The Securities and Exchange Commission (SEC) dismissed 42 pending cases after big mistakes from staff “admitting enforcement breach larger than reported.”
The SEC announced Friday it had dismissed 42 pending enforcement cases after discovering enforcement staff had improper access to materials meant for commission officials ruling on those cases.
“We deeply regret that the agency’s internal systems lacked sufficient safeguards surrounding access to Adjudication memoranda, and we are continuing our work to ensure that, going forward, work product from the Adjudication staff is appropriately safeguarded,” the SEC said in a statement.
“We take this lapse in controls very seriously and are committed to both informing the public about the scope of this issue and preventing any similar lapses in the future,” the agency added.
Law360 was first to report on the SEC’s disclosure.
“The 42 cases were proceedings against individuals and companies being handled within the agency’s in-house courts.
Among the group was the agency’s case against Jeffrey Wada and David Middendorf, two individuals involved in the notorious KPMG cheating scandal,” said Compliance Week.
The SEC described the improper access as effectively an accident, as administrative staff in its enforcement arm worked to track and collect all relevant materials, but some databases were not appropriately safeguarded to wall off adjudication materials.
It added that in most cases, the problematic materials were not uploaded to enforcement staff until after a decision had been handed down, per Reuters.
The agency decided to dismiss all pending cases, primarily against individuals and smaller firms, who were impacted by the improper access.
The SEC also said it was agreeing to lift industry bans on 48 people who had petitioned the SEC for that relief whose cases were also involved in the mistake.
Other SEC News
The Securities and Exchange Commission (SEC) is answering to denying a whistleblower award in a new court session.
An appeals court upheld the U.S. Securities and Exchange Commission’s decision to deny a whistleblower award in a case involving short seller Carson Block, while at the same time broadly questioning how the agency decides who receives awards from its cash-for-tips program.
Last year, the Justice Department targeted Muddy Waters for flooding the market with fake orders, also known as ‘spoofing’.
Founder of Muddy Waters, Carson Block was served with a search warrant by an FBI agent.
The ongoing investigation was one of the many probes targeting hedge funds for illegal short selling strategies at the time.
Claimant Jamie Doe filed a whistleblower award application with the SEC, claiming to be a principal author of a 2011 report published by equity research firm Muddy Waters that contained information of the alleged misconduct.
His application was denied by the agency even though the SEC order cited the report in its investigation and settlement and credited Doe as an author of the report.
The SEC said Doe failed to provide the information directly to the SEC as the staff found the public report themselves, disqualifying Doe as a whistleblower.
The Third Circuit decision on Friday agreed with the SEC’s decision, saying the appellant failed to demonstrate the SEC acted arbitrarily in concluding his application failed to meet the whistleblower requirements.
The award was instead given to Kevin Barnes, the direct informant in the case.
Hedge Fund Planned Whistleblower Scheme
To complicate matters, Muddy Waters’ CEO planned this whistleblower event only to get sued by his accomplice in the end.
Kevin Barnes, a private investor, last year sued Carson Block in New York federal court, saying that the two men worked together in producing the research that ultimately led to the SEC award and that they agreed to share proceeds from legal or regulatory actions stemming from their research, The Wall Street Journal previously reported.
Barnes is seeking $7 million from Block.
Cason Block is suing Barnes for defamation claiming he has suffered damages of more than $75,000.
A magistrate judge in the Texas case suggested in March the case be dismissed, to which Block objected.
The New York case is pending.
“Mr. Barnes looks forward to continuing his meritorious claims against Mr. Block for breach of their partnership agreement in the ongoing Southern District of New York matter.
Mr. Barnes will not be dissuaded by spurious accusations in improper venues,” Evan Fried, an attorney at law firm Slarskey who is representing Barnes, said in an email.
Read: Citadel Draws Fresh Scrutiny from SEC in New Risky Bets
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About The Author
Basically, the elected leaders of this country are weaponizing government agencies against private citizens and going after private citizens(the retailers).
The SEC, FBI CIA need to be disbanded and rebuilt from the ground up.
There is just no honor amongst thieves is there? What a tangled web.
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