Category: SEC Enforcement

Equifax Data Breach: Preliminary Lessons for the Adoption and Implementation of Insider Trading Policies

Cam C. Hoang

Insider trading allegations have surfaced at Equifax, a credit rating agency that last week announced a data breach that could potentially affect 143 million consumers in the United States, nearly half of the country’s population. SEC filings show that three Equifax executives sold nearly $2 million in shares of the company’s common stock days after the cyberattack was discovered but before the news was publicly...

SEC Warns That ICOs and Other Internet Token Sales May Be Securities Offerings Subject to Federal Securities Laws

Whitney Holmes

On Tuesday, July 25, as many practitioners probably expected, the SEC issued a warning that offers and sales of digital assets (virtual coins or tokens) by organizations using blockchain or distributed ledger technology (often referred to, among other things, as Initial Coin Offerings (“ICOs”) or Token Sales) are subject to the requirements of the federal securities laws. Depending on the offering, investors may use an...

Compensation to Newsletter Writers Must Be Disclosed

Kenneth G. Sam

On April 10, 2017, the SEC’s Division of Enforcement brought enforcement actions against 27 individuals and entities behind various alleged stock promotion schemes. These actions arose when public companies, through promoters or communications firms, hired newsletter writers to generate publicity for their securities without publicly disclosing that the writers were being paid. While it is not illegal to hire newsletter writers, Section 17(b) of the...

The Danger of Paying Finder’s Fees to Unregistered Broker-Dealers

Kenneth G. Sam

We get asked from time-to-time whether it is advisable for issuers to pay fees to unregistered “finders” for introducing potential investors in the United States to the issuer in connection with securities offerings. The short answer is “no.” Most finders are engaged by issuers under finder’s, advisory, or other arrangements, which typically require payment of “success fees” upon completion of a financing transaction. While these...

General Counsel Permitted to Use Attorney-Client Privileged Information in Whistleblower Retaliation Case

Rachel Benedict

In a recent case, Wadler v. Bio-Rad Laboratories, Inc. case number 3:15-cv-02356 (2016), the federal court in the Northern District of California ruled that the plaintiff and former general counsel of Bio-Rad Laboratories could use attorney-client privileged information to support his claim of whistleblower retaliation. The court determined that the Sarbanes-Oxley Act’s whistleblower protections preempt the state ethical rules against disclosure of attorney-client privileged information....

Do Your Confidentiality Clauses Expressly Allow Whistleblowing?

Christopher L. Doerksen

Over the last few months, the SEC has obtained a string of cease and desist orders against SEC reporting companies, both domestic and foreign, to enforce an often overlooked rule adopted under Dodd-Frank.  Rule 21F-17 provides that “[n]o person may take any action to impede an individual from communicating directly with the [SEC] staff about a possible securities law violation, including enforcing, or threatening to...

Whistling through the Graveyard: The Future of the SEC’s Whistleblower Program

Bryn R. Vaaler

The SEC announced on November 14 that it had made an award of more than $20 million to another whistleblower.  This was the third highest award since the agency began paying them out in 2012, and it brings the total of such awards under the SEC’s program to more than $130 million.  Although the current whistleblower program has been criticized by conservative groups such as...

Can a shareholder who is unable to rely on the HSR passive investor exemption still file a Schedule 13G? Maybe, says the SEC Staff in new guidance

Kimberley R. Anderson

Last Tuesday, the US Department of Justice announced a record $11 million fine against an activist investment firm for improperly claiming an exemption from Hart-Scott-Rodino’s notification and waiting period provisions reserved for passive investors.  Two days later, in the wake of the DOJ’s announcement, the SEC Staff issued guidance stating that the inability to rely on the HSR passive investor exemption (relating to the acquisition...