Securities Industry Commentator by Bill Singer Esq

On appeal from a judgment entered in the United States District Court for the Southern District of New York (Schofield, J.), dismissing plaintiffs' ERISA complaint for failure to state claims for which relief can be granted, see Fed. R. Civ. P. 12(b)(6), plaintiffs fault the district court for failing to recognize that the defendant banks acted as ERISA functional fiduciaries in conducting the foreign currency exchange transactions here at issue and, thus, that their alleged manipulation of the foreign exchange market breached ERISA fiduciary duties owed to plaintiffs' employee benefit plans. Plaintiffs further fault the district court's denial of their request for a 60‐day adjournment and leave to file a fourth amended complaint.      

AFFIRMED

1. Plaintiffs fail to allege facts showing that the defendant banks and their affiliates exercised the requisite level of control over the disposition of Plan assets so as to warrant their identification as ERISA functional fiduciaries with respect to the FX transactions at issue. 

2. Because plaintiffs here pursue their party‐in‐interest claim not in the alternative to, but in reliance on, their functional fiduciary theory, the claim necessarily fails for lack of the requisite proof of control.   

3. The district court neither committed legal error nor abused its discretion in denying plaintiffs an adjournment to conduct further investigation in anticipation of amending their complaint for a fourth time. . .

SEC Files Additional Charges in Fitbit Stock Manipulation Scheme (SEC Press Release)
https://www.sec.gov/news/press-release/2018-130
In furtherance of its case alleging the manipulation of Fitbit securities through false regulatory filings, the filed a Complaint in the United States District Court for the Southern District of New York against a second defendant, Mark E. Burns, alleging that he purchased Fitbit call options just minutes before he and his alleged co-conspirator, Robert W. Murray, filed a fake tender offer on the SEC's EDGAR system (in the name of ABM Capital LTD, an allegedly nonexistent company for which the defendants purportedly created an EDGAR account) purporting to acquire Fitbit's shares at a substantial premium. Murray agreed to settle the SEC's charges. READ the FULL TEXT Complaint https://www.sec.gov/litigation/complaints/2018/comp-pr2018-130.pdf

Deputy Attorney General Rod J. Rosenstein Delivers Remarks Announcing the Establishment of the Task Force on Market Integrity and Consumer Fraud (Remarks of DAG Rosenstein)
https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-announcing-establishment-task

Good morning.  I am pleased to announce that President Trump signed an Executive Order establishing a new Task Force on Market Integrity and Consumer Fraud.  The Task Force will focus on combating fraud against consumers - particularly the elderly, service members, and veterans - and corporate fraud that victimizes the general public and the government.  

I am joined this morning by leaders of some of the agencies that work with the Department of Justice to protect American consumers and taxpayers: Acting Director Mick Mulvaney of the Consumer Financial Protection Bureau; Chairman Jay Clayton of the Securities and Exchange Commission; and Chairman Joe Simons of the Federal Trade Commission.  Acting Associate Attorney General Jesse Panuccio, one of the key members of the task force, is also here today and will be available to take questions.

Fraud committed by companies and their employees has a devastating impact on American citizens in the financial markets, the health care sector, and elsewhere. 

Two weeks ago, the Attorney General and the Secretary of Health and Human Services announced the prosecution of 601 defendants in our nation's largest coordinated health care fraud enforcement action.  The fraud schemes allegedly involved more than $2 billion in false billings.  162 of the defendants, including 76 doctors, were charged for illegally distributing opioids and other dangerous narcotics. 

Health care fraud cheats taxpayers and victimizes vulnerable citizens.  We will do everything we can to root it out and ensure that wrongdoers are punished appropriately. 

In another example from last month, the Department announced Operation Wire Wire, a coordinated effort that also included the Department of Homeland Security, the Department of the Treasury, and the Postal Inspection Service. It resulted in 74 arrests in the United States and overseas.  The operation targeted cyber-enabled financial fraud that caused companies, real estate purchasers, the elderly, and others to transmit money and sensitive personal information on the basis of fraudulent representations by the perpetrators. 

The Department also uses affirmative civil enforcement authority to recover fraud proceeds and impose penalties.  Last year, we obtained more than $3.7 billion in settlements and judgments from civil cases involving fraud against the government.  Total recoveries since 1986 amount to more than $56 billion.  We have paid almost $6.6 billion to whistleblowers who came forward to report fraud and assist our investigations. 

The new Task Force on Market Integrity and Consumer Fraud will allow us to do even more.

The President's order directs the Task Force to invite participation from our law enforcement partners at many departments and agencies.  By working together, we can achieve more effective and efficient outcomes.  Drawing on our pooled resources, including subject-matter expertise, data repositories, and analysts and investigators, we can identify and stop fraud on a wider scale than any one agency acting alone. 

In May, the Department of Justice announced a new policy to encourage cooperation internally and with other enforcement agencies when imposing multiple penalties for the same corporate misconduct.  The goal is to discourage "piling on," and instead coordinate with local, state, federal, and foreign authorities to achieve a joint result that imposes appropriate punishment without prolonging investigations and unnecessarily spending investigative resources.

For responsible companies that choose to cooperate in our investigations, voluntarily report misconduct, and remediate the harm, we will work together with other agencies to ensure an appropriate and just result. 

The Task Force will bring together U.S. Attorneys' Offices and our Department's other components, with essential help from other enforcement agencies, to fight fraud affecting American citizens.  We will pursue our mission with determination, fairness, and the coordinated resources of all our law enforcement partners. 

We expect to focus on cases involving fraud against the government, the financial markets, and consumers; procurement and grant fraud; securities and commodities fraud; digital currency fraud; money laundering; health care fraud; tax fraud; and other financial crimes.

One of our first goals will be to survey our partner agencies to identify areas of vulnerability and ensure that we devote appropriate resources to address them.

Next, I want to introduce Mick Mulvaney, Acting Director of the Consumer Financial Protection Bureau.  

Remarks on the Establishment of the Task Force on Market Integrity and Consumer Fraud (Remarks of SEC Chairman Jay Clayton)
https://www.sec.gov/news/speech/task-force-market-integrity-and-consumer-fraud

Thank you for inviting me to say a few words about the importance of this Task Force.[1] I commend the President and the Attorney General for their leadership in this area. Serving and protecting Main Street investors is my main priority at the SEC. We recognize that close partnerships with our fellow regulators and law enforcement agencies are vital to helping us detect and respond to fraud. Through a few examples, I'd like to highlight some of the work the SEC is doing to combat retail securities fraud and illustrate how important inter-agency cooperation is.

Emphasizing our Retail Enforcement Strategy

Last year our Division of Enforcement formed an internal Retail Strategy Task Force to bolster our capabilities and focus on protecting Main Street investors. [2] This effort draws on expertise from across the SEC to develop strategies and techniques for addressing the types of misconduct that most affect retail investors. These include microcap "pump and dump" frauds, Ponzi schemes, and the sales of unsuitable complex products, which frequently target the most vulnerable members of the investing public.

In one example, last year our Enforcement Division charged 13 individuals with running a boiler-room scam targeting elderly investors, alleging that the individuals defrauded investors of $10 million through the use of high-pressure sales tactics and lies about penny stocks.[3] In this action, we worked with federal criminal authorities, FINRA, and state and foreign securities regulators to bring an end to the alleged fraud.[4]

Emergency Actions

Punishing wrongdoing is important, but no more important than getting victims their money back. Our Enforcement Division has been swift in its response when it sees threats to retail investors. When our investigative teams detect possible ongoing violations and locate profits from possible fraudulent activity, the Commission often files emergency actions.

I have been at the agency for over a year now, and in that time the Commission has obtained over 20 temporary restraining orders and approximately 30 asset freezes. For example, in January of this year, the SEC shut down an alleged Initial Coin Offering scam that claimed to have raised $600 million. Not only did we stop the alleged scheme, but we successfully prevented dissipation of investor funds by obtaining a freeze of the digital assets and a court-appointed receiver to secure various cryptocurrencies held by the defendant. Again, as with many of our matters, we are indebted to the assistance we received in that matter from federal criminal authorities and our regulatory partners.[5]

Cyber and ICO Fraud

Finally, I believe that cyber threats present some of the greatest risks confronting today's financial markets. Increasingly, we are seeing bad actors using new technology to perpetrate frauds, including securities offering frauds. In response to these risks, last year Enforcement created a Cyber Unit to focus on cyber-related misconduct.[6]

We have not acted alone in this area. The Commission has filed multiple actions this year concerning allegedly fraudulent Initial Coin Offerings, and has frozen tens of millions of dollars of assets raised in allegedly unregistered Initial Coin Offerings, while working in parallel with federal criminal authorities.[7] In addition, we have worked closely with other regulators to provide clarity on the application of our laws and regulations to new and emerging products.[8] I know cyber-enabled crime is an area of focus that the SEC shares with many others on this Task Force.

Closing

As these examples illustrate, our efforts to protect retail investors are often most effective and successful when we work collaboratively and in parallel with our law enforcement partners and fellow regulators. The SEC is proud to support this Task Force, and I again commend the President and the Attorney General for their leadership in this important effort.

= = = = =

[1] My views are my own, and do not necessarily reflect the views of the Commission, my fellow Commissioners, or the staff.

[2] See Press Release 2017-176, SEC Announces Enforcement Initiatives to Combat Cyber-Based Threats and Protect Retail Investors (Sept. 25, 2017), available at https://www.sec.gov/news/press-release/2017-176.

[3] See Press Release 2017-124, SEC Announces Charges in Massive Telemarketing Boiler Room Scheme Targeting Seniors (July 12, 2017), https://www.sec.gov/news/press-release/2017-124.

[4] Earlier this year we also charged a pastor who we allege preyed on elderly victims by giving them false assurances while selling them worthless bonds. In reality these bonds were just collectible memorabilia with no meaningful investment value. See Press Release 2018-51, SEC Charges Prominent Pastor, Financial Planner in Scheme to Defraud Elderly Investors (Mar. 30, 2018), https://www.sec.gov/news/press-release/2018-51.

[5] See Press Release 2018-8, SEC Halts Alleged Initial Coin Offering Scam (Jan. 30, 2018), https://www.sec.gov/news/press-release/2018-8.

[6] See SEC Announces Enforcement Initiatives to Combat Cyber-Based Threats and Protect Retail Investors, supra note 1.

[7] See Press Release 2018-53, SEC Halts Fraudulent Scheme Involving Unregistered ICO (April 2, 2018); Press Release 2018-61, SEC Obtains Emergency Freeze of $27 Million in Stock Sales of Purported Cryptocurrency Company Longfin (April 6, 2018); See Press Release 2018-23, SEC Charges Former Bitcoin-Denominated Exchange and Operator With Fraud (Feb. 21, 2018).

[8] Joint Statement by SEC and CFTC Enforcement Directors Regarding Virtual Currency Enforcement Actions (Jan. 19, 2018), available at https://www.sec.gov/news/public-statement/joint-statement-sec-and-cftc-enforcement-directors

• Securities Industry Commentator
• Bill Singer