Commissioner Gallagher Discusses Public Pensions
On May 29th, SEC Commissioner Daniel M. Gallagher discussed the issues facing the municipal securities markets. Gallagher concentrated on the threats posed by underfunded state and local pension plans and called for major disclosure reforms. Gallagher Remarks.
On May 28th, DealBook published Ohio State law professor Steven M. Davidoff’s comments concerning Regulation FD. Davidoff notes the regulation’s shortcomings and suggests it is time for the SEC to revisit it. Regulatory Shortcomings.
Structured Notes Oversight
On May 27th, Risk.net summarized the recent remarks of Reid Muoio, head of the SEC’s complex financial instruments unit, concerning that unit’s oversight of registered structured notes. Oversight.
Resource Extractor Disclosure
On May 27th, the Houston Chronicle reported the SEC hopes to propose new resource extractor disclosure rules in March 2015. Resource Extractors.
Enforcement Division Co-Director Discusses Admissions Policy and Compliance
On May 20th, SEC Division of Enforcement Co-Director Andrew Ceresney discussed the enforcement cases in which the agency sought admissions. He noted that in one case, the defendants were regulated entities who had engaged in egregious and fraudulent conduct which harmed numerous clients. In another instance, the company’s woefully deficient controls created a significant risk to investors. Admissions were also obtained when the company produced inaccurate data over an extended period of time which impeded the SEC’s ability to investigate misconduct and protect investors. For similar reasons an admission was sought in a tender offer matter. Addressing the role of legal and compliance offices, Ceresney stated that the Division will bring actions against legal and compliance officers when it believes legal or compliance personnel have affirmatively participated in misconduct, helped mislead regulators, or when they have clear responsibility to implement compliance programs or policies and wholly failed to carry out that responsibility. Ceresney Remarks.
Chair White Discusses Individual Liability Under Section 20(b) of the Exchange Act
On May 19th, SEC Chair Mary Jo White addressed the City Bar Association’s Third Annual White Collar Crime Institute. White discussed three enforcement pressure points she has observed as SEC Chair: (1) the pressure of multiple regulators in the same or overlapping investigations; (2) the decision to charge individuals, entities, or both; and (3) the range of remedies and ultimate resolutions. Focusing on the second issue, White sought to dispel any notion that the SEC does not charge individuals often enough or that it will settle with entities in lieu of charging individuals. One new approach to charging individuals is to use Section 20(b) of the Securities Exchange Act. Section 20(b) imposes primary liability on a person who, directly or indirectly, does anything “by means of any other person” that would be unlawful for that person to do on his or her own. This is analogous in the criminal context to 18 U.S.C. Section 2(b), which provides for criminal liability as a principal for anyone who “willfully causes an act to be done which if directly performed by him or another would be” a criminal violation. The agency will focus on Section 20(b) charges where individuals have engaged in unlawful activity but attempted to insulate themselves from liability by avoiding direct communication with the defrauded investors. White notes: “It is potentially a very powerful tool that can reach those who have participated in disseminating false or misleading information to investors through offering materials, stock promotional materials, or earnings call transcripts, but who might not be liable under Rule 10b-5(b) following the Supreme Court’s decision in Janus Capital Group, Inc. v. First Derivative Traders because they may not be the ‘maker’ of the statement.” White additionally noted that Section 20(b) provides primary liability and could be employed where aiding and abetting or controlling person theories may fall short because there is no underlying violation by someone else, such as, for example, when the other person who publicly makes the misleading statements lacks knowledge that they were misleading. White Remarks. On May 27th, Wayne State law professor Peter J. Henning, writing for DealBook, discussed possible scenarios in which the SEC could use Securities Exchange Act Section 20(b). Scenarios.
Commissioner Stein Discusses the Role of Lawyers
On May 19th, Commissioner Kara M. Stein discussed the role of gatekeepers, asking whether the SEC has been treating lawyers differently from other gatekeepers, such as accountants. Stein Remarks. On May 21st, Reuters reported that both Stein and fellow Commissioner Daniel Gallagher have called for greater clarity on when lawyers and Chief Compliance Officers might face failure to supervise charges. Clarifications.