The regulation of political speech, including the regulation of contributions and spending, is one of the most constitutionally delicate operations in which the government can engage. As the Supreme Court stated in Buckley v. Valeo, “[Political] contribution and expenditure limitations operate in an area of the most fundamental First Amendment activities. . . . [T]he First and Fourteenth Amendments guarantee ‘freedom to associate with others for the common advancement of political beliefs and ideas.’” The same is true of “compelled disclosure,” which the Court has noted “in itself[] can seriously infringe on privacy of association and belief guaranteed by the First Amendment.”

Given these important First Amendment concerns, and wary of creating the actuality or appearance of partisan advantage, Congress has entrusted interpretation and enforcement of the campaign finance laws to the Federal Election Commission (FEC). This agency is unique in a number of ways. Perhaps most fundamentally, it includes six commissioners evenly divided between the two major parties. Furthermore, having been the defendant in many of the most important First Amendment lawsuits of the past 40 years, it has considerable expertise in dealing with the intricate intersection of campaign finance regulation and constitutional liberties.

…continue reading: The Non-Expert Agency: Using the SEC to Regulate Partisan Politics

I am sure many of you are looking forward to your well-earned celebrations after today’s commencement exercises, so I will heed the advice that President Franklin D. Roosevelt gave to speechmakers: “Be sincere, be brief and be seated.”

Perhaps the most challenging part of delivering a commencement speech is the realization that whatever one says will soon be forgotten. Frankly, my memory of the commencement speech at my own graduation is a bit hazy. So today I will ask you to remember just two things: First, the challenges you will face in life – and there will be many – are just new opportunities to learn and further your education. And second, it is always better to do the right thing, even if that may seem the harder choice.

Commencement is a good time for looking back, as well as for looking forward. When I graduated from Georgia Southern during the last century – well, 1976 – our school was called Georgia Southern College. The school only had about 6,000 students, mostly from the Southeast, and there was no football team. Today, Georgia Southern is a major university with more than 20,000 students coming from almost all 50 states and over 80 countries. And the Eagles will soon be dominating the Sun-Belt Conference.

…continue reading: Preparing for Challenges and Opportunities

On April 22, the U.S. Securities and Exchange Commission (SEC) announced its first non-prosecution agreement (NPA) with a company in a matter involving alleged violations of the U.S. Foreign Corrupt Practices Act (FCPA). [1] The SEC entered into the agreement with Ralph Lauren Corporation (Lauren), resolving allegations that Lauren violated the FCPA when its Argentine subsidiary allegedly paid bribes to government and customs officials to improperly secure the importation of Lauren’s products into Argentina. The NPA in this case resulted from Lauren’s prompt self-reporting and extensive cooperation. Prior to the Lauren NPA, the SEC seemed to provide limited credit to public companies for cooperation in FCPA investigations.
Time will tell whether the Lauren NPA is a harbinger of a new approach.

…continue reading: SEC Announces First Non-Prosecution Agreement in an FCPA Matter

The Securities and Exchange Commission is undergoing a period of transition due to a series of recent changes in top leadership positions. On April 8, 2013, the U.S. Senate confirmed the nomination of Mary Jo White as the new Chairman of the SEC, and, on April 10, she was officially sworn in as the 31st Commission Chairman. White succeeds Elisse Walter, who replaced Mary Schapiro as Chairman in December 2012. Moreover, in February 2013, Enforcement Division Director Robert Khuzami stepped down, and Walter appointed George Canellos as Acting Director of the Enforcement Division; it is anticipated that White will name the permanent Enforcement Division Director shortly.

This post discusses recent public statements by top enforcement officials regarding the SEC’s enforcement priorities, trends, and strategies. In particular, this post discusses White’s confirmation hearing before the Senate Banking Committee on March 12, 2013, in which she outlined her vision for the SEC and promised continued aggressive enforcement. This post also discusses statements by top officials at the annual SEC Speaks conference on February 22 and 23, 2013, which reviewed recent enforcement efforts and previewed the Enforcement Division’s priorities in the year ahead.

…continue reading: “Bold” Enforcement Envisioned following the Confirmation of Mary Jo White As SEC Chair

This Annual Conference is an important opportunity for representatives of NASAA and the SEC to come together to discuss how best to accomplish our common goal of protecting investors. These annual conferences provide an opportunity to increase collaboration, communication, and cooperation for the benefit of investors, and to promote fair and orderly markets. I have been honored to have served as the SEC’s liaison to NASAA for the past four years. I know and appreciate NASAA’s mission of protecting main street investors and the critical role that state securities regulators play in the enforcement of the securities laws. You are often the first to receive complaints from investors and identify the latest scams devised to steal from investors.

I want to take this opportunity to highlight some of the recent achievements of NASAA’s members. According to the latest statistics, as of October 2012:

…continue reading: Fighting on Behalf of Investors Despite Efforts to Weaken Protections

The 53 court-approved securities class action settlements reported in 2012 represent a 14-year low, according to Securities Class Action Settlements—2012 Review and Analysis by Cornerstone Research. This represents an 18 percent decrease from the number of approved settlements in 2011, and a decline of more than 45 percent from the 10-year average from 2002 through 2011.

As securities class actions historically take a number of years to settle, the decrease in settlements may be due in part to the relatively low number of securities class actions filed in 2009 and 2010. Despite the decrease in the number of cases settled, total settlement amounts increased by more than 100 percent in 2012 compared with 2011, with the number of mega-settlements (settlements in excess of $100 million) accounting for nearly 75 percent of all 2012 settlement dollars. One-third of the settlements in 2012 were for issuers in the financial services industry, with the technology and pharmaceutical industries being the next most prevalent sectors.

The average reported settlement amount dramatically increased from 2011 levels—in excess of 150 percent (from the inflation-adjusted amount of $21.6 million in 2011 to $54.7 million in 2012). The average settlement amount in 2012, however, is closer to the average for all prior post–Reform Act cases.

…continue reading: Securities Class Action Settlement Amounts Increase from 2011

About a year ago, we published A New Playbook for Global Securities Litigation and Regulation, in which we detailed dramatic changes in the global securities regulatory and litigation arena driven by various factors, including not only the financial crisis of 2007-2008, but also changes in tolerance in the United States to litigation brought by foreign investors against public companies listed on non-U.S. exchanges.

One year later, the regulatory environment continues to revamp with new rules being issued constantly in the United States to conform to the legislative mandates set forth in the Dodd Frank Act. The United Kingdom and European Union also seek to reinforce previous global initiatives to reform and strengthen the Pan-European financial markets.

What is more ever-present, however, is the marked increase in global enforcement activities by regulators in the United Kingdom, Canada, and the European Union, which are attempts to give teeth to the global financial reforms each jurisdiction felt necessary to potentially prevent a “repeat” of the financial crisis. This article seeks to address the increase in global securities enforcement activity and concludes that continued cooperation and coordination in enforcement activities will be required to seamlessly address the desire to strengthen global regulatory initiatives aimed at harmonizing and centralizing international securities regulation to create safer, more fundamentally sound financial markets for investors.

…continue reading: A New Playbook Part 2 — Global Securities Enforcement Stepping Up

The US Court of Appeals for the Eleventh Circuit recently issued an important decision that addresses two types of allegations that plaintiffs routinely rely on to plead loss causation in federal securities fraud cases. In Meyer v. Greene, 2013 US App. LEXIS 4187 (11th Cir. Feb. 25, 2013), the Eleventh Circuit appears to have become the first federal court of appeals to rule definitively that the mere announcement of an investigation by the US Securities and Exchange Commission (“SEC”) followed by a decline in a company’s stock price is insufficient to plead loss causation. The Court also ruled, consistent with decisions from other federal circuits, that a negative third-party analyst presentation is not a corrective disclosure for purposes of pleading loss causation if the presentation is based on publicly available information.

…continue reading: Court: Disclosure of SEC Investigation Insufficient to Plead Loss Causation

Recently, the SEC’s Enforcement Division has brought three matters focused on alleged flaws (and fraud) in connection with valuation issues. Together these actions make clear that the SEC is and will be looking hard at how public companies as well as financial firms make difficult and subjective valuation decisions. Specifically, the SEC will be looking to see whether firms, and individuals, followed proper processes and applied the correct inputs in reaching these judgments. These cases also make clear that, even in times of significant market disruption, firms cannot ignore or substantially discount market inputs in making valuation judgment.

KCAP Financial

In November 2012, the SEC filed and settled In The Matter of KCAP Financial, Inc. This was the first action in which the SEC alleged that a public company had violated the provisions of Financial Accounting Standard (FAS) 157 by failing to properly value certain assets. FAS 157 requires expanded disclosures and incorporates a strong preference for market inputs to determine fair value. According to FAS 157, “[e]ven in times of market dislocation, it is not appropriate to conclude that all market activity represents forced liquidations or distressed sales.”

…continue reading: SEC Enforcement Focusing on Valuation Issues

In the past two weeks, Judges Richard J. Sullivan and Shira A. Scheindlin of the United States District Court for the Southern District of New York separately issued important rulings in civil Foreign Corrupt Practices Act (“FCPA”) cases against foreign executives of non-U.S.-based companies whose stock is traded on a U.S. stock exchange. Their rulings reached opposite results on the issue of the court’s exercise of personal jurisdiction over foreign executives who are alleged to have violated the FCPA. One or both of these rulings could provide the Second Circuit with a rare opportunity to clarify the FCPA’s jurisdictional reach in the context of purely foreign bribery schemes.

SEC v. Straub, __ F. Supp. 2d __, No. 11 Civ. 9645 (RJS) (Feb. 8, 2013) (Sullivan, J.)

In December 2011, the Securities and Exchange Commission (“SEC”) brought a civil enforcement action against three senior executives of a Hungarian telecommunications company, Magyar Telekom, who allegedly bribed government and political party officials in Macedonia and Montenegro in 2005 and 2006 to win business and shut out competition in the telecommunications industry. The SEC alleges that these executives used sham “consultancy” and “marketing” contracts to pay approximately €4.875 million to Macedonian officials and €7.35 million to Montenegrin officials. The three executives then allegedly caused the bribes to be falsely recorded in Magyar’s books and records, which were consolidated into the books and records of its parent company, Deutsche Telekom AG. Both Magyar and Deutsche Telekom were publicly traded through American Depository Receipts (“ADRs”) on the New York Stock Exchange (“NYSE”). The defendants allegedly made false certifications to Magyar’s auditors, who in turn provided unqualified audit opinions that accompanied the filing of Magyar’s annual reports with the SEC. There was no allegation that any of the negotiations or meetings regarding this scheme occurred within the United States, that the payment of bribes occurred through banks located in the United States, or that the foreign defendants otherwise ever traveled to the United States in furtherance of the bribery scheme.

…continue reading: Court Issues FCPA Rulings Regarding Foreign Business Executives