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January 2013 Archives

Recent SEC Action Exemplifies Alternative Method of Insider Trading

On January 25, 2013 the Securities and Exchange Commission ("SEC") charged a financial adviser in Florida with illegally "tipping" his friend about inside information he acquired regarding the upcoming sale of a pharmaceutical company in exchange for $35,000 and a jet-ski dock.  The friend (along with another individual whom the friend informed of the sale) made $708,327 in illicit insider trading profits in just two days.  The SEC is alleging that the financial adviser learned this information from his supervisor, who in turn was informed by a client of the advisory firm who served on the pharmaceutical company's board of directors.  The SEC is seeking disgorgement of all ill-gotten gains with prejudgment interest, a financial penalty, and a permanent injunction against the financial adviser.  Additionally, the U.S. Attorney's Office for the District of New Jersey announced that it will seek criminal charges in a parallel action against the adviser. 

Mary Jo White Nominated to Take Over as the New SEC Chief

This week, President Barack Obama nominated former U.S. attorney Mary Jo White to be chairman of the Securities and Exchange Commission (“SEC”).  If confirmed by the Senate, White would take over the helm at the SEC from Elisse Walter, who is serving out the rest of former SEC chair Mary Schapiro's term - who resigned last November.Ms. White served as the U.S. Attorney for the Southern District of New York from 1993 to 2002. The first woman to serve in that role, she built a reputation as a tough prosecutor with an expertise in pursuing white collar crimes and complex securities and financial fraud cases.  White currently serves as a top lawyer at Debevoise & Plimpton LLP, where she heads the litigation department and represents individuals and corporations accused of white-collar crimes and securities-law violations.  It is believed that this experience will make her an ideal candidate to implement Obama's Wall Street reform legislation.White’s appointment represents a shift for the top position where she would be the first prosecutor to head the 79-year-old SEC.  Traditionally, most SEC chairmen have come from Wall Street or the ranks of private securities lawyers.  The choice of White is likely intended to bolster the agency's enforcement profile in the aftermath of the financial crisis.Coming from an enforcement background, White is expected to give high priority to expanding the enforcement efforts of the SEC.For further information on this, or other related topics, please contact us at [email protected] or (619) 298-2880.

SEC Announces Intent to Propose Rule on Corporate Political Spending Disclosure

The Securities and Exchange Commission (“SEC”) recently indicated that by April of 2013, it plans to issue a Notice of Proposed Rulemaking on requiring public companies to disclose their political spending.  This rule could have broad sweeping effects as it’s estimated that numerous large companies, including almost half of the S&P 100 index, do not currently disclose their political contributions.

California’s Social Media Privacy Law Goes Into Effect

As of January 1, 2013, rule AB 1844 went into effect in California, effectively banning California employers from asking job seekers and workers for their usernames and passwords on social networking accounts.  In addition to this, AB 1844 also bans employers from discharging or disciplining employees who refuse to divulge such information under the terms of the bill. However, this restriction does not apply to passwords or other information used to access employer-issued electronic devices.California was among six states to pass laws that have made it illegal for companies to request social networking passwords or nonpublic online account information from their employees or job applicants.  Illinois, Michigan, Maryland, Delaware and New Jersey also have similar laws. Congress wasn't able to pass their proposed Password Protection Act of 2012, prompting these and other states to consider such statutes.This new law in California, as well as those passed or being considered in other states, will potentially make compliance that much more difficult for Registered Investment Advisers (“RIAs”).  On January 4th, 2012, the SEC issued guidance on an RIA’s use of social media in a new National Examination Risk Alert, Investment Adviser Use of Social Media (the “Alert”).  The Alert gave a list of factors for RIAs to consider in developing an effective compliance oversight program with respect to the use of social media. One such factor was to include sampling, or search methodologies, to monitor content and communications by employees.  Under the new law, employers will only be able to monitor that information which is “public” and can be seen without the use of a password, potentially hamstringing an employer’s ability to discover improper postings by employees.In light of this change, firms should be sure to update their compliance oversight program to accommodate the new rule.  Furthermore, compliance personnel should continue to educate all employees on the firm’s compliance requirements regarding postings related to the firm on social media sites, as non compliance could lead to sanctions by the SEC and other regulatory bodies.For further information on this, or other related topics, please contact us at [email protected] or (619)298-2880.
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