Risk Alerts

Last week, with momentum from the #MeToo movement, the senate took a big step, passing the  “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Bill” which will put an end to the controversial practice of mandating arbitration for victims of sexual misconduct. Expected to be signed into law shortly by President Biden, the bill will effectively allow victims to override any employer forced arbitration clauses allowing them to pursue individual or class action lawsuits against their accused perpetrators.

The SEC recently announced the passing of a new rule to the SEC Act of 1934 (full release available here). Regulation BI (“Best interest”) effectively imposes increased suitability standards for broker-dealers with the aim of further protecting retail investors and improving clarity among firms so retail clients can make more informed decisions when selecting a brokerage. This increased standard of conduct requires that broker-dealers put investor’s interests before any self/financial interests.

Late last year, during a talk on cypto currencies and coin offerings, SEC Chairman Jay Clayton made a statement indicating his belief that every ICO he has seen to date is in fact a security.

The SEC recently published interpretive guidance on cyber security disclosures. It provides good recommendations and an overall framework for public companies when addressing cyber-related disclosures and developing sound internal policies and procedures. Among those policies and procedures, the SEC dedicated considerable attention to policies surrounding insider-trading (following a cyber incident). Below we summarize some of the key takeaways from the SEC’s recent report:
 

Internal whistleblowing policies provide many advantages to companies hoping to learn of misconduct from within. Among the benefits provided: they allow the c-suite to take a proactive approach to investigating any potential misconduct, allow the company improved readiness when self-reporting violations, can help the company avoid damaging PR, can mitigate damage moving forward, and allow the company to earn potential cooperation credits when self-reporting.

The SEC has just released its annual report to congress summarizing the successes of its whistleblower program (available here). Much of the statistics remain fairly consistent with last year, however there are some notable changes. While the total number of tips have increased slightly, the total award sum and largest awards have both decreased a bit, as highlighted below.

"100% organic", "all natural", "biodegradable", "green certified"...what do all of these statements have in common aside from the fact that they're health conscious and eco-friendly? They can all quickly attract regulators and class action lawsuits. Just ask Bed Bath and Beyond, Johnson and Johnson, Nature Valley and American Sprits. This is a microscopic sampling of companies pursued over deceptive "green labeling", and these claims aren't just affecting large Fortune 1000 companies, they are equally (and increasingly) affecting smaller companies.

With over 1 billion raised, initial coin offerings (ICO's) are gaining a lot of attention these days but much of it may be unwanted. For each successful coin campaign it seems increased concerns of fraud and regulatory scrutiny are close behind. Last month both the SEC and FINRA issued investor alerts which we discussed here.

In a prior alert we highlighted a recent SEC opinion which confirmed that initial coin offerings may in fact be deemed securities. Now FINRA and the SEC alike have both issued recent investor alerts days apart, warning of the dangers posed to investors, highlighting the potential for securities fraud including “pump and dump” and market manipulation schemes.

A large reason for the delay in cyber and consumer privacy litigation is due to the difficulty for victims to prove their injuries following a breach or privacy event. Developing standing has proven to be a challenge but some recent cases following in the footsteps of the Neiman Marcus ruling may be indicative of plaintiffs growing stronger legs in cyber and privacy related cases – and you have be able to stand before you can run.