SEC Charges 3M for FCPA Violations by 3M-China

SEC Charges 3M with Foreign Corrupt Practices Act Violations Relating to China Subsidiary

The Securities and Exchange Commission today announced that 3M Company agreed to pay more than $6.5 million to resolve charges that it violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA).

The SEC’s order finds that employees of a 3M wholly owned subsidiary based in China arranged for Chinese government officials employed by state-owned health care facilities to attend overseas conferences, educational events, and health care facility visits, ostensibly as part of the Chinese subsidiary’s marketing and outreach efforts. However, the arrangements to attend the events were often a pretext to provide the Chinese government officials with overseas travel, including tourism activities, to induce them to purchase 3M products.

SEC Awards Whistleblower More Than $18 Million

The Securities and Exchange Commission today announced an award of more than $18 million to a whistleblower whose information and assistance led to a successful SEC enforcement action.

After initially reporting misconduct internally, the whistleblower submitted information to the Commission that prompted the opening of an investigation. The whistleblower thereafter provided additional helpful information and substantial cooperation that saved the Commission time and resources during the investigation.

‘They Didn’t Blow Up the World’: Big Law Reacts to New SEC Fund Rules

Law firm partners and their fund clients breathed a sigh of relief when the Securities and Exchange Commission passed new rules this week for private equity firms and hedge funds that appeared watered down from original proposals.

“They didn’t blow up the world, but it is impactful,” Marc Elovitz, co-managing partner of Schulte Roth + Zabel and co-chair of the firm’s investment management and regulatory and compliance group, said in an interview. “It is going to be a significant change in private funds regulations.”

After all the bluster of the last several months, Elovitz said the end result was essentially a “disclosure statute.”

Going forward, the new rules—which will take effect in 60 days—will likely create more work for regulatory partners, sources said, as well as increase demand for recent public sector lawyers with regulatory agency experience.

Tesla Investors to Get $12,000 Each From Musk’s SEC Deal

A group of Tesla Inc. investors stands to recover an average of about $12,000 a head for losses they incurred from Elon Musk’s famous 2018 tweet that he had “funding secured” to take the carmaker private at $420 a share — and then didn’t.

The US Securities and Exchange Commission aims to pay the investors the $40 million plus interest that Tesla’s chief executive officer and the company agreed to as civil penalties to settle a lawsuit by the regulator. That’s just over half the $80 million the SEC reckons they lost from the stock’s gyrations after the tweet — and a mere sliver of the $12 billion in losses an expert witness for a class of Tesla investors calculated earlier this year in a separate class action trial.

Biden administration unveils new crypto tax reporting rules

A proposed new tax reporting form called Form 1099-DA is meant to help taxpayers determine if they owe taxes, and would help crypto users avoid having to make complicated calculations to determine their gains, the Treasury Department said.

It would also subject digital asset brokers to the same information reporting rules as brokers for other financial instruments, such as bonds and stocks, Treasury said.

Under the proposal, the definition of a “broker” would include both centralized and decentralized digital asset trading platforms, crypto payment processors and certain online wallets where users store digital assets. The rule would cover cryptocurrencies, like bitcoin and ether, as well as non-fungible tokens.

Brokers would need to send the forms to both the IRS and digital asset holders to assist with their tax preparation.

SEC Sues Retail Trader Over $1 Million ‘Free-Riding’ Scheme

A trader who allegedly perpetrated a $1 million “free-riding” scheme using instant deposit credits to invest without funding his retail brokerage accounts was sued by the Securities and Exchange Commission on Friday.

Deyonte Jahtori Anthony allegedly used his accounts to purchase equities and exchange-traded funds from an unidentified brokerage using a nearly $200,000 “immediate access” credit, despite having insufficient funds in his bank account to fund the prior deposits, according to the SEC’s suit filed in US District Court for the Middle District of North Carolina.

Wells Fargo Settles with SEC for Charging Excessive Advisory Fees

The Securities and Exchange Commission today charged Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC (collectively, Wells Fargo) for overcharging more than 10,900 investment advisory accounts more than $26.8 million in advisory fees. Wells Fargo agreed to pay a $35 million civil penalty to settle the SEC’s charges.

According to the SEC’s order, certain financial advisers from Wells Fargo and its predecessor firms agreed to reduce the firms’ standard, pre-set advisory fees for certain clients and made handwritten or typed changes on the clients’ investment advisory agreements that reflected the reduced fees at the time their accounts were opened. However, in certain instances, the account processing employees at Wells Fargo and its predecessor firms failed to enter the agreed-upon reduced advisory fee rates into the firms’ billing systems when setting up the clients’ accounts. Additionally, Wells Fargo failed to adopt and implement written compliance policies and procedures reasonably designed to determine whether the billing systems it adopted contained accurate data and to prevent overbilling of the clients that the firm acquired through its predecessor firms and certain of its own new clients. As a result, Wells Fargo and its predecessor firms overcharged certain clients who opened accounts prior to 2014 for advisory fees through the end of December 2022.

Electric Utility Linked to Maui Wildfires Hit with Securities Suit

In early August 2023, wildfires broke out on the Hawaiian island of Maui. The wildfires caused the deaths of at least 115 people, and also caused massive property damage. In the aftermath, questions began to circulate about what had caused the fires. Among those under the spotlight is Hawaii’s largest electrical utility, Hawaiian Electric Industries. Indeed, on August 24, 2023, Maui County filed a lawsuit against the utility, alleging that its power lines caused the wildfire. With the adverse publicity, the utility’s share price has slumped. Now, a plaintiff shareholder has filed a securities lawsuit against the company. As discussed below, the new securities lawsuit may represent something of a prototype for future litigation involving companies whose business operations are disrupted by changing climate conditions and by the increase in extreme weather conditions and events. A copy of the securities suit complaint can be found here.

Finra ‘looks forward’ to defending enforcement authority in court

A Washington, D.C., federal court this week prevented Finra from expelling a brokerage it found to have harmed customers, but the regulator is confident it can defend its enforcement authority in that case and a separate one that was filed earlier this month.

Tuesday, the U.S. Court of Appeals for the D.C. Circuit upheld a preliminary injunction against the Financial Industry Regulatory Authority Inc. that allows Alpine Securities Corp. to continue to conduct business while it appeals a March 2022 Finra decision barring the firm from the financial industry.

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“While disappointed with the decision on this motion, Finra looks forward to the D.C. Circuit’s consideration of plaintiffs’ appeal, when Finra and the United States Government will present their defenses to plaintiffs’ novel and unsupported constitutional arguments,” Finra said in a statement through spokesperson Ray Pellecchia.