On January 14, 2022, a federal district court in the Northern District of California declined to dismiss the first-ever enforcement action by the U.S. Securities and Exchange Commission (the “SEC”) based on allegations of “shadow trading” — the use of one company’s inside information to trade in securities of another, similarly situated, but unrelated company.  

In a typical insider trading case brought under Section 10(b) of the Securities Exchange Act of 1934 (“Section 10(b)”), liability is limited to trading on the basis of material, non-public information specific to the company in which the trading at issue occurred.  The court’s decision in SEC v. Panuwat, therefore, may signal an expansion of insider trading enforcement.

Continue Reading Shadow Trading: Examining the SEC’s Insider Trading Theory in SEC v. Panuwat

Recent briefing in SEC v. Team Resources, Inc., a long-running case challenging a U.S. Securities and Exchange Commission (“SEC”) disgorgement award, is a reminder of both the significance of the Supreme Court’s 2020 decision in Liu v. SEC and the open questions that remain regarding the SEC’s disgorgement remedy.

Continue Reading SEC v. Team Resources, Inc.: Exploring SEC Disgorgement Post-Liu

Fiscal Year (FY) 2021 was a record-breaking year for the U.S. Securities and Exchange Commission’s (SEC’s) Office of the Whistleblower. Between October 1, 2020 and September 30, 2021, the SEC issued awards to more whistleblowers, and distributed more money in whistleblower funds, than in all prior years of the program combined. Now, just a few months into FY 2022 and two weeks into calendar year 2022, all signs point to a continued robust whistleblower program.

Continue Reading SEC Awards Over $17 Million to Whistleblowers in the First Two Weeks of 2022

In Audet v. Fraser, an unusual case where federal jurors in a class action lawsuit considered whether digital assets known as “Hashlets” constitute securities, the District of Connecticut jury found that the Hashlets were not securities, and therefore the defendant was not liable for securities fraud. Notably, the SEC took a contrary position on Hashlets in 2015, when it sued GAW Miners, LLC, its founder Homero Joshua Garza, and another company founded by Garza for securities fraud, alleging that Hashlets were, in fact, securities. Both companies were permanently enjoined from violating securities laws and ordered to disgorge more than $10 million, and each was ordered to pay a $1 million civil penalty. Garza was later sentenced to 21 months imprisonment in a related criminal case.

The jury’s verdict comes as the SEC has expressed increased interest in regulating digital assets as securities. For example, in November, SEC Chair Gary Gensler noted that his staff’s enforcement mission includes bringing “novel” and “high-impact” cases involving crypto. And in September, Gensler called for greater regulation of crypto assets, likening the environment in crypto finance, issuance, trading, and lending to “the Wild West.” While increased enforcement in crypto markets may be on the horizon, the jury’s decision in Audet highlights some of the uncertainties that currently pertain to the regulation of digital assets, such as “Hashlets.”

Continue Reading Co-Founder of Crypto Mining Firm Prevails in Jury Verdict Based on Interpretation of Unique Securities Fraud Instruction

The SEC’s Division of Corporate Finance has sent a first wave of comment letters to registrants based on its recent review of climate disclosures included in their 10-Ks. View a sample comment letter and read insights on Corp Fin’s ESG priorities from Allison Handy, co-chair of Perkins Coie’s Environmental, Social, and Governance (ESG) advisory

What does military policy have to do with the SEC? Tucked into the 1,480 page National Defense Authorization Act (NDAA) is a provision expanding the SEC’s disgorgement authority. The NDAA, specifying the budget and expenditures for the Department of Defense for fiscal year 2021 (H.R. 6395), was passed on December 11, 2020 by both chambers of Congress. Despite any obvious connection between the national defense and the SEC, the bill would amend the Securities Exchange Act of 1934 to give the SEC authority to seek disgorgement in enforcement actions brought in federal court.  These amendments would also increase the statute of limitations for disgorgement from five to ten years.

Continue Reading Congress Sneaks in Expansion of SEC Disgorgement Authority in Annual Defense Bill

On July 28, 2020, the U.S. Securities and Exchange Commission (SEC) accused six individuals and their companies with securities fraud in connection with two cannabis-related businesses in California that raised $25 million in an unregistered securities offering.  The SEC’s complaint was filed in the Central District of California and seeks permanent injunctions, disgorgement of ill-gotten

On June 22, 2020, the U.S. Supreme Court decided in Liu v. SEC that in an SEC civil proceeding a disgorgement award that does not exceed a wrongdoer’s profit and is awarded for victims is equitable relief permissible under the applicable statute. The opinion answers an important question left open by the Court in Kokesh v. SEC that disgorgement operates as a “penalty,” rendering claims for disgorgement subject to the five-year statute of limitations. See Supreme Court Reigns in SEC’s Disgorgement Power. Liu closes the door on speculation that the Court was poised to hold that the SEC did not have authority to seek disgorgement.
Continue Reading SEC Can Recover Disgorgement, With Limits

Perkins Coie’s award-winning White Collar & Investigations practice has teamed up with the ABA’s Global Anti-Corruption Committee to launch a podcast series as an extension of our White Collar Briefly blog.

Our first five episodes, linked below, feature fascinating, candid conversations with a variety of special guests, including:

  • American “book of the year” author, editor, screenplay writer and publisher Dave Eggers
  • Joel Esquenazi (defendant in the high-profile US v. Esquenazi FCPA case)
  • Molson Coors’ Global Ethics & Compliance Chief Caroline McMichen
  • Chicago-based U.S. District Judge Virginia Kendall
  • University of Colorado COO (and former GC) Patrick O’Rourke
  • Avanos Medical Deputy GC Ross Mansbach

Note that all episodes are available on Spotify, Google Podcast, and Apple Podcast. Additionally, you can visit our blog and subscribe to receive each new podcast, including the highly-anticipated Dave Eggers podcast, in your inbox.
Continue Reading Introducing the White Collar Briefly Podcast

Section 14(e) of the Securities Exchange Act prohibits deceptive conduct when making a tender offer to shareholders.  Recently, in Emulex Corp. v. Varjabedian, the United States Supreme Court declined to resolve a split among the circuit courts about what a plaintiff alleging a violation of Section 14(e) must prove.  As a result, the Ninth Circuit is currently the only circuit allowing Section 14(e) claims based on negligent (as opposed to intentional) misrepresentations or omissions of material facts.  This development may result in an uptick in tender offer lawsuits in that jurisdiction.

The Emulex case stemmed from the company’s merger with Avago.  As part of that merger, Avago initiated a tender offer for Emulex’s outstanding shares.  In accordance with SEC rules, Emulex filed a public statement with the SEC in which it supported Avago’s tender offer and recommended that Emulex shareholders tender their shares.  Among other things, the statement observed that Emulex shareholders would receive a premium on their stock and described financial analyses that had been undertaken to reach this conclusion.  However, Emulex’s statement omitted reference to a portion of its financial analysis that concluded the takeover premium offered for Emulex’s outstanding shares was below average for mergers involving similar companies.  A putative class of shareholders brought suit, alleging that Emulex’s statement file with the SEC violated Section 14(e) of the Securities Exchange Act by failing to include the more lackluster price analysis.
Continue Reading Supreme Court Declines to Resolve Circuit Split Over Liability in Tender Offer Suits