Fifth Circuit Denies Rehearing in Case Finding SEC Administrative Proceedings Unconstitutional

SEC Loses Bid for Review of Ruling on Constitutionality of ALJs

The US Court of Appeals for the Fifth Circuit on Friday declined to reconsider its ruling that the Securities and Exchange Commission’s administrative hearings are unconstitutional.

SEC Charges Mattel with Financial Misstatements and Former PwC Audit Partner with Improper Professional Conduct

The Securities and Exchange Commission today announced that California-based Mattel Inc. has agreed to pay $3.5 million to settle charges relating to misstatements in its third and fourth quarter 2017 financial statements. Separately, the SEC is initiating litigation against Joshua Abrahams, a former audit partner at PricewaterhouseCoopers LLP, or PwC, to determine whether he engaged in improper professional conduct and violated auditor independence rules.

According to the SEC’s order, Mattel understated the tax-related valuation allowance for the third quarter of 2017 by $109 million and overstated the tax expense for the fourth quarter of 2017 by the same amount. As a result, Mattel’s third quarter and fourth quarter 2017 net loss and net loss per share were understated by 15% and overstated by 63%, respectively. In addition, the SEC’s order finds that, at the time, Mattel had no internal control specifically related to calculating a valuation allowance. As explained in the order, until Mattel’s November 2019 restatement, the $109 million tax expense error remained uncorrected, and the lack of internal control for financial reporting related to the error remained undisclosed. As alleged, neither Mattel’s CEO nor audit committee was informed of the $109 million error.

Private Equity Scrambles to Comply With SEC Marketing Rule as Deadline NearsPrivate-equity firms are racing to adapt to new rules about marketing funds to prospective investors, anticipating a sweep by regulators to check compliance when the directive takes effect next month.

The Securities and Exchange Commission’s marketing rule—430 pages of instructions intended to prevent investment advisers from misleading clients—is set to take effect Nov. 4, nearly two years after it was issued.

Although they have had nearly two years to get on board, many investment firms have begun taking steps related to the rule only recently, putting them at risk of not being in compliance when it takes effect, people who work with firms on regulatory compliance said.

Crypto Is More Attractive as SEC Gets Aggressive, Investors Say

A crackdown by the US Securities and Exchange Commission and other watchdogs who have been investigating crypto’s naughtiest companies is proving to be a boon for the industry, with market participants saying they’re more likely to invest in the space following greater enforcement action.

Almost 60% of the 564 respondents to the latest MLIV Pulse survey indicated they viewed the recent spate of legal action in crypto as a positive sign for the asset class, whose trademark volatility has all but dissipated in recent months. Major interventions include the US regulatory investigations of bankrupt crypto firms Three Arrows Capital and Celsius Network, as well as an SEC probe into Yuga Labs, the creators of the Bored Ape collection of nonfungible tokens, or NFTs.

OpenSea NFT Ex-Employee Must Face Insider Trading Charges

But the judge rejected Chastain’s contention about the limits of the wire fraud law, because he isn’t accused of insider trading “in the classic sense of the term” and isn’t charged with securities fraud. Furman cited a Supreme Court case upholding the wire fraud conviction of a Wall Street Journal columnist who was found guilty of sharing details of upcoming columns with traders, saying that the court found that the publication and contents of the column were “property” in the meaning of the law.

“No court has suggested, let alone held, that conviction in such a case requires trading in securities or commodities,” Furman said, adding in a footnote that the term “insider trading” may be misleading and that the appropriate solution may be to strike the phrase from the indictment.

Where’s Ooki? CFTC’s Lawsuit Delivery Via Chatbox Raises Eyebrows

Judge William Orrick in the US District Court for the Northern District of California will hold a hearing next month to reconsider his decision to allow the Commodity Futures Trading Commission to serve Ooki DAO, a “decentralized autonomous organization,” and its members with notice of the lawsuit by posting a copy of the complaint in an online help box and chat forum.

Ooki DAO—which, like other DAOs, allows its cryptocurrency members to make collective decisions—has no central, identifiable management. It also has no headquarters or mailing address, posing serious hurdles to serving the lawsuit, the CFTC says.

Posting the complaint in a chatbox falls short of the Constitution’s requirement that a person be notified of a case against them, crypto advocates say.