On May 4, in United States v. Tagliaferri, No. 15-536, ---F.3d---, 2016 WL 2342677 (2d Cir. May 4, 2016), a Second Circuit panel affirmed the conviction of an investment advisor for violating Section 206 of the Investment Advisers Act of 1940, holding that Section 206 requires proof only that an adviser intended to deceive a client, and not necessarily that the adviser intended to harm the client.  Much like the Second Circuit did earlier this year in United States v. Litvak, 808 F.3d 160 (2d Cir. 2015), the Court focused on the nature of the defendant’s deception and not its outcome.  In so holding, the panel clarified that prosecutors have a relatively low bar for obtaining convictions under Section 206.

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Perhaps in response to growing skepticism of the purported benefits of self-disclosure, multiple high-level United States government officials have recently reiterated what they contend are the benefits for corporate defendants of self-reporting legal and regulatory violations.  The officials emphasized that voluntary self-disclosure can result in reduced criminal penalties and, among other things, less onerous monitoring requirements.  The officials also took pains to note that failing to self-report could result in higher fines and penalties, though they did not point to specific empirical evidence to back up their assertions. 

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On April 19, the SEC announced significant enforcement actions against two separate companies – Logitech and Ener 1 – and certain of their officers.  The cases are unrelated, but both include allegations of accounting fraud.  The Logitech matter primarily involves section 10(b) claims that Logitech inflated its earnings by failing to write down excess inventory in a timely fashion.  The SEC settled its case against Logitech in an administrative proceeding, and filed a complaint in federal court against two company officers – the former CFO and Controller – who are contesting the allegations.  Shearman & Sterling is representing the former CFO in this matter.  The Ener1 matter primarily involves section 10(b) claims that Ener1 failed to impair investments and receivables timely.   The SEC filed two separate settled administrative proceedings relating to these allegations – one against the company and certain executives, and one against the former audit partner from PwC.  While each case involves different claims, and none of the defendants admitted the allegations, the SEC’s decision to announce the actions jointly highlights its continued aggressive focus on possible accounting fraud and earnings management.

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