These are some of the compliance-related stories that recently caught my attention.
Allison Herren Lee Sworn In As SEC Commissioner
Allison Herren Lee was sworn into office on July 8 as an SEC Commissioner.
https://www.sec.gov/news/press-release/2019-121
Ms. Lee was nominated to the SEC by President Donald J. Trump and unanimously confirmed by the U.S. Senate.
“Allison’s expertise in securities law, including from her prior tenure at the Commission, will be invaluable to our efforts to advance the interests of investors and our markets,” said Chairman Jay Clayton. “Many of Allison’s former – and as of Monday, current – colleagues have expressed to me their support for Allison’s return. On behalf of all of my colleagues, Commissioners and staff alike, I am pleased to welcome her back.”
“I’m honored to return to the SEC and to work with the dedicated public servants on the staff, and my fellow Commissioners, to carry out the SEC’s critical mission,” Commissioner Lee said.
D&O Liability Insurance: Hazards for the CCO
Janaya Moscony and Julie DiMauro
The FCPA Blog
Whether a chief compliance officer (CCO) is required to be indemnified by a company depends on the state of incorporation, so it is important to make sure that the CCO is properly recognized as a corporate officer of the insured entity.
http://www.fcpablog.com/blog/2019/7/10/do-liability-insurance-hazards-for-the-cco.html
Some states require that CCOs need only be appointed in the bylaws of the insured entity as a corporate officer, while other states might additionally require that the CCO also be appointed as a corporate officer in state filings.
Statement Regarding Offers of Settlement
SEC Chairman Jay Clayton
When the Securities and Exchange Commission is considering filing (or has filed) an action alleging violations of the federal securities laws, it often is in the public interest to pursue a timely, reasonable and consensual resolution of the matter. The Commission has long recognized that an appropriately-crafted settlement can be preferable to pursuing a litigated resolution, particularly when the settlement is agreed early in the process and the Commission obtains relief that is commensurate with what it would reasonably expect to achieve in litigation. In plain language, the sooner harmed investors are compensated, the offending conduct is remediated, and appropriate penalties are imposed, the better.
https://www.sec.gov/news/public-statement/clayton-statement-regarding-offers-settlement
Revisiting Compliance Program Reporting Relationships
by Michael W. Peregrine
The CLS Blue Sky Blog
Corporate leaders may wish to revisit the important yet sensitive topic of reporting relationships in compliance programs following the release of new guidance from the Department of Justice’s Criminal Division.
http://clsbluesky.law.columbia.edu/2019/07/05/revisiting-compliance-program-reporting-relationships/
That guidance, entitled Evaluation of Corporate Compliance Programs[1], (The “New Guidance”) discusses in detail the three main thematic questions that prosecutors should apply in evaluating corporate compliance programs and how those questions can be used to elicit information as to compliance program adequacy and effectiveness. One of those thematic questions is whether the corporation’s compliance program is being implemented effectively. The autonomy of compliance program leadership is one of several cited indicia of effective implementation. This is certainly consistent with the significant value historically attributed to the organization’s compliance function and to the role of chief compliance officer (“CCO”).
Massachusetts Securities Division Proposes Uniform Fiduciary Standard; Could Create Patchwork of Obligations Across State Lines
Sidley’s Securities and Derivatives Enforcement and Regulatory Update
On June 14, 2019, the Massachusetts Securities Division proposed and offered for public comment a state regulation to apply a fiduciary standard of conduct to broker-dealers, agents, investment advisers and investment adviser representatives (collectively, Investment Professionals) when they advise their customers.1 The fiduciary standard would require Investment Professionals to make recommendations and advice — including recommendations related to the selection of account types — solely in the best interest of their customers and clients, without regard to the interests of the Investment Professional. The fiduciary standard would also apply to all clients of Investment Professionals, including not only retail but also some institutional clients. The Division’s proposal appears to be a clear reaction to Secretary of the Commonwealth William Galvin’s disappointment with the new Regulation Best Interest (Regulation BI) from the U.S. Securities and Exchange Commission (SEC).
https://www.sidley.com/en/insights/newsupdates/2019/07/massachusetts-securities-division-proposes-uniform-fiduciary-standard
Lawyers as compliance officers: a behavioral ethics perspective
by Jeff Kaplan
Conflict of Interest Blog
What role do corporate lawyers play in preventing wrongdoing by executives in their client organizations? And how is this role impacted by behavioral ethics?
http://conflictofinterestblog.com/2019/06/lawyers-as-compliance-officers-a-behavioral-ethics-perspective.html
In “Behavioral Legal Ethics Lessons for Corporate Counsel,” to be published in the Case Western Reserve Law Review, Paula Schaefer of the University of Tennessee College of Law first examines “the corporate lawyer’s consciously held conceptions and misconceptions about duty owed to her corporate client when company executives propose a plan that will create substantial liability for the company—when and if it is caught.” As she shows, lawyers often have an unduly limited view of what that duty is.
Theranos: Too Good To Be True
Jonathan T. Marks
Board And Fraud
Adept individuals, like Holmes, with widespread access to corporate information, a mindset of entitlement, and the confidence to pull it off compound the risk of fraud. Moreover, placing these individuals in a culturally lax environment with poor tone from the top and weak or poorly designed internal controls is a recipe for disaster. A company with such conditions could become the lead scandal in tomorrow’s news just like Theranos, Enron, WorldCom, Adelphia, HealthSouth, and others (name your favorite).
https://boardandfraud.com/2019/07/02/theranos-too-good-to-be-true/
