Category Archives: SEC Litigation

SEC Sues Badin for Insider Trading in Smithfield Foods Acquisition

By David Smyth on June 6th, 2013 Posted in Insider Trading, SEC Litigation

The May 29th announcement that China-based Shuanghui International Holdings had agreed to acquire Virginia-based Smithfield Foods came with a lot of news value. First, the $4.7 billion price tag for Smithfield is large by any measure. Second, this deal – the largest-ever acquisition of a U.S. company by a Chinese company – has offered great… Continue Reading

Total S.A. FCPA Actions Hearken Back to Time of Tupac Shakur, Beepers

By David Smyth on May 31st, 2013 Posted in FCPA, SEC Litigation, SEC Structure

Remember 1995? It was a long time ago, so you can be forgiven for not recalling much of it. To re-orient you: it was President Clinton’s first term; the Oklahoma City bombing happened in April; a jury found O.J. Simpson not guilty of two murders; Apple was still trying to sell the Newton. And Total,… Continue Reading

Several Thoughts about the Largest Insider Trading Case in History

By David Smyth on November 21st, 2012 Posted in Insider Trading, Investment Advisers, Parallel Proceedings, SEC Litigation

The SEC and Justice Department filed a massive insider trading case in the Southern District of New York yesterday. The actual defendants include University of Michigan neurology professor Sidney Gilman, hedge fund advisory firm CR Intrinsic Investors LLC, and Matthew Martoma, a portfolio manager at CR Intrinsic between 2006 and 2010. According to the Wall… Continue Reading

Second Circuit Addresses Insider Trading Duty under Misappropriation Theory

By David Smyth on November 2nd, 2012 Posted in Insider Trading, SEC Litigation

A more responsible blogger would have covered this case well before now. But you take your bloggers as you find them, and I do think it important even two months later to address SEC v. Obus, 693 F.3d 276 (2d Cir. 2012). In that case, the U.S. Court of Appeals for the Second Circuit reversed… Continue Reading

Three More Thoughts about Securities Enforcement Forum 2012

By David Smyth on October 21st, 2012 Posted in Insider Trading, SEC Litigation, Whistleblowers

Several more things from the Securities Enforcement Forum 2012 occurred to me after my last post, and I thought I would note them here. Rajat Gupta First, in a discussion of recent insider trading cases, Judge Sporkin supposed that Rajat Gupta might have avoided criminal prosecution if he had settled the SEC’s initial administrative case… Continue Reading

Back from the Securities Enforcement Forum 2012

By David Smyth on October 19th, 2012 Posted in FCPA, SEC Litigation

Yesterday I attended the Securities Enforcement Forum 2012 at the Mayflower Hotel in D.C. Bruce Carton organized an excellent day of panels devoted to a number of securities enforcement topics. Here is the full agenda from the day. Several things jumped out at me as noteworthy. More Use of Section 21(a) Reports The Hon. Stanley… Continue Reading

SEC Lays Out Standards for 102(e) Proceedings

By David Smyth on October 14th, 2012 Posted in Accounting Fraud, SEC Litigation

One of my favorite things as a legal researcher is when a court does my work for me. It doesn’t happen often, but sometimes a court takes a complicated subject and outlines the law with sufficient supporting authority to give comfort that by studying the opinion, readers have gotten a good start on understanding that… Continue Reading

North Carolina Trader Plays His Cards Right with the SEC

By David Smyth on September 23rd, 2012 Posted in Cooperation, Insider Trading, SEC Litigation

This perhaps goes without saying, but when the SEC’s enforcement staff call to ask about potential securities law violations, they aren’t just gathering facts, as they like to say. And it can be very hard to know what to do in response. Kenneth Wrangell got such a call recently, and it appears that he made… Continue Reading

Second Circuit Eases Aiding and Abetting Standard for SEC

By David Smyth on August 14th, 2012 Posted in Accounting Fraud, Financial Fraud, SEC Litigation

To prove an aiding and abetting claim against a defendant, the SEC has to prove three things: (1) a securities law violation by a primary party; (2) knowledge of the violation by the aider and abettor; and (3) “substantial assistance” by the aider and abettor in the achievement of the primary violation. It is a… Continue Reading

Breaking: Study Confirms What I Think

By David Smyth on August 6th, 2012 Posted in SEC Litigation, SEC Structure

In the wake of the 2008 financial crisis and the Bernard Madoff scandal, there was no shortage of commentators suggesting that the SEC’s “revolving door” had contributed to both situations. The idea was that SEC staff had gone soft on major players in the financial industry with the hope that lucrative employment by those players… Continue Reading

Wells Notices May Not Compel Disclosure, at Least for Now

By David Smyth on July 17th, 2012 Posted in SEC Litigation, Structured and New Products

On June 21st, Judge Paul Crotty largely denied a motion to dismiss in Richman v. Goldman Sachs Group, Inc. (S.D.N.Y.), private litigation surrounding the same CDOs that were the subject of the SEC’s famous enforcement action against Goldman in 2010. While many of the plaintiffs’ claims survived to reach discovery, the court rejected one: a… Continue Reading

E.D.N.Y. Judge Highlights SEC’s Limited Enforcement Powers

By David Smyth on June 24th, 2012 Posted in Hedge Funds, SEC Litigation

In November 2009, a federal jury in Brooklyn acquitted Ralph Cioffi and Matthew Tannin of securities fraud charges arising from the failure of their hedge fund at Bear Stearns. The case was noteworthy because it was one of the few attempts to criminally prosecute anyone for activity arising out of the 2008 financial crisis. Cioffi… Continue Reading

Egan-Jones Challenges SEC’s Administrative Process

By David Smyth on June 14th, 2012 Posted in SEC Litigation

From a securities enforcement perspective, one of the most significant aspects of 2010’s Dodd-Frank Act was Section 929P: the authorization for the SEC to seek civil penalties in administrative proceedings. Before, the SEC could seek those penalties only against regulated entities. Now, anyone is fair game, and to get those penalties, the SEC does not… Continue Reading

SDNY Explores Officer-and-Director Bar Factors

By David Smyth on June 5th, 2012 Posted in Insider Trading, SEC Litigation

In its enforcement actions, the SEC almost always seeks injunctions that prohibit the defendants from violating specific securities laws. Their value lies in the threat of contempt for violation of the order (a largely illusory threat) and collateral consequences for various aspects of the defendant’s business (can be quite serious). For defendants who are not… Continue Reading

Friday Weekly Roundup

By David Smyth on April 20th, 2012 Posted in SEC Litigation

I’d like to try a weekly post with short bits recapping what I think are the most interesting stories or cases from the past week. We’ll see how it works, but for this week: Matt Solomon, an AUSA in the District of Columbia, was recently named Deputy Chief Litigation Counsel in the SEC’s trial unit. … Continue Reading

SEC Charges Thornburg Mortgage Executives with Financial Fraud

By David Smyth on March 30th, 2012 Posted in Accounting Fraud, Auditors, Financial Fraud, SEC Litigation

Perhaps the SEC, at least for the time being, is finding its groove with respect to financial fraud matters. For the second time in a two-month span, the Commission has brought a case for fraudulent disclosures regarding the health of a residential loan portfolio. In January, the SEC filed suit against Florida-based BankAtlantic and its… Continue Reading

SEC Files Rare Subpoena Enforcement Action against Wells Fargo

By David Smyth on March 24th, 2012 Posted in SEC Litigation, Structured and New Products

Though it hardly seems this way from the outside, the SEC’s enforcement staff is in a somewhat difficult position in its investigations. The staff issues voluntary requests or administrative subpoenas to entities with potentially responsive documents, and then it waits. If a company doesn’t respond quickly, or at all, what is the SEC going to… Continue Reading

SEC Appeal of Citigroup Ruling Pays Off

By David Smyth on March 16th, 2012 Posted in SEC Litigation, Structured and New Products

Years from now, it may seem clear that a district court would have to have truly extraordinary reasons for rejecting a settlement between a sophisticated and well-represented investment bank and a government agency litigating against that bank. Judge Rakoff in the Southern District of New York did just that last November, and sent the SEC… Continue Reading

Common Attacks on the SEC’s Neither-Admit-Nor-Deny Policy

By David Smyth on January 17th, 2012 Posted in SEC Litigation, SEC Structure

The House Financial Services Committee has promised to hold hearings on the SEC’s policy of including standard language in settlement papers saying that the defendant neither admits nor denies the allegations in the SEC’s complaint. I thought I would turn to some commonly cited reasons for changing the policy and requiring admissions from defendants. I don’t think they stand… Continue Reading

SEC Charges Privately-Held Stiefel Labs

By David Smyth on January 12th, 2012 Posted in SEC Litigation

The SEC regulates securities, not just publicly traded companies. This is no big mystery, and is obvious to many, and from many contexts. After all, the SEC brings enforcement actions against broker-dealers for faulty recordkeeping, against foreign persons for violations of the FCPA, and against hedge funds for fraud in selling their limited partnership interests. … Continue Reading

SEC-Rakoff Brawl Gets Messier

By David Smyth on December 30th, 2011 Posted in SEC Litigation, SEC Structure

It seemed like it was going to be a quiet week. But the SEC’s enforcement action against Citigroup has gotten messier, and has morphed into a battle between those two entities and Judge Rakoff in the Southern District of New York. As you know, on Nov. 28th Judge Rakoff rejected a proposed settlement between the regulator… Continue Reading

Defending the SEC’s Neither-Admit-Nor-Deny Policy

By David Smyth on December 22nd, 2011 Posted in SEC Litigation, SEC Structure

If you’re reading this blog, you know well by now that on November 28th, Jed Rakoff, a U.S. district judge in the Southern District of New York, rejected an attempt by the SEC and Citigroup to settle a fairly prominent enforcement matter, and that the SEC has decided to appeal Rakoff’s decision to the Second… Continue Reading

Siemens Executives Face Parallel FCPA Proceedings

By David Smyth on December 15th, 2011 Posted in FCPA, Parallel Proceedings, SEC Litigation

So the SEC and the Justice Department brought a big FCPA case involving Siemens AG on Tuesday. The agencies charged a total of nine former senior executives and agents of the company with a decade-long scheme to bribe Argentinian government officials to secure and implement a $1 billion contract to produce national identity cards. The… Continue Reading

Want to Avoid an Injunction Sought by the SEC?

By David Smyth on November 30th, 2011 Posted in Insider Trading, SEC Litigation

When the SEC brings a case against a defendant in federal court, it almost always seeks a curious remedy – an injunction not to violate the statute it is accusing the defendant of violating. Now, the law already requires what the proposed injunction would say. If Section 10(b) of the Exchange Act says you’re not… Continue Reading