Securities Enforcement

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The Big Seven Say ‘Yes’ – UK Banks Back New Code for Financial Reporting Disclosure

The Turner Review, published in March this year, identified a concern that in spite of banks' efforts to enhance disclosures during 2008 and 2009, investor confidence in financial reports appeared to remain low.The seven largest UK-headquartered lending institutions -- Abbey, Barclays, HSBC, Lloyds Banking Group, Nationwide, Standard Chartered and the Royal Bank of Scotland Group -- have committed to voluntarily implementing the Code for Financial Reporting Disclosures, developed by the British Bankers' Association ("BBA") (the "BBA Code"), in their 2009 year-end annual reports.Reflecting their desire to respond to market expectations, the seven institutions and the BBA have agreed to the inclusion of the BBA Code in a Discussion Paper of the Financial Services Authorit

Client Alert | November 11, 2009

Private Fund Investment Advisers Registration Act Approved by House Committee

The Gibson, Dunn & Crutcher Financial Markets Crisis Group is closely tracking government responses to the turmoil that has catalyzed a dramatic and rapid reshaping of our capital and credit markets.

Client Alert | November 4, 2009

“You win some, you lose some” — Recent Appeals and Decisions Involving the UK Financial Services Authority

Two high-profile decisions have been published in the last two weeks regarding actions brought by UK Financial Services Authority ("FSA") against members of the financial services industry.  Both cases show signs of an increased willingness on the part of those subject to FSA enforcement action to challenge the enforcement wing of the FSA but with variable levels of success.  FSA Regulatory Decisions Committee overturns sanctions in FSA enforcement notice in market abuse case:  In the first case, the FSA issued a decision on 7 October 2009, found two former Dresdner bankers had committed market abuse in March 2007 (by engaging in what was commonly known as "front running"), but following an appeal by the bankers (Christopher Parry and Darren Morton)

Client Alert | October 30, 2009

The SEC’s Powers to Enforce the Production of Documents and Information, in the UK at Least, Hit a Stumbling Block

On 25 August 2009 (albeit the relevant decision has only recently been published), the Securities and Exchange Commission (the SEC) hit a stumbling block in its efforts to extend its jurisdiction to obtain documents and information from outside its territory, from the UK at least.  Over recent years, international co-operation between regulators has increased, and has been reported to have increased, and a near assumption has arisen in the UK that, if the SEC asks for assistance from the UK's financial services regulator, the Financial Services Authority (the FSA), that assistance will be provided by the FSA and complied with by the relevant UK entity, irrespective of the time and cost involved in doing so.

Client Alert | October 19, 2009

Enforcement Action on Section 13(d) Disclosure Requirements For Institutional Investors Clarifies Exception for ‘Ordinary Course of Business’

New York partner Mark K. Schonfeld, Orange County partner James Moloney and Denver associate Monica K. Loseman are the authors of "Enforcement Action on Section 13(d) Disclosure Requirements For Institutional Investors Clarifies Exception for 'Ordinary Course of Business'" [PDF] published in the August 31, 2009 issue of BNA's Securities Regulation & Law Report.

Client Alert | August 31, 2009

Using SOX ‘Clawback’ Against Uncharged Execs?

New York partner Mark K. Schonfeld and Washington, D.C. associate Matthew R. Estabrook are the authors of "Using SOX 'Clawback' Against Uncharged Execs?" [PDF] published online by Law360 on August 13, 2009 at

Article | August 13, 2009

SEC Issues Proposed Rule on “Pay to Play” Arrangements Involving Investment Advisers

On August 3, 2009, the Securities and Exchange Commission (the "SEC") published for comment new Rule 206(4)-5 under the Investment Advisers Act to prohibit "pay to play" arrangements by most investment advisers.

Client Alert | August 7, 2009

SEC’s Enforcement Director Robert Khuzami Emphasizes Changes and Accomplishments in First 100 Days

In his first speech as Director of the SEC's Division of Enforcement, on August 5, 2009, Robert Khuzami announced changes underway in the Division's procedures and organization that are intended to strengthen the agency's enforcement program.  Mr.

Client Alert | August 6, 2009

Short Selling Update: The SEC Abandons Rule 10a-3T. Plan B to Follow?

On July 27, 2009, the Securities and Exchange Commission took several actions relating to short selling in anticipation of the expiration of interim final temporary Rules 10a-3T under the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 204T of Regulation SHO.  The full text of the press release can be found here.  The most  significant development is that, after July 31, 2009, institutional investment managers will no longer be required to report short sale and short position information to the SEC on Form SH.  The following is a summary of the SEC's actions.Expiration of Short Sale and Short Position ReportingIn October 2008, the SEC adopted interim final temporary Rule 10a-3T, which requires certain institutional investment managers to make dis

Client Alert | July 30, 2009

SEC Proposed Rulemaking on “Pay to Play” Arrangements Involving Investment Advisers

On July 22, 2009, the Securities and Exchange Commission (the "SEC") unanimously voted at its open meeting to propose for public comment a rule and amendments to various existing rules under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), intended to curtail so-called "pay to play" practices involving investment advisers.

Client Alert | July 28, 2009

SEC Enforcement Action on Section 13(d) Disclosure Requirements for Institutional Investors Clarifies the Exception for “Ordinary Course of Business”

In a settled enforcement action instituted July 21, 2009, the SEC provided significant guidance on the filing obligations of institutional investors under Section 13(d) of the Securities Exchange Act of 1934.  Specifically, the guidance addresses the meaning of the "ordinary course of business" prong of Rule 13d-1(b)(1)(i) and reflects an expansive interpretation of Section 13(d).  The SEC's administrative order found that the respondent, a registered hedge fund adviser, Perry Corp., should have filed a Schedule 13D within 10 days of acquiring beneficial ownership of more than five percent of the shares of Mylan Inc.

Client Alert | July 27, 2009

SEC’s First Use of SOX “Clawback” Against Uncharged Executive

In a case that raises important questions about the nature and scope of the remedy provided in Section 304 of Sarbanes-Oxley Act of 2002, the SEC on July 22, 2009, filed a civil suit seeking to "claw back" compensation from a former chief executive officer who has not been accused of any securities law violation.  The case is SEC v. Jenkins, Case 2:09-cv-01510-JWS (D.

Client Alert | July 27, 2009

UK Walker Review: Tougher Than the Rest

On 16 July 2009, Sir David Walker, Senior Adviser at Morgan Stanley International, who has been commissioned by the UK Secretary of State for Business, Enterprise and Regulatory Reform and HM Treasury to undertake an independent review of corporate governance of the UK banking industry, published his consultation document -- A Review of Corporate Governance in UK Banks and Other Financial Industries.

Client Alert | July 23, 2009

The Private Fund Investment Advisers Registration Act of 2009

Yesterday, the Obama administration (the "Administration") delivered to Congress draft legislation, the Private Fund Investment Advisers Registration Act of 2009.  Under the proposed legislation, managers of most hedge funds, private equity funds and venture capital funds  in the U.S. would be required to register with the Securities and Exchange Commission (the "SEC") under the Investment Advisers Act of 1940 (the "Advisers Act").  The existing exemption for investment advisers with fewer than 15 clients would be eliminated, and specific information reporting would be required for advisers to any "private fund."  A limited exemption will continue to apply to certain "foreign private adviser

Client Alert | July 16, 2009

Financial Regulatory Reform: Anticipating the Compliance Challenges for Broker-Dealers

On July 10, 2009, the Obama Administration delivered to Congress draft legislation to implement its regulatory reform agenda with respect to financial markets regulation.  The draft "Investor Protection Act of 2009" largely tracks the Administration's June 17, 2009 framework for Financial Regulatory Reform.Although we are only now seeing the Administration's rough framework for regulatory reform, we can, and should, begin to anticipate the implications of the proposed changes to financial markets regulation with respect to compliance challenges, customer exposure, risk management, and operational burdens.In her article, Financial regulatory reform: anticipating the compliance challenges for broker-dealers, for Complinet (July 15, 2009), Susan Grafton of Gibson Dunn discusses

Client Alert | July 15, 2009

The UK’s Financial Services Authority Proposes a Minimum £100,000 Penalty for Individuals Who Commit Market Abuse

On 6 July 2009, the UK's financial services regulator, the Financial Services Authority (FSA), continued its "credible deterrence philosophy" by issuing a consultation paper (CP09/19) outlining proposals to change its current policy on determining the level of civil financial penalties imposed for regulatory breaches.  These new proposals are consistent with the FSA's other recent indications that it can no longer be seen as a light-touch enforcer (see our previous client update: "The UK Financial Services Authority Demonstrates "Credible Deterrence Philosophy" with Prosecutions").What is somewhat startling about the FSA's proposals is quite how harsh they could potentially be in practice, for both corporations and individuals, but particularly for indivi

Client Alert | July 10, 2009

The SEC in Transition: A Mid-Year Review of SEC Enforcement in 2009

Without question, the first six months of 2009 have been a period of sharply increased enforcement activity at the Securities and Exchange Commission.  The financial crisis, the new administration, new SEC leadership, increased funding and the focus of Congress and the media have all combined to encourage heightened government scrutiny.  And even though it has only been a few months since a new Chairman took office, already there are tangible signs that  the SEC has taken a more aggressive enforcement posture.  In this alert, we review the changes the new SEC leadership has instituted and is considering, the observable impact of the new administration on enforcement activity and significant cases in key areas that reflect the agency's evolving enforcement program.I.

Client Alert | July 9, 2009

SEC Obtains Jury Verdict Against Former Head of Kmart

For the past several months, we have advised you of various plans announced by the Securities and Exchange Commission ("SEC") to revitalize its enforcement activities (see Gibson Dunn's May 11, 2009 Update on newly appointed Direct of Enforcement Robert Khuzami's plans).  Demonstrating the adage that actions speak louder than words, the SEC on June 1, 2009 obtained a jury verdict against the former CEO of Kmart Corp for misleading investors about inventory levels and liquidity levels as the company was approaching a January 2002 bankruptcy filing.  The SEC proceeded with the trial even though it dealt with conduct that took place over seven years ago, an arbitration panel had absolved the CEO of similar charges in 2005, and after the CFO had consented to

Client Alert | June 4, 2009

The Perils of an SEC Investigation

This week Pequot Capital Management announced that it will wind down in the wake of public disclosures that the government has reopened a previously closed investigation of potential insider trading.  The announcement is a stark reminder of the high costs that can be imposed by a pending  government investigation irrespective of the outcome and reinforces the need to (1) prevent investigations, and, if they cannot be avoided, (2) conclude them successfully and rapidly.

Client Alert | May 28, 2009

SEC Enforcement Action Focuses on Investment Adviser’s Proxy Voting Policies and Procedures

On May 7, 2009, the Securities and Exchange Commission settled charges against INTECH Investment Management, LLC, a registered investment adviser with over $55 billion in assets under management, and David E.

Client Alert | May 21, 2009

SEC Proposes Additional Custody Requirements for Investment Advisers

On May 14, 2009, the U.S. Securities and Exchange Commission held an open meeting to consider proposed amendments to rule 206(4)-2 under the Investment Advisers Act of 1940.  According to Andrew J.

Client Alert | May 15, 2009

SEC Director of Enforcement Robert Khuzami Outlines Plans To Revitalize Enforcement

The Securities and Exchange Commission's newly-appointed Director of the Division of Enforcement, Robert Khuzami, outlined a plan of aggressive enforcement of securities laws during his testimony to the U.S.

Client Alert | May 11, 2009

The UK Financial Services Authority Demonstrates “Credible Deterrence Philosophy” with Prosecutions

The Financial Services Authority (FSA), the UK's financial services regulator, has in the past month given three signals it is no light-touch enforcer.

Client Alert | April 9, 2009

SEC Votes to Publish Proposed Short Sale Price Tests and Circuit Breakers

Today, the Securities and Exchange Commission unanimously approved publication of a release proposing multiple price tests and circuit breakers to limit short selling.

Client Alert | April 8, 2009

FASB Votes to Issue New Guidance on Key Financial Reporting Topics: Fair Value Accounting; Accounting for Contingencies in Business Combinations; and Other-Than-Temporary Impairments for Debt Securities

The Financial Accounting Standards Board ("FASB") voted on April 1 to issue and on April 2 voted to prepare final drafts of additional staff guidance that will modify a number of financial accounting standards relating to:1.

Client Alert | April 3, 2009

Law Enforcement Response to the Financial Crisis

New York partner Mark K. Schonfeld is the author of "Law Enforcement Response to the Financial Crisis" [PDF] published in the April 1, 2009 issue of Law Journal Newsletter: Business Crimes Bulletin.Reprinted with Permissions from the April 2009 edition of Law Journal Newsletters 2009, an incisivemedia publication.

Client Alert | April 1, 2009

Hedge Funds in the Crosshairs: The Year in Review

Washington, D.C. partner Barry R. Goldsmith, associates Daniel H. Ahn and Brian D. Boone are authors of "Hedge Funds in the Crosshairs: The Year in Review" [PDF] published in the March 11, 2009 issue of BNA's Securities Law and Regulation.

Article | March 11, 2009

Proposed Amendments to the Delaware General Corporation Law

Significant proposed amendments to the Delaware General Corporation Law dealing with proxies and stockholder meetings, among other items, have been submitted to the Delaware State Bar Association for approval.

Client Alert | March 5, 2009

Seventh Circuit Issues an Important Opinion Regarding the Statute of Limitations for SEC Civil Fines

In recent years, Securities and Exchange Commission ("SEC") enforcement investigations have become extended and enforcement actions have often been commenced five years or more after the events that form the basis for the claim.  As a result, lawyers for persons who are involved in SEC investigations are frequently asked to sign agreements tolling the running of the statute of limitations.  On February 26, 2009, the United States Court of Appeals for the Seventh Circuit issued a significant decision in Securities and Exchange Commission v. Koenig (Docket No.

Client Alert | March 5, 2009

Back to the Future: Chairman Schapiro Ends Pilot Program for Corporate Penalties, Eliminates Commission Pre-authorization, Allows Staff to Negotiate

New York partner Mark K. Schonfeld is the author of "Back to the Future: Chairman Schapiro Ends Pilot Program for Corporate Penalties, Eliminates Commission Pre-authorization, Allows Staff to Negotiate" [PDF] published in the February 23, 2009 issue of BNA Inc.'s Securities Regulation and Law.

Client Alert | February 23, 2009

SEC Chairman Schapiro Announces Changes to Enforcement Process

First Steps in "Empowering" the Enforcement StaffIn her first speech as Chairman of the Securities and Exchange Commission, Mary Schapiro announced today two changes to the enforcement process at the SEC intended to "empower" the staff of the Enforcement Division.  First, Chairman Schapiro announced an end to a two-year "pilot" program which had required the Enforcement staff to obtain a special set of approvals from the Commission in cases involving civil monetary penalties against public companies as a sanction for securities fraud.  Second, Chairman Schapiro announced a plan to provide more rapid approval of formal orders of investigation authorizing the staff to issue subpoenas.  Although these changes affect only the internal procedures of

Client Alert | February 6, 2009

Senators Grassley and Levin Introduce Hedge Fund Transparency Act

Yesterday, Senators Charles Grassley (R-IA) and Carl Levin (D-MI) introduced the Hedge Fund Transparency Act ("HFTA"), which would require hedge funds, private equity and other private funds with $50 million or more in assets, or assets under management, to register with the Securities and Exchange Commission ("SEC"), notwithstanding the availability of exemptions from registration for privately offered funds under Sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 ("1940 Act"), as renumbered.

Client Alert | January 30, 2009

Short Selling Update: Developments from Global Regulators

Responding to market conditions in September 2008, the U.S. Securities and Exchange Commission (the "SEC" or "Commission") and other regulatory and governmental authorities around the globe took dramatic steps to address the market turmoil resulting from potentially manipulative short selling.  The measures released in September 2008 have been updated, particularly in the U.K.

Client Alert | January 19, 2009

2008 Year-End Hedge Fund Update: Enforcement and Regulatory Developments and Compliance Considerations

I.  Hedge Fund Enforcement Update   A.  Introduction 1.  2008--A Watershed Year in Hedge Fund Enforcement By virtually any measure, 2008 was a watershed year on the hedge fund enforcement front.  Driven by the turmoil that has reshaped our capital and credit markets, enforcement efforts soared to new heights.

Client Alert | January 9, 2009

SEC Reports to Congress on Mark-to-Market Accounting Study

On December 30, 2008, the Securities and Exchange Commission delivered to Congress a report, mandated by the Emergency Economic Stabilization Act, on mark-to-market accounting standards and their application to financial institutions.  The report concludes that fair value accounting standards should not be suspended, but makes eight recommendations to improve their application, including additional guidance for determining fair value in inactive markets.  The report finds that investors generally believe fair value accounting increases transparency and facilitates investment decision-making.  The report also observes that fair value accounting did not appear to play a meaningful role in the bank failures of 2008, but rather that those failures appeared to be the result of gr

Client Alert | January 9, 2009

Financial Services Regulatory Reform: Credit Default Swaps and the OTC Derivatives Market: Proposed Legislation & President’s Working Group Initiatives, including SEC Issuance of Temporary Exemptions for Central Counterparties

In connection with regulatory reform legislation anticipated to be introduced in the 111th Congress, consideration will be given to enacting proposals to further legislate the swaps market and, in particular, credit default swaps ("CDS") and the over-the-counter ("OTC") derivatives market.

Client Alert | December 23, 2008

FINRA Issues New Guidance on Credit for Extraordinary Cooperation in Investigations

Position on Waiver of Attorney-Client Privilege Follows Trend of DOJ, SEC The Financial Industry Regulatory Authority ("FINRA") has recently provided guidance on the extent to which "extraordinary cooperation" by a firm or individual in an investigation can influence FINRA's enforcement decisions.  In particular, with respect to waiver of the attorney-client privilege, the guidance states that waiver or non-waiver of the privilege will not be considered in whether to grant credit for cooperation, but rather it is the assistance in "uncovering the facts in an investigation" that will yield credit for cooperation.  In this respect, FINRA follows the trend recently set by the Securities and Exchange Commission and the Department of Justice.  Despit

Client Alert | December 5, 2008

Adapting to the Regulatory Clamp Down on Short Selling: The Investment Manager’s Perspective

Washington, D.C. of counsel Susan Grafton and associate S. Joy Dowdle are the authors of "Adapting to the Regulatory Clamp Down on Short Selling:  The Investment Manager's Perspective" [PDF] published in the November 2008 issue of IAA"s Compliance Corner.

Client Alert | November 3, 2008

SEC Adopts Enforcement Manual

The SEC's Division of Enforcement  issued its first-ever manual  this week.  Intended as a reference for Enforcement Division staff, the Manual provides important insight into SEC decision-making and processes on such key matters as evaluating possible investigations, opening and closing matters, issuing Wells letters, communicating with senior SEC officials, responding to document subpoenas, "witness assurance" letters, contacting current and former employees, and respecting the attorney-client privilege during an investigation.  It will be an essential guide for anyone with a matter before the Division of Enforcement.

Client Alert | October 10, 2008

Short Selling Update: Global Regulators Take Additional Action*

* Updated to reflect additional regulatory guidance and action. Responding to current market conditions, the U.S. Securities and Exchange Commission (the "SEC" or "Commission") and other regulatory and governmental authorities around the globe have taken dramatic steps to address the current market turmoil resulting from potentially manipulative short selling.

Client Alert | September 26, 2008

The SEC’s Market Manipulation Investigation Is Expanding: What Hedge Funds, Broker/Dealers and Other Large Institutional Investors Should Know

On Friday, September 19, 2008, the Securities and Exchange Commission announced a "sweeping expansion" of its ongoing investigation of possible manipulation of the price of equity securities of financial institutions, to determine whether certain market participants engaged in illegal activity to enhance the value of short positions.  SEC Chairman Christopher Cox stated that the investigation will look into the activity of investors with significant short positions in equity markets and positions in credit default swaps.  This expansion, according to Chairman Cox, supplements ongoing SEC investigations concerning the origination and securitization of sub prime mortgage loans, the involvement of credit rating agencies and insurers in the securitization proce

Client Alert | September 24, 2008

SEC Obtains Asset Freeze in the United Kingdom Against Hedge Fund Principal

On June 18, 2008, the SEC obtained an order from the High Court of Justice in London freezing assets held by a UK citizen who is a principal of an SEC-registered hedge fund advisory firm.

Client Alert | June 25, 2008

Recent Ninth Circuit Court Decision Reiterates DOJ and SEC Broad Freedom to Conduct Parallel Criminal and Civil Investigations

On April 4, 2008, the United States Court of Appeals for the Ninth Circuit reversed the much-discussed Oregon federal court decision, United States v. Stringer, which had dismissed a criminal indictment due to the government's violation of the defendant's due process rights resulting from "egregious" behavior in conducting a parallel civil-criminal investigation.

Client Alert | April 14, 2008

The FCPA and Analogous Foreign Anti-Bribery Laws–Overview, Recent Developments, and Acquisition Due Diligence

Washington, D.C. partner John Sturc and associate John W.F. Chesley are the co-authors of "The FCPA and Analogous Foreign Anti-Bribery Laws--Overview, Recent Developments, and Acquisition Due Diligence" [link to PDF] published in the September 24, 2007 issue of Capital Markets Law Journal.

Client Alert | September 24, 2007

Latest SEC Reminder About Managing Conflicts within Financial Institutions — Have You Tested Your Walls Lately?

The Securities and Exchange Commission recently provided an important reminder of the need for effective information barriers and procedures to address potential conflicts of interest, including misuse of confidential information, that may exist given the multiple hats increasingly worn by broker-dealers, investment advisers, hedge funds, private equity funds, and other financial intermediaries.

Client Alert | June 11, 2007

Former Senior Enforcement Official Discusses SEC Expectations, Enron, SRO Consolidations and the Pros and Cons of Cooperating with Regulators

Gibson Dunn partner Barry Goldsmith, the former Executive Vice President for Enforcement of NASD and Chief Litigation Counsel at the SEC, is interviewed in "Former Senior Enforcement Official Discusses SEC Expectations, Enron, SRO Consolidations and the Pros and Cons of Cooperating with Regulators," published in the June 2006 issue of Securities Litigation Report.

Client Alert | June 30, 2006