Are Tweets "Socially Acceptable Securities Fraud?"

Socially Acceptable Securities Fraud

In the 90 years since the passage of the Securities Exchange Act, the number of ways market participants can publicly disseminate statements to investors has skyrocketed. Yet no regulator, legislator, or judge has answered a fundamental question: Should the law distinguish between a company’s statements in a tweet and in a press release? In a new article, I present an empirical analysis of 2022 10b-5 class action lawsuits and 10b-5 enforcement actions by the SEC and find that social media statements are increasingly the basis for fraud litigation. I argue, though, that there are downsides to this development and that some level of socially acceptable securities fraud should be tolerated in an information society.

In 2022, posts on X, formerly known as Twitter, were cited as containing false statements in 13 investor class actions under Rule 10b-5. One of these cases has survived a motion to dismiss based on a tweeted emoji being actionable. What’s more, two former CEOs await sentencing for securities fraud involving false tweets. In a way, social media has pushed discourse into a realm beyond literal truth, yet securities fraud polices investor speech and issuer speech no matter where it occurs, as if the speech had been vetted and analyzed beforehand.

Ex-OpenSea Employee Sentenced to Three Months in First NFT Insider-Trading Case

Nathaniel Chastain, 33 years old, was convicted of wire fraud and money laundering in May. Prosecutors said that Chastain used confidential information to trade on nonfungible tokens before OpenSea advertised them on its home page.

Before handing down the sentence, which also included a $50,000 fine and three months of home confinement, U.S. District Judge Jesse Furman said that determining the appropriate punishment was unusually difficult. The judge said Chastain saw relatively little financial gain, and the judge questioned whether the case would have been prosecuted if it hadn’t happened in a new and sexy area of commerce. Furman added that Chastain knew what he was doing was wrong.

Sam Bankman-Fried not getting Adderall, living on ‘bread and water’

Bankman-Fried’s legal team told a federal judge that the former crypto billionaire was “subsisting on bread and water” and “sometimes peanut butter,” because the jail can’t accommodate his vegan diet. They said he had only been offered the standard “flesh meals.”

Mark Cohen, an attorney on the case, added that Bankman-Fried had not received any doses of his prescribed medication Adderall, a treatment for attention-deficit/hyperactivity disorder, since being remanded to custody 11 days ago. Cohen said his client only had a “limited” and “dwindling” supply of Emsam, a transdermal patch for treating depression. U.S. District Judge Lewis Kaplan, who is presiding over the criminal trial, had told a jail to provide these prescribed medications to Bankman-Fried.

JPMorgan Former Chief Gold Trader Gregg Smith Gets Two Years in Prison

The former head of JPMorgan Chase & Co.’s precious-metals desk and his top trader were sentenced to prison for spoofing, fraud and attempted market manipulation.

Michael Nowak, who ran gold and silver trading at the bank, and trader Gregg Smith were sentenced Tuesday in Chicago by US District Judge Edmond Chang. Nowak received a term of one year and one day while Smith was given two years, the stiffest sentence yet in a recent government crackdown on questionable trading practices.

Reading the Tea Leaves: What Could Cybersecurity Rules Tell Us About Final Climate Change Rules?

Which brings us to the question that everyone is asking these days – what will the final climate change disclosure rules look like? In trying to answer this question like Zoltar, I am encouraged by the outcome we recently observed with the cybersecurity disclosure rules. In March 2022, the SEC originally proposed cybersecurity disclosure rules that included complex and highly detailed requirements that struck companies and their advisers as overly prescriptive and seeking too much detail. Consistent with other recent rulemakings, the Commission went down the path of proposing very prescriptive disclosure requirements on the topic of cybersecurity risk management and oversight for periodic reports and for the type of information that would be required to be disclosed when it is determined that a cybersecurity incident is material. The Commission also took what proved to be a controversial step of proposing that companies disclose information about the cybersecurity expertise of corporate directors.

In the final rules, the Commission clearly considered the concerns of commenters on a number of important issues and modified the final rules as a result, including paring back the disclosure required on a current basis when an incident is determined to be material, pivoting to a more principles-based approach for the disclosure related to risk management, strategy, and governance and not adopting the proposed requirement to disclose board cybersecurity expertise.

The SEC could deal a critical blow to VCs

The U.S. Securities and Exchange Commission’s widespread crypto crackdown has been in the media spotlight, but the agency is also set to deal a major blow to America’s engine of innovation and job creation.

The SEC has proposed rules that would radically alter how the private fund industry — including venture capital — operates and is regulated, even as the ecosystem wobbles under the pressure of macroeconomic strains and the loss of critical banking partners. If implemented as proposed, these new rules will constrain the activities of private fund advisers — that is, the managers of the funds.

They aren’t the only ones who should be concerned: The proposed rules would also hurt startup founders. And because the measures would have a bigger impact on the managers of small and emerging funds, the SEC may also be jeopardizing efforts to close funding gaps for women and minority founders.

EU Adopts Mandatory ESG Reporting Requirements

The SEC has not yet adopted the long-anticipated final version of its proposed climate change disclosure guidelines, although there is some speculation that the final guidelines will be adopted in the Fall. In the meantime, however, sustainability reporting standards are going into effect elsewhere, with important ramifications for all companies.

On July 31, 2023, the European Commission adopted the first set of European Sustainability Reporting Standards (ESRS), which require EU and non-EU companies with specified levels of EU activity to file annual sustainability reports with their financial statements. The standards will soon become law and apply in all 27 EU Member states, with compliance requirements effective as early as 2025 for the 2024 reporting period. The ESRS as adopted on July 31, 2023, by the European Commission can be found here. The European Commission’s adoption of the first set of ESRS and the reporting standard’s requirements are described in detail in an August 11, 2023, memo from the Cooley law firm, here.