What’s New: The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) recently issued a Risk Alert titled “Select COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers” on August 12, 2020. This Risk Alert addressed the following topics:
From mid-March to mid-May, the SEC received more than 4,000 tips, complaints, and referrals. This, according to one of the SEC Co-Directors of the Division of Enforcement, represented a 35% increase over the same period last year. Additionally, as recently confirmed by the Director of the SEC’s New York regional office, the SEC is actively monitoring these tips, complaints, and referrals because it knows that doing so sends an important deterrence message to market participants. While the SEC has many sophisticated market monitoring and other fraud detection tools, tips and complaints provide the Enforcement Staff with valuable leads, which often develop into investigations and enforcement actions in matters that would otherwise may have remained hidden. Undoubtedly, many of these tips and complaints are either directly related to the COVID-19 pandemic or are indirectly related to the resulting economic turbulence. It is foreseeable that this significant uptick in tips and complaints will lead to a significant increase in the number of investigations and enforcement actions.
As we described several weeks ago, the SEC across the agency is going to be vigilant in its efforts to regulate, examine and enforce the federal securities laws regarding coronavirus/COVID-19. More recently, the SEC Division of Enforcement (“SEC Enforcement”) has stepped to the forefront of these efforts.
As we noted earlier this month, the SEC has sought to proactively combat fraud related to the coronavirus/COVID-19 pandemic and related economic crisis by suspending the trading of at least eleven different companies since February 7, 2020. On Friday, April 24th the SEC announced another major step in its related efforts to protect investors — the formation of a Cross-Divisional COVID-19 Market Monitoring Group.
According to the SEC, the group is intended to assist the Commission and staff in analyzing “the effects of COVID-19 on markets, issuers and investors—including our Main Street investors” and to work with other regulators and public sector entities such as the President’s Working Group on Financial Markets, the Financial Stability Oversight Council, and the Financial Stability Board. This initiative is broadly linked to Chairman Clayton’s longstanding interest in supporting “the long-term interests of the Main Street investor.”
As the world is navigating through COVID-19 and as we are focused on our health and well-being as we self-quarantine and engage in social distancing to do our part to stop the spread, our markets remain open, active, and volatile, and the U.S. Securities and Exchange Commission (“SEC”) has recently made clear that they will continue to be an active overseer.
On March 3, 2020, the Supreme Court heard arguments in the case of Liu v. SEC, No. 18-1501. This article summarizes what transpired at the hearing, in which the arguments centered on a challenge to the ability of the U.S. Securities and Exchange Commission (“SEC”) to obtain disgorgement as an “equitable remedy” for securities law violations.
During the oral arguments, the Justices’ questions indicated that they appeared reluctant to entirely do away with disgorgement, but rather their queries focused on whether limitations should be placed on the SEC’s continuing use of disgorgement as an equitable remedy. Specifically, the Justices expressed interest in exploring parameters and limitations regarding how disgorgement is calculated and whether the SEC or defrauded investors are entitled to any disgorged funds.
The SEC, through its Office of Compliance Inspections and Examinations (“OCIE”), recently issued its most detailed cyber guidance to date. OCIE had previously issued several cybersecurity risk alerts over the past few years. This most recent release, however, offers much more than a risk alert. OCIE’s “Cybersecurity and Resiliency Observations” goes into significantly more detail than OCIE’s prior risk alerts in this area and is fashioned in a vastly different and more user-friendly format. Thus, it is required reading for SEC regulated entities because, rest assured, it will be closely followed and applied by OCIE staff conducting cyber examinations, as well as by the Division of Enforcement’s “Cyber Unit.”
The college football bowl season is upon us, NFL teams are jockeying for playoff seeding, and with the college basketball season underway fans of that game are looking longingly towards March for how their brackets may look for the 2020 tournament. Thus, sports and the gambling associated with it are all around us. In recent years, this gambling has risen from the shadows and is now openly discussed throughout society. So this industry has evolved and continues to evolve, since the times when gamblers needed to travel to Las Vegas or Atlantic City to legally gamble. Over the years, state laws have expanded such that today numerous states allow gambling in some form. Further accelerating this expansion, in the spring of 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act.