The travails of Petrobras have generated a lot of attention – and litigation – in the past year.  On July 30, 2015, District Judge Jed Rakoff, of the Southern District of New York, issued an opinion explaining his prior order largely denying the defendants’ motions to dismiss U.S. securities-law claims filed on behalf of a putative class of purchasers of Petrobras’s sponsored American Depository Shares, which are listed on the New York Stock Exchange.  In re Petrobras Securities Litigation.  But the court dismissed the claims of purchasers who – in addition to buying Petrobras securities on the NYSE or in other U.S. transactions – had also bought Petrobras securities on the Brazilian stock exchange (the “Bovespa”) and had sought to assert claims under Brazilian law as to those purchases.  The court ruled that the Brazilian-law claims were subject to a mandatory arbitration bylaw that Petrobras had adopted in 2002 by board resolution and shareholder vote.

The U.S. Court of Appeals for the Ninth Circuit appears to have rebuffed aspects of the Second Circuit’s recent effort to narrow liability for insider trading. The Ninth Circuit’s decision today in United States v. Salman holds that insiders can engage in insider trading if they disclose material nonpublic information with the intent to benefit a trading relative or friend, even if they do not receive a pecuniary gain or other quid pro quo type of benefit in exchange for the disclosures.

The Ninth Circuit’s opinion was written by Judge Jed Rakoff, a Senior District Judge for the Southern District of New York, who sat by designation on the Ninth Circuit panel – and whose recent opinions seem to have struggled with the Second Circuit’s decision in United States v. Newman. The Ninth Circuit’s decision might now create a circuit split – and enhance the chances that the Government will seek and perhaps obtain a writ of certiorari from the Supreme Court in Newman and/or Salman.

SEC logoMay defendants charged in SEC administrative proceedings challenge the constitutionality of those proceedings in federal district court? The determination of whether district courts have subject matter jurisdiction over such challenges has become the critical prelude in the ongoing controversy over the SEC’s seemingly arbitrary use of its “home court” alternative to pursue claims and remedies against violators of the federal securities laws.

Dodd Frank gives the SEC the power to impose civil penalties in cease-and-desist proceedings before an administrative law judge (ALJ) against any person who violates federal securities laws. Previously, the SEC could only bring such cases in federal court, except against persons associated with regulated entities. Now, the SEC has the ability, and complete discretion, to prosecute these claims and seek the same relief administratively or in district court. Administrative proceedings create significant disadvantages for defendants who face accelerated hearing schedules and lack important procedural rights they would have the ability to assert in district court.

We recently wrote that critics, including Judge Jed Rakoff, have been questioning the SEC’s policy of increasingly bringing enforcement actions in its administrative forum rather than federal court.  We noted that several cases had been filed recently that challenged the constitutionality of the SEC’s administrative proceedings.  The first of those cases has now been decided:  In Chau v. SEC, Judge Kaplan of the U.S. District Court for the Southern District of New York ruled that the court lacked subject-matter jurisdiction to hear an action to enjoin an SEC administrative proceeding on constitutional grounds.

The SEC is increasingly bringing enforcement actions in its administrative forum rather than federal district court, setting the stage for a legal and policy battle over this tactic.

The SEC’s approach has been made possible by a series of legislative enhancements to the agency’s enforcement powers that began with the passage of the Securities Enforcement Remedies and Penny Stock Reform Act of 1990. The result of these enhancements has been to greatly expand the remedies available to the Commission in an administrative proceeding beyond its traditional tool, the cease and desist order. The latest expansion occurred with the passage of the Dodd-Frank Act in 2010, which authorizes the Commission to seek civil money penalties against non-regulated persons or entities (i.e. not associated with investment advisors, brokerage firms, and other registered entities). Prior to Dodd-Frank, the SEC could file such actions only in federal court. This new enforcement authority gives the SEC a powerful incentive to bring more cases in the administrative forum.