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Financial Services Law Insights and Observations


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  • SEC issues more than $25.6 million in whistleblower awards


    On May 12, the SEC announced a whistleblower award totaling around $3.6 million in connection with a successful enforcement action. According to the redacted order, the whistleblower provided new information that lead to the initial charges as well as “ongoing assistance as the Commission’s investigation progressed.”

    Earlier on May 10, the SEC also announced whistleblower awards totaling approximately $22 million in connection with a successful enforcement action. According to the redacted order, the SEC awarded a whistleblower approximately $18 million for providing (i) information that led to the opening of the investigation brought against a financial services firm, and (ii) ongoing assistance during the investigation. The second whistleblower received a $4 million award for submitting information after the investigation began. The SEC noted that both whistleblowers provided information and cooperation that “allowed the Commission to better understand complex transactions related to the matters under investigation.”

    The SEC has awarded approximately $842 million to 157 individuals since issuing its first award in 2012.

    Securities Whistleblower Securities and Exchange Commission Enforcement

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  • District Court dismisses shareholder sales-compensation suit


    On April 27, the U.S. District Court for the District of Illinois granted an Ohio-based bank’s motion to dismiss a consolidated shareholder suit, ruling that investors “failed to allege facts that give rise to a strong inference of scienter” concerning whether bank executives intended to deceive them by not immediately disclosing a federal investigation into unauthorized account openings. The investors claimed, among other things, that bank executives made misleading statements and material omissions in the bank’s securities filings for 2016, 2017, and 2018 by failing to disclose a 2016 CFPB investigation into the bank’s sales practices. After the bank disclosed the investigation in its 2019 filings, the investors alleged the stock price dropped. The Bureau later filed a complaint in 2020 (covered by InfoBytes here) charging that the bank knew that sales employees “engag[ed] in misconduct in order to meet goals or earn additional compensation,” but purportedly “took insufficient steps to properly implement and monitor its program, detect and stop misconduct, and identify and remediate harmed consumers.” The investors claimed that bank executives’ assurances about the bank’s robust risk management and compliance practices “served to conceal [its] faulty reporting structure and their knowledge of its problems,” and that the CFPB’s ongoing litigation against the bank supported an inference of scienter because, among other things, bank executives were allegedly motivated to hide the Bureau’s investigation and underlying account issues because of a pending acquisition.

    The court disagreed, ruling that the investors failed to allege any specific facts showing that bank executives knew of reporting structure deficiencies or that they “had personal knowledge of any problematic practices at the time when they made the statements at issue.” The court pointedly stated that it “does not find it appropriate to infer scienter from conclusory statements made in another litigation.” Moreover, with regards to whether bank executives concealed the Bureau’s investigation to make the company appear profitable, the court stated that “the general desire to keep stock prices high to make the company appear profitable or to close a deal” is not enough on its own to “allow a strong inference of scienter.”

    Courts CFPB Securities and Exchange Commission Securities Enforcement Incentive Compensation

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  • SEC issues over $3 million in whistleblower awards


    On April 23, the SEC announced whistleblower awards totaling more than $3 million in two separate enforcement actions. According to the first redacted order, the SEC awarded a whistleblower approximately $3.2 million for alerting enforcement staff to violations, identifying key issues for staff to focus on, and providing a “roadmap” for staff that conserved resources. However, the SEC noted that the whistleblower “unreasonably delayed” reporting the information to the Commission—it was submitted approximately four years after the date on which the whistleblower first noticed the misconduct—during which “investors continued to suffer harm.”

    In the second redacted order, the SEC awarded a whistleblower more than $100,000 for providing information (of which “there was substantial law enforcement interest”) that assisted the Commission’s investigation and “was one of the underlying sources that formed the basis for the charges in the Covered Action.” The SEC noted that the whistleblower provided helpful assistance and suffered personal and professional hardships as a result.

    Securities Whistleblower Enforcement Securities and Exchange Commission Investigations

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  • SEC awards $50 million to whistleblower


    On April 15, the SEC announced an award of more than $50 million to joint whistleblowers in connection with violations that involved highly complex transactions that would have been difficult to detect without their information. According to the redacted order, the joint whistleblowers “assistance was critical to staff’s ability to identify and investigate the unlawful securities violations,” including meeting with staff numerous times and providing voluminous detailed documents, which led to the return of tens of millions of dollars to harmed investors.

    The SEC has now awarded approximately $812 million to 151 individuals since it issued its first award in 2012.


    Securities Securities and Exchange Commission Whistleblower Enforcement

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  • SEC commissioner updates cryptocurrency safe harbor proposal


    On April 13, SEC Commissioner Hester M. Pierce released an updated version of her proposal for a three-year safe harbor rule applicable to companies developing digital assets and networks. As previously covered by InfoBytes, last year Pierce suggested that not only would the rule provide regulatory flexibility “that allows innovation to flourish,” but it would also protect investors by “requiring disclosures tailored to their needs” while still maintaining anti-fraud safeguards, allowing investors to participate in token networks of their choice. The three-year grace period for qualifying companies, Pierce suggested, would allow time for the development of decentralized or functional networks, adding that at the end of the three years, a successful network’s tokens would not be regulated as securities.

    The updates to the proposal reflect feedback from the cryptocurrency community, securities lawyers, and the pubic, and include, among other things:

    • A requirement for companies to provide semi-annual updates to the plan of development disclosure and a block explorer;
    • An exit report requirement, which would include either (i) an outside counsel analysis explaining why the network is decentralized or functional; or (ii) an announcement that the company will register the tokens under the Securities Exchange Act; and
    • Enhancements to the exit report requirement to address what the outside counsel’s analysis should address when explaining why a network is decentralized.

    The public is encouraged to provide feedback on the updated proposal.

    Fintech Securities and Exchange Commission Securities Agency Rule-Making & Guidance Safe Harbor Virtual Currency Cryptocurrency

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