1. SEC Announces First Deferred Prosecution Agreement with Individual

On November 12, the Securities and Exchange Commission announced a deferred prosecution agreement with former hedge fund administrator, Scott Herkis. Herkis’ voluntary cooperation aided the SEC in filing an enforcement action against Heppelwhite Fund LP manager Berton M. Hochfeld for misappropriating over $1.5 million. The terms of the agreement state that Herckis aided and abetted Hochfeld’s securities law violations and among other prohibitions must not provide any services to any hedge fund for five years and must disgorge the approximately $50,000 in fees he received for serving as Hochfeld’s fund administrator.  The SEC press release can be found here.

  1. SEC Hints at Transition to New COSO Framework

In a recent meeting with the Center for Audit Quality’s SEC Regulations Committee, SEC staff maintained it would defer to COSO’s decision to supersede the 1992 framework with the newest model after December 15, 2014. COSO’s Internal Control — Integrated Framework has been relied on by public companies as means of ensuring compliance with internal control reporting requirements under Sarbanes-Oxley. While the SEC has yet to formally require companies transition to the 2013 framework, COSO’s board has determined that the previous framework will essentially cease to exist after the 2014 transition date. The new framework was released in May 2013 providing ample time and a strong incentive for companies to upgrade.

  1. FINRA Announces Settlements with Two Broker-Dealer Firms

TD Ameritrade Clearing Inc. settled allegations that it failed to report or accurately report large trader positions for $1.15 million. SG Americas Securities LLC settled similar allegations for $675,000. While the settlements were announced on November 6, the settlements became final on Oct 24th and 21st respectively. Neither entity admitted or denied the allegations in their settlement agreements.

  1. After Twenty-Five Years SCOTUS Revists “Fraud on the Market”

The Supreme Court has granted a petition for certiorari in Halliburton Co. v. Erica P. John Fund., Inc. By doing so it will revisit the Basic v. Levinson presumption that reliance on allegedly misleading statements can be presumed where violations of Section 10(b) and SEC Rule 10b-5 were asserted. Without this presumption, shareholders would be forced to prove actual reliance on a misrepresentation making Section 10(b) class action suits exceedingly difficult to pursue. The Court in the Halliburton case will consider the following questions:

  1. Whether it should overrule or modify the Basic holding to the extent it recognizes a presumption of reliance drawn from the fraud on the market theory.
  2. Whether defendant my rebut the presumption and prevent class certification by introducing evidence that the alleged misrepresentation did not distort the market price of its stock.

Law clerk Emi Briggs co-authored this article.