Welcome to the 2016 Year-End Report from the BakerHostetler Securities Litigation and Regulatory Enforcement Practice Team.
The purpose of this Report is to provide a periodic survey, apart from our team Executive Alerts, on matters we believe to be of interest to sophisticated general counsel, chief compliance officers, compliance departments, legal departments, and members of the securities and commodities industries at financial institutions, private investment funds, and public companies.
We issue this Securities Litigation and Enforcement Highlights Report at mid-year and shortly after year-end. We hope you find the information and commentary useful and welcome your comments and suggestions. We encourage you to contact any of the practice team members listed at the end of the Report.
This Report highlights recent, significant developments, including, but not limited to:
- Supreme Court Cases, including clarifying the meaning of “personal gain” in the insider trading context; declining to stay the United States Securities and Exchange Commission’s (“SEC”) enforcement action despite constitutional challenge to the use of in-house courts; the Circuit split on whether the SEC’s use of its in-house courts is constitutional; and the potential to determine the scope of Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) preemption;
- Securities Law Cases, including the endorsement of “price maintenance” theory; finding rebuttal of the fraud-on-the-market presumption if investor would have purchased securities even while knowing of alleged fraudulent misstatements; the acceptance of the materialization-of-risk standard for loss causation; finding class action tolling doctrine does not apply to statutes of repose and extension of IndyMac ruling to the Securities Exchange Act of 1934 (“Exchange Act”); and applying the disgorgement provision of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) based on the issuer’s misconduct, even if corporate officers did not engage in personal misconduct;
- Insider Trading Cases, including the continued post-Newman and Salman impact; the role of data analytics in increasing insider trading charges; highlighting the SEC’s commitment to pursuing insider trading charges derived from pre-merger trades; and other recent, noteworthy insider trading cases;
- Settlements, including historic settlements with financial institutions stemming from litigation derived from the financial crises and the SEC’s strong enforcement trend with respect to the critical importance of corporate oversight;
- Investment Adviser and Hedge Fund Cases, including the SEC’s adoption of new reporting rules for investment advisers; the SEC’s imposition of penalties on investment advisory firms for advertising false performance; and the first Foreign Corrupt Practices Act (“FCPA”) charges against a hedge fund;
- SEC Cooperation and Whistleblower Programs, including emphasizing the benefits of cooperation and rewarding remediation and self-reporting; issuing millions of dollars of awards and sanctioning companies for violating the Whistleblower Protection Rule through restrictive severance agreements and retaliatory actions; and conducting a sweep examination of registered investment advisers and broker-dealers to assess their compliance with the whistleblower rules of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”);
- Commodities and Futures Regulation and Cases, including numerous actions focusing on spoofing, benchmark rigging, anti-fraud enforcement and compliance with regulatory requirements; and the resignation of the current CFTC Chairman; and
- Securities Policy and Regulatory Developments, including the SEC’s proposal of: (i) amendments to disclosure requirements as part of disclosure effectiveness review; (ii) rules to enhance order handling information available to investors; (iii) rule amendment to expedite the process for settling securities transactions; and (iv) universal proxy rule in contested director elections; the SEC’s adoption of: (i) rules to enhance information reported by investment advisers; and (ii) new rules for intrastate and regional securities offerings; the Department of Labor’s fiduciary rule; and the SEC’s approval of the Financial Industry Regulatory Authority’s (“FINRA’s”) pay-to-play rule.
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