Top 5 SEC Enforcement Developments For June 2022

• Published date: 11 July 2022
• Subject Matter: Corporate/Commercial Law, Compliance, Corporate and Company Law, Securities
• Law Firm: Morrison & Foerster LLP
• Author: Ms Haimavathi V. Marlier, Jina Choi and Michael D. Birnbaum

In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important SEC enforcement developments from the past month, with links to primary sources. The past month has been another busy one for both SEC enforcement and regulation, including record-breaking penalties and the first Reg BI enforcement action. Here, we examine the following:

• The SEC's clawback of profits under SOX Section 304 absent allegations of misconduct;
• The SEC's crackdown on allegedly hidden robo-advisor fees;
• How the SEC is enforcing the "best interest" standard under Reg BI;
• The SEC's imposition of penalties for allegedly failing to include a whistleblower carve-out in employment agreements and
• Whether there exists a duty to correct a response to a voluntary SEC information request.

1. The SEC Claws Back Profits from a CEO Without Charging Individual Misconduct

On June 7, 2022, the SEC filed charges against New Jersey-based Synchronoss Technologies, Inc. and seven employees, including the former CFO and General Counsel, over long-running accounting improprieties from 2013 to 2017. The company settled scienter-based fraud charges and agreed to pay a civil penalty of $12.5 million. The former General Counsel settled charges for misleading auditors in two transactions and causing the company's violations of certain reporting provisions under Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 ("Exchange Act"). Although several former and current employees of the company settled with the SEC, the former CFO and Controller are litigating in federal district court in the Southern District of New York.

The SEC also took the somewhat unusual step of pursuing clawbacks from the company's former CEO for violations of Section 304 of the Sarbanes-Oxley Act of 2022 ("SOX"), despite not charging him with misconduct. Section 304 does not require that the CEO engage in misconduct to trigger its reimbursement requirement. Under this section, CEOs and CFOs can be required to reimburse the company for certain compensation received in years which the issuer was required to prepare an accounting restatement due to the issuer's "material noncompliance" with its financial reporting requirements under the federal securities laws. The former Synchronoss CEO agreed to reimburse the company for more than $1.3 million in stock sale profits and bonuses and to return previously granted shares of company stock.

This is not the first time the SEC has pursued no-fault clawbacks against an issuer's CEO or CFO. Several courts have held that Section 304's disgorgement remedy applies regardless of whether a restatement was caused by the CEO's or CFO's personal...