Year in Review: Securities Law Trends for 2021

Year in Review: Securities Law Trends for 2021

In the past year, we discussed a number of ways that startups and other small businesses can raise the capital needed to help them grow while maintaining compliance with federal securities regulations...

In 2021, we discussed a number of ways that startups and other small businesses can raise the capital needed to help them grow while maintaining compliance with federal securities regulations. We also discussed how listed businesses, broker-dealers and registered investment advisors can boost their compliance efforts in response to SEC enforcement trends.

In case you missed some of our articles, below are a few of the most important securities law developments impacting businesses in the past year:

  • SPACs: The skyrocketing growth of the SPAC market is resulting in closer scrutiny by the Securities and Exchange Commission (SEC). In March, the SEC’s Division of Corporation Finance issued a statement discussing several accounting, financial reporting, and governance issues that a private operating company should consider before undertaking a business combination with a SPAC. In July, the SEC brought an enforcement action against a SPAC, its merger target, and the companies’ CEOs for making misleading disclosures ahead of a proposed business combination. While changes to the disclosures regulations governing SPACs are likely on the horizon, it is unclear how soon they will be proposed. The SEC’s rulemaking agenda lists April 2022 as a target for discussing changes to SPAC regulations.
  • SEC Disgorgement Remedy: Congress expanded the SEC’s disgorgement power this year.The National Defense Authorization Act for Fiscal Year 2021 (NDAA), which became law on January 1, 2021, expressly authorized the SEC to seek disgorgement in federal court and extends the statute of limitations for such actions. The legislative action was prompted by the U.S. Supreme Court’s decision in in Liu v. Securities and Exchange Commission, 591 U. S. ____ (2020). The Court held that while the SEC has the ability to seek disgorgement in federal court, the amount recouped should not exceed a wrongdoer’s net profits, and the proceeds must be returned to defrauded investors. The NDAA provisions specifically allow for the SEC’s disgorgement efforts in civil matters for securities violations, and, unlike the Supreme Court’s decision in Liu, the NDAA does not require that the relief be “for the benefit of investors.”
  • GameStop Frenzy: The January 2021 GameStop (GameStop or GME) stock trading frenzy and the larger meme-stock phenomenon generated headlines this year. The GameStop market volatility triggered an SEC investigation; the resulting report suggested that one of the issues most likely to attract further scrutiny is the “game-like” features used by trading apps. In August, the SEC formally requested information and public comment on matters related to the use of digital engagement practices (DEPs) by broker-dealers and investment advisers
  • Crowdfunding: In September, the SEC brought its first enforcement action involving Regulation Crowdfunding. The agency charged a crowdfunding portal, issuer, and other involved individuals with conducting a fraudulent scheme to sell nearly $2 million of unregistered securities through two crowdfunding offerings. While the SEC has gradually expanded the availability of crowdfunding, it has also warned that it will take swift action against those who use it to defraud investors. For businesses seeking to use crowdfunding to raise funds, it is imperative to work with knowledgeable counsel who can help ensure that your offering complies with Regulation CF and any other applicable securities regulations.
  • Climate Change: While many public companies are already voluntarily making climate-related disclosures, the SEC moved closer to making them mandatory during 2021.  In March, the SEC started soliciting public comments and announced the creation of a Climate and ESG Task Force in the Division of Enforcement. According to its regulatory agenda, the SEC plans to propose rule amendments to “enhance registrant disclosures regarding issuers’ climate-related risks and opportunities” sometime in the near future.
  • Cybersecurity:  The SEC remains concerned about regulated firms’ cybersecurity compliance, particularly as cyberattacks have increased during the COVID-19 pandemic. After naming it as an enforcement priority for 2021, the SEC brought several enforcement actions arising out of cyber incidents against investment advisers and broker-dealers. Many of the allegations related to lax cyber policies/procedures, ineffective disclosure controls, and misleading statements made to investors with respect to cyber incidents. The agency also included “cybersecurity risk governance” on its near-term rulemaking agenda.
  • Cryptocurrency: Since taking the helm at the SEC, Chair Gary Gensler has indicated that he wants the agency to take greater measures to protect crypto investors, characterizing the industry as the “wild west.” While crypto is certainly on the agenda, 2021 did not bring any new regulations. The SEC did, however, bring several enforcement actions related to crypto, which included charging entities and individuals with unregistered and/or fraudulent offerings of digital asset securities.

Of course, this post does not cover all of the legal developments that occurred in the securities industry in 2021. To read more, we encourage you to click through to the original post linked in each paragraph.

If you have questions, please contact us

If you have any questions or if you would like to discuss these issues further,
please contact Paul A. Lieberman or Dan Brecher at (201) 896-4100.  You can also contact a member of 
Scarinci Hollenbeck’s Financial Services and Regulatory Practice Group.


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AboutDan Brecher

Dan Brecher's experience ranges from general counsel of New York Stock Exchange and NASD/FINRA member brokerage firms to representation of companies in hundreds of public and private securities offerings and advising institutional and high net worth investors.Full Biography

AboutPaul A. Lieberman

Paul A. Lieberman has a distinguished legal practice devoted to client-centric representation in the financial services industry, including broker-dealers, investments advisers, public and private investment companies, insurance companies, registered representatives, financial advisers, agents and associated staff.Full Biography

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Year in Review: Securities Law Trends for 2021

Year in Review: Securities Law Trends for 2021
Author: Dan Brecher, Paul A. Lieberman

In 2021, we discussed a number of ways that startups and other small businesses can raise the capital needed to help them grow while maintaining compliance with federal securities regulations. We also discussed how listed businesses, broker-dealers and registered investment advisors can boost their compliance efforts in response to SEC enforcement trends.

In case you missed some of our articles, below are a few of the most important securities law developments impacting businesses in the past year:

  • SPACs: The skyrocketing growth of the SPAC market is resulting in closer scrutiny by the Securities and Exchange Commission (SEC). In March, the SEC’s Division of Corporation Finance issued a statement discussing several accounting, financial reporting, and governance issues that a private operating company should consider before undertaking a business combination with a SPAC. In July, the SEC brought an enforcement action against a SPAC, its merger target, and the companies’ CEOs for making misleading disclosures ahead of a proposed business combination. While changes to the disclosures regulations governing SPACs are likely on the horizon, it is unclear how soon they will be proposed. The SEC’s rulemaking agenda lists April 2022 as a target for discussing changes to SPAC regulations.
  • SEC Disgorgement Remedy: Congress expanded the SEC’s disgorgement power this year.The National Defense Authorization Act for Fiscal Year 2021 (NDAA), which became law on January 1, 2021, expressly authorized the SEC to seek disgorgement in federal court and extends the statute of limitations for such actions. The legislative action was prompted by the U.S. Supreme Court’s decision in in Liu v. Securities and Exchange Commission, 591 U. S. ____ (2020). The Court held that while the SEC has the ability to seek disgorgement in federal court, the amount recouped should not exceed a wrongdoer’s net profits, and the proceeds must be returned to defrauded investors. The NDAA provisions specifically allow for the SEC’s disgorgement efforts in civil matters for securities violations, and, unlike the Supreme Court’s decision in Liu, the NDAA does not require that the relief be “for the benefit of investors.”
  • GameStop Frenzy: The January 2021 GameStop (GameStop or GME) stock trading frenzy and the larger meme-stock phenomenon generated headlines this year. The GameStop market volatility triggered an SEC investigation; the resulting report suggested that one of the issues most likely to attract further scrutiny is the “game-like” features used by trading apps. In August, the SEC formally requested information and public comment on matters related to the use of digital engagement practices (DEPs) by broker-dealers and investment advisers
  • Crowdfunding: In September, the SEC brought its first enforcement action involving Regulation Crowdfunding. The agency charged a crowdfunding portal, issuer, and other involved individuals with conducting a fraudulent scheme to sell nearly $2 million of unregistered securities through two crowdfunding offerings. While the SEC has gradually expanded the availability of crowdfunding, it has also warned that it will take swift action against those who use it to defraud investors. For businesses seeking to use crowdfunding to raise funds, it is imperative to work with knowledgeable counsel who can help ensure that your offering complies with Regulation CF and any other applicable securities regulations.
  • Climate Change: While many public companies are already voluntarily making climate-related disclosures, the SEC moved closer to making them mandatory during 2021.  In March, the SEC started soliciting public comments and announced the creation of a Climate and ESG Task Force in the Division of Enforcement. According to its regulatory agenda, the SEC plans to propose rule amendments to “enhance registrant disclosures regarding issuers’ climate-related risks and opportunities” sometime in the near future.
  • Cybersecurity:  The SEC remains concerned about regulated firms’ cybersecurity compliance, particularly as cyberattacks have increased during the COVID-19 pandemic. After naming it as an enforcement priority for 2021, the SEC brought several enforcement actions arising out of cyber incidents against investment advisers and broker-dealers. Many of the allegations related to lax cyber policies/procedures, ineffective disclosure controls, and misleading statements made to investors with respect to cyber incidents. The agency also included “cybersecurity risk governance” on its near-term rulemaking agenda.
  • Cryptocurrency: Since taking the helm at the SEC, Chair Gary Gensler has indicated that he wants the agency to take greater measures to protect crypto investors, characterizing the industry as the “wild west.” While crypto is certainly on the agenda, 2021 did not bring any new regulations. The SEC did, however, bring several enforcement actions related to crypto, which included charging entities and individuals with unregistered and/or fraudulent offerings of digital asset securities.

Of course, this post does not cover all of the legal developments that occurred in the securities industry in 2021. To read more, we encourage you to click through to the original post linked in each paragraph.

If you have questions, please contact us

If you have any questions or if you would like to discuss these issues further,
please contact Paul A. Lieberman or Dan Brecher at (201) 896-4100.  You can also contact a member of 
Scarinci Hollenbeck’s Financial Services and Regulatory Practice Group.