Federal Securities Law Blog : Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

On Friday, April 22, 2011, the SEC released its study and recommendations regarding how the Commission could reduce the burden of complying with Section 404(b) of the Sarbanes-Oxley Act for companies whose market capitalization is between $75 and $250 million, while maintaining investor protections for such companies. The SEC recommended leaving the Section 404 requirements in place, but stated that further guidance regarding compliance should be provided. The 113-page Study, which was mandated by Section 989G(b) of the Dodd-Frank Act, was prepared by the Staff of the Office of the Chief Accountant of the SEC. A copy of it is available here.

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On Tuesday, April 19, 2011, in one of the first criminal trials arising out of the market crisis, a federal jury in Alexandria, Virginia convicted Lee Farkas of: one count of conspiracy to commit bank, wire and securities fraud; six counts of bank fraud; four counts of wire fraud; and three counts of securities fraud. The charges arose from Mr. Farkas' role in a $2.9 billion fraud scheme that led to the failure of Colonial Bank (which was one of the 25 largest banks in the United States in 2009), and Mr. Farkas' company, Taylor Bean & Whitaker ("TBW"), one of the largest privately held mortgage lending companies in 2009.

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On Wednesday, April 13, 2011, the Senate's Permanent Subcommittee On Investigations issued its Report entitled: "Wall Street and the Financial Crisis: Anatomy of a Financial Crisis."  " The 639-page Report is "the product of a two-year, bipartisan investigation … into the origins of the 2008 financial crisis." The Subcommittee conducted over 150 interviews and depositions, and accumulated and reviewed tens of millions of pages of documents. The Subcommittee concluded that the financial crisis was "the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street."

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On Wednesday, April 6, 2011, authorities arrested Matthew Kluger (a former associate at Wilson Sonsini Goodrich and Rosati) and Garrett Bauer (a Wall Street trader) and charged them with conspiracy, insider trading and obstruction of justice in connection a years-long scheme to capitalize on material nonpublic information obtained from Mr. Kluger's law firm. The two men were also named in a case brought by the SEC based on the same events. The authorities allege that a unnamed third co-conspirator (or "the Middleman" as the SEC called him) participated in the scheme by receiving information from Mr. Kluger and passing it along to Mr. Bauer. Both Mr. Bauer and the Middleman conducted trading based on that information. In eleven transactions between 2006 and 2011, the men invested $109 million and made over $32 million in profits. Although the men had detailed plans to avoid being detected by authorities, Mr. Kluger and Mr. Bauer were after arrested telephone conversations between them and the Middleman discussing the scheme were recorded in March 2011.

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In March 2011, an individual accused of participating in an insider trading scheme filed a Complaint against the SEC in federal court in New York, arguing, among other things, that the SEC should be enjoined from retroactively applying the provisions of the Dodd-Frank Act in an administrative proceeding against him. On Friday April 1, 2011, the SEC filed a brief requesting that the Court dismiss that complaint for lack of subject matter jurisdiction, arguing, in part, that the retroactivity claim was not "ripe" and the individual had not exhausted his administrative remedies. In short, the Commission argued that the federal court cannot consider this issue until the administrative proceeding is completed and the SEC decides whether or not to impose civil penalties under the Act.

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