-
Securities And Exchange Commission Alleges That Crypto Trading Firm Sold Unregistered Securities
10/22/2024On October 10, 2024, the United States Securities and Exchange Commission (“SEC”) filed a complaint in Illinois federal district court, alleging that diversified trading firm (“Company”) has operated as an unregistered securities dealer by buying and selling more than $2 billion worth of crypto assets. SEC v. Cumberland DRW LLC, 24-cv-9842 (N.D. Ill. 2024).
-
The SEC Files Settled Complaint Against A Public Company Director For Allegedly Hiding Close Friendship With Company Executive To Be Deemed Independent
10/08/2024On September 30, 2024, the Securities and Exchange Commission (“SEC”) filed a settled enforcement action against a former director of a public company (the “Company”) over claims that the director had failed to disclose his close personal friendship with a senior executive at the Company, leading to alleged misstatements in the Company’s proxy materials identifying him as an independent director from 2019 to 2023. Securities and Exchange Commission v. Craigie, Docket No. 1-24-cv-07382 (S.D.N.Y. Sept. 30, 2024). Without admitting or denying the allegations, the former director agreed to settle the claims which impose a five-year bar on him serving as an officer or director of a public company and require him to pay a civil penalty of $175,000. The Court approved this settlement on October 1, 2024.
-
FINRA Beats First Post-Jarkesy Challenge
09/17/2024On September 4, 2024, Judge John Murphy of the U.S. District Court for the Eastern District of Pennsylvania dismissed on jurisdictional grounds the first post-Jarkesy constitutional challenge to FINRA’s disciplinary proceedings in Blankenship v. Financial Industry Regulatory Authority. -
FINRA Faces Post- Jarkesy Challenge To Its Enforcement Program
07/23/2024
The Financial Industry Regulatory Authority (“FINRA”) is now facing a second litigation challenging the constitutionality of its use of disciplinary tribunals to impose sanctions on FINRA members. A broker filed a complaint in federal court in Pennsylvania on the heels of the Supreme Court’s landmark ruling in SEC v. Jarkesy, 144 S.Ct. 2117 (2024). The case, Blankenship v. Financial Industry Regulatory Authority, Docket No. 2:24-cv-03003 (E.D. Pa. Jul 10, 2024), seeks both preliminary and permanent injunctions to halt disciplinary proceedings brought against him by FINRA’s Department of Enforcement. FINRA had previously charged the broker with allegedly engaging in unsuitable mutual fund trading practices including, among other things, recommending short-term holds for Class A mutual funds designed to be long-term investments which allegedly resulted in unnecessary charges to customers and excess commissions to the broker.
-
Judge Dismisses Most Of SEC’s Suit Against An IT Management Software Company Over Cybersecurity Disclosures
07/23/2024
On July 18, 2024, U.S. District Judge Paul Engelmayer of the U.S. District Court for the Southern District of New York issued a comprehensive 107-page opinion that may have significant implications for the Securities and Exchange Commission’s (“SEC”) enforcement strategy for alleged disclosure and accounting and disclosure controls violations by public companies and their executives. In particular, the decision may affect the Enforcement Division’s efforts to extend the application of existing requirements for public companies to maintain a system of internal controls over financial reporting to cover situations that are not directly related to financial reporting or accounting matters.
-
SEC Fines International Conglomerate $6.5 Million For FCPA Violations Related To Client Travel And Hospitality Expenses
09/06/2023
On August 25, 2023, the Securities and Exchange Commission (“SEC”) accepted an Offer of Settlement (the “settlement”) from 3M Company (“3M”), related to alleged violations of the Foreign Corrupt Practices Act’s (“FCPA”) books and records and internal accounting control provisions (§§ 13(b)(2)(A) – (B) of the Securities Exchange Act of 1934). Without admitting or denying the findings, 3M agreed to pay $6,581,618 to resolve allegations that 3M’s China subsidiary (“3M-China”) improperly accounted for overseas trips it provided to 3M-China’s customers who were employed by Chinese state-owned entities (SOEs). According to the SEC, 3M-China invited SOE customers, who are deemed foreign officials under the FCPA, “to attend overseas conferences, educational events, and health care facility visits … ostensibly as part of 3M-China’s marketing and outreach efforts, but that in fact were often a pretext to provide overseas travel, sightseeing and entertainment … to the Officials to obtain and retain business from the SOE Customers.” -
In Denying Motion To Dismiss In Terraform Cryptocurrency Case, New York Federal Judge Rejects Key Aspects Of Ripple Ruling, Continuing Uncertainty On How Securities Law Applies To Cryptocurrencies
08/08/2023
On July 31, 2023, United States District Court Judge for the Southern District of New York Judge Rakoff, denied cryptocurrency company Terraform Labs, Pte Ltd. (“Company”) and its founder’s motion to dismiss a suit that had been brought against them by the Securities and Exchange Commission (the “SEC”). The SEC sued the Company and its founder in February 2023 after the Company’s algorithmic stablecoin collapsed in May 2022, contributing to multiple bankruptcies. The SEC alleged that the Company and its founder made false and materially misleading statements to entice U.S. investors to purchase and hold on to the Company’s products, which the SEC claimed were unregistered investment-contracts that qualified as securities under Section 5 of the Securities Act of 1933 (the “Securities Act”). SEC v. Terraform Labs Pte. Ltd., 2023 WL 4858299, at *1 (S.D.N.Y. July 31, 2023). The Court held that the SEC had alleged a plausible claim for relief, and enough facts to establish the cryptocurrencies at issue were investment contracts requiring registration under the securities laws. -
New York District Court Decides Significant Cryptocurrency Case, Holding That Whether Cryptocurrency Is A Security Turns On When And How It Was Sold
08/01/2023
On July 13, 2023, Judge Analisa Torres of the United States District Court for the Southern District of New York issued a decision on the parties’ cross-motions for summary judgment in SEC v. Ripple Labs, Inc., No. 1:20-cv-10832-AT-SN, holding that Ripple Labs, Inc. (the “Company”) unlawfully sold unregistered securities in violation of the Securities Act of 1933 (the “Securities Act”) by selling its cryptocurrency token, XRP, to certain institutional buyers, while at the same time holding XRP was not a security within the meaning of the Securities Act when sold on digital asset exchanges, given the different circumstances and expectations of buyers in those transactions. The Court also held that the Company’s distributions of XRP to employees and third parties for the development of its project did not constitute sales of unregistered securities. This is a pivotal decision for the cryptocurrency market and is a significant win for cryptocurrency exchanges in particular. -
FINRA Issues Regulatory Notice On The Scope Of Supervisor Liability For Chief Compliance Officers
03/23/2022
On March 17, 2022, FINRA issued a notice to member firms about Rule 3110 as it pertains to the potential liability of Chief Compliance Officers (CCOs) for failure to discharge designated supervisory responsibilities. (Regulatory Notice 22-10, “the Notice”). The Notice provides welcome guidance, clarifying when CCOs will, and will not, be held liable for supervisory violations and explicitly acknowledging that CCOs are generally not responsible for all supervisory activity within member firms. -
Comments At SEC Speaks Conference Suggest Heightened Bar For Cooperation Credit, Return Of Admissions Policy, And Increased Autonomy For Front-Line SEC Enforcement Staff
10/19/2021
On October 13, 2021, SEC Enforcement Director Gurbir Grewal and Deputy Enforcement Director Sanjay Wadhwa appeared at the Practicing Law Institute’s “The SEC Speaks” conference, an annual conference where Commission leaders provide updates on current initiatives and priorities of the Commission for the coming year. Director Grewal and Deputy Director Wadhwa’s remarks signaled some potentially significant policy changes, particularly in terms of how they will measure corporate compliance programs and cooperation levels, when the SEC will allow settling defendants to “neither admit nor deny” the allegations brought by the SEC, and the overall autonomy granted to the front-line enforcement staff. While the impact of any such policy change is uncertain, and will need to be assessed over time, it is an unmistakable shift in tone from the prior administration. -
Department Of Justice Announces Enhanced Efforts Towards White-Collar Crime Enforcement And Creation Of National Cryptocurrency Enforcement Team
10/13/2021
In back-to-back speeches last week, senior Department of Justice (“DOJ”) officials emphasized that the Department would devote additional resources and attention to white-collar enforcement actions, with a specific focus on enforcement in the cryptocurrency space. These initiatives, which contemplate additional corporate enforcement actions, reflect a break from the prior administration’s criminal enforcement priorities, which tended to focus on immigration and violent crime offenses.