Milbank LLP Litigation & Arbitration partner Olivia Choe and associate Carmit Patrone authored an article titled “Litigated Off-Channel Communications Charge Survives Motion to Dismiss: Where Are We on Books and Records?” for the Harvard Law School Forum on Corporate Governance.
In SEC v. Arete Wealth Management LLC, a federal judge in the Northern District of Illinois recently refused to dismiss off-channel communications claims in an SEC case accusing the defendants of engaging in securities fraud. Although the court dismissed certain aspects of the SEC’s fraud claims, it rejected arguments that the SEC’s books-and-records rule is unconstitutionally vague or fails to provide fair notice to registrants. Nor was the court persuaded that industry-wide practices or the dissatisfaction with the rule expressed by certain Commissioners should deter its enforcement. As the court put it: “as of now, the rules say what they say.”
In this article, the authors discuss the background leading up to this decision, the current Commission’s approach to off-channel sweeps, what happened in Arete, and what registrants who remain subject to these rules should do moving forward.
