SEC Brings Next Wave of Off-Channel Communications Cases With Combined Penalties of $390M

Twenty-Six Firms to Pay More Than $390 Million Combined to Settle SEC’s Charges for Widespread Recordkeeping Failures

The Securities and Exchange Commission today announced charges against 26 broker-dealers, investment advisers, and dually-registered broker-dealers and investment advisers for widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications.

The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $392.75 million, as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations. Three of the firms, as noted below, self-reported their violations and, as a result, will pay significantly lower civil penalties than they would have otherwise.

Court upholds blockbuster $267 million legal fee award in Dell lawsuit

Five law firms should receive $267 million in legal fees for obtaining a $1 billion settlement for shareholders of Dell Technologies (DELL.N), the Delaware Supreme Court ruled on Wednesday, rejecting arguments that the payment was a windfall.

The fee is one of the largest ever for U.S. shareholder litigation.

A Delaware trial court is weighing two other requests for huge legal fees, both in cases involving Tesla (TSLA.O), and the ruling contained language that might be seen as helpful for the carmaker’s efforts to fight those fees.

How hedge funds are fighting back against the SEC’s ‘aggressive’ agenda

In February 2022, the chief legal officer of hedge fund Citadel, Shawn Fagan, rang Eugene Scalia, a top lawyer who has made a career out of taking on US regulators.

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Following the call, Citadel and the other hedge funds and private equity firms opposing the plans decided on a strategy altogether more drastic than simply quibbling about individual aspects of the rule they did not like — challenging in court the SEC’s very authority to introduce such regulation.

The lawsuit led a wave of legal challenges launched against federal agencies by lawyers like Scalia who sought to take on President Joe Biden’s broad regulatory agenda. That trend now threatens to undermine a whole swath of rules brought by Gensler’s SEC.

“This is not just an attack on the private funds rule and it’s not just an attack on the SEC, but it’s part of a broader attack on the scope of agency rulemaking and the scope of their power,” said Jill Fisch, professor at University of Pennsylvania’s law school.

SEC Charges Russell Todd Burkhalter and his Atlanta-based Firm with $300 Million Ponzi Scheme and Obtains Emergency Relief

The Securities and Exchange Commission today announced that it obtained a preliminary injunction, asset freeze, and other emergency relief against Atlanta-based Drive Planning LLC and its founder and CEO, Russell Todd Burkhalter, to halt a $300 million real estate Ponzi scheme impacting more than 2,000 investors. Additionally, a receiver was appointed over Drive Planning. The SEC alleges the defendants misappropriated millions of dollars of investor funds to fund Burkhalter’s lavish lifestyle and to make Ponzi-like payments.

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The SEC’s complaint alleges that, from 2020 through at least June 2024, Drive Planning and Burkhalter raised more than $300 million for purported real estate investments, telling investors their money would be used to fund land development projects. The defendants promised 10% interest every 3 months and encouraged investors to tap their savings, retirement accounts, and even open lines of credit to invest. In reality, the defendants did not have a business capable of generating the promised returns, and they instead used investor funds to make Ponzi-like payments, according to the complaint. The complaint further alleges that Burkhalter stole investor funds to fund his luxurious lifestyle, including to buy a $3.1 million yacht and spending $4.6 million on chartering private jets and luxury car services and $2 million on a luxury condo.

Kamala Harris should not cave to overtures from the crypto crowd

Less than two years after numerous politicians were scrambling to return industry campaign contributions from the fraud-filled FTX, crypto is emboldened to the point it is setting its sights on influencing the Kamala Harris campaign for president. One reported argument is the supposed need to counter Donald Trump’s embrace of crypto.

The crypto industry appears to be making some headway. Officials from the Biden administration and the Harris campaign recently held a conference call with industry figures. Harris should reject the overtures. Here’s why….

Extreme Networks Hit with COVID-Related Securities Suit

One of the more interesting recent litigation phenomena is that even though we are now well into the fifth year since the initial COVID outbreak in the U.S., COVID-related securities lawsuits continue to be filed. Indeed, in its recent survey of first half 2024 securities lawsuit filings, NERA noted COVID-related filings as one of the factors contributing to the volume of securities suit filing in the year’s first half, and indeed noted that COVID-related suit filings YTD were on pace to exceed the number COVID-related suit filings during the full year 2023. In the latest example of these securities suit filing trends, earlier this week, a plaintiff shareholder filed a COVID-related suit against cloud computing products company Extreme Networks, based on allegations that the company had misrepresented the long-term effects of COVID-related supply chain disruption on the company’s sales backlog. A copy of the August 13, 2024, complaint can be found here.