The Securities Exchange Commission ("SEC") has been busy the last couple months on the cyber front. On September 20, the SEC announced a renewed focus on cybersecurity efforts and disclosed that it had been a victim of a cyber-attack, which may have allowed hackers to use nonpublic information to make illicit gains. The press release revealed that the breach was induced by software vulnerability in the SEC's EDGAR system. In a more detailed statement on the matter, SEC Chairman Jay Clayton opened the door for cyber-attack related enforcement actions directed at public companies. He ...
The SEC announced two cyber-enforcement initiatives on September 25. The Commission will establish a Cyber Unit within the Enforcement Division to address misconduct like:
- Market manipulation through social-media "fake news";
- Hacking to obtain material nonpublic information (ahem);
- Blockchain- and bitcoin-like violations;
- Dark web misconduct;
- Hacking retail accounts;
- Cyber-threats to trading and market infrastructure.
The Commission also announced a Retail Strategy Task Force to identify and respond to cyber-threats targeting retail investors.
The SEC's release ...
In an Opinion highlighting the Circuit split over the constitutionality of SEC administrative law judges ("ALJs"), the Fifth Circuit recently stayed an FDIC civil-penalty and bar order against a Bank director, pending complete judicial review.
Petitioner Burgess is a bank director (and former officer) prosecuted administratively by the FDIC for improper expense practices and misuse of bank property. An FDIC ALJ conducted the hearing and recommended civil penalties and a banking bar. The FDIC largely adopted those findings and conclusions. Burgess moved to stay ...
The Department of Labor has received OMB certification, and sought expedited notice-and-comment, for a rule change that would postpone the full implementation deadline for its Fiduciary Rule from January 1, 2018 until July 1, 2019.
The DOL's Fiduciary Rule became effective June 9, but its transition-period deadline for full implementation of the Best Interest Contract and other requirements was set for January 1, 2018.
This week, the agency published, for quick comment, a proposed rule change extending that full-implementation through July 1, 2019. DOL says it needs the ...
In August 2017, the SEC's Office of Compliance Inspections and Examinations issued a Cybersecurity risk alert directed at financial advisory firms. As part of the SEC's 2014 Cybersecurity Initiative, seventy-five firms, including broker-dealers, financial advisors, and funds, were audited between September 2015 and June 2016 in order to assess their Cybersecurity preparedness.
The assessment focused on six pillars of Cybersecurity: (1) company policies and procedures; (2) access rights and controls; (3) data loss prevention; (4) vendor / third party management; (5 ...
A Second Circuit Panel held that the Supreme Court's Salman decision abrogated the Circuit's Newman requirement of a "close personal relationship" under the "gift theory" of insider-trading; the dissent claims the Panel decision instead abrogates Dirks' "trading relative or friend" limitation.
Martoma was a portfolio manager at SAC Capital, who traded and tipped Cohen on inside information from scientists developing a potential Alzheimer's drug at Wyeth and Elan. He was convicted of insider-trading under the "gift theory" recognized by the Supreme Court's Dirks opinion ...
Trader Joseph Ruggieri finally prevailed last week, when SEC Commissioners Stein and Piwowar split on whether Enforcement proved his four trades (in 2010-2011) were made on inside information.
In September of 2015, SEC ALJ Patil held for Ruggieri, finding that two of the six accused trades were independently justified and the other four lacked proof of tipper-benefit (applying Newman). See T. Potter, SEC's Home Court Loss Undermines DOJ's Newman Argument, Law360 (Sept. 17, 2015) and here.
The Enforcement Staff sought Commission review, which was granted in December 2015 ...
Last week, the MSRB issued "guidance" on the application of Rule G-42 conduct standards for Municipal Advisors in conduit issues. The "guidance" highlights ambiguities from the "for or on behalf" language in the MA Rule when applied to conduit issues (where the MA interacts with both the municipal issuer and the conduit borrower).
Beyond issue-spotting though, the "guidance" merely urges care and defers to the SEC for after-the-fact "facts and circumstances" determinations. In fact, it includes a "don't ask us" disclaimer: These "are interpretive issues that are solely within ...
In In re Petrobras Securities Litigation, the Second Circuit Court of Appeals recently issued an opinion regarding the standards for certifying a class involving foreign securities. Petrobras is a multinational Brazilian gas company whose value has declined due to the exposure of money-laundering and a kickback scheme, which prompted a class action by holders of Petrobras equity and debt.
The District Court certified two classes under Rule 23 relating to claims under the Securities Act of 1933 and the Securities Exchange Act of 1934. Since the notes do not trade on any U.S.-based ...
The Sixth Circuit Court of Appeals today dismissed a suit by the Tennessee, Georgia and New York Republican parties challenging the constitutionality of an MSRB extending pay-to-play prohibition to municipal advisors. The Court held the GOP lacked standing to challenge the rules.
MSRB Rule G-37 prohibits pay-to-play practices in connection with the issuance of municipal securities. It's been in place since 1994 and survived prior court challenges.
In Dodd-Frank, Congress mandated a municipal-advisor registration and regulatory regime to reach those advisers in the ...