27 In re Global Crossing Ltd. Sec. The ‘Money or Property' Requirement in Section 17(a)(2). Section 308 — Integration of procedure with Securities Act and other Acts. 2d ——, 2012 BL 85573, at *15-16 (N.D. Ill. Mar. Sept. 24, 2012) (finding that the defendant may be liable under subsections (a) and (c) [of Rule 10b-5] “for conduct in one period that gives rise to a misstatement in a later period”). SEA Rule 17a-13 (a) This section shall apply to every member of a national securities exchange who transacts a business in securities directly with or for others than members of a national securities exchange, every broker or dealer (other than … 2004). The provision of Section 17A criminalises an organisation for corruption-related actions by associated persons done for the benefit of the company. A second line of authority rejects the requirement of a so-called “fraud bonus” and holds that this element is satisfied if the defendant received ordinary compensation or if the defendant’s employer received money or property by virtue of the defendant’s participation in the wrongful conduct. Under the statute, the Commission is not permitted to grant registration unless it determines … For example, in SEC v. Syron, the court applied the ordinary meaning of “obtain” to Section 17(a)(2) to conclude that “to obtain an object is to gain possession of it.”19  The court then found that “the final step, whereby the defendant personally gains money or property from the fraud, is essential,” and—noting that the SEC failed to allege such conduct—dismissed the claim. Arguably, policing the accuracy of statements in registration statements is of heightened importance because, at the time of offer or sale, the information asymmetry is greater, the incentive to make misrepresentations is more pronounced, and the impact on allocation of capital is more direct. 36 Id. 1998). Fla. Aug. 9, 2012); SEC v. Sentinel Mgmt. 2010); SEC v. KPMG LLP, 412 F. Supp. 1996); see also Coven, 581 F.2d at 1030. 5, Unanswered Questions About Section 17(a)(2). 2d 194, 212 (N.D.N.Y. 2011). Until recently, courts generally held that Section 17(a)(2) and Rule 10b-5(b) are coextensive. 3 See, e.g., SEC v. Kelly, 817 F. Supp. v. Transfer Agent Compliance with Sections 17A and 17(F) of The Exchange Act Section 17A in The Securities Contracts (Regulation) Act, 1956 29 [ 17A Public issue and listing of securities referred to in sub-clause (ie) of clause (h) of section 2. In recent years, the Securities and Exchange Commission has increasingly relied on Section 17(a) of the 1933 Securities Act. 1978). Cal. The SEC’s order finds that GWFS violated Section 17(a) of the Securities Exchange Act and Rule 17a-8 thereunder. It makes it illegal to employ any device, scheme, or artifice to defraud obtain money or property engage in any transaction, practice, or course of business which operates or would operated as a fraud or deceit upon the purchaser. 2d 654, 670 (S.D.N.Y. These calls for reform are especially pressing because there is a risk that, as the SEC has increasingly turned to Section 17(a)(2) in the realm of civil enforcement, the Department of Justice may follow suit in the realm of criminal prosecution. According to the rule, records of numerous types of transactions must be retained and indexed on indelible media with … The Alpine decision validates the SEC’sfocus on broker-dealer AML programs. 4 On the other hand, Section 17 is narrower than Rule 10b-5 because it does not allow for private rights of action. Fla. Mar. 1, 2012). 2d 349, 376 (S.D.N.Y. Some courts have found an implied right of private action under this provision, though this is becoming a less favored position. Mass., June 9, 2010) (granting summary judgment where the evidence showed that the defendant received a set, predetermined bonus not tied to the company's performance). 4 Aaron v. SEC, 446 U.S. 680, 696-97 (1980); SEC v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 8 See SEC v. McGinn, Smith &  Co., Inc., 752 F. Supp. 1992); e.g., Finkel, 962 F.2d at 174 (explaining that Section 17 also only applies to “the offer or sale of securities,” whereas Section 10(b) and Rule 10b-5 reach the “purchase” of securities as well); see SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 859 (2d Cir. 1968) (noting that Section 10(b) was intended as a “catch-all” enforcement provision directed at both buyers and sellers of securities and was purposefully written in broad language to effect this purpose). © 2021 Keker, Van Nest & Peters LLP. 9201 (RJS), Dkt. 30, 2012); SEC v. Pentagon Capital Management PLC, 844 F. Supp. 1986). 35 See, e.g., Stoker, 865 F. Supp. Tex. 2d 361, 365 (S.D.N.Y. 20, Other courts have held that, where an employer profits from a misrepresentation or omission, a defendant can held liable if subsequent incentive compensation earned by the defendant employee is derived from the employer's wrongful profit. (2)(i) Every broker or dealer subject to this paragraph (a) who clears transactions or carries customer accounts must file with the Commission Part I of Form X-17A-5 (§ 249.617 of 11 Civ. The SEC alleged that Pentagon and its owner, Lewis Chester, committed securities fraud under Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 by engaging in late trading of mutual funds. Without admitting or denying the SEC’s findings, GWFS agreed to a settlement that imposes a $1.5 million penalty, a censure, and an order to cease and desist from future violations. 06-14891, 2008 BL 231467  (E.D. These decisions have been based on a pre-Janus First Circuit opinion, SEC v. Tambone.12  Tambone held that, notwithstanding the precedent that Section 17(a)(2) and Rule 10b-5(b) were generally treated as coextensive, claims of primary liability under Section 17(a)(2) could be established by showing “use” of the alleged misstatement, even if the defendant had no responsibility for creating the alleged misstatement.13  To date, Tambone’s “use” standard for Section 17(a)(2) misstatement responsibility has been applied in two district court opinions.14, The cases holding that use of a misstatement is sufficient to establish liability under Section 17(a)(2) potentially blur the line between primary and secondary liability. Yet, these anomalous results lend additional support to other scholars’ calls for revision and clarification of the mens rea standards for criminal prosecution of securities violations. ; see also SEC v. Daifotis, No. Shareholder lawsuits for violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) are a common source of liability for public companies. Moreover, because violations of Section 17 are criminalized under Section 24 of the Securities Act, an increasing number of securities fraud prosecutions may be pursued under Section 17(a)(2). The court concluded that these alleged actions, “especially when combined with the misstatements and/or omissions ... are sufficient to state a claim under Section 17(a)(3).” 38. 2d 459, 478 (D. N.J. 2008). No. Global Bus. SEA Rule 17a-5 (a) FILING OF MONTHLY AND QUARTERLY REPORTS (1) This paragraph (a) shall apply to every broker or dealer registered pursuant to section 15 of the Act. A fourth open question is: what constitutes negligent conduct under Section 17(a)? requirements of Section 3(a)(11) of the Securities Act of 1933 (15 U.S.C. Dec. 18, 2018. (D) The linking of all clearance and settlement facilities and the development of uniform standards and procedures for OF THE SECURITIES ACT. 1999); Pagel Inc. v. SEC, 803 F.2d 942, 946 (8th Cir. 7 Monarch, 192 F.3d at 308; accord, e.g., SEC v. Gottleib, 88 F. App'x 476, 477 (2d Cir.