SEC Files Subpoena Enforcement Action Against Covington

SEC sues Covington law firm for names of 300 clients caught up in hack

The U.S. Securities and Exchange Commission has sued law firm Covington & Burling for details about nearly 300 of the firm’s clients whose information was accessed or stolen by hackers in a previously undisclosed cyberattack, court documents show.

Hackers associated with the Hafnium cyber-espionage group, which has alleged ties to the Chinese government, gained access to Covington’s computer networks around November 2020, accessing private information about the firm’s clients, including 298 publicly traded companies, according to a lawsuit filed Tuesday by the SEC.

The agency asked a federal judge in Washington, D.C., to force Covington to comply with a subpoena asking the firm to turn over the companies’ names, saying it is investigating possible securities violations associated with the hack.

SPAC Defenders Fear Professor’s Victory Means Lawsuit Gold RushBut it’s an open question if plaintiff’s firms will bring a wave of similar cases based on Klausner’s research.

Delaware Vice Chancellor Lori Will asked the law professor if the upshot of his claim was that there had been “a massive, industrywide breach of fiduciary duty.”

Klausner told the judge that three lawsuits he’s involved in are the only similar cases he’s aware of, and he doesn’t expect the courtroom will be “flooded” with lawsuits.

But others are sounding the alarm. The lawyers defending “Gig3” argued in court that a win for Klausner will lead to a deluge of lawsuits.

Perrie Weiner, chair of Baker McKenzie’s North America securities litigation practice, put it this way: “This decision will be the full employment act for lawyers and judges in Delaware.”

FTX recovers $5 billion in cash and crypto to repay customers

Collapsed cryptocurrency exchange FTX says it has recovered more than $5 billion worth of cash and crypto assets it may be able to sell to help repay customers and investors, an attorney for the company told a Delaware bankruptcy court on Wednesday.

Company advisers have identified a significant amount of crypto that it will be more difficult to sell without depressing the market price of those digital tokens, FTX attorney Andrew Dietderich said. The company is also trying to sell off other “nonstrategic investments” made by FTX that have a book value of $4.6 billion, he said.

When the Gift of a Security Can Become an Insider Trading Charge

Before the SEC’s recent pronouncement on insider trading liability for gifts, it was an open question whether liability existed.

Some practitioners took the position that because a gift is neither a purchase nor a sale, an insider could gift securities at any time—even when aware of material nonpublic information—without incurring insider trading liability. This position is clearly at odds with the SEC’s recently stated position.

The SEC has now clarified that a Rule 10b5-1 plan may be used for gifts of securities. This includes a gift that might otherwise subject the donor to insider trading liability because at the time of the gift the donor had material nonpublic information and knew?or should have known?that the recipient would sell the securities before that information was publicly disclosed.

JPMorgan Claims It Was Defrauded in $175 Million Acquisition

JPMorgan Chase & Co. is claiming the founder of Frank, a college financial-planning site the bank acquired in 2021, defrauded it by vastly inflating the number of customers the company had.

The bank “paid $175 million for what it believed was a business deeply engaged with the college-aged market segment with 4.265 million customers,” JPMorgan said in a Dec. 22 lawsuit filed in Delaware federal court. “Instead, it received a business with fewer than 300,000 customers.”

SEC Obtains Final Judgment Against Defendant Charged in $43 Million Tribal Bonds Scheme

On January 10, 2023, the United States District Court for the Southern District of New York entered a final consent judgment against defendant Jason Sugarman, ordering him to pay over $10.2 million dollars in disgorgement, interest, and penalties. The judgment resolves the SEC’s charges against Sugarman for his role in a scheme to defraud ten pension funds out of $43 million in connection with the issuance of limited recourse Native American tribal bonds between 2014 and 2015.

According to the SEC’s complaint (filed on June 27, 2019, and amended on November 2, 2022) Sugarman, and his partner Jason Galanis, acquired control of two investment advisers so that they and their associates could use the advisers’ clients’ funds to purchase Native American tribal bonds. While the bond sale proceeds were supposed to be invested in annuities to benefit the tribal corporation and repay the bondholders, the complaint alleged that Sugarman and his associates instead misappropriated the proceeds for their own benefit, including using proceeds of the initial round of bond sales to finance the acquisition of a foreign insurance company that was, in turn, used to acquire the second investment adviser used in the scheme.