Lorenzo: A Win for the SEC and All Plaintiffs

The SEC's win at the Supreme Court in Lorenzo v. Securities and Exchange Commission, No. 17-1077 (March 27, 2019) will provide a significant benefit to the SEC in its enforcement program, but more importantly to class action participants.

The web is full of legal analysis of the opinion, but the impact can be summarized in two sentences from the opinion- “dissemination of false or misleading statements with intent to defraud can fall within the scope of subsections (a) and (c) of Rule 10b-5, as well as the relevant statutory provisions. In our view, that is so even if the disseminator did not ‘make’ the statements and consequently falls outside subsection (b) of the Rule.” 

In other words, while you cannot be charged for aiding and abetting, you can be charged for distributing someone else's false or misleading statement.

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Mark J. Astarita, Esq. has represented investors and brokers in SEC enforcement proceedings as well as in class action litigation, and investors who decide to opt-out of class action cases. To discuss a potential case with him, email him at mja@sallahlaw.com

Spring Lake Councilman Charged with Fraud Scheme

Spring Lake Heights Councilman Richard Diver (since resigned) has been charged by the Securities and Exchange Commission for ‘aiding and abetting’ an advisory firm in overbilling its clients as part of a fraudulent scheme to inflate his own pay. The SEC accuses Diver of engaging in a scheme to steal approximately $6M. In a statement released yesterday, the SEC said that the United States Attorney’s Office for the Southern District of New York separately announced criminal charges against Diver.

The SEC released the following statement yesterday:

The Securities and Exchange Commission today filed charges against the former Chief Operating Officer (COO) of a Commission-registered investment adviser for aiding and abetting the advisory firm’s actions to overbill its clients as part of a fraudulent scheme to improperly inflate his own pay.

According to the SEC’s complaint, between 2011 and December 2018, former COO Richard T. Diver, a resident of Spring Lake, New Jersey, engaged in an illicit scheme to steal approximately $6 million from his employer. Diver, whose duties included managing the advisory firm’s payroll and client billing functions, allegedly inflated his salary by hundreds of thousands of dollars per year. As part of this scheme, Diver defrauded investors by causing the investment adviser to overbill more than 300 investment advisory client accounts by approximately $750,000, for the purpose of generating additional revenue. As alleged in the complaint, Diver used this revenue to finance his inflated salary and when confronted by the investment adviser’s CEO in December 2018, Diver confessed to having carried out the scheme.

The SEC’s complaint, filed in federal district court in Manhattan, charges Diver with aiding and abetting the investment adviser’s violations of the antifraud provisions in Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC is seeking a judgment ordering permanent injunctive relief, disgorgement plus prejudgment interest thereon and civil monetary penalties against Diver.

Separately, the United States Attorney’s Office for the Southern District of New York announced criminal charges against Diver.

Will the SEC Take an Expansive Approach to the Extraterritorial Reach of Its Jurisdiction?

This article examines whether the U.S. Securities and Exchange Commission (SEC) may take a more expansive approach to the extraterritorial reach of its jurisdiction in light of the recent decision by the U.S. Court of Appeals for the Tenth Circuit in SEC v. Scoville, 913 F.3d 1204 (10th Cir. 2019), which held, in the context of an SEC enforcement matter, that the Dodd-Frank Act superseded the Supreme Court’s decision in Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010), which limited the SEC’s ability to enforce the federal securities laws to conduct that took place within the United States. This article also considers Scoville’s potential impact in light of other decisions, particularly the decision by the U.S. Court of Appeals for the Second Circuit in United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018), which takes a potentially more limited approach to the government’s extraterritorial jurisdiction in the context of the Foreign Corrupt Practices Act (FCPA). Although it remains to be seen whether other circuit courts will align with the Tenth Circuit’s decision in Scoville, this decision may alter and expand the playing field when navigating an SEC investigation or litigation.

 The New York Law Journal

Tesla Whistleblower Claims to be Working with the SEC

In the latest development of the saga of Tesla vs Martin Tripp, the automaker’s former employee being sued for hacking Tesla’s manufacturing software and stealing information, Tripp and his lawyer now claim that they are now working with the SEC, which is reportedly investigating Tesla.

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigations matters, including whistleblower claims.. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Senate Democrats call for investigation of SEC's Piwowar

Commissioner Michael Piwowar is under fire for speculation that he abused his position by trying to influence Citigroup's business dealings.

Six Democrat senators asked the SEC's inspector general Wednesday to investigate whether outgoing Commissioner Michael Piwowar might have abused his position "in an attempt to unduly influence Citigroup" over its decision to limit business with gun firms.

In the letter to Carl Hoecker, inspector general of the Securities and Exchange Commission, the senators questioned reports that, during an April 24 meeting with Citigroup Inc. officials to discuss derivatives rulemaking being considered at the SEC, Mr. Piwowar tried to get the officials to reverse their gun policy because it "conflicts with his personal and political views."Mr. Piwowar is one of three Republicans on the commission, including Chairman Jay Clayton. He is leaving July 7.
Democratic senators are questioning Piwowar's attempts to have Citigroup's officials reverse their policies regarding businesses with gun firms. The senators stand firm that individual personal and political views should not affect the SEC.

Read more here from Investment News.

SEC CorpFin Director's Big Crypto Speech

SEC Division of Corporate Finance Director William Hinman’s detailed his thoughts on ICOs at the Yahoo Finance All Markets Summit in San Francisco.

He stated that ether is not considered a security, and touched upon the fact that just because a digital asset started as a security, that does not mean it can't evolve into something else. He stressed that the quality of an asset and the manner in which it is sold affect its regulation.

Although these statements are by no means official rulings from the SEC, they are sure to carry a lot of weight with market professionals.

Get further details of Hinman's remarks here.

The SEC's Unconstitutional Hearing Process - Will the Supremes Fix It?

We have addressed the bizarre, and unconstitutional situation in SEC administrative proceedings, where the Commission files a complaint, appoints the "prosecutor" and the judge, and creates the rules under which the trial will be held. It is a process that is unfair on its face. The situation creates real-life kangeroo courts, where the rules of evidence are tossed out the window, the SEC staff can put in any "evidence" it wants, including double and triple hearsay - witnesses testifying that someone told them that someone else said that the broker said something. Bizarre, unconstitutional, and terrifying if you are the defendant.

The situation is made worse by the fact that the SEC appointed some of its in-house judges in violation of the United States Consitution, causing further constitutional issues, and causing many respondents to challenge the process, and seek to overturn the decisions of these judges.

The United States Supreme Court has agreed to address the appointment issue in Lucia v. SEC.  If the court should find in favor of  Lucia, the decision could affect more than 100 pending cases to appear before administrative law judges and those which have already been decided.

The SEC is clearly concerned about the case, and has attempted to "reappoint" its judges, and to order them to accept new evidence in the cases which have been started, or which are on appeal.

The fact that the Supreme Court sees an issue with how administrative law judges have been hired means the methods might not be constitutional and their rulings might not be valid.

In the interim, hundreds of cases are being reconsidered, and may be dismissed.

See, Supreme Court review will bolster fairness of SEC's in-house judges

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Mark J. Astarita, Esq. represents a financial professional in one of these administrative proceedings, which is now on appeal, and being reconsidered. He is a partner in the national securities law firm of Sallah Astarita & Cox, LLC and can be reached by email at mja@sallahlaw.com or by phone at 212-509-6544. 

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Bitcoin Fraud On the Rise

I have been representing targets and witnesses in securities fraud investigations and litigation for decades. I have litigated the aftermath of Ponzi schemes, pump and dumps and bubbles for investors, and have represented countless witnesses and targets in SEC and FINRA investigations.

Aside from my extensive securities litigation experience - 30 years and counting and am also more computer literate than most. I have litigated dozens upon dozens of cases caused by the crash in 1987, the tech bubble in 2001, the housing crisis in 2008 and dozens of fraud cases in between, as well as Internet securities fraud cases.

However, I don't know that any of us have seen anything near this Bitcoin craze, and the losses that investors are have already suffered and may suffer in the future.

The potential for loss is not simply from the direct loss in an investment which has soared in recent weeks, but in potential fraud surrounding the technology and the hacking of platforms.

After all, the coincurrencies are computer based. Your investment is "stored" online, and only online. Lose your password, you lose your money. And if hackers hack the exchange or the currency platform, you lose your money.

This is not a hypothethical overblown risk. Just last Wednesday NiceHash, which describes itself as the largest marketplace for mining digital currencies, reported  that it was suspending its operations for at least 24 hours because of a security breach which resulted in the theft of approximately 4,700 bitcoins which were worth roughly $75 million.

Bitfinex, a Hong Kong-based bitcoin exchange, was briefly shut down last year after hackers stole nearly 120,000 bitcoins -- worth more than $65 million at the time. The year before, cyber thieves made off with about 19,000 bitcoins after breaking into European exchange Bitstamp.

Then there is the risk of securities fraud. The SEC is aware of the potential for fraud and has opened a number of investigations. The SEC has warned investors to be on the lookout for "potential scams" involving Initial Coin Offerings. ICOs function similarly to an Initial Public Offering on the stock market, but without the governmental regulation. They typically receive investments in the form of cryptocurrency in exchange for shares known as tokens. But ICOs can be for any sort of startup -- they don't necessarily have to be for cryptocurrency companies.

The SEC's newly created Cyber Unit has started to take action on "pump and dump" schemes where fraudsters lure investors, take their money, and run. Add to this the hacking of coincurrency exchanges, and the potential for the inability to cash in coincurrency for dollars, and there is the potential for significant losses.

My office has been receiving inquiries from individuals looking to start coin exchanges, and a trickling of inquiries from investors who have lost money in coincurrency transactions. We are continuing to investigate and review these cases. If you have lost money in coincurrency, or have been contacted by the SEC or the FBI regarding coincurrency or cryptocurrency transactions, give our office a call at 212-509-6544, or email me directly at mja@sallahlaw.com.

SEC Wants All Investors to Access High Risk Investments.

In a startling about-face, Acting Securities and Exchange Commissioner Michael Piwowar called for allowing every investor to buy unregistered securities, regardless of their income, net worth, or ability to suffer the risk of loss.

The Issue

The discussion arises in the context of investing in private placements. Private placements are securities offerings of unregistered securities - they are not registered with the SEC and are generally not reviewed by any regulator before they are sold. Many of these offerings are high risk and the securities sold are typically illiquid.

It is because of that risk that companies are limited in who they can sell and solicit for these investments. Those restrictions generally work out so that firms do not accept investments from investors who are not "accredited." There are a number of types of accredited investors, but for individuals, they much have an annual income of $200,000 or more or a net worth of $1 million excluding their home. 

The accredited investor definition attempts to identify those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves remove the necessity for the protections of the '33 Act's registration provisions. While there are problems with the definition, the concept is sound. At the extremes, Bill Gates does not need to be protected in the same way your retired schoolteacher grandmother might be. 

Allowing companies to raise money without the costly registration process is fine - so long as the investors know and understand what the investment is, and what those risks are. The accredited investor definitions focus on financial information, and maybe a better test would be a review of actual investing experience, or maybe an investment test to qualify those sophisticated investors?

For now we are left with a financial test, which requires a balance. A narrow definition limits the number of investors and restrict the potential investor pool for business. A broad definition, would remove individuals who need the protection of the registration process, and would be nconsistent with the Commission’s investor protection mandate. It would also violate a basic tenet of the Securities Act by failing to provide investors in need of protection with adequate disclosures before they make an investment decision.

The Accredited Investor Definition

The definition of an accredited investor was introduced in 1982, and has not been changed, despite the effects of inflation over the years. However, the Dodd-Frank Act required the SEC to review the definition every 4 years.

The trend at the SEC is to limit the number of individuals who meet the requirements of an accredited investor, and, in theory, protect the investing public. For example, in December 2011, the SEC amended the definition to exclude the value of the investor's home, resulting in fewer investors meeting the net worth standard.

In December 2015 when the SEC Staff reviewed the definitions and made a number of recommendations, including the creation of new, additional inflation-adjusted income and net worth thresholds and to index all financial thresholds for inflation on a going-forward basis.

The SEC Chair's Comments

However, those changes may soon be coming to a halt. In a speech at a Practising Law Institute conference in Washington, Mr. Piwowar said that the restrictions on who can participate in private placements limits the returns and portfolio diversification of investors who are not defined as "accredited."

According to InvestmentNews.com, Mr. Piwowar said "[i]n my view, there is a glaring need to move beyond the artificial distinction between 'accredited' and 'non-accredited' investors," Mr. Piwowar also said. "I question the notion that non-accredited investors are truly protected by regulations that prevent them from investing in high-risk, high-return securities available only to the Davos jet-set."

While the definition certainly limits the investment choices of non-accredited investors, the reasoning behind the restriction remains sound. Or does it? It seems that Mr. Piwowar is claiming that the registration requirements of the securities laws for securities offerings do not do enough to protect investors. 

While I agree with him, that the registration requirements do little to protect investors and are a huge burden on small businesses and broker-dealers, is the answer to simply abandon investor qualifications and allow anyone to invest in high risk private placements? I like the concept of removing some of the paternalism that is inherent in the securities regulation web, but is this the position that the SEC should be taking? 

Conclusion

As InvestmentNews noted, democratizing the sale of unregistered securities can make investors with less financial werewithal vulnerable to losing money on the often risky ventures. Every review by the SEC Staff and Advisory Committees have recommending tightening the accredited investor definition, not removing it.

But here is Mr. Piwowar recommending changes to that Grandma can put her life savings into the latest technology private placement. Not a smart move by any stretch of the imagination.

SEC Creates National Database of Individual Trades - CARDS Rising from the Dead?

We all remember CARDS - FINRA's ill conceived plan to store and maintain information regarding every trade made by every person in our national markets. The plan was a disaster from the start, for many reasons, but one of the main reasons being the collection of all of that data by a private entity (FINRA), in one place, inclluding information regarding invidual investors. Sorry, but most thinking folks don't trust the government, or a private entity, or FINRA, to securely store that information and keep it protected from hackers. Plus, why would we allow the government to keep such detailed information on every single investment made by every single investor?

Well, we are going to have that happen. 

The SEC has approved an NMS plan to create a single, comprehensive database known as the consolidated audit trail (CAT) that the SEC and regulators believe will enable regulators to more efficiently and thoroughly track all trading activity in the U.S. equity and options markets. 

It will also create a database of trades, by investor, that the government can troll through at will.

The NMS plan details the methods by which SROs and broker-dealers will record and report information. While the goal is to obtain a range of data elements that together provide the complete lifecycle of all orders and transactions in the U.S. equity and options markets, those data elements include a unique identifier for the customer!

While the NMS plan also sets forth how the data in the CAT will be maintained to ensure its accuracy, integrity and security, there is no information as to what a unique customer identifier means, and you can be sure that someone will think it clever to use the customer's last name, or the last four digits of the customer's SSN, which can, ultimately, be reversed into the identity of the customer.

And why should the government have a record of every trade executed by every individual in the entire country?

SEC.gov | SEC Approves Plan to Create Consolidated Audit Trail

Related articles

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• There's a new 'hot-button' issue on Wall Street, and battle lines are being drawn 
• Hacking of Government Computers Exposed 21.5 Million People
• Why the IRS Was Hacked Again
• List of Hacked Government Agencies Grows: State Department, White House, NOAA & USPS

Misunderstood ETFs are Getting New SEC Rules

With the enormous growth of ETFs, which now hold over 2 trillion dollars in investors' funds, the SEC is considering new rules to regulate the use of this investment.

Exchange-traded funds may be so complex and volatile that they require a distinct set of rules from equities, SEC Commissioner Kara Stein suggested Friday. In remarks at the annual SEC Speaks conference, Stein acknowledged that ETFs have been a boon for many investors. Still, the average retail client doesn't understand the risks they carry and the features that distinguish them from common stock and mutual funds, she says.

Stein is calling for the SEC to convene working groups to take a hard look at the specific types of products that are available in the exchange-traded model. She is urging the commission to coordinate with FINRA and other regulators to evaluate how those products are being marketed, and to determine whether ETFs can even be considered suitable for buy-and-hold investors.

Are New Rules Needed for ETFs?

Court Stops SEC From Pursuing Hearing Before its Own ALJ

We have been beating this drum for a while now. The SEC's abuse of its administrative law procedures has become legend, and a success rate of 90-100% demonstrates the unfairness of the process. After all, it is going to be tough to lose a trial if you get to write the complaint, pay the prosecutor, try it before a judge that you appointed and pay, and then you get to decide the appeal. Hardly the model of fairness.

There are other technical objections to the process, including the fact that the SEC's appointment process for these judges is unconstitutional.  In June we reported on a federal court decision which found that the process was "likely unconstitional." Now a second federal judge had ruled that the SEC's method for appointing in-house judges was probably illegal and today entered a preliminary injunction against the SEC, preventing it from moving forward with the administrative proceeding.

The original decision by U.S. District Judge Richard Berman in Manhattan rejected the agency’s method of selecting administrative law judges to whom it directs hundreds of cases a year.  In the decision on August 3, 2015 the court reserved judgment on the request for an injunction for 7 days to allow the SEC time to decide if it was going to cure the violation of the constitution.

The SEC then advised the court that there is another case before the Commission, where the SEC is considering whether its process is unconstitutional, but that no decision has been made. The SEC Staff then took the curious position that it was going to move forward with the case, despite the court's decision, since the Commission itself had not made a decision.

In response, today the court entered a preliminary injunction preventing the SEC from pursuing the case. The preliminary injunction decision is also available at our site.

While this is only addresses one of many problems with the mis-use of the ALJs, it is one that the Commission can probably fix with relative ease - either reappoint their ALJs in accordance with the constitution, or hold the trials themselves.

My guess? They do neither and continue to abuse the process while they pursue appeals.

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email to mja@sallahlaw.com.

Related Documents and Commentary:

Duka v SEC Decision and Order Re Preliminary Injunction

Duka vs. SEC Preliminary Injunction

Court Rules SEC In-House Judges "Likely Unconstitutional"

SEC Sued For Unconstitutional Use of Its Own Judges

SEC's Use of Administrative Hearings Under Fire

Former SEC ALJ Claims Bias in Administrative Proceedings

Judge Rakoff Questions the SEC's Overuse of Administrative Proceeding

How the SEC Avoids Judicial Oversight and the Constitution

Massive Insider Trading Scheme Uncovered - Lots of Blame to Share.

A massive insider trading scheme has allegedly been uncovered by the SEC and the DOJ, according to the SEC, involving computer hacking, foreign investors, tens of millions of dollars, and years of trading activity.

Yesterday the Commission announced the filing of charges against 32 defendants, alleging that they hacked their way into computers and traded on stolen nonpublic information regarding corporate earnings announcements from the wire services who were holding earnings releases for the public companies. The press release is online at http://www.sec.gov/news/pressrelease/2015-163.html and the complaint is at the commission’s web site at http://www.sec.gov/litigation/complaints/2015/comp-pr2015-163.pdf.

I have been involved in cases involving allegations of computer fraud, and trading on undisclosed earnings announcements in the past in the URL Guessing cases,  but that was more of a misunderstanding on the part of the SEC Staff and the sloppiness of the issuers, than an organized hack. This case, at least according to the SEC, involves 5 years of advanced computer techniques to hack into two or more (un-named)  newswire services and stealing hundreds of corporate earnings announcements before they were released.

Some investors expressed surprise that the hacking of a wire service could be profitable. After all, there is a very small window of time to get the information and trade on it when you are dealing with earnings reports. One would assume that the earnings reports are delivered to the wire services minutes or an hour before its release.

You would also think that issuers would have learned from the URL Guessing cases. But apparently they have not. According to the SEC’s complaint, some of these issuers were uploading their releases days before the announcement, giving the hackers plenty of time to hack and trade.

For example, according to the complaint, while Zumiez uploaded its press release to the wire service at 1:29 pm for a 4:00 pm release, Acme Packet uploaded its press release at 5:53 pm, for release the next day at 4:05 pm, leaving the press release on a third party server for nearly 24 hours.

According to the complaint, the hacking went on for 5 years, and during that time (2010 until 2014), the hacker defendants hacked into the newswires'  computer systems and stole over 100,000 press releases before they were publicly issued.

And the hacking was apparently profitable. The SEC is alleging that the Defendants made over 100 million dollars in profits. However, keep in mind that the SEC does not concern itself with the losses. Not every trade pans out, and not every trade is profitable. The SEC however is only concerned with profits, and does not count losses.

One has to wonder what these wire services were doing all of these years, and why the hacking was not noticed.

One also has to wonder why the SEC, FINRA, and the exchanges did not notice the irregularities. Granted, we can assume that some of the press releases did not hold valuable information and there were no trades made, but according to the complaint the hackers were downloading press releases for years from the same two wire services.

While the defendants allegedly made significant sums of money, and, according to the SEC, hacked into computers to do so, one has to wonder where the responsibility of the wire services and the issuers lies in all of this.

First, the wire services had their computers hacked for years without noticing the hacks and allowing them to occur with over 100,000 press releases. While the SEC did not identify the wire services, they should have some liability to the shareholders of the issuers involved.

And the issuers – who surely share some of the blame, include Walter Energy, Caterpillar, Inc., Treehouse Foods, RadioShack, Brocade, Panera Bread, and others. Where were they during all of this – uploading their press releases, containing what is apparently very valuable information, days or hours in advance to unsecured third party vendors? Surely that is negligence and a breach of a duty to protect corporate information.

And lastly, the SEC. While they are now issuing press releases about what a great job they did in uncovering this alleged scheme, one has to wonder what the heck took them so long. These defendants are allegedly stealing over 100,000 press releases, for years, and generating millions of dollars in profits and the SEC never catches on until 4 years go by?

Former SEC ALJ Claims Bias

More information coming out from the Wall Street Journal's article on the failure of defendants to get a fair trial before the SEC's own administrative law judges.

According to the article, one former SEC judge said she thought the system was slanted against defendants at times.

Lillian McEwen, who was an SEC judge from 1995 to 2007, said she came under fire from Ms. Murray for finding too often in favor of defendants. “She questioned my loyalty to the SEC,” Ms. McEwen said in an interview, adding that she retired as a result of the criticism.

Ms. McEwen said the SEC in-house judges were expected to work on the assumption that “the burden was on the people who were accused to show that they didn’t do what the agency said they did.”

Of course, the burden is on the SEC to prove the allegations, not the reverse.If that comment is true, it is no wonder why defendants lose 90% of the time, and 100% of the time before Judge Elliot.

A spokeswoman for the SEC judges declined to comment, and the judges declined to be interviewed.

For more information - SEC Wins With In-House Judges - WSJ

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

SEC Wins Big When Bringing Cases In Front of its Own Judges

This story is not going away, and the SEC needs to pull its collective heads out of the sand and stop denying what everyone knows. Using an administrative law judge, which you appoint, to decide charges that you decided to bring, by a prosecutor that you pay, is not, and cannot, result in a fair hearing.

Mary Jo White, the head of the SEC, has been quoted as saying that its in-house adjudication system is  “very fair.” Enforcement chief Andrew Ceresney said the SEC’s “excellent record in administrative proceedings reflects the strength of the evidence presented in each case, and not our choice of venue.” So why the dramatic shift out of court and into their own system? Undoubtedly because the SEC wins more cases when it pays and appoints the Judge, and when it gets to decide the appeals of its own case.

There is simply no disputing the facts. According to the WSJ, the SEC won against 90% of defendants before its own judges in contested cases from October 2010 through March of this year. That was markedly higher than the 69% success the agency obtained against defendants in federal court over the same period, based on SEC data.

Going back to October 2004, the SEC has won against at least four of five defendants in front of its own judges every fiscal year.

The situation is worse when a defendant appeals. In an SEC administrative proceeding, the first appeal is to the Commission itself. Remember, it is the Commission itself who decided to file the charges, the Commission appoints the judge and the prosecutor who handle the case. Is there any real surprise that the Commissioners decided in their own agency’s favor concerning 53 out of 56 defendants in appeals—or 95%—from January 2010 through this past March?

In the 5 other instances, the cases were sent back to in-house SEC judges to reconsider. No defendant was cleared on appeal. None.

“In an administrative law proceeding” at the SEC, said Bradley Bondi, a former counsel to two former SEC commissioners, “the commission is akin to the prosecutor and then, in an appeal, the judge in the same case.”

For more information - SEC Wins With In-House Judges - WSJ

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Nationwide Life Settles Charges Violating Pricing Rules for 8 Million Dollars

If you have an annuity with Nationwide Life you may want to read this. The SEC charged the company with routinely violating pricing rules in handling purchase and redemption orders for variable insurance contracts and underlying mutual funds.

Nationwide agreed to settle the charges and pay an $8 million penalty.

Pricing rules for mutual fund shares require an investment company to compute the value of its shares at least once daily at a specific time.  According to the SEC, Nationwide’s prospectuses stated that mutual fund orders received before 4 p.m. at its home office in Columbus, Ohio, would receive the current day’s price.  Orders received after 4 p.m. would receive the next day’s price.

The SEC alleges that Nationwide intentionally delayed the pickup of its mail at its PO Box, avoiding the requirement to process trades at the current day's price. It did however pick up its other mail from PO Boxes in a timely fashion.

Meanwhile, Nationwide did arrange for prompt pickup and delivery of U.S. Postal Service Priority Mail or Priority Express Mail that enabled contract owners to track an order’s time of delivery to the P.O. boxes.  Those orders were assigned the current day’s price.

 

For more than a 15-year period, Nationwide intentionally delayed the delivery of untracked mail containing orders from customers and processed them at the next day’s prices in violation of the law. - Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office. 

The SEC's penalty will not compensate victims. If you have redeemed or purchased a Nationwide Life Insurance annuity and did so by regular mail, contact our office by email.

For more information - SEC Charges Nationwide Life Insurance Company With Pricing Violations

--- The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

SEC Sued For Unconstitutional Use of Its Own Judges

Atlanta-based investment firm Gray Financial Group Inc. has sued the Securities and Exchange Commission in Georgia federal court, challenging the agency's use of its own administrative law judges rather than federal judges to try enforcement cases.

The lawsuit is the latest challenge to an SEC practice that has been increasing since the passage of the 2010 Dodd-Frank financial reform law.

For more information, see SEC sued for using its own judges and our prior commentary on the subject:

With 100% Success Rate, SEC's Use of In-House Judges Questioned by Commissioner Piwowar

SEC Faces Challenges Over the Constitutionality of Some of Its Court Proceedings

Judge Rakoff Questions the SEC's Overuse of Administrative Proceeding

SEC's Use of Administrative Hearings Under Fire

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and SEC administrative proceedings, For more information call 212-509-6544 or send an email.

With 100% Success Rate, SEC's Use of In-House Judges Questioned by Commissioner Piwowar

The SEC's increased use of administrative proceedings as the forum for its enforcement actions has come under fire in recent months, with many of the respondents in those cases filing lawsuits arguing (unsuccessfully) that administrative proceedings are actually unconstitutional.

In a speech on Friday SEC Commissioner Michael Piwowar acknowledged that as a matter of "fairness," the SEC should draft guidelines to establish "which cases are brought in administrative proceedings and which in federal courts."

For more information, go to SEC's Piwowar Seeks Guidelines Governing When SEC Will Bring Cases as APs . (Hat tip to Securities Docket for alerting us to the speech.

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

SEC Faces Challenges Over the Constitutionality of Some of Its Court Proceedings

Great analysis of the issues raised by the SEC's use of administrative proceedings to avoid juries, evidentiary rules, discovery by defendants and other procedural safeguards afforded to defendants in government prosecutions.
We have written about this before, and the objections are starting to gain some traction. See, Judge Rakoff Questions the SEC's Overuse of Administrative Proceeding,  SEC's Use of Administrative Hearings Under Fire,  The SEC's Use of the Rocket Docket is Challenged and At the SEC, a question of Home Court Edge.
The comment from Andrew J. Ceresney, the director of the S.E.C.’s enforcement division, that “our use of the administrative forum is eminently proper, appropriate and fair to respondents" demonstrates a total lack of understanding of his agencies own administrative proceedings, or a callous disregard for what is proper, appropriate or fair. No discovery, the use of double and triple hearsay, reliance on their own staff as independent expert witnesses and reliance on double and triple hearsay on significant issues is not proper, appropriate or fair. Then again, Mr. Ceresney is the head of the enforcement division, hardly an independent commentator.
S.E.C. Faces Challenges Over the Constitutionality of Some of Its Court Proceedings - NYTimes.com

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

Time To Make SEC Press Releases Accurate and Fair

Russell Ryan comes out swinging again, and highlighting a problem that those of us who defend investors and financial professionals face nearly every day - the over-the-top SEC press release.
FINRA engages in the same sort of gamesmanship. Both regulators announce their allegations against a defendant, often using inflammatory language, and word their press releases as if the defendant had already been tried and convicted.

Some of these releases run afoul of guidelines send down by the courts, as referenced by Mr. Ryan, but many more are simply abusive, and appear to be designed to prejudice the public against the named defendants, before the defendant has even seen the complaint!

Further, the SEC and FINRA rarely, if ever, issues a press release when it loses a case, and leaves its original press release at the website, for every search engine to find, and to continue to return in response to a search for the exonerated defendant's name.

Mr.Ryan points out not only the biased and inflammatory nature of the press releases, but the fact that there is an inherent conflict in the press releases. The releases trumpet a filing, not a finding by a court or judge, written by the SEC Staff who is prosecuting the case, and authorized by the Commission itself, for a case that will be prosecuted by that same attorney, before an administrative law judge who was appointed by the Commission - and whose decision will be appealed to the Commission!

We have discussed the SEC's abuse of its administrative proceedings before, in Judge Rakoff Questions the SEC's Overuse of Administrative Proceedings, SEC's Use of Administrative Proceedings Under Fire, as have others, including Peter J. Henning, a professor at Wayne State University Law School in The S.E.C.’s Use of the ‘Rocket Docket’ Is Challenged, Professor Stephen Bainbridge in Should the SEC be Prosecutor, Judge, Jury, and Executioner? and  Gretchen Morganstern in her New York Times article titled At the S.E.C., a Question of Home-Court Edge, and it is getting out of control.

This is not simply an issue of securities defense attorneys crying foul, this is a serious constitutional issue, with important ramifications for everyone who invests. While some may believe that this does not affect them, the SEC does not limit its use of administrative proceedings to prosecute securities professionals - they use this kangaroo-like proceeding against investors as well.

The original article - Get the SEC Out of the PR Business - WSJ

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--- The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.