Cleary Enforcement Watch

News and Analysis Related to Global Enforcement, White-Collar, and Regulatory Trends and Developments

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On January 29, 2019, the SEC announced four settlements with publicly-traded companies for failure to maintain adequate internal control over financial reporting. None of the companies was charged with making false or inaccurate statements, either about its ICFR or otherwise; indeed, each had repeatedly disclosed material weaknesses in ICFR over many years. These cases are interesting for at least three reasons: They were announced together to send a message about the SEC’s focus on its…
Last week, in SEC v. Scoville, the U.S. Court of Appeals for the Tenth Circuit held that Dodd-Frank allows the Securities and Exchange Commission to bring fraud claims based on sales of securities to foreign buyers where defendants engage in fraudulent conduct within the United States. In so holding, the Court concluded that Dodd-Frank abrogated in part the Supreme Court’s rule, announced in Morrison v. National Australia Bank Ltd., that fraud claims under the federal securities laws can only be…
On January 10, 2019, a Magistrate Judge in the Northern District of California issued an order denying an application for a search warrant that would have compelled any individual present at the premises to be searched to unlock their digital devices using biometric features, such as thumb prints and facial scans.  The order is notable in that the search warrant was not rejected on Fourth Amendment grounds, but rather on the grounds that requiring a…
Nearly a decade ago, WikiLeaks ushered in the age of mass leaks.  Since then, corporations, governments, public figures and private entities have increasingly had to reckon with a new reality: that vigilantes, activists, extortionists and even state actors can silently steal and rapidly disseminate proprietary information, including customer data and other sensitive information.  Last month, the Department of Justice (“DOJ”) indicted four individuals based on information first revealed in the “Panama Papers” leak.  This marks…
As discussed in Cleary Gottlieb’s December 21, 2018 Alert Memorandum, on December 18, 2018, the U.S. Court of Appeals for the D.C. Circuit issued an important ruling in In re Grand Jury Subpoena, holding, inter alia, that foreign state-owned corporations are subject to criminal jurisdiction in the United States and upholding Special Counsel Mueller’s authority to serve and enforce a grand jury subpoena on a sovereign entity. The foreign state-owned corporation subsequently sought…
On January 11, the Second Circuit Court of Appeals denied the appeal of Rajat Gupta, who was seeking to undo his insider trading conviction.  Relying on the Second Circuit’s decision in United States v. Newman, Gupta argued that—to satisfy the requirement that Gupta personally benefit from tipping inside information—the Government must show “a quid pro quo – in which [Gupta] receive[d] an ‘objective, consequential . . . gain of a pecuniary or similarly valuable nature.’”…
On December 26, 2018, the SEC announced settled charges against ADT Inc. after finding that ADT, in two earnings releases, gave undue emphasis to non-GAAP adjusted EBITDA figures because they identified the relevant GAAP measures only later and much less prominently. Without admitting or denying the SEC’s factual or legal claims, ADT agreed to an administrative settlement finding violations of Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-11 thereunder, relating to…
On December 19, 2018, the United States Attorney’s Office for the Southern District of New York (the “USAO”) announced criminal charges against and entered into a deferred prosecution agreement (the “DPA”) with Central States Capital Markets, LLC (“CSCM”), a Kansas-based broker-dealer, under the Bank Secrecy Act (the “BSA”).[1]  The charge was for a felony violation of the BSA, which consisted of CSCM’s willful failure to file a suspicious activity report (“SAR”) regarding the…
On December 20, 2018, the Financial Industry Regulatory Authority (“FINRA”) released a Report on Selected Cybersecurity Practices for broker-dealer firms.  This report reflects FINRA’s current perspective on the cybersecurity threat landscape based on observations from its examinations of securities firms.  Below we discuss the report’s key observations and contextualize these insights for members of the financial industry.…
On December 20, 2018, the U.S. Securities and Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) released its 2019 Examination Priorities.  The six themes for this year’s priorities are:  retail investors (including seniors and those saving for retirement), compliance and risk in registrants responsible for critical market infrastructure (clearing agencies, transfer agents, national securities exchanges and Regulation SCI entities), oversight of the Financial Industry Regulatory Authority and Municipal Securities Rulemaking Board, digital assets,…