Posts in Securities Class
SEC Releases Framework for “Investment Contract” Analysis for Cryptocurrencies

The Strategic Hub for Innovation and Financial Technology (“FinHub”) of the Securities and Exchange Commission (“SEC”) released a framework for analyzing whether a contemplated sale of cryptocurrency, or tokens, is an “investment contract.” (FinHub Staff, SEC). The Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) both include investment contracts in their definition of securities. (15 U.S.C. §§ 77b(a)(1); 78c(a)(10)). If a cryptocurrency meets the requirements of an investment contract, it is a security subject to registration and regulation under the Securities Act and Exchange Act. The framework released by the SEC applies existing legal precedent to the cryptocurrency context. (FinHub Staff, SEC).

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Uber v. Lyft’s Quest for Investors: No Sharing on this Ride

After their founding in 2007 and 2008, respectively, rideshare market leaders Lyft, Inc. and Uber Technologies, Inc. have both decided to go public in 2019 (Lyft, Bloomberg; Uber, Bloomberg). With Lyft filing their S-1 on March 1stand Uber as recently as April 11th, the race for investors is hastily underway (Lyft S-1Uber S-1). While Initial Public Offerings (“IPOs”) are one of many ways for companies to sell to investors, they allow for sales of stock to a much broader audience and mark the first time that company shares can be listed on an exchange.

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Lorenzo v. SEC: A shift towards broadening the scope of the securities fraud doctrine under Rule 10b-5.

“Don’t shoot the messenger.” This phrase was at the heart of the defense in Lorenzo v. SEC, one of the most recent Supreme court cases to consider whether an individual can be held liable under Rule 10b-5 for knowingly disseminating fraudulent statements in connection with the purchase or sale of securities. Lorenzo, the director of investment banking at an SEC-registered brokerage firm, sent two emails to investors that described a potential investment in a company with “confirmed assets” of $10 million.

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Elon Musk Runs Afoul of the SEC . . . Again

In August 2018, Tesla CEO Elon Musk oddly and fatefully tweeted that he had secured funding to take Tesla private. (Alexander Stein, Forbes). Shortly after, the Securities and Exchange Commission (the “SEC”) filed suit against Musk and Tesla, alleging that Musk made materially false and misleading statements in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b‑5. (SEC Complaint, Sept. 27, 2018). The SEC argued that Musk “knew or was reckless in not knowing that his statements were false and misleading” and that he omitted material facts in his statement. (Id.) According to the SEC, Musk’s statements “caused market chaos and harmed Tesla investors.” (Id.) In September 2018, the SEC and Musk reached a settlement on these charges which required Musk to step down as chairman of Tesla for three years, pay a $20 million fine, and consent to independent directors monitoring his communications to investors. (Matthew Goldstein, N.Y. Times).

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The SEC’s guidance on diversity disclosure requirements

The SEC requires public companies to disclose information and data that may be important to potential investors and shareholders of the company. On February 6, 2019, the SEC’s Division of Corporation Finance released two Compliance and Disclosure Interpretations ("CDIs")that discussed disclosure requirements for instances when board nominees or directors self-identify with specific diversity characteristics such as, race, gender, ethnicity, religion, sexual orientation, nationality, disability, and cultural background. In such instances, the SEC expects the public company to identify those characteristics and include how they were considered as long as the director or nominee consents to such disclosures. 

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SEC Charges Volkswagen Four Years Post–“Dieselgate”

On March 14, 2019, the Securities and Exchange Commission (“SEC”) charged Volkswagen AG,two of its subsidiaries, and its former CEO, Martin Winterkorn, with fraud in connection with a 2015 scandal commonly known as “dieselgate.” (SEC, Press Release). “Dieselgate” was a fraudulent scheme, masterminded by Winterkorn, under which Volkswagen marketed environmentally-friendly diesel engine vehicles that, in reality, emitted pollutants at levels 40-times greater than the legal limit in the United States. (SEC, Complaint). The parties were charged with violating the following federal securities laws: Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, SEC Rule 10b-5(b), and Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. (Id.).

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