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SEC Launches Website For The Office of the Whistleblower As Rules Become Effective

The SEC announced that its Whistleblower Rules, adopted on May 25, 2011 became effective today and the Commission launched its new web page (here) for that particular office.  In addition, in his first speech since being appointed as Chief of the Office of the Whistleblower, Sean McKessey addressed some misunderstanding about certain hotly debated issues related to the whistleblower program.…

SEC Dismisses Insider Trading Administrative Proceeding Against Rajat Gupta, But Reserves Right To Sue Him In Federal Court

The SEC and Rajat Gupta have agreed to settle their dispute regarding the forum in which they should litigate the allegations of insider trading by the former Goldman Sachs director by dismissing the pending actions against each other. Specifically, the SEC has dismissed its Administrative Proceeding against Mr. Gupta alleging insider trading and the parties have advised Judge Jed Rakoff (who is presiding over the lawsuit filed in federal court in New York by Mr. Gutpa against the Commission) that they will be entering a Joint Stipulation of Dismissal. In doing so, the parties agreed that, if the SEC elects to bring action against Mr. Gupta, it will do so in federal court in New York and designate it as related to the other Galleon cases pending before Judge Rakoff.…

SEC Chairman Schapiro to Congress: We Cannot Complete Our Duties Under Dodd-Frank Act Under Existing Budget

On Thursday, July 21, 2011 (the first anniversary of the passage of the Dodd-Frank Act), SEC Chairman Mary Schapiro testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs regarding the Commission’s efforts to fulfill its responsibilities under the Act. During her testimony, she advised the Committee that "the new responsibilities assigned to the agency under the Dodd-Frank Act are so significant that they cannot be achieved solely by wringing efficiencies out of the existing budget without also severely hampering our ability to meet our existing responsibilities." Her prepared remarks during the testimony are available here.…

Gupta Complaint Against the SEC Survives Motion to Dismiss On Equal Protection Grounds

On Monday, July 11, 2011, New York federal Judge Jed Rakoff denied the SEC’s Motion to Dismiss in Gupta v. SEC, No. 11-cv-1900 (S.D.N.Y.). The Plaintiff, Rajat Gupta, a former director at Goldman Sachs, has been accused by the SEC of having provided material nonpublic information to Raj Rajaratnam of Galleon Management, who was recently convicted of insider trading (discussed here). Unlike the 28 other defendants named in lawsuits relating to Galleon, the SEC commenced an Administrative Proceeding against Mr. Gupta. Mr. Gupta’s complaint in federal court (discussed here) alleged that the SEC unconstitutionally deprived him to a jury trial in federal court and that it was necessary to have the question of whether the Dodd-Frank Act provisions could be applied retroactively (which the SEC seeks to do in the Administrative Proceeding) decided in federal court. By denying the SEC’s motion to dismiss, Judge Rakoff allowed Mr. Gupta’s case to proceed, but ruled that "the theory of the Complaint is narrowed to one of equal protection."…

SEC Adopts Final Whistleblower Rules

At an open meeting on Wednesday morning, the SEC adopted final rules to implement Section 922 of the Dodd-Frank Act regarding securities whistleblower incentives and protection. One of the significant highlights of the final rules is that the Commission has sought to struck a compromise between the importance of the corporation’s compliance programs on the one hand, and the incentive for the whistleblower to report directly to the SEC (and by-pass the corporation) on the other hand. The SEC’s Press Release announcing the adoption of the rules (and providing a brief summary) is here, while a copy of the SEC’s Release and the rules themselves are available here.…

Can Dodd-Frank Act Provisions Be Applied Retroactively? The SEC Moves to Dismiss a Complaint on That Topic, Arguing That the Issue s Not Ripe

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.…

In Report to Congress, Independent Consultant Recommends Improvements For SEC, But Warns More Funding Will Be Needed, Too

On March 10, 2011, the Boston Consulting Group ("BCG") submitted a Report to Congress examining the internal operations, structure and need for reform at the SEC. As part of its work, BCG reviewed extensive documentation and conducted over 425 interviews. The Report (available here) recommended a series of initiatives designed to optimize the SEC’s resources, but also recommended that Congress consider whether such improvements allow the Commission to meet congressional expectations. If not, Congress will either need to adjust the SEC’s funding or change its role to fit available funding, the Report concluded. 

The Report, mandated by the Dodd-Frank Act, recommended that the SEC:

• reprioritize its regulatory activity, which would include focusing on activities that the Commission deems critical to commerce or to strengthen the SEC itself, scaling back or stopping activities, or delegating them to self-regulatory organizations ("SROs");

• reshape its organization by, among other things, taking into account the reprioritization described above and seeking flexibility on certain offices mandated by the Dodd-Frank Act;

• invest in enabling infrastructure, particularly in the area of information technology and human resources; and

• enhance its role as an overseer and co-regulator with SROs by strengthening its oversight of them and centralizing its contacts with them.

BCG noted however, that its recommendations would only take the Commission "so far," due to constraints its faces: notably civil service laws limit the ability of the agency to attract, retain and manage personnel. The Report noted that, even with these changes, the SEC may …

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