Topic: Cross border issues

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COVID-19 Scams on the Rise and Enforcement on the Horizon

As COVID-19 continues to impact capital markets around the world, securities regulators in North America are responding to an increasing number of securities-related scams. Provincial securities regulators across Canada, as well as the United States Securities and Exchange Commission, have now issued official warnings about fraudulent investment offerings and other scams that target investors.

Many of the alleged scams involve “pump and dump” tactics, where the perpetrators artificially inflate the price of a stock by releasing false information, then sell their stock before the market learns that the information was false. For example, on April 23, 2020, the Ontario Securities … Continue Reading

Directors and officers face increased liability risk due to climate change

Climate change has been a focus in the United States for quite some time now, and the US Securities and Exchange Commission (SEC) published interpretive guidance on climate change disclosures a decade ago. However, the times are changing—and the potential liability for directors and officers has never been higher. Climate change disclosures have been debated at the highest levels of the SEC, and the Plaintiffs’ bar can be expected to broaden their lawsuits beyond the usual fossil fuel producer or utility targets.

Norton Rose Fulbright has prepared a legal update that discusses the evolution of the SEC’s position with respect … Continue Reading

US federal court holds unsponsored ADRs may be subject to US securities laws

On January 28, 2020, in a case that potentially expands the liability of foreign companies, the US District Court for the Central District of California denied a foreign defendant’s motion to dismiss securities law claims brought by US purchasers of its unsponsored, unlisted American Depository Receipts (ADRs). Specifically, in Stoyas v. Toshiba Corp., — F. Supp. 3d —, No. 15-cv-4194, 2020 WL 466629 (C.D. Cal. Jan. 28, 2020), the District Court held that Plaintiffs sufficiently pled that their purchases of Defendant’s unsponsored ADRs on the over-the-counter (OTC) market constituted domestic transactions in securities, as well as alleging the Defendant’s … Continue Reading

Insider trading prosecutions may increase after Second Circuit decision lowered barriers to convict

The Second Circuit recently determined that the criminal securities fraud provisions that were enacted as part of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) have less onerous requirements for proving insider trading than under the general antifraud provisions of the Securities Exchange Act of 1934 (Exchange Act), specifically Section 10(b) of the Exchange Act. Section 10(b) has been the traditional way for prosecutors to charge insider trading. Pursuant to Supreme Court rulings, an insider must breach a duty of confidentiality and receive a “personal benefit” in order to have engaged in the illegal tipping of material, non-public information to others. Similarly, … Continue Reading

Blockchain law: Laying down the law for digital assets

Federal legislators, regulators and enforcers have been making enforcement pronouncements and new proposals to try to keep up with the social, economic, political and legal issues posed by the issuance, use and trading of digital assets built on blockchain technologies. In this edition of his Blockchain Law column, Robert A. Schwinger describes some of the recent developments.

Read the entire column.… Continue Reading

Proposed Changes to the Ontario Class Proceedings Act, 1992 Would Benefit Defendants and Their Insurers in Securities Class Actions

The Ontario government’s recent announcement of proposed changes to Ontario’s class proceedings legislation bodes well for defendants and their insurers. If the amendments become law, they would provide greater latitude to defendants seeking to narrow or dismiss claims prior to certification, make certification a somewhat steeper hill for class counsel to climb, and provide mechanisms to prevent duplicative multi-jurisdictional class actions from proceeding in Ontario. Details of certain of these proposed changes include the following:

Early dismissal motions and dismissal for delay

Prior to the motion for certification, motions by defendants that may dispose of the proceeding in whole or … Continue Reading

Alberta Securities Commission signs Enhanced Memorandum of Understanding to strengthen cross-border enforcement cooperation

In July 2019, the Alberta Securities Commission (ASC) joined other signatories, including the Ontario Securities Commission and the United States Securities and Exchange Commission (SEC), by signing the International Organization of Securities Commissions’ (IOSCO) Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (EMMoU).

This step by the ASC reflects an ongoing increase in cooperation among Canadian and foreign securities regulators in the context of increasingly globalized capital markets.

IOSCO

IOSCO was established in 1983 when 11 securities regulators from North and South America agreed to build … Continue Reading

Liability Rumblings Along the Blockchain

In his Blockchain Law column, Robert A. Schwinger writes: When parties interact in transactions conducted via blockchain technology, they may find themselves in relationships to one another that the law has not yet had the opportunity to clearly define. Courts, commentators, governmental officials, litigants and legislatures are now exploring which participants in various kinds of blockchain-based activities might be subject to liabilities for injuries or wrongs allegedly arising from those activities.

Read the full article.

 

 … Continue Reading

US Second Circuit rules Issuer’s statements concerning regulatory compliance too generic to constitute material misstatements

On March 5, 2019, the United States Court of Appeal for the Second Circuit affirmed the dismissal of a class action claim alleging securities fraud based on purportedly misleading statements made by an Issuer regarding its regulatory compliance efforts. The Second Circuit concluded that the Issuer’s statements were too generic to cause a reasonable investor to rely on them, and rejected the claim as a “creative attempt to recast corporate mismanagement as securities fraud.” Singh v. Cigna Corp., No. 17-3484-cv, 2019 U.S. App. LEXIS 6637 (2d Cir. Mar. 5, 2019).

Background:

In early 2012, Cigna Corporation (Cigna or … Continue Reading

US Tenth Circuit holds SEC can apply antifraud provisions extraterritorially in certain situations

One trend running through recent U.S. Supreme Court decisions is a sense of caution in expanding the scope of U.S. law to extraterritorial activities.  To that end, the Court has instructed that a statute does not apply extraterritorially unless the text clearly shows the U.S. Congress intended such a result.  Notably, the Tenth Circuit recently held that Congress has authorized the SEC to enforce the securities fraud laws extraterritorially in certain circumstances.  Foreign actors should take note of this potential expansion of the SEC’s enforcement powers.

One of the cornerstones — if not the cornerstone — in the Supreme Court’s … Continue Reading

SEC Takes Aim at Digital Tokens and Smart Contracts

In his Blockchain Law column, Robert A. Schwinger discusses a wave of new enforcement actions brought by the SEC targeting blockchain-based digital token ventures under a variety of provisions in the securities laws. These proceedings show the breadth of the approaches the SEC is taking toward enforcement in this area, perhaps most notably in one case where it appears a “smart contract” blockchain application may have proved to be a bit too smart for its own good.

On the heels of the first-ever judicial holding this past summer that a cryptocurrency could qualify as a “security” under federal securities laws, … Continue Reading

Be Careful What You Say – SEC successfully concludes enforcement proceedings against robo-advisors for false advertising and misleading disclosures

On December 21, 2018, the Securities and Exchange Commission (SEC) settled proceedings against two robo-advisors for making false statements about investment products and publishing misleading advertising. The proceedings were the SEC’s first enforcement actions against robo-advisors, providing guidance on some of the disclosure issues robo-advisors may face going forward.

Wealthfront proceedings

The first action involved Wealthfront Advisers, LLC  (Wealthfront), a robo-advisor holding approximately $11 billion USD in client assets under management. Among other things, the SEC found that Wealthfront made false statements regarding a proprietary tax loss harvesting program (the Tax Program) it applied … Continue Reading

Personal jurisdiction in the age of blockchain

As commercial activity increasingly intertwines with applications of blockchain technology with participants around the world, courts have had to grapple with the personal jurisdiction implications of such arrangements. Will participants in these blockchain applications based outside the United States find themselves subject to U.S. jurisdiction when disputes arise, based on how they have conducted their activities? Two recent New York federal court decisions examined such questions under traditional personal jurisdiction principles and upheld exercising personal jurisdiction over nonresident defendants.

Read the full article.

Originally published:  November 27, 2018Continue Reading

Forum Selection Clauses in Delaware Corporate Charters Invalid as to Securities Claims

The Delaware Chancery Court recently faced a challenge to forum selection clauses in certificates of incorporation of three Delaware corporations that required shareholder claims under the Securities Act of 1933 be brought in U.S. federal court, thereby barring the state forum.  For securities cases, defendant corporations generally prefer the U.S. federal courts which are viewed as less plaintiff friendly than state courts, particularly at the motion to dismiss stage.  Recognizing that the 1933 Act established concurrent federal and state court jurisdiction for claims thereunder with no right of removal, the Delaware Court held that such clauses barring the state forum … Continue Reading

The Hard Way – SEC announces first penalties and compliance roadmap for unregistered ICOs

On November 16, 2018, the Securities and Exchange Commission (SEC) announced consent orders settling actions in respect of two unregistered initial coin offerings (ICOs), including the first fines levied against non-compliant ICO issuers made by the SEC to date.

The consent orders demonstrate the SEC’s willingness to follow through with enforcement proceedings against issuers of ICOs not in compliance with securities laws, and provide a roadmap for how existing ICOs can bring themselves into compliance going forward.

The parties – Airfox and Paragon

The issuers charged in the two SEC enforcement actions each raised substantial amounts … Continue Reading

DOJ provides additional insight on compliance and investigations matters

On October 25, 2018, John Cronan, Principal Deputy Assistant Attorney General of the Criminal Division of the US Department of Justice (DOJ), delivered an important speech that touched on several key issues for legal and compliance counsel trying to balance business realities with regulator expectations, particularly with respect to compliance with the US Foreign Corrupt Practices Act (FCPA).[1] Of particular note, Cronan discussed:

  • The application of the DOJ’s FCPA Corporate Enforcement Policy;
  • The DOJ’s expectations as to what constitutes full cooperation in the course of an investigation;
  • The use of coordinated resolutions; and
  • The recent update to the DOJ’s
Continue Reading

What auditors need to know about blockchain

The implications of blockchain and other disruptive technologies for many legal areas have been addressed by a variety of regulators. While much attention has been focused on the pronouncements by bodies such as the US Securities and Exchange Commission, other regulators have been looking at these matters as well. A recent speech by a member of the Public Company Accounting Oversight Board (PCAOB) discusses implications of such technology for auditing, accounting and investors.

As noted on the PCAOB’s website, the PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect … Continue Reading

The Securities and Exchange Commission’s Long Reach

You are a third-party witness to a potential breach of U.S. securities laws, living in Québec, if you think that you are out of reach of the SEC, think again.  In United States Securities and Exchange Commission v. Ouellet, 2018 QCCS 4239, the Québec Superior Court did just that and granted an order compelling a resident living in Québec to produce documents and produce themselves for questioning in relation to an investigation in the U.S.

Background

As discussed in our previous post, the founders of PlexCoin token issuer PlexCorps are under investigation by securities regulators on both … Continue Reading

Quebec Superior Court dismisses action for damages against Autorité des marchés financiers

In Mallat c. Autorité des marchés financiers de France, 2018 QCCS 3867, Cohen J. granted a motion to dismiss an action brought by three Ubisoft executives (Plaintiffs) against the Autorité des marchés financiers de France (AMFF) and the Autorité des marchés financiers du Québec (AMFQ).

Among many demands[1], the Plaintiffs requested declarations that the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the MMoU) ‑ to which more than one hundred securities regulators world-wide are parties ‑ was invalid, that the subpoena sent by the … Continue Reading

SEC to Resume Administrative Law Proceedings Following Supreme Court Ruling

In response to the U.S. Supreme Court’s June 21, 2018 decision in Lucia v. SEC, No. 17-130, holding that administrative law judges (ALJs) at the U.S. Securities and Exchange Commission (SEC) had been improperly appointed because they had been appointed by SEC staff rather than the President or the full SEC, which was discussed in our June 27, 2018 blog post, the SEC issued an August 22, 2018 order explaining how it would now proceed on pending cases affected by the Lucia ruling.

The SEC order stated that the SEC would begin to rehear some 128 cases that … Continue Reading

The Importance of Cooperation Among Interjurisdictional Securities Regulators: United States Securities and Exchange Commission v. Autorité des marchés financiers, 2018 QCCQ 4417

In the recent decision of United States Securities and Exchange Commission v. Autorité des marchés financiers, 2018 QCCQ 4417, the Quebec Court, Criminal and Penal Chamber held that the United States Securities and Exchange Commission (SEC) had the required interest under section 122 of the Code of penal procedure (CPP) to be allowed to examine materials seized by the Autorité des marchés financiers (AMF), the Quebec securities regulator, from persons under investigation. The CPP applies with respect to proceedings in view of imposing a penal (as opposed to criminal) sanction for an … Continue Reading

Copy and Paste Securities Fraud? The U.S. Supreme Court to Decide

Last month, the U.S. Supreme Court granted certiorari to hear a case where an investment banker copied and pasted misstatements from his boss into emails that, at his boss’s request, he sent to prospective debenture purchasers.  In Lorenzo v. Securities and Exchange Commission, 872 F.3d 578 (D.C. Cir. 2017), a divided United States Court of Appeals for the District of Columbia held that the investment banker was not the “maker” of the misstatements, but nevertheless affirmed the SEC’s determination that he committed securities fraud under a fraudulent scheme theory.  The Supreme Court will thus be faced with the … Continue Reading

U.S. Supreme Court Holds SEC Administrative Law Judges Improperly Appointed

On June 21, 2018, the U.S. Supreme Court ruled that administrative law judges (ALJs) at the U.S. Securities and Exchange Commission (SEC) had been improperly appointed because they qualified as “Officers of the United States” under the “Appointments Clause” of the U.S. Constitution, who under the Constitution may be appointed only by the President, a court of law, or heads of departments.  Lucia v. SEC, No. 17-130Because the SEC’s ALJs had been selected merely by SEC staff, the Court held that they had not been lawfully appointed and therefore lacked constitutional authority to issue sanctions and penalties … Continue Reading

New York Highest Court Imposes Three Year Limitations on State Attorney General Securities Actions

On June 12, 2018, New York’s highest court issued a ruling that a three year statute of limitations, not the six year statute applicable to fraud claims, applies to claims brought under New York’s Martin Act.  People v. Credit Suisse Securities (USA) LLC, et al.  The Martin Act is the New York State Blue Sky law that gives the New York Attorney General broad authority to bring civil and criminal claims arising from fraudulent conduct in connection with the sale and purchase of securities.  While the claims thereunder overlap with those available under the U.S. federal securities laws, it has … Continue Reading

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