special monitor charged with supervising HSBC Holdings plc and HSBC Bank, USA, N.A. (together, “HSBC”) pursuant to a deferred prosecution agreement (“DPA”).  In so holding, the Second Circuit provided clarification in the district court’s oversight of DPAs, including the scope of their supervisory authority relating to judicial documents. 

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On July 13, 2017, the U.S. Court of Appeals for the Second Circuit overturned the high-profile, political corruption conviction of one of the most powerful politicians in New York State— former Speaker of the New York State Assembly, Sheldon Silver. United States v. Silver, 2017 WL 2978386, at *17 (2d Cir. July 13, 2017).  The Second Circuit grounded its decision on erroneous jury instructions, which it believed tainted all counts of conviction.  Though the instructions were consistent with Second Circuit law at the time they were provided to the jury, the Second Circuit held that they did not comport with the Supreme Court’s recent interpretation of what constitutes an “official act” for purposes of the “honest services fraud” and extortion statutes, as set forth in McDonnell v. United States, 136 S. Ct. 2355 (2016).  The Court further held that this error was not harmless, and vacated all counts of Silver’s conviction. 

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​On June 30, 2017, the Department of Justice (“DOJ”) announced that it had declined to bring charges against and was closing its investigation into CDM Smith Inc. (“CDM”), a Boston-based engineering and construction group, for alleged FCPA offenses in India in light of CDM’s cooperation and agreement to disgorge the more than $4 million in profits that the DOJ asserted had been made from illegal conduct.  Letter from Nicola J. Mrazek, Senior Litigation Counsel, U.S. Dep’t of Justice, Criminal Div., Fraud Section to Nathaniel B. Edmonds, Paul Hastings LLP (counsel to CDM), dated June 21, 2017.  CDM had self-reported to the DOJ that certain employees in India had paid $1.2 million in bribes to officials at the National Highways Authority of India (“NHAI”) to win contracts for highway construction and design work and a water project.  The declination with disgorgement was the seventh declination and the fourth declination with disgorgement reached as part of the government’s FCPA Pilot Program, which it unveiled in 2016 to encourage companies to self-report overseas corruption schemes.  Shearman & Sterling LLP, Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act (July 5, 2017).

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On June 29, 2017, the United States Court of Appeals for the Eighth Circuit vacated a disgorgement order against Crawford Capital Corporation, a venture capital firm, and its owner, Paul D. Crawford, citing the U.S. Supreme Court’s recent ruling in Kokesh v. SEC, which held that disgorgement collected by the Securities and Exchange Commission (“SEC”) is subject to a five-year statute of limitations.  United States Sec. & Exch. Comm’n v. Collyard, No. 16-1405 (8th Cir. June 29, 2017).  At the same time, however, the court ruled that Kokesh does not preclude the SEC from obtaining injunctive relief for five-year-old conduct.

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On Thursday, June 15, 2017, a Connecticut federal jury delivered a mostly defendant-friendly verdict in the criminal trial of three residential mortgage-backed securities (“RMBS”) traders charged with conspiracy, securities fraud, and wire fraud.  United States v. Shapiro et al., 3:15-cr-00155, Verdict Form (D. Conn. June 15, 2017).  This case is one of a slew of recent actions brought by the DOJ and SEC as part of a federal crackdown on allegedly deceptive bond trading practices, on which this newsletter has previously reported.

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On June 5, 2017, the Supreme Court of the United States unanimously reversed a forfeiture judgment under Section 303 of the Comprehensive Forfeiture Act of 1984, 21 U.S.C. § 853(a)(1) (“Section 853(a)”), holding that forfeiture under Section 853(a) is limited to specific property that has been derived from, or used in, criminal activity by a given defendant.  Honeycutt v. United States, No. 16-142 (June 5, 2017).  This holding resolved a circuit split on the issue and rejected the prevailing majority approach, which had applied joint and several liability to forfeiture under Section 853(a), regardless of whether a party had personally benefited from the subject of the forfeiture.

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On June 5, 2017, a unanimous Supreme Court held that the ability of the Securities and Exchange Commission (“SEC”) to seek disgorgement in connection with a violation of federal securities law is subject to a five-year statute of limitations, reversing a decision from the United States Court of Appeals for the Tenth Circuit, and rejecting the SEC’s argument that disgorgement is an equitable remedy not subject to any statute of limitations.  Kokesh v. SEC, No. 16-529 (June 5, 2017).  Writing for the Court, Justice Sotomayor analyzed the function of SEC disgorgement, concluding that it “bears all the hallmarks of a penalty” and was therefore subject to the five-year statute of limitations under 28 U.S.C. § 2462 (“Section 2462”).  In so doing, the Supreme Court resolved an outstanding circuit split as to whether the statute of limitations applies to disgorgement, answering that question with a definitive "yes."

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On May 15, 2017, the Securities and Exchange Commission sued two commercial mortgage backed securities (“CMBS”) traders for securities fraud allegedly committed while buying and selling CMBS on behalf of a large broker-dealer during the course of their employment at the firm.  SEC v. Chan, S.D.N.Y, 1:17-cv-3605; SEC v Im, S.D.N.Y, 1:17-cv-3613.  These are the latest in a slew of recent lawsuits that have been brought by the SEC and DOJ as part of a federal crackdown on allegedly deceptive bond trading practices, but the DOJ is notably absent from this latest case.  

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On May 12, 2017, U.S. Attorney General Jeff Sessions issued a memorandum to all federal prosecutors, entitled “Department Charging and Sentencing Policy,” which dramatically changes existing policies and procedures for federal prosecutors.  Department Charging and Sentencing Policy (May 10, 2017) (“Sessions Memorandum”).  The Sessions Memorandum requires prosecutors to (1) charge the “most serious, readily provable offense” available; and (2) disclose all facts impacting sentencing to the sentencing court and to advocate for a sentence falling within the range in the United States Sentencing Guidelines (the “Guidelines”) in most cases.  The memorandum also rescinds all inconsistent policies, including two memorandums issued by former Attorney General Eric Holder, which provided wider latitude to prosecutors in their charging and sentencing decisions.  The Sessions Memorandum cites fairness and consistency as the objectives of the new policies, seeking to “achiev[e] just and consistent results in federal cases.”   

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On April 26, 2017, Judge Janet C. Hall of the United States District Court for the District of Connecticut sentenced Jesse Litvak, a former bond trader, to two years’ imprisonment, a $2 million fine, and three years’ probation after he was convicted in January 2017 of one count of securities fraud.  United States v. Litvak, D. Conn., 3:13-Cr-19, Sentencing Minutes (Apr. 26, 2017).  This sentence is the latest chapter in a multi-year saga for Jesse Litvak.  (See Shearman & Sterling LLP, Bond Trader Acquitted Of All But One Securities Fraud Charges In Retrial, Need-to-Know Litigation Weekly, January 1, 2017).

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On April 18, 2017, Securities and Exchange Commission (“SEC” or “Commission”) Administrative Law Judge (“ALJ”) James Grimes dismissed an administrative proceeding instituted by the Commission against Georgia real estate developer Charles Hill, Jr. alleging that Hill engaged in insider trading.  In the Matter of Charles L. Hill, Jr., Admin. Proc. No. 3-16383 (Apr. 18, 2017).  In the course of the administrative proceeding, the SEC’s Enforcement Division argued that Hill had traded on material, nonpublic information about a tender offer while having reason to know that the information came from an officer of the target company.  After a full hearing on the merits, however, ALJ Grimes dismissed the administrative proceeding, concluding that the Enforcement Division had not met its burden of proof because its arguments rested too heavily on speculation.  

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On April 10, 2017, the Securities and Exchange Commission (”SEC”) announced fourteen enforcement actions, charging 28 businesses and individuals in connection with alleged schemes to pay writers to generate “bullish” articles relating to certain public companies, while concealing these promotion payments.  See Press Release, SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors, Rel. No. 2017-79 (Apr. 10, 2017), https://www.sec.gov/news/pressrelease/201779.  Although the SEC did not allege that the articles contained any misstatements about the public companies, the SEC claimed that the failure to disclose the promotion payments violated the anti-fraud and anti-touting provisions of the federal securities laws, including Sections 17(a) and 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  

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On March 28, 2017, the U.S. District Court for the District of Utah granted the Securities and Exchange Commission’s (“SEC”) motion for a preliminary injunction in a securities fraud case against Traffic Monsoon, LLC, an advertising services company which allegedly ran a Ponzi scheme involving a pay-per-click advertisement program.  SEC v. Traffic Monsoon, LLC, No. 2:16-CV-00832-JNP, (D. Utah Mar. 28, 2017) (order granting preliminary injunction) (“Order”).  The injunction hinged, in part, on the district court’s conclusion that the SEC can bring securities fraud enforcement actions under Section 10(b) of the Exchange Act of 1934 (“Exchange Act”) and Sections 17(a)(1) and (3) of the Securities Act of 1933 (“Securities Act”) in connection with foreign transactions.  In so ruling, the District Court limited the holding of the U.S. Supreme Court’s decision in Morrison v. National Australia Bank, 561 U.S. 247 (2010), in which the Supreme Court held that Section 10(b) applied only to transactions in securities listed on domestic exchanges and domestic transactions in other securities. 

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On March 20, 2017, Judge Juan Sanchez of the U.S. District Court for the Eastern District of Pennsylvania denied Defendant Leon Cooperman’s motion to dismiss an insider trading claim brought by the Securities and Exchange Commission (“SEC”).  Memorandum, SEC v. Cooperman, No. 16-cv-05043 (E.D. Pa. Mar. 20, 2017).  Judge Sanchez’s opinion may be the first time a court has squarely considered whether, to be liable under the “misappropriation theory” of insider trading, the trader must have a duty of trust and confidence to the source of the “misappropriated” confidential information at the time the source discloses the confidential information to the trader—and not just sometime prior to executing the challenged trade.  The Court ruled that as long as the SEC alleged that there was a duty of trust and confidence prior to the challenged trade, using the information in breach of that duty could be an actionable misappropriation.

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On March 13, 2017, Financial Industry Regulatory Authority’s (“FINRA”) National Adjudicatory Council (the “NAC”) affirmed a hearing panel’s finding that Matthew Joseph Sheerin, a trader formerly with investment firm Angelo Gordon & Co., did not engage in insider trading.  Decision, Dep’t of Mkt. Regulation v. Sheerin, Compl. No. 2011027926301 (Mar. 13, 2017).

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On March 2, 2017, Judge Amos Mazzant III of the United States District Court for the Eastern District of Texas dismissed an amended complaint filed by the United States Securities and Exchange Commission (“SEC”) against the Attorney General of Texas, Warren Paxton, Jr., for alleged securities fraud.  The SEC alleged that Paxton defrauded investors in Servergy, Inc., by touting the company in the absence of any disclosure that Paxton would earn commissions from the investments he solicited.  But the SEC’s amended complaint was dismissed with prejudice on the grounds that, among other things, the SEC did not plead facts sufficient to establish that Paxton had any duty to disclose his commissions to the investors in Servergy.  SEC v. William E. Mapp, III, et al., No. 4:16-cv-00246 (E.D. Tex. Mar. 2, 2017), ECF No. 96.  The SEC’s original complaint had been dismissed on October 7, 2016 for substantially the same reasons, and the Court found that the SEC’s attempted cures were insufficient.

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On March 1, 2017, Judge P. Kevin Castel of the United States District Court for the Southern District of New York denied professional gambler William “Billy” Walters’ motion to dismiss his indictment on charges of insider trading.  Walters’ motion came after the U.S. Attorney’s Office for the Southern District of New York (“USAO”) disclosed that one of the lead case agents from the Federal Bureau of Investigation (“FBI”) had leaked sensitive information to the press during the course of the investigation.  Walters claimed that those leaks were part of a calculated effort to prejudice his case by jumpstarting a dormant investigation and that they were part of a broader pattern of outrageous government conduct by the USAO and the FBI playing “fast and loose” with obligations of grand jury secrecy in an effort to prejudice defendants.  While being highly critical of the FBI agent who leaked the information in question, Judge Castel nevertheless ruled that Walters could not demonstrate substantial prejudice, or that the government’s conduct reached a “demonstrable level of outrageousness” that warranted dismissal of the indictment.  Accordingly, Walters must now face trial.  United States v. Walters, No. 16-cr-00338-PKC, slip op. at 18 (S.D.N.Y. Mar. 1, 2017).

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On February 8, 2017, the United States Department of Justice (“DOJ”), Fraud Section, issued guidance on its evaluation of corporate compliance programs in the context of criminal investigations of corporate entities.  By way of background, the United States Attorneys’ Manual outlines various principles federal prosecutors need to consider in deciding whether criminal charges against corporate entities should be pursued and how such charges should be resolved.  These principles include “the existence and effectiveness of the corporation’s pre-existing compliance program” and the corporation’s remedial efforts “to implement an effective corporate compliance program or to improve an existing one.”  United States Attorney’s Office, United States Attorneys’ Manual § 9-28.300 (1997).

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On February 14, 2017, the Securities and Exchange Commission (“SEC”) instituted settled administrative proceedings in two different matters where the SEC alleged disclosure violations in connection with battles for corporate control.  CVR Energy (“CVR”), a Texas-based oil refinery company, agreed to settle claims that it failed to adequately disclose the material terms of its fee arrangements during an attempted hostile takeover, In the Matter of CVR Energy, Inc., Admin. Proc. No. 3-17846 (Feb. 14, 2017), and a group of investors agreed to settle claims that they failed to adequately disclose their ownership stakes during a series of campaigns to influence and exert control over microcap companies.  In the Matter of Jeffrey E. Eberwein, et al., Admin. Proc. No. 3-17847 (Feb. 14, 2017).  CVR was not assessed a penalty (which the SEC attributed to the company’s extensive cooperation with the SEC investigation) while the respondents in Eberwein agreed to pay $420,000.  Neither party agreed to admit the allegations.

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On February 6, 2017, a federal jury in San Francisco, California found that Bio-Rad Laboratories, Inc., a life sciences and clinical diagnostics company, violated the Sarbanes-Oxley Act’s whistleblower protections.  The violation stemmed from Bio-Rad’s decision to terminate its former General Counsel, Sanford Wadler, after he internally reported potential Foreign Corrupt Practices Act (“FCPA”) violations to the company’s audit committee.  See Wadler v. BioRad Laboratories, Inc. et al., No 3:15-cv-2356 Final Verdict Form. 

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On February 3, 2017, California-based technology company Ixia and its former CEO, Victor Alston, settled claims brought by the United States Securities and Exchange Commission (the “SEC”) for failing to properly defer recognition of certain revenue in violation of the books and records and internal controls provisions of the Securities Exchange Act of 1934 (the “Exchange Act”).  In the settlement document, Ixia and Alston neither admitted nor denied the SEC’s findings.  In the Matter of Ixia and Victor Alston, Admin. Proc. No. 3-17825 (Feb. 3, 2017).  The Commission also filed suit in the United States District Court for the Central District of California against two other former Ixia employees in connection with these same claims, and this suit is still pending.  Complaint, SEC v. Miller, et al., 17-cv-00897 (C.D. Cal. Feb. 3, 2017), ECF No. 1.

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On February 8, 2017, United States District Judge Jon S. Tigar of the United States District Court for the Northern District of California granted in part defendant Erik Bardman’s motion to dismiss the Securities and Exchange Commission’s claim for disgorgement of certain compensation pursuant to Sarbanes-Oxley Act Section 304 (“SOX 304”).  Order, SEC v. Bardman, No. 3:16-cv-02023 (N.D. Cal. Feb. 8, 2017).  Mr. Bardman is a former Chief Financial Officer of Logitech International SA.  The Court held that neither an earnings release nor a Form 8-K announcing and attaching an earnings release can be the basis of a SOX 304 disgorgement claim because any purported material noncompliance with a financial reporting requirement in those documents does not cause or require a company to issue an accounting restatement.  

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On January 25, 2017, the Securities and Exchange Commission (“SEC”) filed contested administrative proceedings against Windsor Street Capital (“WSC”), a NY-based brokerage firm, and its former chief compliance officer (“CCO”) and anti-money laundering officer, John David Telfer, for gate-keeping and AML failures related to sales of penny stocks that WSC facilitated.  In the Matter of Windsor Street Capital, L.P. (f/k/a Meyers Associates L.P.) and John David Telfer, Admin. Proc. No. 3-17813 (Jan. 25, 2017) (“Order”).  The SEC alleged that on numerous occasions between 2013 and the date of the Order, WSC facilitated the unregistered sale of hundreds of millions of penny stock shares without performing adequate due diligence, in violation of Section 5 of the Securities Act of 1933 and failed to file suspicious activity reports (“SARs”) for transactions totaling at least $24.8 million with the United States Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), as required under the Bank Secrecy Act of 1970 and in violation of the Exchange Act of 1934.  Tefler, according to the SEC, was personally responsible for monitoring customer transactions for suspicious activity and thus aided and abetted WSC’s violations of the Exchange Act Section 17(a) and Rule 17a-8.  

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On January 27, 2017, a federal jury in New Haven, Connecticut found former bond trader Jesse Litvak not guilty on all but one of ten charged securities fraud counts.  United States v. Litvak, D. Conn., 3:13-Cr-19, Jury Verdict (Jan. 27, 2017).  This case was a re-trial, after a jury’s earlier verdict—finding Litvak guilty of all counts—was reversed and vacated.  United States v. Litvak, 30 F. Supp. 3d 143 (D. Conn. 2014), rev’d in part, vacated in part, 808 F.3d 160 (2d Cir. 2015).  As discussed below, the verdict was a sound defeat for the Government’s particular theory of fraud in the retail bond markets, which the defense vigorously challenged at both trials.

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On January 23, 2017, Overseas Shipholding Group, Inc. (“OSG”), an international shipping conglomerate, and its former chief financial officer Myles R. Itkin, reached an agreement with the United States Securities and Exchange Commission (“SEC”) that brought to a close an SEC investigation into OSG’s failure to record certain federal income tax liabilities of approximately $264 million that, when recognized in the second quarter of 2012, drove the company into bankruptcy.  In the Matter of Overseas Shipholding Group, Inc. and Myles Robert Itkin, Admin. Proc. No. 3-17807 (Jan. 23, 2017) (“Order”).  Without admitting or denying the allegations, OSG and Itkin each consented to the entry of an order instituting settled cease-and-desist proceedings, which found that both violated or caused the violation of the negligence-based antifraud provisions as well as reporting, books-and-records, and internal controls provisions of federal securities laws.  OSG agreed to pay a $5 million penalty, which is subject to bankruptcy court approval, and Itkin agreed to pay a $75,000 penalty.    

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On January 18, 2017, Orthofix International N.V. (“Orthofix”), a Texas-based medical device company, agreed to a civil money penalty of $8,250,000 to settle claims brought by the United States Securities and Exchange Commission (“SEC”) for artificially inflating the company’s financial condition through faulty accounting, and separately agreed to disgorge $2,928,000, plus interest, and pay a civil money penalty of $2,928,000 for violating the Foreign Corrupt Practices Act (“FCPA”), by providing improper payments to doctors at government-owned hospitals in Brazil.  Orthofix admitted to facts set forth in the SEC’s two Orders Instituting Proceedings, and acknowledged that the conduct violated the federal securities laws.  In the Matter of Orthofix International N.V., Admin. Proc. No. 3-17791 (Jan. 18, 2017).  In the Matter of Orthofix International N.V., Admin. Proc. No. 3-17800 (Jan. 18, 2017).

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On January 17, 2017, BlackRock, Inc. (“BlackRock”), a New York-based asset management company, settled charges by the United States Securities and Exchange Commission (“SEC”) relating to BlackRock’s separation agreements with employees.  According to the SEC, BlackRock required employees to sign separation agreements in which the employees waived their rights to collect any whistleblower awards as a precondition to receiving their separation payments.  BlackRock neither admitted nor denied the SEC’s allegations, but agreed to pay a $340,000 penalty to settle them.  Martin O’Sullivan, SEC Settles with BlackRock over Whistleblower Waivers, Law360 (Jan. 17, 2017).  

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On January 13, 2017, the United States Supreme Court granted certiorari in the case Kokesh v. SEC, 834 F.3d 1158 (10th Cir. 2016), cert. granted sub nom. Kokesh v. SEC (U.S. Jan. 13, 2017) (Kokesh II), to resolve a circuit split relating to the time in which the SEC must file disgorgement actions. Kokesh, No. 16-529, 2017 WL 125673 (U.S. Jan. 13, 2017).

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On January 6, 2017, the Commissioners of the United States Securities Exchange Commission (“SEC”) partially overturned an administrative law judge’s (“ALJ”) initial decision finding that Harding Advisory LLC (“Harding”), and its principal, Wing F. Chau, committed fraud in connection with selecting assets for certain collateralized debt obligations (“CDOs”) in violation of the Securities Act of 1933 (“Securities Act”) and the Investment Advisers Act of 1940 (“Advisers Act”).  In the Matter of Harding Advisory LLC and Wing F. Chau, Admin. Proc. File No. 3-15574 (Jan. 6, 2017) (opinion of the commission).  Specifically, the Commissioners overturned the ALJ’s determination that Harding failed to follow its standard of care in selecting certain collateral, while agreeing with the ALJ’s determinations that Harding had an undisclosed conflict of interest and violated its fiduciary duties in connection with the selection of other collateral.  In addition, the Commissioners increased the amount of disgorgement ordered, finding that Harding had engaged in “extreme recklessness” by favoring certain clients over others.

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On January 7, 2016, Mondelēz International, Inc. (“Mondelēz”), formerly known as Kraft Foods, Inc., settled claims brought by the United States Securities and Exchange Commission (“SEC”) against Mondelēz and Cadbury Limited (“Cadbury”) for violations of the books and records and internal control provisions of the Foreign Corrupt Practices Act (“FCPA”) by a Cadbury subsidiary in India (“Cadbury India”).  Mondelēz, which neither admitted nor denied the SEC’s findings, agreed to pay a $13 million civil monetary penalty to settle the SEC’s claims.  In the Matter of Cadbury Limited and Mondelēz International, Inc., Admin. Proc. No. 3-17759 (Jan. 6, 2017).  The settlement highlights the importance of thorough post-acquisition diligence, as Mondelēz’s failure to identify potential FCPA violations in the diligence it conducted after its $19 billion acquisition of Cadbury appeared to contribute to the SEC’s decision to bring an enforcement action.

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On December 29, 2016, the Department of Justice (“DOJ”) announced that it had reached final resolutions with banks that have met the requirements of the Department’s Swiss Bank Program (the “Program”).  Announced in August 2013, the Program provided a path for Swiss banks to resolve potential criminal liabilities in the United States and to participate in the Department’s ongoing investigations of tax evasion by U.S. taxpayers.  Press Release, DOJ, Justice Department Reaches Final Resolutions Under Swiss Bank Program, Dec. 29, 2016 (“DOJ Press Release”). 

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​On December 27, 2016, the Securities and Exchange Commission (“SEC”) filed a complaint against three Chinese nationals, alleging that they hacked two New York-based law firms, stole material nonpublic information relating to upcoming mergers and acquisitions, and traded on that stolen information, earning approximately $3 million in illegal profits.  Complaint at 2, SEC v. Iat Hong, No. 16-Civ __ (S.D.N.Y. Dec. 27, 2016) (“Complaint”).  Stephanie Avakian, Acting Director of the Enforcement Division at the SEC, explained that investigators used recently developed “enhanced trading surveillance and analysis capabilities” to identify the scheme.  Press Release, SEC, Chinese Traders Charged with Trading on Hacked Nonpublic Information Stolen from Two Law Firms, Dec. 27, 2016, (“SEC Press Release”).      

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On December 20, 2016, the Securities and Exchange Commission (“SEC”) filed a settled administrative proceeding against SandRidge Energy, Inc. (“SandRidge”) for allegedly using inappropriately restrictive language in employee separation agreements and for retaliating against a whistleblower, the fifth such claim the SEC brought in 2016.  SandRidge, without admitting or denying the SEC’s findings, agreed to pay a $1.4 million penalty, subject to the company’s ongoing bankruptcy proceedings, to resolve the SEC’s claims.  In the Matter of SandRidge Energy, Inc., Admin. Proc. File No. 3-17739 (Dec. 20, 2016).  

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On December 27, 2016, the United States Court of Appeals for the Tenth Circuit, in a two-to-one decision, created a split in the U.S. Courts of Appeals concerning the constitutionality of the appointments of SEC Administrative Law Judges (“ALJs”).  In granting a petition for review from an SEC opinion upholding the findings of an ALJ, the Tenth Circuit held that the SEC’s ALJs are inferior officers of the United States, and thus subject to the Appointments Clause in Article II of the U.S. Constitution, which requires that inferior officers be appointed directly by the President, a federal court, or a department head.  Bandimere v. SEC, — F.3d —, 2016 WL 7439007 (10th Cir. 2016).  The SEC conceded that the process for hiring its ALJs—through the SEC’s Office of Human Resources—did not satisfy the Appointments Clause.  The Tenth Circuit therefore set aside the SEC’s order, which had found David Bandimere, a Colorado businessman and investor accused of promoting Ponzi schemes, liable for, among other things, securities fraud under Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934.  The resulting conflict among Courts of Appeal may lead to Supreme Court consideration of the issue.

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On December 21, 2016, Odebrecht S.A. (“Odebrecht”), a global construction conglomerate based in Brazil, and its affiliate Braskem S.A. (“Braskem”), a Brazilian petrochemical company, pleaded guilty to conspiring to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”).  The resolution of the actions shattered records for corruption settlements, as the companies agreed to pay a combined total penalty of $3.5 billion to resolve bribery charges in the United States, Brazil, and Switzerland arising out of schemes to pay hundreds of millions of dollars in bribes to government officials around the world, including Petrobras, the Brazilian state-owned oil company.  Plea Agreement, United States v. Odebrecht S.A., No. 1:16-cr-643 (E.D.N.Y. Dec. 21, 2016); Plea Agreement, United States v. Braskem S.A., No. 16-cr-644 (E.D.N.Y. Dec. 21, 2016).  

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On December 22, 2016, Teva Pharmaceutical Industries Limited (“Teva”) settled parallel civil and criminal actions brought by the United States Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”).  Press Release, DOJ, Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges, Dec. 22, 2016.  The DOJ and SEC alleged that Teva violated the Foreign Corrupt Practices Act (“FCPA”) and reaped $214 million in profits by making illicit payments to government officials in Russia, Ukraine, and Mexico to increase its market share, receive regulatory and formulary approvals, and obtain favorable drug purchase and prescription decisions.  Complaint, SEC v. Teva Pharmaceutical Indus. Ltd., No. 1:16-cv-25298 (S.D.N.Y. Dec. 22, 2016), ECF No. 1.  Under the terms of the settlement, which was the fourth largest FCPA settlement ever, Teva agreed to pay a $283 million criminal fine to the DOJ and $236 million in disgorgement and prejudgment interest to the SEC, for a total of $519 million.  Teva also entered into a three-year deferred prosecution agreement with the DOJ that requires the company to retain an independent monitor, and Teva’s Russian subsidiary, Teva LLC, entered a guilty plea to a one-count criminal information. 

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On December 12, 2016, the Supreme Court of the United States unanimously affirmed the conviction of Lawrence Shaw under Section 1 of the Bank Fraud Act of 1984, 18 U.S.C. § 1344(1), holding that a defendant can be guilty of bank fraud even where the defendant intends only to defraud a bank’s customer, and not the bank itself.  Shaw v. United States, No. 15-5991, 580 U.S. __ (Dec. 12, 2016).  While the holding was an entirely unsurprising result, it reaffirmed that the bank fraud statute (like the mail and wire fraud statutes) is interpreted broadly — a position also supported by the Ninth Circuit’s previous decision in Shaw’s case.  United States v. Shaw, 781 F.3d 1130 (9th Cir. 2015), cert. granted, 136 S. Ct. 1711, 194 L. Ed. 2d 809 (2016), and vacated, No. 15-5991, 2016 WL 7182235 (U.S. Dec. 12, 2016).

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On December 6, the district court approved the SEC’s settlement with broker-dealer Stifel Nicolaus & Co. and one of its former executives, David Noack.  The settlement ended a long-running SEC investigation and lawsuit against the defendants, which alleged that they had induced several Wisconsin school districts to invest in complex financial instruments through a series of falsehoods and misrepresentations in violation of Section 10(b) of the Securities Exchange Act of 1934 and Section 17(a) of the Securities Act of 1933.  Under the terms of the settlement, Stifel and Noack agreed to pay penalties totaling $24.6 million, and were enjoined from violating Section 17(a)(2) and Section 17(a)(3) of the Securities Act of 1933.  

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On December 6, 2016, the United States Supreme Court issued a unanimous, but narrow, ruling in Salman v. United States, No. 15-628, 578 U.S. ___ (Dec. 6, 2016), regarding criminal tipper/tippee liability for insider trading, which the Supreme Court had not significantly addressed since its decision in Dirks v. S.E.C., 463 U.S. 646 (1983), in 1983. Following Dirks’ holding that a tippee cannot be held liable for insider trading unless the tipper receives a “personal benefit,” the Supreme Court ruled in Salman that a jury can infer that an insider receives an inherent personal benefit when making a gift of confidential information to a relative who trades on that information. The Court declined to adopt the Government’s argument that “a gift of confidential information to anyone, not just a ‘trading relative or friend,’ is enough” to establish liability, Salman, slip op. at 7, and noted that ultimately the question of whether a benefit was received will be a factual one for the jury. The Court also expressly left intact the Second Circuit’s crucial ruling in United States v. Newman, 773 F.3d 438 (2d. Cir. 2014), that a remote tippee who receives information second or third hand must know of the personal benefit received by the insider in order to be liable.

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On November 18, 2016, four days after announcing that she would step down at the end of the Obama administration, Securities and Exchange Commission (“SEC”) Chair Mary Jo White recapped changes in SEC enforcement during her tenure and recommended enhancing the Commission’s ability to combat white collar crime by creating new options for enforcement against senior executives and increasing the penalties that the Commission can assess.  SEC Chair Mary Jo White, “A New Model for SEC Enforcement,” Nov. 18, 2016, https://www.sec.gov/news/speech/chair-white-speech-new-york-university-111816.html. Although Chair White made no mention of the recent presidential election, it looms large.  Indeed, while there is a populist aspect to her calls for greater enforcement, her recommendations also stand in tension with the new administration’s stated goal of downscaling regulation. 

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On November 7, 2016, the Securities and Exchange Commission (“SEC”) instituted a settled administrative proceeding against PowerSecure International (“PowerSecure”) that alleged that the company violated the financial reporting, books and records, and internal control provisions of the federal securities laws by failing to accurately identify and disclose segment-level operating results from 2012 to 2014, as required by Generally Accepted Accounting Principles (“GAAP”).  PowerSecure, which neither admitted nor denied the SEC’s findings, agreed to pay a $470,000 civil monetary penalty to settle the SEC’s claims, which did not include any allegation of scienter or fraud.  In the Matter of PowerSecure, Int’l, Admin. Proc. No. 3-17670 (Nov. 7, 2016).

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On October 20, 2016, the Securities Exchange Commission (“SEC”) filed a settled civil injunctive action against FMC Technologies, Inc. (“FMC”) that alleged that the company and two of its executives had engaged in books and records violations in connection with an FMC subsidiary’s accruals for employee paid time off (“PTO”).  SEC, Company and Former Executives Paying Penalties for Accounting Violations, Rel. No. 2016-221 (Oct. 20, 2016).  To settle the SEC’s claims, which did not include allegations of fraud, FMC, its energy infrastructure segment controller, Jeffrey Favret (“Favret”), and one of its business unit controllers, Steven Croft (“Croft”), agreed to pay civil monetary penalties of $2.5 million, $30,000 and $10,000, respectively, without admitting or denying wrongdoing.  Favret and Croft each also agreed to be barred from practicing as accountants before the SEC for at least two years.  

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