Insights

On September 30, 2024, the SEC announced the settlement of an enforcement action against Marathon Asset Management, L.P. (Marathon) for failing to implement proper policies and procedures to prevent the misuse of material nonpublic information (MNPI).  The issue stemmed from Marathon’s participation in ad hoc creditors’ committees, where the firm inadvertently received MNPI through its consultants and advisers.  This enforcement action highlights the SEC’s intense focus on the participation by investors in ad hoc creditors’ committees and the importance of implementing robust MNPI controls when doing so.

On August 26, 2024, the U.S. Securities and Exchange Commission announced that it had settled charges with Sound Point Capital Management, LP, a New York-based registered investment adviser, for inadequate policies and procedures regarding its handling of material nonpublic information (“MNPI”) and related compliance deficiencies in its collateralized loan obligations (“CLOs”) trading activities. Sound Point agreed to pay a $1.8 million civil penalty in addition to other remedial measures. Notably, the SEC did not charge the investment adviser or its employees with violating SEC Rule 10b-5.

On October 24, 2023, Gurbir S. Grewal, Director of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Enforcement, provided a preview of the agency’s enforcement outlook against Chief Compliance Officers (“CCO”) in the upcoming year.  His remarks highlight the continued importance of compliance programs (and continued focus on the part of regulators on those programs), but also make clear that SEC enforcement actions targeting behavior on the part of CCOs will continue to be rare.

The Court of International Trade recently denied a motion to add a defendant’s criminal attorney to a protective order in a parallel civil regulatory case, teeing up key Fifth and Sixth Amendment concerns. 

The Manhattan District Attorney (“D. A.”), Alvin Bragg, recently announced in a press release dated February 16, 2023 (the “Press Release”) the creation of a new “Worker Protection Unit” (the “Unit”) to investigate and prosecute wage and hour violations and other violations of labor laws.  Prior to the creation of this Unit, the D.A.’s Office has prosecuted wage and hour violations primarily in the construction and real estate industries through the Construction Fraud Task Force.  According to the Press Release, the Unit will allow this Office to “significantly expand its focus to include other industries with high rates of worker exploitation and wage theft, such as home healthcare agencies, fast food and restaurants, and more.”  According to the Press Release, another focus of the Unit is to investigate and prosecute workplace safety laws.  The Unit will also partner with other units within the D.A.’s Office to encourage vulnerable and under-served populations to report wage and hour violations. 

On Monday, in an 8-1 decision, the U.S. Supreme Court upheld—with some limits—the SEC’s ability to seek disgorgement of ill-gotten profits as an “equitable remedy” for securities law violations. Writing for the Court, Justice Sotomayor said that a disgorgement award is permissible under federal law if it is truly equitable. Disgorgement must therefore be limited to “net profits from wrongdoing after deducting legitimate expenses,” and should be returned to investors. These constraints depend on a fact-intensive and complex analysis, and ultimately will determine how disgorgement is used by the SEC going forward. 

On July 24, 2019, the European Commission (EC), the European Union’s (EU) executive arm, published a Communication and four reports that assess the current state of the EU’s anti-money laundering (AML) and counter-terrorist financing (CTF) framework and make recommendations for improving it.  Among these is a post-mortem of several recent high profile incidents of alleged money laundering conducted through EU banks.  Notably, the EC declined the European Central Bank’s calls to set up a permanent cross-border agency to police financial crime, or to transform recent AML directives into an international regulation.

With its roots in Hollywood and the entertainment industry, the #MeToo movement, and the Times Up legal defense fund created in response, over the past year extended into various other industries including the financial sector, tech, and even the federal judiciary. 

On September 28, 2018, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency (collectively the Federal Banking Agencies or FBAs), with the concurrence of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), issued an interagency order (the Order) exempting premium finance lenders from the requirements of the customer identification program (CIP) rules imposed by the Bank Secrecy Act (BSA). The exemption applies to banks and their subsidiaries subject to the FBAs’ jurisdiction who offer loans to commercial customers (i.e., corporations, partnerships, sole proprietorships, and trusts) to facilitate purchases of property and casualty insurance policies (herein referred to as premium finance loans or premium finance lending). The FBAs based their exemption on FinCEN’s conclusion that certain structural aspects of such loans make them a low risk for money laundering or terrorist financing, and also on their conclusion that such lending did not present a safety or soundness issue.

In this issue:

On August 25, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published a Notice of Proposed Rulemaking that would require banks that lack a federal functional regulator to establish and implement anti-money laundering (AML) programs and extend customer identification program (CIP) requirements to certain financial institutions not already subject to these obligations under the Bank Secrecy Act (BSA).