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OGC AND ENFORCEMENT AT SEC SPEAKS 2018 - WORDS MATTER, PROCESS MATTERS, HOMEWORK MATTERS

Dennis Stubblefield, a Partner at the firm, recently attended SEC Speaks, the Commission’s annual conference in which senior staff from all divisions and offices announce and comment upon key developments from the past year and set forth coming priorities. Chair Jay Clayton chose GOP-side economist Commissioner Michael Piwowar to interview the newest Commissioners, Robert Jackson Jr. [Dem], and Hester Peirce [GOP].

The freshmen predictably disagreed on the goodness of Dodd-Frank, but both sounded reasonable, engaged and ready to explore common ground on key pressing issues, particularly the seemingly intractable problem of how to liberalize the rules around “finders.” Sounds logical given Clayton’s intention to gin back up a Capital Markets focus, which he suggested has taken a back seat to other priorities in recent years.

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blogRyan Baesemann
SEC UNMASKED: HOW SAFE ARE ITS INVESTIGATIVE FILES?

The agency has thus far specified just EDGAR as being compromised.  However, the SEC should also quickly evaluate what accountability it should demonstrate to the varied constituents who get caught up in its enforcement apparatus, i.e., any and all companies and individuals---extending way beyond regulated entities like broker-dealers and investment advisers---who come within reach of the investigative powers of its Division of Enforcement.

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Ryan Baesemann
INSIDER TRADING ENFORCEMENT: "THE HITS JUST KEEP ON COMIN’"

“Summertime, and the livin’ is easy.” Remember that lazy refrain from Porgy and Bess, written by Ira Gershwin, and made even more famous by Billy Stewart in 1966?

Many of us are lucky enough to still enjoy some sweet summers, but not so lucky are those persons and companies caught up currently in the government’s securities enforcement dragnet. And the lawyers who represent them are likely not seeing a stress-free summer. So, for both those toiling in the trenches now as well as those with a bit of a break in the action in these last few days before the unofficial start of fall, here is an irreverent guide and portal to Insider Trading Cops and Robbers, powered in part by music, movies, advertising and sports, and conveyed here with great thanks to our generous and talented colleagues whose blogs have already teed things up pretty darn well. 

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Ryan Baesemann
IT'S THE CULTURE, STUPID - PART II

FINRA CEO Rick Ketchum just delivered what will undoubtedly be his swan song to the industry (he will likely step down later this year). His remarks last week at the SRO’s Annual Conference were all about “culture.” But, unlike so much feel-good blather about ethics these days, Ketchum’s remarks put a lot of meat on the backbone structure of how FINRA expects its member firms to conduct themselves. Drawing from FINRA’s now well-established units focusing on behavioral economics and big data/analytics, Ketchum explored three key areas: “group-think versus individual standards of right or wrong, our winner-takes-all culture, and the importance of tone from the top.”

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Ryan Baesemann
DEFINING PERSONAL BENEFITS: SUPREME COURT TO REVISIT INSIDER TRADING STANDARDS AFTER 33 YEARS

“The distinction between pure altruism and self-interest has puzzled philosophers for centuries; there is no reason to believe that courts and administrative law judges will have an easier time with it.” 33 years after Justice Blackmun penned those prophetic words in his dissenting opinion in Dirks v. SEC, the U.S. Supreme Court has accepted an Illinois man’s petition to have his insider trading conviction reviewed and will again address this distinction.  

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Ryan Baesemann
HOW CAN FIRMS INSURE AGAINST AFFINITY FRAUD?

The short answer is, “Not through any carrier we know.” It is likely that already-stressed broker-dealer professional liability insurance will be found to be either non-responsive or woefully inadequate.  However, firms---and we are focusing on independent-contractor broker-dealers---can do a lot to prevent, manage and mitigate the risks of affinity fraud, and other major retail-based threats. 

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Ryan Baesemann
RECENT APPELLATE ACTION SEC USE OF IN-HOUSE COURTS SHOWS THE COURTS RECOGNIZE THE MAJOR IMPORTANCE OF THE ISSUE

Two federal appellate courts, the Seventh and Second Circuits, respectively, have recently weighed in on the issue of the SEC’s use of in-house administrative judges in civil enforcement proceedings against individuals. Many of the respondents in such cases have challenged the constitutionality of the forum, essentially arguing that the SEC cannot use the ultra-expedited internal proceeding with its hand-picked administrative judges to impose potentially severe civil penalties on individuals.

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Ryan Baesemann
REGULATORS TO INCREASE SCRUTINY OF BARRED BROKERS WITH INSURANCE LICENSES

State regulators are setting their sights on barred securities brokers who continue to sell insurance and other financial products, it was reported recently. According to the Wall Street Journal, the National Association of Insurance Commissioners (NAIC) wants to improve coordination among regulators to ensure that such agents are monitored more closely in an attempt to protect consumers from potential harm. 

According to its website, the NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.

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Ryan Baesemann
RESPONDENT IN SEC ADMINISTRATIVE PROCEEDING PUSHES RECENT ADVERSE RULING AGAINST SEC IN THE HILL CASE

We wrote last week about a recent ruling by a Northern District of Georgia Judge in the case Hill v. SEC that granted a preliminary injunction halting the use of an Administrative Proceeding in an enforcement action against Hill. The Hill court’s reasoning was that the SEC’s Administrative Law Judge was not properly appointed, as such ALJ’s must be appointed by a department head, the President or the courts rather than lower-level SEC personnel. This is the first win in the slew of challenges this year to the constitutionality of these Administrative Proceedings. See our post from June 19, 2015.

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Ryan Baesemann
MAJOR SEC ENFORCEMENT ACTION SHOWS THE TWISTS AND TURNS IN CHALLENGING THE USE OF ADMINISTRATIVE PROCEEDINGS

In the past two months, an SEC administrative proceeding against a well-known financial figure in New York has demonstrated the legal twists and turns that have come into play with the SEC’s increased use of the administrative forum to enforce securities laws, as well as the interplay between the multiple challenges to this forum presently before the federal courts.

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Ryan Baesemann
RELATIONSHIP MATTERS: UPDATE ON TIPPER – TIPPEE LIABILITY; JOSEPH BARTHOLOMEW ALLEGED PONZI SCHEME; AND SEC’S NEW FIDUCIARY RULE

"It's All About the Rel', 'bout the Rel', No Problem…" is a Meghan Trainor-inspired musical way to think about two big developments in the last week: the very big and very new news out of the Second Circuit on Insider Trading, and the very sad, but very old-story, news out of Lake Forest, California on the latest high-profile Ponzi Scheme.

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Ryan Baesemann
ADMIN PROCEEDINGS ON STEROIDS: THE SEC'S IMPROPER END RUN AROUND HAVING TO PROVE "LIKELIHOOD" IN FEDERAL COURT

A week after Commissioner Pinowar publicly questioned it, the SEC's march toward admin enforcement seems inexorable. Tuesday brought two good articles on this troubling development, on page one of the Wall Street Journal, and on Bloomberg. Jean Eaglesham's Wall Street Journal article (Tuesday, October 21, 2014 ("SEC Steers More Trials to Judges It Appoints")) focuses on the push toward administrative enforcement, while Matt Levine's Bloomberg post is about insider trading.

Both articles cover the preemptive strike in NY Sup. Ct. by the friend-of-the-roommate-of-the-Herbalife-analyst, and raise very troubling questions of where we are headed in this brave new world of White/Ceresney priorities; as we asked recently, "Got (broken) Process?"

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Ryan Baesemann
MAJOR FRAUD (AND “BROKEN WINDOWS”) UPDATE: GOVERNANCE AND ACCOUNTABILITY 101

“If every rule is a priority, then no rule is a priority.” So observed SEC Commissioner Michael Pinowar, in his speech Tuesday, questioning the efficacy of the Commission’s so-called “Broken Windows” approach to Enforcement.

His pointed and poignant remarks force the Commission—and really each and every one of us and our clients—to ask the question: “are we properly governing ourselves, and our institutions, and are we effectively accountable to those who we serve?” His comments were delivered on the same day that Rep. Scott Garrett (R-N.J.) told Finra to slow down its ambitious, but very controversial, so-called “CARDS” customer-data-gathering initiative.

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Ryan Baesemann