Is Jarkesy of "Limited Significance" to SEC Enforcement?

Big Deal / Little Deal: Why the U.S. Supreme Court’s Loper Bright Opinion Is a Gamechanger While Its Jarkesy Opinion Is Insignificant in Comparison

The final week of June was a big one for those who have been following what seems to be a constriction of federal agency power under Chief Justice Roberts. A decision in Securities and Exchange Commission v. Jarkesy came on Thursday, June 27 followed by the Court’s decision in Loper Bright Enterprises v. Raimondo just the day after, on Friday, June 28. Our biggest takeaway? Pay attention to both. It is clear after these—and 2022’s West Virginia v. EPA and July 1’s Corner Post v. Board of Governors of the Federal Reserve—that power is being rebalanced, by this Court, away from federal agencies. But the second part of the takeaway? Understand that Loper Bright is a huge development while Jarkesy was a very good outcome for the SEC.

We tackle Jarkesy first. You probably have seen numerous headlines commenting on the decision along the lines of “the Court strips federal agency of enforcement power,” “SEC in-house courts determined unconstitutional,” or yet more over-the-top, “critical enforcement tool snatched from SEC.” Do not be fooled; these headlines are clickbait….

SEC blasts Pfizer’s bid for $75 million from insider trading victims’ fund

Pfizer first pitched that argument to the SEC in 2014 but agreed to wait to press its case until all of the injured Wyeth and Elan investors were made whole. Last May, after the SEC informed Marrero that $75 million remained in the fund after investors had been repaid in full, the company told the judge, opens new tab why it believes it is entitled to the leftover funds.

The gist of its argument: Because Wyeth was actually victimized by the misappropriation of its confidential data, its parent, Pfizer, is a more deserving recipient than the U.S. Treasury. (Elan, which sought restitution via the criminal case against SAC and related funds, reached a settlement with the funds and has not pressed for a share of the SEC settlement money.)

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The SEC fired back at Pfizer in a brief, opens new tab filed on Monday. The agency’s primary argument: Pfizer hasn’t demonstrated any measurable loss from the theft of Wyeth’s confidential information so it’s not entitled to recover money from the victims’ fund.

Former FTX Execs Nishad Singh, Gary Wang to Be Sentenced Later This Year

Two former senior FTX executives who pleaded guilty to criminal charges and played a role in their boss Sam Bankman-Fried’s conviction will be sentenced later this year.

Former Director of Engineering Nishad Singh and former Chief Technology Officer Gary Wang will learn their fates on Oct. 30 and Nov. 20, respectively.

Medical Device Company Hit with SPAC-Related Securities Lawsuit

In my recent review of the 1H24 securities class action litigation filings (here), I noted that SPAC-related securities suits were less of a factor in the overall number of suit filings during the year’s first six months than they had been in recent years. However, even though the peak of the SPAC frenzy was several years ago now, SPAC-related securities suits are continuing to be filed. The latest example is the SPAC-related securities suit filed late last week against SeaStar Medical Holding Corporation, which is the product of a 2022 SPAC merger. The new lawsuit has several interesting features, as discussed below. A copy of the July 5, 2024, complaint in the lawsuit can be found here.

Inside the Harvard Business School Ponzi Scheme

The idea sounded solid on the surface. Vlad Artamonov told prospective investors, many of them his former classmates from Harvard Business School, that he’d discovered a hidden way to learn which stocks Warren Buffett was buying early, an edge that would make him a lot of money. It involved, he said, combing through esoteric state financial disclosures and then trading on the information — essentially, a way to obtain insider tips legally. “Have an insane idea,” he told one investor in the fall of 2022. But it seemed plausible coming from Artamonov, who, in addition to his Ivy League credentials, had spent more than five years at Greenlight Capital, the highly regarded activist hedge fund run by David Einhorn, a self-described admirer of Buffett. He told investors he aimed for returns of as much as 1,000 percent and wanted to make “hundreds of millions of dollars” on the play. “It is really a ridiculous information arbitrage,” he told another investor that fall. “Basically getting tomorrow’s newspaper today. Literally having a private time machine.”

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As the months passed, the friend reached out to someone he knew who had also invested with Artamonov and voiced what seemed like a crazy, irrational fear. “There’s no way Vlad would be running a Ponzi scheme, right?” he asked….

Dark Accounting Matter

Physicists calculate that approximately 85% of the matter in the universe is composed of “dark matter” that “does not absorb, reflect, or emit electromagnetic radiation and is therefore difficult to detect.” The S&P 500 currently trades at a price to book value of 4.2, suggesting that book value accounts for less than 20% of the S&P 500’s market value. The remaining 80%, appears nowhere in these firms’ balance sheets—it is invisible to contemporary accounting techniques and constitutes “dark accounting matter.”

In a recent article, I explain that dark accounting matter has become a significant limitation on the relevance of financials reported under Generally Accepted Accounting Principles (GAAP). Notably, as I explain, some “dark accounting matter” is composed of factors commonly described as components of “ESG.” ….

Freeze on Humanigen Director’s Assets Affirmed in Insider Case

Dale Chappell, a Humanigen Inc. board member, is properly subject to an asset freeze in an SEC case alleging he avoided $38 million in losses through insider trading, the Third Circuit ruled Tuesday.

Chappell, who is also the drugmaker’s chief scientific officer, will be allowed the equivalent of his Humanigen salary—$5,637.50 every two weeks—as a carveout from the asset freeze, along with money for legal fees and other specified family expenses, according to the court. The Swiss resident, who allegedly traded on information related to a prospective Covid-19 treatment, “certainly will not be living like a pauper….”