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SEC Chairman Gensler Advocates for Cryptocurrency Market Regulation

Published on: April 13, 2022 | by Savage Villoch Law, PLLC

Cryptocurrency proponents tout the technology’s potentially “transformative” nature and its position as an arguably more stable store of value when compared with fiat money. [1] Yet SEC Chairman Gary Gensler cautioned crypto investors against an overly rosy view of the technology during a speech at the Penn Law Capital Markets Association Annual Conference this week. Instead, Gensler advocated for investor caution, along with a much broader regulatory and enforcement role for the SEC in cryptocurrency markets. [2]

Before sharing his view of the SEC’s role in crypto markets, Chairman Gensler first compared the technology to that of the dotcom bubble in 2000 and subprime lenders leading up to the 2008 financial crisis. His message: the flurry of attention on crypto and related innovations does little to vouch for its long-term viability or success. Instead, as was borne out in 2000 and again in 2008, cryptocurrency could indeed be a technology destined for failure.

The SEC’s role then, in Gensler’s view, is to protect investors from the potential financial blowback of such a failure. While Gensler lauded the spirit of entrepreneurship common in the United States, he also argued that the SEC should approach crypto regulation in a “technology neutral” way. In so doing, the SEC could carry out their mission to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets, while still allowing crypto markets to flourish.

SEC Sets its Sights on SPACs With Newly Proposed Disclosure Rules

Published on: April 4, 2022 | by Savage Villoch Law, PLLC

On Wednesday, March 30^th, the Securities and Exchange Commission (SEC) announced newly proposed rules and rule amendments governing Special Purpose Acquisition Companies (SPACs), shell companies, and the projections that these companies make. The aggregate proposed rule is aimed at heightening investor protections for those who choose to invest in SPACs and shell companies, where such investor protections are currently quite slim.

Understanding the new rules necessitates a working understanding of SPACs themselves. SPACs are a form of “blank-check” company, in which capital is raised by investors through an Initial Public Offering (IPO). [2] SPAC IPOs differ greatly from traditional IPOs, however, in that at the time of a SPAC IPO, the SPAC has no physical operations of its own. [2] Instead, post-IPO, a SPAC is granted a two year term during which it must acquire or merge with an existing company, thereby taking that company public without ever going through the traditional, and often costly, IPO process. [2]

New SPAC IPOs have been on a meteoric rise since 2020. In 2019, just 59 SPAC IPOs occurred, while 2020 saw 247 and 2021 saw a record 613 SPAC IPOs. [2] These 613 SPAC IPOs in 2021 represented over $160 billion of capital raised. [2]

Climate-Related Risks: SEC Releases Proposed Disclosure Rules

Published on: March 28, 2022 | by Savage Villoch Law, PLLC

The Securities and Exchange Commission’s much-anticipated rules on climate-related disclosures are finally here. [1] On Monday, March 21, 2022, the federal securities regulator announced the release of a proposed rule, broadly referred by the SEC as “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” [2] The proposed rule comes to the delight of activist investors and others concerned about climate change impacts, while industry actors may fear the increased costs of the proposed mandatory disclosures.

The SEC has proposed rules which would require those registered with the SEC to disclose specific information regarding their climate-related financial risks and climate-related financial metrics. [2] This information would be disclosed to the SEC through an entity’s typical registration statements or annual reports, which already contain many other required disclosures. [2]

Importantly, the draft rules require companies registered with the SEC to disclose both their direct and indirect greenhouse gas emissions. These emissions include three discrete categories – Scope 1, Scope 2, and Scope 3. [3] Scope 1 greenhouse gas emissions are those emitted directly by the company through its operations, while Scope 2 emissions are the “indirect” emissions stemming from a company’s energy usage, such as through electricity generation. [4]

New Subpoena Highlights SEC’s Continued Focus On Tesla, Elon Musk

Published on: February 14, 2022 | by Savage Villoch Law, PLLC

Electric automaker, Tesla, and its CEO, Elon Musk, made headlines once again this week in connection with a 2018 Twitter post. The tweet in question, posted by Elon Musk, read simply: “Am considering taking Tesla private at $420. Funding secured.”[1]

At the time the tweet was posted in 2018, the SEC swiftly charged both Tesla and Musk with securities fraud, over which the parties eventually settled. [1] Now more than three years later, the public has learned of a new subpoena from the SEC relating to the tweet, though the subpoena’s impact and strategic aim are still to be seen.

As evidenced by this series of events, Tesla and the SEC share a turbulent, history. Following the 2018 “funding secured” tweet, the SEC alleged that Musk violated Section 10(b) of the Securities Exchange Act of 1934 along with rule 10b-5.[2] These allegations were based upon the SEC’s contention that the tweet constituted a materially false and misleading statement because despite Musk’s confident tone, he had neither discussed nor confirmed the terms of such a deal with any potential funding source. [2]

SEC’s Efforts to Stretch 10b-5 Insider Trading Liability Survives Motion to Dismiss

Published on: February 7, 2022 | by Savage Villoch Law, PLLC

The SEC is attempting to broaden the scope of liability under federal insider trading laws, and it just secured its first incremental victory along the way.

The win comes as a newly formulated legal theory offered by the SEC survived a motion to dismiss in SEC v. Panuwat, a case proceeding in the U.S. District Court for the Northern District of California.[1] The SEC’s legal theory states that the practice of “shadow trading” constitutes a violation of federal securities law, namely Section 10(b) of the Exchange Act and Rule 10b-5.[1]

“Shadow trading” occurs when a person with a connection to one publicly held company uses material, nonpublic information (MNPI) they have gained from their connection with that company to inform their trading decisions in a separate publicly held company. Typically, this separate company is economically connected in some way to the company for which the person possesses MNPI. [2]

As Private Market Booms, SEC Considers Private Firm Reporting Requirements

Published on: January 17, 2022 | by Savage Villoch Law, PLLC

While the dust settles on the recent trial of Elizabeth Holmes, former CEO of Silicon Valley startup Theranos, attention is building around the Securities and Exchange Commission’s current and future role in regulating private firms.

Under existing federal law, private firms with less than 2,000 shareholders are not required to register with the SEC nor provide routine disclosures, unlike their public counterparts. [1]

While exemption from such regulatory requirements may provide private startup companies with the freedom to develop their business unimpeded by government, thus encouraging valuable innovation, the rapid growth of the private capital market has experts questioning whether some degree of SEC oversight may be warranted.

A Look Back at SEC Enforcement Actions in Fiscal Year 2021

Published on: December 27, 2021 | by Savage Villoch Law, PLLC

As 2021 draws to a close, it is a fitting time to revisit some of the main enforcement actions taken by the Securities and Exchange Commission (SEC) through fiscal year (FY) 2021, which ended on September 30^th, 2021.

In total, the number of new enforcement actions filed by the SEC in FY 2021 increased by 7% over the previous year, with 434 new enforcement actions. While the total number of enforcement actions – including new actions along with other “follow-on” or open proceedings – decreased slightly year over year in FY 2021, the SEC remained committed to its role as “cop on the beat for America’s securities laws,” as described by Chair Gary Gensler. [1] The SEC maintained a sharp focus on protecting the integrity of the country’s capital markets through enforcement actions against bad actors even in the face of the persisting COVID-19 pandemic persisted.

In announcing its progress on enforcement actions during FY 2021, the SEC concentrated on several key priority areas. Some of these priority areas, per a recent SEC Press Release, included “holding individuals accountable,” “ensuring gatekeepers live up to their obligations,” “rooting out misconduct in crypto,” “policing financial fraud and issuer disclosure,” “cracking down on insider trading and market manipulation,” and “swiftly acting to protect investors.” [1]

SEC Alerts Public of Ongoing Government Impersonation Scheme

Published on: November 22, 2021 | by Savage Villoch Law, PLLC

While investors should always be alert and even skeptical of unsolicited communications about their investments, an SEC investor alert from November 19, 2021, further highlights how important this vigilance is.

According to the alert provided by the SEC’s Office of Investor Education and Advocacy (“OIEA”), the SEC has received reports of several individuals receiving communications from people posing as SEC personnel. Whether these communications come in the form of emails, phone calls, or letters, the SEC warns investors that they are “in no way connected to the SEC.” [1]

The fraudulent phone and voicemail messages are particularly misleading because they come from phone numbers that appear to be connected to the SEC. [1] The communications have targeted victims by raising investment-related concerns, such as “suspicious activity” in both checking and cryptocurrency accounts.[1]

Understanding the SEC Whistleblower Program as Cumulative Awards Top $1 Billion

Published on: November 1, 2021 | by Savage Villoch Law, PLLC

In the SEC’s pursuit of their mission to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation,” access to information about potential unlawful activity is of unique importance and interest. [1] Without access to such information, the SEC faces a much steeper battle in holding bad actors accountable and protecting both investors and the market.

In support of this broad mission, the SEC established a whistleblower program and a corresponding Office of the Whistleblower to administer the program in 2012. The whistleblower program was established under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added Section 21F to the Securities Exchange Act of 1924 (“the Exchange Act”). [2]

Through this statutory addition, the SEC gained authorization to make monetary awards to “eligible whistleblowers.” These “eligible whistleblowers” are individuals who voluntarily come forward to the SEC with original information about a potential federal securities law violation, which ultimately leads to a successful SEC enforcement action imposing a monetary sanction of over $1 million. [3] Importantly, the Dodd Frank Act protects the confidentiality of all SEC whistleblowers, and no identifying information that could potentially reveal a whistleblower’s identity is released to the public. [4]

Recent SEC Orders Signal Hard Stance on Protecting Investor Data from Cyber Attacks

Published on: October 18, 2021 | by Savage Villoch Law, PLLC

In today’s ever-interconnected society, protecting the stability and security of cyber infrastructure and the personal information stored therein has never been of greater importance. Recognizing this need, the United States Securities and Exchange Commission (“SEC”) has taken marked steps to protect the security of investor records and information that broker-dealer firms possess.

In fact, the SEC has recently begun sanctioning the very victims of cyberattacks – investment firms that have fallen prey to such attacks – citing their deficient cybersecurity procedures as partly to blame for the unauthorized third-party access to investor’s private information. [1]

On August 30, 2021, the SEC released three orders sanctioning eight firms for their failures in protecting their customers’ personally identifiable information due to inadequate cybersecurity policies and procedures. These orders each proceeded as violations of Rule 30(a) of Regulation S-P, colloquially known as the “Safeguards Rule.” [2]