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Articles by Tom Bednar
Deny With Care: SEC Rescinds Settlement “Gag Rule,” Creating Risks and Opportunities for Settling Defendants
Yesterday, the Securities and Exchange Commission rescinded its so-called “gag rule,” which for fifty years had prohibited a settling defendant from publicly denying the allegations in a settled SEC Enforcement action.[1] The policy shift has received significant media attention, but we believe it will have little effect on the experience of most individuals and entities facing SEC investigation, many of whom are keen to resolve an investigation and move on without drawing additional...
Cleary Gottlieb Discusses the Shifting SEC Enforcement Landscape
Fiscal year 2025 was a year of extremes in terms of the number of enforcement actions brought by the Securities and Exchange Commission (SEC). During the first quarter of fiscal year 2025 (October through December 2024), the SEC reported a record-breaking number of enforcement actions.[1] However, for the remainder of the fiscal year, the SEC’s enforcement numbers significantly declined.
Trio of SEC Enforcement Actions Underscores Importance of Internal Controls
CIRCOR, enforcement, National Energy, Portland General, SEC More from: Matthew Solomon, Tom Bednar, Yasmeen Duncan , Cleary Gottlieb Matthew C. Solomon is a Partner, Tom Bednar is a Counsel, and Yasmeen Duncan is an Associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary Gottlieb memorandum.
Crossing a New Threshold for Material Cybersecurity Incident Reporting
The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2024”. In July 2023, the U.S. Securities and Exchange Commission (SEC) adopted final rules to enhance and standardize disclosure requirements related to cybersecurity.
SEC Announces FY 2023 Enforcement Results with Second-Highest Penalties on Record
On November 14, the Securities and Exchange Commission announced its enforcement results for the 2023 fiscal year,[1] with case numbers up from fiscal year 2022 and monetary sanctions at the second highest level in the agency’s history, though down significantly from last year’s record highs.
SEC No-Penalty Settlement Signals Heightened Focus on Self-Reporting and Cooperation
On September 25, 2023, the Securities and Exchange Commission announced settled cease-and-desist charges against GTT Communications, Inc. (“GTT”), a formerly publicly-traded multinational telecommunications and internet service provider company. The SEC charged GTT with failing to disclose material information regarding unsupported accounting adjustments, which caused the company’s statements to be misleading with respect to its cost of revenue.
DOJ and SEC Charge Healthcare Executive With Insider Trading Through a Rule 10b5-1 Trading Plan, Marking DOJ’s First Such Indictment
On March 1, 2023, the U.S. Department of Justice and the Securities and Exchange Commission announced insider trading charges against Terren Peizer, the CEO and Chairman of a California-based healthcare services company called Ontrak, Inc. (the “Company”) for allegedly selling Company securities while in possession of material, non-public information (“MNPI”) that one of the Company’s major customers was likely to cancel its contract.
U.S. SEC Enforcement 2022 Year in Review
The U.S. Securities and Exchange Commission recently announced the Division of Enforcement’s results for fiscal year 2022, the first full year for the Division under the leadership of both Chair Gary Gensler and Director of Enforcement Gurbir Grewal. Results were up from the year before, with a record $4.2 billion in civil penalties reflecting the agency’s goal to see penalties “recalibrated” upward across the board.
Executives Could Pay for Accounting R/restatements Under New SEC Clawback Rules
On October 26, 2022, the Securities and Exchange Commission adopted final rules implementing the Dodd-Frank requirement for issuers to recover incentive-based compensation erroneously paid to current and former executive officers due to an accounting restatement.
OFAC and FinCEN Announce Joint Enforcement Action Against U.S.-Based Digital Asset Exchange
On October 11, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and Financial Crimes Enforcement Network (“FinCEN”) announced related enforcement settlements with Bittrex, Inc., a U.S.-based digital asset exchange and hosted wallet services company (the “Company”), to settle violations of U.S. sanctions and the Bank Secrecy Act (“BSA”) and related regulations, respectively.[1] The OFAC Settlement, the largest of OFAC’s digital asset-related enforcement...
SEC Charges Company Executives with Insider Trading for Allegedly Setting Up 10b5-1 Trading Plan While in Possession of MNPI
On September 21, 2022, the Securities and Exchange Commission announced settled insider trading charges against the CEO and the former President and Chief Technology Officer of Cheetah Mobile Inc. (the “Company”), a China-based mobile internet company. The executives allegedly possessed material nonpublic information (“MNPI”) when they set up a trading plan under Rule 10b5-1 of the Securities Exchange Act.
SEC and DOJ Charge Employee of Digital Asset Trading Platform and His Associates With Alleged Insider Trading in Digital Assets
On July 21, 2022, the Securities and Exchange Commission and the U.S. Attorney’s Office for the Southern District of New York charged Ishan Wahi, a former employee of the digital asset trading platform Coinbase (the “Company”), as well as his brother and friend, with engaging in insider trading ahead of certain of the Company’s digital asset listing announcements (i.e., announcements in which the Company publicly discloses the specific digital assets that it plans to make available for...
FDIC Issues Cease and Desist Letters to Companies for Crypto-Related Representations About Deposit Insurance
The last few weeks have seen a significant ramp-up of federal bank regulators’ focus on cryptocurrency companies and their disclosures regarding FDIC deposit insurance, signaling a potential spike in enforcement actions targeted at the crypto sector.
DFS Enters Consent Order with Robinhood Crypto for Deficiencies in AML, Cybersecurity, and Virtual Currency Compliance
On August 1, 2022, Robinhood Crypto LLC (“RHC”) entered into a Consent Order with the New York Department of Financial Services (“DFS”) based on “serious deficiencies” related to anti-money laundering (“AML”), cybersecurity, and virtual currency that were identified in DFS’s examination of RHC covering the period from January to September 2019.[1] RHC is a cryptocurrency trading platform that is licensed by DFS to engage in virtual currency business in New York.
SEC Brings Robo-Adviser Case Against Charles Schwab for Misleading Clients About Hidden Costs
On June 13, 2022, the Securities and Exchange Commission charged three Charles Schwab investment adviser subsidiaries—Charles Schwab & Co., Inc.; Charles Schwab Investment Advisory, Inc. (“CSIA”); and Schwab Wealth Investment Advisory, Inc. (“SWIA,” and together with Charles Schwab & Co., Inc. and CSIA, “Charles Schwab”)—with violations of the Investment Advisers Act of 1940 for alleged misconduct associated with its robo-advisor, Schwab Intelligent Portfolios (“SIP”).
SEC Imposes Penalties and Sweeping Independent Consultant on CohnReznick for Alleged Audit Failures in Case Underscoring SEC’s Focus on “Gatekeepers”
On June 8, 2022, the SEC announced a notable settlement with national audit firm CohnReznick LLP, charging it with failure to uphold several professional standards during its 2017 audits of two public companies that had previously been sued by the SEC for accounting fraud.
SEC Accounting Enforcement Action Signals Heightened Focus on Individual Accountability and Puts Public Company Executives on Notice for Potential SOX 304 Reimbursement
On June 7, 2022, the Securities and Exchange Commission announced that it had charged software company Synchronoss Technologies, Inc. and seven of its current and former employees in connection with an alleged long-running accounting fraud involving improper revenue recognition of more than $46 million across six quarters.
New ESG Rule Proposal Raises the Stakes under SEC’s New Marketing Rule
On May 25, 2022, the U.S. Securities and Exchange Commission (“SEC”) proposed amendments to rules and related reporting forms under the Investment Advisers Act of 1940 (the “Advisers Act”) and the Investment Company Act of 1940 (the “Investment Company Act”) that are ostensibly intended to provide additional transparency regarding the use of environmental, social, and governance (“ESG”) factors by investment advisers and investment companies (the “Proposal,” available here), but which will...
SEC Nearly Doubles Size of Digital Asset Enforcement Team
On May 3, 2022, the SEC announced that it was renaming the Division of Enforcement’s Cyber Unit as the Crypto Assets and Cyber Unit, and significantly increasing its size with the addition of 20 new positions.[1] In the same announcement, the SEC articulated specific areas of focus within the digital assets space, including: (i) crypto asset offerings; (ii) crypto asset exchanges; (iii) crypto asset lending and staking products; (iv) decentralized finance (“DeFi”) platforms; (v) non-fungible...
SEC Division of Examinations Reinforces Gensler Initiatives in its 2022 Exam Priorities
On March 30, 2022, the U.S. Securities and Exchange Commission (“SEC”) Division of Examinations (the “Division”)—formerly the Office of Compliance Inspections and Examinations—released its 2022 Examination Priorities (“2022 Priorities”). The Division is undergoing extensive leadership changes, with the recent departures of several top officials.
SEC Takes Aim at Crypto Lending in BlockFi Settlement; Calls on Market to “Come into Compliance”: Is Regulatory Clarity Coming Soon?
The SEC and a consortium of 32 states recently announced a $100 million settlement with BlockFi Lending LLC over its crypto lending product, BlockFi Interest Accounts. The SEC alleged BlockFi had violated the securities laws by failing to register its interest-bearing crypto lending product as a security, failing to register itself as an investment company, and making false statements about the risks of its product.
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