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SEC Takes a Crack at Expanding Misappropriation Theory to “Shadow” Insider Trading

WLF Legal Pulse - Tue, 09/07/2021 - 1:30pm

Stephen M. Bainbridge is William D Warren Distinguished Professor of Law, UCLA School of Law and serves as the WLF Legal Pulse’s Featured Expert Contributor, Corporate Governance/Securities Law.


The SEC recently charged Matthew Panuwat—a former employee of Medivation Inc.—with insider trading after Medivation announced Pfizer Inc. would acquire Medivation (the complaint is here). If Panuwat had traded in Medivation stock, there would have been a strong case against him under the so-called classical (a.k.a. disclose or abstain) theory of insider trading. If Panuwat had traded in Pfizer stock, there would have a strong case against him under the so-called misappropriation theory of insider trading liability. But this is where the wrinkle comes in.

According to the SEC’s press release summarizing the charges:

Matthew Panuwat, the then-head of business development at Medivation, a mid-sized, oncology-focused biopharmaceutical company, purchased short-term, out-of-the-money stock options in Incyte Corporation, another mid-cap oncology-focused biopharmaceutical company, just days before the Aug. 22, 2016, announcement that Pfizer would acquire Medivation at a significant premium. . . . Panuwat knew that investment bankers had cited Incyte as a comparable company in discussions with Medivation and he anticipated that the acquisition of Medivation would likely lead to an increase in Incyte’s stock price. . . . Following the announcement of Medivation’s acquisition, Incyte’s stock price increased by approximately 8%. The complaint alleges that, by trading ahead of the announcement, Panuwat generated illicit profits of $107,066.

This is what insider trading experts call “shadow trading.” Those experts have speculated for some time as to whether shadow trading is illegal, but the Panuwat case is the first time the SEC has ever prosecuted such a case.

As a recent Day Pitney memo noted, some might question whether shadow trading ought to be illegal because Panuwat’s “trade had no impact on his employer, the acquiring company, or their stock price or investors.” Yet, while the facts of the case are somewhat unusual, the complaint arguably states a claim under the misappropriation theory. As Day Pitney explains:

The SEC’s complaint alleges several factors in support of a misappropriation theory of insider trading against Panuwat. These include that Medivation’s investment banker made a presentation (which Panuwat saw) that specifically discussed parallels with its close competitor, Incyte; Panuwat had signed a confidentiality agreement, which included the company’s insider trading policy, prohibiting him from using material nonpublic information to trade in securities of his employer ‘or the securities of another publicly traded company, including all … competitors of’ his employer; Panuwat was an experienced securities trader, and he bought the call options expecting that news of the transaction would not only boost his employer’s stock price but also boost its close competitor’s stock price (which indeed increased by approximately 8 percent after news of the acquisition became public).

The late Justice Ruth Bader Ginsburg explained the difference between the classical and misappropriation theories in U.S. v. O’ Hagan, 521 U.S. 623 (1997):

Under the ‘traditional’ or ‘classical theory’ of insider trading liability, § 10(b) and Rule 10b-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. . . . The classical theory applies not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, consultants, and others who temporarily become fiduciaries of a corporation.

The ‘misappropriation theory’ holds that a person commits fraud ‘in connection with’ a securities transaction, and thereby violates § 10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information. Under this theory, a fiduciary’s undisclosed, self-serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the company’s stock, the misappropriation theory premises liability on a fiduciary-turned-trader’s deception of those who entrusted him with access to confidential information.

The two theories are complementary, each addressing efforts to capitalize on nonpublic information through the purchase or sale of securities. The classical theory targets a corporate insider’s breach of duty to shareholders with whom the insider transacts; the misappropriation theory outlaws trading on the basis of nonpublic information by a corporate ‘outsider’ in breach of a duty owed not to a trading party, but to the source of the information. The misappropriation theory is thus designed to ‘protec[t] the integrity of the securities markets against abuses by “outsiders” to a corporation who have access to confidential information that will affect the] corporation’s security price when revealed, but who owe no fiduciary or other duty to that corporation’s shareholders.’

Id. at 651-53 (citation omitted).

These theories were developed to replace an earlier theory—the so-called equal access test—that effectively premised liability on the mere possession of material nonpublic information. As I explained in Equal Access to Information: The Fraud at the Heart of Texas Gulf Sulphur, 71 SMU L. Rev. 643 (2018):

[In SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968), cert. denied, 394 U.S. 976 (1969),] Judge Sterry R. Waterman’s majority opinion interpreted Securities Exchange Act § 10(b) and SEC Rule 10b-5 thereunder as mandating that:

[A]nyone in possession of material inside information must either disclose it to the investing public, or, if he is disabled from disclosing it in order to protect a corporate confidence, or he chooses not to do so, must abstain from trading in or recommending the securities concerned while such inside information remains undisclosed.

Just over a decade later, however, in Chiarella v. United States, Justice Powell’s majority opinion expressly rejected that proposition, explaining that ‘a duty to disclose under § 10(b) does not arise from the mere possession of nonpublic market information.’

Why did the Supreme Court cut the heart out of TGS? Justice Powell’s main concern was the risk that broad application of the equal access test would criminalize legitimate trading activity. In doing so, however, Powell overlooked an even more fundamental problem; namely, Judge Waterman not only invented equal access out of whole cloth, but also compounded his fraud by outright misrepresentation of the few precedents he cited.

O’Hagan offers a classic example of how subsequent courts used the misappropriation theory to penalize some conduct that had been legalized by Chiarella. O’Hagan was a lawyer at Dorsey & Whitney, which was representing Grand Met in Grand Met’s effort to acquire Pillsbury. O’Hagan traded in Pillsbury stock and was criminally convicted of insider trading.

O’Hagan could not be held liable under the classical theory. He was not an insider of the company in whose stock he traded. He was not an agent or other fiduciary of the people with whom he traded. But Justice Ginsburg affirmed his conviction by validating the misappropriation theory.

Although the misappropriation theory has critics (myself included), it is now well-settled law. Accordingly, if Panuwat had traded in Pfizer stock, although the case would have been the reverse of O’Hagan (Panuwat worked for the target instead of the bidder), no one would have been particularly surprised by the SEC bringing the case.

The problem with the Panuwat case is the way it takes the chief flaw in the misappropriation theory to a new extreme. Securities Exchange Act of 1934 § 10(b) and Rule 10b-5 thereunder, on which the modern insider trading prohibition rests, imposes liability on fraud, manipulation, and other deceptive practices committed “in connection with the purchase or sale of any security.” In U.S. v. O’Hagan, 92 F.3d 612 (8th Cir.1996), rev’d, 521 U.S. 642 (1997), the Eighth Circuit held that because of the “in connection with” requirement Rule 10b–5 imposed liability only where there has been deception upon the purchaser or seller of securities, or upon some other person intimately linked with or affected by a securities transaction. Because the misappropriation theory involves no such deception, the court opined, but rather simply a breach of fiduciary duty owed to the source of the information, the theory could not stand. Absent such a limitation, the court explained, § 10(b) would be transformed “into an expansive ‘general fraud-on-the-source theory’ which seemingly would apply to an infinite number of trust relationships.”

In reversing, Justice Ginsburg essentially punted on this issue. Her opinion for the majority essentially ignored both the statutory text and the cogent interpretative arguments advanced by the Eighth Circuit. Justice Ginsburg’s failure to more carefully evaluate the meaning of the phrase “in connection with,” as used in § 10(b), has long been quite troubling. By virtue of the majority’s holding that deception on the source of the information satisfies the “in connection with” requirement, fraudulent conduct having only tenuous connections to a securities transaction is brought within Rule 10b–5’s scope. There has long been a risk that Rule 10b–5 will become a universal solvent, encompassing not only virtually the entire universe of securities fraud, but also much of state corporate law. The minimal contacts O’Hagan required between the fraudulent act and a securities transaction substantially exacerbated that risk. In addition, the uncertainty created as to Rule 10b–5’s parameters fairly raises vagueness and related due process issues, despite the majority’s rather glib dismissal of such concerns.

Extending the misappropriation theory to shadow trading severely exacerbates these problems. In particular, to claim that Panuwat’s deception of his employer was committed in connection with a securities transaction stretches that requirement to the breaking point. As noted, unlike the usual misappropriation case, Panuwat’s trade could not have negatively impacted  Medivation, Pfizer, or even Incyte. Panuwat’s deception was complete before he used the information to trade. As the Fourth Circuit explained in a pre-O’Hagan decision:

In allowing the statute’s unitary requirement to be satisfied by any fiduciary breach (whether or not it entails deceit) that is followed by a securities transaction (whether or not the breach is of a duty owed to a purchaser or seller of securities, or to another market participant), the misappropriation theory transforms section 10(b) from a rule intended to govern and protect relations among market participants who are owed duties under the securities laws into a federal common law governing and protecting any and all trust relationships. If, as the Supreme Court has held, the fraud-on-the-market theory is insupportable because section 10(b) does not ensure equal information to all investors, . . . a fortiori such a general fraud-on-the-source theory in pursuit of the same parity of information cannot be defended.

U.S. v. Bryan, 58 F.3d 933, 950 (4th Cir. 1995), abrogated by U.S. v. O’Hagan, 521 U.S. 642 (1997).

As the Bryan court correctly recognized, the Supreme Court’s precedents—including O’Hagan—reflect a profound concern that an expansive prohibition of insider trading could easily interfere with the beneficial activities of market professionals whose efforts to find and act upon new information contribute substantially to the efficiency of the stock markets.  As I recently observed in A Critique of the Insider Trading Prohibition Act of 2021, 2021 U. Ill. L. Rev. Online 231 (Aug. 8, 2021):

In Chiarella, Justice Powell noted that a broad insider trading prohibition might ban ‘a tender offeror’s purchases of target corporation stock before public announcement of the offer,’ a step Congress clearly had declined to take when it adopted the Williams Act to regulate tender offers. In the subsequent Dirks opinion, Justice Powell further explained that such a broad policy basis for regulating insider trading implied a ban that ‘could have an inhibiting influence on the role of market analysts, which the SEC itself recognizes is necessary to the preservation of a healthy market.’

To be sure, Panuwat was not acting as a market analyst. It is also true that he had signed Medivation’s corporate insider-trading policy, which prohibited employees from using confidential information concerning Medivation to trade in “the securities of another publicly traded company.”

But did this information really concern Medivation? As a Bryan Cave memo notes, Panuwat “had been involved in discussions within the company and with its investment banking advisers about potential acquisitions of Medivation, a mid-cap oncology company, and had also discussed the market for acquisition of other mid-cap oncology companies by larger pharmaceutical companies. It alleges that he had focused on one particular peer company, Incyte.” Even if one assumes that Panuwat learned material nonpublic information about Incyte in those discussions, which seems implausible, that information had nothing to do with Medivation or an acquisition of Medivation. Instead, the only information Panuwat learned that concerned Medivation was that Pfizer was likely to buy Medivation. He then gambled that speculators would see Pfizer’s bid as signaling potential for other companies in the industry to be acquired. Saying that undisclosed use of such information touched and concerned Panuwat’s trades in Incyte stock seems like a considerable stretch.

To the extent the SEC’s case rests on Panuwat’s alleged violation of Medivation’s insider trading policy, Panuwat may also argue that that policy likely was intended to prevent Medivation employees from using inside information to trade in the stocks of related companies, such as major suppliers or customers. Medivation might well, for example, have wanted to prevent employees from shorting the stock of a supplier that Medivation was about to cease using. But the SEC’s broad theory of this case would suggest that it is now illegal to trade while in possession of any material nonpublic information a corporate employee learns on the job about any company, whether or not that other company is a party to a transaction with the employer. Shadow trading thus moves the SEC a long way in the direction of restoring the equal access to information theory the Supreme Court long ago rejected.

Several questions remain unanswered:

  1. Will Panuwat dare to fight the case? Courts have long imposed disgorgement of an inside trader’s profits (or loss avoided) as a penalty for illegal insider trading in SEC cases. In the Insider Trading Sanctions Act of 1984, Congress created a treble money civil fine that may be imposed in cases brought by the SEC. The fine is imposed over and above the disgorgement penalty. As a result, a convicted inside trader faces a potential civil penalty of four times the amount of his profit. The SEC can often induce defendants with plausible defenses to accept a settlement limited to disgorgement or perhaps disgorgement plus a single multiple of the trader’s profits. Risk-averse defendants will often take such a deal rather than risking the full potential penalty.
  2. Will courts allow the SEC to effectively resuscitate the equal access theory?
  3. If the SEC prevails, will employers clarify their insider trading policies to limit their application to trading in stocks of customers or suppliers (as well as those of the employer, of course)?

The post SEC Takes a Crack at Expanding Misappropriation Theory to “Shadow” Insider Trading appeared first on Washington Legal Foundation.

Categories: Latest News

Upcoming Briefing—Cases and Controversies: Expectations for the U.S. Supreme Court’s October Term 2021

WLF Legal Pulse - Tue, 09/07/2021 - 9:00am
Monday, September 20, 2:00-3:00 p.m. EST


**Register below for live broadcast**

John P. Elwood, Partner, Arnold & Porter and Contributor, SCOTUSblog

Shay Dvoretzky, Partner, Skadden, Arps, Slate, Meagher & Flom LLP

Anastasia P. Boden, Senior Attorney, Pacific Legal Foundation and Co-host, Dissed Podcast

Our panel of appellate experts and SCOTUS big-thinkers will prepare you for the Court’s new term with snapshots of granted cases and pending petitions, as well as insights on how the glare of external attention has affected the Court’s inner workings.


The post Upcoming Briefing—Cases and Controversies: Expectations for the U.S. Supreme Court’s October Term 2021 appeared first on Washington Legal Foundation.

Categories: Latest News

GSA Names Raylene Yung Technology Modernization Fund Executive Director

GSA news releases - Tue, 09/07/2021 - 12:00am
WASHINGTON -- Today, the U.S. General Services Administration (GSA) announced the appointment of Raylene Yung as Technology Modernization Fund Executive Director. Yung will oversee the Technology Modernization Fund (TMF) Program Management Office, authorized by the Modernizing Government...

Lawmakers’ Pressure on FDA Review of New Tobacco Products Blurs Line Between Oversight and Undue Influence

WLF Legal Pulse - Mon, 09/06/2021 - 9:00am

Ed. NoteThis post originally appeared in WLF’s Forbes.com contributor page on August 30, 2021.

Food and Drug Administration (FDA) leadership and staff are accustomed to external criticism and pressure. After all, FDA-regulated products account for 20 cents of every dollar spent by American consumers, so criticism comes with the job. Over the past year, the volume of noise aimed at FDA over one particular duty—its review of applications for electronic nicotine delivery systems (ENDS) and other “deemed” new tobacco products—has been dialed to 11.

Pressure has come from a variety of voices and in different forms. Anti-tobacco activist groups, for example, have lobbied FDA to subject ENDS products to the new-drug approval process instead of the legislatively prescribed Premarket Tobacco Product Application (PMTA) process. FDA has thus far ignored that demand, as we discussed in our last Forbes.com commentary.

Members of Congress—several of whom co-sponsored the 2009 Tobacco Control Act—have stage-managed a pageant of outrage over ENDS that has featured committee hearings, press conferences, and information requests and letters to FDA. While those are common tools of legislative oversight, the Members’ ENDS pressure campaign may have stepped over the line between oversight and impermissible interference with agency adjudication.

PMTA Process

Over the past year, the Office of Science in FDA’s Center for Tobacco Products (CTP) has been reviewing over 500 marketing applications for non-combustible tobacco products. Applicants have had to submit a considerable amount of information and undergo a multi-step process to prove that their product is “appropriate for the protection of public health.” Reviewers judge whether each product will increase the likelihood that current smokers will switch from combustible tobacco and decrease the likelihood that non-smokers will choose to use the ENDS product under review.

Lawmakers Get Pushy

On January 14, 2021, a group of Senators led by Majority Whip Durbin sent a pointed letter to FDA Commissioner Stephen Hahn. The Senators alleged that the agency’s slow-walk of the PMTA process contributed to underage use of e-cigarettes and urged FDA to focus intently on youth use when reviewing applications. In addition to these general complaints, the letter provided FDA with a very specific “non-exhaustive list of principles that should guide FDA’s review of PMTAs.” Each of those four principles are introduced by the phrase “FDA should not authorize a PMTA…” Each principle demanded blanket disqualification for products that had certain characteristics, such as “high” nicotine content. One principle admonished FDA to look beyond general public health and ensure that an ENDS product does not disproportionately harm “vulnerable populations.”1

A March 23 letter to Acting FDA Commissioner Woodcock headlined by Representatives Wasserman Schultz and DeGette took an equally aggressive approach, demanding several of the same categorical disqualifications as did Senator Durbin’s letter. The letter went one step further, however, specifically urging FDA to reject marketing for specific manufacturers’ products. During a June 23 House Oversight Subcommittee hearing at which Ms. Woodcock served as a witness, Rep. Wasserman Shultz (a non-committee member the subcommittee chairman invited to participate) pushed the Acting Commissioner to commit to using the PMTA process to reduce nicotine levels in ENDS and urged FDA to reject specific products.

In addition to Ms. Woodcock, Senator Durbin appeared as a witness at the House Oversight hearing. His prepared testimony repeated his January 14 letter’s harsh criticism of FDA on underage use. He went on to demand that FDA reject “any product with a history of increasing youth use,” and thundered, “It is time for FDA to be our partner in public health . . . and take these dangerous products off the market.”

And just to be sure that the Acting Commissioner didn’t forget what she said at the hearing, the subcommittee issued a press release not only quoting her statements, but also characterizing them in a way most favorable to the larger pressure campaign.

Finally, Senator Blumenthal chaired an August 3 Senate Commerce subcommittee hearing at which he singled out specific companies whose applications FDA should reject, and asked the witnesses to opine on how specific applications should fare.

Stepping Over the Line?

FDA and its leadership have properly refused to publicly engage with the Senators and Representatives who are lobbying them at hearings and in correspondence. To our knowledge, for instance, FDA has not responded to Senator Durbin’s January 14 letter. And Acting Commissioner Woodcock deftly deflected House Oversight subcommittee members’ numerous leading questions, refusing to comment on specific applicants.

But privately, it’s fair to wonder how the lawmakers’ pressure is not impacting the PMTA process. Line reviewers in the Office of Science have a great deal of discretion under the very broad public-health standard, and the constant accusations and demands by important Members of Congress could tip the balance against some approvals. And the Commissioner and other FDA leaders certainly are aware of who approves FDA’s budget and votes on agency nominations.

More than just offending general notions of good-government and illegitimately attempting to impose legislative standards on FDA that Congress hasn’t legislated, has the Members’ pressure campaign also crossed a legal line? Although the caselaw on legislators’ undue influence over agency decisions is sparse, a rejected PMTA applicant might have a colorable argument that political intrusion impacted FDA’s decision and thus violated the company’s procedural due-process rights.

Generally, courts have undertaken deeper scrutiny of Senators’ and Representatives’ influence over judicial or quasi-judicial agency outcomes than their pressure on rulemaking activity. For instance, in the seminal Pillsbury Co. v. FTC case, the Fifth Circuit found that members of a Senate subcommittee hearing had committed an “improper intrusion into the adjudicatory process of the Commission” when chastising the FTC Chairman and his staff about developments in a Clayton Act challenge pending before the FTC. The Senators argued that FTC should have applied a stricter per se standard to Pillsbury’s conduct in a preliminary order favorable to the company. In its final decision, the Commission applied the higher standard sought by the Senators and ruled against Pillsbury.

The Fifth Circuit reasoned:

To subject an administrator to a searching examination as to how and why he reached his decision in a case still pending before him, and to criticize him for reaching the wrong’ decision, as the Senate subcommittee did in this case, sacrifices the appearance of impartiality—the sine qua non of American judicial justice.

Pillsbury didn’t need to prove that the Senators actually influenced the outcome of the FTC adjudication. The court held that in the interests of Pillsbury’s due-process rights and the integrity of administrative adjudication, Pillsbury need only show the lawmakers’ actions cast doubt on agency’s impartiality. In post-Pillsbury cases where the plaintiff alleged undue influence of agency adjudication, courts have retained and applied that burden of proof.

FDA’s PMTA approval process is more adjudicative than it is rulemaking. The eventual outcome, a marketing or denial order, arises from a formal process based on a formal record, applying legal standards set in advance on a case-by-case basis. Thus, a plaintiff suing FDA would only need to show Members of Congress’s action cast doubt on the PMTA process’ impartiality.

The lawmakers’ pressure campaign on PMTA review featured multiple messages and messengers, as compared to the one Senate hearing in Pillsbury. And rather than Senators merely implying that FTC should have ruled differently in its Pillsbury case, Senators and Representatives over the past year have clearly demanded negative outcomes for specific PMTA applicants and dictated which factors should matter most during application reviews.


For many of the PMTA applicants, an FDA denial effectively puts them out of business. That reality certainly creates a strong incentive for legal challenges. How ironic if Members of Congress’s own words and deeds undo what they campaigned so aggressively for: FDA’s removal of ENDS products from the market.


The post Lawmakers’ Pressure on FDA Review of New Tobacco Products Blurs Line Between Oversight and Undue Influence appeared first on Washington Legal Foundation.

Categories: Latest News

Wicker Statement on Commerce Department’s Report Confirming Misconduct at ITMS

WASHINGTON – U.S. Sen. Roger Wicker, R-Miss., ranking member of the Senate Committee on Commerce, Science, and Transportation, today released the following statement after the Department of Commerce issued a report on the misconduct at the Investigations and Threat Management Service (ITMS):

“I am encouraged by the actions taken by Secretary Raimondo to correct the egregious misconduct within the Commerce Department,” said Wicker. “I will complete a thorough review of the Secretary’s report and consider additional oversight to ensure compliance with these corrective actions. We will continue to investigate why the Department’s Inspector General previously failed to address the allegations of abuse of power, ethnic targeting, and reprisal by ITMS staff.”

Wicker launched an investigation into alleged misconduct in the ITMS after whistleblowers reported a variety of improper activities dating back to the mid-2000s involving abuse of authority, mismanagement, and reprisal against Department employees. In July, Wicker released a Committee report detailing the misconduct.

GSA Publishes Guide to Low- and No-cost Grid-interactive Efficient Building Measures

GSA news releases - Thu, 09/02/2021 - 12:00am
  WASHINGTON — The U.S. General Services Administration (GSA) has published a guide outlining steps to implement low- and no-cost grid-interactive efficient building (GEB) measures that result in utility cost savings and greenhouse gas emissions reductions. These simple measures can be done with...

GSA Announces Public Auction for Former FAA Tower Site in Yarmouth Port, Massachusetts

GSA news releases - Thu, 09/02/2021 - 12:00am
BOSTON – The U.S. General Services Administration (GSA) is auctioning a former Federal Aviation Administration (FAA) tower site in Yarmouth Port, Massachusetts, as part of its mission to deliver value and savings in real estate, acquisition, technology, and other mission support services across...

GSA Seeks Applications from Learning Content Providers to Revolutionize Federal Workforce Modernization

GSA news releases - Thu, 09/02/2021 - 12:00am
  Washington — Today, the U.S. General Services Administration (GSA), in coordination with the Office of Management and Budget (OMB), Federal Chief Financial Officers Council (CFOC) and the 24 largest federal agencies, issued a first-of-its-kind Request for Information (RFI) seeking applications...

What Comes Next? PPP Forgiveness

House Small Business Committee News - Wed, 09/01/2021 - 1:00pm
The Committee on Small Business will hold a remote hearing titled: “What Comes Next? PPP Forgiveness.” The hearing is scheduled to begin at 1:00 P.M. on Wednesday, September 1, 2021 via the Zoom platform (information to be provided).

The hearing will update Members on the loan forgiveness phase of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). Members will also learn about legislative and administrative efforts to continue streamlining the forgiveness process for borrowers and lenders. 

To view a livestream of the hearing, please click here. 

Hearing Notice 

Hearing Memo 


Ms. Tracy C. Ward
Director of the SBA 504 Loan Program
Self-Help Ventures Fund
Durham, NC

Ms. Leslie Payne
Assistant Vice President of Commercial Lending
Affinity Federal Credit Union
Basking Ridge, NJ
*Testifying on behalf of the National Association of Federally Insured Credit Unions

Ms. Marla Bilonick
President and Chief Executive Officer
National Association of Latino Community Asset Builders
Washington, DC

California’s “Personal Information” vs. Europe’s “Personal Data”: Similar But Different

WLF Legal Pulse - Wed, 09/01/2021 - 9:00am

Ed. Note: This is the first installment in a year-long series the WLF Legal Pulse is hosting of “frequently asked questions” on two California laws aimed at protecting the privacy of digital personal data. The author of the posts, David Zetoony of Greenberg Traurig LLP, authored a book on the laws for the American Bar Association from which this and future FAQs are excerpted. We thank the ABA for granting us permission to share them with our readers.


Data privacy has become one of the greatest areas of risk and concern for business.  It is also quickly becoming a heavily regulated field with the adoption in Europe of the General Data Protection Regulation (GDPR) in 2016 and the adoption in California of the California Consumer Privacy Act (CCPA) in 2018 and the California Privacy Rights Act (CPRA) in 2020.  Some states, such as Colorado and Virginia, have already followed California in enacting data privacy regulation; many others are considering it.

The American Bar Association (ABA) recently published a Desk Reference Companion to the CCPA and the CPRA, a book authored by David Zetoony the Co-Chair of the United States data privacy and security practice at Greenberg Traurig LLP.  The book is designed to help in-house counsel understand the intricacies of California’s complex privacy regulations by providing answers to 516 of the most frequently asked questions from business.  The following excerpt was reproduced with the permission of the ABA.1 

Is the CCPA’s definition of personal information the same as the European GDPR’s definition of personal data?


The definition of “personal information” under the CCPA is not identical to the definition used within the European GDPR of “personal data,” although there are similarities.  The following provides a side-by-side comparison of the two terms:

“Personal information” means information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household. Personal information includes, but is not limited to, the following if it identifies, relates to, describes, is capable of being associated with, or could be reasonably linked, directly or indirectly, with a particular consumer or household . . .“Personal data” means any information relating to an identified or identifiable natural person (‘data subject’); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identify of that natural person.

While it is difficult to identify data types that would fall under the CCPA’s definition of “personal information,” and would not fall under the GDPR’s definition of “personal data,” the reverse is not necessarily true.  Put differently, it is possible for data to be considered “personal data” under the GDPR because it can theoretically be linked to an individual, and not be considered “personal information” under the CCPA because it cannot reasonably be linked to an individual.  For example, while European regulators have suggested that data that is hashed would still fall within the definition of “personal data” because there remains a theoretical possibility that the data could be re-identified,4 a California court could determine that such information falls outside the scope of the CCPA as it cannot be “reasonably” linked to a consumer.

There are other differences between the definition of “personal information” under the CCPA, and “personal data” under the GDPR.  The CCPA expressly excludes from its definition of personal information any “publicly available information” a term which is defined as referring to “information that is lawfully made available from federal, state, or local government records.”5  So, for example, under the CCPA the ownership of a residence (a matter of public record) might not be considered “personal information,” whereas such information would be considered “personal data” under the GDPR. 


The post California’s “Personal Information” vs. Europe’s “Personal Data”: Similar But Different appeared first on Washington Legal Foundation.

Categories: Latest News

August 2021 Month in Review

WLF Legal Pulse - Wed, 09/01/2021 - 8:26am

This WLF Litigation Division feature highlights WLF court and agency filings, as well as decisions issued in response to WLF’s filings. In this edition, we list August 2021 filings and results.

Click on the PDF button above for the full report.


Pivotal Software, Inc. v. Superior Court of Cal.—WLF asks the Supreme Court to clarify that the PSLRA’s mandatory discovery stay applies equally in state and federal court.

California Trucking Association v. Bonta—WLF asks the Supreme Court to halt California’s attempt to regulate trucking nationwide.

In re Walmart, Inc.—WLF asks the Texas Supreme Court to grant mandamus relief by limiting the scope of discovery to the threshold question of foreseeability in a major premises-liability case.

Boley v. Universal Health Services—WLF urges the Third Circuit to vacate a class-certification order in an ERISA case due to lack of Article IIII standing.

Axon v. FTC—WLF asks the Supreme Court to clarify when (and where) regulated parties may challenge an agency’s structure.


U.S. ex rel Yarberry v. Supervalu—The Seventh Circuit aligns with its sister circuits in adopting the Supreme Court’s Safeco test for willfulness in False Claims Act actions.

Northern Plains Resource Council v. U.S. Army Corps of Engineers—The Ninth Circuit dismisses, as moot, an appeal from an overbroad order that blocked all new oil-and-gas pipeline projects,  nationwide.

In re Packaged Tuna Antitrust Litigation—The Ninth Circuit votes to vacate, and rehear en banc, a panel’s decision decertifying a class-certification order in an important multi-district antitrust case.

In re FDA Amendments to “Intended Uses” Regulations—The FDA issues it final rule amending its medical-product “intended use” regulations, giving short shrift to manufacturers’ First Amendment rights.  

The post August 2021 Month in Review appeared first on Washington Legal Foundation.

Categories: Latest News

Members of Congress Urge Leadership to Incorporate EPSCoR Provisions in Conference Bill

WASHINGTON – U.S. Sen. Roger Wicker, R-Miss., ranking member of the Senate Committee on Commerce, Science, and Transportation, today joined 33 Senate and 26 House colleagues in a letter to congressional leaders highlighting important provisions included in the Senate-passed United States Innovation and Competition Act (USICA) to strengthen the Established Program to Stimulate Competitive Research (EPSCoR). The members called on leadership to incorporate these landmark provisions as both chambers consider legislation to improve U.S. competitiveness, especially against China.       

Despite its statutory mission to “avoid undue concentration” of scientific research and education, the National Science Foundation (NSF) spends nearly half of its research and development (R&D) budget in six states plus the District of Columbia. Congress established the EPSCoR program to improve the competitiveness of institutions and researchers in jurisdictions that receive comparatively small amounts of R&D funding by setting aside funds to strengthen research capacity and capability. Today, 25 states and three territories qualify to participate, and five federal agencies have EPSCoR programs including the NSF, Department of Energy, Department of Agriculture, National Aeronautics and Space Administration, and National Institutes of Health.

“If the United States is going to stay a step ahead of China, we need to promote the scientific talent, expertise, and capabilities found throughout America, not in just a handful of states and universities,” said Wicker. “The Senate language strengthens the EPSCoR program by helping ensure that institutions and researchers across the country receive a fair share of federal R&D funding and contribute to innovation in key technology areas. My support for this legislation is dependent on these provisions remaining in the bill.”

Wicker authored the EPSCoR provisions highlighted in the letter and shepherded its passage through the Senate Commerce Committee and Senate floor. Specifically, these sections of USICA would require the NSF to allocate at least 20% of its annual funding to the EPSCoR program, including for the new Technology Directorate. It would also require NSF to make at least 20% of its STEM workforce awards to institutions located in EPSCoR jurisdictions including undergraduate scholarships, graduate fellowships and traineeships, postdoctoral awards, and other awards.  

“We strongly support this approach and believe that it is necessary to leverage every state and community in the nation to remain globally competitive,” the members wrote. “With the robust investment in R&D funding included in the United States Innovation and Competition Act, this approach will continue to support states that traditionally receive a high amount of NSF research dollars while also supporting innovation in underserved regions.”

 Members who joined Wicker in the letter to Senate Majority Leader Charles Schumer, D-N.Y., Senate Republican Leader Mitch McConnell, R-Ky., House Speaker Nancy Pelosi, D-Calif., and House Minority Leader Kevin McCarthy, R-Calif., include: Sens. Catherine Cortez Masto, D-Nev., James Inhofe, R-Okla., Jack Reed, D-R.I.,  Christopher Coons, D-Del., Jerry Moran, R-Kan., Roger Marshall, R-Kan., Susan Collins, R-Maine, Jacky Rosen, D-Nev., Thomas Carper, D-Del., Jeanne Shaheen, D-N.H., Sheldon Whitehouse, D-R.I., Lindsey Graham, R-S.C., Jon Tester, D-Mont., Bill Cassidy, R-La., Ben Ray Lujan, D-N.M., Angus King, I-Maine, Tim Scott, R-S.C., Patrick Leahy, D-Vt., Cindy Hyde-Smith, R-Miss., Dan Sullivan, R-Alaska, John Boozman, R-Ark., Cynthia Lummis, R-Wyo., Mike Rounds, R-S.D., James Risch, R-Idaho, Mike Crapo, R-Idaho, John Barrasso R-Wyo., Deb Fischer, R-Neb., Chuck Grassley, R-Iowa, Lisa Murkowski, R-Alaska, Richard Shelby, R-Ala., Kevin Cramer, R-N.D., Shelley Moore Capito, R-W.V., and James Lankford, R-Okla. The letter also includes: Reps. David Cicilline, D-R.I., Dusty Johnson, R-S.D., Sharice Davids, D-Kan., Andy Barr, R-Ky., James  Langevin, D-R.I., Trent Kelly, R-Miss., Chris Pappas, D-N.H., Nancy Mace, R-S.C., Dina Titus, D-Nev., Jake LaTurner, R-Kan., Steven Horsford, D-Nev., Don Bacon, R-Neb., Teresa Leger Fernandez, D-N.M., Ron Estes, R-Kan., Chellie Pingree, D-Minn., Garret Graves, R-La., Melanie Stansbury, D-N.M., Tracey Mann, R-Kan., Peter Welch, D-Vt., Ralph Norman, R-S.C., Lisa Blunt Rochester, D-Del., Don Young, R-Calif., Tom Rice, R-S.C., Hal Rogers, R-Ky., William Timmons, R-S.C., and Joe Wilson, R-S.C.

Find a copy of the letter HERE.

Leaders from universities in Mississippi are expressing support for the EPSCoR provisions:

“The EPSCoR program has been vital in assisting universities in smaller and disadvantaged states become more competitive for research funding,” said Dr. David Shaw, Provost and Executive Vice President of Mississippi State University. “Zip code should not determine whether talented students can develop the workforce of the future, the new ideas for entrepreneurial businesses, and the economic development so desperately needed in some of our more depressed economies. MSU strives for all students, but particularly those from under-represented and disadvantaged populations, to be successful. To do that, however, we must be provided the resources to involve these students in creative discovery, technology development, and entrepreneurship to ensure that they are given all the tools necessary to be successful in their lives and careers.”

“The State of Mississippi has significantly benefited from EPSCoR funding, providing numerous means to attract top researchers as well as invest in state-of-the-art equipment,” said Dr. Gordon Cannon, Vice President for Research at University of Southern Mississippi. “During my 35 year tenure at The University of Southern Mississippi, I have seen firsthand the significant impact of EPSCoR funding has on research faculty and students. Senator Wicker's leadership and continued support of the EPSCoR program will ensure the continued growth of Mississippi's research enterprise. We appreciate Senator Wicker's ongoing support of vital programs like EPSCoR, as they will ensure that the United States remains technologically competitive in the emerging global research market.”

“The United States is fortunate to have tremendous science and engineering talent across our nation, but the federal funding for research and development is concentrated in a small number of states,” said Dr. Josh Gladden, Vice Chancellor for Research and Sponsored Programs at University of Mississippi. “The EPSCoR program has been extremely beneficial in helping states like Mississippi build the research and development infrastructure required to unleash the talent of our researchers to create innovations that benefit society. With four research-intensive universities, these additional funds will generate significant for the research enterprise in the state with impacts for the country and the world. We thank Sen. Wicker for his leadership and vision to benefit the lives of Mississippians and all Americans through discovery.”

"We commend Senator Wicker's foresight and leadership in championing the EPSCoR set-aside provisions in the Endless Frontier Act/ US Innovation and Competition Act, and look forward to the impact this set aside will have on research and innovation in EPSCoR states,” said Dr. Joseph Whittaker, Vice President for Research and Economic Development at Jackson State University. “As an HBCU, this proposed level of support would enable Jackson State University (JSU) to increase its competitiveness through capacity building as well as enhanced research and technology infrastructure development.”


GSA Administrator Carnahan, Senator Leahy Promote Infrastructure Investments at Highgate Springs (Vt.)

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With ENDS Deadline Looming, FDA Must Ignore Activists’ “Regulate to Eliminate” Demands

WLF Legal Pulse - Mon, 08/30/2021 - 9:28am

Ed Note: Originally published by Forbes.com on WLF’s contributor page on August 24.

The Food and Drug Administration (FDA) is facing a court-ordered deadline of September 9 to act on 550 companies’ applications for marketing approval of electronic nicotine delivery systems (ENDS) and other “deemed” new tobacco products. FDA’s impending decisions arise from over three decades of legal, legislative, and regulatory battles and negotiations. Most of the participants in those battles—manufacturers, activists, elected officials, and health regulators—agreed that a ban on all nicotine-containing products would be a public-health disaster. Instead, they negotiated passage of the 2009 Tobacco Control Act (TCA), a law that vastly expands FDA’s authority over tobacco and sets out an approval pathway for non-combustible products that could reduce harms to consumers.

In the months before the approaching deadline, some activists who supported the TCA seem to be suffering from buyers’ remorse. Six prominent anti-tobacco organizations have urged FDA to abandon the Premarket Tobacco Product Application (PMTA) process and instead subject ENDS products to the drug-approval process.

FDA attempted to regulate tobacco as a medical product twice, once in 1996 and again in 2009, just after Congress passed the TCA. Federal courts intervened each time. The agency should reject the activists’ invitation to turn back the clock on tobacco regulation and continue reviewing ENDS applications in the scientific and apolitical manner Congress intended.

TCA Passage and the PMTA Process

Without the support of strident tobacco foes like Dr. David Kessler, Matthew Myers, and over 1,000 public-heath groups, the Tobacco Control Act would not have become law. In exchange for the law’s strict controls over tobacco manufacturing, sales, and marketing, organizations like the Myers-led Campaign for Tobacco-Free Kids accepted the legality of existing tobacco products and an approval pathway for new products..

In designing that approval pathway, FDA embraced its increased regulatory authority and set a rigorous standard that new product applicants must meet. The applicants must prove that their innovations are “appropriate for the protection of public health,” a standard that considers how the product will impact both current smokers and non-smokers. FDA is reviewing PMTA applications with the concept of harm reduction in mind. In announcing FDA’s comprehensive plan for tobacco regulation, FDA’s Commissioner and its Center for Tobacco Products director wrote, “the FDA is committed to striking an appropriate balance between protecting the public and fostering innovation in less harmful nicotine delivery.”

Activists Revert to Their Prohibitionist Ways

Rather than applaud the high standards for PMTA approval and FDA’s desire to improve public health through innovation, many of the same activists who sought the TCA’s passage now demand that FDA take a drastic detour. In an April 27, 2021 letter to acting FDA Commissioner Woodcock, six advocacy groups broadly declared: “If any e-cigarette, . . . can be shown to be effective for smoking or tobacco cessation, its manufacturer should submit evidence of this therapeutic benefit to CDER [FDA’s Center for Drug Evaluation and Research].”

The letter’s demand contravenes congressional intent and federal-court precedents. If Congress had meant for a nicotine-containing product whose delivery mechanism moves consumers away from smoking to be reviewed as a drug, why would lawmakers have bothered to legislate an entirely new review process? Section 387a(a) of the TCA explicitly states that “tobacco products . . . shall be regulated by the [FDA] under this subchapter and shall not be subject to the provisions of subchapter V.” Subchapter V of the Food, Drug & Cosmetic Act (FDCA, which the TCA amends) governs FDA’s regulatory authority over prescription drugs and devices.

Perhaps the anti-tobacco activists believed FDA would ignore this clear legislative statement in 2021 because FDA itself ignored the statement in 2009. That year, FDA categorized an e-cigarette as an unapproved drug-device product in an enforcement action. The manufacturer successfully sued to enjoin FDA’s regulation and in December 2010 a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit (featuring Judges Brett Kavanaugh and Merrick Garland) affirmed the injunction in Sottera, Inc. v. FDA.

The appeals court noted that Congress passed the Tobacco Control Act in part to fill the regulatory gap left by the U.S. Supreme Court’s FDA v. Brown & Williamson decision. In Brown & Williamson, the Supreme Court held that a 1996 FDA regulation defining tobacco products as drug-device combinations was inconsistent with the FDCA and thus invalid. The Sottera court reasoned that Congress’s passage of the TCA, as well as the law’s clear statement that the FDCA’s drug and device provisions do not apply, reflect Congress’s intent that FDA regulate tobacco only under the TCA.

The Sottera court also echoed the Brown & Williamson Court’s common-sense concerns about subjecting a tobacco product to the drug or device approval process. That process requires manufacturers to prove their products will be safe and effective for their intended uses. How can a tobacco-product maker establish their product as “effective,” let alone “safe,” given the products’ known risks? If a manufacturer cannot prove safety and efficacy, FDA must order the product removed from the market. That Catch-22 means that any ENDS product that effectively switches consumers from smoking to vaping must be banned. While that may well be the anti-tobacco activists’ intended outcome, prohibition is decidedly not what Congress intended with the TCA.

The activists’ April 21 letter accurately states that FDA can regulate a tobacco product as a drug if the manufacturer makes therapeutic claims about the product. The letter goes on to assert that certain ENDS manufacturers have emphasized e-cigarettes’ value as an alterative to smoking, and that such claims amount to therapeutic smoking-cessation claims. But PMTA applicants must explain their products’ potential as a switching mechanism to FDA so the agency can conduct health risk assessments. And the agency has dictated via rulemaking that “FDA does not consider claims suggesting that a tobacco product provides an alternative way of obtaining the effects of nicotine, or that a tobacco product will provide the same effects as another tobacco product . . . to bring a tobacco product within its drug and device authority.” Simply put, communications on a product’s switching virtues are not therapeutic claims.

Stay the Course

FDA thus far has shown no interest in the activists’ demand that it reinvent the PMTA process. The agency must know that the activists’ preferred path is not in the best interest of public health. The promise of harm reduction that ENDS products offer is real. Such products are far from risk-free, but as an August 19 American Journal of Public Health essay stated, “We believe the potential lifesaving benefits of e-cigarettes for adult smokers deserve attention equal to the risks.” Without alternatives to combustible tobacco, cigarette sales would likely rebound, an end result that even ENDS opponents can’t possibly prefer.

The post With ENDS Deadline Looming, FDA Must Ignore Activists’ “Regulate to Eliminate” Demands appeared first on Washington Legal Foundation.

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