On January 28, the Securities and Exchange Commission (SEC or Commission) issued a press release, announcing the settlement of various fraud charges against a private technology company in light of their “significant remedial efforts” made during the course of an internal investigation into alleged misconduct by the firm’s former CEO. A demonstration of regulatory pragmatism, this matter is indicative of the Commission’s willingness to credit investigatory targets that take holistic, corrective action.

At issue in this case were violations of antifraud provisions of the federal securities laws, specifically Section 10(b) of the Exchange Act and Rule 10b-5, as well as Section 17(a) of the Securities Act. The SEC’s complaint, which was filed in the U.S. District Court for the Northern District of California, alleged that from 2018-2020, the company’s former CEO fraudulently inflated financial metrics and internal records for the purposes of reaching an augmented valuation of over $1 billion. The CEO was fired upon discovery of his fraudulent scheme, and as a result of additional remedial measures undertaken by the company, the SEC ultimately decided not to impose any civil money penalties. Subject to court approval, the settlement permanently enjoins the company from future violations of the federal securities laws.

SEC Division of Enforcement Director Gurbir S. Grewal credited the company’s internal investigation, revised valuation, expansion of its board, hiring of new senior management, repayment to harmed investors, and general improvements to corporate governance as the basis for waiving penalties in this case. Mr. Grewal went so far as to state that this matter is an “excellent example” of “what types of remedial actions and cooperation might be credited by the Commission after a company uncovers fraud.”

If you have any questions regarding antifraud provisions of the federal securities laws, internal investigations, corporate governance and compliance, SEC enforcement actions, your company’s policies and procedures, or questions otherwise relating to the above alert, please contact any of the Troutman Pepper attorneys listed on this advisory.

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Photo of Jay Dubow Jay Dubow

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…

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.

Photo of Ghillaine Reid Ghillaine Reid

Ghillaine co-leads the Securities Investigations + Enforcement Practice Group at Troutman Pepper. She focuses her practice on government and securities regulatory investigations, financial services litigation, commercial litigation, and corporate compliance. Drawing on her experience in government service and private practice, Ghillaine regularly represents…

Ghillaine co-leads the Securities Investigations + Enforcement Practice Group at Troutman Pepper. She focuses her practice on government and securities regulatory investigations, financial services litigation, commercial litigation, and corporate compliance. Drawing on her experience in government service and private practice, Ghillaine regularly represents corporations and individuals in investigations conducted by the Securities & Exchange Commission, the Department of Justice, the Financial Industry Regulatory Authority, and other government and regulatory agencies. Ghillaine has successfully defended several high profile SEC investigations and enforcement proceedings involving a wide range of significant issues, including insider trading, accounting fraud, market manipulation, and broker-dealer sales practice violations. Prior to entering private practice, Ghillaine was a Branch Chief and Staff Attorney in the New York Regional Office of the Securities & Exchange Commission’s Division of Enforcement, where she investigated and litigated a wide range of securities enforcement matters.

Photo of Lauren Lisauskas Lauren Lisauskas

Lauren is an associate in the Business Litigation section of Troutman Pepper. Her practice includes representing both plaintiffs and defendants in a variety of complex civil litigation matters.