The ongoing proceeding against the alleged perpetrators of the 2016 hack of the Edgar system is one of the Division of Enforcement’s most high-profile cases. Last week, the SEC announced that it had reached a settlement with three of the defendants in that case, Sungjin Cho, Ivan Olefir, and Capyield Systems, Ltd., an entity affiliated with Olefir. According to the SEC’s complaint, the defendants allegedly traded on the basis of the hacked information during the period from July to October 2016. The SEC’s litigation release lays out the sanctions imposed:
Cho, Olefir and Capyield consented to the entry of final judgments that would permanently enjoin them from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. Additionally, Cho and Olefir agreed to conduct-based injunctions limiting their ability to trade U.S.-listed securities and derivatives. Cho agreed to pay a civil penalty of $175,000, and Olefir and Capyield agreed to pay a joint and several penalty of $250,000.
Earlier this year, the SEC reached a similar settlement with two other defendants. But the two alleged masterminds of the scheme – Ukrainian nationals Artem Radchenko & Oleksandr Ieremenko – are currently being sought by the Secret Service & the State Dept. The U.S. government has offered a reward of $2 million for information leading to their arrest or conviction.
SEC Enforcement: 2020 Annual Report
As the Report details, the Division obtained a record-breaking $4.68 billion in monetary remedies in FY 2020, including $3.59 billion in disgorgement and $1.10 billion in penalties. Total monetary relief in FY 2020 exceeded that in FY 2019 by $330 million, or 8%.
The Division filed 715 enforcement actions in FY 2020, which reflected a 17% decline from the previous year. Of the total actions brought, 405 were so-called “standalone” enforcement actions, 180 were follow on administrative proceedings, and 130 were actions to de-register companies that were delinquent in their SEC filings. Of the total number of enforcement actions, 492 were brought after instituting mandatory telework in mid-March. The decline in the number of actions is attributable largely to the disruptions resulting from COVID-19, as well as the fact that the prior year included numerous actions filed as part of the SEC’s Share Class Selection Disclosure self-reporting initiative.
Three enforcement areas drove the majority of the SEC’s standalone cases: (i) securities offerings (32%); (ii) investment advisory and investment company issues (21%); and (iii) issuer reporting/accounting and auditing (15%). The SEC also brought actions relating to broker-dealers (10%), insider trading (8%), market manipulation (5%), Public Finance (3%), and FCPA (2%). The SEC continued to pursue charges against individuals; 72% of the SEC’s standalone cases involved charges against one or more individuals.
The Division of Enforcement received 23,650 tips, complaints, and referrals in FY 2020, with most of them being received during the pandemic. That represents a substantial increase over the comparable FY 2019 figures, and the report says that they’ve helped to create a “strong pipeline for future enforcement actions.”
Virtual Annual Meetings: Gearing Up for 2021
At this point, most of us have reconciled ourselves to the fact that things aren’t getting back to normal anytime soon. Since that’s the case, companies will need to prepare for possibility that their 2021 annual meeting will once again need to be a virtual or hybrid meeting. This recent Bryan Cave blog offers up some tips on preparing for next year’s virtual meetings. This excerpt lays out some things to think about when it comes to such a meeting’s format and rules of conduct:
Companies need to decide whether a meeting will be virtual-only, physical-only or a hybrid. For any virtual component, they need to decide whether the access will be audio-only or audio plus video. While a majority of virtual meetings during the 2020 proxy season appeared to be in audio-only format, we expect that in 2021 companies will increasingly use video for their meetings, as video conferencing has evolved during the pandemic.
Clear rules of conduct are imperative. As more companies transitioned to virtual meetings in 2020, one area of focus was on how and when shareholders could submit questions. Investors and others questioned whether companies might be “cherry-picking” the questions they answered and requested that all shareholders have access to the questions submitted. Companies in 2021 will need to put in place and clearly address the Q&A process. For example, issuers need to decide whether questions may be asked live during the meeting via a chat function and/or over the phone, and/or prior to the meeting by submitting online or through email.
If you’re not already thinking about the possibility of a virtual component to your meeting next year, you probably ought to be. The blog says that many companies are already exploring retention of virtual meeting providers and video and real-time Q&A alternatives, and have also begun drafting disclosure about meeting logistics to include in their proxy materials.
– John Jenkins