As noted in a prior post, on June 22, 2020, the U.S. Supreme Court entered its opinion in Liu v. SEC, in which the Court addressed a number of questions surrounding the SEC’s authority to seek disgorgement. In the following guest post, Stephen Cutler, Michael Osnato, Meaghan Kelly and M Moore of the Simpson Thacher law firm take a closer look at the Court’s opinion and consider its implications. I would like to thank the authors for allowing me to publish their 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 the authors’ article.
Continue Reading Guest Post: Supreme Court Affirms SEC’s Disgorgement Remedy, but Places Limits on Its Use

According to a new report from Cornerstone Research, the number of accounting and auditing enforcement actions the SEC initiated in 2019 was down slightly from the number initiated in 2018, but the number remained near the 2014-2018 average. Monetary settlements of accounting and auditing enforcement actions during 2019 totaled approximately $626 million.  The June 25, 2020 report, which also summarizes accounting and auditing enforcement activity initiated by the PCAOB, is entitled “Accounting and Auditing Enforcement Activity – 2019 Review and Analysis” and can be found here. Cornerstone Research’s June 25, 2020 press release about the report can be found here.
Continue Reading SEC Accounting and Auditing Enforcement Actions Down Slightly in 2019

David Topol

In its June 2017 decision in Kokesh v. SEC (discussed here), the U.S. Supreme Court held that disgorgement in an SEC enforcement action represents a “penalty,” and therefore a SEC enforcement action claim for disgorgement is subject to a five-year statute of limitation. The Court emphasized that it was only deciding the statute of limitations issue, and was emphatically not reaching the larger issue of whether the SEC has the proper authority to order disgorgement in enforcement proceeding. As discussed here, last November, in the case of Liu v. SEC, the U.S. Supreme Court agreed to take up the  larger issue to determine whether or not the SEC may seek may seek and obtain disgorgement as “equitable relief” for a securities law violation. On June 22, 2020, the Supreme Court issues its opinion in the Liu case. As discussed below in a guest post written by David Topol of the Wiley law firm, the court has ruled that the SEC may collect disgorgements as “equitable relief,” subject to important constraint. I would like to thank David for allowing 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 David’s article.
Continue Reading Guest Post: Liu v. SEC: What Is “Disgorgement”?

In a June 4, 2020 press release (here), the SEC announced that it had granted an individual a $50 million whistleblower award, the largest ever award to a single individual. While there had been a prior $50 million award that two individuals shared, the largest prior award to a single individual was a 2018 award of $39 million.
Continue Reading SEC Grants Largest Ever Individual Whistleblower Award

The SEC has made it clear that it will be monitoring market activity related to the coronavirus outbreak. The agency’s Chairman and others have declared that they expect companies to be forthcoming about the impact of the pandemic on company operations and finances, and underscored the fact that the agency will be watching. On April 24, 2020, the agency announced that it had formed a COVID-19 market monitoring group. And on April 28, 2020, the agency brought what as far as I know is its first coronavirus outbreak-related enforcement action, when it filed an action against a penny stock company Praxsyn Corporation and its CEO for public claims about the company’s claims about its ability to acquire and distribute N95 face masks. A copy of the SEC’s complaint can be found here. The SEC’s April 28, 2020 press release about the enforcement action can be found here.
Continue Reading SEC Files First COVID-19 Related Enforcement Action

Neil J. Cohen

One of the hot topics in securities regulation and enforcement has been the question of what position the SEC will take with respect to cryptocurrencies. In the following guest post written in the form of a one-scene play, Neil J. Cohen, a lawyer and publisher of the Securities Reform Act Litigation Reporter, imagines a fictional conversation involving an SEC official discussing cryptocurrencies. I would like to thank Neil for submitting his play to be a guest post on this site – this is the first play that has appeared 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 Neil’s play.
Continue Reading Guest Post: Fictional SEC Official Discusses Crypto Off-the-Record  

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

The number of SEC enforcement actions against public companies and their subsidiaries declined in the first half of FY 2018 compared to the comparable year prior period, continuing a sharp downward trend that began in the second half of FY 2017 and falling to the lowest level in years, according to a new report from Cornerstone Research, written in collaboration with the NYU Pollack Center for Law & Business. Monetary settlements during the first half of fiscal 2018 also fell to their lowest level in years. The report, entitled “SEC Enforcement Activity: Public Companies and Subsidiaries, Midyear FY 2018 Update” (here), reports on SEC enforcement activity involving public companies and their subsidiaries for the first half of fiscal 2018, which ended March 31, 2018. Cornerstone Report’s May 15, 2018 press release about the report can be found here.
Continue Reading SEC Public Company Enforcement Action Continue Steep Decline in First Half FY 2018