Marking a rare loss for the Securities and Exchange Commission (SEC) in its favored administrative forum, SEC Administrative Law Judge (ALJ) James E. Grimes ruled against the agency on April 18, 2017, in In the Matter of Charles L. Hill, Jr.  Ironically, the SEC fought hard to keep the case in the administrative forum, after Respondent Hill filed an action in federal district court claiming the SEC’s “home court” forum was unconstitutional.  The district court enjoined the SEC, but the 11th Circuit vacated the district court’s order, and the case proceeded on the SEC’s administrative court.  There, the ALJ found the SEC’s circumstantial evidence not only to be insufficient, but fatally undermined by the credibility of witnesses who offered testimony favorable to Hill.

Continue Reading SEC Suffers Rare Loss in Insider Trading Case Before Agency Judge

On April 18, 2017, the U.S. Supreme Court heard oral argument in Kokesh v. Securities and Exchange Commissiona case which could determine whether the Securities and Exchange Commission’s power to disgorge ill-gotten gains is subject to a statute of limitations.  The SEC currently uses disgorgement as a tool to take in billions of dollars in payments annually from defendants in its enforcement actions. 
Continue Reading SEC Disgorgement Power – Time Running Out?

President Donald Trump’s nominee for chairman of the U.S. Securities and Exchange Commission, Jay Clayton, testified before the Senate Banking Committee during his confirmation hearing on March 23, 2017.  In this two-part series, we recap the highlights of Clayton’s testimony regarding potential enforcement priorities and policy changes.

READ PART ONE HERE

The month of March has brought with it the first-ever criminal municipal bond securities fraud conviction, the resolution of enforcement actions targeting banks and senior executives accused of shirking duties to oversee municipal bond issuances, and proposed rule amendments intended to improve municipal securities disclosures—continuing a trend of intensified regulatory enforcement that targets industry “gatekeepers” such as auditors, bond underwriters, and others that serve investor clients entering the municipal bond market.   
Continue Reading March Madness in the Municipal Bond Market – A Focus on Gatekeepers

Yesterday, the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) announced that JPMorgan Chase & Co. (“JPMorgan”) and its Hong Kong-based subsidiary, JPMorgan Securities (Asia Pacific) Limited (“JPMorgan-APAC”), agreed to pay over $264 million to settle charges that JPMorgan violated the Foreign Corrupt Practices Act (“FCPA”) by providing jobs and internships to relatives and friends of clients, including government officials, in order to obtain business in the Asia-Pacific region.

The enforcement action resulted in a DOJ Non-Prosecution Agreement (“NPA”) with JPMorgan-APAC (JPMorgan also agreed to certain terms and obligations under the NPA), which included a $72 million criminal penalty, as well as a SEC Cease-and-Desist Order against JPMorgan, under which the company agreed to pay disgorgement and prejudgment interest of approximately $130 million. Further, the Federal Reserve Board, which lacks FCPA enforcement authority, also announced that JPMorgan agreed to pay a nearly $62 million civil penalty for “unsafe and unsound” hiring practices.

According to the SEC order and the DOJ NPA, investment bankers at JPMorgan-APAC instituted a client referral hiring program that bypassed the company’s regular hiring process and gave well-paying, career-building jobs to candidates referred by client executives and influential government officials. From 2006 to 2013, JPMorgan-APAC hired approximately 100 interns and full-time employees referred by clients, including executives at state-owned enterprises, owned or controlled by the Chinese government, which the enforcement agencies deem government “instrumentalities” covered by the FCPA. From the outset, the goal of the program was to boost JPMorgan-APAC’s business.
Continue Reading JPMorgan Chase Will Pay $264 Million to Settle FCPA Charges Relating to Improper Hiring Practices

Business Team Investment Entrepreneur Trading ConceptOn August 30, 2016, the U.S. Commodity Futures Trading Commission (CFTC) proposed amendments to the regulations governing its whistleblower bounty program.  A number of the changes are aimed at more closely aligning the CFTC’s whistleblower program and the parallel program administered by the U.S. Securities and Exchange Commission (SEC), causing speculation that the CFTC plans to up its enforcement game with respect to whistleblower actions.
Continue Reading CFTC Proposes Rules to Align with SEC Whistleblower Program

The Securities and Exchange Commission (SEC) recently announced an administrative settlement with Apex Fund Services (US) Inc., a firm providing administrative services to private funds, based on its alleged failure to heed red flags and correct faulty accounting by two private equity managers.

The SEC alleged that, in carrying out its contractual fund administration functions,

SEC and DOJ Targeting Fraud Involving Pre-IPO Companies

Historically regulators have been reluctant to interfere with the complex world of pre-IPO  financing and private market transactions, which tend to involve the most sophisticated investors.  However, several recent public statements make it clear that both the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) are focused on finding fraud and other civil and criminal violations at private Silicon Valley companies.  Citing multiple ongoing investigations, Northern California representatives from both the DOJ and the SEC boldly predicted a notable increase in criminal prosecutions (DOJ) and civil enforcement actions (SEC) within the next year.
Continue Reading Silicon Valley in the Cross-Hairs

Since the financial crisis, the Securities and Exchange Commission’s enforcement activity has been the subject of much attention and debate. But depending on the results of pending litigation and agency proposals, the SEC’s enforcement activities could change significantly. Three key areas of potential change include insider trading, the SEC’s use of in-house tribunals, and enforcement resources.

1. Insider Trading Prosecutions.

As discussed in a prior post, in United States v. Salman, the Ninth Circuit affirmed that the requisite “personal benefit” for insider trader liability is established where an “insider makes a gift of confidential information to a trading relative or friend.” In so holding, the Ninth Circuit rejected the Second Circuit’s narrower holding in United States v. Newman that a “personal benefit” may only be inferred from a personal relationship where the exchange of information “represents at least a potential gain of a pecuniary or similarly valuable nature.”

The Supreme Court has granted certiorari in Salman to potentially resolve the circuit split regarding the “personal benefit” element of insider trading liability. (Notably, while the government filed a petition for certiorari in Newman, the Supreme Court denied it prior to granting Salman’s petition.) Earlier this month, Salman filed his brief in the Supreme Court, and the case is scheduled to be addressed during the Supreme Court term starting October 2016. The Supreme Court’s decision in United States v. Salman will undoubtedly affect the number and type of insider trading cases the SEC pursues, and will provide crucial guidance about the contours of insider trading liability.

Continue Reading Three Key Challenges To the Future of SEC Enforcement