The Commission filed a settled FCPA enforcement actions just prior to the July 4th holiday. The action centered on false books and records and inadequate internal controls, although the Order speaks of bribery. In the Matter of Alexion Pharmaceuticals, Inc., Adm. Proc. File No. 3-19852 (July 2, 2020). The Order also presents unanswered question regarding compliance with the Supreme Court’s recent decision on disgorgement in Liu v. SEC, No. 18 – 1501 (Decided June 22, 2020).

Alexion is a global biopharmaceutical company. Drugs developed by the firm serve patients with life-threatening, rare and ulta-rare diseases. The transactions here involve a drug called Soliris, developed and approved to treat two diseases, paroxysmal nocturnal hemoglobinuria or PNH and atypical hemolytic uremic syndrome or aHUS.

Sales of Soliris during the period 2010 through 2015 were effected through local subsidiaries. In Turkey the firm entered the market in 2009. Sales lagged. The next year a senior Ministry of Health official suggested making payments to government officials.

The firm retained a consultant who was paid over $1.3 million, portions of which went to local government officials. Two employees of the local subsidiary made some of the payments to the consultant by having local reimbursement records falsified. To facilitate that process the records were made in pencil. Little documentation was furnished to substantiate the claim that expenses were being reimbursed. The managers, in addition to the consultant, were compensated for their services. Overall, the Turkish subsidiary of the firm was “unjustly enriched by over $6.6 million” as a result of the scheme, according to the Order.

In Russia, the local subsidiary of the firm also paid officials to sell the drug. Soliris was sold through an NPS process. Reimbursements were made through regional healthcare spending. The regions had to allocate funds to Soliris in the local budget.

The Alexion subsidiary paid HCPs employed at state-owned healthcare institutes for various services. Some of those officials also provided expert opinions relied on by the local officials making budget allocations. Alexion’s Russian subsidiary thus made over $1 million in payments to these officials over a four-year period, beginning in 2011, to increase the number of approved prescriptions. The payment records were falsified. As a result, Alexion was “unjustly enriched by over $7.5 million” through its Russian subsidiary.

Finally, in the firm’s Brazil and Columbia subsidiaries, the record and control systems were inadequate. This permitted employees to divert funds from proper business purposes to other matters. This continued over a two-year period, beginning in 2014. The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

In resolving the matter Alexion undertook certain remedial efforts and cooperated with the staff’s investigation. For example, the firm provided regular briefings to the staff regarding the facts developed during their investigation. Alexion also strengthened and expanded its global compliance organization, enhancing its polices and procedures.

To resolve the matter, the firm consented to the entry of a cease and desist order based on the sections cited in the Order. Alexion will also pay disgorgement of $14,210,194 and prejudgment interest of $3,766,337. The funds will be paid to the U.S. treasury, “subject to Exchange Act Section 21F(g)(3). The firm will also pay a penalty of $3.5 million. That amount will be paid to the U.S. treasury, “subject to Exchange Act Section 21F(g)(3).

The disgorgement Respondent is required to pay here is described only as “ill-gotten” gains in the Order. There is no indication of the manner in which the sums were tabulated. Those sums, along with the penalty imposed are “subject to” an Exchange Act Section dealing with whistleblowers. Whether sums imposed as disgorgement equal the “net profits” as directed by Liu is unclear; if the sums were for victims is not specified, although there is a citation to the whistleblower statutes.

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The Commission enforcement program moved into the last segment of the fiscal year in the wake of the July 4th holiday. Traditionally during this period the agency pushes out every case possible in an effort to increase the numbers for the year end stats, the annual report and Congressional budget hearings. For a program that has in the past professed not to be focused on numbers, the coming weeks should be interesting.

As the last quarter ended Regulation BI and Form CRS went into effect with OCIE ready to begin compliance inspections. Enforcement filed two new cases, each centered on an offering fraud.


Reg. BI/Form CRS: The Second Circuit Court of Appeals rejected a challenge to Regulation Best Interest which went into effect on June 30, 2020. XY Planning Network, LLC. v. SEC, Nos. 19-2886 & 19-2893 (2nd Cir. Decided June 26, 2020). The goal of Regulation Best Interest is to assure that when “making a recommendation of any securities transaction or investment strategy . . . to a retail customer a broker-dealer . . . [acts] in the best interest of the retail customer . . .” A number of groups challenged the implementation of the Regulation. Their claims alleged that the Commission failed to comply with the requirements of Dodd-Frank, the predicate for the regulation, in writing it, that it would cause confusion among investors and was arbitrary. OCIE will begin inspections on Regulation BI and Form CRS (tied to a package of items focused on retail investors) after the June 30, 2020 effective date for each regulation.

Rule: The Commission issued an order updating its threshold filing rule for broker-dealers. The rule had not been updated in 30 years (here).

SEC Enforcement – Filed and Settled Actions

The Commission filed 1 civil injunctive action and 1 administrative proceeding last week, excluding 12j and tag-along-proceedings.

Offering fraud: SEC v. Benjamin, Civil Action No. 2:20-cv-08037 (D. N.J. Filed July 1, 2020) is an action which names as defendants Matthew Benjamin and his private firm, Clear Solutions Group, LLC. Over a two-year period, beginning in 2017, Defendants raised over $900,000 from investors who purchased shares in what they were told was a cosmetic firm. The firm claimed to have the ability to acquire the cosmetics at a discount. In fact, the claims were false; the investor funds were misappropriated. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24846 (July 1, 2020). The U.S. Attorney’s Office for the District of New Jersey filed a parallel criminal action.

Breach of duty: SEC v. Temenos Advisory, Inc., Civil Action No. 3:18-cv-01180 (D. Conn.) is a previously filed action in which Defendants George Tylor and his investment advisory firm, Temenos Advisory, Inc. consented to the entry of a permanent injunction prohibiting each from future violations of Advisers Act Sections 206(1), 206(2) and 206(4). In addition, the firm agreed to pay disgorgement of $768,137, prejudgment interest of $56,956 and a civil penalty of $775,000. Mr. Taylor was directed to pay $321,956 in disgorgement, prejudgment interest of $22,358 and a penalty of $179,618. The Court entered the judgments. The complaint alleged that Defendants put over $19 million in investor retirement capital into four risky, illiquid private securities offerings without performing due diligence or disclosing the risks and prospects of the investments. See Lit. Rel. No. 24845 (July 1, 2020).

Crypto currency: SEC v. Telegram Group Inc., Civil Action No. 19 Civ. 9439 (S.D.N.Y.). This is a previously filed action which named as defendants Telegram Group, Inc., and its affiliate. The crypto firm agreed to settle with the Commission following months of litigation. The firm consented to the entry of a permanent injunction based on Securities Act Sections 5(a) and 5(c). The company also agreed that for the next three years it will notify the Commission staff before participating in the issuance of any digital assets. In addition, Telegram will pay disgorgement on a joint and several basis with its co-defendant, in the amount of $1,224,000 with credits for amounts that have been returned. The order also imposes a penalty in the amount of $18,500,000. Telegram, an offshore crypto firm, offered in part a secure network for communications and sought to build out a network for its offerings, according to the complaint.

Offering fraud: In the Matter of David Rumsey, Adm. Proc. File No. 3-19848 (July 1, 2020) is an action which names as Respondent, David Rumsey, who assisted Robert C. Morgan with the sale of notes to investors. The note sales generated about $80 million over a five-year period beginning in 2013. The notes were tied to Morgan’s development projects. Investors were told that they would be paid 11% interest. Morgan personally guaranteed repayment. By 2016 the funds from recent sales were being used to make payments on previously sold notes. The Order alleged that Respondent was negligent in not knowing this point. It alleges violations of Securities Act Sections 17(a)(2) and 17(a)(3). Respondent resolved the proceeding by consenting to the entry of a cease and desist order based on the sections cited in the Order. He also agreed to pay a penalty of $80,000.


Hemp: The regulator issued final guidance regarding due diligence requirements under the Bank Secrecy Act for hemp related customers on June 29, 2020. The guidance explains how financial institutions can conduct due diligence for these entities (here).

Hong Kong

Report: The Securities and Futures Commission published a review of the Stock Exchange of Hong Kong Ltd.’s performance in its regulation of listed matters. The report contains findings and recommendations for 2018 (here).


Standards: The Monetary Authority of Singapore, in conjunction with Enterprise Singapore, Accounting and Corporate Regulatory Authority and the Association of Banks in Singapore, affirmed the industry efforts to enhance commodity financing standards in Singapore banks, according to a release on July 2, 2020 (here),

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