SEC to Dismiss 42 Enforcement Actions Over Improper Data Access

Second Commission Statement Relating to Certain Administrative Adjudications

On April 5, 2022, the Commission issued a Statement Relating to Certain Administrative Adjudications (the “April 5 Statement”) describing a control deficiency related to the separation of enforcement and adjudicatory functions within the agency’s system for administrative adjudication. As the April 5 Statement explained, for a period of time, certain databases maintained by our Office of the Secretary (“OS”) were not configured to restrict access by staff from our Division of Enforcement (“Enforcement”) to memoranda drafted by staff from the Adjudication Group (“Adjudication”) in our Office of the General Counsel (“OGC”). As a result, in a number of adjudicatory matters, administrative support staff from Enforcement responsible for maintaining Enforcement’s case files accessed Adjudication memoranda via OS’s databases. In many instances, those administrative staff also emailed Adjudication memoranda to other administrative staff for potential upload to Enforcement databases; once uploaded, the memoranda became accessible more broadly to Enforcement staff.

When it was discovered that Enforcement staff had access to Adjudication memoranda, the Commissioners were notified, as was the Commission’s Office of Inspector General. As the April 5 Statement explained, the Chair immediately directed the implementation of remedial measures, including enhanced access controls, to ensure that Enforcement staff would no longer be able to access these memoranda in the OS databases or through the Enforcement databases to which they may have been uploaded….

Mystery Trader’s Debt-Ceiling Windfall Sparks Insider Concerns

On May 24 — several days before an agreement was announced — a huge bullish bet was made on Equitrans Midstream Corp., data compiled by Bloomberg show. The company is deeply involved in the long-delayed Mountain Valley Pipeline. The wager involved snapping up 100,000 call options on the firm’s stock.

It proved prescient and wildly profitable within just a few days.

On May 27, White House and Republican lawmakers reached a deal that would give the long-delayed Mountain Valley Pipeline the final approvals needed to complete the project.

Bad or good disclosure: you decide!

Every now and then, I come across a disclosure that strikes me as being pretty unique, which, given how long I’ve been reading SEC filings, is definitely worth paying attention to.

That was the case when I read this 8-K filed by Church & Dwight (ticker: CHD) last Friday evening just after 4:30 pm. In a nutshell, the company decided to take away $200,000 in-the-money options from one of its executives because that executive failed to cooperate in an unidentified legal matter.

The filing identified the executive as Chief Marketing Officer and President of its Consumer Domestic division Barry A. Bruno and said that Bruno “failed to fully comply with respect to text messages on his personal mobile device” and that after recovering “a significant number of the deleted communications that were within the scope of the Company’s instructions” decided to penalize Bruno by making him forfeit the $200K award.

Whistleblower Denied a Share of $279 Million Award Sues the SEC

An anonymous whistleblower has asked a federal appeals court to overturn a Securities and Exchange Commission decision denying her a share of a record $279 million bounty award issued last month.

The lawsuit, filed under the alias Jane Doe, said the SEC erred when it awarded the entire sum—more than double the previous record award—to a single, anonymous tipster. The payout comes more than three years after the telecommunications company LM Ericsson agreed to pay the SEC and the Justice Department more than $1 billion to settle bribery allegations.

US House Republicans Thompson, McHenry Share Crypto Market Structure Draft Bill

Republican chairs of two key House committees released a draft bill that would offer a pathway for digital assets that begin as securities to eventually be regulated as commodities.

The draft legislation was unveiled Friday by House Financial Services Committee Chairman Patrick McHenry and House Agriculture Committee Chairman Glenn Thompson. The bill on market structure is meant to act as a jumping off point for discussions between Republicans and Democrats on the two committees, as well as with the Senate, regulators and the private sector, senior staff familiar with the drafting of the proposal said.

The 162-page draft bill will likely face long odds getting the agreement from Democrats in Congress needed for it to become law but it offers a glimpse into Republicans’ thinking on the issue after months of calling for a regulatory framework for digital assets.

Inside FTX and Sam Bankman-Fried’s Fall: Spellcaster SBF Podcast

Before the year was over, the Sam Show took a dark turn. FTX imploded, swiftly — leaving an apparent $8 billion hole where customer funds should have been. Bankman-Fried has called it a “screw-up.” But US prosecutors accuse him of conning his customers and investors in what they called “one of the biggest financial frauds in American history.” And one of his closest partners, Caroline Ellison — a fellow effective altruist, a CEO of one of his companies and a onetime romantic partner — had entered a guilty plea.

What happened? Who is Sam Bankman-Fried, and how did he charm so many people for so long? A team of Bloomberg journalists who covered his rise and fall dug into some of the lingering questions, talking to insiders to reveal what was happening at the companies run by Bankman-Fried and Ellison. Spellcaster: The Fall of Sam Bankman-Fried is a new six-part podcast from Bloomberg and Wondery. Listen to Episode 1: The Smartest Person I Know.

The Securities Litigation Review: SEC Enforcement — A Practical Guide For Private Fund Managers

… In 2023, the SEC will likely substantially increase its enforcement arsenal tailored to private fund advisers. In 2022 and continuing into 2023, the SEC has proposed and continues to propose new rules and rule amendments that, if implemented, could create material shifts in the principles, prohibitions, limitations and requirements for private fund advisers in carrying out their investment advisory businesses, including on investor and client reporting, limited partnership agreement negotiation and drafting, vendor agreement negotiation and drafting, advertising, and custody practices, liquidity transactions, and fee and expense mechanics. One proposed set of reforms alone that is likely to be finalised in the coming weeks or months, known as the Private Fund Proposed Reforms, could play a significant role in this shift.2

In this landscape, EXAMS likely will sharpen its focus on conflicts of interest the SEC believes are inherent in the private fund industry and which, the SEC believes, contribute to the perceived problematic issues discussed in the Private Fund Proposed Reforms. These include, for example, those related to portfolio valuation and resulting fee calculations, as well as conflicts related to liquidity. A resurgence of SEC enforcement against private fund advisers is likely to follow.

Binance’s Richard Teng Emerges as CZ’s Heir Apparent as Regulators Circle

Add one more headache to the swelling list of challenges facing Richard Teng, the civil servant-turned-crypto executive who’s seen as a possible heir to Binance’s embattled chief executive officer, billionaire Changpeng “CZ” Zhao.

Teng has emerged as the frontrunner to take over as CEO should Zhao relinquish that position, according to people with direct knowledge of the matter. The succession issue has taken on additional urgency as US regulatory scrutiny of Binance mounted in recent months, the people said. The Commodity Futures Trading Commission sued Binance and Zhao himself in late March for allegedly violating derivatives regulations, and accused it of having “sham” compliance.

Guest Post: Inigo’s 2023 Defense Counsel Survey

We learned a huge amount from the study and it was a no-brainer to do it again. This time we went bigger, asking the top 50 securities defense law firms in the US 62 questions (compared to asking the top 25 firms 45 questions last year). We would like to thank those who completed the survey for being so generous with their time.

We identified four key themes from their responses. They have evolved from last year although some concerns remain. They are:

—US securities class actions and the Federal Bench – a perfect storm?

—Derivative actions – a more attractive alternative for plaintiffs?

—Bankruptcies – the new driver of securities litigation?

—Has the SEC now taken the gloves off?