Posts from October 2015.

On December 1, 2015, amendments to the Federal Rules of Civil Procedure adopted by the United States Supreme Court will be effective (absent action by Congress). The amendments to the Rules should be duly noted by litigation practitioners as certain of the amended rules appear to represent an increased focus on limiting discovery and even a departure from prior practice. If the intent of these changes are actually followed, these amendments should have an impact not only on securities cases but on any case filed and litigated in federal court.

One of the most significant changes is the ...

Posted in: Supreme Court

Laurie Bebo, CEO of Assisted Living Concepts, initially got some sympathetic words from the U.S. District Judge who felt constrained to turn away her constitutional challenge to the SEC's administrative forum:

The Court finds that Bebo's claims are compelling and meritorious, but whether that view is correct cannot be resolved here. This is so because Bebo's claims are subject to the exclusive remedial scheme set forth in the Securities Exchange Act. Bebo must litigate her claims before the SEC and then, if necessary, on appeal to the Court of Appeals for the Seventh Circuit.

The ...
Posted in: SEC

SEC Commissioners Piwowar and Gallagher dissented from a recent Commission Opinion sanctioning an investment adviser's use of misleading historical data purporting to validate an asset-allocation model. Agreeing there was a violation, Piwowar and Gallagher nevertheless dissented, criticizing "rulemaking by opinion:"

Instead, the majority opinion creates from whole cloth specific requirements for advertisements that include the word "backtest." Despite the lack of any statutory or regulatory definition of what constitutes a "backtest," the majority opinion ...

Posted in: SEC

The battle over the constitutionality of the SEC's administrative forum now moves to the U.S. Eleventh Circuit. The appellate court issued an order Wednesday, denying the SEC's bid to upset the trial court's preliminary injunction and allow the administrative trial to go forward. Moreover, the Court consolidated two cases on the issue for expedited merits disposition, including oral argument (if held). See Gray Financial Group, Inc. v. US Securities and Exchange Comm'n, No. 15-13738-F (11th Cir. Oct. 7, 2015); Hill v. Securities and Exchange Comm'n, No. 15-12831 (11th Cir.). In ...

The citadel of the SEC's administrative forum has been under assault from several vectors over the past year or so, as a chorus of dissenting Respondents have mounted increasing challenges to its constitutional legitimacy, as well as it policy wisdom. The arguments were starting to get some traction, but two recent appellate decisions have repulsed the attack, including the D.C. Circuit's September 29 Jarkesy opinion. The arguments were gaining some momentum. First, they elevated the policy discussion to new prominence. SDNY Judge Jed Rakoff weighed in expressing doubt about the ...

Posted in: SEC

The SEC recently - and predictably - rejected a Respondents' arguments challenging the constitutionality of the agency's administrative forum. The September 17 Timbervest decision was the first of the constitutional challenges to reach the full Commission itself, on appeal from the agency's internal administrative law judges ("ALJ"). The Commissioners rejected the Article II "appointments clause" argument, holding its ALJs were indistinguishable from those of the FDIC and thus were not "inferior officers" under Landry v. FDIC. That holding conflicts with those of ...

Posted in: SEC
On September 30, the SEC issued its second round of mass settled actions over municipal securities disclosure issues, as part of its Municipal Continuing Disclosure Cooperation ("MCDC") Initiative. In this round, 22 municipal underwriters will undertake remedial measures and pay fines (ranging from $20,000 to $500,000 and totaling $4.12 million) for disclosure violations. Announced in March of 2014, the MCDC Initiative offered structured settlements for municipal underwriters and issuers who voluntarily "came in from the cold" to self-report failures of new bond ...
Posted in: SEC
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