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The weekly news source for investment management legal and compliance professionals

Topic: Litigation/Court Cases

Monitor Disclosures – Even When They Come from the Top

April 12, 2019
Chief compliance officers should make every effort to review disclosures from their firms to the SEC, investors and others, even if those disclosures already have the blessing of top management. Failure to do so may leave the door open to potential fraud.

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SEC’s Enforcement Powers Likely Widened by Lorenzo Ruling

April 12, 2019
The SEC, battered by Supreme Court rulings in recent months that made it change how it appoints administrative law judges and placed a time limit on disgorgement, scored a big win with the high courtís recent Opinion in the Lorenzo v. Securities and Exchange Commission case. Under the ruling, the SEC, as well as private parties, will likely be able to bring fraud charges in more cases and assess more sanctions.

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Court Decision Removes Threat to SEC Pursuit of Cryptocurrencies

February 22, 2019
A federal district court judge has reconsidered a previous ruling and granted a preliminary injunction against a digital token company. In doing so, he also removed a potential threat to a key SEC tactic in the agencyís enforcement actions against cryptocurrency operators.

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Fraud Charges Demonstrate that Actions Must Match Disclosures

February 8, 2019
Telling investors one thing and then doing another is often a recipe for trouble. This may have been particularly true for one advisory firm that the SEC charged January 26 with promising some investors that portions of their profits would be used to protect their investments but instead were used to pay the living expenses of the firmís owner.

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Cato Institute Challenges SEC’s Use of Settlement Gag Orders

January 18, 2019
The Cato Institute, the well-known libertarian think tank, took aim at the SEC this month. It filed a complaint against the Commission in federal court, challenging the SECís use of the gag order that prevents settlement respondents from denying the allegations in their settlements or telling their side of the story.

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The SEC Strikes Back: EDGAR Hacking Suspects Found and Charged

January 18, 2019
Nine suspects Ė hackers, traders and other entities from multiple countries Ė were charged by the SEC January 15 in federal court with perpetrating the 2016 hack of the agencyís online Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, including some of its personally identifiable information.

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Ruling Against SEC in ICO Case May Upset Agency’s Cryptocurrency Strategy

December 7, 2018
The question of whether a digital token constitutes a security may have been put into play by a federal judgeís ruling in an ongoing case involving the SEC and a company engaged in a digital coin offering (ICO). The judge turned down the agencyís request for a preliminary injunction against the company, saying that the SEC had not sufficiently proved that the digital tokens involved met the definition of a security.

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SEC Targets Short-and-Distort Schemes to Drive Down a Company’s Share Price

October 12, 2018
Itís one thing for an adviser to express an opinion about a company that it plans to invest in. Itís another to use false statements in an attempt to drive down a companyís share price. The SEC recently filed a complaint in federal court that a hedge fund adviser did just that.

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Federal Court Dismisses Challenge to SEC Disgorgement Authority

September 7, 2018
Following the June 2017 Supreme Court Kokesh settlement that subjected SEC disgorgement orders to a five-year statute of limitations, it was perhaps inevitable that there would be legal challenges to the agencyís authority to order disgorgement at all as part of an administrative settlement. Late last month a federal district court judge rejected such a challenge.

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Expect Kavanaugh to Stay in Line with Supreme Court Securities Rulings

July 13, 2018
Should federal appeals court Judge Brett Kavanaugh be confirmed as a Supreme Court justice, as many commentators think likely, donít expect him to rock the boat when it comes to rulings involving the nationís securities laws. The high court has a long history of deciding securities law cases fairly narrowly, and Kavanaugh is unlikely to push the court one way or the other, legal and securities experts say.

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Supreme Court Administrative Law Judge Ruling May Have Far-Reaching Ramifications

June 22, 2018
The Supreme Court ruled that SEC administrative law judges are not merely "employees," but are "officers of the United States" that must be appointed by the President, the courts or the heads of federal departments.

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Hedge Fund Advisers that Inflate Asset Value Likely to Draw SEC Attention

May 31, 2018
It may sound like a way to bring in investor dollars, but in reality it is more likely to bring in SEC investigators. Hedge fund advisers tempted to lure new investors and keep existing ones by taking questionable steps to increase fund value run the risk of being taken to court by the SEC for fraud.

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ALJ Case: Supreme Court Oral Arguments Shed Little Light on Anticipated Ruling

May 4, 2018
Raymond Lucia got his day before the Supreme Court, but other than the satisfaction of getting that far, it remains unclear just how the high court will rule on his petition challenging how SEC administrative law judges are appointed.

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F-Squared Founder Ordered to Pay More than $13 Million

March 30, 2018
The F-Squared Investments saga seems to open or close a new chapter every few months since 2014, when the SEC first brought charges against the advisory firm for allegedly making false and misleading statements about its investment strategy algorithm. The latest development occurred March 22, when a federal judge ordered that F-Squared founder and former CEO Howard Present personally pay $13 million, including a $1.58 million civil money penalty, following his loss at trial this past October.

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DOL Fiduciary Rule Tossed Out by Appellate Court

March 23, 2018
Things are beginning to look pretty gloomy for the Department of Laborís Fiduciary Rule. A U.S. Court of Appeals for the 5th Circuit three-judge panel this month struck down the entire Rule, describing it as "backdoor regulation." With the SEC now working on its own fiduciary regulations that may prove dominant in this area, the DOL is now faced with the question of whether the appellate court ruling is worth appealing.

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The SEC’s Cherry-Picking Crackdown: What’s Behind It

March 16, 2018
Whatís behind the SECís crackdown on cherry-picking at advisory firms, other than the agencyís desire to stamp out this violation wherever and whenever itís found? Certainly there are other improper actions that the Division of Enforcement has made clear it will pursue, among them share class selection or Rule 105 violations. Cherry-picking cases, however, seem to be in a case by themselves.

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Supreme Court Whistleblower Definition Ruling May Hurt Advisory Firms

March 2, 2018
Donít be so quick to applaud. The recent U.S. Supreme Court whistleblower anti-retaliation decision in favor of an employer may sound like good news to advisory firms, broker-dealers and companies everywhere Ė but may spur disgruntled employees to report suspected fraud or related actions directly to the SEC, rather than to upper management.

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SEC Files Misrepresentation Charges Against Adviser Raising Money to Flip Real Estate

February 2, 2018
Flip or flop? Advisers seeking to raise money from clients and investors for the declared purposed of flipping residential properties would be wise to ensure that the dollars raised go to that purpose. The SEC has filed charges against an adviser and others for allegedly failing to do just that.

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Status of Administrative Law Judges Will be Reviewed by Supreme Court

January 18, 2018
It took just eight words: "The petitions for writs of certiorari are granted." With that sentence, the U.S. Supreme Court on January 12 let it be known that it will review a lower court decision in Lucia v. SEC, potentially overturning the way that the agency has traditionally classified its administrative law judges. The high courtís ultimate decision may upend a number of established lower courtís verdicts.

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SEC Charges Gatekeepers in Federal Court with Aiding and Abetting Fraud

January 12, 2018
Donít expect the crackdown on "gatekeepers" Ė attorneys, accountants, consultants and other third parties that work with advisory firms Ė to let up any time soon, even with a new SEC chairman at the helm. The agency recently filed charges in U.S. District Court against an attorney and an accountant for allowing, if not enabling, an adviserís alleged misappropriation of more than $9 million from a charitable foundation.

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