By Brad Rosen
As is befitting, 2016 closed with a flurry of activity in the world of securities and derivatives regulation as a number of significant court decisions came down, along with the resolution of some long running agency investigations which resulted in unprecedented fines. All the while, December saw the stage being set for likely battles early in 2017 over key Trump appointments as well as for the survival of Dodd-Frank market reforms. Also, the U.S. Supreme Court upheld long standing precedent in the insider trading realm, while the D.C. Circuit rejected further attempts to block the implementation of the DOL’s fiduciary rule. Meanwhile, the SEC and DOJ settled the largest FCPA matter ever for just under a billion dollars while a group of major banks settled matters related to the 2008 financial crisis for just over $8 billion. As the securities and derivative law community readies for the incoming Trump administration and the possibility of dramatic changes to the regulatory landscape, Securities Regulation Daily looks back at the top 10 stories from December, 2016.
1. FRAUD AND MANIPULATION
Justices uphold Salman insider trading conviction, disagree with part of Newman case
The Supreme Court unanimously upheld the insider trading conviction of Bassam Salman and in doing so reiterated the trading family member theory articulated in its Dirks precedent. The case had garnered much attention leading up to an oral argument laden with complex hypotheticals because of the potential for the justices to speak on Dirks and thereby potentially to indirectly speak on the controversial Second Circuit opinion in the Newman case. The court in fact disagreed with the Second Circuit to the extent the Newman opinion deviated from the Ninth Circuit’s gift analysis in Salman’s case (Salman v. U.S., December 6, 2016, Alito, S.). See our full coverage.
2. SEC NEWS AND SPEECHES
Chair White says SEC will act on important rulemakings by end of administration
Stressing the need for the Commission to "exhibit a spirit of firm independence," SEC Chair Mary Jo White told two top Republicans on the Senate Banking Committee that she intends to proceed with a number of planned rulemaking actions, including adopting rules relating to security-based swaps, the use of derivatives by investment companies, and the orderly liquidation of broker-dealers, among others." In light of our long-standing agenda and our duties as Commissioners, my intention is to move forward with the above items as planned, assuming the Commission has a quorum to act," White wrote in a December 12 letter to Committee Chairman Sen. Richard Shelby (R-Ala) and Sen. Mike Crapo (R-Idaho), chairman of the Subcommittee on Securities, Insurance, and Investment. See our full coverage.
3. FIDUCIARY DUTIES
Court won’t block DOL fiduciary rule pending appeal
The D.C. Circuit denied a request to enjoin the Department of Labor fiduciary rule. The National Association for Fixed Annuities has so far unsuccessfully challenged the rule; it is appealing its latest setback to the appeals court. That court found, however, that NAFA "has not satisfied the stringent requirements for an injunction pending appeal" (National Association for Fixed Annuities v. Perez, December 15, 2016, per curiam). See our full coverage.
4. DODD-FRANK ACT
Brown wants transparency from Mnuchin on the issues
Senator Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee, has asked Steven Mnuchin, President-elect Donald Trump’s choice for Treasury Secretary, to answer questions about his views and record related to key Wall Street rules and housing issues. In a letter to Mnuchin, Brown asked the nominee to provide information about how his experience as a hedge fund executive, former Goldman Sachs partner, and leader of a financial institution that has been called a "foreclosure machine" would inform his leadership of the Treasury Department. According to Brown, Mnuchin’s approach to issues within the Banking Committee’s jurisdiction remains unclear, with the exception of his intention to "strip back parts" of the Dodd-Frank Act. See our full coverage.
SEC and DOJ announce largest FCPA bribery case in history
The SEC and the Department of Justice have announced the resolution of the largest foreign bribery case in history in which Braskem S.A., a Brazilian petrochemical manufacturer, has agreed to pay $957 million as part of a global settlement. The SEC’s complaint alleges that Braskem made over $300 million in profits by bribing a government official at Brazil’s state-controlled petroleum company, and by bribing Brazilian legislators and political party officials to obtain or retain business. Braskem will pay $325 million in disgorgement, over $632 million in criminal penalties and fines, and will appoint an independent corporate monitor for at least three years (SEC v. Braskem, December 21, 2016). See our full coverage.
6. SUPREME COURT DOCKET
High Court is asked to address standards for pleading loss causation
A corporate defendant has filed a petition asking the Supreme Court to weigh in on whether or not state courts have jurisdiction over covered class actions alleging only Securities Act claims. This jurisdictional question has caused chaos in the lower courts, and the petition urges the Court to find that Congress clearly intended that the Securities Litigation Uniform Standards Act be read broadly as withdrawing, rather than continuing, state courts' concurrent jurisdiction. The court has also denied certiorari in an insider trading case (FireEye, Inc. v. Superior Court of California, December 5, 2016). See our full coverage.
7. REGULATORY ACTIVITY
CFTC reproposes position limits rules while approving final rules on aggregation
The CFTC reached a unanimous consensus today to issue a reproposed rule on position limits, as well as a final rule on the aggregation of positions. Recognizing that the winds of change are blowing at the CFTC, current Chairman Timothy Massad shared his candid assessment, "truthfully, the agency is in a time of transition. We didn’t want to finalize a rule that the Commission would not embrace going forward." In a prepared statement, Massad elaborated, "I did not want to adopt a final rule today that the Commission would choose not implement or defend next year. Our markets and the many end-users and consumers that rely on them are served best by having reasonable and predictable regulation" (Release No. RIN 3038-AD82, December 5, 2016). See our full coverage.
Banks announce agreement to pay settlements over $12 billion relating to mortgage-backed securities
Deutsche Bank AG (DB) and Credit Suisse AG (CS) separately announced settlements with the U.S. Department of Justice (DOJ), including combined payment of nearly $12.5 billion in connection to their Residential Mortgage-Backed Securities (RMBS) business, which they conducted through 2007 in the lead-up to the 2008 financial crisis. Both settlements are subject to the negotiation of definitive documentation. See our full coverage.
9. FRAUD AND MANIPULATION
Chinese traders charged with hacking law firms, trading on stolen data
The SEC has charged three Chinese nationals with fraudulently trading on inside information hacked from two prominent New York-based law firms. The Commission alleges that the three men netted approximately $3 million in illicit profits by scheming to hack into the law firms’ computer networks and steal confidential client information involving several publicly-traded companies that were engaged in merger and acquisition discussions (SEC v. Hong, December 27, 2016). See our full coverage.
10. CFTC NEWS AND SPEECHES
CFTC’s Giancarlo criticizes U.S. swap regulations and calls for a forward looking agenda
CFTC Commissioner J. Christopher Giancarlo issued a strong rebuke of the Commission’s regulatory framework for swaps trading in a far reaching address to ISDA’s Trade Execution Legal Forum this Friday in London. Giancarlo, the Commission’s sole Republican member and frequently mentioned as a candidate to assume the chairmanship under the new administration, stated "[t]he time has come for the CFTC to revisit its flawed swaps trading rules to better align them with market dynamics, allow U.S. swap intermediaries to fairly compete in world markets and reverse the tide of global market fragmentation. See our full coverage.
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