It is a point I have made before but it is worth saying again – private companies are not immune from scrutiny under the federal securities laws. In a series of recent enforcement actions – most notably the SEC’s March 2018 enforcement action against Theranos and two of its executives – the SEC has made of point of emphasizing that its regulatory reach extends to private companies. Last week, the SEC announced the resolution of another enforcement action against private company executives. The latest action, involving a failed Silicon Valley start-up, underscores the SEC’s readiness to pursue securities law violations by private company executives.
Continue Reading Say It Again: Private Companies Are Subject to the Federal Securities Laws

In its 2011 decision in the Janus Group case, the U.S. Supreme Court held that one who does not “make” a false statement cannot be held liable under section (b) of Rule 10b-5. In an enforcement action brought against him by the SEC, the defendant, Francis Lorenzo, argued that under the Janus case, he could not be held liable under the securities laws for forwarding a misleading email his boss had written because he did not “make” the false statement. The case ultimately made its way to the U.S. Supreme Court. On March 27, 2019, the Court found that even if Lorenzo could not be held liable under section (b) of the Rule because he did not “make” the statement, he could still be held liable under the scheme liability provisions in sections (a) and (c) of the Rule for disseminating the  document. The Court’s March 27, 2019 opinion in Lorenzo v. Securities and Exchange Commission can be found here.
Continue Reading Supreme Court: Even One Who Did Not “Make” a False Statement May Still be Subject to Scheme Liability

Although it is not always appreciated or taken into account, the fact is that executives of private companies can be held liable for statements or other actions made in violation of the federal securities laws. One very recent and high-profile example where this happened involved the SEC enforcement action (and subsequent criminal proceedings) involving the high-profile medical testing company Theranos. Recent SEC and Department of Justice actions involving an Indiana-based company underscores the fact that private companies can draw the attention of federal securities regulator, and that it is not just high profile Silicon Valley firms that are potentially at risk.
Continue Reading Just a Reminder: Private Company Executives Can Be Held Liable Under the Federal Securities Laws

John Reed Stark

Among the agencies largely closed by the current partial U.S. federal government shutdown is the U.S. Securities and Exchange Commission (SEC). In the following guest post,  John Reed Stark, President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, takes a look at what the SEC’s closure means for the processes and responsibilities that constitute the agency’s watch. Stark calls on the country’s political leaders to end the stalemate and re-open the government, including the SEC. Every day the shutdown continues, and the SEC staff remain at home, Stark says, the risks to U.S. markets increase. A version of this article originally appeared on Securities Docket. I would like to thank John for allowing me to publish his article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is John’s article.
Continue Reading Guest Post: Why the Shutdown Must End

As I noted at the time (here), on December 19, 2018, Delaware Vice Chancellor Later held that under Delaware law, a corporate charter provision specifying that liability actions under Section 11 of the Securities Act of 1934 must be brought in federal court are invalid and ineffective. A copy of Laster’s opinion in Sciabacucchi v. Salzburg (referred to below as the Blue Apron decision) can be found here. In the following guest post, Paul Ferrillo, Robert Horowitz, and Steven Margolin of the Greenberg Traurig law firm take a look at the Blue Apron decision and examine whether or not Congress will act to eliminate concurrent state court jurisdiction for state court claims. The authors also examine the steps companies should take now in light of the possibility of facing litigation in both state and federal court. I would like to thank the authors for their willingness to allow me to publish their article as a guest post. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit an article. Here is the authors’ article.
Continue Reading Guest Post: Section 11 Claims May Remain in State Court; How Will Companies and D&O Carriers Respond?

John Reed Stark

On November 29, 2018, the SEC announced that it had settled charges with boxer Floyd Mayweather Jr. and music producer DJ Khaled for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs). In the following guest post, John Reed Stark, the President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, takes a look at the SEC’s actions against Mayweather and Khaled and identifies some important takeaways from the SEC’s orders. I would like to thank John for his willingness to allow me to publish his article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is John’s article.
Continue Reading Guest Post: Five Hidden Takeaways from the Khaled and Mayweather SEC Orders

John Reed Stark

Most readers are undoubtedly familiar with the concept of “insider trading” – that is, the purchase or sale by company insiders of their personal holdings in company shares based on material non-public information. Readers may be less familiar with “outsider trading,” which is trading in shares of a company on the basis on material non-public information by individuals who do not qualify as insiders. In the following guest post, John Reed Stark, President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, takes a look at the SEC’s track record in this area and calls for the agency to reinforce its efforts to police outsider trading. A version of this article previously appeared on Securities Docket. I would like to thank John for his willingness to allow me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is John’s article.
Continue Reading Guest Post: The SEC’s Outsider Trading Program: The Silence is Deafening

Since it first enacted the Jumpstart Our Business Startups (JOBS) Act in 2012, Congress has continued to modify the original JOBS Act as part of an ongoing effort to try to boost small businesses and business startups. For example, in 2015, Congress acted to expand a number of the JOBS Act’s provisions. On July 17, 2018, the U.S. House of Representatives passed what has been referred to as the JOBS Act 3.0. By a vote of 406-4, the House passed the JOBS and Investor Confidence Act of 2018, which is designed to further encourage capital formation and market access for small business enterprises. The House Financial Services Committee’s July 17, 2018 statement about the legislation can be found here.
Continue Reading House Passes JOBS Act 3.0

In a June 21, 2018 decision, the U.S. Supreme Court held that the SEC’s administrative law judges (ALJs) are not merely “employees” but rather are “officers” who must be appointed to their position by the “Heads of Departments” under the Constitution’s Appointments Clause. The Court’s decision at one level represents a rather straightforward application of the Court’s existing case law regarding ALJs. However, the decision raises a number of troublesome issues for the SEC, and leaves a number of other important questions unanswered. The decision also raises a number of questions for other agencies as well.  The ultimate questions in the wake of Lucia v. Securities and Exchange Commission may be whether and to what extent the SEC (and even perhaps other agencies) will continue to use administrative processes to pursue enforcement action. The Court’s opinion in the case can be found here.
Continue Reading Supreme Court’s SEC ALJ Decision Leaves Many Unanswered Questions

In a long line of cases, the U.S Supreme Court has grappled with the question of who can be held liable under the federal securities laws for fraudulent misrepresentations. Most recently, in the Janus Funds case, the Court has said that only a “maker” of a misrepresentation can be held liable in a private securities lawsuit. On June 18, 2018, the U.S. Supreme Court granted a writ of certiorari to examine whether a person who did not “make” a misrepresentation can nevertheless be held liable under the securities laws on a theory of scheme liability.

The case involves an SEC enforcement action in which the defendant, Francis Lorenzo, sent prospective investors emails at the direction of his boss and with content that he had not created. Lorenzo’s actions were held insufficient to support fraudulent statement liability because he did not “make” the misrepresentations, but Lorenzo nevertheless was held liable for the misrepresentations on a scheme liability theory. The case presents an interesting opportunity for the Court to consider the requirements to establish scheme liability and in particular to determine whether a financial misrepresentation alone is sufficient to support a scheme liability claim. The Supreme Court’s June 18, 2018 order granting the writ of certiorari can be found here.
Continue Reading Supreme Court Grants Cert in Scheme Liability Case