SEC’s Director of Enforcement Unexpectedly Resigns Just Days after Taking the Job: Reminiscent of Previous Resignation by former Chairman Harvey Pitt

Alex Oh, U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler’s pick for the agency’s Director of the Division of Enforcement, unexpectedly resigned on Wednesday amid growing criticism for her decades-long work as a private corporate defense lawyer. Ms. Oh’s hiring was announced on April 22, 2021, less than a week before her resignation.

Ms. Oh’s resignation followed a ruling on Monday from Judge Royce C. Lambeth of the Federal District of Columbia reprimanding ExxonMobile’s legal team, which included Ms. Oh, for their conduct in a class action lawsuit brought by Indonesia villagers against Exxon alleging human rights abuses. According to the ruling, Exxon’s defense team characterized the lawyers for the villagers as “agitated, disrespectful and unhinged” during a deposition. Judge Lambeth ordered Exxon’s lawyers to show why penalties were not warranted for those comments.

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Comings & Goings at the SEC: Chair Gensler’s New Enforcement Director

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.

Speech by New Commissioner Provides Insight into Biden Administration SEC

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.

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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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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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