These are some of the compliance-related stories that recently caught my attention.
REIT Manager Overpaid Itself When Calculating Incentive Fee
Cipperman Compliance
A large REIT manager, together with its CEO and CFO, agreed to pay over $60 Million in disgorgement, interest and penalties for inflating incentive fees and taking reimbursement for significant expenses. The SEC asserted that the defendants, contrary to disclosures and agreements, used their insider positions to calculate incentive fees in a manner that unjustly enriched themselves over the investors to whom they owed a fiduciary duty. The SEC also charged the defendants with collecting millions in expense reimbursements as part of various merger transactions. The SEC accused the defendants of securities fraud and falsifying books and records.
https://cipperman.com/2019/07/18/reit-manager-overpaid-itself-when-calculating-incentive-fee/
SEC Staff Statement on LIBOR Transition
The expected discontinuation of LIBOR could have a significant impact on the financial markets and may present a material risk for certain market participants, including public companies, investment advisers, investment companies, and broker-dealers. The risks associated with this discontinuation and transition will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner.[6] The Commission staff is actively monitoring the extent to which market participants are identifying and addressing these risks.
https://www.sec.gov/news/public-statement/libor-transition
Summer compliance reading for boards of directors
by Jeff Kaplan
Conflicts of Interest Blog
A recent post by attorneys at the Sullivan & Cromwell law firm on the blog of the Harvard Law School Forum on Corporate Governance and Financial Regulation examined an important decision issued last month by the Delaware Supreme Court which “reversed the dismissal of a stockholder derivative lawsuit against the members of the board of directors and two officers of Blue Bell Creameries USA, Inc., a leading manufacturer of ice cream products. The lawsuit arose out of a serious food contamination incident in 2015 that resulted in widespread product recalls and was linked to three deaths. The Delaware Supreme Court, applying the ‘duty to monitor’ doctrine enunciated in In re Caremark International, Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996), and noting the very high hurdle to claims under it, nonetheless ruled that the plaintiff had adequately alleged the requisite bad faith by the members of the Blue Bell board.
http://conflictofinterestblog.com/2019/07/summer-compliance-reading-for-boards-of-directors.html
How Good Training Finds Its Wings
by Matt Kelly
Radical Compliance
[O]ne of the biggest challenges for compliance training is how to keep the material fresh, so employees pay attention to the lessons you want to impart. That’s true of the FCPA, social media policy, or collusion, just as much as it’s true of flight safety videos. We go through the lessons once or twice, absorb the main points, and then start to tune out during future lessons.
http://www.radicalcompliance.com/2019/07/15/how-good-training-finds-its-wings/
Compliance officers know this is true. How often do we need to be told that in the event of a water landing, we should pull on the red tube to inflate our safety vest? Or that the nearest exist might be behind us? Or that we should adjust our own oxygen mask before helping the child next to us?
Political Connections and Insider Trading
By Thuong Harvison
The CLS Blue Sky Blog
I use political contributions as a proxy for political connections. Corporate insiders can build these connections personally (i.e., individual contributions) or through their firms (i.e., PAC contributions). For each publicly traded firm and each of its corporate insiders, in each election cycle from 1988 to 2016, I compute political connection measures based on political donation history as well as the power of the political candidates supported. Overall, about 10 percent of the firms make some political contributions to at least one candidate in an election cycle. Firms also support more candidates than do individual insiders. While a typical firm donates to about 50 candidates in each cycle, a typical insider donates to only two candidates. To examine the trading activities of these insiders, I use the sample of all their trades from 1988 to 2016.
http://clsbluesky.law.columbia.edu/2019/07/12/political-connections-and-insider-trading/
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