Securities Industry Commentator by Bill Singer Esq

BREAKING STORY: Supreme Court Issues DACA Opinion -- READ FULL TEXT

The SEC told bankrupt Hertz it has issues with its plan to sell stock, Chairman Jay Clayton says (CNBC by Maggie Fitzgerald)

Federal Court Orders Alabama Man to Pay $755,000 for Binary Options Fraud (CFTC Release)

Insurance Company and Former CFO Charged with Faulty Loss Reserves Disclosures (SEC Release)

Two Mexican Nationals Plead Guilty to Timeshare Telemarketing Scam (DOJ Release)

Stopping Hackers in Their Tracks / FBI Arrests Hacker Who Stole Data from Tech Company (FBI Release)

FINRA Imposes Fine and Suspension for Discretion Authorized Only Orally by Client.

In the Matter of Albert Dishner Respondent (FINRA AWC)

Federal Court Considers FINRA Arbitrability of Insurance Claims (BrokeAndBroker.com Blog)

DEPARTMENT OF HOMELAND SECURITY ET AL. v. REGENTS OF THE UNIVERSITY OF CALIFORNIA ET AL. 

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT 

No. 18-587. Argued November 12, 2019-Decided June 18, 2020* 

*Together with No. 18-588, Trump, President of the United States, et al. v. National Association for the Advancement of Colored People et al., on certiorari before judgment to the United States Court of Appeals for the District of Columbia Circuit, and No. 18-589, Wolf, Acting Secretary of Homeland Security, et al. v. Batalla Vidal et al., on certiorari before judgment to the United States Court of Appeals for the Second Circuit. 

In 2012, the Department of Homeland Security (DHS) issued a memorandum announcing an immigration relief program known as Deferred Action for Childhood Arrivals (DACA), which allows certain unauthorized aliens who arrived in the United States as children to apply for a two-year forbearance of removal. Those granted such relief become eligible for work authorization and various federal benefits. Some 700,000 aliens have availed themselves of this opportunity. 

Two years later, DHS expanded DACA eligibility and created a related program known as Deferred Action for Parents of Americans and Lawful Permanent Residents (DAPA). If implemented, that program would have made 4.3 million parents of U. S. citizens or lawful permanent residents eligible for the same forbearance from removal, work eligibility, and other benefits as DACA recipients. Texas, joined by 25 other States, secured a nationwide preliminary injunction barring implementation of both the DACA expansion and DAPA. The Fifth Circuit upheld the injunction, concluding that the program violated the Immigration and Nationality Act (INA), which carefully defines eligibility for benefits. This Court affirmed by an equally divided vote, and the litigation then continued in the District Court. 

In June 2017, following a change in Presidential administrations, DHS rescinded the DAPA Memorandum, citing, among other reasons, the ongoing suit by Texas and new policy priorities. That September, the Attorney General advised Acting Secretary of Homeland Security Elaine C. Duke that DACA shared DAPA's legal flaws and should also be rescinded. The next day, Duke acted on that advice. Taking into consideration the Fifth Circuit and Supreme Court rulings and the Attorney General's letter, Duke decided to terminate the program. She explained that DHS would no longer accept new applications, but that existing DACA recipients whose benefits were set to expire within six months could apply for a two-year renewal. For all other DACA recipients, previously issued grants of relief would expire on their own terms, with no prospect for renewal. 

Several groups of plaintiffs challenged Duke's decision to rescind DACA, claiming that it was arbitrary and capricious in violation of the Administrative Procedure Act (APA) and infringed the equal protection guarantee of the Fifth Amendment's Due Process Clause. District Courts in California (Regents, No. 18-587), New York (Batalla Vidal, No. 18-589), and the District of Columbia (NAACP, No. 18-588) all ruled for the plaintiffs. Each court rejected the Government's arguments that the claims were unreviewable under the APA and that the INA deprived the courts of jurisdiction. In Regents and Batalla Vidal, the District Courts further held that the equal protection claims were adequately alleged, and they entered coextensive nationwide preliminary injunctions based on the conclusion that the plaintiffs were likely to succeed on their APA claims. The District Court in NAACP took a different approach. It deferred ruling on the equal protection challenge but granted partial summary judgment to the plaintiffs on their APA claim, finding that the rescission was inadequately explained. The court then stayed its order for 90 days to permit DHS to reissue a memorandum rescinding DACA, this time with a fuller explanation of the conclusion that DACA was unlawful. Two montoverhs later, Duke's successor, Secretary Kirstjen M. Nielsen, responded to the court's order. She declined to disturb or replace Duke's rescission decision and instead explained why she thought her predecessor's decision was sound. In addition to reiterating the illegality conclusion, she offered several new justifications for the rescission. The Government moved for the District Court to reconsider in light of this additional explanation, but the court concluded that the new reasoning failed to elaborate meaningfully on the illegality rationale. 

The Government appealed the various District Court decisions to the Second, Ninth, and D. C. Circuits, respectively. While those appeals were pending, the Government filed three petitions for certiorari before judgment. Following the Ninth Circuit affirmance in Regents, this Court granted certiorari. 

Held: The judgment in No. 18-587 is vacated in part and reversed in part; the judgment in No. 18-588 is affirmed; the February 13, 2018 order in No. 18-589 is vacated, the November 9, 2017 order is affirmed in part, and the March 29, 2018 order is reversed in part; and all of the cases are remanded. No. 18-587, 908 F. 3d 476, vacated in part and reversed in part; No. 18- 588, affirmed; and No. 18-589, February 13, 2018 order vacated, November 9, 2017 order affirmed in part, and March 29, 2018 order reversed in part; all cases remanded. 

THE CHIEF JUSTICE delivered the opinion of the Court, except as to Part IV, concluding: 

1. DHS's rescission decision is reviewable under the APA and is within this Court's jurisdiction. Pp. 9-13. 

(a) The APA's "basic presumption of judicial review" of agency action, Abbott Laboratories v. Gardner, 387 U. S. 136, 140, can be rebutted by showing that the "agency action is committed to agency discretion by law," 5 U. S. C. §701(a)(2). In Heckler v. Chaney, the Court held that this narrow exception includes an agency's decision not to institute an enforcement action. 470 U. S. 821, 831-832. The Government contends that DACA is a general non-enforcement policy equivalent to the individual non-enforcement decision in Chaney. But the DACA Memorandum did not merely decline to institute enforcement proceedings; it created a program for conferring affirmative immigration relief. Therefore, unlike the non-enforcement decision in Chaney, DACA's creation-and its rescission-is an "action [that] provides a focus for judicial review." Id., at 832. In addition, by virtue of receiving deferred action, 700,000 DACA recipients may request work authorization and are eligible for Social Security and Medicare. Access to such benefits is an interest "courts often are called upon to protect." Ibid. DACA's rescission is thus subject to review under the APA. Pp. 9-12. 

(b) The two jurisdictional provisions of the INA invoked by the Government do not apply. Title 8 U. S. C. §1252(b)(9), which bars review of claims arising from "action[s]" or "proceeding[s] brought to remove an alien," is inapplicable where, as here, the parties do not challenge any removal proceedings. And the rescission is not a decision "to commence proceedings, adjudicate cases, or execute removal orders" within the meaning of §1252(g). Pp. 12-13. 

2. DHS's decision to rescind DACA was arbitrary and capricious under the APA. Pp. 13-26. 

(a) In assessing the rescission, the Government urges the Court to consider not just the contemporaneous explanation offered by Acting Secretary Duke but also the additional reasons supplied by Secretary Nielsen nine months later. Judicial review of agency action, however, is limited to "the grounds that the agency invoked when it took the action." Michigan v. EPA, 576 U. S. 743, 758. If those grounds are inadequate, a court may remand for the agency to offer "a fuller explanation of the agency's reasoning at the time of the agency action," Pension Benefit Guaranty Corporation v. LTV Corp., 496 U. S. 633, 654 (emphasis added), or to "deal with the problem afresh" by taking new agency action, SEC v. Chenery Corp., 332 U. S. 194, 201. Because Secretary Nielsen chose not to take new action, she was limited to elaborating on the agency's original reasons. But her reasoning bears little relationship to that of her predecessor and consists primarily of impermissible "post hoc rationalization." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U. S. 402, 420. The rule requiring a new decision before considering new reasons is not merely a formality. It serves important administrative law values by promoting agency accountability to the public, instilling confidence that the reasons given are not simply convenient litigating positions, and facilitating orderly review. Each of these values would be markedly undermined if this Court allowed DHS to rely on reasons offered nine months after the rescission and after three different courts had identified flaws in the original explanation. Pp. 13-17.

(b) Acting Secretary Duke's rescission memorandum failed to consider important aspects of the problem before the agency. Although Duke was bound by the Attorney General's determination that DACA is illegal, see 8 U. S. C. §1103(a)(1), deciding how best to address that determination involved important policy choices reserved for DHS. Acting Secretary Duke plainly exercised such discretionary authority in winding down the program, but she did not appreciate the full scope of her discretion. The Attorney General concluded that the legal defects in DACA mirrored those that the courts had recognized in DAPA. The Fifth Circuit, the highest court to offer a reasoned opinion on DAPA's legality, found that DAPA violated the INA because it extended eligibility for benefits to a class of unauthorized aliens. But the defining feature of DAPA (and DACA) is DHS's decision to defer removal, and the Fifth Circuit carefully distinguished that forbearance component from the associated benefits eligibility. Eliminating benefits eligibility while continuing forbearance thus remained squarely within Duke's discretion. Yet, rather than addressing forbearance in her decision, Duke treated the Attorney General's conclusion regarding the illegality of benefits as sufficient to rescind both benefits and forbearance, without explanation. That reasoning repeated the error in Motor Vehicle Manufacturers Association of the United States, Inc. v. State Farm- treating a rationale that applied to only part of a policy as sufficient to rescind the entire policy. 463 U. S. 29, 51. While DHS was not required to "consider all policy alternatives," ibid., deferred action was "within the ambit of the existing" policy, ibid.; indeed, it was the centerpiece of the policy. In failing to consider the option to retain deferred action, Duke "failed to supply the requisite 'reasoned analysis.' " Id., at 57. 

That omission alone renders Duke's decision arbitrary and capricious, but it was not the only defect. Duke also failed to address whether there was "legitimate reliance" on the DACA Memorandum. Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735, 742. Certain features of the DACA policy may affect the strength of any reliance interests, but those features are for the agency to consider in the first instance. DHS has flexibility in addressing any reliance interests and could have considered various accommodations. While the agency was not required to pursue these accommodations, it was required to assess the existence and strength of any reliance interests, and weigh them against competing policy concerns. Its failure to do so was arbitrary and capricious. Pp. 17-26. 

THE CHIEF JUSTICE, joined by JUSTICE GINSBURG, JUSTICE BREYER, and JUSTICE KAGAN, concluded in Part IV that respondents' claims fail to establish a plausible inference that the rescission was motivated by animus in violation of the equal protection guarantee of the Fifth Amendment. Pp. 27-29. 

ROBERTS, C. J., delivered the opinion of the Court, except as to Part IV. GINSBURG, BREYER, and KAGAN, JJ., joined that opinion in full, and SOTOMAYOR, J., joined as to all but Part IV. SOTOMAYOR, J., filed an opinion concurring in part, concurring in the judgment in part, and dissenting in part. THOMAS, J., filed an opinion concurring in the judgment in part and dissenting in part, in which ALITO and GORSUCH, JJ., joined. ALITO, J., and KAVANAUGH, J., filed opinions concurring in the judgment in part and dissenting in part.

"In this particular situation we have let the company know that we have comments on their disclosure," Clayton said on CNBC's "Squawk on the Street" on Wednesday. "In most cases when you let a company know that the SEC has comments on their disclosure they do not go forward until those comments are resolved."

In an effort to get a piece of the market's rebound from the coronavirus downturn, retail investors are piling into bankrupt companies like car rental company Hertz. With the economic conditions improving suddenly, investors are betting these bankrupt companies are now in better shape than when they limped into Chapter 11.

Trading activity on names like Hertz, spiked on millennial favored stock trading app Robinhood in the days following the bankruptcy filings, according to Robintrack, which tracks Robinhood account activity but is not affiliated with the company.

[F]rom March 16, 2017, through February 21, 2018, Butler, in his individual capacity and on behalf of NCI, unlawfully solicited and accepted $305,000 from more than 70 customers to trade binary options contracts, defrauded those customers, and operated as an unregistered commodity trading advisor.

In particular, the order finds that Butler misrepresented his treatment of customers' deposits totaling between $500 and $5,000, claiming he would pool those funds into a single trading account, and that he, acting as the trader for NCI, would use them to trade binary options on the customers' behalf. The order also finds that Butler misled customers that he would deposit each customer payment of $5,000 or more into separate customer trading accounts, and Butler would, for a fee, manage and trade binary options on behalf of customers. Rather than trade customer funds as promised, Butler instead misappropriated most, if not all, funds for his own personal benefit, including spending tens of thousands of dollars on jewelry, purchases at an electronics store, and retail gift cards.

[A]mTrust and Pipoly failed to properly disclose the company's process for reporting management's best estimate of loss reserves in its filings with the SEC. The complaint alleges that AmTrust and Pipoly disclosed the company's general actuarial process for estimating loss reserves, but failed to disclose that Pipoly made consolidated accounting adjustments that did not properly consider the actuarial analyses and diverged from the company's actuarial estimates. The complaint further alleges that AmTrust failed to disclose the specific factors or assumptions supporting Pipoly's judgmental adjustments, and failed to maintain sufficient supporting documentation for management's best estimate. Further, AmTrust and Pipoly allegedly failed to disclose the loss contingencies created by Pipoly's judgmental adjustments to the company's historical experience. According to the complaint, by the end of 2015, Pipoly's total adjustments exceeded $300 million and impacted all of AmTrust's reporting segments.

As detailed in the factual basis and superseding bill of information, the defendants, from at least January 1, 2016, to the present, conspired together and with others to commit wire fraud in connection with a telemarketing scheme that targeted and victimized persons in the United States, Canada and South America. As part of the elaborate scheme, the conspirators made unsolicited phone calls to owners of resort timeshare properties to induce them into paying fees associated with the bogus sale of their property. The defendants misrepresented the existence of a buyer for their timeshare and solicited money from the victims to facilitate the sale. They solicited the timeshare owners to enter into agreements to sell their timeshares and pay for alleged "closing costs" with electronic wire transfers from banking institutions within the United States to Mexican banks. There were no interested buyers, the closings did not occur, and the timeshares were not resold. Instead, the conspirators simply pocketed the advanced fees. Of the U.S. victims, 40 were age 60 and older and the total estimated loss is at least $10,000,000.

The defendants, who are all based in Mexico, operated under the business names Planet Travel and Newport International Investments, and at other times used the following business names: Advance Travel INC, All American Real Estate, American International Investment Group, Bear Claw Travel, Best Investment Services, Champion Properties, Closing Source LLC, Equity Closing Services Group, Global Offshore Services, NSC Holding, Peach Title, Sandia Title, Travel and Acquisitions, Travel Innovations, Travel Plus Acquisitions, Travel Right, and World Travelers, Inc. All of these domain websites have been seized by the Federal Bureau of Investigation and the Department of Justice.

[K]ight spent a few weeks hacking into the company's network, using various tactics to hide his identity. He then downloaded the data to his own computer and deleted it from the company's systems.

Once he had the data, Kight emailed the company's CEO to demand payment in exchange for the data -- but he insisted that it wasn't extortion.

[T]he Firm's written supervisory procedures generally permitted discretionary trading that complied with the above-referenced rules. During the Relevant Period, the customer, a long-term client of Dishner, orally or implicitly gave Dishner authority to exercise discretion in his accounts, but did not provide written authorization for Dishner to exercise discretion. During the Relevant Period, Dishner exercised discretionary power in the customer's two Firm brokerage accounts, executing several hundred securities transactions, including equities and option contracts. Dishner exercised discretion in these two accounts without acceptance of the accounts as discretionary by the Firm, and in the instances involving option contracts, by an OP or SU. As a result of the foregoing conduct, Dishner violated NASD Rule 2510(b) and FINRA Rules 2360(b)(18)(A) and 2010. 

• Securities Industry Commentator
• Bill Singer