U.S. Securities and Exchange Commission Chairman Jay Clayton recently reminded us that corporate culture and the “tone from the top” remain important to regulators, even in this enforcement-lite environment. Speaking about financial firm culture before the New York Fed, Clayton predicted pain for firms whose cultural compass diverges from the commission’s.
This week, the U.S. Court of Appeals for the Tenth Circuit will hear a case with far-reaching consequences, literally, for the U.S. Securities and Exchange Commission's enforcement activity. In SEC v. Traffic Monsoon LLC, the commission is asking the court to hold that the principal anti-fraud provisions of the federal securities laws apply extraterritorially in commission enforcement actions and administrative proceedings so long as the alleged misconduct satisfies the “conduct and effects test,” a test the Supreme Court dispatched in 2010. If the commission has its way, more aggressive overseas enforcement activity could be in store, even for misconduct not connected to a domestic securities transaction. In this article, we evaluate the legal and policy issues Traffic Monsoon raises.
When can a company’s silence support a Rule 10b-5 claim? The U.S. Supreme Court will consider that question next term in Leidos Inc. v. Indiana Public Retirement System. The case is generating buzz because it could expand the universe of omissions actionable under the judicially created private right of action for securities fraud.
The Supreme Court has long held that “[s]ilence, absent a duty to disclose, is not misleading under Rule 10b-5.” And such a duty to disclose only arises where necessary to make a statement already made not misleading, thus allowing companies to “control what they have to disclose … by controlling what they say to the market.” On March 27, 2017, in Leidos, Inc. v. Indiana Public Retirement System, the court granted certiorari to determine whether, in the absence of any need to correct a prior statement, there exists a separate disclosure duty under Item 303 of SEC Regulation S-K that is actionable under Section 10(b) of the Securities Exchange Act and Rule 10b-5. In Leidos, the U.S. Court of Appeals for the Second Circuit held, contrary to two other circuits, that Item 303, which pertains to disclosure of so-called “soft” information like trends or uncertainties, does create such a disclosure duty.
If you are a public company, or audit one, three recent SEC auditor independence cases deserve your attention. Auditor independence cases typically arise from financial, employment or business ties between an auditor and a client or their personnel. The recent cases, however, arose from what the SEC called "inappropriate close personal relationships."
Stephen J. Crimmins, James K. Goldfarb and Sharon A. O'Shaughnessy write: Public company audit committee members might be forgiven for sweating potential SEC scrutiny of late. We examine the SEC's focus on audit committee members as gatekeepers, review three recent enforcement actions to highlight conduct that attracts the staff's attention, and suggest certain safeguards that might help mitigate the chance of an SEC investigation or charge.