Does the SEC's Solarwinds Wells Notice Raise the Stakes for CISOs "Monumentally?"

Did the stakes just get monumentally raised for CISOs?

With the security industry focused on the fallout from MOVEit, Solarwinds (the OG of software supply chain risk) quietly dropped a bombshell of an 8K on Friday.

Their CISO was served with a Wells Notice in connection with their 2020 cyber incident.

A Wells Notice says the SEC intends to recommend enforcement action against the individual for violating securities rules. This is a really big deal.

It’s unprecedented: this is likely the first time a CISO has ever received one of these.

And the implications are immense: Wells Notices are no joke. They create massive career hardships — especially if one plans to work for a publicly traded company.

But the details of the allegation aren’t public. So there’s a lot we don’t know yet.

Binance Executives Exit as Crackdown on Crypto Exchange Intensifies

The billionaire founder of crypto’s biggest exchange Binance Holdings Ltd. sought to defend the platform following the exits of executives who had been helping the company navigate a widening regulatory crisis.

Changpeng ‘CZ’ Zhao said “we continue to BUILD, and continue to hire” in a tweet on Friday after Binance’s chief strategy officer, general counsel and a compliance official departed, stirring fresh questions about the outlook for an exchange that’s facing probes in the US, Europe and Asia Pacific.

SEC Obtains Final Judgments Against Operators of Fake Trading Scheme Known as “EmpiresX”

The Securities and Exchange Commission has obtained final judgments against Empires Consulting Corp. (“EmpiresX”), and its founders Emerson Sousa Pires and Flavio Mendes Goncalves, whom the agency charged with a fake trading scheme.

According to the SEC’s complaint, filed June 30, 2022, Pires and Goncalves operated a purported hedge fund known as EmpiresX. Since at least late 2020, EmpiresX sold investments touting daily profits of one percent earned by a trading “bot” or by manual trading. The complaint alleges that, in reality, the bot was fake, the manual trading resulted in significant losses, and the defendants only transferred a small portion of investors’ funds to EmpiresX’s brokerage account. Instead, the defendants allegedly misappropriated large sums of investors’ money to lease a Lamborghini, shop at Tiffany & Co., make a payment on a second home, and make other personal expenditures.

D.C. Circuit Questions Constitutionality of FINRA Hearing Officers, Enjoins Disciplinary Proceeding

On July 5, 2023, the D.C. Circuit Court of Appeals handed down an emergency order that could throw a major obstacle in front of the Financial Industry Regulatory Authority (FINRA) regulatory program. The decision enjoins FINRA from expelling Alpine Securities Corporation (Alpine) through its expedited hearing process due to constitutional issues pending appeal. The court agreed that Alpine was likely to win on the merits in its argument that FINRA hearing officers are acting with executive authority without being properly appointed officers of the executive branch in violation of the Constitution.

The Alpine case draws upon principles established by the U.S. Supreme Court in Lucia v. SEC, which held that administrative law judges (ALJs) within the Securities and Exchange Commission (SEC) were Officers of the United States who must be appointed in accordance with the Appointments Clause of the Constitution. Although far from over, the Alpine case calls into question the constitutionality of FINRA’s hearing officers and may have significant implications for the self-regulator.

Law Firm Cyberattacks Grow, Putting Operations in Legal Peril

… Proskauer Rose, Kirkland & Ellis, K&L Gates, Loeb & Loeb, and Orrick Herrington & Sutcliffe were just a few of the dozen-plus leading firms reported to have been targeted over the last year.

The five class action cases filed this year against Bryan Cave; Cadwalader, Wickersham & Taft; Smith, Gambrell & Russell; and two smaller firms—Cohen Cleary and Spear Wilderman—claim that they didn’t sufficiently guard against the possibility of cyberattacks. The suits against Cadwalader and Smith Gambrell were later dropped.

Other firms, such as Covington & Burling, are facing action from government regulators over divulging the extent to which clients have been harmed by cyberattacks. The Securities & Exchange Commission subpoenaed Covington in January over a 2020 cyber hack that may have resulted in client data being stolen.

BlackRock’s CEO Larry Fink Revises His View on Bitcoin: Credit Goes to His Clients

On the same day the The Federal Open Market Committee (FOMC) released minutes from its June meeting, the CEO of the largest asset management firm in the world went on television to talk about how bitcoin could “revolutionize finance.”

Somehow not a typo.

Yes. Larry Fink, the CEO of BlackRock (BLK), went to the Fox Business studio for an interview yesterday and sang bitcoin’s praises. This is the same Larry Fink who said in 2017 that Bitcoin was an “index of money laundering.” Fink went further and said that bitcoin is an “international asset not based on any one currency … that people can play as an alternative” in the context of discussion around inflation hedges and geopolitical risk hedges.

Gibson Dunn Builds Case Against SEC’s Broker-Dealer Enforcement

In their FOIA lawsuit, filed in mid-June, Walker asked for internal SEC communications related to Almagarby and a handful of similar cases, all wins for the agency, after it failed to respond to their original request.

“Under the SEC’s extraordinarily broad legal theory in these cases, any business that regularly buys and sells securities must register as a ‘dealer,’” Walker wrote, suggesting such an interpretation would sweep up “virtually every hedge fund, investment company, and family office in the United States has been illegally operating as an unregistered dealer for decades.”

“These enforcement actions therefore present an issue—what it means to be a ‘dealer’ under the Exchange Act—of critical importance to our nation’s financial industry and securities markets,” the complaint warns.