Securities Litigation Blog | Burr & Forman LLP

Renegade Pandas, Competitive Regulation and a Token Safe-Harbor?

Thomas K. Potter, III — Fri, 02 Aug 2019 09:00:01 -0400

In a July 30 speech in Singapore, SEC Commissioner Hester Peirce compared renegade red pandas’ penchant for life “outside the fence” to the Fin-Tech innovation currently frustrating regulators’ efforts to keep up.

Eschewing calls for international regulation, she also compared the efforts of multiple national regulators to the oft-cited role of U.S. states as “laboratories of democracy.” Cataloging some to date, she cited:

Singapore’s regulatory “clarity”
Thailand’s 2018 regulatory framework
Japan digital asset offering legislation and 2017 ...

POQ No-Action Letter: DLT “Arcade Tokens” Aren’t Securities

Thomas K. Potter, III — Tue, 30 Jul 2019 09:00:02 -0400

Last week, the SEC’s Corporate Finance division issued its second no-action letter supporting a digital token issue. On July 25, 2019, the Staff agreed it would not recommend enforcement action over the issuance of Quarters tokens for online gaming.

The issuer, Pocketful of Quarters, Inc. (“POQ”), states its use case as addressing “in-game currency fragmentation” by creating a “universal gaming taken” to solve “the inability to use gaming credits, coins or other units of value purchased in, or earned playing, one online video game in other online games.”

The ...

Walmart FCPA Settlement Shines Light On Corporate Compliance Programs

Thomas K. Potter, III — Fri, 21 Jun 2019 09:00:03 -0400

June 20, 2019 – Walmart (NYSE: WMT) and its subsidiary, WMT Brasilia, agreed to a combined criminal penalty and disgorgement of $282M, together with WMT’s criminal guilty plea and undertakings in an NPA, to reach a global resolution of the combined DOJ, SEC, and IRS-CI FCPA investigations on-going since at least 2012. Walmart reports spending over $900M on the investigations and defense. Walmart agreed to criminal penalties of $138M plus disgorgement of $144M to the SEC and admissions of fact in the criminal matter. Walmart entered a 3-year NPA and agreed to retain Louis Freeh as ...

SEC Investor Alert on Crypto Trading Websites

Thomas K. Potter, III — Tue, 07 May 2019 09:00:04 -0400

The SEC recently issued an investor alert warning about crypto advisory and trading websites. The alert cautions investors to be especially wary of web-based crypto-currency sites with any of these red-flags:

Outsized “guaranteed” investment returns.
Complicated jargon or difficult-to-understand technologies.
Unlicensed sellers.
Sounds too good to be true.
Unsolicited offers.
Urgency to act.

…in short, the usual hallmarks of many scams.

The advisory comes on the heels of an indictment against two Nigerian citizens for wire fraud and conspiracy to commit ...

Negligence & Willfulness Mutually Exclusive For SEC

Thomas K. Potter, III — Mon, 06 May 2019 09:00:05 -0400

Last week, the D.C. Circuit held that the SEC can’t prosecute the same conduct as both willful and as negligent under the tandem sections found in most of the nation’s securities laws. The ruling prevents the SEC from piling on an additional negligence-based offense as some sort of “lesser included offense” in enforcement actions.

The SEC brought an administrative enforcement action against the Texas-based Robare Group and its officers for inadequate disclosure of a revenue-sharing agreement with Fidelity over certain funds on Fidelity’s platform. The firm’s ADV ...

Old Is New: SEC Issues TurnKey Jet No-Action Letter

Thomas K. Potter, III — Mon, 08 Apr 2019 09:00:06 -0400

Late last week, the SEC issued a no-action letter widely hailed as its first on a blockchain-based digital token for private jet services. In its TurnKey Jet letter, the Commission Staff indicated it would not recommend enforcement action over the operation of a private, permissioned, centralized blockchain network and smart-contract infrastructure for clearing and payment using a utility-token effectively functioning as a pre-paid jet card (or streetcar token).

See TurnKey Jet, Inc. (Apr. 3, 2019), here.

And the request, here.

CoinDesk reports that the no-action ...

Cut-And-Pasters (Not Janus "Makers") Still Liable Under 10b-5(A), (C)

Thomas K. Potter, III — Fri, 29 Mar 2019 09:00:07 -0400

This week, the Supreme Court held that knowing distributors of another’s false statements still could be primarily liable under parts of Rule 10b-5, even though they didn’t “make” the statements under prior precedent. The Lorenzo decision seems clear and common-sense on its face, but represents a battle in the weeds of an administrative case that’s likely to have significant ramifications over who private civil litigants can sue under the Securities Laws.

Rule 10b-5 prohibits any person from:

"employ[ing] any device, scheme or artifice to defraud" [Scheme]
"mak[ing ...

SEC Seeks Input On Custody Issues Arising From Digital Assets

Thomas K. Potter, III — Fri, 15 Mar 2019 09:00:08 -0400

This week, the SEC's Division of Investment Management issued a letter seeking industry and public input on custody issues arising from digital assets.

The "Custody Rule," Rule 206(4)-2 under the Advisers Act of 1940, provides it is a fraudulent act or practice to have custody of client assets, unless an adviser complies with Custody-Rule requirements, including among others, by a qualified custodian subject to annual independent audits.

The Division's recent Guidance Update on custody issues focused on inadvertent custody (e.g. where boilerplate in the adviser’s agreement ...

The SEC's State of Play on Cryptocurrency

Thomas K. Potter, III — Thu, 17 Jan 2019 09:00:09 -0500

In an article published in the latest issue of the Journal of Robotics, Artificial Intelligence & Law (RAIL), Tom Potter discusses the current state of regulatory efforts by the U.S. Securities and Exchange Commission. Unlike the 1900's, today's cryptocurrencies rely on the internet, high-speed computing and higher-math cryptography, not stones.

Mt. Gox holds its infamous part of Bitcoin's history as the once biggest cryptocurrency exchange that went under in a chaotic fashion. After the 2014 collapse of Mt. Gox underscored the fraud potential posed by cryptocurrencies ...

The SEC's State of Play on Cryptocurrency

Thomas K. Potter, III — Thu, 17 Jan 2019 09:00:10 -0500