On November 29, 2017, Deputy Attorney General Rod Rosenstein announced the addition of an FCPA Corporate Enforcement Policy to the U.S. Attorneys’ Manual (USAM). The Policy largely codifies upon the Department of Justice’s (DOJ) 2016 FCPA Pilot Program, but makes some modifications.
Federal securities fraud class action filings have been on a meteoric rise over the past 18 months. According to a recent report released by Cornerstone Research, plaintiffs filed 226 new federal securities fraud class action cases in the first six months of 2017. This figure is the highest ever since Congress passed the Private Securities Litigation Reform Act in 1995, eclipsing the previous record of 152 set in the second half of 2016. The 226 new cases in 2017 also shatter the 1997-2016 historical average of 96 filings per half.
The year 2016 was the biggest yet for U.S. securities class action settlements. On June 14, 2017, Securities Class Action Services, a division of Institutional Shareholder Services, Inc., released its updated list of the top 100 securities class action settlements of all time. The revised list featured 13 settlements in 2016 totaling over $5.6 billion. This, according to the report, was enough to make 2016 the biggest year ever in terms of total approved settlement funds.
This week, the Supreme Court in Kokesh v. SEC unanimously held that the Securities and Exchange Commission’s (SEC) equitable disgorgement remedy is subject to a five-year statute of limitations because it is a “penalty” within the meaning of 28 U.S.C. § 2462, which governs “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.” Before Kokesh, some circuits had held that the SEC could obtain disgorgement of the entire amount of the ill-gotten gains or losses avoided, even those that extended well beyond the five-year statute of limitations associated with most federal securities laws. Kokesh clarifies that both civil penalties and disgorgement are subject to the same five-year limitations period.
As predicted in this previous AG Deal Diary post, the U.S. Supreme Court has granted certiorari in United States v. Salman, No. 14-10204 (9th Cir. July 6), cert. granted (U.S. Jan. 19, 2016), an important insider-trading tipping opinion that created a circuit split with the 2nd Circuit’s watershed decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), cert. denied, No. 15-137 (U.S. Oct. 5, 2015).
On September 10, 2015, the 2nd Circuit, in Berman v. Neo@Ogilvy LLC, issued a divided opinion concerning the scope of protections offered by the Dodd-Frank Wall Street Reform and Consumer Protection Act. In a 2-1 decision, the Berman majority held that the anti-retaliation provisions of Dodd-Frank may apply to individuals who report securities violations internally and not to the SEC.
Although supported by several district court opinions and the SEC’s own published guidance, the 2nd Circuit’s decision in Berman directly conflicts with an earlier decision from the 5th Circuit holding that reporting violations to the SEC is a necessary prerequisite to obtain Dodd-Frank’s anti-retaliation protection as a whistleblower.
The 9th Circuit just denied rehearing en banc in a closely watched decision that declined to adopt a broad interpretation of its influential sister circuit’s watershed opinion in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), which raised the bar for criminal prosecutions in tipper/tippee insider trading cases. A previous post discussing this case can be found here. In United States v. Salman, No. 14-10204 (9th Cir. July 6), reh’g denied (Aug. 13, 2015), Senior Judge Jed S. Rakoff of the Southern District of New York, sitting by designation, wrote for the 9th Circuit panel that a tippee (i.e., a person who knowingly receives material, nonpublic information from a source who is bound by a duty of confidentiality (i.e., a tipper)) could be held liable for insider trading even without proof that the tipper expected any pecuniary or similarly valuable personal benefit in exchange for providing the information. In the process, Judge Rakoff narrowly construed Newman, a recent major precedent from his home circuit, which, given the 2nd Circuit’s volume of insider trading prosecutions, had appeared to many to signal a judicial retreat from expansive remote-tippee liability.
In recent years, taking advantage of expanded jurisdictional provisions in Dodd-Frank, the U.S. Securities and Exchange Commission (SEC) has brought an increasing number of enforcement actions, including complex matters with difficult factual and legal issues, through administrative proceedings, rather than in federal court as has traditionally been the case. As the Wall Street Journal observed in June and August of 2015, this practice has been widely criticized, but the SEC has insisted that it maintains legal authority to choose the forum in which to bring its cases and has published non-binding criteria to guide its decisions in this regard. On August 12, 2015, U.S. District Judge Richard M. Berman, of the Southern District of New York, dealt a setback to the SEC by preliminarily enjoining its administrative proceeding against former Standard & Poor’s Ratings Services executive Barbara Duka. Judge Berman found that the SEC’s procedure in hiring administrative law judges (ALJ) for such administrative proceedings was “likely unconstitutional,” because SEC staff—and not the SEC commissioners—hire ALJs. Judge Berman found that such a practice is likely to be in violation of the Appointments Clause and insulates the SEC’s administrative law judges from removal, even by the president of the United States. Judge Berman joins Judge Leigh Martin May of the Northern District of Georgia, who recently halted two other SEC administrative proceedings on the same grounds.