Posts Tagged ‘Securities fraud’

The Robust Use of Civil and Criminal Actions to Police the Markets

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Friday April 18, 2014 at 9:04 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Securities Industry and Financial Markets Association (SIFMA) 2014 Compliance & Legal Society Annual Seminar; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I have participated in this event for many years and have always considered this conference to be all about the compliance and legal issues that are most important to the integrity of our securities markets. Now, as Chair of the SEC, I would like to thank you for the work you do day in and day out to protect investors and keep our markets robust and safe.

In about a week, I will have completed my first year at the SEC. It has been quite a year. We have made very good progress in accomplishing the initial goals I set to achieve significant traction on our rulemaking agenda arising from the Dodd Frank and JOBS Acts, intensify our review of the structure of our equity markets, and enhance our already strong enforcement program.

…continue reading: The Robust Use of Civil and Criminal Actions to Police the Markets

European Court of Human Rights Shakes Insider Trading Rules

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday April 13, 2014 at 9:24 am
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Editor’s Note: The following post comes to us from Guido Rossi, former Chairman of the Consob (Italian SEC), and Marco Ventoruzzo of Pennsylvania State University, Dickinson School of Law, and Bocconi University.

A recent and groundbreaking decision of the European Court of Human Rights (ECHR) in Strasburg might shatter the entire structure of the Italian and European regulation of market abuse (insider trading and market manipulations). The case is “Grand Stevens and others v. Italy”, and was decided on March 4, 2014.

The facts can be briefly summarized as follows. In 2005, the corporations that controlled the car manufacturer Fiat, renegotiated a financial contract (equity swap) with Merrill Lynch. One of the goals of the agreement was to maintain control over Fiat without being required to launch a mandatory tender offer. Consob, the Italian securities and exchange commission, initiated an administrative action against the corporation and some of its managers and consultants, accusing them of not having properly disclosed the renegotiation of the contract to the market. The procedure resulted in heavy financial fines (for some individuals, up to 5 million euro), and additional measures prohibiting some of the people involved from serving as corporate directors and practicing law. At the same time, a criminal investigation was launched for the same facts. It is not necessary here to discuss the merits of the controversy, it is sufficient to mention that the sanctioned parties challenged the sanctions in Italian courts, but did not prevail.

…continue reading: European Court of Human Rights Shakes Insider Trading Rules

Perspectives on Strengthening Enforcement

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Wednesday April 2, 2014 at 9:02 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Annual Forum of the Australian Securities and Investments Commission (ASIC), available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Greg [Tanzer, ASIC Commissioner] suggested that I talk about my perspectives on international cooperation in the enforcement context, as well as what we at the SEC are doing to try to make our own enforcement program even more robust and responsive to the issues presented by interconnected and fast moving markets. I am happy to do that. But, before I do, I would like to share a couple of thoughts on the topic of your first session—“Enforcement—does the punishment fit the crime?”

Much of my professional background has been in enforcement and strong enforcement was one of my primary focuses when I became Chair of the SEC almost a year ago and it remains so. Vigorous enforcement of the securities laws in the United States, in Australia and around the world is obviously a critical component of our investor protection mission.

…continue reading: Perspectives on Strengthening Enforcement

Supreme Court Expands Sarbanes-Oxley Whistleblower Provision

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday March 24, 2014 at 9:25 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Robin D. Fessel, Julia M. Jordan, Theodore O. Rogers, Christina Andersen.

In Lawson v. FMR LLC, No. 12-3 (Mar. 4, 2014), the U.S. Supreme Court clarified the scope of whistleblower protection provided by the Sarbanes-Oxley Act of 2002 (“SOX”), holding that employees of private contractors and subcontractors of public companies are protected by the whistleblower provision set forth in 18 U.S.C. § 1514A of the Act. The Court, acknowledging that the language of the Act is ambiguous, interpreted it to allow persons employed by non-public contractors to public companies—such as lawyers or accounting firms—to bring whistleblower claims under the Act. In a strong dissent, Justice Sotomayor objected to the “stunning reach” of this interpretation. The majority opinion, responding to that criticism, cited “various limiting principles” proposed by the plaintiffs and Solicitor General, which employers will need to rely on in the future. Among other things, the “limiting principles” include that the types of contractors whose employees could make use of SOX are those “whose performance will take place over a significant period of time,” and that an employee of a contractor would only be able to invoke SOX as to complaints arising out of the contractor’s “fulfilling its role as contractor for the public company, not the contractor in some other capacity.” Ultimately, however, the Court declined to address the precise bounds of § 1514A, finding that the whistleblower claims at issue fell squarely within the “mainstream application” of the statute, as both plaintiffs claimed retaliation after reporting allegedly fraudulent activity that plainly implicated mutual funds’ shareholders.

…continue reading: Supreme Court Expands Sarbanes-Oxley Whistleblower Provision

Chairman’s Address at SEC Speaks 2014

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Wednesday March 19, 2014 at 9:39 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks at the 2014 SEC Speaks Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Good morning. I am very honored to be giving the welcoming remarks and to offer a few perspectives from my first 10 months as Chair. Looking back at remarks made by former Chairs at this event, the expectation seems to be for me to talk about the “State of the SEC.” I will happily oblige on behalf of this great and critical agency.

In 1972, 42 years ago at the very first SEC Speaks, there were approximately 1,500 SEC employees charged with regulating the activities of 5,000 broker-dealers, 3,500 investment advisers, and 1,500 investment companies.

Today the markets have grown and changed dramatically, and the SEC has significantly expanded responsibilities. There are now about 4,200 employees—not nearly enough to stretch across a landscape that requires us to regulate more than 25,000 market participants, including broker-dealers, investment advisers, mutual funds and exchange-traded funds, municipal advisors, clearing agents, transfer agents, and 18 exchanges. We also oversee the important functions of self-regulatory organizations and boards such as FASB, FINRA, MSRB, PCAOB, and SIPC. Only SIPC and FINRA’s predecessor, the NASD, even existed back in 1972.

…continue reading: Chairman’s Address at SEC Speaks 2014

Supreme Court Allows State-Law Securities Class Actions to Proceed

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 18, 2014 at 9:29 am
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Editor’s Note: The following post comes to us from Jonathan C. Dickey, partner and Co-Chair of the National Securities Litigation Practice Group at Gibson, Dunn & Crutcher LLP, and is based on a Gibson Dunn publication.

On February 26, 2014, the Supreme Court decided Chadbourne & Parke LLP v. Troice, 571 U.S. ___ (2014), ruling by a 7-2 vote that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) does not bar state-law securities class actions in which the plaintiffs allege that they purchased uncovered securities that the defendants misrepresented were backed by covered securities. The decision is the first in which the Court has held that a state-law suit pertaining to securities fraud is not precluded by SLUSA, suggesting that there are limits to the broad interpretation of SLUSA’s preclusion provision that the Court has recognized in previous cases. While Chadbourne leaves many questions unanswered concerning the precise contours of SLUSA preclusion, and could encourage plaintiffs to pursue securities-fraud claims under state-law theories, the unusual facts in Chadbourne could limit the reach of the holding and provide defendants with avenues for distinguishing more typical state-law claims in other cases.

…continue reading: Supreme Court Allows State-Law Securities Class Actions to Proceed

SEC v. Contorinis: SEC gets Powerful New Tool—For Now

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 16, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Paul N. Monnin, partner in the Litigation and Regulatory practice at DLA Piper LLP, and is based on a DLA Piper publication by Mr. Monnin and Zachary LeVasseur.

The Second Circuit Court of Appeals has broadened the Securities and Exchange Commission’s power to seek civil disgorgement of profits from insider trading violations even where an individual did not personally profit from the illegal trades.

In its panel opinion in SEC v. Contorinis, decided on February 18, the Second Circuit upheld a trial court order requiring that Joseph Contorinis, the former managing director of the Jeffries Paragon Fund, disgorge more than US$7 million in unlawful profits obtained by the fund as a result of Contorinis’s trading on material nonpublic information. This is despite the fact that he did not trade with his own personal assets and his personal compensation from the trades amounted to only US$427,875.

…continue reading: SEC v. Contorinis: SEC gets Powerful New Tool—For Now

Supreme Court Hears Arguments in Halliburton

Editor’s Note: Robert Giuffra is a partner in Sullivan & Cromwell’s Litigation Group. The following post is based on a Sullivan & Cromwell publication by Jeffrey B. Wall. The Supreme Court’s reconsideration of Basic is also discussed in a Harvard Law School Discussion Paper by Professors Lucian Bebchuk and Allen Ferrell, Rethinking Basic, discussed on the Forum here.

On March 5, 2014, the U.S. Supreme Court heard oral argument in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317, which presents whether to overrule or significantly limit plaintiffs’ ability to rely on the legal presumption that each would-be class member in a securities fraud class action relied on the statements challenged as fraudulent in the lawsuit. Without this so-called fraud-on-the-market presumption of classwide reliance, putative class action plaintiffs would face substantial barriers in maintaining securities fraud class actions. The Court’s decision in Halliburton, which is expected by June 2014, could lead to a significant change in the conduct of securities class actions. Even if the Court ultimately retains some formulation of the fraud-on-the-market presumption of reliance, the Court could increase defendants’ ability to contest what in practice has evolved into a virtually irrebuttable presumption.

…continue reading: Supreme Court Hears Arguments in Halliburton

Addressing Known Risks to Better Protect Investors

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Friday February 28, 2014 at 9:00 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the 2014 “SEC Speaks” Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am honored to be here today [February 21, 2014]. This is the sixth time that I have spoken at “SEC Speaks” as a Commissioner. Much has changed since my first “SEC Speaks” in February 2009. At that time, we were in the midst of the worst financial crisis since the Great Depression. Among other things, Lehman Brothers had recently filed for Chapter 11 bankruptcy, The Reserve Primary Money Market Fund had “broken the buck,” and the U.S. Government had just bailed out insurance giant AIG. In addition, the Bernard Madoff Ponzi scheme had come to light just a few months earlier, further shaking investor confidence in the capital markets.

These and other events made it clear that the SEC had much to do to become a more effective regulator and to enhance its protection of investors. It was also clear that the agency itself had to undergo significant change. As a result, in my 2009 remarks at “SEC Speaks,” I highlighted a number of steps that Congress and the SEC should take to close regulatory loopholes. These regulatory gaps included a lack of appropriate regulation in the areas of over-the-counter derivatives, hedge funds, and municipal securities—areas that Congress subsequently addressed in the Dodd-Frank Act.

…continue reading: Addressing Known Risks to Better Protect Investors

SEC Investigations and Enforcement Related to Financial Reporting and Accounting

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday February 16, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Randall J. Fons, partner and co-chair of the Securities Litigation, Enforcement, and White-Collar Defense Group and the global FCPA and Anti-Corruption Task Force at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Fons.

“One of our goals is to see that the SEC’s enforcement program is—and is perceived to be—everywhere, pursuing all types of violations of our federal securities laws, big and small.”
— Mary Jo White, Chair of the SEC, October 9, 2013

“In the end, our view is that we will not know whether there has been an overall reduction in accounting fraud until we devote the resources to find out, which is what we are doing.”
— Andrew Ceresney, Co-Director of the SEC Division of Enforcement, September 19, 2013

“The SEC is ‘Bringin’ Sexy Back’ to Accounting Investigations”
New York Times, June 3, 2013

Much has changed since the collapse of Enron in 2001 and the ensuing avalanche of financial fraud cases brought by the SEC. For example, Sarbanes-Oxley raised auditing standards, imposed certification requirements on public company officers and required enhanced internal controls for public companies. The Public Company Accounting Oversight Board (PCAOB) was formed “to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit
reports.” [1] In pursuit of that goal, the PCAOB has conducted hundreds of audit firm inspections, adopted numerous auditing standards and brought dozens of enforcement actions against auditors for violating PCAOB rules and auditing standards.

…continue reading: SEC Investigations and Enforcement Related to Financial Reporting and Accounting

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