💰 Blowing the Whistle ... to Short Sellers

Nikola Whistle-Blower Made $600,000 Off Short Sale, Jury Told

A former Nikola Corp. contractor whose allegations of fraud at the electric truck maker helped spur a criminal investigation told a federal jury he made $600,000 off a short seller’s report on the company.

Paul Lackey, an engineer at the electric-drive systems company EVDrive that did contract work for Nikola, was testifying under questioning by the defense in the criminal trial of Nikola founder Trevor Milton. He said he gave short seller Hindenburg Research information in exchange for a share of its profits from shorting the company’s shares.

Florida District Court Permits the SEC to Pay Disgorgement to the US Treasury Where Victims of the Fraud Could not be Identified

Recently, in SEC v. Spartan Securities Group, Ltd, et al., a Florida federal court held that the Securities and Exchange Commission (“SEC”) could seek disgorgement and direct funds to the Treasury because the defrauded victims could not be identified.

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This question was important because some cases do not lend themselves to victim compensation. For instance, it is sometimes difficult if not impossible to identify the victims of insider trading. Assuming the victims are the parties on the opposite sides of the transactions, they may be unidentifiable, especially if the insider trading involves options transactions. Did this mean that disgorgement will be unavailable in insider-trading actions? Or that inability to identify victims will be a valid reason to pay disgorgement funds to the Treasury? These open questions may have been clarified.

Senate Democrats are punting a bill to ban members of Congress from trading stocks to the lame-duck session: ‘It’s not going to happen before the election’

Senate Democrats will not introduce legislation to ban members of Congress from trading stocks until after the November midterm election, according to Democratic Sen. Jeff Merkley of Oregon, a leading proponent of the legislation.

“I’m looking forward to getting this across the finish line, but it’s not going to happen before the election,” Merkley told Insider on Thursday.

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“I feel like we’ve made very large strides towards a consensus bill,” Merkley said during an interview in the US Capitol. “But there are a whole lot of other bills and judicial nominations lined up for the balance of the few days we have left here.”

More Major Justice Dept. News

Corporate compliance officers, drop everything. We have a second speech from the Justice Department about corporate misconduct and compliance programs that needs your immediate attention.

Assistant attorney general Kenneth Polite gave the speech in Texas on Friday. It follows the speech that his boss, deputy attorney general Lisa Monaco, gave one day earlier in New York. Monaco announced several major policy shifts in how the Justice Department will prosecute corporate crime — but Polite’s speech goes into more detail about what the department’s Criminal Division will now want to see for culture of compliance, plus the new policy that chief compliance officers must certify the strength of their compliance programs as part of a corporate settlement.

Perhaps most notably, Polite said the Criminal Division is exploring ways to “shift the burden of corporate financial penalties away from shareholders — who in many cases do not have a role in misconduct — onto those more directly responsible.” He then continued:

"In the coming months, our team will be meeting with, among others, our agency partners and experts on executive compensation, and gathering relevant data points. Based on these inputs, the Criminal Division will then provide further guidance on how prosecutors will consider and reward corporations that develop and apply compensation claw back policies."

Credit Suisse Case Spotlights Who Can Lead Securities Lawsuits

A federal magistrate judge’s rejection of a lead plaintiff bid in a proposed securities class action against Credit Suisse Group AG highlights how courts decide if an investor is right for the role.

The judge found Credit Suisse investor Yasni Jimenez wouldn’t adequately represent a proposed class alleging the bank made false and misleading statements about its practice of lending money to Russian oligarchs. Jimenez, who estimated losing $621, was the only investor who requested to be lead plaintiff.

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Jimenez argued the judge didn’t have the power to reject his request because he was the only candidate for lead plaintiff. The decision highlights other unsettled questions about how judges assess whether an investor should assume the role. It’s unclear how much certain considerations, like the size of losses or attorneys’ fees arrangements, should factor in when no one else is vying for the lead position.

A Primer on DAOs

Thus, it remains unclear whether, how, and to what extent DAOs might displace traditional organizational structures. But they represent an increasingly popular and potentially transformational business idea, rooted in the mindset and methods of modern times—making them worthy of attention as they evolve.

--In this primer on DAOs, we discuss:--The recent growth of DAOs;--How DAOs work;--The advantages and disadvantages of DAOs;--Key legal and regulatory issues that DAOs face;--The Vermont, Wyoming, and Tennessee legislation covering DAOs, and other formats for providing DAOs with legally recognized status;--Related practice points; and--Case histories of some well-known DAOs.

Cracking Down on a Wall Street Trend: E.S.G. Makeovers

It’s the Wall Street version of a truth-in-advertising crackdown, and it’s a focal point for a special E.S.G. enforcement task force set up last year by the Securities and Exchange Commission. The task force is essentially looking for instances of banks and money managers engaging in “greenwashing” — using misleading claims to make their investment funds or strategies appear to be E.S.G.-compliant.

Goldman is among the fund managers the task force is investigating, though it is unclear which of the bank’s funds are drawing scrutiny. A person briefed on the matter said regulators were focused on two of its eight E.S.G. funds in the United States with about $750 million in assets.

The task force has gotten off to a slow start — bringing just two enforcement actions this year. But securities defense lawyers expect the pace to pick up in the coming months.