On April 22, 2021, Ms. Alex Oh was named the new Director of the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement. Ms. Oh was most recently a partner in private practice where she served as co-chair of her law firm’s Anti-Corruption & FCPA Practice Group. Notably, she was previously an Assistant U.S. Attorney in the Criminal Division of the U.S. Attorney’s Office for the Southern District of New York, where she was a member of the Securities & Commodities Fraud Task Force and the Major Crimes Unit. Ms. Oh’s experiences in private practice, coupled with her time as a former federal prosecutor, appear to indicate that Chair Gensler plans for more aggressive, diverse, and complex enforcement initiatives under his tenure as Chair. Looking to past appointments, Ms. Oh’s background aligns with that of former Enforcement Director Andrew Ceresney, who was appointed SEC Enforcement Director by former SEC Chair Mary Jo White after earlier in his career serving as a member of the Securities and Commodities Fraud Task Force and the Major Crimes Unit for the U.S. Attorney’s Office for the Southern District of New York as well. Under Mr. Ceresney’s directorship, former Chair White implemented the “broken-windows” initiative. While the broken windows era may not reappear, the appointment of another former federal prosecutor from that office and task force forebodes a tougher enforcement era.
In Faegre Drinker’s “Enforcement Highlights” second podcast, Jim Lundy moderates a panel with fellow SEC and Regulatory Enforcement partner Mike MacPhail and Capital Markets Team Co-Leader Beth Diffley to discuss Gary Gensler’s recent confirmation as Chair and the anticipated impact on the SEC and its future.
It’s estimated there are more than 400 SPACs in the market looking for M&A targets. Some of these SPACs come with celebrity endorsements, and there’s even a rap video, thanks to Cassius Cuvée and Mags Lionne. Clearly, this movement can’t be ignored. This article gives a generalized summary of the typical structure, as well as some high-level questions you should be asking as a participant to, amongst other issues, manage litigation and SEC enforcement exposure.
As we await the impact of the Biden Administration on the direction of the SEC, we have been given a glimpse of what is to come in a speech last month by the newly confirmed commissioner, Caroline Crenshaw. Specifically, Commissioner Crenshaw’s speech focused on “individual culpability” and penalties in the SEC’s enforcement program. Strikingly, the Commissioner decried the SEC’s past stance on penalties: “It is clear to me that the Commission has historically placed too much emphasis on factors beyond the actual misconduct when imposing corporate penalties – including whether the corporation’s shareholders benefited from the misconduct, or whether they will be harmed by the assessment of a penalty. This approach is fundamentally flawed.” Commissioner Crenshaw then stated that she thinks the SEC should revisit its approach to corporate penalties. It remains to be seen how Crenshaw’s remarks will be observed at Enforcement with respect to corporate penalties, let alone the application of her observations about the focus on “factors beyond the actual misconduct” could also be extended to individuals who are similarly facing substantial penalties for factors beyond their misconduct.
Perhaps it is in the spirit of March Madness and bracketology, but the Commodity Futures Trading Commission (CFTC or Commission) recently acknowledged consideration of a proposal by a sports gambling company to allow state-licensed sportsbooks and certain NFL-stadium owners and vendors to trade future contracts tied to NFL game outcomes.
The proposal, submitted by Eris Exchange, LLC (ErisX), seeks to list three types of NFL futures contracts on ErisX’s Regulated Sports Book Index Exchange (RSBIX). The contracts under review are tied to three common NFL game bets: money lines, point spreads, and total points scored in an individual game (over/unders). ErisX’s proposal would limit exchange participants to “eligible contract participants” and would allow only licensed sportsbooks, stadium owners and vendors, and qualified market makers to trade on the exchange—i.e., not individual investors or other investment funds with no connection to NFL stadium operations.
The Division of Examination’s (former OCIE) annual announcement of its exam priorities is always noteworthy, as it provides helpful insight into this division’s thinking and can serve as a roadmap for regulated entities to focus their compliance and supervision planning. The announcement of these priorities is even more important following a change in the presidential administration and the changes at the Commission that inevitably follow. Not surprisingly, the recently announced Division of Examination priorities for 2021 (summarized below) align with the Biden Administration’s policy priorities and key trends in the financial landscape.
Climate-Related Risks – Examinations will carefully consider environmental, social and governance (ESG) issues, including climate change. In the same way that the Division of Examinations previously focused on entities’ plans and disclosures related to the challenges posed by the COVID-19 pandemic, the Division announced that it will scrutinize business continuity plans to ensure that they “account for the growing physical and other relevant risks associated with climate change.” The Division will be looking for “maturation and improvements to these plans” to ensure that “registrants are considering effective practices to help improve responses to large-scale events.” The announcement of this examination focus also coincides with the Division of Enforcement’s announcement of the creation of a Climate and ESG Task Force. Continue reading “SEC Exams for 2021 to Focus on Climate and ESG, Reg BI, Crypto, & More”
As political leaders continue to debate how to address climate change, the SEC is poised to take (enforcement) action. In the latest example of how the Biden Administration is influencing the priorities of the SEC, the agency recently announced the creation of a Climate and Environmental, Social and Governance (ESG) Task Force in the Division of Enforcement. According to the SEC, the task force’s “initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.” The task force will also focus on investment adviser and funds, analyzing their ESG strategies for disclosure and compliance issues.
As the cannabis industry continues to evolve and generate capital raising and investment opportunities, the SEC Division of Enforcement will continue to closely keep watch and target the bad actors that new market opportunities such as this inevitably and unfortunately attract. Along those lines, investors looking to purchase stock in supposed cannabis company, Covalent Collective, may have found vindication in the recent judgment against Geoffrey Thompson, of Frankfurt, Illinois. Thompson is now permanently barred from engaging in the issuance, purchase, offer, or sale of any security, except in connection with his own personal account. On January 20, 2021, the United States District Court for the Northern District of Illinois (Case No. 1:20-cv-05205), ruled in favor of the United States Securities & Exchange Commission (SEC), in connection with its complaint targeting Thompson. Although Thompson did not admit or deny the allegations, he consented to the entry of the final judgment against him, which also ordered him to pay over half a million dollars collectively in disgorgement, prejudgment interest and civil penalties.