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Mid-Year Securities Litigation Roundup

As we pass the midpoint of 2022, it's an opportune time to review the status of major securities litigation developments and trends. The first half of the year saw new cases initiated, key rulings issued, and landmark settlements reached. These events help shape the landscape for public companies defending against shareholder lawsuits and regulatory actions.

This mid-year litigation roundup will summarize notable cases and events so far in 2022 across areas like SEC enforcement, insider trading, and Supreme Court activity. For corporate counsel monitoring securities litigation risks, staying current on these developments is critical.

SEC Enforcement Trends

The SEC remains active on the enforcement front in 2022, signalling no retreat from its vigorous agenda under Chair Gary Gensler. Key trends include:

• - Continued Focus on Crypto: The SEC brought dozens of crypto-related actions, including alleging Bitcoin manipulation and prosecuting unregistered crypto token offerings. On May 3, the SEC doubled the size of its Crypto Assets and Cyber Unit, underscoring its commitment to policing cryptocurrency markets. We expect the torrent of crypto cases to continue through year-end.
• - ESOP Advisor Charges: The SEC charged several employee stock ownership plan (ESOP) advisors for conflicts of interest in ESOP transactions. This indicates closer scrutiny of potential undisclosed self-dealing by consultants advising on ESOP deals.
• - SPAC Cases Accelerate: Numerous enforcement actions alleged misleading disclosures and accounting fraud related to SPAC transactions. Lax practices related to SPACs remain an SEC priority.
• - Insider Trading Still Strong: While not matching last year's blistering pace, the SEC filed various insider trading cases procuring seven-figure penalties. Cracking down on unlawful insider activity remains a key initiative.

The consistent drumbeat of enforcement actions across these areas affirms the SEC's role as an aggressive market watchdog under its current leadership. Public companies should ensure vigilant governance and compliance to avoid attracting SEC attention.

Supreme Court & Securities Law

The Supreme Court issued two rulings so far in 2022 pertinent to securities litigation:

• - Veugeler v. SEC: Addressing statutes of limitations, the Court found claims for civil monetary penalties must be brought within 5 years of the underlying securities law violation. This curbs the SEC's ability to penalize aged misconduct.
• - Axon v. FTC: In the context of FTC enforcement, the Court limited agencies' authority to pursue monetary penalties through in-house adjudication rather than federal court.

Both decisions modestly restrict SEC enforcement powers, signaling the Court may be subtly shifting toward pro-business outcomes. Additional securities law cases remain pending on the Court's docket for this term, including class action procedure issues.

Major Securities Settlements

Several substantial settlements marked the first half of 2022:

• - Hertz: Hertz agreed to settle a shareholder suit for $168 million related to alleged misstatements before its bankruptcy. The large settlement highlights the extensive liability risk from financial disclosures leading up to insolvency situations.
• - AT&T: AT&T settled an ERISA class action for $14 million over alleged self-dealing in its 401(k) plan investment options. The settlement exemplifies growing litigation risks surrounding retirement plan fees and selections.
• - Archegos: Banks agreed to pay $379 million to the SEC for oversight failures enabling Archegos Capital's collapse. The family office's implosion continues generating regulatory fallout.

These outcomes provide insight into the staggering liability exposure public companies face over their financial reporting, retirement plans, and business partnerships. Aggressive shareholder litigation shows no signs of abating.

Insider Trading Developments

Insider trading enforcement marches forward, with notable cases and trends including:

- Big Fish Charged: The DOJ charged former Netflix executive Michael Kail with securities fraud for trading Netflix stock based on internal financial data. Executives remain prime insider trading targets.

- Options Cases Jump: The SEC brought multiple options insider trading cases, continuing the trend of pursuing illegal options transactions leveraging inside data.

- Cryptocurrency Charges: The SEC charged Ishan Wahi from crypto exchange Coinbase with insider trading of crypto assets before they listed on the exchange. Crypto insider cases are rising.

The flurry of major insider trading allegations, especially targeting executives and cryptocurrency traders, affirms insider prosecutions are still booming. Anyone with access to material nonpublic information should beware.

Looking Ahead

The second half of 2022 will likely bring more enforcement initiatives, shareholder suits, and judicial precedents shaping securities litigation. Ongoing trends to monitor include the SEC's crypto crackdown, new accounting fraud actions, insider trading developments, and shareholder pressures over ESG issues.