These are some of the compliance-related stories that recently caught my attention.
Board Members Should Take Note — Delaware Supreme Court Issues Important Decision on Caremark Compliance Standard
by Michael Volkov
Corruption, Crime & Compliance
The Delaware Supreme Court returned to this issue in a recent case – Marchand v. Barnhill et al, HERE, a case involving Blue Bell Creameries and a listeria outbreak. The facts, while compelling, involve a serious health and safety issue but nonetheless has significant implications for overall ethics and compliance functions.
https://blog.volkovlaw.com/2019/08/board-members-should-take-note-delaware-supreme-court-issues-important-decision-on-caremark-compliance-standard/
In 2015, Blue Bell, a large ice cream manufacturer, experienced a listeria outbreak, which caused the death of three individuals. Blue Bell had to recall its products and shut down production. Shortly after that, Blue Bell suffered a “liquidity crisis,” and the company was forced to secure financing that caused a fall in its stock price. A stockholder brought a derivative suit alleging that the directors breached their fiduciary duty of loyalty under Caremark. The trial court granted defendants’ motion to dismiss finding that plaintiffs did not plead any facts to support the claim that the board “utterly failed to adopt or implement any reporting and compliance systems.”
Diversified Portfolios Do Not Reduce Competition
by Barbara Novick, BlackRock, Inc.
Harvard Law School Forum on Corporate Governance and Financial Regulation
Theories about the incentives of company executives due to common owners fail to consider the metrics by which the performance of executives is measured and the composition of pay packages, which is primarily in company stock. For example, according to their 2018 annual proxy filing, American Airlines’ CEO has had 100% of his direct compensation paid in the form of equity since 2015. Further, airline executives’ performance is measured by metrics such as pre-tax income, margin improvement, and stock price—all measures driven by own-company performance.
https://corpgov.law.harvard.edu/2019/08/07/diversified-portfolios-do-not-reduce-competition/
Corzine Hedge Fund Firm Granted SEC Registration With Limits
by Limes Weiss
Bloomberg
The SEC order includes “trading parameters” that bar JDC-JSC from engaging in proprietary trading and require it to have a “reasonable basis” to expect that, under normal conditions, each of its funds could be “orderly liquidated” within five trading days. That could restrict Corzine to trading in only the most liquid of markets, such as those for currencies and large-cap stocks, said David Tawil, co-founder of Maglan Capital, a New York-based hedge fund.
https://www.bloomberg.com/news/articles/2019-08-06/corzine-s-hedge-fund-firm-granted-sec-registration-with-limits?
Final Volcker Rule Regulation Eases Hedge Fund and Private Equity Fund Restrictions
by Deborah J. Enea and Elizabeth R. Glowacki
The final rule also eased the Volcker Rule’s restrictions on affiliations between investment advisers and hedge funds or private equity funds. Investment advisers can have the same name or a variation of the same name as the hedge funds and private equity funds that they sponsor and in which they invest, subject to the following conditions: …
https://www.pepperlaw.com/publications/final-volcker-rule-regulation-eases-hedge-fund-and-private-equity-fund-restrictions-2019-08-01/
Chief compliance officer liability and the opioid epidemic
by Jaclyn Jaeger
Compliance Week
In a period of three months, two chief compliance officers have been charged for their individual roles in the opioid epidemic—a clear indication the Department of Justice continues to expand the scope of prosecutions to those who fail in their compliance responsibilities.
https://www.complianceweek.com/regulatory-enforcement/chief-compliance-officer-liability-and-the-opioid-epidemic/27512.article#.XUhsorrCtdg.twitter