Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law by President Obama on July 21, 2010.

Referred to by many as the most sweeping financial reform legislation since the 1930s, the Dodd-Frank Act is likely to have a significant impact across the spectrum of securities and financial services litigation, including SEC enforcement actions, private securities litigation, consumer lending litigation and insurance litigation.  Among other things, the Dodd-Frank Act:

  • Lessens the burden on the SEC in connection with claims for aiding and abetting violations of the securities laws, by allowing liability to be imposed on any person who “recklessly” provides substantial assistance, in addition to those who “knowingly” do so.
  • Creates new incentives for whistleblowers that provide “original information” in SEC enforcement proceedings that result in monetary sanctions exceeding $1,000,000.
  • Allows the SEC and defendants in SEC federal court litigation to issue nationwide subpoenas requiring in-person attendance at trials and hearings.
  • Provides the SEC with rulemaking power to limit or prohibit brokers, dealers and investment advisers from requiring arbitration of customer disputes.
  • Establishes new mortgage reform regulations to prohibit unfair lending practices, including the prohibition of financial incentives for subprime loans and prepayment penalties.
  • Imposes penalties on lenders and mortgage brokers for noncompliance with new standards, enabling consumers to recover as much as three years of interest payments, in addition to damages and attorneys’ fees.
  • Creates a new Federal Insurance Office within the Department of the Treasury that will monitor all aspects of the insurance industry, gather information and data on and from the insurance industry and insurers (including by subpoena where necessary and appropriate under the Act), and consult with state regulators regarding insurance matters of national importance.
  • Allows for federal preemption of state insurance measures under certain circumstances.

We expect that these and other provisions of the Dodd-Frank Act will generate a substantial amount of litigation during the months and years to come, with a variety of procedural and substantive issues to be addressed. We will continue to monitor any new developments in this regard and update this blog accordingly.

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