"Keeping Up with Federal Securities Laws"

SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security

The Securities and Exchange Commission today announced charges against Kim Kardashian for touting on social media a crypto asset security offered and sold by EthereumMax without disclosing the payment she received for the promotion. Kardashian agreed to settle the charges, pay $1.26 million in penalties, disgorgement, and interest, and cooperate with the Commission’s ongoing investigation.

The SEC’s order finds that Kardashian failed to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax. Kardashian’s post contained a link to the EthereumMax website, which provided instructions for potential investors to purchase EMAX tokens.

Will SEC Defense Work Now Ramp Up? White-Collar Litigators on Alert

Kornblau, at Dentons, noted that when markets are down, it often leads to more investigations, private shareholder actions and SEC enforcement.

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Kornblau said until now, enforcement had not gone up in the “blockbuster way” that many were expecting since the beginning of the Biden administration.

He added there was a lot of work to go around now and he would not be surprised if most securities litigation-focused practices would be busy—and increasingly so. He said how firms are preparing for such a spike in demand would depend on their client bases and current bench, but many would likely be looking for fresh SEC enforcement talent to add to their roster.

SEC Charges Two Canadian Software Engineers with Insider Trading

The Securities and Exchange Commission today announced insider trading charges against two Canadian software engineers who made $1.6 million by trading ahead of non-public, market-moving financial information.

According to the SEC’s complaint, from at least May 2018 to July 2021, Harpreet Saini and John Lester Mandac Natividad, both of Ontario, were employed by a newswire distribution company specializing in corporate press releases, and had access to its internal press release distribution system that allowed them to preview headlines, times, and publication dates of forthcoming announcements. As alleged, Saini and Natividad collectively traded in advance of more than 1,600 announcements distributed by their employer and would routinely exit their positions after the market reacted to the news in the press releases.

The Supreme Court’s Business Docket

On Nov. 7, the court will hear a pair of arguments that could make it easier to challenge the constitutionality of two other agencies, the Federal Trade Commission and the Securities and Exchange Commission. The cases are both about timing, asking the justices to decide how long people and businesses must litigate with agencies that seek to regulate their conduct before they can go to federal court.

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The second case, Securities and Exchange Commission v. Cochran, concerns an accountant accused of misconduct by the S.E.C. and involves a similar issue. The accountant, Michelle Cochran, sought to challenge the agency’s structure in federal court before administrative procedures were completed. The Fifth Circuit agreed that she should be able to bring her claims, creating the sort of conflict between federal appeals courts that often prompts Supreme Court review.

Crypto and the ‘Law of the Horse’

Chris Odinet, a professor of law at University of Iowa, also had his doubts about “crypto law” as a legal profession or topic of study.

“Transactions involving crypto companies and crypto assets intersect with and are involved and impacted by lots of different areas of the law  – but there’s no ‘crypto law’ per se,” Odinet said. “There’s property law, contract law, securities law, commercial law, but there’s no such thing as crypto law. It’s not its own self-contained thing.”

There’s no law of the horse.

Pelosi Ripped by Fellow Democrat for Delaying Stock-Trade Bill

Spanberger, who introduced a bill with Republican Representative Chip Roy to require that lawmakers place investment assets into a blind trust while in office, questioned Pelosi’s commitment to a stock-trading ban and called the delay in acting on any reform bill before the House leaves for a break “a failure of House leadership.”

“After first signaling her opposition to these reforms, the Speaker purportedly reversed her position. However, our bipartisan reform coalition was then subjected to repeated delay tactics, hand-waving gestures, and blatant instances of Lucy pulling the football,” Spanberger, who faces a competitive re-election contest for her Virginia district in November, said in a statement on Friday. “It’s yet another example of why I believe that the Democratic Party needs new leaders in the halls of Capitol Hill."

SEC Charges Former Controller of Network Infrastructure Company with Accounting Fraud

The Securities and Exchange Commission today charged Daniel Moser, the former controller of FTE Networks, Inc., a network infrastructure company formerly based in Naples, Florida, for his role in a multi-year accounting fraud. This alleged scheme conducted by Moser, along with three senior executives previously charged by the Commission in July 2021 and June 2022, inflated the company’s revenues for certain periods by as much as 108 percent.

According to the SEC’s complaint, Moser helped FTE’s former CEO, Michael Palleschi, CFO, David Lethem, and Chief Administrative Officer and President, Anthony Sirotka, inflate FTE’s revenue by directing FTE to improperly recognize revenue and related accounts receivable for nonexistent construction projects. The complaint also alleges that Moser, together with Palleschi, Lethem, and Sirotka, misled FTE’s auditor about approximately $12.5 million in fictitious revenue and related accounts receivable, by, among other things, providing false and misleading materials to the auditor.