Responding to a “concern” from Chief Compliance Officers (CCOs) to the purported increase in enforcement actions holding compliance personnel personally liable, the New York City Bar Association recently released a framework of nonbinding factors it believes the SEC should consider when making CCO charging decisions. The report, titled “Framework for Chief Compliance Officer Liability in the Financial Sector” (Framework), is available here. According to the Framework, it claims that the risk of facing a career-ending enforcement action has deterred qualified individuals from assuming or remaining in the all-important CCO role.
Sandra D. Grannum, James G. Lundy and Heaven L. Chandler discuss Robinhood’s alleged violation of Massachusetts’ new fiduciary duty rule for broker-dealers on the Broker-Dealer Regulations and Insights blog. Massachusetts’ Secretary of Commonwealth, William Galvin, filed a regulatory complaint raising three different violations against Robinhood. The complaint attempts to ban the trading app for violating the State’s fiduciary duty rule which requires broker-dealers to act in the best interest of their clients. This new rule, passed in February 2020, was created in response to the Securities and Exchange Commission’s Regulation Best Interest (Reg BI). During this past year, due to COVID-19 and other meme-based investment activities on the application, Robinhood accumulated over 3 million new users in the first four months of 2020. Galvin’s concerns revolve around the 500,000 customers in Massachusetts, with accounts totaling over $1.6 billion. For more information, please read the post on the Broker-Dealer blog.
We previously posted another discussion on the New York best interest fiduciary rule for insurance that was recently struck down. This has now also been posted to the Broker-Deal Blog.
In Faegre Drinker’s “Enforcement Highlights” third podcast, Jim Lundy moderates a panel with Investment Management Group partner Jillian Bosmann and fellow SEC and Regulatory Enforcement partner David Porteous discussing what the plans may be for the SEC’s Divisions of Investment Management, Examinations, and Enforcement and the investment management industry under the leadership of new SEC Chair Gary Gensler. Topics also include the Division of Examination’s 2021 Annual Report, the SEC’s ESG Risk Alert, and FINRA’s anticipated relationship with the SEC under Chair Gensler.
On May 3, 2021, the Securities Exchange Commission (“SEC”) announced charges against Under Armour Inc. (“Under Armour”) for “misleading investors as to the bases of its revenue growth and failing to disclose known uncertainties concerning its future revenue prospects.” Under Armour agreed to settle the case, paying a $9 million fine. The settlement stems from allegations that Under Armour violated Sections 17(a)(2) and (3) of the Securities Act of 1933, which do not require proof of scienter, as well as reporting provisions of the federal securities laws, by failing to tell investors that it pulled forward orders to meet its quarterly targets in order to appear healthier.
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.
U.S. District Court for the District of Massachusetts has granted the IRS leave to serve the “John Doe summons”. The summons requires the administrators of a cryptocurrency exchange called Poloniex to release documents and information on U.S. taxpayers who conducted transactions in cryptocurrency totaling over $20,000 in any calendar year from 2016 through 2020. Individual account-holders may face enforcement activity in the future.
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.