Fourth Circuit Preserves SEC's Data-Based Insider Trading Cases

SEC Targets Lose Defense to Data-Based Insider Trading Probes

An appeals court decision reviving an SEC insider trading case short-circuits what targets of agency probes based on data analysis and other circumstantial evidence hoped was a strike against such moves.

A Virginia federal district court had abruptly ended the trial of Christopher Clark, a mortgage broker accused of trading on illicit tips ahead of Gartner Inc.’s 2017 acquisition of CEB Inc. The court said the US Securities and Exchange Commission’s case was based on too much speculation.

The US Court of Appeals for the Fourth Circuit reversed that decision in a precedential ruling and said a jury should’ve decided the case.

Why Would the SEC Want to Read Your Personal Texts?

The SEC, however, can’t “investigate” this issue by examining companies’ records—companies have no records of these communications. So the agency is demanding, directly or indirectly, that the firms’ employees have their personal devices scoured for such records. Inevitably, though, some of those devices have very sensitive personal information that no one would want exposed to scrutiny—by their lawyers or anyone else—and the public has no inherent need to learn….

***

Again, the question presents itself: Shouldn’t these employees have some right to privacy?

How important is this investigation anyway, other than as a publicity and fundraising endeavor? Are texts on WeChat or WhatsApp more like written communications or oral discussions—telephonic or otherwise—for which there is no requirement of retention? Even if they are, technically, the equivalent of written communications, how important is the issue? It’s one thing when an investigation involves two firms and communications are produced by one firm pursuant to a subpoena but not by the other. Then, there may be a reasonable basis to look at the processes and procedures at the nondisclosing firm. But in the ordinary course, is it worth a separate investigation and the inevitable invasions of personal privacy? Again, doesn’t the SEC have more important fish to fry?

DOJ Getting Tougher with Companies on Messaging App EvidenceThe Justice Department will dig into the ability of companies to produce employee communications on encrypted messaging apps like Signal and WhatsApp as part of criminal probes.“During the investigation if a company has not produced communications from those third-party messaging applications, our prosecutors will not accept that representation purely at face value,” department Criminal Division chief Kenneth Polite said Friday in announcing a new policy.Prosecutors will interrogate the ability of companies to access employee chats, including whether they’re stored on corporate devices or servers, Polite said at an American Bar Association conference in Miami. They will also consider how companies convey their messaging policies to employees and whether those policies are actually enforced.

Grayscale and SEC Face Off in Court With a 46% Discount at StakeThe crypto world’s eyes will once again turn to Washington on Tuesday as oral arguments begin in Grayscale Investments’s lawsuit against the US Securities and Exchange Commission.

The drama centers on the $14.8 billion Grayscale Bitcoin Trust (ticker GBTC), which has for two years been trading at a steep discount to the cryptocurrency it holds. That dislocation has been a point of pain for a beleaguered industry: it’s punished long-term holders, and at times sparked a wave of distress among leveraged investors who piled into the trust to exploit a once-widely used trade.

Texts From Crypto Giant Binance Reveal Plan to Elude U.S. Authorities

Worried about the threat of prosecution, Binance set out on a plan to neutralize U.S. authorities, according to messages and documents from 2018 to 2020 reviewed by The Wall Street Journal as well as interviews with former employees.

The strategy centered on building a bare-bones American platform, Binance.US, that would license Binance’s technology and brand but otherwise appear to be wholly independent of Binance.com. It would shield from U.S. regulators’ scrutiny the larger Binance.com exchange, which would exclude U.S. users.

But Binance and Binance.US have been much more intertwined than the companies have disclosed, mixing staff and finances and sharing an affiliated entity that bought and sold cryptocurrencies, according to the interviews and the messages and documents reviewed by the Journal. Binance developers in China maintained the software code supporting Binance.US users’ digital wallets, potentially giving Binance access to U.S. customer data.

Effort to Ban Stock Trading Among Executive Branch Officials Renewed

Sen. Josh Hawley (R., Mo.) is expected to introduce legislation Monday that would ban senior executive branch officials from owning or trading individual stocks, a push to toughen restrictions on conflicts of interest in the federal government.

Mr. Hawley’s bill is the latest fallout from a Wall Street Journal series that identified a sweeping pattern of financial conflicts across the executive branch, including finding that more than 2,600 officials invested in companies overseen by their agencies.

“Senior members of the executive branch—who have access to privileged information—shouldn’t be using it to get rich,” Mr. Hawley said. “While prohibitions already exist in federal law to prevent conflicts of interest, these laws are difficult to enforce and frankly, insufficient.”