Gibson Dunn | 2020 Year-End Securities Enforcement Update

January 19, 2021

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I.   Introduction: Themes and Notable Developments

This 12 months’s replace marks the top of the Trump administration and the start of the Biden administration. The change in management of the Securities and Change Fee has already begun. In December, Jay Clayton stepped down as Chairman, and this week the Biden administration nominated Gary Gensler to be the brand new Chairman. Mr. Gensler was Chairman of the Commodity Futures Buying and selling Fee within the Obama administration and presided over a interval of heightened monetary regulation and aggressive enforcement in opposition to main monetary establishments. The Wall Road Journal predicts that Mr. Gensler may give Wall Road its “most aggressive regulator in twenty years.”[1] Along with a brand new Chairman, 2021 may even deliver new senior management to the Division of Enforcement, because the Division’s Co-Administrators have additionally left the company.

On this replace, we glance again on the vital enforcement actions and developments from the final six months of 2020, and take into account what to anticipate from new management on the Fee and the Enforcement Division. In sum, it’s secure to say that the following 4 years will see a return to growing regulatory oversight and escalated enforcement of market individuals.

A.   Again to the Future: A Look Again and the View Forward

Over the last six months of 2020, the SEC’s enforcement program continued to observe the priorities emphasised by Chairman Clayton during the last 4 years, whereas additionally navigating the challenges offered by the pandemic.

In the previous few months, there has additionally been an almost full departure of the senior-most management of the Division of Enforcement. In August and December, respectively, Division Co-Administrators Steven Peikin and Stephanie Avakian, departed the company. And in January, Marc Berger, who had been appointed Deputy Director after which Appearing Director additionally introduced that he shall be leaving on the finish of January.

In considered one of his final speeches, Chairman Clayton mirrored on his tenure and echoed the theme that has outlined enforcement over the past administration, specifically a concentrate on “Principal Road” buyers.[2] In observe, and because the Chairman famous, this has translated into a major variety of enforcement actions in opposition to fraudulent securities choices – Ponzi schemes, affinity frauds and different providing frauds – that focused particular person buyers.

After all, one of many notable challenges for the Enforcement Division this 12 months was created by the COVID-19 pandemic. After overcoming the preliminary hurdles of conducting investigations remotely, the Enforcement employees continued to pursue investigations and convey enforcement actions. However, from a numerical standpoint, the variety of enforcement actions was off from the prior 12 months. For fiscal 2020, the SEC introduced a complete of 715 enforcement actions (of which 405 had been stand-alone enforcement actions), a major decline from 862 actions in fiscal 2019 (of which 526 had been stand-alone enforcement actions) – a decline of 23% in stand-alone enforcement actions.[3]

There was additionally a change from final 12 months within the varieties of circumstances the SEC introduced. For fiscal 2020, the biggest single class of circumstances concerned securities choices, sometimes providing frauds or unregistered securities choices. This class accounted for almost one-third, or 32%, of the stand-alone enforcement actions, in comparison with 21% of the actions introduced in 2019 (and in comparison with solely 16% of the circumstances within the final 12 months of the Obama administration). Different main classes of circumstances in fiscal 2020 included circumstances in opposition to funding advisers, which comprised 21% of the overall (in comparison with 36% of the overall in fiscal 2019) and circumstances involving public firm monetary reporting and disclosure, which comprised 15% of the overall in fiscal 2020 (in comparison with 17% of the overall in fiscal 2019).

Regardless of the decline within the variety of circumstances, there was a rise within the quantity of economic cures (disgorgement and penalties) ordered in enforcement actions. For fiscal 2020, monetary cures totaled $4.68 billion, representing a rise of roughly 8% over the quantity ordered in 2019. Nevertheless, it ought to be famous {that a} substantial portion of the 2020 monetary cures was attributable to at least one case – a settlement with Telegram Group Inc. – by which the corporate was ordered to pay $1.2 billion in disgorgement, however was credited in full for returning the identical quantity to buyers that had bought the corporate’s unregistered digital tokens. Eradicating this settlement from the monetary cures for fiscal 2020 would scale back the overall quantity get better to an quantity effectively under the quantity ordered in 2019.

However the challenges of the pandemic, the SEC introduced quite a few vital enforcement actions within the final half of 2020 that we talk about in better element in different sections of this replace. Particularly, the SEC introduced quite a few circumstances in opposition to public corporations for monetary reporting and disclosure points. Three of those circumstances had been the results of the Enforcement Division’s “EPS Initiative,” by which the employees used risk-based knowledge analytics to determine potential earnings administration practices.

Different vital circumstances had been the results of the Enforcement Division’s concentrate on circumstances associated to the pandemic. Particularly, the SEC introduced the primary enforcement motion based mostly on disclosures regarding an organization’s capability to function sustainably regardless of the pandemic.

This 12 months additionally noticed quite a few enforcement actions within the space of crypto-currency and different digital belongings. Particularly, shortly earlier than the top of the 12 months, the SEC filed a criticism in opposition to Ripple Labs for alleged violation of the securities registration provisions. The end result of this litigation can have a major affect on enforcement and regulation of the digital asset market sooner or later.

One other spotlight of the final 12 months has been the continued development of the SEC’s whistleblower program. This 12 months is the tenth anniversary of this system and was additionally a 12 months of report awards each in quantity and measurement. Elevated effectivity within the award course of can also be guaranteeing that this system has change into, and can proceed to be, an vital supply of investigations for the long run.

Wanting forward, there’s little doubt that the brand new administration will deliver a heightened stage of enforcement exercise. However extra vital, we are able to anticipate a shift in focus and priorities away from retail buyers and securities providing frauds and an elevated emphasis on the conduct of institutional market individuals – funding advisers and broker-dealers, in addition to public firm accounting, monetary reporting and disclosure.

Assuming Mr. Gensler is confirmed by the Senate to be the following SEC Chairman, his expertise, each on the helm of the CFTC and since, affirm expectations for elevated regulation and enforcement. Mr. Gensler oversaw the implementation of a completely new regime for the regulation of the markets for derivatives in addition to the adoption of quite a few laws pursuant to the Dodd-Frank Act. The CFTC underneath his management additionally took aggressive enforcement actions in opposition to monetary establishments in reference to the alleged manipulation of LIBOR. Mr. Gensler may even deliver a robust curiosity in, and familiarity with, the marketplace for crypto-currency and different digital tokens. This can be certain that the marketplace for digital belongings will obtain explicit consideration within the coming years.

The final time there was a transition to a Democratic administration in 2008, the SEC confronted the monetary disaster and the collapse of the mortgage-backed securities market. Within the wake of the monetary disaster, the SEC had an outlined focus for investigation in distressed monetary establishments and individuals available in the market for mortgage-backed securities. The SEC additionally adopted quite a few initiatives to empower the enforcement program – some based mostly in statute, such because the whistleblower program; others based mostly in coverage and observe, such because the encouragement of witness cooperation and the imposition of admissions on sure settling defendants.

The present transition in administrations follows a 12 months of maximum market volatility brought on by the pandemic, but in addition ending with the markets persevering with to set data, benefiting from authorities stimulus and continued low rates of interest. There’s anticipation that because the COVID-19 disaster abates, the economic system and markets will expertise vital development within the coming 12 months. New Enforcement Division management will endeavor to determine areas of threat that they deem worthy of heightened scrutiny. As well as, oversight by a Democratic managed Home and Senate might additional escalate stress on the SEC to show its aggressiveness.

The takeaway from all of that is that the following 4 years will put a premium on authorized and compliance departments and monetary reporting features of economic establishments, funding advisers, broker-dealers and public corporations.

B.   Commissioner and Senior Staffing Replace

Because the Trump administration wound down, there have been quite a few vital modifications within the management of the Fee and the Enforcement Division. Waiting for the approaching months, there shall be additional developments as a brand new Chairman is confirmed and new management of the Enforcement Division is appointed.

Simultaneous with Chairman Clayton’s departure, the White Home appointed Republican Commissioner Elad Roisman as Appearing Chairman of the Fee. Throughout the interim interval following the inauguration of President-elect Biden, however earlier than a brand new Chairman is nominated and confirmed, the White Home may substitute the senior Democratic Commissioner, Allison Herren Lee, as Appearing Chairman. Additionally through the second half of 2020, the opposite two Commissioners had been sworn in: Democrat Commissioner Caroline Crenshaw crammed the emptiness left by former Commissioner Robert Jackson, and Republican Commissioner Hester Peirce was sworn in for a second time period, after her authentic time period (for which she crammed a emptiness in 2018) ended.

There have been additionally vital modifications within the management of the Enforcement Division. With the departure of the Co-Administrators Peikin and Avakian, Marc Berger was appointed Appearing Director of the Enforcement Division in December. This month, Mr. Berger additionally introduced his departure. No Appearing Director has been appointed as of this writing.

Different modifications within the senior staffing of the Fee embrace:

• In August, Scott Thompson was appointed Affiliate Regional Director of Enforcement within the SEC’s Philadelphia Regional Workplace. Mr. Thompson succeeds Kelly Gibson, who was appointed Director of the Philadelphia workplace in February 2020. Mr. Thompson has labored on the SEC since 2007, first as a trial legal professional within the Enforcement Division and most lately as Assistant Regional Director from 2013 till his promotion in August 2020.
• Additionally in August, Richard Greatest was appointed Director of the SEC’s New York Regional Workplace, succeeding Mr. Berger within the position. Mr. Greatest has labored on the SEC since 2015, serving in two different Regional Director roles—Salt Lake and Atlanta—earlier than turning into the Director of the New York workplace. He additionally beforehand labored in FINRA’s Division of Enforcement and as a prosecutor within the Bronx District Lawyer’s Workplace.
• In early December, Nekia Hackworth Jones was appointed Director of the SEC’s Atlanta Regional Workplace. She joins the SEC from personal observe the place she specialised in authorities investigations and white collar prison protection. Ms. Jones additionally beforehand served as an Assistant U.S. Lawyer within the Northern District of Georgia and in DOJ’s Workplace of the Deputy Lawyer Normal.

C.   Legislative Developments: Disgorgement

With little fanfare, the SEC achieved a major legislative success on the finish of 2020, cementing its capability to acquire disgorgement in civil enforcement actions. On January 1, 2021, Congress voted to override the President’s veto of the Nationwide Protection Authorization Act (“NDAA”), a navy spending invoice handed annually since 1961.[4] Buried within the $740.5 billion invoice was an modification to the Securities Change Act of 1934, which supplies the SEC specific statutory authority to hunt disgorgement in federal court docket.[5] Beneath Part 6501 of the NDAA, the SEC is allowed to hunt “disgorgement . . . of any unjust enrichment by the one that obtained such unjust enrichment.”[6] Maybe extra vital, the modification establishes a ten-year statute of limitations for acquiring disgorgement for scienter-based violations of federal securities legal guidelines, doubling the 5-year normal beforehand established by the Supreme Court docket. The modification applies to any motion or continuing that’s pending on, or commenced after its enactment (i.e., January 1, 2020).

As mentioned in a previous alert, the modification is a response to 2 latest Supreme Court docket choices which restricted the SEC’s authority to hunt disgorgement, though the company has an extended historical past of searching for and receiving disgorgement: Kokesh v. SEC, 137 S. Ct. 1635 (2017) (imposing a five-year statute of limitations on disgorgement), and Liu v. SEC, 140 S. Ct. 1936 (2020) (which imposed equitable limitations on disgorgement, such because the limitation to internet income). The extension of the statute of limitations to 10 years is a major enhancement to the SEC’s cures since many circumstances contain conduct that extends greater than 5 years earlier than an motion is filed. Nevertheless, notably, the modification doesn’t expressly reverse the equitable limitations that the Supreme Court docket imposed on the disgorgement treatment in Liu. Accordingly, the SEC will proceed to confront defenses grounded in equitable rules, akin to deduction for professional bills and the elimination of joint and several other legal responsibility for disgorgement.

D.   Whistleblower Awards

2020 marked the 10-year anniversary of the SEC’s whistleblower program. It additionally marked a report 12 months for the variety of whistleblower awards, the overall sum of money awarded and the biggest single whistleblower award.[7] Throughout fiscal 2020, the Fee issued awards totaling roughly $175 million to 39 particular person whistleblowers. As of the top of 2020, the SEC has awarded a complete of roughly $736 million to 128 particular person whistleblowers in this system’s 10-year historical past.[8] Maybe equally notable, enforcement actions attributed to whistleblower ideas have resulted in additional than $2.5 billion in ordered monetary cures.

The rise within the variety of awards is the results of the SEC’s efforts to extend the effectivity of the declare assessment and award course of. In September, the SEC additionally adopted amendments to the Whistleblower Rule to advertise efficiencies within the assessment and processing of whistleblower award claims. The amendments goal to offer the Fee with instruments to appropriately reward people, and embrace a presumption of the statutory most award for sure whistleblowers with potential awards of lower than $5 million.[9] For additional dialogue of the amendments to the Whistleblower Rule, see our prior alert on the topic.

The amendments additionally made one modification to the Whistleblower Rule that has confirmed to be controversial. As initially proposed in 2018, the modification would have given the Fee authority to cut back the greenback quantity of awards in circumstances with giant financial sanctions (in extra of $100 million). Within the face of opposition from whistleblower advocates, the ultimate rule dropped that modification, and as a substitute clarified that in figuring out the suitable award, the Fee has discretion to think about each the share and the greenback quantity of the award a discretion the Fee. Within the adopting launch, the Fee defined the modification as merely clarifying the discretion that the Fee at all times had in figuring out the suitable award. One whistleblower advocate has already filed a go well with in opposition to the SEC difficult the validity of the modification underneath the Administrative Process Act.[10]

In October, the SEC additionally introduced the biggest award in this system’s historical past—a cost of over $114 million to a whistleblower who supplied data and help resulting in profitable enforcement actions.[11] The award, which consists of a $52 million award in reference to the SEC matter and a $62 million award arising out associated actions by one other company, comes on the heels of the SEC’s earlier record-breaking $50 million whistleblower award in June.[12]

This 12 months additionally noticed a report stage of ideas obtained by the Workplace of the Whistleblower, in addition to different complaints and referrals obtained by the Enforcement Division as an entire. The Workplace of the Whistleblower obtained over 6,900 ideas in fiscal 12 months 2020, a 31% improve over the second-highest tip 12 months in fiscal 12 months 2018.[13] Extra broadly, the Enforcement Division obtained over 23,650 ideas, complaints and referrals in fiscal 2020, a greater than 40% improve over the prior 12 months. Inevitably, the rise in ideas this previous 12 months is prone to result in a rise within the variety of investigations within the years to return.

The SEC’s whistleblower awards additionally emphasize the help whistleblowers contribute to investigations by trade experience or just expediting an investigation. For instance, in November, the SEC made a cost of over $28 million to a person who supplied data that prompted an organization’s inner investigation, and who supplied testimony and recognized a key witness.[14] Likewise, the SEC introduced an award of over $10 million in October to a whistleblower, emphasizing the person’s substantial ongoing help, together with assist deciphering communications and distilling complicated points.[15] Additionally of significance to the Fee is a whistleblower’s efforts to cut back ongoing hurt to buyers. In December, the SEC introduced an award of over $1.8 million to a whistleblower who took fast steps to mitigate hurt to buyers.[16] Moreover, the announcement famous the whistleblower’s ongoing help, which saved time and assets of SEC employees.[17]

Different vital whistleblower awards granted through the second half of this 12 months embrace:

• An award in July of $3.8 million to a whistleblower for data that allowed the SEC to disrupt an ongoing fraud scheme and led to a profitable enforcement motion.[18]
• An award in August of over $1.25 million for data resulting in a profitable enforcement motion, ensuing within the return of hundreds of thousands of {dollars} to buyers.[19]
• Eleven awards in September, together with a notable award of $22 million to an insider whistleblower whose tip led the SEC to open an investigation, and who supplied ongoing help; and a $7 million award to a different whistleblower who supplied what the SEC deemed “useful” data concerning the investigation.[20] Further awards in September included an award of over $2.5 million to joint whistleblowers for a tip based mostly on an unbiased evaluation of a public firm’s filings, and for the whistleblowers’ ongoing help within the SEC’s investigation;[21] a $10 million cost to a person who supplied data and help that had been described as of “essential significance” to the SEC’s profitable enforcement motion;[22] a $250,000 award to joint whistleblowers who raised considerations internally and whose tip to the SEC spurred the opening of an investigation and a profitable enforcement motion;[23] cost of $2.4 million to a whistleblower who supplied data and help that in the end stopped ongoing misconduct;[24] awards to totaling over $2.5 million to 2 whistleblowers who reported misconduct abroad;[25] an award of $1.8 million for data concerning ongoing securities legislation violations;[26] and 4 awards totaling nearly $5 million for “essential data” leading to a profitable enforcement motion.[27]
• An award in October of $800,000 for data that brought about the SEC to open an investigation main to 2 profitable enforcement actions.[28]
• 4 awards in November, together with a cost of $3.6 million to a whistleblower who supplied data and ongoing help to enforcement employees concerning misconduct overseas;[29] a $750,000 cost to a person who met with enforcement employees and supplied data concerning an ongoing fraud;[30] an award of over $1.1 million to a whistleblower who supplied what the SEC described a “exemplary help,” and led the employees to take a look at new conduct throughout an ongoing investigation;[31] and a cost of over $900,000 to a person who supplied importantly data concerning securities legislation violations occurring abroad.[32]
• Six awards in December, together with funds totaling of over $6 million to joint whistleblowers who supplied data, submitted paperwork, participated in interviews, and recognized key witnesses resulting in a profitable enforcement motion;[33] a cost of almost $1.8 million to an organization insider who supplied data that will have in any other case been troublesome to detect;[34] an award of roughly $750,000 to 2 whistleblowers who supplied ideas and substantial help to the employees, together with collaborating in interviews and offering material experience;[35] a cost of virtually $400,000 to 2 people who supplied data that prompted the opening of an investigation and ongoing help to SEC employees;[36] an award of greater than $300,000 to a whistleblower with audit-related obligations who supplied “high-quality” data after turning into conscious of potential securities legislation violations;[37] a cost of greater than $1.2 million for a whistleblower who supplied data resulting in a profitable enforcement motion, however whose “culpability and unreasonable delay” impacted the award quantity; and a $500,000 cost to a whistleblower who supplied vital data and ongoing help, which led to a profitable enforcement motion.[38]

II.   Public Firm Accounting, Monetary Reporting and Disclosure Instances

Public firm accounting and disclosure circumstances comprised a good portion of the SEC’s circumstances within the latter half of 2020, and included a variety of actions regarding earnings administration, income recognition, impairments, inner controls, and disclosures regarding monetary efficiency.

A.   Monetary Reporting Instances

EPS Initiative

In September, the SEC introduced the Enforcement Division’s “Earnings Per Share (EPS) Initiative” and the settlement of its first two investigations arising from the Initiative. In accordance with the press launch asserting the settled actions, the SEC described the EPS Initiative as utilizing “risk-based knowledge analytics to uncover potential accounting and disclosure violations.”[39] Primarily based on the information described within the two settled actions, the EPS Initiative is targeted a minimum of partially on detecting a observe often known as “EPS smoothing,” i.e., questionable accounting to realize EPS outcomes in step with consensus analyst estimates. In accordance with the SEC, the primary firm, a carpet producer, made unsupported and non-GAAP-compliant guide accounting changes to a number of quarters with a purpose to keep away from EPS outcomes falling under consensus estimates. The second firm, a monetary companies firm, used a valuation methodology that was inconsistent with the valuation methodology described in its filings, with a purpose to seem to have constant earnings over time. With out admitting or denying wrongdoing, the carpet producer agreed to pay a $5 million penalty to settle the fees; the monetary companies firm agreed to pay a $1.5 million penalty.

Primarily based on our expertise representing shoppers in such issues, the SEC’s consideration might be drawn just by constant EPS efficiency, even within the absence of any foundation to suspect misconduct. In such circumstances, it is very important show to the Workers the integrity of accounting and monetary reporting controls that negate the potential for improper accounting.

Different Monetary Reporting Actions

In August, the SEC instituted a settled motion in opposition to a motorcar elements producer for failing to estimate and report over $700 million in future asbestos liabilities.[40] The SEC alleged that, from 2012 to 2016, the corporate didn’t carry out quantitative analyses to estimate its future asbestos declare liabilities, regardless of having many years of uncooked historic claims knowledge. As an alternative, the corporate incorrectly concluded that it couldn’t estimate these liabilities and due to this fact didn’t correctly account for them in its monetary statements. The corporate agreed to pay a penalty of $950,000 to settle the motion, with out admitting or denying the SEC’s allegations.

Additionally in August, the SEC introduced a settled motion in opposition to a pc server producer and its former CFO associated to alleged violations of the antifraud, reporting, books and data, and inner accounting controls provisions of the federal securities legal guidelines.[41] In accordance with the SEC’s order, amongst different violations, the corporate incentivized workers to maximise income on the finish of every quarter with out implementing and sustaining enough inner accounting controls, leading to a wide range of accounting violations associated to prematurely acknowledged income. With out admitting or denying wrongdoing, the corporate agreed to pay a $17.5 million penalty; the CFO agreed to pay greater than $300,000 as disgorgement and prejudgment curiosity and $50,000 as a penalty. Moreover, the corporate’s CEO, who was not charged with misconduct, consented to reimburse the corporate $2.1 million in inventory income he obtained through the interval when the accounting errors occurred underneath the Sarbanes-Oxley Act’s clawback provision.

In September, the SEC instituted a settled motion in opposition to an engine producer that allegedly inflated its income by almost $25 million by recording its revenues in a fashion inconsistent with GAAP.[42] The SEC alleged that the corporate overstated its income by improperly recognizing income from incomplete gross sales, from merchandise that clients had not agreed to simply accept, and from merchandise with falsely inflated costs, amongst different violations of GAAP. With out admitting or denying the allegations, the corporate agreed to pay a $1.7 million penalty, and to undertake measures geared toward remediating alleged deficiencies in its monetary reporting inner controls.

Additionally in September, the SEC introduced a settled motion in opposition to a lighting producer and 4 of its present and former executives for allegedly inflating the corporate’s income from late 2014 to mid-2018, by prematurely recognizing income.[43] In accordance with the criticism, utilizing a wide range of improper practices, the corporate acknowledged gross sales income sooner than allowed by GAAP and by the corporate’s personal inner accounting insurance policies. The corporate additionally allegedly supplied backdated gross sales paperwork to the corporate’s auditor with a purpose to cowl up the improper practices associated to untimely income recognition. With out admitting or denying wrongdoing, the corporate agreed to pay a $1.25 million penalty, and the executives agreed to pay penalties as effectively.

The identical month, the SEC additionally instituted a settled motion in opposition to an automaker and two of its subsidiaries associated to costs that the automaker disclosed false and deceptive data associated to overstated retail gross sales experiences.[44] In accordance with the SEC, the automaker inflated its reported retail gross sales utilizing a reserve of beforehand unreported retail gross sales to fulfill inner month-to-month gross sales targets, whatever the date of the particular gross sales. The corporate additionally allegedly paid sellers to falsely designate unsold autos as demonstrators or loaners in order that the autos could possibly be counted as having been offered, despite the fact that that they had not been offered. The corporate and its subsidiaries agreed to pay a joint penalty of $18 million with out admitting or denying the SEC’s allegations.

Additionally in September, the SEC instituted settled actions in opposition to a heavy tools producer and three of its former executives for allegedly deceptive the corporate’s outdoors auditor about nonexistent stock with a purpose to overstate its revenue.[45] In accordance with the SEC, the corporate improperly accounted for nonexistent stock and created false stock paperwork, which it later supplied to its outdoors auditor. The corporate additionally allegedly deceived its outdoors auditor about roughly $12 million in income that it improperly acknowledged. With out admitting or denying the SEC’s allegations, the corporate and its executives agreed to pay a complete of $485,000 in penalties.

In October, the SEC filed a criticism in opposition to a seismic knowledge firm and 4 of its former executives for accounting fraud for concealing theft by the executives, and for falsely inflating the corporate’s income.[46] In accordance with the criticism, the corporate improperly recorded income from gross sales to a purportedly unrelated shopper (that was really managed by the executives), with the corporate recording roughly $100 million in income from gross sales that it knew the shopper could be unable to truly pay. The U.S. Lawyer’s Workplace for the Southern District of New York additionally introduced a prison motion in opposition to the corporate’s CEO.

In November, in a case associated to beforehand settled costs in opposition to a big financial institution, the SEC filed a criticism in opposition to the financial institution’s former Senior Government Vice President of Neighborhood Banking alleging that disclosures regarding the financial institution’s “cross-sell” metric had been deceptive and that the defendant knew or ought to have recognized was improperly inflated.[47] The SEC additionally instituted a settled motion in opposition to the financial institution’s former chairman and CEO for certifying statements that he ought to have recognized had been deceptive arising from the financial institution’s inflated cross-sell metric. The SEC alleged that the executives knew or ought to have recognized that the cross-sell metric was “inflated by accounts and companies that had been unused, unneeded, or unauthorized.” The litigation in opposition to the vp stays pending; the CEO agreed to pay a $2.5 million penalty to settle the fees, with out admitting or denying the SEC’s allegations.

In December, the SEC instituted a settled motion in opposition to a China-based espresso firm, alleging that the corporate defrauded buyers by misstating its income, bills, and internet working losses.[48] In accordance with the criticism, amongst different issues, the corporate recorded roughly $311 million in false retail gross sales transactions, in addition to roughly $196 million in inflated bills to hide the fraudulent gross sales. The corporate agreed to pay a $180 million penalty to settle the motion, with out admitting or denying the SEC’s allegations.

B.   Disclosure Instances

Disclosures Associated to the COVID-19 Pandemic

In March 2020, the SEC’s Division of Enforcement fashioned a Coronavirus Steering Committee to supervise the Division’s efforts to actively search for COVID-19 associated misconduct. For the reason that Steering Committee’s formation, there have been a minimum of 5 enforcement actions for alleged disclosure violations associated to COVID-19. As mentioned in our mid-year 2020 alert, there was an preliminary flurry of disclosure-related enforcement actions on the onset of the pandemic. These actions tended to contain microcap corporations whose inventory was suspended from buying and selling after sky rocketing on the again of allegedly false statements about these corporations’ capability to distribute or entry extremely coveted protecting tools or expertise that would detect or forestall the coronavirus.[49] Within the second half of 2020, the SEC has continued to deliver enforcement actions in opposition to corporations for allegedly making false statements about their capability to detect COVID-19. For instance, in September, the SEC filed an motion in opposition to a President and Chief Science Officer (“CSO”) alleging he issued false and deceptive statements concerning the firm’s growth of a COVID-19 blood take a look at.[50] In accordance with the criticism, the President and CSO incorrectly acknowledged that (i) the corporate had bought supplies to make a take a look at, (ii) the corporate had submitted the take a look at for emergency approval, and (iii) there was a excessive demand for the take a look at. The SEC’s criticism additionally alleged that the defendant failed to offer needed paperwork and monetary data to the corporate’s unbiased auditor to replace the corporate’s delinquent monetary statements for 2014 and 2015.

Extra lately, the SEC introduced costs in opposition to a biotech firm and its CEO for making false and deceptive claims in press releases that the corporate had developed a expertise that would precisely detect COVID-19 by a blood take a look at.[51] In accordance with the criticism, the corporate and CEO made false and deceptive statements concerning the existence of the bodily testing gadget and the standing of FDA emergency use authorization whereas advisors warned that the testing package wouldn’t work as the corporate publicly described.

The SEC can also be beginning to deliver enforcement actions in opposition to corporations for alleged misstatements regarding how their financials had been affected by the coronavirus. For instance, in December, the SEC introduced a settled order in opposition to a publicly traded restaurant firm for allegedly incomplete disclosures in a Kind 8-Ok concerning the monetary results of the pandemic on the corporate’s enterprise operations and monetary situation.[52] In short, based on the SEC’s settled order, the corporate disclosed that it anticipated to have the ability to function “sustainably, ” however didn’t disclose that it was dropping $6 million in money per week, it solely had 16 weeks of money remaining, it was excluding bills attributable to company operations from its declare of sustainability, and it was not going to pay hire in April 2020. With out admitting or denying the SEC’s findings, the corporate agreed to pay a $125,000 penalty and to cease-and-desist from additional violations of the reporting provisions in Part 13(a) of the Change Act and Guidelines 13a-11 and 12b-20. See our prior alert on this case for extra evaluation and commentary on this case.

Different Disclosure Instances

In December, the SEC instituted a settled motion in opposition to a U.S. based mostly multinational firm for allegedly failing to reveal materials details about the corporate’s energy and insurance coverage companies in three separate conditions.[53] First, based on the SEC, the corporate misled buyers by disclosing its energy enterprise’s elevated income with out additionally disclosing that between one-quarter and one-half of these income had been a results of reductions within the firm’s prior value estimates. Second, the corporate didn’t disclose that its reported improve in money collections got here on the expense of future years’ money and was derived principally from inner gross sales between the corporate’s personal enterprise models. Third, the corporate lowered projected prices for its future insurance coverage liabilities with out disclosing uncertainties about these projected prices as a consequence of a basic pattern of rising long-term medical insurance declare prices. With out admitting or denying wrongdoing, the corporate agreed to settle the allegations and pay a $200 million penalty. The settlement additionally contained a comparatively distinctive endeavor by which the corporate agreed to self-report to the SEC concerning sure accounting and disclosure controls for one 12 months.

In September, the SEC introduced a settled motion in opposition to an automaker for allegedly deceptive disclosures about its autos’ emissions management programs.[54] In accordance with the SEC, the automaker acknowledged in a February press launch and annual report that an inner audit had confirmed its autos complied with emissions laws, with out disclosing that the inner audit had a slender scope and was not a complete assessment, and in addition with out disclosing that the Environmental Safety Company and California Air Useful resource Board had expressed considerations to the automaker about a few of its autos’ emissions. The automaker agreed to pay a $9.5 million penalty with out admitting or denying the SEC’s allegations.

In September, the SEC instituted a settled motion in opposition to a hospitality firm for failing to totally disclose govt perks by omitting disclosure of roughly $1.7 million in govt journey advantages.[55] The advantages at situation associated to firm executives’ stays on the firm’s motels, and to the CEO’s private use of company plane from the interval 2015 to 2018. The corporate agreed to pay a $600,000 penalty to settle the motion, with out admitting or denying the SEC’s allegations.

C.   Instances Involving Each Deceptive Disclosures and Monetary Reporting

In July, the SEC introduced a settled motion in opposition to a pharmaceutical firm and three of its former executives for deceptive disclosures and accounting violations.[56] In accordance with the SEC, the corporate made deceptive disclosures associated to its gross sales to a pharmacy that the corporate helped set up and subsidize. For instance, the corporate introduced it was experiencing double-digit similar retailer natural development (a non-GAAP monetary measure) with out disclosing that a lot of that development got here from gross sales to the backed pharmacy and with out disclosing dangers associated to that pharmacy. The SEC additionally alleged that the corporate improperly acknowledged income by incorrectly allocating $110 million in income attributable solely to at least one product to over 100 unrelated merchandise. With out admitting or denying the allegations, the corporate agreed to pay a $45 million penalty; the previous executives agreed to pay penalties starting from $75,000 to $250,000 and to reimburse the corporate for beforehand paid incentive compensation in quantities starting from $110,000 to $450,000. Moreover, the Controller agreed to a one-year accounting observe bar earlier than the SEC.

In August, the SEC settled instituted a settled motion in opposition to the previous CEO and Chairman of a automotive rental firm alleging that he aided and abetted the corporate in submitting deceptive disclosures and inaccurate monetary reporting.[57] In accordance with the SEC, the previous CEO lowered the corporate’s depreciation bills by lengthening the interval for which the corporate deliberate to carry rental vehicles in its fleet, from holding intervals of twenty months to holding intervals of twenty-four and thirty months; the CEO didn’t totally disclose the brand new, lengthened holding intervals, and didn’t disclose the dangers related to an older fleet. The criticism additionally alleged that, when the corporate fell in need of forecasts, the previous CEO pressured workers to “discover cash,” primarily by reanalyzing reserve accounts, leading to his subordinates making accounting modifications that left the corporate’s monetary experiences inaccurate. With out admitting or denying the SEC’s allegations, the previous CEO agreed to pay a $200,000 penalty and reimburse the corporate $1.9 million. The automotive rental firm had already agreed to pay a $16 million penalty to settle associated costs, in December 2018.

In September, the SEC introduced a settled motion in opposition to a constitution college operator engaged in a $7.6 million municipal bond providing, and its former president alleging that the defendants supplied inaccurate monetary projections and didn’t disclose the varsity’s monetary troubles.[58] In accordance with the criticism, the varsity’s providing doc included inaccurate revenue and expense projections that indicated the varsity would change into worthwhile within the subsequent 12 months when, based on the SEC, the varsity knew or ought to have recognized that these projections had been inaccurate. The criticism additionally alleged that the varsity didn’t disclose that it was working at a large loss and had made repeated unauthorized withdrawals from its reserve accounts to pay its money owed and routine bills. With out admitting or denying wrongdoing, the varsity and its former president agreed to a settlement enjoining them from future violations; the previous president additionally agreed to be enjoined from collaborating in future municipal securities choices and to pay a $30,000 penalty.

Additionally in September, the SEC instituted a settled motion in opposition to a expertise firm for inflating reported gross sales by prematurely recognizing gross sales anticipated to happen later and for failing to reveal these practices.[59] In accordance with the SEC’s order, the corporate allegedly didn’t disclose a observe used to extend month-to-month gross sales by which some regional managers would speed up, or “pull-in,” to an earlier quarter’s gross sales that they anticipated to happen in later quarters. The corporate additionally allegedly didn’t disclose that some regional managers offered to resellers recognized to violate firm coverage by promoting product outdoors their designated territories with a purpose to improve month-to-month gross sales. Lastly, the SEC’s order alleged that the corporate made deceptive disclosures by disclosing data associated to its channel well being that solely included channel companions to which the corporate offered immediately, with out disclosing that this data didn’t embrace channel companions to which the corporate offered not directly. The corporate agreed to pay a $6 million penalty, with out admitting or denying wrongdoing.

In December, the SEC introduced the settlement of an motion filed in February in opposition to an vitality firm and its subsidiary for making deceptive statements by claiming that the corporate would qualify for big tax credit for which the corporate knew it probably wouldn’t be eligible.[60] In accordance with the SEC, the corporate represented that its undertaking to construct two new nuclear energy models was on schedule, and due to this fact, would probably qualify for greater than $1 billion in tax credit, when the corporate knew its undertaking was considerably delayed and, resultingly, would probably fail to qualify for these tax credit. With out admitting or denying the allegations, the corporate agreed to pay a $25 million penalty; the corporate and its subsidiary additionally agreed to pay $112.5 million in disgorgement and prejudgment curiosity. The settlement stays topic to court docket approval. The litigation in opposition to two of the corporate’s senior executives stays ongoing.

Additionally in December, the SEC filed a criticism in opposition to a brand-management firm with violations of the federal securities legal guidelines’ associated to the corporate’s alleged failure to account for and disclose proof of goodwill impairment.[61] The criticism alleged that the corporate unreasonably concluded that its goodwill was not impaired based mostly on a qualitative impairment evaluation, with out considering and in addition with out disclosing two inner quantitative analyses exhibiting that goodwill was probably impaired. The litigation in opposition to the corporate stays ongoing.

D.   Inner Controls

More and more, the SEC has demonstrated a willingness to resolve investigations of public corporations on the premise of violations of the inner controls provisions of the Change Act. One latest instance of an inner controls settlement supplied a uncommon window into a major divergence of opinion among the many Commissioners regarding the appropriateness of such settlements based mostly on a broad software of the inner controls provision.

In October, the SEC instituted a settled motion in opposition to an vitality firm associated to costs that the corporate failed to keep up inner controls that will have supplied affordable assurance that the corporate’s inventory buyback plan would have complied with its personal buyback insurance policies.[62] In accordance with the SEC’s order, the corporate applied a $250 million inventory buyback whereas in possession of fabric nonpublic data (MNPI) a few potential acquisition, despite the corporate’s coverage prohibiting repurchasing inventory whereas in possession of MNPI. Along with detailing the litany of things illustrating that the likelihood of the acquisition was sufficiently excessive as to have constituted MNPI, the SEC’s order targeted on the corporate’s inadequate course of for evaluating whether or not the acquisition discussions had been materials on the time it adopted a 10b5-1 plan for the buyback. Particularly, the method didn’t embrace talking with the people on the firm moderately prone to have materials details about vital company developments. Consequently, the SEC’s order alleged that the corporate’s authorized division didn’t seek the advice of with the CEO concerning the prospects of the corporate being acquired, despite the fact that the CEO was the first negotiator. The corporate’s authorized division thus “failed to understand” that the transaction’s likelihood was excessive sufficient to represent MNPI.

Regardless of these findings, the SEC didn’t deliver insider buying and selling costs, however as a substitute alleged that the corporate’s inner controls had been inadequate to offer affordable assurance that the corporate’s buyback transactions would adjust to its buyback coverage. With out admitting or denying the allegations, the corporate agreed to pay a $20 million penalty. Notably, Republican Commissioners Roisman and Peirce dissented from the Fee’s choice to institute the enforcement motion. In a public assertion explaining their dissent, the Commissioners argued that the inner controls provision, Part 13(b)(2)(B) of the Change Act, applies to “inner accounting controls,” and thus doesn’t apply to inner controls to make sure an organization doesn’t repurchase inventory in compliance with firm insurance policies.

III.   Funding Advisers

Within the second half of 2020, the SEC instituted quite a few actions in opposition to funding advisers. We talk about notable circumstances under.

A.   Cost for Order Move

In August, the SEC instituted a settled motion in opposition to two affiliated funding advisers in reference to their alleged misrepresentations to sure mutual fund and exchange-traded fund shoppers concerning “cost for order stream” preparations, i.e., funds the funding adviser obtained for sending shopper orders to different brokerage corporations for execution.[63] In accordance with the SEC, on a number of events, the funding advisers made deceptive statements that the cost for order stream preparations didn’t adversely have an effect on the costs at which the shoppers’ orders had been executed, when in truth the executing brokers adjusted the execution costs to recoup these funds. With out admitting or denying the findings within the SEC’s order, the corporations agreed to a cease-and-desist order, and to pay a mixed whole of $1 million in penalties.

B.   Mutual Fund Share Lessons

In August, the SEC instituted a settled motion in opposition to a California-based funding advisory agency based mostly on allegations that it engaged in practices that violated its fiduciary duties to shoppers.[64] In accordance with the SEC, the agency didn’t disclose a battle of curiosity in choosing mutual fund share courses that charged sure charges as a substitute of accessible lower-cost share courses of the identical funds. The agency’s affiliated dealer obtained the related charges in reference to these investments. Moreover, the SEC alleged that the agency didn’t disclose its receipt of income sharing funds from its clearing dealer in change for buying or recommending sure cash market funds to shoppers. The SEC additional alleged that these practices resulted in a violation of the agency’s responsibility to hunt greatest execution for these transactions. With out admitting or denying the findings within the SEC’s order, the agency agreed to a cease-and-desist order and to pay disgorgement of $544,446, plus prejudgment curiosity of $22,746, and a penalty of $200,000, all for distribution to buyers.

C.   Change-Traded Merchandise

In November, the SEC introduced the primary enforcement actions ensuing from the Division of Enforcement’s “Change-Traded Merchandise Initiative.” The SEC instituted settled actions in opposition to 5 corporations registered as funding advisers and/or dealer sellers in reference to their alleged unsuitable gross sales of complicated, volatility-linked exchange-traded merchandise to retail buyers.[65] In accordance with the SEC, representatives of the corporations beneficial that their shoppers purchase and maintain exchange-traded merchandise for lengthy intervals of time, opposite to the warnings within the merchandise’ providing paperwork, which made clear that they had been supposed to be short-term investments. The SEC additional alleged that the corporations didn’t undertake or implement insurance policies and procedures to deal with whether or not their registered representatives sufficiently understood the merchandise to have the ability to kind an inexpensive foundation to evaluate suitability or to suggest that their shoppers purchase and maintain the merchandise. The corporations agreed to pay a complete of $3,000,000 in civil penalties among the many 5 corporations.

D.   Puerto Rico Bonds

In December, the SEC filed a criticism in federal court docket in Puerto Rico in opposition to a Florida-based particular person working as an unregistered funding adviser.[66] In accordance with the SEC’s criticism, the person promised municipal officers in Puerto Rico an annual return of 8-10% on their roughly $9 million funding within the municipality’s funds, with no threat to principal. To persuade officers to put money into the municipality’s funds, the person allegedly falsified financial institution correspondence and brokerage opening paperwork. The SEC additional alleged that the person didn’t execute the promised funding technique, as a substitute misappropriating $7.1 million of taxpayer funds by transferring the funds to himself, entities he managed, and his associates. The SEC’s criticism seeks everlasting injunctive reduction, disgorgement of alleged ill-gotten good points plus prejudgment curiosity, and a civil penalty.

E.   Disclosure Violations

In December, the SEC instituted a settled motion in opposition to a UK-based funding adviser based mostly on allegations that the corporate didn’t make full and correct disclosures regarding the switch of its highest-performing merchants from its flagship shopper fund to a proprietary fund, and the substitute of these merchants with a semi-systematic, algorithmic buying and selling program.[67] The SEC alleged that the algorithmic buying and selling program underperformed in comparison with the agency’s dwell merchants, producing much less revenue with better volatility. Moreover, the funding adviser allegedly didn’t adequately implement insurance policies and procedures moderately designed to stop the violations of the Funding Advisers Act underneath the actual circumstances described above. With out admitting or denying the findings within the SEC’s order, the agency agreed to a cease-and-desist order and to pay disgorgement and penalties totaling $170 million, all to be distributed to buyers.

F.   Single Dealer Quotes

In December, the SEC instituted a settled motion in opposition to a New York-based funding adviser and world securities pricing service based mostly on allegations that the agency didn’t undertake and implement insurance policies and procedures moderately designed to deal with the chance that the one dealer quotes it delivered to shoppers didn’t moderately replicate the worth of the underlying securities.[68] The SEC additional alleged that the agency didn’t successfully or constantly implement qc for costs delivered to shoppers based mostly on the one dealer quotes. With out admitting or denying the findings within the SEC’s order, the agency agreed to stop and desist from future violations, to a censure, and to pay an $8 million penalty.

G.   Cherry Choosing

In December, the SEC filed a criticism in federal court docket in Texas in opposition to a Dallas-based funding adviser and its principal, charging the defendants with violations of the antifraud provisions of the federal securities legal guidelines.[69] The SEC’s criticism alleges that the principal positioned choices trades within the funding adviser’s omnibus account early within the buying and selling day, however waited till close to or after market near allocate the trades to both his private account or to particular shopper accounts. As alleged within the criticism, the principal disproportionately allotted worthwhile trades to his private accounts and unprofitable trades to advisory shoppers, whereas representing to shoppers that every one trades could be equitably allotted. The SEC’s criticism seeks everlasting injunctions, disgorgement with prejudgment curiosity, and civil penalties.

IV.   Dealer-Sellers and Monetary Establishments

Though not as quite a few as prior years, there have been however notable circumstances involving the conduct of broker-dealers within the latter half of 2020.

A.   Monetary Reporting and Recordkeeping

In August, the SEC instituted a settled motion in opposition to a broker-dealer for neglecting to file over 150 suspicious exercise experiences (SARs) regarding microcap securities that the agency traded on behalf of its clients.[70] The aim of SARs is to determine and examine doubtlessly suspicious exercise, and the SEC’s order alleged that the broker-dealer failed to take action, even when suspicious transactions had been recognized by compliance personnel. The allegedly suspicious exercise included quite a few cases the place clients both deposited and offered giant blocks of microcap securities earlier than rapidly withdrawing the ensuing proceeds from the respective accounts, offered sufficient of a specific microcap safety on given days to account for over 70% of the day by day buying and selling quantity for that safety, or deposited microcap securities that had been topic to SEC buying and selling suspensions. The broker-dealer agreed to pay an $11.5 million penalty to the SEC, with out admitting or denying the findings, and moreover agreed to pay penalties of $15 million and $11.5 million to FINRA and the CFTC respectively.

In September, the SEC instituted a settled motion in opposition to a broker-dealer subsidiary of a worldwide monetary companies agency for alleged violations of Regulation SHO.[71] Regulation SHO governs brief gross sales and, amongst different issues, usually prohibits broker-dealers from individually marking their lengthy and brief positions in a given safety, as a substitute requiring order aggregation to find out and mark one internet place for every safety. The SEC’s order alleged that the broker-dealer had a “Lengthy Unit” that bought fairness securities to hedge brief artificial publicity, which ought to have been aggregated with a separate “Brief Unit” that offered fairness securities to equally hedge lengthy artificial publicity for the needs of order marking. The broker-dealer agreed to pay a $5 million penalty with out admitting or denying the SEC’s findings.

B.   Commerce Manipulation

In September, the SEC instituted a settled motion in opposition to a broker-dealer subsidiary of a worldwide monetary companies agency for allegedly utilizing buying and selling strategies that artificially depressed or boosted the value of securities that it supposed to purchase or promote.[72] Particularly, the SEC’s order alleged that merchants on the broker-dealer entered bona-fide buy-or-sell orders for explicit securities, whereas concurrently getting into non bona-fide orders on the alternative facet of the market to create a false look of purchase or promote curiosity. In a settlement, the broker-dealer admitted to the SEC’s findings and agreed to pay a $25 million penalty and $10 million in disgorgement.

C.   Greatest Execution and Cost for Order Move

In December, the SEC instituted a settled motion in opposition to a retail broker-dealer for alleged misstatements regarding income streams and execution high quality, and for alleged greatest execution violations.[73] Particularly, the SEC’s order alleged that the broker-dealer didn’t disclose that it obtained income from order stream, i.e. routing its clients’ orders to principal buying and selling corporations, and additional alleged that its statements regarding execution high quality had been inaccurate, even after accounting for buyer financial savings from not having to pay a fee. With out admitting or denying the Fee’s findings, the broker-dealer agreed to pay a $65 million penalty and to acquire an unbiased guide to assessment its related insurance policies.

V.   Cryptocurrency and Digital Belongings

The Fee continued to deliver enforcement actions within the space of digital belongings through the second half of 2020. As within the first half of the 12 months, these actions primarily had been based mostly on alleged failures to adjust to the requirement to register an providing of belongings deemed to be securities or allegations of fraud within the provide and sale of digital belongings.

A.   Vital Developments

Considerably, the SEC closed the 12 months by bringing two enforcement actions involving digital belongings. On December 22, the SEC charged Ripple Labs Inc. (“Ripple”) and two of its executives—its co-founder and board chairman and its CEO—with elevating $1.3 billion by the sale of unregistered digital asset securities.[74] Particularly, the SEC alleged that the native digital forex of Ripple, XRP, which has been offered by Ripple and others and buying and selling in secondary markets, together with on cryptocurrency exchanges for seven years, is a safety (not merely a forex) underneath the Howey take a look at, which defines a safety as an funding of cash in a shared enterprise with an expectation of income from others’ work.[75] Moreover, the SEC alleged that the 2 executives personally made $600 million value of unregistered gross sales of the digital asset. Within the press launch asserting the motion, the SEC careworn that every one public issuers “should adjust to federal securities legal guidelines that require registration of choices until an exemption from registration applies.” Six days later, on December 28, the SEC obtained an emergency asset freeze in opposition to Virgil Capital LLC and its associates as a consequence of an alleged fraud perpetrated by the corporate’s proprietor.[76] The criticism alleged that the proprietor and his corporations had been fraudulently misrepresenting to buyers that their funds had been for use just for digital forex buying and selling, when in actuality these funds had been used for private bills or different high-risk investments.

One other notable growth demonstrates the growing emphasis the SEC is inserting on the safety of buyers within the context of FinTech innovation. On December 3, 2020, the Fee introduced that it was elevating the Strategic Hub for Innovation and Monetary Expertise (“FinHub”), to a stand-alone workplace. Beforehand, the FinHub, which was initially established in 2018, had been a unit inside the Division of Company Finance.[77] Since its inception, FinHub has “spearheaded company efforts to encourage accountable innovation within the monetary sector, together with in evolving areas akin to distributed ledger expertise and digital belongings, automated funding recommendation, digital market financing, and synthetic intelligence and machine studying,” and supplied trade gamers and regulators with a discussion board to interact with SEC Workers. The institution of FinHub as a stand-alone workplace—which can proceed to be led by present director Valerie A. Szczepanik—indicators that the Fee will proceed to concentrate on digital belongings within the years to return.

Though the top of the 12 months arguably was a high-water mark regarding the SEC’s enforcement of actions involving digital belongings, the Fee constantly introduced comparable actions all through the second half of the 12 months, as mentioned under.

B.   Registration Instances

In July, the SEC instituted a settled motion in opposition to a privately-owned California-based firm and a associated Philippine firm for providing and promoting U.S.-based securities with out registration through an app and for buying and selling within the associated swap transactions outdoors of a registered nationwide change.[78] The app allowed people to enter right into a contract by which they might select particular securities to “mirror,” and the worth of their contracts would fluctuate based on the value of the underlying safety. The Fee decided that the contracts constituted security-based swaps, and due to this fact had been topic to U.S. securities legal guidelines. With out admitting or denying to the findings within the order, the 2 corporations agreed to pay a penalty of $150,000. Moreover, the businesses entered right into a separate settlement with the CFTC arising from comparable conduct.

In September, the SEC instituted a settled motion in opposition to an operator of a web-based gaming and playing platform for conducting an unregistered preliminary coin providing (“ICO”) of digital belongings.[79] The order discovered that the corporate raised roughly $31 million by the providing of its digital token, and promised buyers that it could develop a secondary marketplace for buying and selling in its tokens. The SEC decided that the tokens had been offered as funding contracts, thereby constituting securities, the providing of which ought to have been registered. The corporate agreed to pay a $6.1 million penalty, with out admitting or denying the Fee’s findings, and additional agreed to disable the token and take away it from all digital asset-trading platforms. The Washington State Division of Monetary Establishment individually entered right into a settlement settlement in reference to this providing.

C.   Fraud Instances

In August, the SEC instituted a settled motion in opposition to a Virginia-based firm and its CEO, in reference to the corporate’s $5 million ICO to lift funding to develop an internet-based job-posting platform.[80] The SEC discovered that the providing of sale of the coin constituted the sale of unregistered securities, and that the corporate and its CEO made false and deceptive statements to buyers regarding the steadiness of its digital asset and its scalability in comparison with its opponents. With out admitting or denying the findings within the order, the corporate agreed to disgorge the $5 million raised and pay over $600,000 in prejudgment curiosity; the CEO was barred from serving as an officer or director of a public firm and agreed to pay a $150,000 penalty; and the corporate and CEO each agreed to stop buying and selling in (and destroy present) cash and chorus from collaborating in any choices of any digital asset securities.

In September, the SEC instituted a settled motion in opposition to 4 people, and introduced non-settled costs in opposition to one other particular person—an Atlanta-based movie producer—and their two corporations in reference to the misappropriation and theft of funds that had been raised through ICOs.[81] The producer allegedly used the misappropriated funds and proceeds of manipulative buying and selling to purchase a Ferrari, a house, jewellery, and different luxurious objects. Three of the settling defendants agreed to pay a penalty of $25,000 and are prohibited from collaborating within the issuance of or in any other case transact in digital belongings for 5 years. The fourth settling defendant agreed to pay a $75,000 penalty and is topic to an identical injunction. The U.S. Lawyer’s Workplace for the Northern District of Georgia has additionally introduced a prison motion in opposition to the non-settling defendant.

In October, the SEC filed an motion in opposition to a software program magnate and pc programmer for fraudulently selling investments in ICOs to his 1000’s of Twitter followers.[82] The Criticism alleges that the programmer didn’t disclose that he was paid greater than $23 million to advertise the investments and made different false and deceptive statements, akin to that he was advising a number of the issuers and personally invested in a number of the ICOs. The SEC additionally introduced costs in opposition to the programmer’s bodyguard, alleging that he obtained over $300,000 to assist with the scheme. The SEC additionally alleged that the programmer secretly amassed a big holding in one other digital asset whereas selling it on Twitter, with the intention of promoting his holding at an inflated value. The DOJ’s Tax Division has individually introduced prison costs in opposition to the pc programmer.

VI.   Insider Buying and selling

Insider buying and selling is one other space by which the quantity and measurement of circumstances was diminished from prior years. However, insider buying and selling enforcement stays a major focus for the SEC. Beneath we word a number of the extra vital actions.

The SEC introduced two insider buying and selling circumstances in September, and introduced a 3rd in December. Within the first case, the SEC filed costs in opposition to a senior supervisor at an index supplier and his pal, for allegedly acquiring greater than $900,000 by buying and selling on inside data.[83] In accordance with the SEC, the supervisor used data concerning which corporations had been to be added or faraway from the market index to position name and put choices utilizing the pal’s brokerage account. The SEC’s criticism seeks injunctive reduction and civil penalties; the U.S. Lawyer’s Workplace for the Japanese District of New York filed parallel prison costs in opposition to the supervisor.

Within the second case, the SEC settled insider buying and selling costs in opposition to a former finance supervisor at a web-based retailer and two members of the family.[84] In accordance with the SEC’s criticism, the worker allegedly tipped her husband concerning the firm’s monetary efficiency upfront of earnings bulletins; the worker’s husband and his father used the data to commerce within the firm’s shares. The three people consented to the entry of a judgment enjoining future violation ordering cost of roughly $2.65 million in disgorgement and penalties. The U.S. Lawyer’s Workplace for the Western District of Washington filed parallel prison costs in opposition to the worker’s husband.

Most lately, the SEC filed insider buying and selling costs in opposition to a person within the Japanese District of New York.[85] In accordance with the SEC’s criticism, the person obtained data concerning a personal fairness agency’s curiosity in a publicly traded chemical manufacturing firm upfront of a press launch asserting the information. The person traded on the data and moreover tipped others to commerce for a collective revenue of $1 million as soon as the information broke. The SEC’s criticism seeks injunctive reduction and civil penalties.

VII.   Actions Towards Attorneys

It’s uncommon for the SEC to deliver enforcement actions in opposition to attorneys for conduct of their capability as legal professionals. Thus, when the SEC does deliver such circumstances, it’s notable.

In December, the SEC filed {a partially} settled motion in opposition to two attorneys: one licensed legal professional and one disbarred legal professional with fraud associated to the licensed legal professional’s reliance on the disbarred legal professional for the preparation of legal professional opinion letters for the sale of shares in microcap securities to retail buyers.[86] The SEC alleged that the licensed legal professional knew the disbarred legal professional was disbarred throughout all related instances. In accordance with the criticism, the disbarred legal professional ready for the licensed legal professional’s signature a minimum of thirty legal professional opinion letters, on which the licensed legal professional falsely acknowledged that he had private data of the bases for the opinions within the letters. The criticism additionally alleged that the disbarred legal professional submitted over 100 legal professional opinion letters by which he falsely claimed to be an legal professional. With out admitting or denying the allegations, the licensed legal professional agreed to a partial settlement to an injunction and penny-stock bar, with the potential for different cures, together with penalties, reserved. The SEC’s litigation in opposition to the disbarred legal professional stays ongoing, as does a prison motion in opposition to each attorneys.

VIII.   Providing Frauds

The SEC continued to deliver providing fraud circumstances, which regularly include costs in opposition to people and firms that focus on explicit teams of buyers.

A.   Frauds Focusing on Senior Residents and Retirees

In July, the SEC filed a criticism in opposition to an aviation firm and its proprietor, alleging that the corporate raised $14 million, largely from retired first responders, by representing that it could use the funds to buy engines and different plane elements for leasing to main airways.[87] The SEC’s criticism alleges that, as a substitute, the corporate and its proprietor diverted a lot of the cash for unauthorized functions, together with Ponzi-scheme like funds to different buyers.

In September, the SEC charged the previous president of an actual property firm with violating antifraud provisions of the securities legal guidelines in reference to a $330 million alleged Ponzi-like scheme that impacted seniors.[88] In a second September case, the SEC introduced settled costs in opposition to two people charged in reference to the sale of unregistered inventory, following up on a 2019 motion by the SEC in opposition to the corporate’s former CEO and two beforehand barred brokers.[89] In accordance with the SEC, the three recently-charged people obtained undisclosed commissions totaling almost $500,000 in reference to the sale of almost $1.4 million in shares to retail buyers, most of whom had been seniors.

In a latest case, the SEC filed civil costs in opposition to a person within the Japanese District of New York for working a Ponzi-like scheme that raised over $69 million from present and retired cops and firefighters, amongst different buyers.[90] The SEC’s criticism alleges that the person represented that the investments could be used to amass jewellery for a enterprise that he operated, however as a substitute had been diverted to perpetuate and conceal the fraudulent scheme. The person has pleaded responsible to associated prison costs.

B.   Frauds Focusing on Affinity Teams

In August, the SEC charged three principals and their corporations in reference to a Ponzi-like scheme concentrating on African immigrants.[91] In accordance with the SEC, the buyers believed that the funds could be used for overseas change and cryptocurrency buying and selling. The CFTC additionally filed civil costs, and the DOJ filed prison costs. In September, the SEC filed a criticism within the Japanese District of New York in opposition to a Swedish nationwide in reference to a purportedly “pre-funded reversed pension plan” that was largely marketed on-line and attracted over 800 buyers from the Deaf, Arduous of Listening to and Listening to Loss communities.[92] Lastly, in December, the SEC introduced an emergency motion in opposition to an actual property growth firm and its proprietor in reference to a $119 million spherical of fundraising that predominantly concentrating on South Asian buyers.[93]

C.   Fraud Associated to On-line Retailers and Expertise Suppliers

The SEC has additionally targeted on corporations engaged in or making representations about rising applied sciences and e-commerce. For instance, the SEC charged an e-commerce startup and its CEO in Northern California with misrepresenting the extent of the corporate’s contracts with extra well-known retailers and types with a purpose to entice funding.[94] The SEC filed one other criticism in opposition to the founder and CEO of a machine-learning analytics firm in California, alleging that the founder misrepresented the corporate’s prior monetary efficiency and its shopper checklist.[95] Within the Japanese District of Virginia, the SEC filed costs alleging that the founder and CEO of a web-based market in reference to the providing and promoting of over $18.5 million in securities, a few of which had been offered to company buyers.[96] Each the U.S. Lawyer’s Workplace and the Fraud Part of the Division of Justice have additionally introduced prison costs based mostly on comparable allegations. Lastly, a court docket within the Southern District of New York froze over $35 million in belongings[97] in reference to allegations by the SEC that the previous CEO of a fraud detection and prevention software program firm misled buyers by offering buyers with misguided monetary statements.[98] In accordance with the SEC, the previous CEO altered financial institution statements provided to the corporate’s finance division and integrated into investor supplies over the course of two years, throughout which the corporate raised roughly $123 million.

________________________

    [1]     Paul Kiernan and Scott Patterson, “An Previous Foe of Banks May Be Wall Road’s New High Cop,” Wall Road Journal, Jan. 16, 2021, out there at https://www.wsj.com/articles/an-old-foe-of-banks-could-be-wall-streets-new-top-cop-11610773211.

   [2]     Speech by Chairman Jay Clayton, “Putting Principles into Practice, the SEC from 2017-2020,” Remarks to the Economic Club of New York, Nov. 12, 2020, available at https://www.sec.gov/news/speech/clayton-economic-club-ny-2020-11-19.

   [3]     See 2020 Annual Report of U.S. SEC Division of Enforcement, available at https://www.sec.gov/files/enforcement-annual-report-2020.pdf.

   [4]     National Defense Authorization Act for Fiscal Year 2021, H.R. 6395, 116th Cong. (2020).

   [5]     Id.

   [6]     Id.

   [7]     Whistleblower Program, 2020 Annual Report to Congress, available at https://www.sec.gov/files/2020%20Annual%20Report_0.pdf.

   [8]     SEC Press Release, SEC Awards Over $1.6 Million to Whistleblower (Dec. 22, 2020), available at https://www.sec.gov/news/press-release/2020-333.

   [9]     SEC Press Release, SEC Adds Clarity, Efficiency, and Transparency to Its Successful Whistleblower Award Program (Sept. 23, 2020), available at https://www.sec.gov/news/press-release/2020-219.

   [10]    Lydia DePhillis, “The SEC Undermined a Powerful Weapon Against White-Collar Crime,” ProPublica (Jan. 13, 2021), available at https://www.propublica.org/article/the-sec-undermined-a-powerful-weapon-against-white-collar-crime.

   [11]    SEC Press Release, SEC Issues Record $114 Million Whistleblower Award (Oct. 22, 2020), available at https://www.sec.gov/news/press-release/2020-266.

   [12]    SEC Press Release, SEC Issues Record $114 Million Whistleblower Award (Oct. 22, 2020), available at https://www.sec.gov/news/press-release/2020-266.

   [13]    Whistleblower Program, 2020 Annual Report to Congress, available at https://www.sec.gov/files/2020%20Annual%20Report_0.pdf.

   [14]    SEC Press Release, SEC Awards Over $28 Million to Whistleblower (Nov. 3, 2020), available at https://www.sec.gov/news/press-release/2020-275.

   [15]    SEC Press Release, SEC Awards Over $10 Million to Whistleblower (Oct. 29, 2020), available at https://www.sec.gov/news/press-release/2020-270.

   [16]    SEC Press Release, SEC Issues Multiple Whistleblower Awards Totaling Over $3.6 Million (Dec. 18, 2020), available at https://www.sec.gov/news/press-release/2020-325.

   [17]    SEC Press Release, SEC Issues Multiple Whistleblower Awards Totaling Over $3.6 Million (Dec. 18, 2020), available at https://www.sec.gov/news/press-release/2020-325.

   [18]    SEC Press Release, SEC Issues $3.8 Million Whistleblower Award (July 14, 2020), available at https://www.sec.gov/news/press-release/2020-155.

   [19]    SEC Press Release, SEC Awards Over $1.25 Million to Whistleblower (Aug. 31, 2020), available at https://www.sec.gov/news/press-release/2020-199.

   [20]    SEC Press Release, SEC Awards Almost $30 Million to Two Insider Whistleblowers (Sept. 30, 2020), available at https://www.sec.gov/news/press-release/2020-239.

   [21]    SEC Press Release, SEC Awards Over $2.5 Million to Joint Whistleblowers for Detailed Analysis That Led to Multiple Successful Actions (Sept. 1, 2020), available at https://www.sec.gov/news/press-release/2020-201.

   [22]    SEC Press Release, SEC Awards More Than $10 Million to Whistleblowers (Sept. 14, 2020), available at https://www.sec.gov/news/press-release/2020-209.

   [23]    SEC Press Release, SEC Awards Almost $250,000 to Joint Whistleblowers (Sept. 17, 2020), available at https://www.sec.gov/news/press-release/2020-214.

   [24]    SEC Press Release, SEC Issues $2.4 Million Whistleblower Award (Sept. 21, 2020), available at https://www.sec.gov/news/press-release/2020-215.

   [25]    SEC Press Release, SEC Issues Two Whistleblower Awards for High-Quality Information Regarding Overseas Conduct (Sept. 25, 2020), available at https://www.sec.gov/news/press-release/2020-225.

   [26]    SEC Press Release, SEC Issues $1.8 Million Whistleblower Award to Company Outsider (Sept. 28, 2020), available at https://www.sec.gov/news/press-release/2020-231.

   [27]    SEC Press Release, SEC Whistleblower Program Ends Record-Setting Fiscal Year With Four Additional Awards (Sept. 30, 2020), available at https://www.sec.gov/news/press-release/2020-240.

   [28]    SEC Press Release, SEC Awards $800,000 to Whistleblower (Oct. 15, 2020), available at https://www.sec.gov/news/press-release/2020-255.

   [29]    SEC Press Release, SEC Awards More Than $3.6 Million and $750,000 in Separate Whistleblower Awards (Nov. 5, 2020), available at https://www.sec.gov/news/press-release/2020-278.

   [30]    SEC Press Release, SEC Awards More Than $3.6 Million and $750,000 in Separate Whistleblower Awards (Nov. 5, 2020), available at https://www.sec.gov/news/press-release/2020-278.

   [31]    SEC Press Release, SEC Awards Over $1.1 Million to Whistleblower for Independent Analysis (Nov. 13, 2020), available at https://www.sec.gov/news/press-release/2020-283.

   [32]    SEC Press Release, SEC Awards Whistleblower Over $900,000 (Nov. 19, 2020), available at https://www.sec.gov/news/press-release/2020-288.

   [33]    SEC Press Release, SEC Awards Over $6 Million to Joint Whistleblowers (Dec. 1, 2020), available at https://www.sec.gov/news/press-release/2020-297.

   [34]    SEC Press Release, SEC Issues Multiple Whistleblower Awards Totaling Nearly $3 Million (Dec. 7, 2020), available at https://www.sec.gov/news/press-release/2020-307.

   [35]    SEC Press Release, SEC Issues Multiple Whistleblower Awards Totaling Nearly $3 Million (Dec. 7, 2020), available at https://www.sec.gov/news/press-release/2020-307.

   [36]    SEC Press Release, SEC Issues Multiple Whistleblower Awards Totaling Nearly $3 Million (Dec. 7, 2020), available at https://www.sec.gov/news/press-release/2020-307.

   [37]    SEC Press Release, SEC Awards More Than $300,000 to Whistleblower with Audit Responsibilities (Dec. 14, 2020), available at https://www.sec.gov/news/press-release/2020-316.

   [38]    SEC Press Release, SEC Issues Multiple Whistleblower Awards Totaling Over $3.6 Million (Dec. 18, 2020), available at https://www.sec.gov/news/press-release/2020-325.

   [39]         SEC Press Release, SEC Charges Companies, Former Executives as Part of Risk-Based Initiative (Sept. 28, 2020), available at https://www.sec.gov/news/press-release/2020-226.

   [40]    SEC Press Release, SEC Charges BorgWarner for Materially Misstating its Financial Statements (Aug. 26, 2020), available at https://www.sec.gov/news/press-release/2020-195.

   [41]    SEC Press Release, SEC Charges Super Micro and Former CFO in Connection with Widespread Accounting Violations (Aug. 25, 2020), available at https://www.sec.gov/news/press-release/2020-190.

   [42]    SEC Press Release, Engine Manufacturing Company to Pay Penalty, Take Remedial Measures to Settle Charges of Accounting Fraud (Sept. 24, 2020), available at https://www.sec.gov/news/press-release/2020-222.

   [43]    SEC Press Release, SEC Charges Lighting Products Company and Four Executives with Accounting Violations (Sept. 24, 2020), available at https://www.sec.gov/news/press-release/2020-221.

   [44]    SEC Press Release, SEC Charges BMW for Disclosing Inaccurate and Misleading Retail Sales Information to Bond Investors (Sept. 24, 2020), available at https://www.sec.gov/news/press-release/2020-223.

   [45]    SEC Press Release, SEC Charges Manitex International and Three Former Senior Executives with Accounting Fraud (Sept. 29, 2020), available at https://www.sec.gov/news/press-release/2020-237.

   [46]    SEC Press Release, SEC Charges Seismic Data Company, Former Executives with $100 Million Accounting Fraud (Oct. 8, 2020), available at https://www.sec.gov/news/press-release/2020-251.

   [47]    SEC Press Release, SEC Charges Former Wells Fargo Executives for Misleading Investors About Key Performance Metric (Nov. 13, 2020), available at https://www.sec.gov/news/press-release/2020-281.

   [48]    SEC Press Release, Luckin Coffee Agrees to Pay $180 Million Penalty to Settle Accounting Fraud Charges (Dec. 16, 2020), available at https://www.sec.gov/news/press-release/2020-319.

   [49]    See, e.g., Praxsyn Corp., Applied Biosciences Corp., and Turbo Global partners Inc.

   [50]     SEC Press Release, SEC Orders Top Executive of California Microcap Company for Misleading Claims Concerning COVID-19 Test and Financial Statements (Sept. 25, 2020), available at https://www.sec.gov/news/press-release/2020-224.

   [51]     SEC Press Release, SEC Charges Biotech Company and CEO with Fraud Concerning COVID-19 Blood Testing Device (Dec. 18, 2020), available at https://www.sec.gov/news/press-release/2020-327.

   [52]     SEC Press Release, SEC Charges the Cheesecake Factory for Misleading COVID-19 Disclosures (Dec. 4, 2020), available at https://www.sec.gov/news/press-release/2020-306.

   [53]    SEC Press Release, General Electric Agrees to Pay $200 Million Penalty for Disclosure Violations (Dec. 9, 2020), available at https://www.sec.gov/news/press-release/2020-312.

   [54]    SEC Press Release, Fiat Chrysler Agrees to Pay $9.5 Million Penalty for Disclosure Violations (Sept. 28, 2020), available at https://www.sec.gov/news/press-release/2020-230.

   [55]    SEC Press Release, SEC Charges Hospitality Company for Failing to Disclose Executive Perks (Sept. 30, 2020), available at https://www.sec.gov/news/press-release/2020-242.

   [56]    SEC Press Release, Pharmaceutical Company and Former Executives Charged with Misleading Financial Disclosures (July 31, 2020), available at https://www.sec.gov/news/press-release/2020-169.

   [57]    SEC Press Release, SEC Charges Hertz’s Former CEO with Aiding and Abetting Company’s Financial Reporting and Disclosure Violations (Aug. 13, 2020), available at https://www.sec.gov/news/press-release/2020-183.

   [58]    SEC Press Release, SEC Charges Charter School Operator and its Former President with Fraudulent Municipal Bond Offering (Sept. 14, 2020), available at https://www.sec.gov/news/press-release/2020-208.

   [59]    SEC Press Release, SEC Charges HP Inc. with Disclosure Violations and Control Failures (Sept. 30, 2020), available at https://www.sec.gov/news/press-release/2020-241.

   [60]    SEC Press Release, Energy Companies Agree to Settle Fraud Charges Stemming from Failed Nuclear Power Plant Expansion (Dec. 2, 2020), available at https://www.sec.gov/news/press-release/2020-301.

   [61]    SEC Press Release, SEC Charges Sequential Brands Group Inc. with Deceiving Investors by Failing to Timely Impair Goodwill (Dec. 11, 2020), available at https://www.sec.gov/news/press-release/2020-315.

   [62]    SEC Press Release, SEC Charges Andeavor for Inadequate Controls Around Authorization of Stock Buyback Plan (Oct. 15, 2020), available at https://www.sec.gov/news/press-release/2020-258.

   [63]     SEC Press Release, SEC Charges Affiliated Advisers for Misrepresentations About Payment for Order Flow Arrangements (Aug. 5, 2020), available at https://www.sec.gov/news/press-release/2020-175.

   [64]     SEC Press Release, Advisory Firm Settles Charges of Defrauding Investors, Agrees to Refund Allegedly Ill-Gotten Gains to Harmed Clients (Aug. 13, 2020), available at https://www.sec.gov/news/press-release/2020-182.

   [65]     SEC Press Release, SEC Charges Investment Advisory Firms and Broker-Dealers in Connection with Sales of Complex Exchange-Traded Products (Nov. 13, 2020), available at https://www.sec.gov/news/press-release/2020-282.

   [66]     SEC Press Release, SEC Charges Unregistered Investment Adviser with Defrauding Puerto Rico Municipality (Dec. 1, 2020), available at https://www.sec.gov/news/press-release/2020-299.

   [67]     SEC Press Release, SEC Orders BlueCrest to Pay $170 Million to Harmed Fund Investors (Dec. 8, 2020), available at https://www.sec.gov/news/press-release/2020-308.

   [68]     SEC Press Release, Global Securities Pricing Service to Pay $8 Million for Compliance Failures (Dec. 9, 2020), available at https://www.sec.gov/news/press-release/2020-310.

   [69]     SEC Litig. Rel. No. 24990, SEC Charges Texas-Based Investment Adviser and Its President for Conducting Fraudulent “Cherry-Picking” Scheme (Dec. 21, 2020), available at https://www.sec.gov/litigation/litreleases/2020/lr24990.htm.

   [70]     SEC Press Release, SEC Charges Interactive Brokers with Repeatedly Failing to File Suspicious Activity Reports (Aug. 10, 2020), available at https://www.sec.gov/news/press-release/2020-178.

   [71]     SEC Press Release, Morgan Stanley Agrees to Pay $5 Million for Reg SHO Violations in Prime Brokerage Swaps Business (Sept. 30, 2020), available at https://www.sec.gov/news/press-release/2020-238.

   [72]     SEC Press Release, J.P. Morgan Securities Admits to Manipulative Trading in U.S. Treasuries (Sept. 29, 2020), available at https://www.sec.gov/news/press-release/2020-233.

   [73]     SEC Press Release, SEC Charges Robinhood Financial with Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution (Dec. 17, 2020), available at https://www.sec.gov/news/press-release/2020-321.

   [74]    SEC Press Release, SEC Charges Ripple and Two Executives with Conducting $1.3 Billion Unregistered Securities Offering (Dec. 22, 2020), available at https://www.sec.gov/news/press-release/2020-338.

   [75]     SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

   [76]    SEC Press Release, SEC Obtains Emergency Asset Freeze, Charges Crypto Fund Manager with Fraud (Dec. 28, 2020), available at https://www.sec.gov/news/press-release/2020-341.

   [77]    SEC Press Release, SEC Announces Office Focused on Innovation and Financial Technology (Dec. 3, 2020), available at https://www.sec.gov/news/press-release/2020-303.

   [78]    SEC Press Release, SEC Charges App Developer for Unregistered Security-Based Swap Transactions (July 13, 2020), available at https://www.sec.gov/news/press-release/2020-153.

   [79]    SEC Press Release, Unregistered ICO Issuer Agrees to Disable Tokens and Pay Penalty for Distribution to Harmed Investors (Sept. 15, 2020), available at https://www.sec.gov/news/press-release/2020-211.

   [80]    SEC Press Release, SEC Charges Issuer and CEO With Misrepresenting Platform Technology in Fraudulent ICO (Aug. 13, 2020), available at https://www.sec.gov/news/press-release/2020-181.

   [81]    SEC Press Release, SEC Charges Film Producer, Rapper, and Others for Participation in Two Fraudulent ICOs (Sept. 11, 2020), available at https://www.sec.gov/news/press-release/2020-207.

   [82]    SEC Press Release, SEC Charges John McAfee With Fraudulently Touting ICOs (Oct. 5, 2020), available at https://www.sec.gov/news/press-release/2020-246.

   [83]     SEC Press Release, SEC Charges Index Manager and Friend With Insider Trading (Sept. 21, 2020), available at https://www.sec.gov/news/press-release/2020-217.

   [84]     SEC Press Release, SEC Charges Amazon Finance Manager and Family With Insider Trading (Sept. 28, 2020), available at https://www.sec.gov/news/press-release/2020-228.

   [85]     SEC v. Peltz, 20-cv-6199 (E.D.N.Y. Dec. 22, 2020), ECF 1.

   [86]    SEC Press Release, SEC Charges Disbarred New York Attorney and Florida Attorney with Scheme to Create False Opinion Letters (Dec. 2, 2020), available at https://www.sec.gov/news/press-release/2020-300.

   [87]     SEC Press Release, SEC Charges CEO and Company With Defrauding First Responders and Others Out of Millions (July 30, 2020), available at https://www.sec.gov/news/press-release/2020-167.

   [88]     SEC Press Release, SEC Charges Former Real Estate Executive With Misappropriating $26 Million in Ponzi Scheme (Sept. 29, 2020), available at https://www.sec.gov/news/press-release/2020-236.

   [89]     SEC Press Release, SEC Charges Unregistered Brokers in Penny Stock Scheme Targeting Seniors (Sept. 29, 2020), available at https://www.sec.gov/news/press-release/2020-234; see also SEC Press Release, SEC Halts Penny Stock Scheme Targeting Seniors (Nov. 27, 2019), available at https://www.sec.gov/news/press-release/2019-245.

   [90]     SEC Press Release, SEC Charges Jewelry Wholesaler with Fraudulent Securities Offering Targeting Current and Retired Police Officers and Firefighters (Dec 30, 2020), available at https://www.sec.gov/news/press-release/2020-343.

   [91]     SEC Press Release, SEC Charges Ponzi Scheme Targeting African Immigrants (Aug. 18, 2020), available at https://www.sec.gov/news/press-release/2020-198.

   [92]     SEC Press Release, SEC Charges Swedish National with Global Scheme Defrauding Retail Investors, Including Deaf Community Members (Sept. 21, 2020), available at https://www.sec.gov/news/press-release/2020-232.

   [93]     SEC Press Release, SEC Charges Company and CEO for $119 Million Securities Fraud Targeting Members of the South Asian American Community (Dec. 21, 2020), available at https://www.sec.gov/news/press-release/2020-329.

   [94]     SEC Press Release, SEC Charges E-Commerce Startup and CEO With Defrauding Investors (Nov. 23, 2020), available at https://www.sec.gov/news/press-release/2020-291.

   [95]     SEC Press Release, SEC Charges Silicon Valley Start-Up and CEO With Defrauding Investors (July 20, 2020), available at https://www.sec.gov/news/press-release/2020-160.

   [96]     SEC Press Release, SEC Charges Trustify Inc. and Founder in $18.5 Million Offering Fraud (July 24, 2020), available at https://www.sec.gov/news/press-release/2020-162.

   [97]     SEC v. Rogas, No. 20-cv-7628 (S.D. Cal. Sept. 24, 2020), ECF No. 21.

   [98]     SEC Press Release, SEC Charges Former CEO of Technology Company With Raising $123 Million in Fraudulent Offerings (Sept. 17, 2020), available at https://www.sec.gov/news/press-release/2020-213.

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The following Gibson Dunn lawyers assisted in the preparation of this client update:  Mark Schonfeld, Barry Goldsmith, Richard Grime, Jeff Steiner, Tina Samanta, Brittany Garmyn, Zoey Goldnick, Rachel Jackson, Jesse Melman, Lauren Myers, Jaclyn Neely, Jason Smith, Mike Ulmer, Timothy Zimmerman, and Marie Zoglo.

Gibson Dunn is one of the nation’s leading law firms in representing companies and individuals who face enforcement investigations by the Securities and Exchange Commission, the Department of Justice, the Commodities Futures Trading Commission, the New York and other state attorneys general and regulators, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange, and federal and state banking regulators.

Our Securities Enforcement Group provides broad and deep expertise.  Our companions embrace the previous Director of the SEC’s New York Regional Workplace, the previous head of FINRA’s Division of Enforcement, the previous United States Attorneys for the Central and Japanese Districts of California, and former Assistant United States Attorneys from federal prosecutors’ places of work in New York, Los Angeles, San Francisco and Washington, D.C., together with the Securities and Commodities Fraud Job Drive.

Securities enforcement investigations are sometimes one facet of an issue going through our shoppers. Our securities enforcement legal professionals work intently with legal professionals from our Securities Regulation and Corporate Governance Group to offer experience concerning parallel company governance, securities regulation, and securities buying and selling points, our Securities Litigation Group, and our White Collar Defense Group.

Gibson Dunn’s legal professionals can be found to help in addressing any questions you’ll have concerning these developments. Please contact the Gibson Dunn lawyer with whom you normally work or any of the next:

Securities Enforcement Apply Group Leaders:
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Richard W. Grime – Washington, D.C. (+1 202-955-8219, [email protected])
Mark K. Schonfeld – New York (+1 212-351-2433, [email protected])

Please additionally be happy to contact any of the next observe group members:

New York
Zainab N. Ahmad (+1 212-351-2609, [email protected])
Matthew L. Biben (+1 212-351-6300, [email protected])
Reed Brodsky (+1 212-351-5334, [email protected])
Joel M. Cohen (+1 212-351-2664, [email protected])
Lee G. Dunst (+1 212-351-3824, [email protected])
Mary Beth Maloney (+1 212-351-2315, [email protected])
Alexander H. Southwell (+1 212-351-3981, [email protected])
Avi Weitzman (+1 212-351-2465, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])
Tina Samanta (+1 212-351-2469, [email protected])

Washington, D.C.
Stephanie L. Brooker (+1 202-887-3502, [email protected])
Daniel P. Chung (+1 202-887-3729, [email protected])
M. Kendall Day (+1 202-955-8220, [email protected])
Jeffrey L. Steiner (+1 202-887-3632, [email protected])
Patrick F. Stokes (+1 202-955-8504, [email protected])
F. Joseph Warin (+1 202-887-3609, [email protected])

San Francisco
Winston Y. Chan (+1 415-393-8362, [email protected])
Thad A. Davis (+1 415-393-8251, [email protected])
Charles J. Stevens (+1 415-393-8391, [email protected])
Michael Li-Ming Wong (+1 415-393-8234, [email protected])

Palo Alto
Michael D. Celio (+1 650-849-5326, [email protected])
Paul J. Collins (+1 650-849-5309, [email protected])
Benjamin B. Wagner (+1 650-849-5395, [email protected])

Denver
Robert C. Blume (+1 303-298-5758, [email protected])
Monica K. Loseman (+1 303-298-5784, [email protected])

Los Angeles
Michael M. Farhang (+1 213-229-7005, [email protected])
Douglas M. Fuchs (+1 213-229-7605, [email protected])
Nicola T. Hanna (+1 213-229-7269, [email protected])
Debra Wong Yang (+1 213-229-7472, [email protected])

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