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18 May

In recent years, the SEC has pursued a number of broad sweeps against multiple individuals and entities targeting largely technical, non-fraud violations (from late Form 4 filings by public company insiders to certain short sale violations).At an October conference, Co-Director Peikin suggested that he was not supportive of the broken windows approach, stating that “it may be the case that we have to be selective and bring a few cases to send a broader message rather than sweep the entire field.”[9] At the same conference, Peikin also seemed less inclined to require admissions of wrongdoing as a condition of settlement, a policy implemented (albeit somewhat sparingly) for selected settlements under the prior administration.In November, the SEC reported a marked decline in the number of new enforcement actions filed in the fiscal year ended September 30.[7] The Enforcement Division filed 446 standalone cases in fiscal 2017 (i.e.excluding follow-on sanctions orders and actions to deregister public companies with delinquent filings), a nearly 20% decline from the prior year’s high of 548 new standalone cases.Rather, the Solicitor General now agreed with the petitioner in Lucia that ALJs are inferior officers of the United States and their appointment must be in compliance with the Appointments Clause.[10] The following day, the SEC issued an order “ratif[ying] the agency’s prior appointment of” all of its ALJs, and ordering the ALJs to reconsider the record in all pending proceedings in which an initial decision has not yet been rendered, or in which the initial decision was issued but not yet considered on appeal by the Commission.[11] While the SEC’s pronouncement deemed that the order had “resolved any concerns,” the core issue of whether the ALJs had been constitutionally appointed in the first place, and whether there are any repercussions for past or pending cases, remains open, and the Supreme Court may nonetheless opt to grant certiorari in Lucia and/or Bandimere.A second legal development of note impacting SEC enforcement practice arose in the Southern District of Florida, where a magistrate judge held that a law firm waived work product protection for its witness interview memoranda after counsel provided oral summaries of the interviews to the SEC staff.[12] The magistrate held that there was “little to no substantive distinction” for purposes of work product protection between providing actual interview memoranda and simply reading or summarizing the memoranda for the government, and that the oral summary was the “functional equivalent” of the original memos.January 10, 2018 Click for PDF 2017 was the prototypical transition year for the SEC.In contrast to many other federal agencies under the current administration, the new SEC leadership did not promise a wholesale rethinking of the agency’s mandate.

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In an October 26, 2017 speech, Co-Director of the Enforcement Division Stephanie Avakian stated: At a high level, our greatest priorities and where we allocate our limited resources do not really change over time, and nor should they.

Notably, both the SEC and DOJ have stated that they do not require privilege waivers in order to obtain cooperation credit, so it is likely that both counsel and agency personnel will be feeling their way through this ruling in 2018, hoping to craft a solution amenable to all sides.[13] Interestingly, the same decision also found that the provision of attorney work product to the client’s accounting firm did not constitute a waiver, concluding that the firms had a common interest “for other purposes” since the accounting firm was not yet a target of the SEC—and thus not an adversary—of the company.

A third legal issue of note is the continuing fallout from the Supreme Court’s June ruling in Kokesh v. In Kokesh (as described at length in our Mid-Year Update), the Court held that the five year statute of limitations applicable to government actions for civil penalties also applied to SEC demands for disgorgement, finding disgorgement to be penal in nature.[14] Kokesh left open whether the statute would likewise apply to injunctions, industry bars, and other non-monetary relief.

One of the most hard-fought legal issues the SEC has faced in recent years – the seemingly arcane question of whether the method of appointment of the agency’s administrative law judges (ALJs) comports with the Appointments Clause of the US Constitution – came one step closer to resolution in the waning days of 2017.

As detailed in our Mid-Year Update, several cases are winding their way to the Supreme Court, which may rule on the issue in 2018. Circuit upheld the SEC’s ALJ appointments, as well as in Bandimere v.