2016 was a banner year for securities-related litigation. As we noted in our Dec. 6, 2016 edition of GT Insights, SEC enforcement actions increased in 2016 and were the highest in any year based on available data. Also, securities class action lawsuit filings increased in 2016 to the highest level seen since 2001.

While it remains to be seen if 2017 will continue the trend of increased enforcement actions and class action litigation, there are significant issues pending before U.S. courts that may impact actions and decisions in 2017, including:

  • Who can be a whistleblower under Dodd-Frank? There is currently a split between the U.S. Circuit Courts as to the definition of a “whistleblower” under the Dodd-Frank Act. A narrow interpretation requires whistleblowers to bring their tips to the SEC before bringing a whistleblower claim in order to benefit from the protections of Dodd-Frank. The broader interpretation would not require prior reporting to the SEC. Cases are pending in other U.S. Circuit Courts regarding this and similar issues, including whether tips to a governmental agency other than the SEC (such as the FBI) would be sufficient to qualify as a whistleblower claim.
  • Does the statute of limitation on civil penalties apply to the SEC’s efforts to seek disgorgement? Another issue that has produced split decisions in the U.S. Circuit Courts is whether the five-year limit on civil penalties also applies to disgorgement orders. The U.S. Supreme Court will consider the issue in 2017, and the impact could be significant with respect to the SEC’s pursuit of older cases.
  • How will Salman v. U.S. impact insider trading cases? In the wake of the U.S. Supreme Court’s decision in Salman v. U.S., insider trading defendants and the government are using or distinguishing Salman in several pending cases and appeals. 2017 could bring answers to the questions raised by the narrow decision in Salman, such as what constitutes a “close relationship” and when a relationship is sufficient to create a “benefit”.