Lisa Vicens

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On Tuesday, December 27, 2016, the United States Court of Appeals for the Tenth Circuit in Bandimere v. S.E.C., found that the Securities and Exchange Commission’s (“SEC”) use of administrative law judges (“ALJs”) violated the U.S. Constitution.  While the court’s opinion relies on a somewhat arcane question of administrative law—whether the hiring of SEC ALJs violated the Appointments Clause—its decision to set aside an SEC order imposing sanctions for securities laws violations raises significant questions about future SEC claims brought before ALJs rather than in federal courts, as well as prior adjudications.  With the D.C. Circuit currently considering whether to grant rehearing en banc on its recent holding that these same SEC proceedings were constitutional, the Tenth Circuit’s decision is sure to draw considerable scrutiny in the months ahead and may well give rise to Supreme Court review of the issue.
Continue Reading Appellate Courts Split Over Constitutionality of SEC Administrative Proceedings

The Supreme Court’s unanimous decision this week in Salman v. United States, No. 15-268, 580 U.S. __ (Dec. 6, 2016), clarified what constitutes a “personal benefit” for purposes of insider trading liability.  In its first merits ruling in an insider trading case in two decades, the Court affirmed the Ninth Circuit’s holding that the personal benefit requirement may be met when an inside tipper simply gifts confidential information to a trading relative or friend.  In so holding, the Supreme Court significantly narrowed a key aspect of the Second Circuit’s landmark insider trading decision in United States v. Newman, which had required prosecutors to prove that the tipper received something “of a pecuniary or similarly valuable nature”—a more difficult standard to meet.

Before Newman was decided, the United States Attorney’s Office for the Southern District of New York had prioritized insider trading prosecutions, obtaining dozens of convictions and over a billion dollars in fines since 2009.  After Newman, however, prosecutors were forced to dismiss several indictments, and some commentators wondered what the future held for insider trading prosecutions.  The Supreme Court’s recent decision should reduce that uncertainty and may bring a renewed focus on insider trading investigations.
Continue Reading Supreme Court Clarifies Insider Trading Liability for Confidential Tips

In recent years, when pursuing corporations and their officers for violations of the U.S. securities laws, the Securities and Exchange Commission (“SEC”) Division of Enforcement has increasingly brought its claims to the SEC’s in-house administrative law judges (ALJs) rather than the federal civil courts.  In fact, last year, over 90% of the SEC’s actions against public companies were brought to the SEC’s ALJs—whereas five years ago, only 33% of those cases were brought as ALJ proceedings.  The credit for this remarkable increase in ALJ proceedings belongs in large part to the 2010 Dodd–Frank Act,[1] which expanded the ALJs’ jurisdiction and authorized new penalties that ALJs could impose, making it unnecessary for the SEC to bring many claims in civil courts.
Continue Reading Changes and Challenges in the SEC’s ALJ Proceedings