These are some of the compliance-related stories that recently caught my attention.
IA Arrested On Bail For Continuing Fraudulent Scheme by T. Gorman in SEC Actions
A focus of a typical bail hearing is flight risk – is the person charged likely to return for the pending court proceedings and face the charges. Recently, a long established investment adviser was arrested on fraud charges. He had three separate offices in the community. Bail was set and the adviser was released. It was soon revoked. Law enforcement officials discovered that the adviser did indeed return to the community. He also continued to fleece investors. Bail was revoked; new charges were brought; a guilty plea followed. U.S. v. Newsholme, No. 3:17-mj-05015 (D. N.J.). [More…]
Sticking Around Too Long? Dynamics of the Benefits of Dual-Class Structures by Hyunseob Kim and Roni Michaely in the CLS Blue Sky Blog
The main drawback of a dual-class share structure is, of course, that insiders who control the firm with voting rights that are disproportionately greater than their cash flow rights can easily take advantage of dispersed outside shareholders. (Co-founders Bobby Murphy and Evan Spiegel, for example, jointly own 45 percent of Snap shares but control more than 70 percent of votes.) Since managers-insiders control more votes relative to their cash flow rights, they may have less incentive to maximize a company’s performance and more incentive to collect perks or build an empire that is not in the best interest of other shareholders. [More…]
SEC preparing cryptocurrency fraud crackdown, Jay Clayton’s biggest enforcement move yet by Charles Gasparino in Fox Business
Since taking office, Clayton’s enforcement staff at the SEC has brought as many as nine cases involving cryptocurrency fraud, but people at the commission and securities lawyers familiar with the agency’s enforcement agenda said investigators are working on dozens more. Those cases have been trickling out in recent months, but according to securities lawyers a deluge of enforcement actions is expected sometime this year, given the immense caseload under scrutiny. [More…]
$7 Billion Hasn’t Moved The Needle on Financial Crime by Lionel Laurent Bloomberg / The Washington Post
Pan-European crime-busters Europol reckon only about 5 percent of transactions firms identify as suspicious is reported to the authorities, of which 10 percent leads to further investigation. That’s a conversion rate of less than 1 percent, suggesting banks are prophylactically over-reporting data rather than providing valuable information that that can lead to arrests. [More…]
What Drives Misconduct: The EPA Example by Matt Kelly in Radical Compliance
The lessons that compliance professionals can learn from embattled EPA administrator Scott Pruitt are many. Some are so obvious we need to step back and deconstruct them to understand why his behavior is so corrosive to the organization he supposedly wants to lead. Other lessons are more subtle, and raise the possibility that Pruitt might not get fired, despite ethical misconduct all over the place.
All these lessons, however, are of the most important sort: about how an executive loses his grip on constituencies he or she needs to run an organization effectively. That’s what your bosses dread the most, so let’s go exploring. [More…]
Is this compliance idea as bad as it sounds? by Richard L. Cassin in the FCPA Blog
In a securities filing by one of Canada’s uranium miners, the company said the CEO is responsible for “administering and interpreting” the anti-bribery policy, under the oversight of the audit committee. Should the CEO sit on top of compliance? Can he or she ever make decisions about compliance that aren’t business driven? [More…]
