Photo of Jay Dubow

Jay Dubow

Subscribe to Jay Dubow's Posts

Jay co-leads the firm’s Securities Investigations + Enforcement Practice Group. He focuses his practice on complex business litigation, with a special emphasis on defending against shareholder derivative and securities class action litigation. He also represents clients involved in investigations by the U.S. Securities and Exchange Commission (SEC), the Pennsylvania Department of Banking and Securities, and various self-regulatory organizations, including the Financial Industry Regulatory Authority, Inc. (FINRA). He also conducts internal investigations on behalf of clients. Such investigations have included allegations involving the Foreign Corrupt Practices Act (FCPA), whistle blower claims, financial fraud, and civil and criminal violations of various federal and state laws.

Follow:Read more about Jay DubowJay's Linkedin Profile

The Financial Industry Regulatory Authority’s (FINRA) Enforcement Division recently announced its first settlement involving a firm’s supervision of social media influencers. The respondent, M1 Finance LLC (M1), is a financial technology company that provides self-directed trading to retail investors through its mobile application and website. In connection with FINRA’s targeted exam of M1’s use of social media influencers to acquire new customers, FINRA found that social media posts made by influencers on the firm’s behalf were not fair or balanced, or contained exaggerated, unwarranted, promissory, or misleading claims. According to FINRA, M1 also failed to establish, maintain, and enforce a reasonably designed supervisory system for its influencers’ social media posts, and failed to preapprove and preserve records of these retail communications.

On April 4, the Securities and Exchange Commission (SEC) issued a stay on the implementation of its newly enacted climate impact disclosure rules. This decision is connected to a challenge to the rules currently pending in the U.S. Court of Appeals for the Eighth Circuit, which is a consolidation of numerous lawsuits that hit the SEC following the rule announcement on March 6. The SEC adopted a scaled-back version of its initial 2022 proposal, requiring large public companies to report their greenhouse gas emissions, climate-related risks to their businesses, and the financial harm caused by extreme weather events, in their registration statements and annual reports. The reporting requirements were to be rolled out in stages, with the largest filers beginning disclosures in 2025.

It was a busy year for enforcement activity in the cyber, crypto, SPAC, and whistleblower spaces, with several pending actions that will likely have wide-ranging implications in 2024. We are also awaiting a ruling from the U.S. Supreme Court that could alter the landscape on administrative law proceedings. From the SEC’s release of expansive cybersecurity rules to the largest whistleblower award ever issued, 2023 had plenty of exciting developments. A detailed summary of key developments by category can be found below.

On February 9, the Securities and Exchange Commission (SEC) announced settlements with 16 firms relating to record-keeping violations stemming from off-channel communications totaling $81 million. The 16 firms were five broker-dealers (BD firms), seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers (IA firms). Off-channel communications are unapproved methods of communication used for business-related communications.

As reported in more detail on our Regulatory Oversight blog, the Securities and Exchange Commission’s Division of Examinations recently released its 2024 Examination Priorities report. The report underscores the SEC’s intent to focus on risk areas impacting market participants, particularly those related to cryptocurrency and emerging technology.

On October 19, the Securities and Exchange Commission (SEC) dismissed its claims against Ripple Labs, Inc. (Ripple) executives Bradley Garlinghouse and Christian Larsen for allegedly aiding and abetting Ripple’s violations of the Securities Act with respect to its “institutional sales” of XRP. The Southern District of New York had deemed “institutional sales” to be unregistered securities in its July summary judgment decision, however, at that time the court reserved judgment as to the aiding and abetting claims against the executives. The matter was set for trial in 2024.

On August 9, the Securities and Exchange Commission (SEC) sent a letter to U.S. District Judge Analisa Torres requesting leave to file an interlocutory appeal in SEC v. Ripple Labs, Inc. as to the two adverse liability determinations in her July 13, 2023 order. That order granted partial summary judgment in Ripple Labs’ favor regarding the sale of its XRP token. As we previously discussed here, the court held in deciding cross motions for summary judgment that defendants’ “programmatic” offers and sales to XRP buyers over crypto asset trading platforms and Ripple’s “other distributions” in exchange for labor and services did not involve the offer or sale of securities under the U.S. Supreme Court’s decision in SEC v. W.J. Howey Co.

In a long-awaited decision in SEC v. Ripple Labs, Inc., U.S. District Judge Analisa Torres of the Southern District of New York held that Ripple Labs, Inc.’s (Ripple) XRP token is not, in and of itself, a security requiring registration. Although the decision is being regarded by many as a victory for both Ripple and the crypto industry, the nuances in the decision may result in an appeal from both sides.