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On August 25, 2022, the Securities and Exchange Commission, in a 3-2 vote, adopted a new disclosure rule implementing the Dodd-Frank Act’s requirement that public companies disclose the relationship between compensation paid to executives and the company’s financial performance. SEC Chair Gary Gensler’s stated purpose of the new rule, commonly known as the “pay versus performance” disclosure requirement, is to promote transparency and make it easier for shareholders to assess a public company’s decision-making with respect to its executive compensation policies. 

In an era where TikTok stars outearn scores of CEOs of top earning publicly traded companies, executive compensation is no less important to the investing public or to companies striving to attract and retain top talent. Indeed, just this year the CEO of Starbucks received a 39% pay increase. Such soaring executive compensation has not escaped the notice of the SEC.

The U.S. Court of Appeals for the First Circuit held yesterday that the U.S. securities laws apply to foreign brokers’ solicitations of securities purchases by foreign investors if the purchasers or sellers incurred irrevocable liability within the United States to pay for or deliver the securities. The decision in SEC v. Morrone follows the “irrevocable liability” test that the Second, Third, and Ninth Circuits previously adopted to determine whether the federal securities laws apply to transactions in securities not listed on a U.S. exchange. However, the First Circuit disagreed with other Second Circuit precedent holding that, even if a domestic transaction has occurred under the “irrevocable liability” standard, the transaction still might be too foreign for U.S. law to apply.

The Court of Appeals for the Tenth Circuit held today that the Securities and Exchange Commission may bring an enforcement action based on allegedly foreign securities transactions involving non-U.S. residents if sufficient conduct occurred in the United States.

The SEC has continued to pursue a number of insider trading cases this year, both large-scale and small. Some of those matters involved trades that yielded relatively small amounts of profits: $40,000-$60,000. Why does the enforcement division spend resources on these smaller cases? First, they serve as a reminder that violations can be identified, even if trades are relatively small. And the cases are relatively easy to prove when a connection to an insider source can be readily identified. More importantly, these cases demonstrate that the SEC is uncovering new leads through data analysis.

It is worth noting that the FY 2018 budget recently published by the White House proposes eliminating the SEC’s annual $50 million “Reserve Fund,” created under Dodd-Frank and used to advance the SEC’s technological resources. Although the budget is unlikely to be passed in its current form, cutting this fund may affect the SEC’s funding to mine and analyze large data sets. 

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