This Week In Securities Litigation (Week ending Dec. 1, 2017)

The Commission entered an order formally appointing its ALJs under the Constitution’s Appointments Clause. In entering the order the agency moved to end the debate over the application of the clause regarding its ALJs. The order also directs a review of all pending administrative cases, including those before the Commission, which will be remanded to the ALJs. The government also filed a brief in Raymond J. Lucia, the appeal to the Supreme Court of the decision by the D.C. Circuit which rejected the application of the Appointments Clause to SEC ALJs. The government suggested that the Court accept the case for hearing, noting the action taken by the SEC.

The Supreme Court heard argument in Digital Realty Trust on the question of whether a person must first report to the Commission to be a whistleblower under Dodd-Frank. Questioning during the argument suggested that the Court agrees with the position of the Petitioner-company and not that of the SEC, that to be entitled to the protection of the anti-retaliation provisions of Dodd-Frank the person must first report to the SEC. In Petitioner’s view, those who do not report to the SEC may still be entitled to certain protections under the Sarbanes-Oxley Act.


ALJs: The Commission entered an order ending at least part of the debate over the appointment of its Administrative Law Judges. Specifically, the Commission order “ratifies the agency’s prior appointment of . . .”of each ALJ. The order also requires that each ALJ take certain steps with respect to pending cases. In re: Pending Administrative Proceedings, Securities Act of 1933 Release No. 10440/November 30, 2017. The order is here.

Supreme Court: Prior to issuing the order discussed above, the United States filed its brief in Raymond J. Lucia, v. SEC, No. 17-130 (S.Ct.). In the brief the government changed its position and admitted that the ALJs are officers for purpose of the Appointments Clause. The government also urged the Court to accept the case to resolve the issue. The government urged the Court to appoint an amicus curiae to defend the judgment below.

Remarks: Chairman Jay Clayton delivered remarks at the Third Annual Conference on the Evolving Structure of the U.S. Treasury Market, New York, New York (Nov. 28, 2017). His remarks focused on the importance of regulatory coordination to the treasury market, the need for critical market data and the new fixed income market structure advisory committee of the agency (here).


Enforcement statistics: The CFTC announced its enforcement results for fiscal 2017. During the last fiscal year the agency brought 49 enforcement related actions centered on manipulation, spoofing and other charges. The CFTC also obtained orders totaling $412,726,307 in restitution, disgorgement and penalties. That amount included $333,830,145 in civil monetary penalties and $78,896,162 million in restitution and disgorgement orders.

The results for fiscal 2017 contrast sharply with those of fiscal 2016. In that year the CFTC brought 68 cases and obtained orders totaling about $1.29 billion in restitution, disgorgement and penalties. The agency also paid out a record $10 million to whistleblowers.

Supreme Court

The Court heard argument in Digital Realty Trust, Inc. v. Paul Somers, No. 16-1276. The case centers on the question of whether to be a whistleblower and entitled to the protections of the Dodd-Frank anti-retaliation provisions the person must first report to the SEC. The Petitioner-company argued that a report to the Commission is required based on the plain language of the sections. Respondent Paul Somers essentially adopted the position of the SEC. The agency wrote rules for the sections based on the theory that a person need not first report to the SEC. The Justices expressed skepticism regarding the position of the SEC and Mr. Somers.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the SEC did not file any civil injunctive cases; it did file 1 administrative proceeding, excluding 12j and tag-along proceedings.

Offering fraud: SEC v. Rubbo, Civil Action No. 0:17-cv-62345 (S.D. Fla. Filed Nov. 30, 2017) is an action which names as defendants Joseph Rubbo, a securities law recidivist, Angela Rubbo Beckcom Monaco and Steven Dykes. Over at least three years beginning in January 2013 Defendants Rubbo and Monaco, assisted by Dykes, sold interests in a series of entities collectively called VIP, to 11 investors, raising about $5.4 million. The funds were supposed to be used to develop the business, according to representations made to investors. In fact Defendants Rubbo and Monaco misappropriated much of the money and gave portions to Dykes. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending.

Municipal securities: SEC v. Town of Ramapo, Civil Action No. 16-cv-2779 (S.D.N.Y.) is a previously filed action against the Town, Ramapo Local Development Corp., and others. The action centered on offerings of municipal securities in which the true financial condition of the issuer was not disclosed. This week the court entered final judgments by consent against the Town and Development Corp, enjoining each from future violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The judgment requires the two defendants to retain an independent consult to review certain procedures and to retain independent auditors to conduct an audit of the financial statements for certain years. The town must also retain independent disclosure counsel before conducting any offering. See Lit. Rel. No. 23997 (Nov. 29, 2017).

FCPA – Anti-Corruption

SBM Offshore: SBM Offshore N.V., a Netherlands based firm that manufactures and designs offshore oil drilling equipment, and its U.S. subsidiary, SBM Offshore USA, Inc., resolved FCPA charges with the DOJ. Specifically, the firm entered into a deferred prosecution agreement while its subsidiary pleaded guilty to conspiracy to violate the FCPA. The firm will also pay a $238 million criminal fine. The amount of the fine took into account likely penalties by foreign regulators.

The charges were based on a scheme that began in 1996 and continued through at least 2012. During that period the firm paid over $180 million in commissions to intermediaries in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq. The payments were in part to influence officials at state owned oil companies. As a result the firm secured $28 billion from projects obtained from the entities. Two former executives of the firm pleaded guilty in early November. The firm also previously settled with the Dutch Public Prosecutor’s Office.

Pilot program: The program is essentially being made permanent, according to remarks delivered by Deputy Attorney General Rob Rosenstein earlier this week (here).


Manipulation: The Australian Securities and Investment Commission banned Damian Rodr, formerly a representative at Bell Potter Securities Ltd. in connection with his trading in the shares of DMI in late July 2015. The regulator concluded that the trades caused the shares to trade at an artificial price.

Program: The Fourth Annual Dorsey Federal Enforcement Forum will be held on December 6, 2017. There will be panel discussions and presentation on EPA enforcement, SEC enforcement, investment advisers, international sanctions, FinTec, and FBI international corruption investigations, followed by a holiday party. Attend in person, listen on the web or watch a live stream; CLE available. For a detailed program and free registration click here.

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