27th annual securities litigation and regulatory …€¦ · aaron lipson counsels public...

2 7 T H A N N U A L

SECURITIES LITIGATION AND REGULATORY

PRACTICEOctober 25, 2019

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2 7 T H A N N U A L

SECURITIES LITIGATION AND REGULATORY PR ACTICE

Friday, October 25, 2019

ICLE: State Bar Series

6 CLE Hours Including 1 Ethics Hour | 3 Trial Practice Hours

Copyright © 2019 by the Institute of Continuing Legal Education of the State Bar of Georgia. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical photocopying, recording, or otherwise, without the prior written permission of ICLE.

The Institute of Continuing Legal Education’s publications are intended to provide current and accurate information on designated subject matter. They are off ered as an aid to practicing attorneys to help them maintain professional competence with the understanding that the publisher is not rendering legal, accounting, or other professional advice. Attorneys should not rely solely on ICLE publications. Attorneys should research original and current sources of authority and take any other measures that are necessary and appropriate to ensure that they are in compliance with the pertinent rules of professional conduct for their jurisdiction.

ICLE gratefully acknowledges the eff orts of the faculty in the preparation of this publication and the presentation of information on their designated subjects at the seminar. The opinions expressed by the faculty in their papers and presentations are their own and do not necessarily refl ect the opinions of the Institute of Continuing Legal Education, its offi cers, or employees. The faculty is not engaged in rendering legal or other professional advice and this publication is not a substitute for the advice of an attorney. This publication was created to serve the continuing legal education needs of practicing attorneys.

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iiiFOREWORD

Dear ICLE Seminar Attendee,

Thank you for attending this seminar. We are grateful to the Chairperson(s) for organizing this program. Also, we would like to thank the volunteer speakers. Without the untiring dedication and eff orts of the Chairperson(s) and speakers, this seminar would not have been possible. Their names are listed on the AGENDA page(s) of this book, and their contributions to the success of this seminar are immeasurable.

We would be remiss if we did not extend a special thanks to each of you who are attending this seminar and for whom the program was planned. All of us at ICLE hope your attendance will be benefi cial as well as enjoyable We think that these program materials will provide a great initial resource and reference for you.

If you discover any substantial errors within this volume, please do not hesitate to inform us. Should you have a diff erent legal interpretation/opinion from the speaker’s, the appropriate way to address this is by contacting him/her directly.

Your comments and suggestions are always welcome.

Sincerely, Your ICLE Staff

Jeff rey R. DavisExecutive Director, State Bar of Georgia

Michelle E. WestDirector, ICLE

Rebecca A. HallAssociate Director, ICLE

8:15 REGISTRATION AND CONTINENTAL BREAKFAST (All attendees must check in upon arrival. A jacket or sweater is recommended.)

8:45 WELCOME AND PROGRAM OVERVIEW

9:00 CHANGES AND CHALLENGES: THE SEC VIEW FROM THE TOP

Moderator: Aaron Lipson Panelists: William McLucas, Partner, WilmerHale,

Washington D.C.; (former Enforcement Director, U.S. Securities and Exchange Commission, Washington D.C.)

Julie Riewe, Parner, Debevoise & Plimpton, Washington D.C.; (former Co-Chief, Asset Management Unit, Director, U.S. Securities and Exchange Commission, Washington D.C.)

Richard “Dick” Walker, Partner, King & Spalding, New York, NY; (former Enforcement Director, U.S. Securities and Exchange Commission, Washington D.C.)

• Understanding the Challenges Faced by the Senior Most Leaders of the SEC’s Enforcement Program

• How Past Changes in the SEC’s Enforcement Program are Likely to Impact the Future

• Tips for Effective SEC Advocacy at the Highest Levels

10:00 BREAK

10:15 INTERNATIONAL ENFORCEMENT/FCPA/WHITE COLLAR DEVELOPMENTS

Moderator: Paul Monnin Panelists: Peter Carter, E.V.P. and Chief Legal Officer &

Corporate Secretary, Delta Air Lines, Inc., Atlanta Sarah Paul, Partner, Eversheds Sutherland (US)

LLP (former Assistant US Attorney for the United States Attorney’s Office for the Southern District of New York, New York, NY)

Patrick Stokes, Partner, Gibson Dunn (former Chief, Department of Justice Foreign Corrupt Practices Act (FCPA) Unit, Washington, D.C.)

• Hallmarks of Effective Compliance Programs • Recent DOJ and SEC Policy Pronouncements

Regarding Self-Disclosure and Corporate Enforcement

• Best Practices for Internal Investigations Involving Allegations of International Misconduct

AGENDA PRESIDING: Olga Greenberg, Program Co-Chair, Eversheds Sutherland (US) LLP Aaron Lipson, Program Co-Chair, King & Spalding LLP Paul N. Monnin, Program Co-Chair, Alston & Bird LLP

11:30 MEET YOUR LOCAL SEC Moderator: Paul Monnin Panelists: Rich Best, Regional Director, Atlanta Regional

Office, U.S. Securities and Exchange Commission, Atlanta

Justin Jeffries, Associate Regional Director, Atlanta Regional Office, U.S. Securities and Exchange Commission, Atlanta

Donna Esau, Associate Regional Director, Atlanta Region Office, U.S. Securities and Exchange Commission, Atlanta

• Atlanta Regional Office Enforcement and Exam Priorities

• Best Practices for Working with the Atlanta Regional Office

12:15 NETWORKING LUNCH

1:00 CORPORATE COMPLIANCE AND TONE AT THE TOP: A CONVERSATION WITH SALLY YATES

Moderators: Amy Boring, Senior Associate, King & Spalding, Atlanta

Aaron Lipson Panelist: Sally Yates, Partner, King & Spalding, Atlanta;

(former Deputy Attorney General of the United States, Washington, D.C.)

• Effective Design, Implementation, and Ongoing Evaluation of Compliance Programs • Importance of Ethics and Tone at the Top • The Role of Board Leadership in Compliance • Crisis Management

2:00 SECURITIES LITIGATION UPDATE Panelists: James “Jamie” E. Connelly, Partner, Womble Bond

Dickinson, Atlanta Cara Peterman, Partner, Alston & Bird, Atlanta

2:30 BREAK

2:45 TABLETOP DATA BREACH EXERCISE Facilitators: Olga Greenberg Matt Gatewood, Partner, Eversheds Sutherland

(US) LLP, Washington D.C. Sarah Paul, Partner, Eversheds Sutherland (US)

LLP, New York, NY • Interactive “wargame” workshop that covers a

realistic cyber attack • Best practices and considerations for an

effective response strategy • Global regulatory implications, crisis

communications, and litigation issues 4:30 ADJOURN

FOREWORD ........................................................................................................................... 6

AGENDA ................................................................................................................................ 7

SECURITIES LITIGATION AND REGULATORY PRACTICE:

CHANGES AND CHALLENGES: THE SEC VIEW FROM THE TOP ................................................10

INTERNATIONAL ENFORCEMENT/FCPA/WHITE COLLAR DEVELOPMENTS ..............................28

MEET YOUR LOCAL SEC ........................................................................................................40

CORPORATE COMPLIANCE AND TONE AT THE TOP: A CONVERSATION WITH SALLY YATES ..................................................................................42

SECURITIES LITIGATION UPDATE ..........................................................................................54

TABLETOP DATA BREACH EXERCISE ...................................................................................205

APPENDIX:

ICLE BOARD ....................................................................................................................... 215

GEORGIA MANDATORY CLE FACT SHEET ............................................................................. 216

TABLE OF CONTENTS

CH A NGES A ND CH A LLENGES: THE SEC

V IE W FROM THE TOP

<< Back to Table of Contents

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Aaron W. Lipson Partner

Securities Enforcement and Regulation / Special Matters and Government Investigations

Atlanta: +1 404 572 2447 [email protected]

Aaron Lipson counsels public companies, investment advisers, broker-dealers, accounting firms, private funds, and individuals facing complex government investigations. Aaron also assists regulated entities with compliance matters and advises boards of directors with respect to independent investigations and disclosure matters.

A partner in our Special Matters and Government Investigations practice, Aaron brings nearly 15 years of experience as a senior enforcement official at the U.S. Securities and Exchange Commission (SEC) where he led the enforcement program for the SEC’s Atlanta Regional Office. Aaron oversaw a wide variety of investigations including those related to financial fraud, manipulative market practices, insider trading, cyber-intrusions, breaches of fiduciary duty, failures to disclose conflicts of interest, and unregistered offerings.

As an Associate Director in the SEC’s Division of Enforcement, Aaron supervised a team of over 60 attorneys, accountants and other professionals. In addition to having primary responsibility for all regional investigations, Aaron exercised significant oversight with respect to the SEC’s Wells process and whistleblower and cooperation programs.

Aaron also routinely partnered with federal and state law enforcement and regulatory agencies throughout the nation, including the U.S. Department of Justice, various U.S. Attorney’s Offices, the Federal Bureau of Investigation, the U.S. Secret Service, the U.S. Commodity Futures Trading Commission, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the U.S. Department of Labor, and the Public Company Accounting Oversight Board among others. These agencies regularly invited Aaron to conduct trainings for their staff on white collar investigative practices and emerging issues in financial regulation.

While at the SEC, Aaron was a senior manager in the agency’s Complex Financial Instruments Specialized Enforcement Unit, focusing on securitizations and the retail marketing of structured products. Aaron also led one of the SEC’s intra-agency working groups that focused on cross-border transactions as well as attorney and auditor liability. At times, Aaron represented the agency on the President’s Financial Fraud Task Force and the RMBS Working Group. In this capacity, Aaron played key roles in several of the most significant multi-agency coordinated investigations and criminal prosecutions arising from the financial crisis.

Aaron is also an adjunct professor at the Emory University School of Law, where he co-teaches an upper level class focused on securities enforcement and government investigations.

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Prior to joining the SEC, Aaron was an associate from 2000 – 2004 at an Atlanta law firm specializing in financial services litigation.

Credentials EDUCATION J.D., University of Georgia, with honors B.A., Yale University, with honors

ADMISSIONS Georgia

ASSOCIATIONS Association of Certified Fraud Examiners

Recognition Council of the Inspectors General on Integrity and Efficiency Award for Excellence in Investigations — SEC’s Chairman’s Award for Excellence — SEC’s Ellen B. Ross Award — Insights ARTICLE June 13, 2019 • Source: Hedge Fund Report Understanding the Wells Process: Origins and Key Elements

January 14, 2019 • Source: Law360 Aaron Lipson comments on the impact of the Federal Governments partial shutdown on SEC Enforcement activity

CLIENT ALERT July 19, 2019 Why It’s Taking So Long: the SEC and FINRA Issue Guidance on Crypto Broker-Dealer Complexities

April 11, 2019 How Far We Haven’t Come: SEC Resistance to Blockchain Securities Continues?

April 4, 2019 Supreme Court Affirms Lorenzo v. SEC, Expanding the Scope of Primary Liability for Securities Fraud

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Stay Vigilant: The Government Shutdown Didnt Shut Down I nsider Trading Enforcement

Events CONFERENCE June 20, 2019 5th Annual West Coast Pharmaceutical & Medical Device University

SPEAKING ENGAGEMENT November 5, 2019 Aaron Lipson to Speak at 2019 Fall Best Practice Forum

October 25, 2019 Sally Yates, Dick Walker, Aaron Lipson, Amy Boring to speak at Georgia Institute of Continuing Legal Education’s 27th Annual Securities Litigation and Regulatory Practice Seminar

March 6, 2019 Aaron Lipson to Speak at Annual Whistleblower Law Symposium

October 26, 2018 Aaron Lipson to Speak at Securities Litigation and Regulatory Practice Institute

October 17, 2018 Aaron Lipson to Speak at FINRA South Region Member Forum

September 12, 2018 Aaron Lipson to Speak at National Association of Corporate Directors Conference

News IN THE NEWS June 27, 2019 • Source: Financial Times Aaron Lipson explains how the Lorenzo v. SEC ruling helps the SEC better protect investors

June 13, 2019 • Source: Thomson Reuters Regulatory Intelligence K&Ss analysis on companies issuing digital assets to raise funds is referenced in a Thomson Reuters article on blockchain and the initial coin offerings process

March 1, 2019 • Source: Hedge Fund Law Report Aaron Lipson discussed his work and his arrival at the firm

February 8, 2019 • Source: Absolute Return Aaron Lipson is quoted about best practices for compliance with insider trading laws

January 28, 2019 • Source: Law360 Aaron Lipson discusses how the SEC will get back to speed now that the government shutdown has ended

January 14, 2019 • Source: Law360 Aaron Lipson comments on how the government shutdown is affecting SEC enforcement

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January 8, 2019 • Source: Daily Report, Securities Docket, CDR, Fund Intelligence, The Deal and Law360 Former SEC Senior Enforcement Official Aaron Lipson joins as a partner in the Atlanta office

PRESS RELEASE January 7, 2019 Former SEC Senior Enforcement Official Aaron Lipson Joins King & Spalding in Atlanta

Chair, Securities Department

William R. McLucasPARTNER

WASHINGTON DC

+ 1 202 663 6622

[email protected]

William McLucas is one of the most sought-after advisors to public companies, boards of

directors, audit committees and special committees dealing with corporate crises and related

issues. He joined the firm after serving for more than eight years as Director of Enforcement for

the Securities and Exchange Commission—longer than any other Enforcement Division

Director in Commission history. He represents public companies, investment banks,

accounting firms and advisors to mutual funds facing a variety of corporate and market crises,

as well as Securities and Exchange Commission investigations. Mr. McLucas is chair of the

firm's Securities Department.

In 1977, Mr. McLucas joined the Securities and Exchange Commission's Division of

Enforcement. He led the Division's Staff in numerous high-profile investigations and landmark

enforcement actions, including hundreds of insider trading cases and numerous inquiries and

proceedings involving public companies, accounting firms, investment banks, and participants

in the municipal securities markets.

In addition, Mr. McLucas has overseen numerous audit committee and special committee

inquiries, and has also represented numerous corporate executives and directors in

connection with Securities and Exchange Commission investigations.

Chambers USA: America's Leading Lawyers for Business describes Mr. McLucas as "a cut

above everyone else."

Professional Activities

Mr. McLucas is a frequent speaker on panels and programs on topics pertaining to securities

laws, corporate governance and law enforcement.

WilmerHale | William R. McLucas

Solutions

Crisis Management andStrategic Response

Cross-Border Investigationsand Compliance

Foreign Corrupt Practices Actand Anti-Corruption

Investigations Investment Management Public Policy and LegislativeAffairs

Securities Enforcement Securities Litigation

Experience

– Represented the board committees in some of the most prominent corporate scandalsthat have arisen recently in the US markets, including the Special Committees of bothEnron and WorldCom.

– Advised the Special Committee of the Board of Nortel Networks in its review of certainaccounting restatements and, more recently, the Special Committee of the Board ofUnitedHealth Group in its review of options dating issues.

– Represented numerous public companies and their executives, as well as publicaccounting firms and hedge funds in connection with securities enforcement andregulatory inquiries.

Recognition

Named a Fellow of the American College of Governance Counsel in 2015.–

Named one of the 500 Leading Lawyers in America by Lawdragon Magazine everyyear since 2005.

–

Consistently recommended by The Legal 500 United States for financial services andsecurities litigation, and listed as a "Leading Lawyer" in the area of litigation:white-collar criminal defense in the 2009, 2010 and 2011 editions.

–

Included on Securities Docket's Enforcement 40 list in 2017 and 2013.–

Recognized in 2008 as a Visionary in the Legal Times' "Greatest WashingtonLawyers in the Past 30 Years."

–

Selected as one of only seven "Leading Lawyers" in Corporate Governance in theMarch 2008 issue of Legal Times. He was also named Washington DC's "LeadingLawyer" in the area of securities and corporate governance by the Legal Times,December 2004.

–

Nationally recognized for exceptional standing in the legal community in Chambers

USA: America's Leading Lawyers for Business as "a dominant force" in the securities–

WilmerHale | William R. McLucas 2

regulation: enforcement area (2006–2019). Previously recognized in the 2003,2004 and 2005 editions for general commercial litigation; cited as "an expert inlitigation" in the 2003 edition.

Selected by peers for inclusion in each edition of Best Lawyers in America since2005; in the 2011-2020 editions of Best Lawyers of America he was recognized forhis securities practice along with the areas of bet-the-company litigation, corporategovernance and compliance law, and commercial litigation. He was also namedWashington DC Corporate Governance Law Lawyer of the Year for 2019,Washington DC Corporate Compliance Law Lawyer of the Year for 2018,Washington DC Securities Lawyer of the Year for 2010, and Washington DCCorporate Governance Law for 2016.

–

Recognized as one of the world's preeminent corporate governance lawyers inmultiple editions of Who's Who Legal: The International Who's Who of Corporate

Governance Lawyers; Who's Who Legal: The International Who's Who of Business

Lawyers; Who's Who Legal: Investigations; Who's Who Legal: Business Crime Defence;

Who's Who Legal: Commerical Litigation; and Who's Who Legal: The International

Who's Who of Investigations Lawyers, with sources saying he is “highly sought afterby companies, boards and audit committees in need of advice on corporate crises."

–

Selected to the 2007–2019 Washington DC Super Lawyers lists for his securitiesand corporate finance practice.

–

Listed in Washingtonian magazine's "Top 30 Lawyers in Washington," 2004, 2007,2009 and 2011. Named among "Washington's Best Lawyers" for his securitiespractice in the 2013 issue.

–

Named one of the National Law Journal's One-Hundred Most Influential Attorneysin America, 1997.

–

Ranked as a "top litigation lawyer" in the 2003 edition of Euromoney's Guide to the

World's Leading Litigation Lawyers.

–

Received the SEC Alumni Association's William O. Douglas Award in 2010.–

Received the National Public Service Award in 1996.–

Received the Federal Bar Association's Tom C. Clark Outstanding Lawyer Awardin 1997.

–

Received the President's Award for Distinguished Executive Service fromPresident Ronald Reagan in 1988.

–

WilmerHale | William R. McLucas 3

Credentials

EDUCATION

JD, Temple University BeasleySchool of Law, 1975

Research Editor, Temple LawQuarterly

BA, Pennsylvania StateUniversity, 1972

Phi Beta Kappa

ADMISSIONS

District of Columbia

New York

Pennsylvania

GOVERNMENT EXPERIENCE

Securities and ExchangeCommission

Division of Enforcement

Director

Wilmer Cutler Pickering Hale and Dorr LLP is a Delaware limited liability partnership. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW,Washington, DC 20006, +1 202 663 6000. Our United Kingdom office is operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers authorized and regulated by the SolicitorsRegulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/code-of-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK office. InBeijing, we are registered to operate as a Foreign Law Firm Representative Office. This material is for general informational purposes only and does not represent our advice as to any particular set of facts; nor does it representany undertaking to keep recipients advised of all legal developments. Prior results do not guarantee a similar outcome. © 2004-2019 Wilmer Cutler Pickering Hale and Dorr LLP

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Richard Walker (Dick) Partner

Securities Enforcement and Regulation / Special Matters and Government Investigations

New York: +1 212 556 2290 [email protected]

Former SEC Enforcement Director and General Counsel Dick Walker is a Partner in the firm’s Special Matters & Government Investigations practice group, twice named “White Collar Practice Group of the Year” by Law360. As part of the firm’s Securities Regulation and Enforcement practice, Dick specializes in crisis management, government and internal investigations (including cross-border), complex financial litigation matters, including litigation assessment, corporate governance, and compliance issues. Dick represents banks, law firms, accounting firms, regulated entities and public companies who benefit from his ten years as a high-ranking SEC official and almost fourteen years as Global General Counsel for Deutsche Bank, a large international financial institution.

While at Deutsche Bank, Dick held a number of senior positions, which included at various times serving as Vice Chairman, a member of the Bank’s Global Executive Committee, Global General Counsel and Global Head of Compliance. He oversaw the Bank’s legal and compliance departments worldwide. He was responsible for international and U.S. banking, securities, commodities, and other financial regulations as well as government investigations, transactional matters, corporate governance and related matters, data privacy, and litigation.

Prior to joining Deutsche Bank, Dick served as the Director of the Division of Enforcement and prior to that, as General Counsel of the Securities and Exchange Commission after starting his career as Regional Director of the Northeast Regional Office. He is the only person in history who has served the SEC as both Enforcement Director and General Counsel.

While at the SEC, Dick stepped up the Commission’s attack against earnings management and other financial reporting abuses with cases including W.R. Grace, Cendant, Livent, McKesson, Microstrategy, and Sunbeam. He also spearheaded efforts to fight microcap fraud and teamed up with the FBI and the Department of Justice to halt infiltration of organized crime into our markets. He also established the Office of Internet Fraud to combat the growing use of the internet in fraudulent securities activities; and oversaw a number of large successful insider trading cases and participated in the government’s victory in the Supreme Court in the O’Hagan case, which validated the misappropriation theory of insider trading. Dick was awarded the Presidential Rank Distinguished Service Award (the highest federal award for public service), the SEC’s Distinguished Service Award, and the Chairman’s Award of Excellence.

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In addition to his government and in-house experiences, Dick was a litigation partner at a top AmLaw 100 law firm earlier in his career. Upon graduating from law school he clerked for Chief Judge Collins J. Seitz of the U.S. Court of Appeals for the Third Circuit.

Dick is an adjunct professor at the University of Pennsylvania Law School.

Credentials EDUCATION J.D., Temple University, cum laude B.A., Trinity College

ADMISSIONS District of Columbia New York Pennsylvania

CLERKSHIPS Law Clerk, Collins J. Seitz, U.S. Court of Appeals for the Third Circuit

Recognition Legends in the Law Award, 2007 THE BURTON AWARDS — Community Leadership Award, 2008 URBAN JUSTICE CENTER — William Nelson Cromwell Award, 2008 NEW YORK COUNTY LAWYERS ASSOCIATION — Presidential Rank Distinguished Service Award, 1997 — Distinguished Service Award, 2000 SECURITIES AND EXCHANGE COMMISSION — Chairmans Award of Excellence, 1992 and 2000 SECURITIES AND EXCHANGE COMMISSION — Law and Policy Award, 1997 SECURITIES AND EXCHANGE COMMISSION

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— Insights ARTICLE February 1, 2019 • Source: Intellectual Property & Technology Law Journal To Tweet or Not to Tweet? Lessons in Careful Use of Social Media

September 26, 2018 • Source: American Bar Association Business Law Today Cleanup on Title 5: Executive Agencies and Courts Begin to Unpack Lucia, as Litigants Eye Challenges to the Administrative State

February 14, 2018 • Source: Law360 The Impact Of Kokesh So Far, And Whats Next: Part 2

February 13, 2018 • Source: Law360 The Impact Of Kokesh So Far, And Whats Next: Part 1

December 21, 2017 • Source: Law360 Loose Lips Still Sink Ships: Inadvertent Tipping In 2017

CLIENT ALERT October 10, 2019 Messages for Public Companies from the SEC’s Spate of September Enforcement Actions

September 16, 2019 The Lasting Impact of Kokesh: Footnote 3 and Beyond

April 4, 2019 Supreme Court Affirms Lorenzo v. SEC, Expanding the Scope of Primary Liability for Securities Fraud

October 23, 2018 The Catch with Kokesh: Insurers Refusing to Cover Disgorgement to SEC

October 18, 2018 To Tweet Or Not To Tweet? Lessons In Careful Use Of Social Media

October 9, 2018 Cleanup on Title 5: Executive Agencies and Courts Begin to Unpack Lucia, as Litigants Eye Challenges to the Administrative State

July 10, 2018 The SEC Is Sending Signals Regarding Advisory Fees and Expenses – Are Investment Advisers Listening?

Practical Advice for Evaluating Insider Trading Compliance Programs in Light of Recent Cybersecurity Events and SEC Guidance

March 1, 2018 SEC Reinforces and Elevates Cybersecurity Guidance; Board Oversight of Cybersecurity at the Forefront

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February 12, 2018 Financial Industry Regulatory Priorities In 2018

February 9, 2018 Reflections on Kokesh v. SEC: On the Lookout for “Elephants in Mouseholes”

February 7, 2018 Dividing Up the Sandbox: Recent Actions and Public Statements Demonstrate How the SEC and CFTC Are Dividing up the Cryptocurrency and Crypto-Token Enforcement Landscape

January 26, 2018 Bad Advice and Blockchain-R-US: Stern Warnings from the SEC and CFTC Chairmen on Unregistered ICOs, Cashing In on “Crypto-Mania”

December 19, 2017 Loose Lips Still Sink Ships: Inadvertent Tipping Risks Under the New Administration

NEWSLETTER September 24, 2018 Viewpoints – Issue 32 – Engaging with Institutional Investors

September 24, 2018 Viewpoints – Issue 33 – Board oversight of workplace conduct in the #metoo era

December 21, 2017 • Source: REIT Advisor - December 2017 Loose Lips Still Sink Ships: Inadvertent Tipping Risks Under the New Administration

November 2, 2017 Viewpoints - Issue 30 - Shareholder Activism 2.0

November 1, 2017 Viewpoints - Issue 29 - Crisis Preparedness and Response

Events CONFERENCE September 12, 2019 Financial Services Summit

May 1, 2019 6th Annual Cybersecurity & Privacy Summit

February 28, 2019 Investment Advisers Conference

SPEAKING ENGAGEMENT November 6, 2019 John Richter, Richard Walker, Nikki Reeves to Speak at 20th Annual Pharmaceutical and Medical Device Compliance Congress

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November 4, 2019 Dick Walker, Carmen Lawrence, Dixie Johnson to Speak at Practising Law Institute’s 51st Annual Institute on Securities Regulation


November 1, 2018 Dick Walker to Speak at 2018 Securities Enforcement Forum

June 14, 2018 Dick Walker to Give Closing Keynote at Banking Litigation & Regulation Forum

May 8, 2018 Dick Walker to Speak at ACI’s 20th New York Conference on the Foreign Corrupt Practices Act

April 19, 2018 Dick Walker, Brian Michael to Speak at Association of Corporate Counsel Financial Services and Real Estate Committee Regulatory Roundtable

April 16, 2018 Dick Walker to Speak at PLI Conference on Corporate Governance

April 3, 2018 Dick Walker to Speak at SEC Historical Society Roundtable

January 24, 2018 Dick Walker to Speak at Annual Securities Regulation Institute

October 26, 2017 Dick Walker to Speak at Securities Enforcement Forum

News IN THE NEWS March 29, 2019 • Source: Financial Advisor IQ Dick Walker discusses the SEC working with states that have fiduciary rule initiatives to avoid conflicts with the final version of the SECs Regulation Best Interest

December 8, 2018 • Source: The Wall Street Journal Dick Walker quoted about the SEC whistleblower program

June 22, 2018 • Source: The Wall Street Journal Dick Walker discusses the Supreme Court’s decision on how the SEC should appoint its administrative law judges

April 15, 2018 • Source: The New York Times

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Dick Walker comments on U.S. attorney Robert Khuzami assuming responsibility for the Michael Cohen investigation

September 19, 2017 • Source: The American Lawyer/New York Law Journal, Law360, Bloomberg Law Big Law Business, Corporate Crime Reporter, Securities Docket, Compliance Week, Compliance Reporter, Corporate Counsel, CDR and GIR Former Deutsche Bank General Counsel and SEC Enforcement Chief Dick Walker joins the Special Matters and Government Investigations practice in the New York office

PRESS RELEASE September 19, 2017 Former SEC Enforcement Chief and Deutsche Bank General Counsel Richard H. Walker Joins King & Spalding in New York

INTER N ATION A L ENFORCEMENT/FCPA /

WHITE COLL A RDE V ELOPMENTS


Paul N. [email protected] | One Atlantic Center, 1201 West Peachtree Street, Suite 4900 | Atlanta, GA 30309-3424

Paul Monnin has conducted internal investigations and compliance reviews on behalf of numerous public and private companies across an array of industries. He has also defended corporate officers and directors in all manner of DOJ, SEC, and other federal and state law enforcement agency proceedings, both at the investigative stage and post-indictment/complaint.

Paul’s defense practice focuses on prosecution of the federal anti-fraud statutes, along with the Foreign Corrupt Practices Act, False Claims Act, and Computer Fraud and Abuse Act; search and seizure issues under the Stored Communications Act; alleged bribery and public corruption; and forfeiture and money laundering contentions. He also routinely defends actions involving alleged accounting irregularities, stock manipulation schemes, and insider trading. He has successfully litigated the extraterritorial reach of U.S. indictments, search warrants, and grand jury subpoenas and has conducted investigations in Mexico, Brazil, Argentina, Japan, and South Africa.

Paul’s commercial litigation engagements span M&A, antitrust, patent, real estate, and secured lending claims, including class actions and multidistrict litigation.

Paul was previously an assistant U.S. attorney with the U.S. Attorney’s Office for the Northern District of Georgia, serving as deputy chief of the Economic Crimes Section. He has personally tried more than a dozen cases to a jury verdict, in addition to numerous bench trials. He has also conducted hundreds of evidentiary hearings and has briefed and argued dozens of appeals.

Representative Experience

White Collar Enforcement

Counsel to the former managing partner of an AmLaw 100 law firm in response to his federal indictment for mail fraud and bank fraud.

Counsel to an approximately $1 billion poultry producer in response to a DOJ Antitrust Division criminal investigation and parallel private antitrust class action claims.

Counsel to the CEO of a publicly traded utility in criminal, civil, and administrative proceedings related to the utility’s abandonment of a multibillion dollar new nuclear development program.

Defending a DOJ Environment and Natural Resources Division and U.S. Attorney’s Office investigation involving suspected Clean Water Act violations in relation to a National Pollutant Discharge Elimination System permit.

Counsel to the senior vice president of an international design, engineering, and construction firm in response to a federal grand jury investigation involving the allegedly corrupt procurement of a $16 million wastewater treatment contract.

Defended a hospital CEO in response to a federal grand jury investigation of an alleged $100 million Anti-Kickback Statute conspiracy. The government declined prosecution following extensive letter briefing.

Counsel to multiple cloud hosting service providers and social media platform operators regarding their rights and responsibilities under the Stored Communications Act in connection with federal and state law enforcement subpoenas and court orders.

Counsel to multiple hospitality entities in response to the execution of Foreign Intelligence Surveillance Act (FISA) orders.

Defended a Fortune 50 company in response to a False Claims Act investigation by the DOJ involving antidumping duty and customs compliance issues. While the government claimed $18 million in FCA damages, the investigation was resolved administratively for a nominal, non-FCA payment.

Audited an international design and engineering firm’s compliance and ethics undertakings following its entry of deferred prosecution agreements associated with the Central Artery/Tunnel (Big Dig) Program in Boston.

Engaged by the audit committee of a publicly traded government contractor in response to a DOJ public corruption investigation involving the award of municipal contracts. The government declined prosecution following presentment of investigative findings.

Defended a real estate developer charged by the DOJ in an approximately $19 million bank fraud conspiracy. The client was sentenced to 20 months in custody despite a recommended guideline range of 87–108 months.

Defended a former community bank president charged by the DOJ in an approximately $350 million bank failure. The client secured a binding plea, and his custodial sentence was one-third of the low end of the otherwise applicable sentencing guideline range.

Defended a former federal law enforcement agent under DOJ investigation for unauthorized access to a protected government computer system. Although the government initially contended the client had committed a felony under the Computer Fraud and Abuse Act, the investigation was resolved through entry of a no-jail-time, misdemeanor plea.

Transnational Enforcement, Litigation and Compliance

Counsel to a $2 billion, multinational medical technology and medical device manufacturer in connection with an FCPA investigation involving the client’s self-disclosure of public tender irregularities. The government declined prosecution under the DOJ’s FCPA Corporate Enforcement Policy following on-the-ground investigation in Mexico, Brazil, Argentina, and China.

Defending multiple Japanese regulatory affairs and quality assurance employees of an international medical device manufacturer in response to a DOJ Consumer Protection Branch and U.S. Attorney’s Office grand jury investigation involving the reporting of infection outbreaks that resulted in several deaths.

Defending a real estate investment entity in response to public corruption contentions under investigation by Swiss prosecutors related to the acquisition of real property in Romania and Moldova.

Counsel to a Chinese manufacturer of transportation equipment in response to a public corruption investigation in South Africa.

Counsel to an international design, engineering, and construction firm in response to qui tam FCA claims involving the performance of U.S. Agency for International Development contracts in Pakistan. The district court dismissed all claims.

Engaged by a Dutch contractor to conduct an internal investigation of its Buy American Act and anti-boycott act compliance.

Engaged by a Japanese consumer products manufacturer in connection with an internal employee embezzlement investigation in El Salvador and subsequent referral to the DOJ for prosecution.

Defended an international hospitality company in a federal breach of contract lawsuit alleging failure to honor a licensing and development agreement for the Middle East and North Africa. All claims were favorably resolved on summary judgment.

Securities Enforcement

Defending a biologics company executive in parallel DOJ and SEC investigations of alleged accounting irregularities.

Defending the principals of a registered investment adviser with approximately $250 million in assets under management in response to an SEC insider trading investigation.

Represented a leading adviser to Health Savings Account plan sponsors (with over $4 billion in combined assets) in response to an SEC Enforcement Division investigation involving alleged undisclosed conflicts of interest and failure to ensure best share class execution. The SEC terminated its investigation without taking any enforcement action.

Represented the former head of collateralized debt obligation warehousing and syndication at a Fortune 50 financial institution in a series of enforcement investigations by the structured products team within the SEC’s Enforcement Division.

Engaged by a Fortune 50 health care entity to conduct an internal investigation of putative whistleblower contentions related to the company’s accounting and finance organizations.

Defended a former hedge fund portfolio manager in parallel DOJ and SEC enforcement proceedings involving $3.2 million of insider trading gain. The client was sentenced to a year and a day in custody despite a recommended term of 41 months under the federal sentencing guidelines. He was also ordered to pay merely $19,000 in disgorgement and a civil penalty of $38,000, despite the SEC’s request for $8.2 million in financial remedies.

Defended an executive of a publicly traded company in response to an SEC administrative proceeding alleging insider trading in connection with a tender offer. The SEC ALJ rejected the Enforcement Division’s claims following the client’s trial testimony.

Obtained a 12-month associational bar from an SEC ALJ in an administrative proceeding following the client’s criminal conviction for insider trading. The SEC’s Enforcement Division had requested a lifetime ban.

Defended an international hospitality company in response to an SEC investigation involving the procurement of EB-5 visas in exchange for the investment of development funds.

Counsel to multiple registered investment advisers, broker-dealers, and investment funds in response to SEC Office of Compliance Inspections and Examinations reviews.

Commercial Litigation

Defended a national design and engineering firm charged with civil racketeering, fraud, and breach of contract associated with its management of an approximately $750 million K-12 schools construction program. Resolved $150 million of adverse civil claims for a $7.5 million foundation donation and no admission of liability.

Represented the equity participant in a breach of contract and fraud action related to an approximately $300 million real estate joint venture. Following a valuation hearing, the court authorized collection of contract damages from the defendants’ joint-venture interests.

Represented a hedge fund in its collection of approximately $20 million in real estate financing and its defense of fraudulent concealment, discharge, and impairment claims.

Defended a real estate developer in response to an equity investor’s breach of contract claims related to multiple real estate acquisition and development joint ventures. The client retained its $6 million promotional interest.

Publications & Presentations

Publications

“Multinational Aspects of SEC Investigations,” in SEC Compliance and Enforcement Answer Book (2020 Edition), Practising Law Institute, 2019.

“Tax Avoidance vs. Tax Evasion,” The Professional Journal of Tax Executives Institute, December 2, 2018.

“Why Insider Benefit Is Irrelevant to Criminal Insider Trading,” Law360, May 19, 2017.

“SEC Is Misguided on Disgorgement from Portfolio Managers,” Law360, October 20, 2016.

“Everything Old Is New Again: Why the Yates Memo Is Constitutionally Suspect,” Corporate Counsel, January 11, 2016.

Professional & Community Engagement

Frequent speaker at seminars and programs sponsored by the Ethics and Compliance Officer Association, the Society for Corporate Compliance and Ethics, the Georgia Institute of Continuing Legal Education, the Business Law Institute, the Association of Corporate Counsel – Atlanta, the Association of Certified Fraud Examiners, the Institute for Internal Auditors, and the Atlanta Compliance and Ethics Roundtable, along with invited presentations to federal law enforcement agencies and international accounting and consulting firms.

Co-chair, Annual Securities Litigation and Regulatory Practice Seminar sponsored by the Georgia Institute of Continuing Legal Education.

Guest lecturer on the use of forensic accounting evidence in criminal and civil litigation, University of Georgia’s Terry College of Business and Georgia State University’s J. Mack Robinson College of Business.

Board Member, Federal Defender Program, Inc. (the indigent criminal defense organization sponsored by the U.S. Court of Appeals for the Eleventh Circuit and the U.S. District Court for the Northern District of Georgia).

Member, Criminal Justice Act Panel of the U.S. District Court for the Northern District of Georgia.

Master, Bleckley Inn of Court, Georgia State University School of Law.

Education

Vanderbilt University (J.D., 1996)

Harvard University (B.A., 1991)

Admitted to Practice

Georgia

Illinois

Peter Carter has served as Delta’s Executive Vice President, Chief Legal Officer and Corporate Secretary since July 2015. As Chief Legal Officer, Peter oversees Delta’s legal, compliance and government affairs groups worldwide and serves on the Delta Leadership Committee.

Peter has worked to protect Delta’s freedom to operate by advocating against market distortive subsidies in the industry to ensure fair and open skies. He regularly engages with government stakeholders in the U.S., Mexico, Korea, U.K., China, and the E.U. on matters relating to competition policy, alliances, privacy and compliance.

Before joining Delta, Peter was a partner at the international law firm of Dorsey & Whitney LLP. He chaired the firm’s Policy Committee and the Securities Litigation and Enforcement practice group. He is a Fellow of the American College of Trial Lawyers and has been recognized by numerous organizations and publications including being honored with a Burton Award for public interest, and being named one of the Best Lawyers in America for Bet-the-Company and Commercial Litigation, one of "America's Leading Business Lawyers" by Chambers USA, and Antitrust Lawyer of the year in 2013 by Best Lawyers in America.

Before joining Dorsey, Peter clerked for Judge James B. Loken at the U.S. Court of Appeals for the Eighth Circuit.

Peter serves as a member of the Boards of the Delta Air Lines Foundation, the Alliance Theater, the Chick Fil-A Foundation, The United Way of Greater Atlanta, and the Georgia Chamber of Commerce. He was also appointed by Gov. Nathan Deal to serve on the State of Georgia Judicial Selection Commission.

ATTORNEY BIOGRAPHY

EVERSHEDS SUTHERLAND / WWW.EVERSHEDS-SUTHERLAND.COM

Sarah E. PaulPartnerNew York

P: +1.212.301.6587E: [email protected]

EducationJ.D., magna cum laude, New York University School of Law, Order of the CoifB.A., magna cum laude, Cornell University

Bar AdmissionsNew York

Background

Sarah Paul’s practice spans all areas of white-collar defense, with a particular focus on government, internal, and cross-border investigations, tax controversy, and cybersecurity and privacy law. She has extensive experience litigating complex criminal and civil cases.

Sarah joined Eversheds Sutherland from the United States Attorney’s Office for the Southern District of New York, where she served for over nine years as an Assistant United States Attorney in the Criminal Division. As a member of the Complex Frauds and Cybercrime Unit for nearly six years, she worked on sophisticated white-collar cases involving the investigation and prosecution of institutions and individuals for a variety of financial crimes, including Foreign Corrupt Practices Act violations, wire fraud, bank fraud, cybercrime, international money laundering, securities fraud, health care fraud, and Bank Secrecy Act violations. She also served in the Money Laundering and Asset Forfeiture Unit, where she litigated substantial asset forfeiture matters, including significant art fraud cases. In 2019, Sarah was recognized by the Women in Federal Law Enforcement Foundation, which selected her from a nationwide pool of female federal prosecutors to receive the Top Prosecutor Award.

During her time as federal prosecutor, Sarah led numerous high-profile cross-border investigations, including an investigation resulting in the first US indictment in connection with the Panama Papers leak, an investigation resulting in a $547 million resolution with a Swiss bank and the guilty pleas of two Swiss bankers, and an investigation resulting in the guilty pleas of Cayman Islands investment brokerage and trust companies. Sarah also conducted fourteen federal jury trials, and briefed and argued multiple appeals before the US Court of Appeals for the Second Circuit.

In 2016, she became the Tax Coordinator for the Criminal Division. During her two and a half year tenure as the Tax Coordinator, she supervised all criminal tax matters in the Southern District of New York, including hundreds of investigations and dozens of publicly charged cases, and she worked extensively with the Internal Revenue Service and the Tax Division of the Department of Justice.

Prior to her time as an Assistant United States Attorney, Sarah was a defense attorney for two prominent New York law firms, where she advised clients on anticipating, managing and mitigating legal and regulatory risks related to government enforcement and represented clients in all phases of criminal and civil litigation. She also worked as a federal law clerk for the Honorable Berle Schiller in the United States District Court for the Eastern District of Pennsylvania.

View highlights of Sarah’s experience as an Assistant US Attorney.

SARAH E. PAULPAGE 2


Awards

Recipient, Top Prosecutor Award, Women in Federal Law Enforcement Foundation (2019)

Recipient, Federal Trade Commission’s Prosecuting Attorney’s Award (2016)

Recipient, IRS Commissioner’s Award (2014)

Articles

Federal enforcement trends in the cryptocurrency sphere (Fall 2019)Partnering Perspectives

INSIGHT: Tackling the Tax Division’s New Crime-Fraud Strategy (October 2, 2019)Bloomberg Tax

Legislative heat wave: A mid-year review of upcoming cybersecurity laws and enforcement activity (August 2, 2019)Cybersecurity Law & Strategy

Presentations

International anti-corruption and cross-border criminal investigations: How to mitigate risk and manage violations (September 24, 2019)

Webcast: What companies need to know about the changing US prosecutorial landscape (August 13, 2019)

How Well Do Your Secrets Travel? Understanding the Scope of Privileges in Cross-Border Audits and Investigations (June 20, 2019)NYU 11th Annual Tax Controversy Forum

Identifying the Line Between Avoidance and Evasion: Global Criminal Tax Enforcement (April 5, 2019)ABA Tax Section 19th Annual US and Europe Tax Practice Trends Conference

International Hot Topics in Tax Enforcement (March 8, 2019)Federal Bar Association 2019 Tax Law Conference

Global Tax Enforcement: Compliance & Risk Mitigation, Part II (November 21, 2018)Bahamas Financial Services Board Workshop

Going to Trial (November 8, 2018)Georgetown University Law Center

Investigating and Prosecuting Offshore Matters (August 14, 2018)IRS New York Field Office Yearly Training

Crossing the Line: Civil and Criminal Tax Fraud (March 20, 2018)Practising Law Institute Nuts & Bolts of Tax Penalties 2018

SARAH E. PAULPAGE 3


Trends in Tax Transparency and Enforcement (October 17, 2017)Association of Certified Financial Crime Specialists 2017 Annual Conference

Hiding the Ball – Anonymity, Tax Law and the US as the World’s Favorite New Tax Haven (May 25, 2017)Private Wealth & Taxation Institute Continuing Professional Education Series at Hofstra University

Partnering with the SDNY (March 22, 2017)Federal Reserve – Office of the Inspector General, All Hands On Deck Training

The United States as a Potential Tax Haven: Money Laundering Exposures for Lawyers and Other Gatekeepers (November 11, 2016)Pennsylvania Association of Criminal Defense Lawyers

Hiding the Ball – Anonymity, Tax Law and the US as the World’s Favorite New Tax Haven (October 24, 2016)NYU 75th Institute on Federal Taxation

Investigating and Prosecuting Offshore Matters (June 28, 2016)National Advocacy Center Basic Criminal Tax Seminar

How to Stop a Civil Tax Audit from Becoming a Criminal Prosecution (June 24, 2016)NYU 8th Annual Tax Controversy Forum

Turning the Tables: The United States as a Tax Haven Destination (May 7, 2016)ABA Section of Taxation 2016 May Meeting

Court Admissions

U.S. District Court for the Southern District of New York

U.S. District Court for the Eastern District of New York

U.S. Court of Appeals for the Second Circuit

Patrick F. Stokes Partner Patrick Stokes is a litigation partner in Gibson, Dunn & Crutcher’s Washington, D.C. office. He is a member of the firm’s White Collar Defense and Investigations, Securities Enforcement, and Litigation Practice Groups. Mr. Stokes’ practice focuses on internal corporate investigations, compliance reviews, government investigations, and enforcement actions regarding corruption, securities fraud, and financial institutions fraud. He has tried more than 30 federal jury trials as first chair, including high-profile white-collar cases, and handled 16 appeals before the U.S. Court of Appeals for the Fourth Circuit. Mr. Stokes is equally comfortable leading confidential internal investigations, negotiating with government enforcement authorities, or advocating in court proceedings. In 2019, Mr. Stokes was ranked nationally by Chambers USA as a leading attorney in FCPA. Prior to joining Gibson Dunn, Mr. Stokes spent nearly 18 years with the U.S. Department of Justice (DOJ). From 2014 to 2016 he headed the FCPA Unit, managing the DOJ’s FCPA enforcement program and all criminal FCPA matters throughout the United States, covering every significant business sector, and including investigations, trials, and the assessment of corporate anti-corruption compliance programs and monitorships. Mr. Stokes also served as the DOJ’s principal representative at the OECD Working Group on Bribery working with law enforcement and policy setters from 41 signatory countries on anti-corruption enforcement policy issues. From 2010 to 2014, he served as Co-Chief of the DOJ’s Securities and Financial Fraud Unit. In this role, he oversaw investigations and prosecutions of financial fraud schemes involving accounting fraud, benchmark interest rate manipulations, insider trading, market manipulation, Troubled Asset Relief Program (TARP) fraud, government procurement fraud, and large-scale mortgage fraud, among others. From 2002 to 2008, Mr. Stokes served as an Assistant United States Attorney in the Eastern District of Virginia, where he prosecuted a wide variety of financial fraud, immigration, and violent crime cases. From 1998 to 2002, he served in the DOJ’s Tax Division as a trial attorney in the Western Criminal Enforcement Section. Mr. Stokes received various awards while at the DOJ, including the Attorney General’s Distinguished Service Award in 2013 and 2014 and the Assistant Attorney General’s Exceptional Service Award (Criminal Division) in 2011 and 2014. Mr. Stokes received his bachelor’s degree and Juris Doctor from the University of Virginia, where he was an editorial board member of the Virginia Journal of Social Policy and the Law. Mr. Stokes is a member of the Maryland State Bar and the District of Columbia Bar.

Representative engagements include:

• Representation of a global medical company before the DOJ and SEC in an investigation of accounting practices and potential FCPA violations.

• Representation of global nutrition company in an investigation before the DOJ and SEC of potential FCPA violations.

• Representation of private equity firm in an investigation before the DOJ and SEC related to portfolio company accounting issues.

• Representation of the Audit Committee of an educational services company before the DOJ and SEC in an FCPA investigation, and obtained declinations from both agencies.

• Representation of global hospitality company before the DOJ and SEC in an FCPA investigation, and obtained declinations from both agencies.

• Representation of Audit Committee of a medical diagnostics company in an investigation of whistleblower allegations related to accounting issues.

• Conducting assessments of compliance programs and related internal financial controls across various industries.

• Represented company executives in FCPA, securities fraud, and False Claims Act investigations by various government agencies.

EDUCATION ADMISSIONS University of Virginia – 1998 Juris Doctor District of Columbia Bar University of Virginia – 1989 Bachelor of Arts

Maryland Bar

MEE T YOUR LOCA L SEC


Materials unavailable.

COR P OR ATE COMPLI A NCE A ND TONE AT THE TOP:A CON V ERS ATION WITH

S A LLY YATES


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Amy B. Boring Senior Associate

Special Matters and Government Investigations

Atlanta: +1 404 572 2829 [email protected]

Amy Bentsen Boring is an associate in King & Spalding’s Atlanta office and a member of the firm’s Special Matters and Investigations practice. Her practice focuses on white-collar criminal defense, internal corporate investigations, and complex civil litigation. She also provides regulatory compliance advice to pharmacy and healthcare clients and represents clients in connection with government investigations and enforcement actions.

Amy graduated, magna cum laude, from Georgia State University College of Law. During law school, she interned with the Federal Reserve Bank and served as a student attorney in the Georgia State College of Law Low-Income Taxpayer Clinic.

Matters Representing a national retail pharmacy chain in False Claims Act suit alleging Medicaid and Medicare Part D overpayments related to usual and customary pricing.

Advising hospital and pharmacy regarding federal and state controlled substance and pharmacy laws.

Conducting corporate compliance reviews to assess the effectiveness of company policies and procedures, internal controls, and monitoring programs at retail pharmacy.

Representing a national retail pharmacy in connection with investigation by California U.S. Attorney’s Office and DHHS-OIG.

Updating and maintaining multi-state pharmacy regulatory database for use by client’s in-house legal and operations personnel.

Conducting controlled substance compliance review to assess company policies and procedures and internal controls at hospital.

Representing nutritional supplement company with regard to an investigation by Georgia U.S. Attorney’s Office and DEA.

Conducting an internal investigation regarding allegations of hostile work environment.

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Participating as member of Pro Bono Partnership Subpoena Response Team, a group of lawyers that assist non-profit groups with responding to law enforcement and litigation subpoenas.

Presenting a state-wide webcast training program regarding subpoena responses for Georgia Court Appointed Special Advocates.

Credentials EDUCATION J.D., Georgia State University, magna cum laude B.S., University of Georgia

ADMISSIONS U.S. Court of Appeals for the Eleventh Circuit U.S. District Court for the Middle District of Georgia U.S. District Court for the Northern District of Georgia Georgia

CLERKSHIPS Law Clerk, Judge C. LaTain Kell, Georgia

ASSOCIATIONS American Bar Association Atlanta Bar Association Women in White Collar - Atlanta Chapter

Events CONFERENCE February 28, 2019 Atlanta Young Professionals White Collar Defense Group

SPEAKING ENGAGEMENT November 5, 2019 Amy Boring to Speak at HCCA Healthcare Enforcement Compliance Conference


June 13, 2019 John Horn, Shannon Cox, Amy Boring to Speak at Florida Hospital Association’s 16th Annual Health Care Corporate Compliance Education Retreat

WEBINAR January 15, 2019 The Opioid Epidemic: What Hospitals Need to Know

News

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IN THE NEWS January 25, 2019 • Source: Report on Medicare Compliance John Horn, Amy Jones, Stephen Cummings and Amy Boring are quoted in a profile on the DEA ramping up diversion audits and investigations in the opioid crisis

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Sally Q. Yates Partner

Special Matters and Government Investigations

Atlanta: +1 404 572 2723 Washington, D.C.: +1 202 626 2937 [email protected]

Former Deputy Attorney General Sally Yates is a partner in King & Spalding’s Special Matters & Government Investigations practice. Sally’s deep experience, leadership and wide-ranging background provide clients with seasoned judgment in difficult times. Her practice focuses on counseling clients in complex and sensitive matters, including government enforcement and regulatory matters, congressional investigations, compliance, corporate governance and crisis management. Drawing upon her nearly three decades at the Department of Justice, she specializes in internal and independent investigations for public and private organizations and boards.

As the second-highest ranking official at the U.S. Department of Justice (DOJ) and as Acting Attorney General, Sally was responsible for all of DOJ’s 113,000 employees including all prosecutorial, litigating, and national security components. She also was responsible for all U.S. Attorney’s offices and law enforcement agencies and the Bureau of Prisons. Sally oversaw DOJ’s most significant matters and was instrumental in setting DOJ’s enforcement priorities and initiatives.

Known for her lifelong, nonpartisan focus on public corruption, Sally is recognized worldwide for her integrity and credibility. An accomplished trial lawyer and Fellow in the American College of Trial Lawyers, Sally has tried numerous high-profile cases.

A 27-year veteran of DOJ, Sally rose through the ranks of Assistant United States Attorneys to become U.S. Attorney in Atlanta, Deputy Attorney General and Acting Attorney General. As Deputy Attorney General from 2015 through 2017, Sally was responsible for crafting and implementing initiatives focused on many of DOJ’s priorities, including corporate fraud, cybercrime, gang violence, civil rights, and financial crime. She led DOJ’s criminal justice reform efforts and implemented substantial prison reform measures.

Prior to becoming Deputy Attorney General, Sally was the first woman to serve as U.S. Attorney for the Northern District of Georgia. During her five years as the chief federal law enforcement official for the district, she oversaw the prosecution of all federal crimes and the litigation of civil matters and immediately became a leader in the Department as Vice Chair of the Attorney General’s Advisory Committee (AGAC), which guides DOJ’s strategies and policy decisions.

She has tried numerous white collar and public corruption cases, and she was the lead prosecutor of Olympic bomber Eric Rudolph.

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Before entering government service, Sally practiced as a civil litigation associate at King & Spalding. She has served as a Visiting Distinguished Lecturer at Georgetown University Law Center and currently co-chairs the Board of Trustees of the non-partisan Council on Criminal Justice which is dedicated to making our communities safer and our criminal justice system more fair. Sally is a frequent speaker on a variety of public policy issues.

Credentials EDUCATION J.D., University of Georgia, magna cum laude B.A., University of Georgia

ADMISSIONS Georgia

ASSOCIATIONS Fellow, American College of Trial Lawyers

Recognition Pillars of Justice Award THE APPLESEED NETWORK - 2019 — Beacon of Justice Award LAWYERS COMMITTEE FOR CIVIL RIGHTS UNDER LAW - 2018 — Champion of Justice Award NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS - 2018 — American Constitution Society Legal Legend Award 2018 — University of Georgia Distinguished Service Scroll Award 2018 — Anti-Defamation League Albert B. Tuttle Jurisprudence Award 2018 — Southern Center for Human Rights Luminary Award 2018 — University of Georgia Grady College of Journalism and Mass Communication Lifetime Achievement Award 2018

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— Bar Association of Washington D.C. Lawyer of the Year 2017 — Muslim Advocates Freedom Award 2017 — Champion of Justice Award URBAN LEAGUE OF GREATER ATLANTA — Emory University Public Interest Inspiration Award 2016 — John Marshall Award ATTORNEY GENERAL — Insights NEWSLETTER May 31, 2018 Financial Services Focus

Events CONFERENCE September 12, 2019 Financial Services Summit

April 30, 2019 King & Spalding Hosts Southeast Board Leadership Network Meeting

March 18, 2019 28th Annual Health Law & Policy Forum

November 13, 2018 11th Annual King & Spalding Pharmaceutical University

October 16, 2018 5th Annual King & Spalding Women In Compliance Summit

September 6, 2018 11th Annual King & Spalding Medical Device Summit

June 21, 2018

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West Coast Pharmaceutical & Medical Device University

SPEAKING ENGAGEMENT October 25, 2019 Sally Yates, Dick Walker, Aaron Lipson, Amy Boring to speak at Georgia Institute of Continuing Legal Education’s 27th Annual Securities Litigation and Regulatory Practice Seminar

July 17, 2019 Sally Yates to Speak at the National Black Prosecutors Association 36th Annual Conference

June 19, 2019 Sally Yates to Speak at The Appleseed Network’s Pillars of Justice Awards 25th Anniversary Celebration

June 18, 2019 Sally Yates to be Honored at Association of Corporate Counsel’s Global Women in Law & Leadership Symposium

June 13, 2019 Sally Yates to Speak at The New York Times New Rules Summit: Women, Leadership and a Playbook for Change

June 11, 2019 Sally Yates to Speak at the National Association of Corporate Directors The Strategic-Asset General Counsel Event

June 4, 2019 Sally Yates to Speak at The Exchange 2019 Conference

May 30, 2019 Sally Yates to Speak at the Southeast Audit Committee Network

May 22, 2019 Sally Yates to Speak at Forum on Corporate Enforcement

May 20, 2019 Sally Yates to Speak at Association of Life Insurance Counsel’s 2019 Annual Meeting

May 11, 2019 Sally Yates to Speak at the Mercer Law School Commencement Ceremony

May 9, 2019 Sally Yates to Speak at Daily Journal’s Women Leadership in Law Event

May 8, 2019 Sally Yates to Speak at the Pfizer Leadership Summit

May 1, 2019 Sally Yates to Speak at the 2019 Dorothy C. Fuqua Lecture Series

April 11, 2019

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Sally Yates to Speak at Center for Women in Law’s 2019 Women’s Power Summit

April 8, 2019 Sally Yates to Receive Woman Who Dared Award at National Council of Jewish Women’s 2019 Washington Institute

April 4, 2019 Sally Yates to Speak at American College of Investment Counsel’s 2019 Spring Investment Forum

March 26, 2019 Sally Yates to Speak at SIFMA’s 2019 C&L International Seminar Women’s Luncheon

March 25, 2019 Sally Yates to Speak at International Society of Barristers’ 2019 Annual Meeting

March 18, 2019 Sally Yates, Michael Paulhus to Speak at King & Spalding’s 28th Annual Health Law & Policy Forum

March 13, 2019 Sally Yates to Speak at Silicon Valley Directors’ Exchange Conference

February 27, 2019 Sally Yates to Speak at Directors Roundtable

February 20, 2019 Sally Yates to Speak at Texas General Counsel Forum

February 12, 2019 Sally Yates to Speak at Stanford Law School

February 8, 2019 Sally Yates to Speak at Texas Law Review Symposium

February 7, 2019 Sally Yates to Speak at Emory University School of Law’s 2019 Randolph Thrower Symposium

January 29, 2019 Sally Yates, Dixie Johnson to Speak at Northwestern Pritzker School of Law’s 46th Annual Securities Regulation Institute

January 15, 2019 Sally Yates to Speak at Corporate Director’s Forum 2019 Annual Conference

December 4, 2018 Sally Yates to Speak at 2018 Champions for Justice Gala

November 28, 2018 Sally Yates to Speak at Bloomberg’s The Year Ahead Summit

November 20, 2018

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Sally Yates to Speak at KPMG’s 2018 Perspectives Conference

November 16, 2018 Sally Yates to Speak at ACS Annual Meeting

November 16, 2018 Sally Yates to Speak at ACS Annual Meeting

November 8, 2018 Sally Yates to Speak at Pharmaceutical and Medical Device Compliance Congress

October 26, 2018 Sally Yates to Speak at Equal Justice Works Conference and Career Fair

October 18, 2018 Sally Yates to Speak at ChIPs Women in Tech, Law & Policy Global Summit

October 8, 2018 Sally Yates to Speak at American Bar Association’s London White Collar Crime Institute

October 5, 2018 Sally Yates to Speak at Women, Influence & Power in Law Conference

October 5, 2018 Sally Yates to Speak at New Yorker Festival

October 4, 2018 Sally Yates to Speak at Bloomberg Law In-House Forum

October 2, 2018 Sally Yates to Speak at Association of Pro Bono Counsel Academy

September 28, 2018 Sally Yates to Speak at Texas Tribune Festival

September 27, 2018 Sally Yates to Speak at Association of Corporate Counsel CLE Jamboree

September 25, 2018 Sally Yates to Speak at Women’s White Collar Defense Association General Counsel & Chief Compliance Officers Reception

September 7, 2018 Sally Yates to Speak at American Bar Association Criminal Justice Section’s Southeastern White Collar Crime Institute

August 23, 2018 Sally Yates to Speak at NACDL’s Presidential Summit & 17th Annual SCJN Conference

June 7, 2018

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Sally Yates to Speak at American Constitution Society’s National Convention

May 23, 2018 Sally Yates to Speak at Lawyers’ Committee for Civil Rights Under Law’s 18th Annual A. Leon Higginbotham Awards Dinner

May 22, 2018 Sally Yates to Speak on CNN Television Series “The Axe Files” with David Axelrod

May 21, 2018 Sally Yates to Speak at CARE National Conference

May 18, 2018 Sally Yates to Speak at DNC Women’s Leadership Forum

May 15, 2018 Sally Yates to Speak at CAP Ideas Conference

News IN THE NEWS June 19, 2019 • Source: Law360 Sally Yates urges female attorneys to ensure legal departments and law firm leaders recognize and acknowledge other womens ideas and accomplishments

February 7, 2019 • Source: The Star Tribune The Star Tribune profiles the firm and Sally Yatess investigation i nto the Minneapolis Police Department and its misuse of ketamine

October 18, 2018 • Source: New York Magazine Sally Yates profiled and interviewed in New York Magazines Women in Power issue

June 28, 2018 • Source: Daily Report Sally Yates named to the Daily Reports "Distinguished Leaders" list

June 25, 2018 • Source: The Atlanta Journal-Constitution Sally Yates has been tapped to lead an independent investigation into the Minneapolis Police Department, examining whether officers misused the sedative ketamine

May 8, 2018 • Source: Washington Post, New York Times, CDR and Georgia Trend Former U.S. Deputy Attorney General Sally Yates rejoins the firm as a partner on the Special Matters & Government Investigations team

PRESS RELEASE May 8, 2018 Former U.S. Deputy Attorney General Sally Yates Rejoins King & Spalding

RECOGNITION June 29, 2018

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Daily Report Names Sally Yates a Distinguished Leader, Honors Glen Reed With Lifetime Achievement Award and Names Geoffrey Drake On The Rise

SECUR IT IES L IT IGATION UPDATE


Securities Litigation Update Prepared for: 27th Annual Securities Litigation and

Regulatory Practice Seminar October 25, 2019 Contact: James E. Connelly Womble Bond Dickinson (US) LLP 271 17th Street, N.W. Suite 2400 Atlanta, GA 30363 (404) 888-7496 direct [email protected]

womblebonddickinson.com

Tab 1


Tab 2


Tab 3

James E. Connelly


Jamie solves problems. Clients hire him to resolve complex business disputes, through litigation, trial or otherwise. He has more than 20 years of experience representing domestic and foreign corporations and their officers and directors in complex, bet-the-company litigations and complex investigations.

Jamie has defended clients in shareholder class action lawsuits, in derivative matters, and in claims brought by the Securities and Exchange Commission, Federal Deposit Insurance Commission, and the Department of Justice. He has successfully warded off injunctions to seek to stop significant M&A transactions, and represented individuals in SEC and FINRA matters. Jamie represents large international corporations and small domestic hedge funds, multi-national accounting firms, and individual business owners. While each requires a specific and tailored defense, all of Jamie’s clients find that his efforts to relate to them and understand their businesses equip him to build the best defense and better resolve their disputes prior to trial. Jamie is Panel Counsel to AIG for D&O claims, is AV-rated in litigation, business law, and securities law, and has been recognized by Georgia Super Lawyers for securities litigation and business litigation. He serves as pro-bono counsel to families of children with autism, was selected for the Corporate Leadership Council for the Fernbank Museum of National History, and is a member of Leadership Atlanta’s class of 2018. Jamie has been a featured speaker on CNBC’s SquawkBox on multiple occasions.

Representative Matters

Any result the lawyer or law firm may have achieved on behalf of clients in other

matters does not necessarily indicate similar results can be obtained for other

clients.

Lead counsel defending hedge funds and principals in investor claims of fraud, mismanagement and theft. Numerous claims dismissed pursuant to motion to dismiss and all remaining claims adjudicated in favor of defendants at summary judgment. Attempts to appoint a receiver, attach the assets of the funds, and bring criminal claims were all rebuffed.

Defended CEO and other officers of publicly-traded telecommunications company in multiple actions by shareholders and by bankruptcy trustee as well as during SEC investigation. D&O (shareholder) lawsuits dismissed on motion and remainder resolved without payment by company or any officer.

Contact Information

Atlanta Office t: 404.888.7796 f: 404.879.2928 e: [email protected] Social Media

linkedin.com/in/ james-connelly/b/394/41a

Sector

Insurance

Manufacturing

Services

Dispute Resolution and Litigation

Directors and Officers Litigation

Securities Litigation and Enforcement

Internal Investigations

Financial Services Litigation

Arbitration

Trial Law

White Collar Crime

Appellate Practice

James E. Connelly


Lead counsel in coordinated defense of seven competitors in the travel industry in connection with complex tax claims arising from assessments of city and county taxes. Summary judgment granted for all clients on all claims.

Lead counsel defending numerous directors and officers of banks during and after closure of their banks and appointment of the FDIC as receiver, including in D&O litigation arising after such closure.

Led multiple internal investigations including regarding allegations of embezzlement by U.S. controller of foreign corporation; allegations of securities fraud by senior officers and board members of company; allegations of governmental obstruction by officers and employees of highly regulated industry. Part of teams directing additional investigations including into allegations of theft, embezzlement, violations of the Foreign Corrupt Practices Act and otherwise.

Prior Legal Experience

Partner, Litigation Department, Smith, Gambrell & Russell, LLP, Atlanta, Georgia

Associate, Curtis, Mallet-Prevost, Colt & Mosle, New York, New York

Presentations

“Getting It Right When It All Goes Wrong: Leading Management Through an Internal Investigation”, Association of Corporate Counsel, Compliance and Ethics Committee Legal Quick Hit, Feb. 21, 2017.

“Getting it Right When it All Goes Wrong: Implementing a Successful Compliance Program and Leading Management Through an Internal Investigation”, Association of Corporate Counsel, Atlanta, GA, Aug. 9, 2016.

“Securities Litigation and Regulatory Practice”, Institute of Continuing Legal Education in Georgia, Atlanta, GA, Oct. 21, 2016.

Honors and Awards

Super Lawyers Honoree, 2011 – 2018

Received the Best Lawyers™ 2019 Bet-the-Company Litigation "Lawyer of the Year" award in Atlanta

Bar Admissions

2001, Georgia

1998, New York

Admitted to practice before:

All state courts in New York and Georgia

U.S. District Courts – Northern District of Georgia, Eastern District of New York, Southern District of New York

U.S. Court of Appeals for the Eleventh Circuit

Education

J.D., 1997, University of Virginia

B.A., 1994, University of Virginia, English Literature

magna cum laude

CORNERSTONE RESEARCH Economic and Financial Consulting and Expert Testimony

Securities Class

Action·Filings 2019 Midyear Assessment

Table of Contents

Executive Summary

Key Trends

Featured: State Court 1933 Act Filings

Number of Filings

Market Capitalization Losses

Mega Filings: Distribution of DDL Values

Mega Filings: Distribution of MDL Values

M&A Filings by Circuit

1933 Act Cases Filed in State Courts

1933 Act Cases Filed in State Courts-Size of Filings

Comparison of Federal Section 11 Filings with State 1933 Act Filings: Pre- and Post-Cyan

Combined Federal and State Filing Activity-Highlighting Federal Section 11 and State 1933 Act Filings

U.S. Exchange-Listed Companies

Non-U.S. Filings

Status of Securities Class Action Filings

Filing Lag

Heat Maps: S&P 500 Securities Litigation'"

Industry

Circuit

Glossary

Appendices

Research Sample

Cornerstone Research I Securities Class Action Filings-2019 Midyear Assessment

1

2

3

4

6

8

9

10

11

12

13

14

15

16

18

19

20

22

24

25

26

32

Table of Figures

Figure 1: Semiannual Class Action Filings Summary

Figure 2: State Court 1933 Act Filings Summary

Figure 3: Class Action Filings Index® (CAF Index®) Semiannual Number of Class Action Filings

Figure 4: Class Action Filings Index® (CAF Index®) Annual Number of Class Action Filings

Figure 5: Disclosure Dollar Loss Index® (DDL lndex®)-Core Filings

Figure 6: Maximum Dollar Loss Index® MDL lndex®)-Core Filings

Figure 7: Distribution of Filings Based on DDL Size-Core Filings

Figure 8: Distribution of Filings Based on MDL Size-Core Filings

Figure 9: Semiannual M&A Filings by Circuit

Figure 10: State 1933 Act Filings by State

Figure 11: Maximum Dollar Loss MDL) of State 1933 Act Filings

Figure 12: Pre- and Post-Cyan Semiannual Federal Section 11 and State 1933 Act Filings

Figure 13: Federal Section 11 and State 1933 Act Class Action Filings by Venue

Figure 14: Percentage of U.S. Exchange-Listed Companies Subject to Filings

Figure 15: Annual Number of Class Action Filings by Location of Headquarters-Core Filings

Figure 16: Non-U.S. Filings by Location of Headquarters-Core Filings

Figure 17: Status of Filings by Year-Core Filings

Figure 18: Semiannual Median Lag between Class Period End Date and Filing Date-Core Filings

Figure 19: Heat Maps of S&P 500 Securities Litigation™ Percentage of Companies Subject to Core Filings

1

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

Figure 20: Heat Maps of S&P 500 Securities Litigation™ Percentage of Market Capitalization Subject to Core Filings 21

Figure 21: Filings by Industry-Core Filings

Figure 22: Sector Comparison: Consumer Non-Cyclical versus Technology and Communications-Core Filings

Figure 23: Filings by Circuit-Core Filings

Appendix 1: Filings Basic Metrics

Appendix 2: Filings by Industry-Core Filings

Appendix 3: 1933 Act Filings in State Courts

Appendix 4A: S&P 500 Securities Litigation-Percentage of S&P 500 Companies Subject to Core Filings

22

23

24

26

27

28

29

Appendix 4B: S&P 500 Securities Litigation-Percentage of Market Capitalization of S&P 500 Companies Subject to Core Filings 30

Appendix 5: Filings by Circuit-Core Filings 31


Executive Summary

Led by a spike in core filings, federal class action securities fraud

lawsuits continued at near-record levels in the first half of 2019.

Plaintiffs filed more than 1,000 federal securities class actions in

the last five semiannual periods-over 20 percent of all filings

since 1997.

Core filings in the first half of 2019 increased to 126, one fewer than

the historical high. Filings involving merger and acquisition (M&A)

transactions decreased but remained well above historical levels.

Six mega DDL filings (at least $5 billion) and 11 mega MDL filings

(at least $10 billion) propelled aggregate market capitalization losses

to the highest and fourth-highest levels on record, respectively.

Number of Filings • Plaintiffs filed 198 new federal class action securities

fraud lawsuits (filings) in the first six months of 2019,

87 percent higher than the 1997-2018 semiannual

historical average. (pages 4-5)

• "Core" filings-those excluding M&A filings-increased

17 percent in the first half of 2019. (pages 4-5)

• M&A filings decreased almost 21 percent in the first

half of 2019, from 91 to 72. (pages 4-5)

Figure 1: Semiannual Class Action Filings Summary

Size of Filings • Disclosure Dollar Loss (DDL) was $180 billion, the

highest on record and almost three times larger than

the historical average. (page 6

• In the first half of 2019, Maximum Dollar Loss (MDL)

rose by 17 percent to $781 billion, a level more than

double the historical average. (page 7)

Six mega DDL filings (DDL of at least $5 billion) made up

67 percent of DDL, and 11 MDL mega filings (MDL of at

least $10 billion) made up 81 percent of MDL. Both

percentage figures are above their respective historical

averages because of a handful of very large DDL and

MDL filings. (pages 8-9

Semiannual (1997 Hl-2018 H2) 2018 Hl 2018 H2 2019 Hl Average Max Min

,. 198

Core Filings 92 127 55 113 108 -Disclosure Dollar Loss ($ billions) $65 $172 $11 $158 $172 -Maximum Dollar Loss($ billions) $317 $1,121 $52 $643 $668 -


Key Trends

While filings involving European issuers increased to their second

highest level, filings against non-U.S. companies remained steady

overall in the first half of 2019.

The Communications sector had 19 filings-all against internet and

telecommunications companies. After setting record lows in recent

semiannual periods, the median filing lag reversed course and

returned to levels slightly higher than the historical median.

U.S. Companies

In the first half of 2019, 5.2 percent (annualized) of

U.S. exchange-listed companies were the subject of

core filings. (page 15)

Core filings against S&P 500 firms in the first half of

2019 occurred at an annualized rate of 6.4 percent.

(page 20)

Non-U.S. Companies On an annualized basis, core filings against non-U.S.

issuers as a percentage of total core filings remained

relatively stable at 23 percent. (page 16)

Filings against European firms increased by 63 percent

relative to the second half of 2018. (page 17)

By Industry

Core filings in the Communications sector increased by

73 percent to 19. (page 22)

Core filings in the Industrial sector were the highest

since 1999. (page 22)

The Consumer Non-Cyclical sector again had the

greatest number of filings with 47. Of these, 32 were

against biotechnology, pharmaceutical, or healthcare

companies. (pages 22-23)

2

By Circuit

There were 52 and 29 core filings in the Second and

Ninth Circuits, respectively. (page 24)

The Second Circuit had the highest number of core

filings of any circuit on record. (page 24)

M&A Filings by Circuit

With 50 filings, federal M&A filings continued to be

most common in the Third Circuit, while M&A filings in

the Ninth Circuit slowed to four. (page 10)

Initial Coin Offerings

A small number of core filings, three, involving initial

coin offerings (ICOs) or cryptocurrencies reappeared in

the first half of 2019. There was one such filing in the

second half of 2018, after a flurry of ICO and

cryptocurrency filings at the end of 2017 and beginning

of 2018. (pages 4-5)


Featured: State Court 1933 Act Filings

Over the last decade, securities class action filings with Securities Act

of 1933 (1933 Act) claims have increased in state courts. Many of

these filings have parallel federal court proceedings. This report

tracks state filings with 1933 Act claims, which have primarily been

Section 11 claims.

In March 2018, the U.S. Supreme Court issued a unanimous

opinion in Cyan Inc. v. Beaver County Employees Retirement

Fund allowing plaintiffs to assert 1933 Act claims in state

court.

Between 2010 and the first half of 2019, plaintiffs filed

77 class actions with 1933 Act claims in California state

courts, compared to 51 in all other state courts.

(page 11)

In the first half of 2019, 19 cases alleging 1933 Act claims

were brought in state courts. Over one-third of these

cases had a parallel federal filing alleging similar claims.

Figure 2: State Court 1933 Act Filings Summary

1933 Act Class Action Filings

Filings in State Courts Only

California

All Other States

Parallel Filings in State and Federal Courts

Total

Maximum Dollar Loss($ billions)

MDL of Filings in State Courts Only

California

All Other States

MDL of Filings in State and Federal Courts

Total MDL

There were more 1933 Act filings in New York state courts than in California state courts in the first half of 2019.

All of the cases filed in California were concentrated in

the San Francisco Bay Area during the first half of 2019,

as they had been for the prior three years.

Semiannual Average (20l0 Hl-2018 H2)

2018 Hl 2018 H2 2019 Hl

5 6 9 4 4 4

1 2 5 6 7 9 11 13 18

$6.5 $1.9 $2.4 $6.2 $1.0 $1.8 $0.3 $1.0 $0.5 $7.2 $7.6 $11.8

$13.7 $9.5 $14.2

Source: Stanford Law School and Securities Class Action Clearinghouse; Bloomberg Law; Institutional Shareholder Services' Securities Class Action Services (ISS' SCAS) Note: 1. Filings in state courts may have parallel cases filed in federal courts. When parallel cases are filed in different years, the earlier filing is reflected in the figure above. 2. Beginning in 2018, the Securities Class Action Clearinghouse began tracking 1933 Act filings in California state courts containing Section 11 or Section 12 claims; there were six filings in California state courts with only Section 12 claims in 2018. Filings in other state courts are currently only those with Section 11 claims. 3. Figures may not sum due to rounding.

3


Number of Filings

There were 198 filings in the first half of 2019, one

fewer than in the second half of 2018. The number of

semiannual filings is the fourth-highest since enactment

of the PSLRA. See Appendix 1.

M&A filings declined 21 percent to 72 in the first half of

2019 after holding constant at 91 in each semiannual

period of 2018.

There were 126 core filings in the first half of 2019, one

shy of tying the first half of 2017 for the most core

filings in a semiannual period. This was a 17 percent

increase from the second half of 2018.

There were three core filings related to ICOs and

cryptocurrencies in the first of half of 2019 and one in

the second half of 2018, a slowdown from eight in the

first half of 2018.

The number of semiannual filings

remained in line with post-2016

activity, with core filings increasing to offset a downturn in M&A filings.

Figure 3: Class Action Filings Index® (CAF Index®) Semiannual Number of Class Action Filings

2009 Hl-2019 Hl

223

M&A Filings

ICO/Cryptocurrency Filings

Chinese Revers e Mer ger Filings

Credit Cris is Filings

All Other Filings 1997-2018

09 Hl 09 H2 10 Hl 10 H2 11 Hl 11 H2 12 Hl 12 H2 13 Hl 13 H2 14 Hl 14 H2 15 Hl 15 H2 16 Hl 16 H2 17 Hl 17 H2 18 Hl 18 H2 19 Hl

Note: Two cases in 2011 were both an M&A filing and a Chinese reverse merger filing. These filings were classified as M&A filings to avoid double counting.

4


Number of Filings (continued)

An annualized number of 396 filings would represent an

87 percent increase over the 1997-2018 historical

average of 212 filings, and a decrease of 2 percent from

2018.

The pace of filing activity in 2019 has been only marginally slower than the last two record years.

If filings continue at the same rate for the remainder of

2019, there will be a considerable shift in the ratio of

M&A to core filings compared to recent years, and core

filings may reach their highest mark on record.

Figure 4: Class Action Filings Index® (CAF Index®) Annual Number of Class Action Filings

2005-2019 Hl

450

400 Proje cted H2 Filings

M&A Filings

ICO/Cryptocurrency Filings 350

Chinese Reverse Merger Filings

Credit Crisis Filings 300 All Other Filings 1997-2018

Average 250 (212)

------------------------- i _________________________ 297 --200

150

100

50

0

412

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Note: 1. There were two cases in 2011 that were both an M&A filing and a Chinese reverse merger filing. These filings were classified as M&A filings to avoid double counting. 2. Assumes the number of filings in the second half of 2019 will equal the first half.

5


Market Capitalization Losses

Disclosure Dollar Loss Index® (DDL Index®)

This index measures the aggregate DDL for all filings over a

period of time. See the glossary for additional discussion on

market capitalization losses and DDL.

The DDL Index increased by 5 percent from the second

half of 2018 to $180 billion, the highest semiannual

amount on record.

The DDL Index has remained at historically high levels

since the first half of 2018. DDL in the first half of 2019

was 177 percent greater than the 1997-2018

semiannual historical average.

The DDL Index reached a record high due to a handful of very large filings.

Figure 5: Disclosure Dollar Loss Index® (DDL lndex®)-Core Filings

2009 Hl-2019 Hl

(Dollars in billions)

Credit Crisis Filings

All Other Filings

The average DDL per filing remained substantially

higher in the first half of the year compared to pre-

2018 levels, but fell 8 percent compared to the second

half of 2018. However, the median DDL per filing fell

dramatically from $476 million to $211 million,

indicating an influx of filings with smaller DDL values

masked by a handful of filings with very large DDL

values. See Appendix 1.

The largest contributors to DDL were in the Technology

48 percent), Consumer Non-Cyclical 26 percent), and

Communications 9 percent) sectors. See Appendix 2.

A higher-than-average number of large filings

contributed to the high DDL Index. The percentage of

filings with DDL greater than or equal to $3 billion was

9 percent, and these filings accounted for 76 percent of

total DDL, compared to historical averages of 6 percent

and 63 percent, respectively.

$180

1997-2018 Semiannual Average

($65)

l


6


Market Capitalization Losses (continued)

Maximum Dollar Loss Index® (MDL Index®)

This index measures the aggregate MDL for al l filings over a

period of time. See the glossary for additional discussion on

market capitalization losses and MDL.

The MDL Index of $781 bi l l ion in the first ha lf of 2019

increased by 17 percent from $668 bil l ion in the second

half of 2018.

The last three semiannual periods have produced MDL totals eclipsed only by periods in the midst of the dot-com crash.

MDL in the first half of the year was more than double

the 1997-2018 semiannual historical average of

$317 bi l l ion.

Average MDL per filing remained above $6 bil lion for

the third straight semiannual period, and was

76 percent above the historical average. See

Appendix 1.

Despite the large total MDL amount, median MDL per

filing was 51 percent lower than the second ha lf of

2018, and just 18 percent above the historical average.

When compared with the second half of 2018, this

pattern reflects an influx of smal ler fil ings

supplemented by a handful of very large ones. See

Appendix 1.

Figure 6: Maximum Dollar Loss Index® (MDL lndex® )-Core Filings

2009 Hl-2019 Hl

(Do l l ars in bi l l ions )

Credit Cris is Fi I i ngs

Al l Other Fi l i ngs

1997-2018 Semiannua l Average

($317 ) $366

$345 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

$781


7

_ Cornerstone Research I Securities Class Action Filings-2019 Midyear Assessment

Mega Filings : Distribution of DD L Values

Mega DDL filings have a disclosure dollar loss of at least

$5 billion.

Historically, mega DDL filings have accounted for

4 percent of total filings and 53 percent of total DDL.

In the first half of 2019, there were six mega DDL filings,

double the semiannual historical average but well off the

pace of 17 for 2018.

Mega DDL filings represented 5 percent of total core

filings with DDL values, down from 9 percent in 2018, but

accounted for 67 percent of total DDL, up from

64 percent in 2018.

In the first half of 2019, 65 percent of core filings with

DDL values had DDL of less than $500 million, below the

historical average of 76 percent. Filings with DDL of less

than $500 million accounted for 5 percent of total DDL,

less than half of the historical average.

Six mega DDL filings made up almost 70 percent of DDL ($120 billion of total DDL of $180 billion) .

Figure 7: Distribution of Filings Based on DDL Size-Core Filings

1997-2019 Hl

120

100

2

Mega

< $5B

< $3B

< $18

< $S00M

1997-2018 Semiannual Average 2019 Hl

Note : Mega DDL filings have a disclosure dollar loss of at least $5 billion.

8


Mega F i l i ngs : D i str i b ut ion of M DL Va l u es

Mega MDL filings have a maximum dollar loss of at least

$10 billion.

There were 11 mega MDL filings in the first half of 2019

compared to the 1997-2018 semiannual historical

average of seven.

In the first half of 2019, 87 percent of filings had small

to mid-sized MDL (MDL of less than $6 billion)-a

percentage comparable to the historical average, but

up from 76 percent in 2018.

The MDL of mega MDL filings was 81 percent of total

MDL, which would be the third-highest mark of any full

year, trailing only 2002 and 2001. The last time MDL

from mega filings eclipsed 80 percent of total MDL

(2002), mega filings were 21 percent of filings,

compared to just 10 percent in the first half of 2019.

Mega MDL filings accounted for 81 percent of total MDL. If this pattern continues, 2019 would have the largest share of total MDL since 2002.

Figure 8: Distribution of Filings Based on MDL Size-Core Filings

1997-2019 Hl

120

100 4

80

4 Mega

60

< $10B

40 86% < $6B

20 < $2B

< $1B

1997-2018 Sem iannual Average 2019 Hl

Note: Mega MDL fil ings have a max imum dollar loss of at least $10 billion.

9


M &A F ilings by C i rcu it

There were 72 federal M&A filings in the first half of

2019, the fewest since the second half of 2016.

Filings in the Third Circuit accounted for 69 percent of

all M&A filings. The number of filings in all other circuits

decreased relative to the second half of 2018.

M&A filings in the Third Circuit continued to grow while the overall number of M&A filings fell substantially.

Figure 9: Semiannual M&A Filings by Circuit

2009 Hl-2019 Hl

Ot her C i rcu its

2nd C i rcu i t ( CT, NY, VT)

3rd Ci rcu i t ( D E, NJ , PA, V I )

9th C i rcu i t (AK, AZ, CA, GU , H I, I D, MT, NV, O R , WA)

M&A filings represented 76 percent of total filings in

the Third Circuit, which was the highest percentage of

any circuit.

For additional analysis of M&A filings and related

litigation, see Shareholder Litigation Involving

Acquisitions of Public Companies-Review of 201 7

M&A Litigation.

102

09 H l 09 H2 10 H l 10 H2 11 H l 11 H2 12 H l 12 H2 13 H l 13 H2 14 H l 14 H2 15 H l 15 H2 16 H l 16 H2 17 Hl 17 H2 18 H l 18 H2 19 H l

Note: 1. In January 2016, the Delaware Court of Chancery rejected a disclosure-only settlement in Zillow's acquisition of Trulia. Since the ruling, merger objection litigation has shifted to federal court. See Cornerstone Research, Shareholder Litigation Involving Acquisitions of Public Companies-Review of 201 7 M&A Litigation, 2018. See also In re Trulia Inc. Stockholder Litigation, No. 10020-CB ( Del. Ch. Jan. 22, 2016) . 2. The Securities Class Action Clearinghouse began tracking federal M&A filings in 2009.

10


1933 Act Cases Fil ed in State Courts

In Cyan Inc. v. Beaver County Employees Retirement Fund,

the U.S. Supreme Court ruled in March 2018 that 1933 Act

claims may be brought to state venues and are not

removable to federal court.

Filing activity of 1933 Act claims in New York state courts outpaced California state courts.

Figure 10: State 1933 Act Filings by State

2010-2019 Hl

Project ed H2 Filings

California

New York

All Oth ers

1

2010

3

-2011

7

2012

1

2013 2014

The number of 1933 Act cases filed in state courts

(state 1933 Act filings) has trended upward over the

last six years, taking into account some year-to-year

variation.

The largest sector subject to state 1933 Act filings in

both 2018 and the first half of 2019 was the

Communications sector.

The number of state 1933 Act filings in states other

than California and New York is on track to be the

highest on record.

38

34

27 19

17

13

2015 2016 2017 2018 2019

Source: Stanford Law School and Securities Class Action Clearinghouse; Bloomberg Law; ISS' SCAS Note: 1. "All Others" includes filings in Alabama, Arizona, Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts, M ichigan, Nevada, New Hampshire, New Jersey, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Washington, and West Virginia. See Appendix 3. 2. F il ings in 2010 through 2017 incl ude Section 11 claims and may also include Section 12 and Section 15 claims, but do not include allegations of Rule lOb-5 violations. Beginning in 2018, the Securities Class Action Clearinghouse began tracking 1933 Act filings in Cal ifornia state courts with Section 11 or Section 12 claims. 3. Assumes the number of filings in the second half of 2019 will equal the first half.

11

Cornerstone Research I Securities Class Action F i l i ngs-2019 Midyear Assessment

1933 Act Cases Filed in State CourtsSize of Filings

MDL for state 1933 Act filings is on track to remain well

above the historical annual average.

Although fewer state 1933 Act filings were brought in

California than in New York, California filings' total MDL

was more than five times the total MDL in New York in

the first half of 2019.

Over one-third of MDL in the first half of 2019 came from a single filing.

Figure 11: Maximum Dollar Loss (MDL) of State 1933 Act Filings

2010-2019 Hl

( D o l l a rs i n m i l l i o n s )

Proj ected H2 M DL

Ca l ifor n i a 2010-2018 Average

New Yo rk ($15,143 )

Al l Oth e rs

j - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

$5, 897

$656 $2,679

$187

2010 2011 2012 2013 2014

$37,097

2015

Source: Stanford Law School and Securities Class Action Clearinghouse; Bloomberg Law; 155' SCAS Note:

$35,970

$23,102 $24,929 $17,985

2016 2017 2018 2019

1. Figures may not sum due to rounding. California state filings in 2018 and beyond may contain either Section 11 or Section 12 claims. Of the 16 filings in California in 2018, six filings contained Section 12 claims without also containing Section 11 claims. In the first half of 2019, no filings in California exhibited this pattern. M D L calculations include all shares outstanding and not only shares traceable to offering materials. Therefore, these calculations overstate potential damages. 2. Assumes total MDL in the second half of 2019 will equal the first half.

12


Com pa r i son of Fede ra l Sect io n 1 1 F i l i ngs w ith State 1933 Act F i l i ngs : P re- a nd Post-Cyan

Cyan confirmed that state courts may adjudicate

1933 Act claims, which could signal a shift in the

jurisdiction in which these claims are predominantly

filed. It is becoming apparent that more state-only

filings have appeared post-Cyan.

To date, 61 new 1933 Act filings appeared post-Cyan:

23 parallel filings, 12 filings in federal courts only, and

26 filings in state courts only.

Of the 61 post-Cya n 1933 Act filings, almost half were filed solely in state courts.

Figure 12: Pre- and Post-Cyan Semiannual Federal Section 11 and State 1933 Act Filings

2010 Hl-2019 Hl

Federal Court s Only

Parallel Filings

State Courts Only

Cyan (3/20/18 )

25

10 H l 10 H 2 11 H l 11 H 2 12 H l 12 H 2 13 H l 13 H 2 14 H l 14 H 2 15 H l 15 H 2 16 H l 16 H 2 17 H l 17 H 2 18 H l 18 H 2 19 H l

Source: Stanford Law School and Securities Class Action Clearinghouse; Bloomberg Law; ISS' SCAS Note: 1. The federal Section 11 filings displayed may include Rule l0b-5 claims, but state 1933 Act filings will not. 2. Section 11 filings in federal courts may include paral lel (or related) cases filed in state courts. When these cases are filed in different semiannual periods, the earlier filing is counted. If filings against the same company are brought in different states in addition to a filing brought in federal court, the parallel filing is counted as a unique case and the state-only filing is treated as a unique case. Filings against the same company brought in different states without a parallel filing brought in federal court are counted as unique state filings. For this reason, counts may not reconcile with other figures showing annual counts of state 1933 Act filings. 3. California state filings in 2018 may contain either Section 11 or Section 12 claims. Of the 16 filings in California in 2018, six filings contained Section 12 claims without also containing Section 11 claims. In the first half of 2019, no filings in California exhibited this pattern.

13


Com b i n ed Fede ra l a nd State F i l i ng Act iv i ty- H igh l i ght i ng Fede ra l Sect ion 1 1 a n d State 1933 Act F i l i ngs

This analysis highlights federal Section 11 claims, state

1933 Act fil ings, and the extent to which parallel actions have

been filed.

There were 25 combined federal and state 1933 Act

fil ings in the first half of 2019.

Seven state 1933 Act fil ings from the first half of 2019

had a parallel federal Section 11 fil ing.

If 1933 Act filings continue at the current rate there will be more state 1933 Act filings than federal Section 11 filings for the second consecutive year.

Figure 13: Federal Section 11 and State 1933 Act Class Action Filings by Venue

2010-2019 Hl

D Proj ected H2 Fi l i ngs

Fed er a l M&A F i l i ngs

Fed er a l Sectio n 11 and State 1933 Act F i l i ngs

Ot her Federa l F i l i ngs

2010 2011 2012 2013 2014 2015 2016 Federa l Sect i o n 11 a nd State 1933 Act F i l i n g s

414 423 418

209

2017 2018 2019

2010 201 1 2012 2013 2014 2015 2016 20C :ul8 2•Jl9 ,.,_ Federal Courts Only State Courts Only Pa rallel Filings

22 0 2

21 1 1

13 3 5

12 0 1

20 2 3

21 11 6

12 12 15

11 2

14

11 15 16

6 12 7

Total 24 23 21 13 25 38 39 27 42 25

Source: Stanford Law School and Securities Class Action Clearinghouse; Bloomberg Law; 155' SCAS Note: 1. Federal Section 11 filings may include Rule lOb-5 claims, but state 1933 Act filings do not. 2. Section 11 filings in federal courts may include parallel (or related) cases filed in state courts. When these cases are filed in different years, the earlier filing is counted. If filings against the same company are brought in different states in addition to a filing brought in federal court, the parallel filing is counted as a unique case and the state-only filing is treated as a unique case. Filings against the same company brought in different states without a para l lel filing brought in federal court are counted as unique state filings. 3. California state filings in 2018 may contain either Section 11 or Section 12 claims. Of the 16 filings in California in 2018, six filings contained Section 12 claims without also containing Section 11 claims. In the first half of 2019, no filings in California exhibited this pattern. 4. Assumes the number of filings in the second half of 2019 will equal the first half.

14


U . S . Exchange- Listed Companies

The percentages in the figure below are calculated as the

unique number of companies listed on the NYSE or Nasdaq

that were subject to federal securities fraud class actions in a

given year divided by the unique number of companies listed

on the NYSE or Nasdaq.

The percentage of companies subject to M&A filings is

on pace to decline for the second straight year, after

generally increasing between 2012 and 2017.

Annualizing data from the first half of 2019, 8.4 percent

of companies listed on major U.S. exchanges may

become subject to a filing this year. This rate is

significantly above the historical average and equal to

the 2017 and 2018 rates.

Of U.S. exchanged-listed companies, 2.6 percent, or

If the number of core filings in the second half of 2019 equals the first half, the percentage of firms subject to a core filing will increase for the seventh consecutive year.

5.2 percent on an annualized basis, were the subject of

a core filing in the first half of 2019. This increase in

exposure is particularly notable.

Figure 14: Percentage of U .S . Exchange-Listed Companies Subject to Filings

2010-2019 Hl

Number of Firms

Percent Change

Project ed H2 M&A Filings

M&A Filings

Project ed H2 Core Filings

Core Filings

2010

4,764

(5 .5%)

2011

4,660

(2 . 2%)

2012

4 ,529

( 2 . 8%)

1997-2018 Core Fi l ings Average

( 2 . 99%)

2013

4,41 1

2 .6%)

2014

4,416

0 . 1%

2015

4,578

3 .7%

Source: Securities Class Action Clearinghouse; Center for Research in Security Prices (CRSP) Note:

5 . 6%

2016

4,593

0.3%

8 .4%

4 . 2'16

2017

4,4 1 1

(4.0%)

8 .4%

2018

4,406

(0 . 1%)

8.4%

1.6%

1 . 6%

2.6%

2019

4,318

(2 .0%)

1. Percentages are calculated by dividing the count of issuers listed on the NYSE or Nasdaq subject to filings by the number of companies listed on the NYSE or Nasdaq as of the beginning of the year. 2. Assumes that the percentage of unique listed issuers subject to filings for the second half of 2019 will equa l the first half in each category. 3. Listed compa nies were identified by taking the count of listed securities at the beginning of each year a nd a ccounting for cross-listed companies or companies with more tha n one security traded on a given exchange. Securities were counted if they were classified as com mon stock or American Depository Receipts (ADRs) and listed on the NYSE or Nasdaq. 4. Percentages may not sum due to rounding.

15


Non -U . S . F i l i ngs

This index tracks the number of core filings against non-U.S.

issuers, defined as companies headquartered outside the

United States, as a percentage of total core filings.

In the first half of 2019, core filings against non-U.S.

issuers as a percentage of all core filings increased to

23 percent, making it the third-highest percentage on

record.

The number of core filings against nonU.S. issuers is on pace to be the highest on record.

Over the last nine years, filings against non-U.S. issuers

have trended upward, despite year-to-year variation.

Figure 15: Annual Number of Class Action Filings by Location of Headquarters-Core Filings

2010-2019 Hl

N u m ber of F i l i ng s 300

250

200

150

100

50

0

2010 2011 2012

C Proj ected H 2 F i l i ng s a g a i nst U . S . I s suers

F i l i ngs a g a i nst U . S . I ssuers

Proj ected H 2 F i l i ng s a g a i nst Non-U .S . I ssuers

F i l i ng s a g a i nst Non-U .S . I ssuers

2013 2014 2015 2016 2017

Note: Assumes the number of core filings in the second half of 2019 will equal the number in the first half.

16


Non- U . S . I ssuers a s a Percent age of

Tota l F i l i ng s 40%

35%

30%

97 2S%

20%

15%

10%

5%

0% 2018 2019

Non-U .S . F i l i ngs (conti nued)

There were 11 core filings against Asian firms in the first

half of 2019. The number of filings against Asian firms

has remained high since the first half of 2018 . Ten of

the 11 filings involved Chinese companies and one was

against a Taiwanese company.

Core filings against European firms increased by

63 percent to 13 filings, just one shy of the record 14

core filings in the second half of 2017.

For the first time on record, there are filings against

firms in Monaco and Bulgaria.

Of firms headquartered in European countries, only

United Kingdom and Irish firms have been the subject

of filings in every semiannual period since the first half

of 2016 . Ireland has seen the most or second-most

number of filings among European countries during

that time period.

Core filings against European firms were the second highest for a semiannual period.

Figure 16: Non-U .S. Filings by Location of Headquarters-Core Filings

Asi a Israel Canada Europe Other

2019 Hl

2018 H2

2018 Hl

2017 H2

2017 Hl

2016 H2

- - - - - - - - - - - - - - - - - - - -

Sem i a nnua I Average 1997-2018

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

17


Statu s of Secu r i t i es C l a ss Act io n F i l i ngs

This analysis compares filing groups to determine whether

filing outcomes have changed over time. As each cohort

ages, a larger percentage of filings are resolved-either

through dismissal, settlement, remand to state courts, or

trial outcomes.

Of years prior to 2018, filings in 2014 have the lowest dismissal rate since 2002.

Figure 17 : Status of Filings by Year-Core Filings

2010-2019 H l

Dismiss ed Settled 100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 2010 2011 2012 2013

Note: Percentages may not sum to 100 due to rounding.

For filings from 1997 to 2018, 48 percent of core filings

have settled, 42 percent have been dismissed,

8 percent are ongoing, and 1 percent have been

remanded to state courts. Less than 1 percent of core

filings since 1997 have reached a trial verdict.

Dismissal rates are higher in the more recent annual

cohorts. In three of the six years between 2010 and

2015, at least 50 percent of core filings have been

dismissed.

Remanded Trial Verdict Continuin g

2014 2015 2016 2017 2018 2019

18

Cornerstone Resea·rch \ Securities Class Action Fi l ings-2019 Midyear Assessment

Filing Lag

This analysis reviews the number of days between the

end of the class period and the filing date of the securities

class action.

The median lag for core filings was 24 days in the first

six months of 2019. This number has increased

significantly from the second half of 2018.

The median filing lag surpassed the historical median

for the first time in the last six years (i.e . , since the first

half of 2013).

In the first half of 2019, only 24 percent of core filings

were filed within 10 days of the end of the class period.

This is the lowest percentage since the first half of

2012.

There was a reversion to the historical median filing lag in the first half of 2019.

Figure 18: Semiannual Median Lag between Class Period End Date and Filing Date-Core Filings

2010 Hl-2019 Hl

Numbe r of Days

50

40

30

20

10

0

45

1997-2018 Median F i l ing Lag

(22 Days )

I

2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 H l H2 H l H2 H l H2 H l H2 Hl H2 Hl H2 Hl H2 Hl H2 H l H2

Note: This analysis excludes filings with only Section 11 claims and ICO- or cryptocurrency-related filings because there is often no specified end of the class period.

19


H l

Heat Maps: S&P 500 Securities Litigation™

The Heat Maps show securities class action activity by

industry sector for companies in the S&P 500 index. Starting

with the composition of the S&P 500 at the beginning

of each year, the Heat Maps address two questions for

each sector:

(1) What percentage of companies were subject to

new core securities class actions in federal court

during each calendar year?

(2) What percentage of the total market capitalization

was subject to new core securities class actions in

federal court during each calendar year?

On an annualized basis, 6.4 percent of S&P 500

companies were defendants in a core securities class

action in the first half of 2019.

On an annualized basis, the rate of core filings against

companies in the Consumer Staples sector of the

S&P 500 is on track to be the highest on record at

18.2 percent, a 54 percent increase from last year's

record-setting high.

On average each year from 2001 through 2018

approximately 5.5 percent of S&P 500 companies, or

about one in 18, were the subject of a core filing.

Based on the first half of 20191 the annualized rate of core filings against S& P 500 companies was down from 201 81 but above the historical average.

Figure 19: Heat Maps of S&P 500 Securities Litigationn• Percentage of Companies Subject to Core Filings

2001-2019 Hl

Industria ls

Telecommun1cat1ons/ Information Technology

Note:

0-5% ls-1s;J 1s-2s% .' s'x ,

1. The chart is based on the composition of the S&P 500 as of the last trading day of the previous year. 2. Sectors are based on the Global Industry Classification Standard. 3. Percentage of Companies Subject to Core Filings equals the number of companies subject to new securities class action filings in federal courts in each sector divided by the total number of companies in that sector. 4. In August 2016, G ICS added a new industry sector, Real Estate. This analysis begins using the Real Estate industry sector in 2017. 5. In 2019, the sector "Telecommunications" changed its name to "Communication Services."

20


Heat Maps : S&P 500 Securities Litigation'" (continued)

On an annualized basis, 14.3 percent of the S&P 500

market capitalization in the first half of 2019 was

subject to new core filings.

The Telecommunications/Information Technology sector of the S& P 500 was the most common target, as measured by market capitalization.

Over the past three years, the Industrials sector has had

at least 19.4 percent of its market capitalization subject

to new core filings (on an annualized basis), compared

to the historical average of 8.4 percent. The 2019

annualized rate 29.4 percent) is on track to be the

highest on record in this sector. See Appendix 4B.

The percentage of market capitalization in the

Telecommunications/Information Technology sector

subject to core filings reached 31.0 percent (on an

annualized basis), on track to be the highest since 2001.

In keeping with historical trends, S&P 500 companies

subject to core filings are typically larger companies.

The proportion of S&P 500 market capitalization subject

to litigation in the first half of 2019 was more than

double the proportion of S&P 500 companies subject to

litigation.

Figure 20: Heat Maps of S&P 500 Securities Litigation'"' Percentage of Market Capitalization Subject to Core Filings

2001-2019 Hl

0-5% 15-25% " ,., •

Note: 1. The chart is based on the market capitalizations of the S&P 500 companies as of the last trading day of the previous year. If the market capitalization on the last trading day is not available, the average fourth-quarter market capitalization is u sed. 2. Sectors are based on the Global Industry Classification Standard. 3. Percentage of Market Capitalization Subject to Core Filings equals the total market capitalization of companies subject to new securities class action filings in federal courts in each sector divided by the total market capitalization of all companies in that sector. 4. In August 2016, GICS added a new industry sector, Real Estate. This analysis begins u sing the Real Estate industry sector in 2017. 5. In 2019, the sector ''Telecommunications" changed its name to "Communication Services."

21


Industry

This analysis encompasses both the large capitalization

companies of the S&P 500 and smaller companies.

The Industrial sector had 15 core filings in the first half

of 2019, the most in this sector since the first half of

1999.

There were 47 core filings in the Consumer Non-Cyclical

sector-12 more than in the second half of 2018-but

the DDL for this sector dropped by $16 billion, a decline

of approximately 25 percent. See Appendix 2.

Figure 21: Filings by Industry-Core Filings

The Communications sector had the second-highest

number of core filings, rising 73 percent from 11 in the

second half of 2018 to 19 in the first half of 2019.

The Communications sector had 19 filings-all against internet and telecommunications companies.

Consumer Non-Cyclical Com munications I ndustrial Technology F inancial Consumer Cyclical Basic Materials Energy Util ities

2019 H l

2018 H 2

2018 H l

Sem i a n n u a l Average 1997-2018

Note:

0% 10% 20% 30% 40% 50%

. ·) . - • "

i- . " 12 10 ; , 8 5 4

• , I , l •.

. . . . I

1 1 8 · 18 .. 3 4 i i

. I

r;

1 1 1 6 1 0 2 4 11 t,

li

60% 70% 80% 90% 100%

1 . This analysis excludes two filings in unknown sectors in 2013, two filings in unknown sectors in 2014, two filings in unknown sectors in 2015, six filings in unknown sectors in 2016, seven filings in unknown sectors in 2017, 17 filings in unknown sectors in 2018, and six filings in unknown sectors in 2019. Filings with missing sector information or infrequently used sectors may have been excluded in prior years. For more information, see Appendix 2. 2. Sectors are based on the Bloomberg Industry Classification System. 3. Sectors are ordered by the number of filings in the first half of 2019.

22

Cornerstone Research I Securities Class Action Fil ings-2019 Midyear Assessment

I ndustry (continued)

Sector Com pa r iso n : Consumer Non-Cyc l i ca l ve rsus Tech no logy a nd

Com m u n icat ions

Core filings involving biotechnology, pharmaceutical,

and healthcare companies totaled 32 i n the first half of

2019, while core filings involving technology and

communications companies totaled 12 and 19 filings,

respectively.

While the number of core filings in the Biotechnology

and Pharmaceuticals subsectors remained essentially

unchanged, Healthcare subsector filings increased

from eight in the second half of 2018 to 11 in the first

half of 2019.

Filings against non-Biotech/Pharma/Healthcare

subsector companies increased from seven fili ngs in

the second half of 2018 to 15 in the current period.

The number of core filings involv ing technology

companies in the first half of 2019 was slightly above

the semian nual average for this sector, but the DDL

associated with these filings was almost nine times

higher than the semian nual average. This was largely

due to a single filing that accounted for more than

84 percent of the Technology sector's DDL. See

Appendix 2.

Pharmaceuticals and Healthcare were the most commonly targeted Consumer Non-Cyclical subsectors.

Figure 22: Sector Comparison : Consumer Non -Cyclical versus Technology and Communications-Core Filings

B iot e ch nology

Pharm a ceuticals

H ealth care

Other ( Consumer N on-Cy cli cal)

Te chnology

C om munication s

Semi a nnua l Ave rage 1997-2018

Note:

2018 H l 2018 H 2

1 . Sectors and subsectors are based on the Bloomberg Industry Classification System. 2. "Other" primarily includes Agriculture, Beverage, Commercial Services, and Food subsectors. 3. Numbers may not sum due to rounding.

23

Cornerstone Research I Secur1tie, Class·Action Filings-2019 Midyear Assessment

47

2019 H l

C i rc u it

After a spike in the first half of 2018, filings in the Ninth

Circuit fell back toward the historical average in the

second half of 2018 and first half of 2019. However, the

MDL for this circuit remained at elevated levels, with

values representing more than three times the

historical average in the second half of 2018 and nearly

five times the historical average in the first half of 2019.

See Appendix 5.

The Second Circuit once again had the highest number

of core filings with 52. Filing activity in this circuit was

more than double the historical average.

Figure 23: Filings by Circuit-Core Filings

In the Seventh Circuit, core filings fell from six in the

second half of 2018 to five in the first half of 2019, but

the DDL for this circuit ($21 billion) more than doubled

the second half of 2018 figure and was seven times

higher than the historical average. See Appendix 5.

The Second Circuit had the highest

number of core filings in any circuit

on record.

1st Circuit 2nd Circuit 3rd Circuit 4t h Circu it 5th Circu it 6th Circuit 7th Circuit 8th Circu it 9th Circuit 10th Circuit 11th Circuit D .C.

2019 H l

2018 H2

2018 H l

Sem i a nnua l Average 1997-2018

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

24


Glossary

Annual Number of Class Action Filings by Location of

Headquarters (formerly known as the Class Action Filings

Non-U.S. Index) tracks the number of core filings against

non-U.S. issuers (companies headquartered outside the

United States) relative to total core filings.

Chinese reverse merger (CRM) filing is a securities class

action against a China-headquartered company listed on a

U.S. exchange as a result of a reverse merger with a public

shell company.

Class Action Filings lndex9 (CAF lndex9) tracks the number

of federal securities class action filings.

Cohort is the group of securities class actions all filed in a

particular calendar year.

Core filings are all federal securities class actions excluding

those defined as M&A filings.

Disclosure Dollar Loss Index® (DDL Index®) measures the

aggregate DDL for all filings over a period of time. DDL is the

dollar value change in the defendant firm's market

capitalization between the trading day immediately

preceding the end of the class period and the trading day

immediately following the end of the class period. DDL

should not be considered an indicator of liability or a

measure of potential damages. Instead, it estimates the

impact of all information revealed at the end of the class

period, including information unrelated to the litigation.

Filing lag is the number of days between the end of a class

period and the filing date of the securities class action.

First identified complaint (FIC) is the first complaint filed of

one or more securities class action complaints with the same

underlying allegations filed against the same defendant or

set of defendants.

Heat Maps of S&P 500 Securities Litigation™ analyze

securities class action activity by industry sector. The analysis

focuses on companies in the Standard & Poor's 500

(S&P 500) index, which comprises 500 large, publicly traded

companies in all major sectors. Starting with the composition

of the S&P 500 at the beginning of each year, the Heat Maps

examine two questions for each sector : (1) What percentage

of tb _e5_e companies were subject to _Dew securities class

actions in federal court during each calendar year? 2) What

percentage of the total market capitalization of these

companies was subject to new securities class actions in

federal courts during each calendar year?

25

Market capitalization losses measure changes to market

values of the companies subject to class action filings. This

report tracks market capitalization losses for defendant firms

during and at the end of class periods. They are calculated

for publicly traded common equity securities, closed-ended

mutual funds, and exchange-traded funds where data are

available. Declines in market capitalization may be driven by

market, industry, and/or firm-specific factors. To the extent

that the observed losses reflect factors unrelated to the

allegations in class action complaints, indices based on class

period losses would not be representative of potential

defendant exposure in class actions. This is especially

relevant in the post-Dura securities litigation environment. In

April 2005, the U.S. Supreme Court ruled that plaintiffs in a

securities class action are required to plead a causal

connection between alleged wrongdoing and subsequent

shareholder losses. This report tracks market capitalization

losses at the end of each class period using DDL, and market

capitalization losses during each class period using MDL.

Maximum Dollar Loss Index® (MDL Index®) measures the

aggregate MDL for all filings over a period of time. MDL is the

dollar value change in the defendant firm's market

capitalization from the trading day with the highest market

capitalization during the class period to the trading day

immediately following the end of the class period. MDL

should not be considered an indicator of liability or a

measure of potential damages. Instead, it estimates the

impact of all information revealed during or at the end of the

class period, including information unrelated to the litigation.

Mega filings include mega DDL filings, securities class action

filings with a DDL of at least $5 billion; and mega MDL filings,

securities class action filings with an MDL of at least

$10 billion.

Merger and acquisition (M&A) filings are securities class

actions that have Section 14 claims, but no Rule lOb-5,

Section 11, or Section 12 (2) claims, and involve merger and

acquisition transactions.

Securities Class Action Clearinghouse is an authoritative

source of data and analysis on the financial and economic

characteristics of federal securities fraud class action

litigation, cosponsored by Cornerstone Research and

Stanford Law School.

State 1933 Act filing is a class action filed in a state court

that asserts claims under Section 11 and/or Section 12 of the

Securities Act of 1933. These filings may also have Section 15

claims, but do not have Rule lOb-5 claims.

--==--- -cornerstone Research l Securities Class Action Filings-2019 Midyear Assessment

Appendices

Appendix 1: Filings Basic Metrics

I . D isclosure Dol lar Loss Maximum Dol lar Lo,s C ass Action

Year F i l ings DDL Tota l Average Median MDL Tota l Average Median ($ bi l l ions) ($ mi l l ions) ($ m i l l ions) ($ b1 lhons) ($ mi l l ions) ($ rrn l l ions)

1997 H l 79 $11 $169 $42 $52 $767 $396 1997 H2 95 $30 $354 $73 $93 $1,077 $411 1998 H l 115 $36 $347 $42 $88 $851 $269 1998 H2 127 $45 $381 $72 $136 $1,164 $337 1999 H l 126 $63 $568 $99 $146 $1,325 $339 1999 H2 83 $78 $1,048 $129 $218 $2,949 $453 2000 H l 111 $164 $1,708 $92 $331 $3,452 $444 2000 H2 105 $76 $793 $143 $429 $4,469 $975 2001 H l 103 $137 $1,473 $98 $990 $10,642 $990 2001 H2 77 $61 $872 $69 $497 $7,097 $657 2002 Hl 109 $81 $776 $117 $926 $8,899 $1,402 2002 H2 115 $120 $1,212 $184 $1,121 $11,320 $1,547 2003 H l 105 $48 $493 $92 $335 $3,455 $531 2003 H2 87 $29 $394 $100 $240 $3,242 $368 2004 H l 111 $57 $641 $101 $307 $3,455 $428 2004 H2 117 $87 $821 $117 $418 $3,947 $622 2005 H l 109 $57 $618 $135 $245 $2,632 $463 2005 H2 73 $35 $562 $167 $117 $1,862 $513 2006 H l 65 $21 $390 $118 $125 $2,308 $413 2006 H2 55 $31 $611 $97 $169 $3,387 $439 2007 H l 69 $37 $650 $153 $171 $2,992 $763 2007 H2 108 $121 $1,222 $159 $530 $5,351 $660 2008 H l 110 $92 $1,340 $224 $471 $6,822 $1,361 2008 H2 113 $129 $1,674 $163 $346 $4,488 $1,001 2009 H l 83 $49 $1,290 $167 $352 $9,251 $1,176 2009 H2 82 $35 $552 $134 $199 $3,153 $935 2010 H l 7 2 $54 $1,168 $162 $345 $7,492 $730 2010 H2 103 $19 $318 $141 $129 $2,195 $392 2011 H l 94 $49 $740 $93 $256 $3,882 $384 2011 H2 94 $66 $967 $85 $266 $3,905 $661 2012 H l 87 $61 $851 $158 $252 $3,504 $665 2012 H2 64 $35 $656 $143 $152 $2,764 $577 2013 H l 7 5 $25 $407 $163 $115 $1,887 $531 2013 H2 90 $79 $1,022 $148 $162 $2,110 $538 2014 H l 78 $30 $446 $189 $93 $1,364 $541 2014 H2 90 $26 $330 $135 $120 $1,544 $517 2015 H l 97 $47 $599 $98 $121 $1,555 $388 2015 H2 110 $71 $792 $170 $266 $2,956 $641 2016 H l 120 $43 $490 $191 $366 $4,158 $1,038 2016 H2 151 $64 $715 $202 $438 $4,919 $1,433 2017 H l 223 $72 $602 $139 $291 $2,425 $498 2017 H2 189 $59 $7-70 $197 $230 _ $3,023 $903 2018 H l 204 $158 $1,591 $249 $643 $6,496 $1,046 2018 H2 199 $172 $1,722 $476 $668 $6,683 $1,716 2019 Hl 198 $180 $1,591 $211 $781 $6.912 $836

Average (1997-2018)

106 $799 $141 $317

Note: Average and median numbers are calculated only for filings with MDL and DDL data.

26

Cornerstone Research I SecuritTes class°Action Filin.gs=-20f9 Midyeai AssessmenF -

$3,937 $707

Appendi ces (conti nued)

Append ix 2: F i l i ngs by I ndustry-Core Fi l i ngs

( D o l l a rs in b i l l io n s )

2018 Industry H l

Financial 16 11

Consumer Non-Cyclical 25 33

Industrial 8 8

Technology 11 11

Consumer Cyclical 10 11

Communications 13 17

Energy 4 3

Basic Materials 2 5

Utilities 1 2

Unknown/Unclassified 1 12

Total 92 113

Note: l . Numbers may not sum due to rounding.

Average 2018 H2 1997-2018 Hl H2

8 $9 $20 $5

35 $20 $42 $62

12 $6 $12 $16

11 $10 $18 $48

18 $5 $11

11 $11 $51

4 $2 $0 $1

3 $1 $2 $8

1 $1 $1 $2

5 $0 $0 $0

$65 $158

2. Filings with missing sector information or infrequently used sectors may be excluded in prior years.

27

- - -cornerstone Research ·I- Securities Class Action Filings-2019 Midyear Assessment

Maximum Dollar Loss

2018 2019 H l H2 H1

$56 $81 $57 $17

$75 $188 $195

$24 $180 ., $60

$40 $34 $391

$27 $47 $7

$73 $88 $92

$11 $1 $3 $8

$7 $7 $26 $9

$5 $17 $8 $0

$0 $1 $1 $0

$317 $643 .. . $781

Appendices (continued)

Appendix 3: 1933 Act Filings in State Courts

1933 Act Fi l ings in State Courts

Year Cal iforn ia New York Texas Massachusetts Pennsylvan ia O thers

2010 1 0 0 0 0 0

2011 3 0 0 0 0 0

2012 5 0 0 0 0 2

2013 1 0 0 0 0 0

2014 5 0 0 0 1 0

2015 15 0 0 2 0 0

2016 19 0 1 1 0 6

2017 7 0 1 0 1 4

2018 16 13 0 0 0 5

2019 Hl 5 7 2 1 1 3

Average (2010-2018 )

Note :

8 1 0 0 0 2

All

1

3

7

1

6

17

27

13

34

12

l. Filings in 2010 through 2017 include Section 11 claims and may also include Section 12 and Section 15 claims, but do not include allegations of Rule lOb-5 violations. Beginning in 2018, the Securities Class Action Clearinghouse began tracking 1933 Act filings in California state courts with Section 11 or Section 12 claims. 2. "Others" includes filings in Alabama, Arizona, Colorado, Florida, Georgia, Illinois, Iowa, Michigan, Nevada, New Hampshire, New Jersey, Oregon, Rhode Island, Tennessee, Washington, and West Virginia.

28



Append ix 4A: S&P 500 Secu rit ies Litigati on-Percentage of S&P 500 Compan ies Subject to Core F i l i ngs

Year Consumer Consumer Energy / F inancia l s / Health I ndustria ls

Telecom / Ut,ht,es Al l S&P 500

D iscretionary Staples Materia ls Real Estate Care IT Companies

2001 2.4% 8.3% 0.0% 1 .4% 7 . 1% 0.0% 18.0% 7 .9% 5 . 6%

2002 10.2% 2 .9% 3 . 1% 16 .7% 15.2% 6 .0% 11 .0% 40.5% 12.0%

2003 4 .6% 2.9% 1 . 7% 8. 6% 10.4% 3 .0% 5 . 6% 2.8% 5 .2%

2004 3.4% 2.7% 1 .8% 19.3% 10. 6% 8. 5% 3.2% 5.7% 7 .2%

2005 10.3% 8. 6% 1 . 7% 7 .3% 10.7% 1 .8% 6.7% 3.0% 6 .6%

2006 4.4% 2.8% 0.0% 2 .4% 6.9% 0.0% 8. 1% 0.0% 3 .6%

2007 5 .7% 0.0% 0.0% 10.3% 12 .7% 5 .8% 2.3% 3. 1% 5.4%

2008 4. 5% 2. 6% 0.0% 31.2% 13.7% 3.6% 2.5% 3.2% 9.2%

2009 3.8% 4.9% 1 .5% 10.7% 3.7% 6 .9% 1 .2% 0.0% 4.4%

2010 5 .1% 0.0% 4.3% 10.3% 13. 5% 0.0% 2.4% 0.0% 4.8%

201 1 3 .8% 2.4% 0.0% 1 .2% 2.0% 1 .7% 7 . 1% 2.9% 2.8%

2012 4.9% 2.4% 2.7% 3.7% 1.9% 1.6% 3.8% 0.0% 3.0%

2013 8.4% 0.0% 0.0% 0.0% 5 . 7% 0.0% 9. 1% 0.0% 3.4%

2014 1.2% 0.0% 1.3% 1.2% 0.0% 4.7% 0.0% 0.0% 1.2%

2015 0.0% 5.0% 0.0% 1 .2% 1 .9% 0.0% 4.2% 3.4% 1 . 6%

2016 3.6% 2.6% 4.5% 6.9% 17.9% 6. 1% 6.8% 3.4% 6.6%

2017 8. 5% 2.7% 3.3% 3.3% 8.3% 8.7% 8.5% 7 . 1% 6.4%

2018 10.0% 1 1 .8% 1.8% 7.0% 16.1% 8.8% 12.7% 7 . 1% 9.4%

( 201

19

d) 3. 1% 18 2% 0 0% 0.0% 9 7% 1 1 6% 11 1% 0 0% 6 4%

Annua ,ze

Average 2001-2018

5 .3% 3.4% 1. 5% 8.0% 8.8% 3.8% 6.3% 5.3% 5 .5%

29

Cornerstone Research I Securities Class Action Filings-2019 Midyear Assessment ·- -- -


Append ix 4B : S&P 500 Secu rit ies Litigat io n-Percentage of Ma rket Cap ita l i zation of S&P 500 Compan i es Subject to

Core F i l i ngs

Year Consumer Consumer Energ_y / F 1 11anc1a l s / Health l ndustna ls

Telecom / Uti l i t ies Al l S&P 500

D1scretIonary Staples Materials Real Estate Care IT Companies

2001 1. 3% 6.3% 0.0% 0.8% 5.4% 0.0% 32. 6% 17.4% 10.9%

2002 24.7% 0.3% 1.2% 29.2% 35.2% 13.3% 9.1% 51.0% 18.8%

2003 2.0% 2.3% 0.4% 19.9% 16.3% 4. 6% 1.7% 4.3% 8.0%

2004 7.9% 0.1% 29.7% 46.1% 24.1% 8.8% 1.2% 4.8% 17 .7%

2005 5.7% 11.4% 1. 6% 22.2% 10.1% 5 . 6% 10.3% 5. 6% 10.7%

2006 8.9% 0.8% 0.0% 8.2% 18.1% 0.0% 8.3% 0.0% 6.7%

2007 4.4% 0.0% 0.0% 18.1% 22.5% 2.2% 3.4% 5.5% 8.2%

2008 7.2% 2. 6% 0.0% 55 .0% 20.0% 26.4% 1.4% 4.0% 16.2%

2009 1.9% 3 .9% 0.8% 31.2% 1.7% 23.2% 0.3% 0.0% 7 .7%

2010 4.9% 0.0% 5.2% 31.1% 32.7% 0.0% 5.9% 0.0% 11.1%

2011 4.6% 0.8% 0.0% 6.9% 0.7% 2 .1% 13.4% 0.6% 5.0%

2012 1. 6% 14.0% 0.9% 11.0% 0.8% 1.2% 2.2% 0.0% 4.3%

2013 4.4% 0.0% 0.0% 0.0% 4.4% 0.0% 16.6% 0.0% 4.7%

2014 2.5% 0.0% 0.2% 0.3% 0.0% 1.7% 0.0% 0.0% 0.6%

2015 0.0% 1.9% 0.0% 3.0% 3.1% 0.0% 7 .0% 3.7% 2.8%

2016 2.8% 1.0% 19.8% 11.9% 13.2% 8.7% 12.3% 4.4% 10.0%

2017 8.2% 6. 7% 2.3% 1.5% 2.7% 22.3% 4.4% 9. 6% 6 .1%

2018 4.7% 15.2% 1.4% 12.5% 26.3% 19.4% 19.4% 6. 5% 14.9%

( 201

19

d) O 3% 8 2% 0.0% 0.0% 8 3% 29.4% 31 0% 0 0% 14.3%

Annua Ize

Average 2001-2018

5.2% 4.1% 2.9% 15.2% 12.9% 8.4%

30

-.- ::_-_-_=-c --- - C-or-n-er-stone Research I Securities Class Action Filings-2019 Midyear Assessment

9.5% 6.0% 8.9%

Appendi ces (conti nued )

Appendix 5: Filings by Circuit-Core Filings

( Dollars in b illions )

Ci rcuit

1st

2nd

3 rd

4th

5th

6th

7th

8th

9th

10th

1 1th

D.C.

Total

-. . .

.: · , . Class Action Fi l ings .

Semiannua l 2018 2018

Average H l H 2

1997-2018

4 2 4

25 31 40

8 14 12

3 0 3

6 6 5

4 3 1

4 7 6

3 1 2

24 42 27

3 3 3

7 4 5

0 0 0

92 113 108

Note : N umbers may not sum due to round i ng.

r • .,.. • . ' Disclosure Dollar Loss . - E :

Sem iannua l 2018

Average H l

1997-2018

$4 $ 1

$2 1 $33

$9 $29

$1 $0

$3 $2

$3 $4

$3 $2

$2 $ 1

$14 $83

$ 1 $ 1

$2 $3

$0 $0

$65 $158

31

2018

H2

$2

$56

$16

$3

$1

$2

$9

$2

$79

$1

$2

$0

$172

' . ' . . ·. , ; . ·., .. , Maxi mu Doi la Leiss·->

, '

. , . . . .

Semia nnua l 2018 2018

Average H l H 2

1997-2018

$10 $7 $10

$ 1 14 $263 $231

$33 $135 $55

$6 $0 $ 1 1

$18 $8 $3

$13 $6 $13

$14 $11 $39

$6 $3 $4

$83 $ 199 $289

$6 $3 $6

$ 1 1 $ 8 $ 7

$ 2 $0 $0

$317 $643 $668


Research Sample

The Stanford Law School Securities Class Action

Clearinghouse, in collaboration with Cornerstone

Research, has identified 5,386 federal securities class

action filings between January 1, 1996, and June 30,

2019 (securities.stanford.edu). The analysis in this

report is based on data identified by Stanford as of July

16, 2019.

The sample used in this report includes federal filings

that typically allege violations of the Securities Act of

1933 Section 11, the Securities Exchange Act of 1934

Section 10b, Section 12a) (registration requirements),

or Section 14(a) proxy solicitation requirements).

The sample is referred to as the "classic filings" sample

and excludes IPO allocation, analyst, and mutual fund

filings 313, 68, and 25 filings, respectively).

Multiple filings related to the same allegations against

the same defendant(s) are consolidated in the database

through a unique record indexed to the first identified

complaint.

In addition to federal filings, class actions filed in state

courts since January 1, 2010, alleging violations of the

Securities Act of 1933 are also separately tracked.

An additional 128 state class action filings in state

courts from January 1, 2010, to June 30, 2019, have

also been identified.

The views expressed in this report are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Cornerstone Research.

32

- Cornerstone Research I Securities Class Action Filings-2019 Midyear Assessment

The authors request that you reference Corne rstone Research and the Stanford Law Schoo l Secu r it ies C lass Act ion C l ea r inghouse i n any repr int of the informat ion o r figu res i n c l uded i n this study.

P l ease d i rect any quest ions to:

Alexander Agan i n 650. 853. 1660 aagan i n@corne rstone.com

Cornerstone Research

Cornerstone Research p rovides economic and fi nanc ia l consu lt ing and

expert testimony i n a l l phases of complex l i t igation and regu l atory

proceed ings . The fi rm works with an extens ive n etwork of prom inent

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PUBLISH

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT _________________________________

DENNIS J. MALOUF, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.

No. 16-9546

_________________________________

Petition for Review from an Order of the Securities & Exchange Commission

(SEC No. 3-15918) _________________________________

Kenneth F. Berg, Ulmer & Berne LLP, Chicago, Illinois (Alan M. Wolper and Heidi E. VonderHeide with him on the briefs), for Petitioner. Daniel Aguilar, Attorney, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C. and Lisa Helvin, Senior Counsel, Securities and Exchange Commission, Washington, D.C. (Chad A. Readler, Acting Assistant Attorney General, Mark R. Freeman, Attorney, and Joshua A. Salzman, Attorney, Appellate Staff, Civil Division, United States Department of Justice, Washington, D.C.; Michael A. Conley, Solicitor, and Dominick V. Freda, Assistant General Counsel, Securities and Exchange Commission, Washington, D.C., with them on the briefs), for Respondent.

_________________________________

Before BRISCOE , HARTZ, and BACHARACH , Circuit Judges. _________________________________

BACHARACH , Circuit Judge. _________________________________

FILED United States Court of

Appeals Tenth Circuit

August 13, 2019

Elisabeth A. Shumaker

Clerk of Court

Appellate Case: 16-9546 Document: 010110211580 Date Filed: 08/13/2019 Page: 1

2

Mr. Dennis Malouf occupied key roles at two firms. One of the firms

(UASNM, Inc.) offered investment advice; the other firm (a branch of

Raymond James Financial Services) served as a broker-dealer. Raymond

James viewed those dual roles as a conflict, so Mr. Malouf sold the

Raymond James branch. But the structure of the sale perpetuated the

conflict. Because Mr. Malouf did not disclose perpetuation of the conflict,

administrative officials sought sanctions against him for violating the

federal securities laws.

An administrative law judge found that Mr. Malouf had violated the

Securities Exchange Act of 1934, the Securities Act of 1933, the

Investment Advisers Act of 1940, Rule 10b–5, and Rule 206(4)–1. Given

these findings, the judge imposed sanctions. The SEC affirmed these

findings and imposed additional sanctions, including disgorgement of

profits.

Mr. Malouf appeals the SEC’s decision, and we affirm.

Background

I. Mr. Malouf sells the Raymond James branch and uses that branch to execute trades for UASNM’s clients. In 2007, Raymond James became concerned about the conflict of

interest between (1) Mr. Malouf’s role at its branch office and (2) his role

at UASNM. These concerns led Raymond James to ask Mr. Malouf to

choose between the two roles. Mr. Malouf opted to remain at UASNM and


3

sold his Raymond James branch to Mr. Maurice Lamonde for roughly $1.1

million, to be paid in installments based on the Raymond James branch’s

collection of securities-related fees.1

To facilitate the installment payments, Mr. Malouf routed bond

trades on behalf of his UASNM clients through the Raymond James branch.

This way, Mr. Lamonde would receive enough in commissions to allow him

to pay what he owed Mr. Malouf.2

While Mr. Malouf was routing bond trades to the Raymond James

branch, he regularly failed to seek competing bids for the trades. Mr.

Malouf conceded that he should have sought competing bids: UASNM’s

compliance procedures required firm personnel to solicit bids from three

different broker-dealers before placing a trade, and Mr. Malouf admitted

1 The written agreement does not state a specific dollar figure for the sale. The written agreement instead provides that Mr. Lamonde would pay 40% of securities-related fees that the Raymond James branch collected over a four-year period. But Mr. Malouf testified that he and Mr. Lamonde had agreed that upon payment of $1.1 million, they would consider the purchase price fully paid. 2 The Raymond James branch collected $1,074,454 in commissions on UASNM bond transactions. With these commissions, Mr. Lamonde ultimately paid Mr. Malouf $1,068,084 to buy the Raymond James branch.


4

that he probably could have received better prices for his clients through

competing bids.

II. UASNM makes misstatements concerning Mr. Malouf’s conflict of interest, and he does not correct these misstatements. Mr. Malouf bore responsibility for preparing UASNM’s forms to be

filed with the SEC (referred to as “Forms ADV”)3 and ensuring the

accuracy of the UASNM website. But UASNM delegated compliance with

these responsibilities to a chief compliance officer and hired an outside

consultant to review UASNM’s compliance procedures and Forms ADV.

Mr. Malouf later acknowledged that his financial arrangement with

Mr. Lamonde had created a conflict of interest that should have been

disclosed. But Mr. Malouf did not disclose that arrangement to UASNM’s

chief compliance officer or the outside consultant. Because these

individuals did not know the details of the Malouf-Lamonde arrangement,

UASNM not only failed to disclose Mr. Malouf’s conflict of interest but

also boasted that (1) UASNM’s employees were not receiving any

commissions or fees from the Raymond James branch and (2) UASNM was

providing impartial advice untainted by any conflicts of interest.

3 A “Form ADV” is used by investment advisers to register with the SEC and state securities authorities. Form ADV, SEC, https://www.sec.gov/fast-answers/answersformadvhtm.html (last visited June 26, 2019).


5

While UASNM was boasting of its impartiality, Mr. Malouf was

participating in deciding what UASNM would disclose. He acknowledged

that he had reviewed some of the Forms ADV for what to disclose and had

at least some familiarity with the contents of the website. But he took no

steps to remedy UASNM’s misstatements or to disclose his own conflict of

interest.

III. UASNM discloses Mr. Malouf’s conflict of interest. In June 2010, UASNM’s outside consultant learned that Mr. Malouf

had been receiving ongoing payments from Mr. Lamonde. With this

information, the consultant told Mr. Malouf and UASNM that the payments

had created a conflict of interest that needed to be disclosed. UASNM

disclosed the conflict roughly nine months later.

IV. The SEC finds that Mr. Malouf violated the federal securities laws.

The SEC then brought an enforcement proceeding against Mr.

Malouf. Based on the evidence introduced in that proceeding, an

administrative law judge found that Mr. Malouf had (1) aided and abetted

UASNM’s violations of the federal securities laws and (2) committed

violations of his own. In the administrative appeal, the SEC agreed,

finding that Mr. Malouf had violated

§ 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c),


6

§§ 17(a)(1) and 17(a)(3) of the Securities Act of 1933, and

§§ 206(1) and 206(2) of the Investment Advisers Act of 1940.

The SEC also found that Mr. Malouf had aided and abetted UASNM’s

violations of §§ 206(4) and 207 of the Investment Advisers Act and Rule

206(4)-1(a)(5).

The SEC imposed four sanctions on Mr. Malouf:

1. a lifetime bar from the securities industry,

2. an order to cease and desist violations of federal securities laws,

3. an order to disgorge $562,001.26 plus prejudgment interest, and

4. an order to pay a $75,000 civil penalty.

On appeal, Mr. Malouf makes four arguments:

1. The appointment of his administrative law judge violated the Constitution’s Appointments Clause.

2. The SEC misinterpreted the securities laws.

3. The SEC’s findings lack substantial evidence.

4. The sanctions should be vacated.

Standard of Review

When considering these appellate arguments, we credit the SEC’s

factual findings if they are supported by substantial evidence. Geman v.

SEC , 334 F.3d 1183, 1188 (10th Cir. 2003). Substantial evidence is “such

relevant evidence as a reasonable mind might accept as adequate to support


7

a conclusion.” C.E. Carlson, Inc. v. SEC , 859 F.2d 1429, 1433 (10th Cir.

1988) (quoting Consol. Edison Co. of New York v. NLRB , 305 U.S. 197,

229 (1938)).

Discussion

I. Mr. Malouf forfeited his challenge under the Appointments Clause. Mr. Malouf contends that the administrative law judge was not

validly appointed under the Constitution’s Appointments Clause. But Mr.

Malouf forfeited this contention by failing to present it in the SEC

proceedings.4 Given the forfeiture, we decline to reach the merits of this

challenge.

4 In its response brief, the SEC argues in part that Mr. Malouf forfeited the issue by omitting it in his opening appeal brief. We reject this argument.

Before the SEC filed its response brief, Mr. Malouf had requested leave to file a supplemental brief addressing the issue under the Appointments Clause. The SEC opposed the request, contending that Mr. Malouf should have raised the issue in his opening appeal brief. A motions panel provisionally granted Mr. Malouf’s request, leaving the final decision to the merits panel and extending the SEC’s deadline to file a response brief. So the SEC obtained notice and extra time to brief the issue before filing the response brief. Given the notice and extra time, consideration of the issue would not unfairly prejudice the SEC. In light of the absence of prejudice, we grant the request to supplement and reject the SEC’s argument that Mr. Malouf forfeited the issue by failing to raise it in his opening appeal brief.


8

A. Exhaustion of administrative remedies is mandatory under the pertinent statutes.

The Constitution’s Appointments Clause authorizes Congress to

delegate the appointment of “inferior officers” to the President, courts, and

department heads. U.S. Const. art. II § 2, cl. 2. Mr. Malouf contends that

his administrative law judge was an “inferior officer” who had not been

appointed by the President, a court, or a department head. See Lucia v.

SEC , 138 S. Ct. 2044 (2018). For this contention, the threshold issue

involves exhaustion of administrative remedies.

The underlying securities laws expressly require administrative

exhaustion. See 15 U.S.C. §§ 77i(a) (Securities Act), 78y(c) (Securities

Exchange Act), 80b-13(a) (Investment Advisers Act).5 Given the statutory

requirement, courts lack discretion to excuse the failure to exhaust

administrative remedies. Ross v. Blake , 136 S. Ct. 1850, 1856–57 (2016).

Failure to comply with a mandatory exhaustion requirement prevents

judicial review of the issue. United States v. L.A. Tucker Truck Lines, Inc. ,

344 U.S. 33, 37 (1952).

5 The exhaustion requirement encompasses constitutional claims. See C.E. Carlson, Inc. v. SEC , 859 F.2d 1429, 1439 (10th Cir. 1988) (concluding that the SEC could have addressed the petitioners’ “constitutional concerns” and that the opportunity for administrative review had triggered the exhaustion requirement).


9

B. Mr. Malouf lacks reasonable grounds to excuse his failure to exhaust.

Mr. Malouf concedes that his administrative filings did not address

the Appointments Clause. We thus must decide whether Mr. Malouf

satisfies an exception to the exhaustion requirement.

The Securities Act does not contain an express exception to the

exhaustion requirement, so we cannot excuse a failure to satisfy the

Securities Act’s exhaustion requirement. 15 U.S.C. § 77i(a); see Ross , 136

S. Ct. at 1856–57. But the other two securities statutes (the Securities

Exchange Act and Investment Advisers Act) provide an exception,

allowing the claimant to avoid the exhaustion requirement upon a showing

of reasonable grounds. 15 U.S.C. §§ 78y(c)(1), 80b-13(a).

Mr. Malouf argues that he had two reasonable grounds to skip the

exhaustion requirement:

1. It would have been futile to raise this challenge in the SEC proceedings.

2. The law changed after the SEC had ruled.6

6 In two stray sentences, Mr. Malouf also states that enforcement of the exhaustion requirement would create a miscarriage of justice. But Mr. Malouf provides no explanation or support for these statements. Given the absence of explanation or support, we regard the two stray sentences as inadequate development of a distinct argument. United States v. Martinez, 518 F.3d 763, 768 (10th Cir. 2008).


10

We reject both arguments.

1. Raising the challenge would not have been futile. Mr. Malouf argues that exhausting this challenge would have been

futile because the SEC would undoubtedly have denied relief. We reject

this argument.

The failure to pursue administrative remedies may be excused when

exhaustion would have been futile. Gilmore v. Weatherford , 694 F.3d 1160,

1169 (10th Cir. 2012). But the futility exception is available only when the

administrative process would have been “clearly useless.” Id. (quoting

McGraw v. Prudential Ins. Co. of Am. , 137 F.3d 1253, 1264 (10th Cir.

1998)).

Mr. Malouf has not shown that exhaustion of this challenge would

have been clearly useless. Indeed, when he filed his brief in the SEC (on

September 2, 2015), the SEC had not yet addressed the applicability of the

Appointments Clause to administrative law judges.7

Despite the absence of any prior SEC decisions on the issue, Mr.

Malouf insists that the SEC would have rejected this challenge. He points

7 The day after Mr. Malouf filed this brief, the SEC ruled for the first time that administrative law judges need not be appointed under the Appointments Clause. In re Lucia , SEC Release No. 4190, 2015 WL 5172953 (Sept. 3, 2015).


11

out that attorneys for the SEC had previously argued that its administrative

law judges were not inferior officers subject to the Appointments Clause.

But the prior arguments by SEC attorneys do not mean that exhaustion

would have been futile. See Gilmore v. Weatherford , 694 F.3d 1160, 1169

(10th Cir. 2012) (rejecting an argument that the agency’s position had been

“predetermined” based on the agency’s position in three earlier cases);

C.E. Carlson, Inc. v. SEC , 859 F.2d 1429, 1439 (10th Cir. 1988)

(“[A]lthough petitioners contend that raising [the] argument below would

have been futile given the SEC’s past response, that alone is not a

sufficient ground for presuming futility.”).

Mr. Malouf points out that after he began his administrative appeal,

the SEC frequently rejected challenges under the Appointments Clause. But

these decisions do not mean that the SEC necessarily would have rejected a

challenge by Mr. Malouf. See Gilmore, 694 F.3d at 1169 (“Requiring

exhaustion of [claims asserted against agency precedent or an agency’s

litigation position] allows agencies to take into account the specific facts

of each matter, and to change course if appropriate.” (internal citation

omitted)). Had Mr. Malouf exhausted available administrative remedies,

the SEC might have changed its position on the Appointments Clause

issue; and “if it did not, the [SEC] would at least be put on notice of the

accumulating risk of wholesale reversals being incurred by its


12

persistence.” United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33,

37 (1952).

Because Mr. Malouf has not shown that presentation of this challenge

to the SEC would have been clearly useless, we do not regard exhaustion

as futile.

2. No intervening change of law took place. We also reject Mr. Malouf’s reliance on an intervening change in the

law.

For the sake of argument, we can assume that an intervening change

in the law might constitute a reasonable ground to excuse the failure to

exhaust. But the law did not change.

Mr. Malouf bases his argument largely on Bandimere v. SEC , 844

F.3d 1168 (10th Cir. 2016), and Lucia v. SEC , 138 S. Ct. 2044 (2018).8 In

these cases, our court and the Supreme Court held that SEC administrative

law judges are inferior officers subject to the Appointments Clause. See

Bandimere , 844 F.3d at 1170; Lucia , 138 S. Ct. at 2049. The Courts

decided these cases after the SEC had ruled in Mr. Malouf’s case,

8 Mr. Malouf also points to Landry v. FDIC , 204 F.3d 1125 (D.C. Cir. 2000). But Landry dealt with the Federal Deposit Insurance Corporation’s administrative law judges, not the SEC’s. Landry , 204 F.3d at 1130. Moreover, the D.C. Circuit’s opinion does not control in our circuit.


13

preventing him from relying on either opinion during his administrative

appeal. But neither Bandimere nor Lucia changed the law: In both cases,

the Courts merely applied the Supreme Court’s 1991 opinion in Freytag v.

Commissioner of Internal Revenue , 501 U.S. 868 (1991).

In Freytag , the Supreme Court held that special trial judges for the

Tax Court were inferior officers subject to the Appointments Clause. 501

U.S. at 881. The Supreme Court’s decision hinged on the extensive powers

granted to special trial judges, which were significant enough to

characterize these judges as inferior officers. See id. at 881–82 (noting that

special trial judges “take testimony, conduct trials, rule on the

admissibility of evidence, and have the power to enforce compliance with

discovery orders”). SEC administrative law judges are “near-carbon

copies” of the Tax Court’s special trial judges. Lucia , 138 S. Ct. at 2052.

So in Bandimere and Lucia , our court and the Supreme Court regarded

Freytag as dispositive on the status of the SEC’s administrative law

judges. Bandimere, 844 F.3d at 1174 (“In our view, Freytag controls the

result of this case.”); Lucia , 138 S. Ct. at 2052 (concluding that Freytag’s

analysis “necessarily decides this case”).

In the SEC proceedings, Mr. Malouf could have invoked Freytag ,

just as the petitioners in Bandimere and Lucia had done. See Island Creek

Coal Co. v. Wilkerson , 910 F.3d 254, 257 (6th Cir. 2018) (stating that no


14

precedent would have prevented a party from bringing an Appointments

Clause challenge before Lucia , which itself “noted that existing case law

‘sa[id] everything necessary to decide this case’” (quoting Lucia v. SEC ,

138 S. Ct. 2044, 2053 (2018))).9 Thus, Mr. Malouf cannot avoid the

exhaustion requirement based on an intervening change in the law. See

Saffle v. Parks , 494 U.S. 484, 488 (1993) (stating that a rule is not new if

the court “would have felt compelled by existing precedent” to conclude

that the rule being urged “was required by the Constitution”).

* * *

Mr. Malouf failed to administratively exhaust his challenge under the

Appointments Clause. We thus conclude that Mr. Malouf forfeited this

challenge.10

9 In Wilkerson , the Sixth Circuit held that a party had forfeited its Appointments Clause challenge by waiting until the reply brief to present this challenge. 910 F.3d at 256. 10 The SEC concedes that Mr. Malouf’s failure to exhaust this challenge does not constitute a jurisdictional defect. Despite this concession, we would ordinarily need to decide for ourselves whether the failure to exhaust is jurisdictional. See Hertz Corp. v. Friend , 559 U.S. 77, 94 (2010) (“Courts have an independent obligation to determine whether subject-matter jurisdiction exists, even when no party challenges it.”).

Even if the exhaustion requirement were not jurisdictional, however, it would constitute a claim-processing rule. See Henderson ex rel.


15

II. The SEC reasonably found that Mr. Malouf had violated Rule 10b-511 and § 17(a) of the Securities Act of 1933.

The SEC found that Mr. Malouf had failed to correct material

misstatements, violating

Rule 10b-5(a) and (c) and

the Securities Act of 1933 § 17(a)(1) and (3).

Henderson v. Shinseki , 562 U.S. 428, 435 (2011) (explaining that claim-processing rules are non-jurisdictional rules “that seek to promote the orderly progress of litigation by requiring that the parties take certain procedural steps at certain specified times”). Unlike jurisdictional requirements, claim-processing rules can be waived or forfeited. Muskrat v. Deer Creek Pub. Sch. , 715 F.3d 775, 783 (10th Cir. 2013).

But the SEC has not waived or forfeited the failure to exhaust. When Mr. Malouf first raised the Appointments Clause issue, the SEC promptly responded that Mr. Malouf had failed to exhaust the issue in SEC proceedings. We thus would need to enforce the statutory exhaustion requirements regardless of whether they are jurisdictional. See Hamer v. Neighborhood Hous. Servs. of Chicago , 138 S. Ct. 13, 17–18 (2017) (“If properly invoked, mandatory claim-processing rules must be enforced, but they may be waived or forfeited.”). Given the need to require exhaustion as either a claim processing rule or jurisdictional requirement, we need not decide which one applies. See Manrique v. United States, 137 S. Ct. 1266, 1271 (2017) (declining to decide whether the requirement to timely file a notice of appeal is jurisdictional because the requirement is “at least a mandatory claim-processing rule”). 11 The SEC also found that Mr. Malouf had violated the Securities Exchange Act of 1934 § 10(b). But this provision simply incorporates the SEC’s “rules and regulations.” 15 U.S.C. § 78j(b). The rule invoked here is Rule 10b-5.


16

For purposes of this appeal, Mr. Malouf does not deny that he failed to

correct UASNM’s misstatements. But he argues that a failure to correct

UASNM’s misstatements does not constitute a separate violation of the

securities laws. We disagree.

A. Rule 10b-5(a) and (c) and § 17(a)(1) and (3) of the Securities Act of 1933 encompass the failure to correct UASNM’s false or misleading statements.

The relevant provisions ban two broad categories of conduct. The

first category involves the making of a materially untrue or misleading

statement. The second category involves employment of a fraudulent or

deceptive scheme. Addressing the second category, the SEC found that Mr.

Malouf had failed to correct UASNM’s false or misleading statements,

triggering liability for employment of a fraudulent or deceptive scheme.

Mr. Malouf contends that liability cannot be based on his failure to

correct UASNM’s misstatements because the failure to correct is

inseparable from the misstatements themselves. In his view, the SEC

“obliterate[d] the distinction” between the two categories of prohibited

conduct. Appellant’s Opening Br. at 23. We reject this argument based on

Lorenzo v. SEC , 139 S. Ct. 1094 (2019).

In Lorenzo , the Supreme Court confronted the same two categories of

prohibited conduct. The first category is enshrined in Rule 10b-5(b), which


17

prohibits the making of a statement that is materially false or misleading.

17 C.F.R. § 240.10b-5(b). The second category is enshrined in

Rule 10b-5(a) and the Securities Act of 1933 § 17(a)(1), which prohibit the employment of a fraudulent “device, scheme, or artifice” and

Rule 10b-5(c), which prohibits engagement in an “act, practice, or course of business” operating as a “fraud or deceit.”

15 U.S.C. § 77q(a)(1); 17 C.F.R. § 240.10b-5(a), (c).

In Lorenzo , the SEC found that the petitioner had disseminated

another’s false statement with scienter.12 Lorenzo , 139 S. Ct. at 1099. The

Supreme Court granted certiorari in Lorenzo to decide “whether someone

who is not a ‘maker’ of a misstatement under [Rule 10b-5(b)] . . . can

nevertheless be found to have violated [Rule 10b-5(a) and (c)] and related

provisions of the securities laws, when the only conduct involved concerns

a misstatement.” Id. at 1100.

The Supreme Court answered “yes.” See id. at 1100–01. In urging the

opposite result, the petitioner argued that the prohibitions applicable to

“makers” of false statements would be superfluous if someone could incur

liability by disseminating another person’s false statement. Id. at 1101.

The Supreme Court rejected this argument based on the prohibitions’

12 The Lorenzo Court assumed that the petitioner himself had not made a false or misleading statement. Lorenzo , 139 S. Ct. at 1100.


18

language, purpose, and overlap. Id. at 1102–03. Applying Lorenzo , we

conclude that Mr. Malouf’s failure to correct UASNM’s misstatements

could trigger liability.

The Court in Lorenzo applied three of the provisions that the SEC

has invoked against Mr. Malouf:

1. Rule 10b-5(a),

2. Rule 10b-5(c), and

3. the Securities Act of 1933 § 17(a)(1).

The Court expressly held that a person could incur liability under these

provisions when the conduct involves another person’s false or misleading

statement. Id. at 1102. In reaching this holding, the Supreme Court rejected

the same argument urged by Mr. Malouf (that the SEC’s interpretation

would render Rule 10b-5(b) superfluous). Id. at 1101–03.

The Lorenzo Court did not address a fourth provision involved here:

the Securities Act of 1933 § 17(a)(3). But this provision is virtually

identical to Rule 10b-5(c), which Lorenzo did address. Rule 10b-5(c)

prohibits anyone using interstate commerce from “engag[ing] in any act,

practice, or course of business which operates or would operate as a fraud

or deceit.” 17 C.F.R. § 240.10b-5(c). Similarly, the Securities Act of 1933

§ 17(a)(3) states that offerors or sellers of securities cannot “engage in any


19

transaction, practice, or course of business which operates or would

operate as a fraud or deceit upon the purchaser.” 15 U.S.C. § 77q(a)(3).

In light of this similarity, Mr. Malouf urges us to interpret § 17(a)(3)

coextensively with Rule 10b-5(c). We do so; Lorenzo thus controls on

§ 17(a)(3) as well as the other provisions.

B. Substantial evidence exists for the findings that Mr. Malouf violated Rule 10b-5(a) and (c) and the Securities Act of 1933 § 17(a)(1) and (3).

The resulting question is whether substantial evidence supports the

SEC’s findings that Mr. Malouf violated Rule 10b-5(a) and (c) and

§ 17(a)(1) and (3) of the Securities Act of 1933. Mr. Malouf argues that

the findings lack substantial evidence because

he did not engage in prohibited conduct and

the evidence does not establish scienter.

1. The applicable provisions address prohibited conduct and scienter.

The pertinent securities laws prohibit fraudulent conduct. For

example, Rule 10b-5(a) and the Securities Act of 1933 § 17(a)(1) prohibit

the employment of a device, scheme, or artifice to defraud. 17 C.F.R.

§ 240.10b-5(a); 15 U.S.C. § 77q(a)(1). “A ‘device’ . . . is simply that

which is devised, or formed by design; a ‘scheme’ is a project, plan, or

program of something to be done; and an ‘artifice’ is an artful stratagem or

trick.” Lorenzo v. SEC, 139 S. Ct. 1094, 1101 (2019) (quoting Aaron v.


20

SEC , 446 U.S. 680, 696 n.13 (1980)). Rule 10b-5(c) bars a fraudulent or

deceitful act, practice, or course of business. 17 C.F.R. § 240.10b-5(c).

The Securities Act of 1933 § 17(a)(3) similarly prohibits fraudulent or

deceitful transactions, practices, or courses of business. 17 U.S.C.

§ 77q(a)(3).

In addressing these provisions, Mr. Malouf challenges the sufficiency

of the evidence on scienter, which is “a mental state embracing intent to

deceive, manipulate, or defraud.” C.E. Carlson, Inc. v. SEC , 859 F.2d

1429, 1435 (10th Cir. 1988) (quoting Ernst & Ernst v. Hochfelder, 425

U.S. 185, 193 n.12 (1976)). This mental state can include extreme

recklessness. Id. Conduct is extremely reckless when the petitioner knows

or must have known that the conduct created a danger of misleading

investors. Id.

Scienter is required to find a violation of Rule 10b-5(a), Rule 10b-

5(c), or the Securities Act of 1933 § 17(a)(1). But scienter is not required

for a violation of the Securities Act of 1933 § 17(a)(3). Aaron v. SEC , 446

U.S. 680, 691, 697 (1980).

2. The SEC acted reasonably in finding improper conduct.

Given these definitions, we conclude that the SEC did not err in

finding a fraudulent device, scheme, or artifice to defraud.


21

The evidence allowed the SEC to reasonably find a conflict of

interest: while working at UASNM, Mr. Malouf maintained a financial

arrangement with Mr. Lamonde, the purchaser of the Raymond James

branch. Mr. Malouf knew not only that a conflict existed but also that

UASNM was telling its clients that he was independent. Despite this

knowledge, Mr. Malouf took no steps to correct UASNM’s statements or to

disclose his own conflict. Given this failure to correct misstatements or to

disclose his conflict, the SEC reasonably found the existence of

an artful stratagem or plan devised to defraud investors under Rule 10b-5(a) and the Securities Act of 1933 § 17(a)(1) and

a fraudulent or deceptive act, practice, or course of business

under Rule 10b-5(c) and the Securities Act of 1933 § 17(a)(3).

3. The SEC acted reasonably in finding scienter.

Mr. Malouf also challenges the finding of scienter on the claims

involving Rules 10b-5(a) and (c) and the Securities Act of 1933

§ 17(a)(1).13 We reject this challenge.

Mr. Malouf and Mr. Lamonde had a financial arrangement that

resulted in payments to Mr. Malouf from bond trades that he had routed

through the Raymond James branch. This arrangement gave an incentive to

13 As noted above, § 17(a)(3) of the Securities Act of 1933 does not require scienter. See p. 20, above.


22

Mr. Malouf to route his clients’ bond trades through the Raymond James

branch, compromising the independence of UASNM and Mr. Malouf as

investment advisers. The SEC reasonably concluded that Mr. Malouf was

aware of the conflict and tried to exploit it, for UASNM’s outside

consultant testified that Mr. Malouf had lied and resisted disclosure of the

financial arrangement with Mr. Lamonde.

Mr. Malouf denies scienter, insisting that he did not know of

misstatements on the Forms ADV or the UASNM website. For these

misstatements, Mr. Malouf pins the blame on UASNM’s chief compliance

officer. For three reasons, we reject Mr. Malouf’s arguments and conclude

that substantial evidence supports the SEC’s finding of scienter.

First, the SEC reasonably rejected Mr. Malouf’s effort to shift the

blame. The chief compliance officer admittedly knew that the Raymond

James branch had been sold, but he denied knowing about the arrangement

for installment payments.

Second, the evidence allowed the SEC to reasonably find that Mr.

Malouf was familiar with the contents of UASNM’s Forms ADV and its

website. For example, Mr. Malouf admitted that he had periodically

reviewed the Forms ADV and the website. Yet for several years, Mr.

Malouf took no action to correct material misstatements on the forms or

the website.


23

Third, the evidence suggests that Mr. Malouf dragged his feet even

after being directed to disclose the conflict. This directive stemmed from

the outside consultant’s discovery that Mr. Malouf had been receiving

installment payments from the buyer of the Raymond James branch. Upon

this discovery, the consultant told Mr. Malouf and UASNM that the

arrangement had created a conflict of interest that needed to be disclosed.

But about nine months passed before UASNM disclosed the conflict. Mr.

Malouf’s contribution to that delay reasonably supports a finding of

scienter.

* * *

The SEC reasonably found that Mr. Malouf had acted with scienter to

(1) employ a device, scheme, or artifice to defraud and (2) engage in an

act, practice, or course of business that operated as a fraud or deceit. We

thus affirm the SEC’s conclusion that Mr. Malouf violated Rule 10b-5(a)

and (c) and the Securities Act of 1933 § 17(a)(1) and (3).

III. The SEC reasonably found violations of the Investment Advisers Act of 1940 §§ 206 and 207 and Rule 206(4)-1(a)(5).

The SEC also found that Mr. Malouf had

violated § 206(1) and (2) of the Investment Advisers Act and

aided and abetted UASNM’s violations of §§ 206(4) and 207 of the Investment Advisers Act and Rule 206(4)-1(a)(5).

We uphold these findings.


24

A. The SEC reasonably found primary violations of § 206 of the Investment Advisers Act.

Under § 206 of the Investment Advisers Act, investment advisers

cannot

employ a device, scheme, or artifice to defraud a client or engage in a transaction, practice, or course of business that

operates as a fraud or deceit upon a client. 15 U.S.C. § 80b-6(1)–(2). The SEC concluded that Mr. Malouf had violated

§ 206(1) and (2) of the Act in three ways:

1. by failing to correct the misstatements on UASNM’s Forms ADV and website,

2. by failing to disclose his conflict of interest to his clients, and

3. by failing to seek best execution for his clients’ bond trades.

Mr. Malouf argues that the SEC erred in concluding that he violated

§ 206(1) and (2) because

the failure to correct UASNM’s misstatements cannot support liability,

the finding of scienter (when failing to disclose the conflict of

interest) is not supported by substantial evidence, and he owed no duty of best execution and the finding of a

violation is unsupported by the evidence.

We reject Mr. Malouf’s arguments.


25

1. A violation could be based on Mr. Malouf’s failure to correct UASNM’s misstatements.

Mr. Malouf argues that he cannot incur liability under § 206(1) and

(2) simply because he failed to correct UASNM’s misstatements. In Part II,

we addressed the same issue under

the Securities Act of 1933 § 17(a)(1) and (3) and Rule 10b-5(a) and (c).

See Discussion-Part II(A), above. The language in these provisions is

virtually identical to the language in the Investment Advisers Act § 206(1)

and (2).14 Given the virtually identical wording, Mr. Malouf urges us to

14 The Investment Advisers Act § 206(1) states that an investment adviser cannot “employ any device, scheme, or artifice to defraud any client or prospective client.” 15 U.S.C. § 80b-6(1). Similarly, the Securities Act of 1933 § 17(a)(1) states that an offeror or seller of securities cannot “employ any device, scheme, or artifice to defraud.” 15 U.S.C. § 77q(a)(1). And Rule 10b-5(a) states that no one can use interstate commerce “[t]o employ any device, scheme, or artifice to defraud.” 17 C.F.R. § 240.10b-5(a). The Investment Advisers Act § 206(2) prohibits investment advisers from “engag[ing] in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.” 15 U.S.C. § 80b-6(2). The Securities Act of 1933 § 17(a)(3) similarly states that offerors or sellers of securities cannot “engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.” 15 U.S.C. § 77q(a)(3). And Rule 10b-5(c) prohibits the use of interstate commerce “[t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit.” 17 C.F.R. § 240.10b-5(c).


26

interpret the Investment Advisers Act in the same way that we interpret

Rule 10b-5(a) and (c) and the Securities Act of 1933 § 17(a)(1) and (3).

We do so in light of the virtually identical language in these provisions.

See SEC v. Steadman , 967 F.2d 636, 641 n.3 (D.C. Cir. 1992) (interpreting

the Investment Advisers Act § 206(1) in the same way that the Supreme

Court interpreted the Securities Act of 1933 § 17(a)(1) because the

statutory language is virtually identical). Given this interpretation, we

conclude that Mr. Malouf’s failure to correct UASNM’s misstatements

could create liability under the Investment Advisers Act § 206(1) and (2).

2. Substantial evidence exists for the finding of scienter based on Mr. Malouf’s failure to disclose his conflict of interest.

Liability under the Investment Advisers Act § 206(1) requires proof

of scienter; liability under § 206(2) requires only simple negligence.

Robare Grp., Ltd. v. SEC , 922 F.3d 468, 472 (D.C. Cir. 2019). Scienter can

encompass extreme recklessness. See p. 20, above.

The SEC found scienter in Mr. Malouf’s failure to disclose his

conflict. Mr. Malouf challenges this finding on grounds that he

was “set-up” by UASNM’s chief compliance officer and believed that the chief compliance officer had been disclosing

the conflict.

But the SEC reasonably credited the chief compliance officer’s testimony

that he had not known about Mr. Malouf’s conflict. See p. 22, above. We


27

thus reject Mr. Malouf’s challenge to the SEC’s finding of scienter on the

claim under § 206(1) of the Investment Advisers Act.

3. Mr. Malouf owed a duty of best execution, and the SEC’s finding of a violation is supported by substantial evidence.

The duty of best execution requires a broker-dealer to seek the best

terms reasonably available for customer orders. Newton v. Merrill, Lynch,

Pierce, Fenner & Smith, Inc. , 135 F.3d 266, 270 (3d Cir. 1998) (en banc).

Mr. Malouf argues that

the SEC erred by finding that he owed this duty and

the evidence was insufficient to find a violation of this duty.15

We reject both arguments, concluding that (1) Mr. Malouf owed a duty of

best execution to his clients and (2) substantial evidence supports the

finding of a violation.

Under the duty of best execution, a fiduciary bears an obligation to

seek “the most favorable terms reasonably available under the

circumstances.” Geman v. SEC , 334 F.3d 1183, 1186 (10th Cir. 2003)

15 Mr. Malouf also suggests that the SEC erroneously ignored the administrative law judge’s conclusions of law. This suggestion assumes that the administrative law judge’s conclusions of law bound the SEC when it reviewed the judge’s decision. Mr. Malouf supplies no authority for this assumption.


28

(quoting Newton , 135 F.3d at 270). This obligation requires investment

advisers to seek the lowest price reasonably available for a client unless

the more expensive option results in better service. See Newton , 135 F.3d

at 270 n.2; Securities; Brokerage and Research Services, SEC Release No.

23170, 1986 WL 630442, at *11 (Apr. 23, 1986).16 When an investment

adviser is affiliated with the brokerage firm executing the transaction, the

adviser must make a good-faith judgment that the commission charged “is

at least as favorable to the [client] as that charged by other qualified

brokers.” Applicability of Comm.’s Policy Statement on the Future

Structure of Securities Markets to Selection of Brokers and Payment of

Commissions by Institutional Managers, SEC Release No. 318, 1972 WL

121270, at *2 (May 17, 1972). In cases of self-dealing, the investment

16 We defer to the SEC’s reasonable interpretations of ambiguous statutory provisions in federal securities laws when the interpretations carry the “force of law.” Thomas v. Metropolitan Life Ins. Co., 631 F.3d 1153, 1162 (10th Cir. 2011); see SEC v. Zandford , 535 U.S. 813, 819–20 (2002) (stating that the SEC’s reasonable interpretation of an ambiguous provision of the Securities Exchange Act, issued in a formal adjudication, is entitled to deference). We otherwise consider the SEC’s interpretations only for their persuasive value. Thomas, 631 F.3d. at 1162–63. In citing the SEC releases, we use them only for their persuasive value. We need not decide whether the SEC releases are subject to deference.


29

adviser bears a “particularly heavy” burden to justify a commission rate

exceeding the lowest available rate. Id.

Mr. Malouf concedes that the duty of best execution requires

reasonable diligence to ensure the best price reasonably available. But Mr.

Malouf argues that the duty of best execution is owed by the investment

firm as a whole, not by him individually. For this argument, Mr. Malouf

relies on Regulatory Notice 15-46 of the Financial Industry Regulatory

Authority. This notice refers to a “firm’s best execution obligation.”

Guidance on Best Execution Obligations in Equity, Options and Fixed

Income Markets, FINRA Regulatory Notice 15-46, at 4 (Nov. 2015). Mr.

Malouf seizes on this language in denying that the obligation applies to

individual brokers like himself. We reject Mr. Malouf’s argument for two

reasons:

1. The duty of best execution comes from the Investment Advisers Act, not Regulatory Notice 15-46.

2. Mr. Malouf has misinterpreted Regulatory Notice 15-46.

First, the duty of best execution originated in the Investment

Advisers Act rather than Notice 15-46. See Kurz v. Fidelity Mgmt. &

Research Co. , 556 F.3d 639, 640 (7th Cir. 2009) (stating that the duty of

best execution is “widely understood as a subject of regulation” under the

federal securities laws, including the Investment Advisers Act). The Act

prohibits investment advisers from engaging in a fraudulent or deceptive


30

transaction, practice, or course of business. Investment Advisers Act, 15

U.S.C. § 80b–6(2). This prohibition imposes a fiduciary duty of loyalty on

investment advisors, and the duty of loyalty subsumes the duty of best

execution. See SEC v. Capital Gains Research Bureau , 375 U.S. 180, 191–

92 (1963) (recognizing that the Investment Advisers Act obligates

investment advisers to provide “disinterested” advice); In re Hughes,

Exchange Act Release No. 4048, 1948 WL 29537, at *5 (Feb. 18, 1948)

(“A corollary of the fiduciary’s duty of loyalty to his principal is his duty

to obtain . . . the best price discoverable in the exercise of reasonable

diligence.”), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949).

Thus, the Act ultimately imposes a duty of best execution on investment

advisers (not just their firms). See In re DeSano , Advisers Act Release No.

2815, 2008 WL 5189512, at *4 (Dec. 11, 2008) (“Under Section 206 of the

[Investment] Advisers Act, an investment adviser has a fiduciary duty to

seek best execution for its clients’ security transactions.”).

Second, Mr. Malouf has misinterpreted Notice 15-46. This notice

points out that the Financial Industry Regulatory Authority has codified

the duty of best execution in Rule 5310 of the Financial Industry

Regulatory Authority Manual. Rule 5310 provides:

In any transaction for or with a customer or a customer of another broker-dealer, a member and persons associated with a member shall use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so


31

that the resultant price to the customer is as favorable as possible under prevailing market conditions.

Financial Industry Regulatory Authority Manual, Rule 5310(a)(1).

Rule 5310 does not confine the duty of best execution to firms: it

applies to “a member and persons associated with a member.” The rule’s

definition of the term “member” includes “any individual, partnership,

corporation or other legal entity admitted to membership” in the Financial

Industry Regulatory Authority, and the term “person” includes “any natural

person.” Id. , Rule 160(b)(10) & (12). Thus, Mr. Malouf’s argument is

based on a misreading of Rule 5310.

But Mr. Malouf also argues that even if he owed the duty of best

execution, he would avoid liability because he delegated compliance to the

chief compliance officer. For this argument, Mr. Malouf identifies the

administrative law judge’s conclusions of law that the chief compliance

officer’s duties included

review of UASNM’s trade tickets to ensure that the commissions were reasonable and that the investment advisers were complying with UASNM’s best-execution policy and

review to ensure compliance with UASNM’s compliance

manual.


32

But Mr. Malouf does not identify any evidence that he delegated his own

compliance with the best-execution policy.17

He instead points to conclusions of law stating that the chief

compliance officer’s duties included policing of UASNM employees for

adherence to the firm’s manual. But these conclusions of law do not

undermine the obligation of investment advisers (like Mr. Malouf) to

comply with their own fiduciary duties to their clients. See Commission

Guidance Regarding Client Commission Practices Under Section 28(E) of

the Securities Exchange Act of 1934 , Exchange Act Release, No. 54165,

2005 WL 4843294, at *2 & n.3 (July 18, 2006) (stating that investment

advisers bear duties to act in their clients’ best interests).

Mr. Malouf also argues that

there is no evidence that he could have executed trades for better prices and

he was not obligated to seek competing bids from brokers

before executing bond trades. We reject both arguments.

17 Even if Mr. Malouf had delegated his own compliance with the duty of best execution, he would remain liable. See Geddes v. United Staffing Alliance Emp. Med. Plan , 469 F.3d 919, 926 (10th Cir. 2006) (stating that when a fiduciary delegates tasks to others, the fiduciary remains “responsible for actions performed in his name”).


33

First, Mr. Malouf denies that he could have executed bond trades for

better prices than those offered by the Raymond James branch. But the

SEC could reasonably arrive at a contrary finding based on (1) the

testimony of an expert witness and (2) Mr. Malouf’s own testimony.

An expert witness opined that Mr. Malouf’s trades had resulted in

commissions to the Raymond James branch substantially exceeding the

industry’s standard commissions. In reaching this opinion, the expert

witness assumed that standard commissions range from 0.10 to 0.75

percent of the total amount of the bond transaction. He based this range on

personal experience, industry research, and consultation with other experts

in the field. With this assumption, the expert witness studied the bond

trades that Mr. Malouf had routed through the Raymond James branch and

determined that his clients had paid commissions between $442,106 and

$693,804 above the standard rate.

The expert witness presented two diagrams showing the differences

between the actual commissions paid on Mr. Malouf’s trades and standard

commissions18:

18 We have slightly edited the diagrams for clarity.


34

The SEC credited

the expert witness’s lower figure of total excess commissions paid by Mr. Malouf’s clients to the Raymond James branch ($442,106) and

Mr. Malouf’s own testimony about the percentage of UASNM

bond trades that he had conducted (60%).


35

Based on its findings, the SEC concluded that Mr. Malouf was responsible

for $265,263.60 in excess commissions paid by UASNM clients. In light of

the expert witness’s testimony, we conclude that the SEC reasonably found

that Mr. Malouf could have executed trades for better prices.

Second, Mr. Malouf contends that the duty of best execution did not

obligate him to seek multiple bids. Even without this obligation, the SEC

concluded that Mr. Malouf’s failure to seek multiple bids supported a

finding of scienter. This conclusion was based on substantial evidence.

The expert witness testified that multiple bids provide the ideal way

to satisfy the duty of best execution. Mr. Malouf agreed with this

testimony and conceded that he had routinely failed to seek competing bids

before routing trades through the Raymond James branch, with which he

had an undisclosed financial relationship. The SEC thus reasonably found

that Mr. Malouf had routed trades to the Raymond James branch in order to

benefit himself to the detriment of his clients.

* * *

We conclude that the SEC reasonably found that Mr. Malouf had

violated the Investment Advisers Act § 206(1) and (2) by failing to

correct UASNM’s misstatements,

disclose a conflict of interest, and

seek best execution.


36

B. The SEC also reasonably found that Mr. Malouf had aided and abetted UASNM’s violations of §§ 206 and 207 of the Investment Advisers Act and Rule 206(4)-1(a)(5).

Section 206 of the Investment Advisers Act bans practices that are

fraudulent, deceptive, or manipulative. 15 U.S.C. § 80b-6(4). For example,

it is fraudulent, deceptive, or manipulative to publish an advertisement

containing an untrue statement of material fact. 17 C.F.R. § 275.206(4)-

1(a)(5). And under § 207 of the Act, an investment adviser cannot omit

material facts in an SEC report (like a Form ADV). 15 U.S.C. § 80b-7.

Applying these prohibitions, the SEC found that Mr. Malouf had

aided and abetted UASNM’s violations of the Investment Advisers Act and

Rule 206(4)–1(a)(5). According to the SEC, UASNM violated these

provisions by

stating in the Forms ADV and on the company’s website that the employees had no conflicts of interest and

failing to disclose Mr. Malouf’s conflict of interest.

The SEC also found that Mr. Malouf had aided and abetted these violations

by recklessly failing to tell UASNM that he had a conflict of interest.

Mr. Malouf does not contest UASNM’s commission of a primary

violation. He instead argues that the SEC lacks substantial evidence for its

finding that he had aided and abetted UASNM’s violations. According to

Mr. Malouf, evidence was lacking on

scienter and


37

substantial assistance of UASNM’s violations.

Mr. Malouf also argues that by declining to charge him with aiding and

abetting a violation of Rule 10b-5(b), the SEC undermined its finding that

he had aided and abetted a violation of the Investment Advisers Act. We

reject Mr. Malouf’s arguments.

First, Mr. Malouf contests the SEC’s finding of scienter. As Mr.

Malouf suggests, scienter is an essential element of aiding and abetting a

violation of the securities law. See Howard v. SEC , 376 F.3d 1136, 1143

(D.C. Cir. 2004) (stating that liability for aiding and abetting requires

scienter). But we have already concluded that the SEC had reasonably

found scienter based on Mr. Malouf’s failure to correct UASNM’s

misstatements about the absence of a conflict of interest. See pp. 21–23,

above.19

19 Mr. Malouf argues that scienter cannot be based on his failure to detect another’s misconduct. To support this argument, he cites Howard v. SEC , 376 F.3d 1136 (D.C. Cir. 2004). There the D.C. Circuit held that the defendant had not acted with scienter when the only evidence of his intent was that he should have known about another’s wrongdoing. 376 F.3d at 1143.

Howard is not analogous. The SEC reasonably found that Mr. Malouf had recognized a conflict of interest, known that he needed to disclose it, and known that he had not disclosed to UASNM that his conflict was ongoing. Given this knowledge, Mr. Malouf knew or must have known that


38

Second, Mr. Malouf contests the finding on substantial assistance,

stating that his failure to correct UASNM’s misstatements did not facilitate

its fraudulent scheme. But in finding substantial assistance, the SEC did

not rely on a failure to correct UASNM’s misstatements; the SEC instead

relied on Mr. Malouf’s failure to disclose his conflict of interest arising

from Mr. Lamonde’s ongoing payments. UASNM’s failure to disclose this

conflict of interest stemmed largely from Mr. Malouf’s failure to tell other

UASNM officers about the ongoing payments from Mr. Lamonde. Without

this information, the other UASNM officers had no way of knowing that

Mr. Malouf was personally benefiting from bond trades routed through the

Raymond James branch.

Finally, Mr. Malouf points to the SEC’s decision not to charge him

with aiding and abetting UASNM’s making of a material misstatement in

violation of Rule 10b-5(b). According to Mr. Malouf, the absence of such a

charge must mean that the SEC did not believe that he had aided and

abetted UASNM’s violations. But Mr. Malouf does not provide any

UASNM could not fully disclose the conflict. At a minimum, the SEC had substantial evidence for its finding that Mr. Malouf had acted with extreme recklessness by facilitating UASNM’s failure to disclose the conflict. See Geman v. SEC , 334 F.3d 1183, 1195 (10th Cir. 2003) (holding that an individual had acted with extreme recklessness when he was aware of undisclosed information and “surely knew” that it had not been adequately reported).


39

authority for this leap. “[A]n agency decision not to enforce often involves

a complicated balancing of a number of factors which are peculiarly within

its expertise. So the agency must not only assess whether a violation has

occurred, but whether agency resources are best spent on this violation or

another . . . .” Heckler v. Chaney , 470 U.S. 821, 831 (1985). The SEC’s

decision not to bring an aiding or abetting charge under Rule 10b-5(b) does

not affect the existence of substantial evidence, so we decline to disturb

the SEC’s findings on this basis.

IV. The SEC did not err in deciding on the sanctions to impose.

Based on Mr. Malouf’s violation of the securities laws and related

rules, the administrative law judge imposed three sanctions:

1. a 7-1/2 year bar from the securities industry,

2. an order to cease and desist violations of the federal securities laws, and

3. a civil penalty of $75,000.

The SEC extended the bar from 7-1/2 years to life, ordered Mr. Malouf to

disgorge $562,001.26 plus prejudgment interest, and adopted the


40

administrative law judge’s other sanctions. Mr. Malouf asks us to vacate

the SEC’s lifetime ban and disgorgement order.20

We do not disturb sanctions imposed by the SEC unless they are

“beyond the law, devoid of factual support, or are ‘so lacking in

reasonableness as to constitute an abuse of discretion.’” C.E. Carlson, Inc.

v. SEC , 859 F.2d 1429, 1438 (10th Cir. 1988) (quoting Am. Power & Light

Co. v. SEC , 329 U.S. 90, 115 (1946)). In our view, the SEC did not abuse

its discretion in imposing the lifetime bar or in ordering Mr. Malouf to

disgorge $562,001.26 plus prejudgment interest.

A. The SEC did not abuse its discretion in ordering a lifetime bar from the securities industry.

Under the Investment Advisers Act, the SEC may bar advisers from

associating with the securities industry if

they “willfully violated” or “willfully aided [and] abetted . . . the violation” of federal securities law and

the bar is in the public interest.

20 In his reply brief, Mr. Malouf also contends that his sanctions were disproportionate to the sanctions imposed in other cases. But Mr. Malouf did not present this contention in his opening appeal brief. Raising the issue in his reply brief was too late. See, e.g., WildEarth Guardians v. EPA , 770 F.3d 919, 933 (10th Cir. 2014) (stating that it “was too late” to present a new issue in the petitioners’ reply brief).


41

15 U.S.C. § 80b-3(e)(5)–(6) & (f). The SEC concluded that both conditions

had been met.

Mr. Malouf argues that

he did not act willfully, the SEC penalized him for defending himself, and

the public interest did not support a lifetime bar in light of his

disclosures preceding the SEC investigation and his payment of restitution and civil penalties.

We reject these arguments.

First, according to Mr. Malouf, the SEC’s finding of willfulness must

have been based on his failure to require disclosure from others. For this

argument, Mr. Malouf insists that he delegated the duty of disclosure. We

disagree. Mr. Malouf blames the chief compliance officer, but this officer

could not have been expected to disclose a conflict of interest that he had

not known about. See pp. 22, 26, above. The SEC thus did not abuse its

discretion in determining that Mr. Malouf had acted willfully.

Second, Mr. Malouf contends that the SEC penalized him for

defending himself. We disagree. The SEC reasonably considered Mr.

Malouf’s failure to recognize his own wrongdoing. See Steadman v. SEC ,

603 F.2d 1126, 1140 (5th Cir. 1979) (noting that a defendant’s admission

of wrongful conduct (or lack of an admission thereof) is a factor “that

[has] been deemed relevant to the issuance of an injunction” from the


42

securities industry), aff’d , 450 U.S. 91 (1981); ZPR Inv. Mgmt. Inc. v. SEC ,

861 F.3d 1239, 1255 (11th Cir. 2017) (upholding a bar on continued work

in an industry when the SEC found that the petitioner had not genuinely

acknowledged his wrongdoing). Consideration of one’s acceptance of

responsibility constitutes “a routine and unexceptionable feature . . . of

criminal, let alone civil, punishment.” SEC v. Lipson , 278 F.3d 656, 664

(7th Cir. 2002). And the agency record is replete with examples of Mr.

Malouf’s refusal to accept responsibility for his actions. The SEC thus did

not abuse its discretion in considering Mr. Malouf’s failure to accept

responsibility.

Finally, Mr. Malouf stresses his (1) disclosures preceding the SEC’s

investigation and (2) prior payment of huge sums in restitution and civil

penalties. But his earlier disclosures and payments do not render a lifetime

bar unreasonable. Mr. Malouf waited roughly three years before making the

disclosures. And for about nine months of that period, Mr. Malouf ignored

an outside consultant’s directions to make the disclosures. The SEC

considered Mr. Malouf’s delay together with his payments toward

restitution and civil penalties, concluding that a lifetime bar from the

securities industry was justified. The SEC’s reasoning is rational and

supported by the evidence.


43

B. The SEC did not abuse its discretion in ordering disgorgement of $562,001.26 plus prejudgment interest.

Mr. Malouf also asks us to vacate the SEC’s order that he disgorge

$562,001.26 plus prejudgment interest, arguing that he did not commit

fraud or violate the law. For this argument, he again casts blame on the

chief compliance officer for failing to disclose the financial arrangement

that created a conflict of interest. But we have elsewhere rejected Mr.

Malouf’s effort to pin the blame on the chief compliance officer. See pp.

22, 26, 41, above.

Mr. Malouf also suggests that the SEC abused its discretion by

ordering him to disgorge the funds that he had received from Mr. Lamonde.

The administrative law judge had regarded those funds as legal profits that

Mr. Malouf did not need to disgorge. The SEC disagreed, concluding that

the payments had resulted from Mr. Malouf’s violations of the securities

laws. Mr. Malouf suggests that the SEC should have followed the

administrative law judge’s characterization of the payments.

The SEC did not abuse its discretion. Mr. Malouf knew that he was

profiting when he and others at UASNM routed bond transactions through

the Raymond James branch. See Appellant’s App’x, vol. 4, at 941–42

(testimony of Mr. Malouf) (admitting that he traded through the Raymond

James branch in part to get paid). Yet Mr. Malouf waited years to tell

others at UASNM about his ongoing payments from Mr. Lamonde. Given


44

this delay in disclosing the conflict, the SEC reasonably concluded that all

of the payments to Mr. Malouf were traceable to his misconduct and

needed to be disgorged. See SEC. v. Maxxon, Inc. , 465 F.3d 1174, 1179

(10th Cir. 2006) (recognizing that the amount to be disgorged need only be

a “‘reasonable approximation’ of illegal profits”). We thus reject Mr.

Malouf’s challenge to the disgorgement order.

Affirmed.


1 (Slip Opinion) OCTOBER TERM, 2018

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

LORENZO v. SECURITIES AND EXCHANGE COMMISSION

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 17–1077. Argued December 3, 2018—Decided March 27, 2019

Securities and Exchange Commission Rule 10b–5 makes it unlawful to (a) “employ any device, scheme, or artifice to defraud,” (b) “make any untrue statement of a material fact,” or (c) “engage in any act, prac-tice, or course of business” that “operates . . . as a fraud or deceit” in connection with the purchase or sale of securities. In Janus Capital Group, Inc. v. First Derivative Traders, 564 U. S. 135, this Court held that to be a “maker” of a statement under subsection (b) of that Rule,one must have “ultimate authority over the statement, including its content and whether and how to communicate it.” Id., at 142 (em-phasis added). On the facts of Janus, this meant that an investment adviser who had merely “participat[ed] in the drafting of a false statement” “made” by another could not be held liable in a private ac-tion under subsection (b). Id., at 145.

Petitioner Francis Lorenzo, while the director of investment bank-ing at an SEC-registered brokerage firm, sent two e-mails to prospec-tive investors. The content of those e-mails, which Lorenzo’s boss supplied, described a potential investment in a company with “con-firmed assets” of $10 million. In fact, Lorenzo knew that the compa-ny had recently disclosed that its total assets were worth less than $400,000.

In 2015, the Commission found that Lorenzo had violated Rule 10b–5, §10(b) of the Exchange Act, and §17(a)(1) of the Securities Act by sending false and misleading statements to investors with intent to defraud. On appeal, the District of Columbia Circuit held that Lo-renzo could not be held liable as a “maker” under subsection (b) of the Rule in light of Janus, but sustained the Commission’s finding with respect to subsections (a) and (c) of the Rule, as well as §10(b) and

2 LORENZO v. SEC

Syllabus

§17(a)(1).

Held: Dissemination of false or misleading statements with intent to defraud can fall within the scope of Rules 10b–5(a) and (c), as well as the relevant statutory provisions, even if the disseminator did not “make” the statements and consequently falls outside Rule 10b–5(b). Pp. 5–13.

(a) It would seem obvious that the words in these provisions are, as ordinarily used, sufficiently broad to include within their scope the dissemination of false or misleading information with the intent todefraud. By sending e-mails he understood to contain material un-truths, Lorenzo “employ[ed]” a “device,” “scheme,” and “artifice to de-fraud” within the meaning of subsection (a) of the Rule, §10(b), and§17(a)(1). By the same conduct, he “engage[d] in a[n] act, practice, orcourse of business” that “operate[d] . . . as a fraud or deceit” undersubsection (c) of the Rule. As Lorenzo does not challenge the appeals court’s scienter finding, it is undisputed that he sent the e-mails with“intent to deceive, manipulate, or defraud” the recipients. Aaron v. SEC, 446 U. S. 680, 686, and n. 5. Resort to the expansive dictionarydefinitions of “device,” “scheme,” and “artifice” in Rule 10b–5(a) and §17(a)(1), and of “act” and “practice” in Rule 10b–5(c), only strength-ens this conclusion. Under the circumstances, it is difficult to see how Lorenzo’s actions could escape the reach of these provisions.Pp. 5–7.

(b) Lorenzo counters that the only way to be liable for false state-ments is through those provisions of the securities laws—like Rule10b–5(b)—that refer specifically to false statements. Holding to thecontrary, he and the dissent say, would render subsection (b) “super-fluous.” The premise of this argument is that each subsection gov-erns different, mutually exclusive, spheres of conduct. But this Court and the Commission have long recognized considerable overlapamong the subsections of the Rule and related provisions of the secu-rities laws. And the idea that each subsection governs a separatetype of conduct is difficult to reconcile with the Rule’s language, since at least some conduct that amounts to “employ[ing]” a “device, scheme, or artifice to defraud” under subsection (a) also amounts to “engag[ing] in a[n] act . . . which operates . . . as a fraud” under sub-section (c). This Court’s conviction is strengthened by the fact that the plainly fraudulent behavior confronted here might otherwise fall outside the Rule’s scope. Using false representations to induce thepurchase of securities would seem a paradigmatic example of securi-ties fraud. Pp. 7–9.

(c) Lorenzo and the dissent make a few other important arguments. The dissent contends that applying Rules 10b–5(a) and (c) to conduct like Lorenzo’s would render Janus “a dead letter.” Post, at 9. But

3 Cite as: 587 U. S. ____ (2019)

Syllabus

Janus concerned subsection (b), and it said nothing about the Rule’s application to the dissemination of false or misleading information.Thus, Janus would remain relevant (and preclude liability) where anindividual neither makes nor disseminates false information— provided, of course, that the individual is not involved in some other form of fraud. Lorenzo also claims that imposing primary liability upon his conduct would erase or at least weaken the distinction be-tween primary and secondary liability under the statute’s “aiding and abetting” provision. See 15 U. S. C. §78t(e). But the line the Court adopts today is clear: Those who disseminate false statements with intent to defraud are primarily liable under Rules 10b–5(a) and (c), §10(b), and §17(a)(1), even if they are secondarily liable under Rule 10b–5(b). As for Lorenzo’s suggestion that those like him ought to beheld secondarily liable, this offer will, too often, prove illusory.Where a “maker” of a false statement does not violate subsection (b)of the Rule (perhaps because he lacked the necessary intent), a dis-seminator of those statements, even one knowingly engaged in an egregious fraud, could not be held to have violated the “aiding and abetting” statute. And if, as Lorenzo claims, the disseminator has not primarily violated other parts of Rule 10b–5, then such a fraud, whatever its intent or consequences, might escape liability altogeth-er. That anomalous result is not what Congress intended. Pp. 9–13.

872 F. 3d 578, affirmed.

BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and GINSBURG, ALITO, SOTOMAYOR, and KAGAN, JJ., joined. THOM-

AS, J., filed a dissenting opinion, in which GORSUCH, J., joined. KAV-ANAUGH, J., took no part in the consideration or decision of the case.

_________________

_________________

1 Cite as: 587 U. S. ____ (2019)

Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in thepreliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Wash-ington, D. C. 20543, of any typographical or other formal errors, in orderthat corrections may be made before the preliminary print goes to press.


No. 17–1077

FRANCIS V. LORENZO, PETITIONER v. SECURITIES AND EXCHANGE COMMISSION

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

[March 27, 2019]

JUSTICE BREYER delivered the opinion of the Court. Securities and Exchange Commission Rule 10b–5 makes

it unlawful:

“(a) To employ any device, scheme, or artifice to defraud,

“(b) To make any untrue statement of a material fact . . . , or

“(c) To engage in any act, practice, or course of busi-ness which operates or would operate as a fraud or deceit . . . in connection with the purchase or sale of any security.”17 CFR §240.10b–5 (2018).

In Janus Capital Group, Inc. v. First Derivative Traders, 564 U. S. 135 (2011), we examined the second of these provisions, Rule 10b–5(b), which forbids the “mak[ing]” of “any untrue statement of a material fact.” We held that the “maker of a statement is the person or entity with ultimate authority over the statement, including its con-tent and whether and how to communicate it.” Id., at 142 (emphasis added). We said that “[w]ithout control, a person or entity can merely suggest what to say, not

2 LORENZO v. SEC


‘make’ a statement in its own right.” Ibid. And we illus-trated our holding with an analogy: “[W]hen a speechwriter drafts a speech, the content is entirely within the controlof the person who delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said.” Id., at 143. On the facts of Janus, this meant that an invest-ment adviser who had merely “participat[ed] in the draft-ing of a false statement” “made” by another could not beheld liable in a private action under subsection (b) of Rule10b–5. Id., at 145.

In this case, we consider whether those who do not “make” statements (as Janus defined “make”), but who disseminate false or misleading statements to potentialinvestors with the intent to defraud, can be found to have violated the other parts of Rule 10b–5, subsections (a) and (c), as well as related provisions of the securities laws,§10(b) of the Securities Exchange Act of 1934, 48 Stat.891, as amended, 15 U. S. C. §78j(b), and §17(a)(1) of the Securities Act of 1933, 48 Stat. 84–85, as amended, 15 U. S. C. §77q(a)(1). We believe that they can.

I A

For our purposes, the relevant facts are not in dispute. Francis Lorenzo, the petitioner, was the director of in-vestment banking at Charles Vista, LLC, a registeredbroker-dealer in Staten Island, New York. Lorenzo’s onlyinvestment banking client at the time was Waste2Energy Holdings, Inc., a company developing technology to con-vert “solid waste” into “clean renewable energy.”

In a June 2009 public filing, Waste2Energy stated thatits total assets were worth about $14 million. This figureincluded intangible assets, namely, intellectual property, valued at more than $10 million. Lorenzo was skeptical of this valuation, later testifying that the intangibles were a “dead asset” because the technology “didn’t really work.”

3 Cite as: 587 U. S. ____ (2019)


During the summer and early fall of 2009, Waste2Energy hired Lorenzo’s firm, Charles Vista, to sellto investors $15 million worth of debentures, a form of “debt secured only by the debtor’s earning power, not by a lien on any specific asset,” Black’s Law Dictionary 486(10th ed. 2014).

In early October 2009, Waste2Energy publicly disclosed, and Lorenzo was told, that its intellectual property was worthless, that it had “ ‘ “[w]rit[ten] off . . . all [of its] in-tangible assets,” ’ ” and that its total assets (as of March31, 2009) amounted to $370,552.

Shortly thereafter, on October 14, 2009, Lorenzo sent two e-mails to prospective investors describing the deben-ture offering. According to later testimony by Lorenzo, he sent the e-mails at the direction of his boss, who supplied the content and “approved” the messages. The e-mails described the investment in Waste2Energy as having “3 layers of protection,” including $10 million in “confirmed assets.” The e-mails nowhere revealed the fact that Waste2Energy had publicly stated that its assets were in fact worth less than $400,000. Lorenzo signed thee-mails with his own name, he identified himself as “Vice President—Investment Banking,” and he invited the recipients to “call with any questions.”

B In 2013, the Securities and Exchange Commission

instituted proceedings against Lorenzo (along with hisboss and Charles Vista). The Commission charged that Lorenzo had violated Rule 10b–5, §10(b) of the Exchange Act, and §17(a)(1) of the Securities Act. Ultimately, theCommission found that Lorenzo had run afoul of these provisions by sending false and misleading statements to investors with intent to defraud. As a sanction, it fined Lorenzo $15,000, ordered him to cease and desist from violating the securities laws, and barred him from working

4 LORENZO v. SEC


in the securities industry for life. Lorenzo appealed, arguing primarily that in sending the

e-mails he lacked the intent required to establish a viola-tion of Rule 10b–5, §10(b), and §17(a)(1), which we have characterized as “ ‘a mental state embracing intent to deceive, manipulate, or defraud.’ ” Aaron v. SEC, 446 U. S. 680, 686, and n. 5 (1980). With one judge dissenting,the Court of Appeals panel rejected Lorenzo’s lack-of-intent argument. 872 F. 3d 578, 583 (CADC 2017). Lo-renzo does not challenge the panel’s scienter finding.Reply Brief 17.

Lorenzo also argued that, in light of Janus, he could not be held liable under subsection (b) of Rule 10b–5. 872 F. 3d, at 586–587. The panel agreed. Because his boss “asked Lorenzo to send the emails, supplied the central content, and approved the messages for distribution,” id., at 588, it was the boss that had “ultimate authority” over the content of the statement “and whether and how to communicate it,” Janus, 563 U. S., at 142. (We took thiscase on the assumption that Lorenzo was not a “maker”under subsection (b) of Rule 10b–5, and do not revisit thecourt’s decision on this point.)

The Court of Appeals nonetheless sustained (with one judge dissenting) the Commission’s finding that, by know-ingly disseminating false information to prospective inves-tors, Lorenzo had violated other parts of Rule 10b–5, subsections (a) and (c), as well as §10(b) and §17(a)(1).

Lorenzo then filed a petition for certiorari in this Court.We granted review to resolve disagreement about whether someone who is not a “maker” of a misstatement under Janus can nevertheless be found to have violated the other subsections of Rule 10b–5 and related provisions of the securities laws, when the only conduct involved concerns amisstatement. Compare e.g., 872 F. 3d 578, with WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F. 3d 1039, 1057–1058 (CA9 2011).

5 Cite as: 587 U. S. ____ (2019)


II A

At the outset, we review the relevant provisions of Rule10b–5 and of the statutes. See Appendix, infra. As we have said, subsection (a) of the Rule makes it unlawful to “employ any device, scheme, or artifice to defraud.” Sub-section (b) makes it unlawful to “make any untrue state-ment of a material fact.” And subsection (c) makes itunlawful to “engage in any act, practice, or course of busi-ness” that “operates . . . as a fraud or deceit.” See 17 CFR §240.10b–5.

There are also two statutes at issue. Section 10(b)makes it unlawful to “use or employ . . . any manipulative or deceptive device or contrivance” in contravention of Commission rules and regulations. 15 U. S. C. §78j(b). Byits authority under that section, the Commission promul-gated Rule 10b–5. The second statutory provision is§17(a), which, like Rule 10b–5, is organized into threesubsections. 15 U. S. C. §77q(a). Here, however, we con-sider only the first subsection, §17(a)(1), for this is theonly subsection that the Commission charged Lorenzowith violating. Like Rule 10b–5(a), (a)(1) makes it unlaw-ful to “employ any device, scheme, or artifice to defraud.”

B After examining the relevant language, precedent, and

purpose, we conclude that (assuming other here-irrelevant legal requirements are met) dissemination of false or misleading statements with intent to defraud can fall within the scope of subsections (a) and (c) of Rule 10b–5, as well as the relevant statutory provisions. In our view, that is so even if the disseminator did not “make” the statements and consequently falls outside subsection (b) of the Rule.

It would seem obvious that the words in these provisions are, as ordinarily used, sufficiently broad to include within

6 LORENZO v. SEC


their scope the dissemination of false or misleading infor-mation with the intent to defraud. By sending emails heunderstood to contain material untruths, Lorenzo “em-ploy[ed]” a “device,” “scheme,” and “artifice to defraud” within the meaning of subsection (a) of the Rule, §10(b),and §17(a)(1). By the same conduct, he “engage[d] in a[n]act, practice, or course of business” that “operate[d] . . . as a fraud or deceit” under subsection (c) of the Rule. Recall that Lorenzo does not challenge the appeals court’s scien-ter finding, so we take for granted that he sent the emails with “intent to deceive, manipulate, or defraud” the recipi-ents. Aaron, 446 U. S., at 686, n. 5. Under the circum-stances, it is difficult to see how his actions could escapethe reach of those provisions.

Resort to dictionary definitions only strengthens this conclusion. A “ ‘device,’ ” we have observed, is simply“ ‘[t]hat which is devised, or formed by design’ ”; a “ ‘scheme’ ” is a “ ‘project,’ ” “ ‘plan[,] or program of some-thing to be done’ ”; and an “ ‘artifice’ ” is “ ‘an artful strata-gem or trick.’ ” Id., at 696, n. 13 (quoting Webster’s Inter-national Dictionary 713, 2234, 157 (2d ed. 1934)(Webster’s Second)). By these lights, dissemination offalse or misleading material is easily an “artful stratagem”or a “plan,” “devised” to defraud an investor under subsec-tion (a). See Rule 10b–5(a) (making it unlawful to “employ any device, scheme, or artifice to defraud”); §17(a)(1) (same). The words “act” and “practice” in subsection (c)are similarly expansive. Webster’s Second 25 (defining“act” as “a doing” or a “thing done”); id., at 1937 (defining “practice” as an “action” or “deed”); see Rule 10b–5(c) (making it unlawful to “engage in a[n] act, practice, or course of business” that “operates . . . as a fraud or deceit”).

These provisions capture a wide range of conduct.Applying them may present difficult problems of scope in borderline cases. Purpose, precedent, and circumstance

7 Cite as: 587 U. S. ____ (2019)


could lead to narrowing their reach in other contexts. But we see nothing borderline about this case, where the relevant conduct (as found by the Commission) consists of disseminating false or misleading information to prospec-tive investors with the intent to defraud. And while one can readily imagine other actors tangentially involved in dissemination—say, a mailroom clerk—for whom liability would typically be inappropriate, the petitioner in thiscase sent false statements directly to investors, invited them to follow up with questions, and did so in his capacityas vice president of an investment banking company.

C Lorenzo argues that, despite the natural meaning of

these provisions, they should not reach his conduct. This is so, he says, because the only way to be liable for false statements is through those provisions that refer specifi-cally to false statements. Other provisions, he says, con-cern “scheme liability claims” and are violated only when conduct other than misstatements is involved. Brief for Petitioner 4–6, 28–30. Thus, only those who “make” un-true statements under subsection (b) can violate Rule 10b–5 in connection with statements. (Similarly, §17(a)(2)would be the sole route for finding liability for statementsunder §17(a).) Holding to the contrary, he and the dissentinsist, would render subsection (b) of Rule 10b–5 “super-fluous.” See post, at 6–7 (opinion of THOMAS, J.).

The premise of this argument is that each of theseprovisions should be read as governing different, mutuallyexclusive, spheres of conduct. But this Court and the Commission have long recognized considerable overlapamong the subsections of the Rule and related provisions of the securities laws. See Herman & MacLean v. Huddle-ston, 459 U. S. 375, 383 (1983) (“[I]t is hardly a novel proposition that” different portions of the securities laws “prohibit some of the same conduct” (internal quotation

8 LORENZO v. SEC


marks omitted)). As we have explained, these laws marked the “first experiment in federal regulation of the securities industry.” SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180, 198 (1963). It is “understand-able, therefore,” that “in declaring certain practices unlaw-ful,” it was thought prudent “to include both a general proscription against fraudulent and deceptive practices and, out of an abundance of caution, a specific proscriptionagainst nondisclosure” even though “a specific proscription against nondisclosure” might in other circumstances be deemed “surplusage.” Id., at 198–199. “Each succeedingprohibition” was thus “meant to cover additional kinds ofillegalities—not to narrow the reach of the prior sections.” United States v. Naftalin, 441 U. S. 768, 774 (1979). We have found “ ‘no warrant for narrowing alternative provi-sions . . . adopted with the purpose of affording added safeguards.’ ” Ibid. (quoting United States v. Gilliland, 312 U. S. 86, 93 (1941)); see Affiliated Ute Citizens of Utah v. United States, 406 U. S. 128, 152–153 (1972) (While “thesecond subparagraph of [Rule 10b–5] specifies the makingof an untrue statement . . . [t]he first and third subpara-graphs are not so restricted”). And since its earliest days, the Commission has not viewed these provisions as mutu-ally exclusive. See, e.g., In re R. D. Bayly & Co., 19 S. E. C. 773 (1945) (finding violations of what would become Rules 10b–5(b) and (c) based on the same misrepresentationsand omissions); In re Arthur Hays & Co., 5 S. E. C. 271 (1939) (finding violations of both §§17(a)(2) and (a)(3) based on false representations in stock sales).

The idea that each subsection of Rule 10b–5 governs aseparate type of conduct is also difficult to reconcile withthe language of subsections (a) and (c). It should go with-out saying that at least some conduct amounts to “em-ploy[ing]” a “device, scheme, or artifice to defraud” undersubsection (a) as well as “engag[ing] in a[n] act . . . which operates . . . as a fraud” under subsection (c). In Affiliated

9 Cite as: 587 U. S. ____ (2019)


Ute, for instance, we described the “defendants’ activities” as falling “within the very language of one or the other of those subparagraphs, a ‘course of business’ or a ‘device, scheme, or artifice’ that operated as a fraud.” 406 U. S., at 153. (The dissent, for its part, offers no account of how thesuperfluity problems that motivate its interpretation can be avoided where subsections (a) and (c) are concerned.)

Coupled with the Rule’s expansive language, whichreadily embraces the conduct before us, this considerable overlap suggests we should not hesitate to hold that Lo-renzo’s conduct ran afoul of subsections (a) and (c), as well as the related statutory provisions. Our conviction is strengthened by the fact that we here confront behavior that, though plainly fraudulent, might otherwise falloutside the scope of the Rule. Lorenzo’s view that subsec-tion (b), the making-false-statements provision, exclusively regulates conduct involving false or misleading statementswould mean those who disseminate false statements with the intent to cheat investors might escape liability under the Rule altogether. But using false representations toinduce the purchase of securities would seem a paradig-matic example of securities fraud. We do not know whyCongress or the Commission would have wanted to disarmenforcement in this way. And we cannot easily reconcile Lorenzo’s approach with the basic purpose behind these laws: “to substitute a philosophy of full disclosure for thephilosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry.” Capital Gains, 375 U. S., at 186. See also, e.g., SEC v. W. J. Howey Co., 328 U. S. 293, 299 (1946) (the securities lawswere designed “to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits”).

III Lorenzo and the dissent make a few other important

10 LORENZO v. SEC


arguments. They contend that applying subsections (a) or (c) of Rule 10b–5 to conduct like his would render our decision in Janus (which we described at the outset, su-pra, at 1–2) “a dead letter,” post, at 9. But we do not see how that is so. In Janus, we considered the language insubsection (b), which prohibits the “mak[ing]” of “anyuntrue statement of a material fact.” See 564 U. S., at 141–143. We held that the “maker” of a “statement” is the “person or entity with ultimate authority over the state-ment.” Id., at 142. And we found that subsection (b) did not (under the circumstances) cover an investment adviserwho helped draft misstatements issued by a different entity that controlled the statements’ content. Id., at 146– 148. We said nothing about the Rule’s application to the dissemination of false or misleading information. And we can assume that Janus would remain relevant (and pre-clude liability) where an individual neither makes nor disseminates false information—provided, of course, that the individual is not involved in some other form of fraud.

Next, Lorenzo points to the statute’s “aiding and abet-ting” provision. 15 U. S. C. §78t(e). This provision, en-forceable only by the Commission (and not by private parties), makes it unlawful to “knowingly or recklessly . . . provid[e] substantial assistance to another person” who violates the Rule. Ibid.; see Janus, 564 U. S., at 143 (cit-ing Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164 (1994)). Lorenzo claims that imposing primary liability upon his conduct would erase or at least weaken what is otherwise a clear distinc-tion between primary and secondary (i.e., aiding and abetting) liability. He emphasizes that, under today’sholding, a disseminator might be a primary offender withrespect to subsection (a) of Rule 10b–5 (by employing a “scheme” to “defraud”) and also secondarily liable as an aider and abettor with respect to subsection (b) (by provid-ing substantial assistance to one who “makes” a false

11 Cite as: 587 U. S. ____ (2019)


statement). And he refers to two cases that, in his view, argue in favor of circumscribing primary liability. See Central Bank, 511 U. S., at 164; Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148 (2008).

We do not believe, however, that our decision creates a serious anomaly or otherwise weakens the distinction between primary and secondary liability. For one thing, itis hardly unusual for the same conduct to be a primary violation with respect to one offense and aiding and abet-ting with respect to another. John, for example, might sell Bill an unregistered firearm in order to help Bill rob abank, under circumstances that make him primarily li-able for the gun sale and secondarily liable for the bank robbery.

For another, the cases to which Lorenzo refers do not help his cause. Take Central Bank, where we held that Rule 10b–5’s private right of action does not permit suitsagainst secondary violators. 511 U. S., at 177. The hold-ing of Central Bank, we have said, suggests the need for a “clean line” between conduct that constitutes a primaryviolation of Rule 10b–5 and conduct that amounts to a secondary violation. Janus, 564 U. S., at 143, and n. 6. Thus, in Janus, we sought an interpretation of “make”that could neatly divide primary violators and actors too far removed from the ultimate decision to communicate a statement. Ibid. (citing Central Bank, 511 U. S. 164). The line we adopt today is just as administrable: Those whodisseminate false statements with intent to defraud are primarily liable under Rules 10b–5(a) and (c), §10(b), and §17(a)(1), even if they are secondarily liable under Rule10b–5(b). Lorenzo suggests that classifying dissemination as a primary violation would inappropriately subject peripheral players in fraud (including him, naturally) tosubstantial liability. We suspect the investors who re-ceived Lorenzo’s e-mails would not view the deception so

12 LORENZO v. SEC


favorably. And as Central Bank itself made clear, even a bit participant in the securities markets “may be liable as a primary violator under [Rule] 10b–5” so long as “all of the requirements for primary liability . . . are met.” Id., at 191.

Lorenzo’s reliance on Stoneridge is even further afield. There, we held that private plaintiffs could not bring suit against certain securities defendants based on undisclosed deceptions upon which the plaintiffs could not haverelied. 552 U. S., at 159. But the Commission, unlike private parties, need not show reliance in its enforcementactions. And even supposing reliance were relevant here,Lorenzo’s conduct involved the direct transmission of false statements to prospective investors intended to induce reliance—far from the kind of concealed fraud at issue in Stoneridge.

As for Lorenzo’s suggestion that those like him ought tobe held secondarily liable, this offer will, far too often,prove illusory. In instances where a “maker” of a false statement does not violate subsection (b) of the Rule (per-haps because he lacked the necessary intent), a dissemina-tor of those statements, even one knowingly engaged in an egregious fraud, could not be held to have violated the “aiding and abetting” statute. That is because the statute insists that there be a primary violator to whom the sec-ondary violator provided “substantial assistance.” 15 U. S. C. §78t(e). And the latter can be “deemed to be in violation” of the provision only “to the same extent as the person to whom such assistance is provided.” Ibid. In other words, if Acme Corp. could not be held liable under subsection (b) for a statement it made, then a knowing disseminator of those statements could not be held liable for aiding and abetting Acme under subsection (b). And if, as Lorenzo claims, the disseminator has not primarilyviolated other parts of Rule 10b–5, then such a fraud, whatever its intent or consequences, might escape liability

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altogether.That is not what Congress intended. Rather, Congress

intended to root out all manner of fraud in the securities industry. And it gave to the Commission the tools to accomplish that job.

* * * For these reasons, the judgment of the Court of Appeals

is affirmed. So ordered.

JUSTICE KAVANAUGH took no part in the considerationor decision of this case.


14 LORENZO v. SEC

Appendix to opinion of the Court

APPENDIX

17 CFR §240.10b–5

“It shall be unlawful for any person, directly or indirectly,by the use of any means or instrumentality of interstatecommerce, or of the mails or of any facility of any national securities exchange,


“(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in or-der to make the statements made, in the light of the circumstances under which they were made, not mis-leading, or

“(c) To engage in any act, practice, or course of busi-ness which operates or would operate as a fraud or deceit upon any person

in connection with the purchase or sale of any security.”

15 U. S. C. §78j

“It shall be unlawful for any person, directly or in-directly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—

* * *

“(b) To use or employ, in connection with the purchaseor sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement[,] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as


15 Cite as: 587 U. S. ____ (2019)

Appendix to opinion of the Court

necessary or appropriate in the public interest or for the protection of investors.”

15 U. S. C. §77q

“(a) Use of interstate commerce for purpose of fraud ordeceit

“It shall be unlawful for any person in the offer or sale of any securities (including security-based swaps) or anysecurity-based swap agreement . . . by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly—

“(1) to employ any device, scheme, or artifice to de-fraud, or

“(2) to obtain money or property by means of any untrue statement of a material fact or any omission tostate a material fact necessary in order to make thestatements made, in light of the circumstances under which they were made, not misleading; or

“(3) to engage in any transaction, practice, or courseof business which operates or would operate as a fraud or deceit upon the purchaser.”

15 U. S. C. §78t

“(e) Prosecution of persons who aid and abet violations

“For purposes of any action brought by the Commission . . . , any person that knowingly or recklessly providessubstantial assistance to another person in violation of a provision of this chapter, or of any rule or regulationissued under this chapter, shall be deemed in violation of such provision to the same extent as the person to whomsuch assistance is provided.

_________________

_________________

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THOMAS, J., dissenting


No. 17–1077

FRANCIS V. LORENZO, PETITIONER v. SECURITIES AND EXCHANGE COMMISSION

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

[March 27, 2019]

JUSTICE THOMAS, with whom JUSTICE GORSUCH joins,dissenting.

In Janus Capital Group, Inc. v. First Derivative Traders, 564 U. S. 135 (2011), we drew a clear line between primary and secondary liability in fraudulent-misstatement cases:A person does not “make” a fraudulent misstatement within the meaning of Securities and Exchange Commis-sion (SEC) Rule 10b–5(b)—and thus is not primarily liable for the statement—if the person lacks “ultimate authorityover the statement.” Id., at 142. Such a person could,however, be liable as an aider and abettor under principlesof secondary liability.

Today, the Court eviscerates this distinction by holding that a person who has not “made” a fraudulent misstate-ment can nevertheless be primarily liable for it. Because the majority misconstrues the securities laws and flouts our precedent in a way that is likely to have far-reachingconsequences, I respectfully dissent.

I To appreciate the sweeping nature of the Court’s hold-

ing, it is helpful to begin with the facts of this case. On October 14, 2009, the owner of the firm at which petitioner Frank Lorenzo worked instructed him to send e-mails to two clients regarding a debenture offering. The owner

2 LORENZO v. SEC


explained that he wanted the e-mails to come from thefirm’s investment-banking division, which Lorenzo di-rected. Lorenzo promptly addressed an e-mail to eachclient, “cut and pasted” the contents of each e-mail—which he received from the owner—into the body, and “sent [them] out.” App. 321. It is undisputed that Lorenzo did not draft the e-mails’ contents, though he knew that theycontained false or misleading statements regarding the debenture offering. Both e-mails stated that they were sent “[a]t the request of ” the owner of the firm. Id., at 403, 405. No other allegedly fraudulent conduct is atissue.

In 2013, the SEC brought enforcement proceedings against the owner of the firm, the firm itself, and Lorenzo.Even though Lorenzo sent the e-mails at the owner’s request, the SEC did not charge Lorenzo with aiding and abetting fraud committed by the owner. See 15 U. S. C. §§ 77o(b), 78o(b)(4)(E), 78t(e). Instead, the SEC charged Lorenzo as a primary violator of multiple securities laws,1

including Rule 10b–5(b), which prohibits “mak[ing] any untrue statement of a material fact . . . in connection with the purchase or sale of any security.” 17 CFR §240.10b– 5(b) (2018); see Ernst & Ernst v. Hochfelder, 425 U. S. 185, 212–214 (1976) (construing Rule 10b–5(b) to require scien-ter). The SEC ultimately concluded that, by “knowinglysen[ding] materially misleading language from his own email account to prospective investors,” App. to Pet. forCert. 77, Lorenzo violated Rule 10b–5(b) and several other antifraud provisions of the securities laws. The SEC “barred [him] from serving in the securities industry” forlife. Id., at 91.

The Court of Appeals unanimously rejected the SEC’sdetermination that Lorenzo violated Rule 10b–5(b). Ap-

—————— 1 For ease of reference, I use “securities laws” to refer to both statutes

and SEC regulations.

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plying Janus, the court held that Lorenzo did not “make” the false statements at issue because he merely “transmit-ted statements devised by [his boss] at [his boss’] direc-tion.” 872 F. 3d 578, 587 (CADC 2017). The SEC has not challenged that aspect of the decision below.

The panel majority nevertheless upheld the SEC’s deci-sion holding Lorenzo primarily liable for the same falsestatements under other provisions of the securities laws—specifically, §10(b) of the Securities Exchange Act of 1934(1934 Act), Rules 10b–5(a) and (c), and §17(a)(1) of the Securities Act of 1933 (1933 Act). Unlike Rule 10b–5(b),none of these provisions pertains specifically to fraudulent misstatements.

II Even though Lorenzo undisputedly did not “make” the

false statements at issue in this case under Rule 10b–5(b),the Court follows the SEC in holding him primarily liablefor those statements under other provisions of the securi-ties laws. As construed by the Court, each of these moregeneral laws completely subsumes Rule 10b–5(b) and §17(a)(2) of the 1933 Act in cases involving fraudulentmisstatements, even though these provisions specifically govern false statements. The majority’s interpretation ofthese provisions cannot be reconciled with their text or our precedents. Thus, I am once again compelled to “disa-gre[e] with the SEC’s broad view” of the securities laws. Janus, supra, at 145, n. 8.

A I begin with the text. The Court of Appeals held that

Lorenzo violated §10(b) of the 1934 Act and Rules 10b–5(a) and (c). In relevant part, §10(b) makes it unlawful for a person, in connection with the purchase or sale of a security,“[t]o use or employ . . . any manipulative or deceptivedevice or contrivance” in contravention of an SEC rule. 15

4 LORENZO v. SEC


U. S. C. §78j(b). Rule 10b–5 was promulgated under thisstatutory authority. That Rule makes it unlawful, in connection with the purchase or sale of any security,


“(b) To make any untrue statement of a material fact . . . , or

“(c) To engage in any act, practice, or course of busi-ness which operates or would operate as a fraud or deceit . . . .” 17 CFR §240.10b–5.

The Court of Appeals also held that Lorenzo violated §17(a)(1) of the 1933 Act. Similar to Rule 10b–5, §17(a) ofthe Act provides that it is unlawful, in connection with the offer or sale of a security,

“(1) to employ any device, scheme, or artifice to de-fraud, or

“(2) to obtain money or property by means of any untrue statement of a material fact . . . ; or

“(3) to engage in any transaction, practice, or courseof business which operates or would operate as a fraud or deceit upon the purchaser.” 15 U. S. C. §77q(a)(1).

We can quickly dispose of Rule 10b–5(a) and §17(a)(1).The act of knowingly disseminating a false statement at the behest of its maker, without more, does not amount to “employ[ing] any device, scheme, or artifice to defraud” within the meaning of those provisions. As the contempo-raneous dictionary definitions cited by the majority make clear, each of these words requires some form of planning, designing, devising, or strategizing. See ante, at 6. We have previously observed that “the terms ‘device,’ ‘scheme,’ and ‘artifice’ all connote knowing or intentional practices.” Aaron v. SEC, 446 U. S. 680, 696 (1980) (emphasis added).In other words, they encompass “fraudulent scheme[s],”

5 Cite as: 587 U. S. ____ (2019)


such as a “ ‘short selling’ scheme,” a wash sale, a matchedorder, price rigging, or similar conduct. United States v. Naftalin, 441 U. S. 768, 770, 778 (1979) (applying §17(a)(1)); see Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 473 (1977) (interpreting the term “manipulative” in§10(b)).

Here, it is undisputed that Lorenzo did not engage inany conduct involving planning, scheming, designing, or strategizing, as Rule 10b–5(a) and §17(a)(1) require for aprimary violation. He sent two e-mails drafted by a supe-rior, to recipients specified by the superior, pursuant to instructions given by the superior, without collaboratingon the substance of the e-mails or otherwise playing anindependent role in perpetrating a fraud. That Lorenzo knew the messages contained falsities does not change theessentially administrative nature of his conduct here; hemight have assisted in a scheme, but he did not himself plan, scheme, design, or strategize. In my view, the plaintext of Rule 10b–5(a) and §17(a)(1) thus does not encom-pass Lorenzo’s conduct as a matter of primary liability.

The remaining provision, Rule 10b–5(c), seems broaderat first blush. But the scope of this conduct-basedprovision—and, for that matter, Rule 10b–5(a) and §17(a)(1)—must be understood in light of its codificationalongside a prohibition specifically addressing primaryliability for false statements. Rule 10b–5(b) imposesprimary liability on the “make[r]” of a fraudulent mis-statement. 17 CFR §240.10b–5(b); see Janus, 564 U. S., at 141–142. And §17(a)(2) imposes primary liability on a person who “obtain[s] money or property by means of ” a false statement. 15 U. S. C. §77q(a)(2). The conduct-based provisions of Rules 10b–5(a) and (c) and §17(a)(1) must be interpreted in view of the specificity of these false-statement provisions, and therefore cannot be con-strued to encompass primary liability solely for false statements. This view is consistent with our previous

6 LORENZO v. SEC


recognition that “each subparagraph of §17(a) ‘proscribes adistinct category of misconduct’ ” and “ ‘is meant to cover additional kinds of illegalities.’ ” Aaron, supra, at 697 (quoting Naftalin, supra, at 774; emphasis added).

The majority disregards these express limitations.Under the Court’s rule, a person who has not “made” a fraudulent misstatement within the meaning of Rule 10b–5(b) nevertheless could be held primarily liable for facili-tating that same statement; the SEC or plaintiff need onlyrelabel the person’s involvement as an “act,” “device,”“scheme,” or “artifice” that violates Rule 10b–5(a) or (c). And a person could be held liable for a fraudulent mis-statement under §17(a)(1) even if the person did not ob-tain money or property by means of the statement. In short, Rule 10b–5(b) and §17(a)(2) are rendered entirely superfluous in fraud cases under the majority’s reading.2

This approach is in tension with “ ‘the cardinal rule that, if possible, effect shall be given to every clause and part of a statute.’ ” RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U. S. 639, 645 (2012) (quoting D. Ginsberg & Sons, Inc. v. Popkin, 285 U. S. 204, 208 (1932)). I would therefore apply the “old and familiar rule” that “the specificgoverns the general.” RadLAX, supra, at 645–646 (inter-nal quotation marks omitted); see A. Scalia & B. Garner, Reading Law 51 (2012) (canon equally applicable to stat-utes and regulations). This canon of construction appliesnot only to resolve “contradiction[s]” between general andspecific provisions, but also to avoid “the superfluity of a specific provision that is swallowed by the general one.” RadLAX, 566 U. S., at 645. Here, liability for false state-——————

2 I recognize that §17(a)(1) could be deemed narrower than §17(a)(2) in the sense that it requires scienter, whereas §17(a)(2) does not. Aaron v. SEC, 446 U. S. 680, 697 (1980). But scienter is not disputed in this case, and the specific terms of §17(a)(2) are otherwise completely subsumed within the more general terms of §17(a)(1), as interpreted by the majority.

7 Cite as: 587 U. S. ____ (2019)


ments is “ ‘specifically dealt with’ ” in Rule 10b–5(b) and §17(a)(2). Id., at 646 (quoting D. Ginsberg & Sons, supra, at 208). But Rule 10b–5 and §17(a) also contain generalprohibitions that, “ ‘in [their] most comprehensive sense,would include what is embraced in’ ” the more specificprovisions. 566 U. S., at 646. I would hold that the provi-sions specifically addressing false statements “ ‘must beoperative’ ” as to false-statement cases, and that the more general provisions should be read to apply “ ‘only [to] such cases within [their] general language as are not within the’ ” purview of the specific provisions on false state-ments. Ibid.

Adopting this approach to the statutory text would alignwith our previous admonitions that the securities lawsshould not be “[v]iewed in isolation” and stretched to their limits. Hochfelder, 425 U. S., at 212. In Hochfelder, for example, we concluded that the key words of §10(b) em-ployed the “terminology of intentional wrongdoing” and thus “strongly suggest[ed]” that it “proscribe[s] knowing or intentional misconduct,” even though the statute did not expressly state as much. Id., at 197, 214. We took a similar approach to §17(a)(1) of the 1933 Act. Aaron, 446 U. S., at 695–697. We have also limited the terms of Rule 10b–5 by recognizing that it was adopted pursuant to§10(b) and thus “encompasses only conduct already pro-hibited by §10(b).” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008); see Hochfelder, supra, at 212–214.

Contrary to the suggestion of the majority, this ap-proach does not necessarily require treating each provi-sion of Rule 10b–5 or §17(a) as “governing different, mu-tually exclusive, spheres of conduct.” Ante, at 7. Nor does it prevent the securities laws from mutually reinforcing one another or overlapping to some extent. Ante, at 7–8. It simply contemplates giving full effect to the specificprohibitions on false statements in Rule 10b–5(b) and

8 LORENZO v. SEC


§17(a)(2) instead of rendering them superfluous. The majority worries that this approach would allow

people who disseminate false statements with the intentto defraud to escape liability under Rule 10b–5. Ante, at 9. That is not so. If a person’s only role is transmittingfraudulent misstatements at the behest of the statements’ maker, the person’s conduct would be appropriately as-sessed as a matter of secondary liability pursuant to pro-visions like 15 U. S. C. §§77o(b), 78t(e), and 78o(b)(4)(E). And if a person engages in other acts prohibited by theRule, such as developing and employing a fraudulent scheme, the person would be primarily liable for that conduct.

The majority suggests that secondary liability may oftenprove illusory. It hypothesizes, for example, a situation in which the “maker” of a false statement does not know that it was false and thus does not violate Rule 10b–5(b), but the disseminator knows that the statement is false. Un-der that scenario, the majority fears that the person dis-seminating the statements could be “engaged in an egre-gious fraud,” yet would not be liable as an aider and abettor for lack of a primary violator. Ante, at 12. This concern is misplaced. As an initial matter, I note that §17(a)(2) does not require scienter, so the maker of the statement may still be liable under that provision. Aaron, supra, at 695–697. Moreover, an ongoing, “egregious”fraud is likely to independently constitute a primaryviolation of the conduct-based securities laws, whollyapart from the laws prohibiting fraudulent misstatements.Here, by contrast, we are concerned with the dissemina-tion of two misstatements at the request of their maker. This type of conduct is appropriately assessed under prin-ciples of secondary liability.

B The majority’s approach contradicts our precedent in

9 Cite as: 587 U. S. ____ (2019)


two distinct ways.First, the majority’s opinion renders Janus a dead let-

ter. In Janus, we held that liability under Rule 10b–5(b)was limited to the “make[r]” of the statement and that “[o]ne who prepares or publishes a statement on behalf of another is not its maker” within the meaning of Rule 10b–5(b). 564 U. S., at 142 (emphasis added). It is undisputedhere that Lorenzo was not the maker of the fraudulent misstatements. The majority nevertheless finds primary liability under different provisions of Rule 10b–5, without any real effort to reconcile its decision with Janus. Al-though it “assume[s] that Janus would remain relevant (and preclude liability) where an individual neither makes nor disseminates false information,” in the next breath the majority states that this would be true only if “the indi-vidual is not involved in some other form of fraud.” Ante, at 10. Given that, under the majority’s rule, administra-tive acts undertaken in connection with a fraudulent misstatement qualify as “other form[s] of fraud,” the ma-jority’s supposed preservation of Janus is illusory.

Second, the majority fails to maintain a clear line between primary and secondary liability in fraudulent-misstatement cases. Maintaining this distinction is im-portant because, as the majority notes, there is no privateright of action against mere aiders and abettors. Ante, at 10; see Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, 191 (1994). Here, however, the majority does precisely what we declined todo in Janus: impose broad liability for fraudulent mis-statements in a way that makes the category of aiders and abettors in these cases “almost nonexistent.” 564 U. S., at 143. If Lorenzo’s conduct here qualifies for primary liabil-ity under §10(b) and Rule 10b–5(a) or (c), then virtually any person who assists with the making of a fraudulent misstatement will be primarily liable and thereby subject not only to SEC enforcement, but private lawsuits.

10 LORENZO v. SEC


The Court correctly notes that it is not uncommon forthe same conduct to be a primary violation with respectto one offense and aiding and abetting with respect toanother—as, for example, when someone illegally sells a gun to help another person rob a bank. Ante, at 11. But this case does not involve two distinct crimes. The majority has interpreted certain provisions of an offense so broadlyas to render superfluous the more stringent, on-pointrequirements of a narrower provision of the same offense.Criminal laws regularly and permissibly overlap with eachother in a way that allows the same conduct to constitutedifferent crimes with different punishments. That differs significantly from interpreting provisions in a law to com-pletely eliminate specific limitations in a neighboring provision of that very same law. The majority’soverreading of Rules 10b–5(a) and (c) and §17(a)(1) isespecially problematic because the heartland of theseprovisions is conduct-based fraud—“employ[ing] [a] device, scheme, or artifice to defraud” or “engag[ing] in any act,practice, or course of business”—not mere misstatements.15 U. S. C. §77q(a)(1); 17 CFR §§240.10b–5(a), (c).

The Court attempts to cabin the implications of itsholding by highlighting several facts that supposedlywould distinguish this case from a case involving a secre-tary or other person “tangentially involved in dissemi-nat[ing]” fraudulent misstatements. Ante, at 7. None of these distinctions withstands scrutiny. The fact that Lorenzo “sent false statements directly to investors” in e-mails that “invited [investors] to follow up with ques-tions,” ibid., puts him in precisely the same position as a secretary asked to send an identical message from her e-mail account. And under the unduly capacious interpreta-tion that the majority gives to the securities laws, I do notsee why it would matter whether the sender is the “vicepresident of an investment banking company” or a secre-tary, ibid.—if the sender knowingly sent false statements,

11 Cite as: 587 U. S. ____ (2019)


the sender apparently would be primarily liable. To be sure, I agree with the majority that liability would be “inappropriate” for a secretary put in a situation similar toLorenzo’s. Ibid. But I can discern no legal principle in themajority opinion that would preclude the secretary from being pursued for primary violations of the securities laws.

* * * Instead of blurring the distinction between primary and

secondary liability, I would hold that Lorenzo’s conduct did not amount to a primary violation of the securities laws and reverse the judgment of the Court of Appeals.Accordingly, I respectfully dissent.

Cara M. [email protected] | One Atlantic Center, 1201 West Peachtree Street, Suite 4900 | Atlanta, GA 30309-3424

Cara Peterman is a partner with Alston & Bird’s Securities Litigation Group. She focuses her practice on shareholder derivative suits, shareholder class actions, and other complex commercial litigation. She also regularly represents clients in investigations brought by the Securities Exchange Commission and other federal and state regulators.

Cara also counsels public companies and their boards on public disclosure and corporate governance matters, with a concentration on cybersecurity and data-privacy-related issues. She is one of only a handful of attorneys in the country with significant experience defending against shareholder litigation and investigations arising out of cyber incidents.

Cara received her J.D. from New York University School of Law and her B.A. from Northwestern University, and she is a member of the State Bars of Georgia and New York. Cara maintains an active pro bono practice; she is a member of the board of directors of Tapestri Inc.

Representative Experience

Representing Dell Technologies Inc. and certain Dell directors in litigation arising out of the company’s multibillion-dollar exchange of its Class V stock for cash and shares of its Class C stock.

Representing The Wendy’s Company and certain of its officers and directors in a consolidated shareholder derivative action arising out of a 2016 criminal cyberattack.

Representing International Speedway Corporation and certain of its officers and directors in an action alleging breach of fiduciary duty in connection with an acquisition of the company by NASCAR Holdings Inc.

Represented The Home Depot and certain of its officers and directors in consolidated shareholder derivative litigation alleging claims arising out of a third-party criminal data breach of the company. The defendants won their motion to dismiss in a precedent-setting decision.

Represented AmTrust Financial Services Inc., a multinational property and casualty insurer, in a shareholder derivative action alleging breach of fiduciary duty claims arising out of a related-party transaction.

Representing individuals and companies in several SEC investigations and enforcement actions involving insider trading, accounting restatements and similar issues.

Represented one of the country’s largest postsecondary education providers in False Claims Act litigation.

Publications & Presentations

Publications

“The Rise of Cyber-Related Securities Fraud Class Actions,” Law360, March 12, 2018.

“Recent Supreme Court Decisions on Class Certification: No Exceptions for Securities Class Actions,” Westlaw Journal’s Securities Litigation & Regulation, Vol. 19, No. 8, August 20, 2013.

Education

New York University (J.D., 2009)

Northwestern University (B.A., 2005)

Languages

Spanish

Admitted to Practice

Georgia

New York

Related Services

Securities Litigation | Privacy & Data Security | Cybersecurity Preparedness & Response

TA BLE TOP DATA BR E ACH E XERCISE


ATTORNEY BIOGRAPHY


Olga GreenbergPartnerAtlanta


EducationJ.D., magna cum laude, Georgia State University College of LawB.A., summa cum laude, Emory University

Bar AdmissionsGeorgia

Background

Olga Greenberg co-leads the firm’s Corporate Crime and Investigations and Securities Enforcement teams. She defends public and private companies, financial institutions and individuals in investigations, enforcement and litigation matters involving the US Securities and Exchange Commission (SEC), the Department of Justice (DOJ), the Financial Industry Regulatory Authority (FINRA), the US Department of Labor (DOL), state regulatory agencies, and numerous federal and state courts and arbitrations. Olga has extensive experience defending parallel investigations by multiple regulators and managing large teams from the early stages of inquiry to litigation and appeals. She also counsels companies and individuals on a wide variety of compliance and regulatory issues, with a particular focus on securities laws and regulations. Olga also advises boards of directors and audit and special committees and conducts large-scale internal investigations on behalf of these entities into allegations of accounting or financial fraud, misappropriation and other unethical conduct.

Prior to joining the firm, Olga served as a judicial clerk intern for the Honorable Marvin H. Shoob of the US District Court for the Northern District of Georgia.

Olga can be reached in Atlanta at +1.404.853.8274 or New York at +1.212.389.5049.

Olga is admitted to the Georgia Bar. She has submitted her application to the New York State Bar. Her work is supervised by New York State Bar members.

Experience

Obtained dismissal of administrative actions brought against a financial institution by three state securities agencies.

Represents an investment bank in federal and state investigations and federal litigation involving alleged securities fraud, common law fraud and breach of fiduciary duty.

Negotiated the successful resolution of a FINRA sweep investigation and enforcement actions for multiple broker-dealers involving inverse and leveraged ETFs.

Persuaded the SEC to close its investigation into alleged financial fraud by a public company CEO.

OLGA GREENBERGPAGE 2


Defended a registered principal in a FINRA disciplinary hearing involving suitability of mutual fund investments and supervision claims.

Defeated the SEC in a trial on behalf of an independent broker-dealer and its president in an enforcement action relating to the supervision of the sale of mutual funds.

Negotiated a favorable eleventh-hour settlement for a broker-dealer and investment adviser on the eve of trial against the SEC involving valuation issues.

Convinced FINRA to drop dozens of charges and significantly reduce the sanction in one of FINRA's investigations into sales and marketing practices of non-traded REITs.

Represented a financial services company in an internal investigation of alleged corporate waste, which led to senior management change.

Convinced FINRA to close an investigation into alleged double-dipping by registered representatives and related supervision issues.

Negotiated favorable settlements for multiple firms in FINRA investigations involving suitability and supervision of inverse and leveraged exchange-traded funds.

Persuaded the Department of Labor to forgo formal action against an investment adviser, broker-dealer and its representatives related to investments of hedge funds and funds of hedge funds in ERISA plans.

Awards

Selected for inclusion in Georgia Super Lawyers® “Rising Stars” (2013-2017)


Member, American Bar Association

Member, Atlanta Bar Association

Member, Governing Committee, Eversheds Sutherland (US) Women Stepping Up®

Articles

Double Jeopardy Defense for International Corruption Cases Struck Down: What Does this Mean for Houston? (November 9, 2018)Corporate Counsel

Multinational, coordinated resolutions for international companies? (Fall 2018)Partnering Perspectives

An AML Headache: Is Your Rep Liquidating Microcap Securities? (March 12, 2018)Bloomberg Law Securities Regulation & Law Report

Considerations Before Self-Reporting Under New FCPA Policy (December 8, 2017)Law360



Anti-Money Laundering Scrutiny Intensifies on Both Sides of the Atlantic (Summer 2017)Partnering Perspectives

The Final Rule: DOL’s Expanded Definition of Investment Advice Fiduciary Under ERISA and Revised Complex of Exemptions (April 12, 2016)

2015 Amendments to the Federal Rules of Civil Procedure (November 24, 2015)

Joint Representation: Discovering the Conflicts that Can Arise (October 3, 2014)InsideCounsel

Settling with the SEC: There's a New Sheriff in Town (Winter 2013)Partnering Perspectives

NASD Account Transfer Guidance Points Up a Catch-22 (March 26, 2007)Reprinted with permission from Investment News

How To Succeed at Settling SEC and NASD Enforcement Actions (December 2006)Reprinted with permission from Insights Magazine

Presentations

Dealing with High Risk Brokers (April 28, 2017)SIFMA

Compliance issues for regional broker-dealers (March 19-22, 2017)SIFMA Compliance & Legal Society 2017 Annual Seminar

You Can’t Fire Me, I Quit! Internal Investigations: The Impact of the Yates Memo, the FCPA Unit Pilot Program and Recent Legal Decisions (August 2, 2016)

Roundtable Discussion: Final DOL ERISA Fiduciary Definition and Related Exemptions (April 26, 2016)CLE Presentation

Webcast: BICE and Other Four-Letter Words: Litigation and Enforcement Under the DOL Fiduciary Proposal (February 24, 2016)

2015 Year-End Accounting and Tax Update (December 7, 2015)

The Changing Face of the ERISA Fiduciary: Implications for Your Firm (February 27, 2015)IA Compliance: The Full 360o View

The Government’s Approach to Whistleblower Information (October 24, 2014)ICLE Georgia – 21st Annual Securities Litigation and Regulatory Practice Seminar

2014 Georgia ACC Value Challenge (April 22, 2014)

Current Trends and Approaches to SEC and FINRA Enforcement (October 25, 2013)ICLE Georgia – 20th Annual Securities Litigation and Regulatory Practice



Limiting Exposure in Regulatory Investigations (June 6, 2013)BDO Aćsense 2013

Latest Trends and Hot Issues in Securities Enforcement (February 2012)Sutherland Securities Symposium

Ethical Issues for In-House Attorneys and Compliance Professionals (December 29, 2010)Sutherland Regulatory Symposium

FINRA's Proposed Rule Changes (May 4, 2010)BD/IA Continuity Group

Director and Officer Liability (January 29, 2010)Cobb County Bar Association

SEC and FINRA Enforcement Priorities (December 16, 2009)Sutherland Regulatory Symposium

Current Issues for Independent Broker-Dealers (May 27, 2008)

Atlanta Bar Association, Litigation Section, Securities and Corporation Litigation Subsection Meeting (May 1, 2008)

Court Admissions

State Courts of Georgia

U.S. District Court for the Northern District of Georgia

Clerkships

Judicial Clerk Intern, Honorable Marvin H. Shoob, U.S. District Court for the Northern District of Georgia

ATTORNEY BIOGRAPHY


Matt GatewoodPartnerWashington


EducationJ.D., Washington and Lee University School of Law, Managing Editor, Washington and Lee Law Review B.A., summa cum laude, West Virginia University, Phi Beta Kappa

Bar AdmissionsDistrict of ColumbiaWest VirginiaVirginia

Background

Matt Gatewood helps organizations resolve disputes. He leads internal investigations to gather the facts, works creatively to engineer efficient resolutions, and guides organizations through any ensuing litigation or government enforcement actions. A commercial litigator by training, Matt’s leadership is not limited to any one subject area or issue. He has resolved problems for organizations in the energy, banking, transportation, financial services, insurance and education sectors.

Crisis management forms the common thread of Matt’s work. He proactively prepares organizations before an incident occurs and navigates the myriad drivers of exposure should a problem arise ranging from internal and external communications to large-scale litigation. For example, Matt currently leads the firm’s defense of a healthcare insurer against three putative class actions filed on behalf of more than one million policyholders alleging injuries stemming from a cybersecurity breach.

A core member of the team representing the international drilling contractor involved in the 2010 Gulf of Mexico Oil Spill, Matt participated in all facets of the response to the incident, including the ensuing governmental investigations and multi-district litigation, which resulted in a three-month trial. Matt’s primary responsibilities during the litigation consisted of preparing most of the company’s witnesses, including surviving members of the crew, for deposition and trial. Building on this experience, he created safetylitigation.com to help companies analyze key developments in safety-related litigation and regulatory activity.

Matt has resolved many disputes arising in the workplace, including OSHA and other safety matters, worker classification issues and discrimination allegations. His experience in managing cases from single-plaintiff actions to class actions involving hundreds of witnesses and millions of documents greatly assists clients in approaching and resolving all forms of litigation.

Matt was born and raised in Charleston, West Virginia, and moved to Washington, DC, in 2006. He and his wife Jen have a one-year-old boy named George.

Experience

Assisted in the BP oil spill litigation and guided the drilling contractor through crisis management and regulatory issues following the Deepwater Horizon oil spill.

Represents a national transportation company in employment classification matters related to individual owner/operators of delivery vehicles.

MATT GATEWOODPAGE 2


Represented an international oil company in connection with a $100 million claim involving a long-term supply agreement.

Represented an oil trading company in a dispute over crude oil contract pricing terms and the underlying parent company guaranty.

Defended an international natural gas trading company against claims for indemnification and contribution in an underpayment of royalty case.

Handled the internal investigation of the Gulf of Mexico oil spill for an international drilling contractor.

Represents an international drilling contractor in the joint Coast Guard/BSEE investigation of the Gulf of Mexico oil spill.

Represents an international drilling contractor in environmental proceedings regarding the Gulf of Mexico oil spill.

Advises clients on process safety and risk management.

Represented insurance companies in disability benefits cases in West Virginia state and federal courts.

Won asylum for an elderly pro bono client from Cameroon as trial co-chair.

Counsels clients in matters concerning the proper classification of workers for federal and state tax purposes.

Represented a Fortune 100 company in litigation and administrative proceedings involving employment issues in nearly all 50 states.

Awards

Selected for inclusion in Washington, D.C., Super Lawyers® "Rising Stars" (2014-2019)

Recognized by The Legal 500 United States in the area of e-discovery (2019)


Board Member (2009-2014), Young Lawyers’ Section of the Bar Association of the District of Columbia

Member, West Virginia State Bar

Articles

Cybersecurity and Data Privacy review and update: Looking back on 2018 and planning ahead for 2019 (March 1, 2019)

MATT GATEWOODPAGE 3


Are You Prepared for New York State’s Cybersecurity Requirements for Financial Services Companies? (November 14, 2016)New York Law Journal

Key Considerations for a Post-Incident Media Response (March 24, 2016)Construction Executive

DOL Releases New Standards for Joint Employment (January 26, 2016)ABA Section of Litigation, Corporate Counsel Committee

2015 Amendments to the Federal Rules of Civil Procedure (November 24, 2015)

The Plaintiffs Are Coming: Preparing for the New Wave of Benzene Exposure Litigation against Refineries, Storage Facilities and Product Owners (March 2015)Published in Hart Energy's FUEL Magazine. Copyright Hart Energy 2015.

W.Va. Leak Is A Message To All Company Safety Practices (January 28, 2014)Law360

Be Prepared for the Inevitable ‘Process Safety’ Attack (January 23, 2014)Corporate Counsel

Attorney-Client Privilege in the ERISA Context: The ‘Fiduciary Exception' (October 15, 2008)Health and Welfare Benefit Plans: Responding to Change Panel

The New Map: The Supreme Court’s Guide to Curing Thirty Years of Confusion in ERISA Savings Clause Analysis (Washington & Lee Law Review, Spring 2005)

Presentations

Managing the New Normal: Safety Regulation and Post-Incident Response (June 22, 2016)

Preparing for and Responding to Environmental Disasters (July 15, 2015)ACC Legal Quick Hit

Mitigating Environmental Disaster and Preparing for Incident Response (September 29, 2014)Environmental Compliance and Commitment Legal Summit – 2014

Court Admissions

U.S. Supreme Court

U.S. Court of Appeals for the District of Columbia

U.S. Court of Appeals for the Fourth Circuit

U.S. District Court for the District of Columbia

U.S. District Court for the District of Maryland

U.S. District Court for the Eastern District of Virginia

MATT GATEWOODPAGE 4


U.S. District Court for the Western District of Virginia

U.S. District Court for the Northern District of West Virginia

U.S. District Court for the Southern District of West Virginia

U.S. District Court for the Central District of Illinois

Clerkships

The Honorable Joseph R. Goodwin of the U.S. District Court for the Southern District of West Virginia

A PPENDIX


ICLE BOARD

NAME POSITION TERM EXPIRES

Ms. Carol V. Clark Member 2022

Mr. Harold T. Daniel, Jr. Member 2022

Ms. Laverne Lewis Gaskins Member 2021

Hon. Kenneth Bryant Hodges, III Member 2020

Ms. Allegra J. Lawrence Member 2022

Mr. C. James McCallar, Jr. Member 2021

Mrs. Jennifer Campbell Mock Member 2020

Mr. Kenneth L. Shigley Member 2020

Mr. A. James Elliott Emory University 2020

Mr. Buddy M. Mears John Marshall 2020

Dean Daisy Hurst Floyd Mercer University 2020

Mr. Cassady Vaughn Brewer Georgia State University 2020

Ms. Carol Ellis Morgan University of Georgia 2020

Hon. John J. Ellington Liaison 2020

Mr. Jeffrey Reese Davis Staff Liaison 2020

Ms. Michelle E. West Staff Liaison 2020

GEORGIA MANDATORY CLE FACT SHEET

Every “active” attorney in Georgia must attend 12 “approved” CLE hours of instruction annually,

with one of the CLE hours being in the area of legal ethics and one of the CLE hours being in the

area of professionalism. Furthermore, any attorney who appears as sole or lead counsel in the

Superior or State Courts of Georgia in any contested civil case or in the trial of a criminal case in

1990 or in any subsequent calendar year, must complete for such year a minimum of three hours

of continuing legal education activity in the area of trial practice. These trial practice hours are

included in, and not in addition to, the 12 hour requirement. ICLE is an “accredited” provider of

“approved” CLE instruction.

Excess creditable CLE hours (i.e., over 12) earned in one CY may be carried over into the next

succeeding CY. Excess ethics and professionalism credits may be carried over for two years.

Excess trial practice hours may be carried over for one year. A portion of your ICLE name tag is

your ATTENDANCE CONFIRMATION which indicates the program name, date, amount paid, CLE

hours (including ethics, professionalism and trial practice, if any) and should be retained for your

personal CLE and tax records. DO NOT SEND THIS CARD TO THE COMMISSION!

ICLE will electronically transmit computerized CLE attendance records directly into the Official

State Bar Membership computer records for recording on the attendee’s Bar record. Attendees

at ICLE programs need do nothing more as their attendance will be recorded in their Bar record.

Should you need CLE credit in a state other than Georgia, please inquire as to the procedure at

the registration desk. ICLE does not guarantee credit in any state other than Georgia. If you have

any questions concerning attendance credit at ICLE seminars, please call: 678-529-6688

gabar.org/ICLE

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