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The weekly news source for investment management legal and compliance professionals

Topic: Litigation/Court Cases

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 agency’s 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, don’t expect him to rock the boat when it comes to rulings involving the nation’s 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 Labor’s 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  What’s behind the SEC’s crackdown on cherry-picking at advisory firms, other than the agency’s desire to stamp out this violation wherever and whenever it’s 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  Don’t 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 – 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 court’s ultimate decision may upend a number of established lower court’s verdicts.
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SEC Charges Gatekeepers in Federal Court with Aiding and Abetting Fraud

January 12, 2018  Don’t expect the crackdown on "gatekeepers" – attorneys, accountants, consultants and other third parties that work with advisory firms – 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 adviser’s alleged misappropriation of more than $9 million from a charitable foundation.
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PF Manager Settles Charges Involving Conflicts, Disclosure and Exam Findings

January 5, 2018  A private fund manager that the SEC accused of not acting in a timely fashion on multiple examination findings was taken to federal court by the agency, which charged him with, among other things, engaging in conflicted transactions and misleading investors. The manager, Louis Mohlman, Jr. and his two advisory firms reached a settlement with the SEC the same day.
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2017 in Review: A New SEC, Cybersecurity Threats and the Fiduciary Rule

January 1, 2018  The past year saw a great deal of change and development in the asset management community, but three loom larger than others: A new SEC with Jay Clayton at the helm, bringing different priorities than his predecessor; exacerbating cybersecurity concerns, with the SEC itself one of the victims; and the Department of Labor’s Fiduciary Rule and its exemptions, delays in their taking effect, and the increasing likelihood of SEC involvement in the process.
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2018: What Advisers Should Expect in the Year Ahead

January 1, 2018  Prognostication is always a bit of a guessing game. What may look like priorities in January may be replaced by other issues in the latter part of the year or may be driven by external and internal events, politics and the marketplace. Whatever may occur, 2018 is already marked as a year for change in the asset management industry.
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Government Reversal in ALJ Case May Reverberate Beyond Supreme Court

December 8, 2017  The decision of the Justice Department to switch sides in a pending Supreme Court appeal involving the status of administrative law judges – and the Commission’s subsequent ratification of its five ALJs as appointed officers rather than continuing to classify them as agency employees – is likely to have ramifications for the SEC and those it regulates beyond the immediate case.
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Jury Rules Against F-Squared Founder in Federal Court

October 13, 2017  The SEC came out the winner on October 6, when a federal jury ruled against advisory firm F-Squared Investments founder and former CEO Howard Present in a case the agency brought almost two years ago in federal district court.
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High Court Will Review Protections for Whistleblowers Who Report Only Internally

July 7, 2017  Are whistleblowers protected from employer retaliation if they report wrongdoing to their employer but not to the SEC? The answer will depend on the U.S. Supreme Court, which this fall will review a lower-level court case dealing with that very question.
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Supreme Court: SEC Cannot Impose Disgorgement After Five Years

June 9, 2017  You could almost hear the champagne bottles uncorking at the law offices of securities defense attorneys from coast to coast. At the same time, one can imagine a mood akin to a funereal grim at the SEC Division of Enforcement. The reason for both was the same: The U.S. Supreme Court on June 5 ruled that the Commission cannot require disgorgement for violations that occurred outside a five-year statute of limitations.
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Cooperman Settles Insider Trading Charges for $5 Million and Onsite Monitoring

June 2, 2017  Don’t let anyone tell you that the SEC isn’t pursuing insider trading cases in the wake of some reversals the agency experienced in the past couple of years. The rules governing such enforcement actions may have tightened, but they continue to be brought. One just resulted in significant penalties against an advisory firm owner and his firm.
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Portfolio Manager Charged with Stealing Dollars in Matched-Trades Scheme

April 28, 2017  Chief compliance officers know that high among the advisory firm employees they need to monitor are portfolio managers. After all, they sit at the nexus of the trading action. The SEC, in an April 24 complaint filed against a Massachusetts-based portfolio manager, makes clear just how serious the dangers are.
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Advisory Firm President Gets Home Detention for Obstructing SEC Investigation

April 28, 2017  It’s not often that an advisory firm executive is sentenced to incarceration, even at home, related to an Advisers Act violation. When that executive is charged with obstructing an SEC investigation, however, it can be a different story, as one former advisory firm president found out.
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Appellate Ruling Increases Chances SEC Use of ALJs Will Go to Supreme Court

March 10, 2017  Not only do the U.S. Courts of Appeals for the 2nd Circuit and the 10th Circuit disagree on the issue of whether SEC use of administrative law judges is constitutional, the 2nd Circuit will now look into a past ruling of its own three-judge panel on the same question in a review scheduled for May 24. It’s increasingly looking like the U.S. Supreme Court will provide the final answer.
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SEC Cherry-Picking Dragnet Yields Adviser Plea Bargain and Civil Settlement

February 10, 2017  Allocation of trade results that consistently favor an adviser’s own accounts over his clients are likely to gain the attention of government enforcement officials. One adviser just found that out the hard way.
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Examination Findings Led to Court Actions Against Platinum’s Founder

January 27, 2017  Platinum Partners received quite a bit of negative publicity since the civil and criminal charges against the hedge fund manager’s founder and two of its subsidiary advisory firms in U.S. District Court last month. But perhaps less publicized was that much of the enforcement action began after an SEC examination found evidence of wrongdoing.
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Supreme Court Will Review Whether Time Limits Apply to Disgorgement

January 20, 2017  Those committing fraud may no longer have to disgorge money if five years pass after the theft was committed. It all depends on what the Supreme Court decides after hearing a case it just agreed to review.
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SEC Use of Administrative Law Judges Unconstitutional, Appeals Court Rules

January 6, 2017  The battle over administrative law judges goes on, and it increasingly looks like the U.S. Supreme Court will be the final arbiter.
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