Supreme Court Will Resolve Split Over Regulation S-K Item 303, SEC Rejects Another Proposed Bitcoin ETF Listing, and California Federal Court Grants SEC Preliminary Injunction in Connection with Fraudulent EB-5 Scheme

by Shudan Zhou and Jeanne Solomon

This week’s corporate law news roundup includes discussions of the Supreme Court’s grant of certiorari to resolve a circuit split over whether Regulation S-K Item 303 may give rise to a Section 10(b) securities fraud claim; the SEC’s rejection of a proposed bitcoin ETF listing for a second time in a one-month period; and a California federal court’s grant to the SEC of a preliminary injunction in connection with a fraudulent EB-5 scheme claim.

SUPREME COURT GRANTS CERTIORARI TO RESOLVE CIRCUIT SPLIT OVER WHETHER REGULATION S-K ITEM 303 MAY GIVE RISE TO A SECTION 10(b) SECURITIES FRAUD CLAIM

On March 22, 2017, the U.S. Supreme Court granted certiorari to a case so as to allow it to address a federal circuit split over the question of whether Regulation S-K Item 303 may constitute a basis for bringing a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934.  The Second Circuit had held in Indiana Public Retirement System v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016) that if the registrant has “actual knowledge of the relevant trend or uncertainty”, the failure to disclose such known trends or uncertainties under Item 303 could give rise to a Section 10(b) securities fraud claim.  The Second Circuit’s holding had directly contradicted historical Third and Ninth Circuit holdings on the same question. For more information on the Leidos, Inc. v. Indiana Public Retirement system, No. 16-581, case, see http://www.scotusblog.com/case-files/cases/leidos-inc-v-indiana-public-retirement-system/.

SEC REJECTS PROPOSED BITCOIN ETF LISTING FOR A SECOND TIME IN A ONE-MONTH PERIOD

On March 28, 2017, the SEC rejected a proposed listing of a bitcoin ETF for a second time in a one-month period.  The bitcoin ETF, SolidX Bitcoin Trust, was seeking to list as commodity-based trust shares under NYSE Arca Equities Rule 8.201.  The SEC rejected the listing on the grounds that bitcoin exchanges are unregulated, making it impossible for the New York Stock Exchange to enter into appropriate surveillance agreements with the Arca platform, since such agreements are required to monitor the trading of the underlying assets so as to provide regulatory safeguards to consumers.  Most bitcoin trading takes place outside of the United States, and virtually all is unregulated.  For more information, see https://www.sec.gov/rules/sro/nysearca/2017/34-80319.pdf.

FEDERAL COURT GRANTS SEC PRELIMINARY INJUNCTION IN A FRAUDULENT EB-5 SCHEME CLAIM

On March 23, 2017, the United States District Court for the Northern District of California granted the SEC a preliminary injunction against a businessman on the grounds that he had commingled $107 million in EB-5 funds (which had been earmarked for the development of regional centers) with his own funds and business interests and that he misused some of the EB-5 funds.  While the injunction has a relatively narrow scope, only barring the accused and his company from issuing securities and destroying documents, it represents the SEC’s latest crackdown action targeting potentially problematic EB-5 regional centers.  For more information on the SEC. & Exch. Comm’n v. San Francisco Reg’l Ctr. LLC (N.D. Cal. Mar. 23, 2017) case, see http://www.courthousenews.com/wp-content/uploads/2017/03/SECvSFRC.pdf.

Withers Corporate Group

Withers' Global Corporate group helps corporate clients, large and small, new and long-established, public and private, worldwide to achieve business success or minimize business risk, in virtually every aspect of their business activities, operations and challenges. Our team has represented hundreds of private companies and over 100 domestic and foreign public companies, including NYSE, NASDAQ and OTC companies and public debt voluntary filers, with market caps ranging up to $10 billion and more — and handled more than $50 billion in transactions. We have represented companies, their owners or their financing parties in manufacturing, IT, biotech, pharmaceutical, internet, medical device, telecom, consumer products, entertainment, software, hardware, retail, media, mining, oil, petrochemical, chemical and many other sectors.

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About Withers Corporate Group

Withers' Global Corporate group helps corporate clients, large and small, new and long-established, public and private, worldwide to achieve business success or minimize business risk, in virtually every aspect of their business activities, operations and challenges. Our team has represented hundreds of private companies and over 100 domestic and foreign public companies, including NYSE, NASDAQ and OTC companies and public debt voluntary filers, with market caps ranging up to $10 billion and more — and handled more than $50 billion in transactions. We have represented companies, their owners or their financing parties in manufacturing, IT, biotech, pharmaceutical, internet, medical device, telecom, consumer products, entertainment, software, hardware, retail, media, mining, oil, petrochemical, chemical and many other sectors.

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