Enforcement Priorities After the Pandemic

  1. Enforcement Priorities After the Pandemic

 

  1.   Environmental, Social, and Governance (“ESG”)
  2.   Special Purpose Acquisition Companies (“SPAC”)
  3.   Dealer Registration
  4.   Proxy Rules

 

  1. Deliverable Assignments (choose one):

 

  1. Deliverables Process:  

 

  1.   I have provided 4 matters where we will need a deliverable, choose one.
  2.   Each matter will require you to conduct research on your own.
  3.   However, you must also consider the fact I have deliberately been vague in the descriptive factual background in each scenario.  As a result, you may have to consider the possibility of other facts (or the lack thereof) when you analyze the situation and prepare your deliverable.
  4.   Each deliverable can only be at most 1,250 words in length, and the font must be at least 12 pt.

 

  1. ESG:  

 

  1.   In March 2021, the SEC’s Division of Examinations announced its priorities, including ESG.  In particular, the SEC plans to enhance its focus on ESG-related risks.  It intends to do this by probing proxy voting policies and practices so that it matches with investors’ expectations, and business continuity plans to ensure there are adequate protections given climate change.  
  2.   Recently, Exxon’s Board of Directors underwent a significant change.  An activist investor refused to agree to Exxon’s current climate philosophy.  As a result of a proxy vote, the activist investor was able to elect directors more in line with standard scientific based climate change policies.    
  3.   Now, you are a junior associate, and are part of a team representing a fossil fuel company.  Senior management is aware of the Exxon problem, and what it tried to do to avoid the proxy vote result.  You are now asked to prepare a memorandum indicating how it could utilize the SEC proxy rules to avoid the same result.

 

  1. SPAC

 

  1.   A group of people have decided to form a SPAC.  It is the intention of this group to raise $300 million, and then use the money to purchase a cannabis-based company once the Biden administration relaxes the financial transaction rules.
  2.   Over the course of 6 months, this group is successful and raises $300 million.  However, given the intransigence of the religious right and others, the Biden administration has still not provided the regulatory relief.  As such, the group decides to purchase a psychedelic company since that company is regulated as a drug company and the financial transaction rules are not applicable.
  3.   The SEC commenced and completed an investigation against the group, made a Wells Call and issued a Wells Notice.  You are the associate assigned to draft the Wells Submission.  Make your best arguments as to why the Commission should not authorize any action against the group.

 

  1.  Dealer Registration

 

  1.   Pursuant to Section 15(a)(1) of the Securities Exchange Act of 1934 (“Exchange Act”), “[i]t shall be unlawful for any broker or dealer which is either a person other than a natural person or a natural person not associated with a broker or dealer which is a person other than a natural person (other than such a broker or dealer whose business is exclusively intrastate and who does not make use of any facility of a national securities exchange) to make use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills) unless such broker or dealer is registered in accordance with subsection (b) of this section.”
  2.   Recently, the SEC has brought enforcement actions against individuals who lend money in the convertible debt market, alleging that these individual defendants violated Exchange Act Section 15(a)(1).  See SEC v. John M. Fife et al., Case No. 1:20-cv-05227, 2020 WL 5269562 (N.D. Ill., Sept. 3, 2020); SEC v. Justin W. Keener, Case No. 1:20-cv-21254, 2020 WL 4736205 (S.D. Fl., Aug. 14, 2020); See SEC v. John D. Fierro et al, Case No. 3:20-cv-02104, 2020 WL 941402 (D.N.J., Feb. 26, 2020); SEC v. Almagarby, No. 17-62255-CIV, 2020 WL 4783405 (S.D. Fla. Aug. 17, 2020); SEC v. River N. Equity LLC, 415 F. Supp. 3d 853, 858 (N.D. Ill. 2019).  
  3.   The SEC commenced and completed an investigation against a client of your firm, a hedge fund.  The Wells process did not convince the Commission that it should not expand this type of enforcement action to hedge funds.  As a result, the Commission commenced a federal court injunctive action against the client.  You are the associate assigned to draft the Motion to Dismiss Memorandum of Law, so make your best arguments as to why the federal district court should dismiss this action.

 

  1. Proxy Rules

 

  1.   Earlier this month, the SEC indicated that the Division of Corporation Finance will reconsider an interpretation issued in 2019 and new rules passed in 2020.  This interpretation and new rules applied tighter scrutiny to proxy advisory firms, who advise shareholders on voting matters. As a result of this reconsideration, there will be no new enforcement matters approved.
  2.   The interpretation and rules were put through with the support of the former Trump administration and by a divided SEC, along party lines.  Numerous businesses supported these measures.
  3.   These businesses are upset with this change, and are considering bringing an action against the SEC to stop it from making these changes.  You are the associate assigned to draft the prospective complaint against the SEC.  Prepare the complaint by analyzing the factual basis and potential causes of action against the SEC.  By way of example, the senior partner assigned to the case suggested you look at Goldstein v. SEC, where certain SEC rules were successfully challenged.

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