SEC Enforcement Restores Subpoena Power

The U.S. Securities and Exchange Commission (SEC) has restored the authority of senior Division of Enforcement (Enforcement) officials to initiate investigations, which had been revoked during the Trump administration.

On Tuesday, acting SEC chair, Allison Herren Lee, announced that certain senior Enforcement officials may once again exercise delegated authority to approve formal orders of investigation that empower Enforcement staff to subpoena documents and sworn testimony.

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U.S. District Judge Rejects Argument that Sale of “Stand-In” Tokens Was Not a Sale of Unregistered Securities

On January 8, 2021, Judge Richard Seeborg of the United States District Court for the Northern District of California issued an Order denying a motion to dismiss in S.E.C. v. NAC Foundation, LLC, et al.  The U.S. Securities & Exchange Commission (SEC) had previously filed a civil complaint against blockchain development company NAC Foundation, LLC (NAC) and NAC’s CEO, Marcus Rowland, alleging that NAC’s and Rowland’s sale of “stand-in” digital tokens constituted a fraudulent and unregistered sale of digital securities.  The Department of Justice (DOJ) brought a parallel criminal proceeding, alleging violations of federal wire fraud and money laundering statutes.  DOJ also filed a separate criminal case against former high-profile lobbyist Jack Abramoff in connection with his role in the promotion of NAC’s digital assets.

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SEC Enforcement Victory in its Efforts to Police Cannabis Industry Investments

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.

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$125 Million Deutsche Bank Settlement with SEC/DOJ Newest in Line of Several Costly Resolutions

On January 8, 2021, the SEC issued a cease-and-desist order, Release No., 90875 (available here), formally resolving proceedings against Deutsche Bank AG.  Deutsche Bank agreed to pay over $125 million as part of a global resolution of allegations that it violated the Foreign Corrupt Practices Act of 1977 (FCPA), in connection with its use of third-party intermediaries, business development consultants, and finders engaged to advance Deutsche Bank’s global business development efforts.  The terms of Deutsche Bank’s universal settlement with the SEC and the U.S. Department of Justice included payment of more than $120 million, $43 million of that to resolve charges brought by the SEC, and the remainder in the form of criminal penalties paid to the Department of Justice.

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President Biden Announces Gary Gensler as SEC Chair Nominee

On January 18, 2021, the incoming President’s Transition Team announced additional key administration post nominees, including Mr. Gary Gensler as SEC Chair. The announcement specifically provided the following regarding Mr. Gensler’s background:

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Congress Extending the SEC Statute of Limitations to 10 Years?!!

Congress recently overrode President Trump’s veto of the $740 billion 2021 National Defense Authorization Act (“NDAA”) and signed it into law. While the focus of the NDAA is not on the U.S. Securities and Exchange Commission (“SEC”), the NDAA does include a provision that gives the SEC, for the first time ever, statutory authority to seek disgorgement in federal court for securities enforcement matters. Further, the NDAA also provides for a 10-year statute of limitations for the SEC to seek such disgorgement for scienter-based violations, extending and doubling the current 5-year statute of limitations.

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The SEC’s CCO Guidance Month

In a 30-day period, the U.S. Securities and Exchange Commission (“SEC”) has released guidance in three ways regarding certain views on the important role and potential liability risks of chief compliance officers (“CCOs”). SEC Commissioner Hester M. Peirce first raised these topics in a speech to the National Society of Compliance Professionals, advocating for greater clarity regarding the SEC’s decisions to impose individual liability on compliance professionals and challenging the wisdom of charging chief compliance officers “based on mere negligence.” Hester M. Peirce, When the Nail Fails—Remarks before the National Society of Compliance Professionals (Oct. 19, 2020). Book-ended thirty days later, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a “Risk Alert” titled OCIE Observations: Investment Adviser Compliance Programs (“OCIE Compliance Risk Alert”). That same day, OCIE Director Peter Driscoll gave a speech that served as the Opening Remarks at National Investment Adviser/Investment Company Compliance Outreach 2020, titled The Role of the CCO – Empowered, Senior and With Authority, Peter Driscoll (Nov. 19, 2020). It is unprecedented for the SEC to discuss this important topic utilizing several platforms in such a short period. Taking notice of this, below we analyze the guidance provided by each. We also observe that the SEC’s focus on the role of compliance is not new but that sometimes the SEC’s support for compliance has not appeared to extend beyond OCIE. Cf. Lori Richards’ (then-OCIE Director) October 2007 Speech “Working Towards a Culture of Compliance: Some Obstacles in the Path” (observing that an effective compliance program required management support, a “seat at the table” for the CCO, adequate compliance staffing relative to the size and risks of the firm’s business, and “tone at the top” from the CEO down); with Luis A Aguilar’s (then SEC Commissioner) June 2015 Speech “The Role of the Chief Compliance Officers Must be Supported” (defending recent SEC enforcement actions against CCOs and explaining that those CCOs acting in “good faith” should not fear the SEC).

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SEC Enforcement in 2020, the Election & Future of the SEC

In Faegre Drinker’s “Enforcement Highlights” inaugural podcast, Jim Lundy moderates a panel with fellow SEC and Regulatory Enforcement partners Mike MacPhail and David Porteous, Capital Markets Team Co-Leader Beth Diffley, and Investment Management Group partner Jillian Bosmann to discuss the pandemic’s impact on the SEC’s Division of Enforcement and the potential impacts of the 2020 election on the SEC and its future.

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