On September 4, the Securities and Exchange Commission (SEC) issued an order against three investment adviser firms for violating the whistleblower protections of Rule 21F-17(a) under the Securities Exchange Act of 1934. This rule prohibits any person from taking action to impede an individual from communicating directly with the SEC about possible securities law violations, including enforcing or threatening to enforce a confidentiality agreement with respect to such communications.
On June 27, the U.S. Supreme Court released a 6-3 decision in SEC v. Jarkesy, et al., ending the Securities and Exchange Commission’s (SEC) long-standing use of in-house administrative law judge (ALJ) tribunals in cases where the SEC seeks civil penalties. The majority held that for actions in which SEC seeks civil penalties for securities fraud, the Seventh Amendment requires that the action be brought in a court of law where the defendant is entitled to trial by jury.
The Financial Industry Regulatory Authority’s (FINRA) Enforcement Division recently announced its first settlement involving a firm’s supervision of social media influencers. The respondent, M1 Finance LLC (M1), is a financial technology company that provides self-directed trading to retail investors through its mobile application and website. In connection with FINRA’s targeted exam of M1’s use of social media influencers to acquire new customers, FINRA found that social media posts made by influencers on the firm’s behalf were not fair or balanced, or contained exaggerated, unwarranted, promissory, or misleading claims. According to FINRA, M1 also failed to establish, maintain, and enforce a reasonably designed supervisory system for its influencers’ social media posts, and failed to preapprove and preserve records of these retail communications.
On April 4, the Securities and Exchange Commission (SEC) issued a stay on the implementation of its newly enacted climate impact disclosure rules. This decision is connected to a challenge to the rules currently pending in the U.S. Court of Appeals for the Eighth Circuit, which is a consolidation of numerous lawsuits that hit the SEC following the rule announcement on March 6. The SEC adopted a scaled-back version of its initial 2022 proposal, requiring large public companies to report their greenhouse gas emissions, climate-related risks to their businesses, and the financial harm caused by extreme weather events, in their registration statements and annual reports. The reporting requirements were to be rolled out in stages, with the largest filers beginning disclosures in 2025.
It was a busy year for enforcement activity in the cyber, crypto, SPAC, and whistleblower spaces, with several pending actions that will likely have wide-ranging implications in 2024. We are also awaiting a ruling from the U.S. Supreme Court that could alter the landscape on administrative law proceedings. From the SEC’s release of expansive cybersecurity rules to the largest whistleblower award ever issued, 2023 had plenty of exciting developments. A detailed summary of key developments by category can be found below.
In recent years, the U.S. Securities and Exchange Commission (SEC) has had its eye on the special purpose acquisition company (SPAC) market — warning investors against putting money into SPACs, expressing skepticism about their performance, and taking affirmative steps to corral SPACs, including direct prosecution of investment firms. Now its gaze has turned upon a