Doug Cornelius on compliance for private equity real estate
Today, I imported the site from a private WordPress.com blog site to this domain.
Check back next year for the blogoversary party!
This marks the start of my third year blogging. I started my fist blog, KM Space, on this day in 2007.
Image is from Petr Kratochvil at publicdomainpictures.net.
Newedge Group’s Kirby Daley says no. He explains why the Obama Administration should not necessarily rush to impose stricter regulation of hedge funds in the wake of the Madoff case. See Fox News Video on Securities Docket.
In a February 9, 2009, 8-K Filing with the SEC, Morgan Stanley self-reported a violation of the Foreign Corrupt Practices Act:
II. In an unrelated matter, Morgan Stanley announced today that it has recently uncovered actions initiated by an employee based in China in an overseas real estate subsidiary that appear to have violated the Foreign Corrupt Practices Act. Morgan Stanley terminated the employee, reported the activity to appropriate authorities and is continuing to investigate the matter.
FINRA has published a Guide to the Internet for Registered Representatives. It paints a difficult picture for registered representatives wanting to use Web 2.0 tools.
FINRA breaks internet activity into five main group for purposes or regulatory requirements:
I am not sure all of this is a particularly useful grouping since many of the characteristics are shared across the groups. For instance how does a chat room differ from comments on a blog. How does an RSS feed differ from an email to 25 or more prospective customers? But FINRA does acknowledge that “a member firm’s obligations to supervise electronic communications are based on the content and audience of the message, rather than the electronic form of the communication.” [FINRA Regulatory Notice 07-59 (.pdf) on the Supervision of Electronic Communication. ]
Given that many of the Web 2.0 tools are communications with the public, you should look at FINRA Rule 2210 Communications with the Public. The rules are major impediment to the use of Web 2.0
The SEC is trying to move investors further into the internet era with its new regulations on the ability to furnish proxy materials to shareholders by posting them on an Internet Web site and providing shareholders with notice of the electronic availability of the proxy materials. [SEC Release 34-56135] This is amendment to the original electronic delivery regulations in SEC Release 34-55146.
I am confused with a statement on page 11:
The materials must be presented on the Web site in a format, or formats, convenient for both reading online and printing on paper.[FN35]
footnote 35:
We believe that requiring readable and printable formats is important so that shareholders have meaningful access to the proxy materials. When determining the readability and printability of formats, issuers should consider the size of the files because many shareholders do not have broadband connections. Although some types of files may be suitable for persons with high-speed Internet access, the readability and printability of a document may be affected significantly by the time that it takes to download the document.
I expect that most people expected they post a .pdf version of their annual report and proxy statement on their website. This seems to indicate that you can’t if it would take a long time to download. Personally, I though .pdf files would be the way to go. This leaves some doubt in my mind. Pdf files tend to be big which would result in a long time to download.
You can read more in this summary by John F. Olson, Partner, Gibson, Dunn & Crutcher LLP and Visiting Professor, Georgetown Law Center on The Harvard Law School Corporate Governance Blog: E-Proxy Rules Take Effect for All Public Companies.
Goodwin Procter presented a webinar on recent changes to the Americans with Disability Act and the Family and Medical Leave Act. Rob Hale moderating the presentation.
Heidi Goldstein Shepherd led off with a background on the ADA. The key concept for employers is that it is up to the employee to request a “reasonable accommodation” by the employer. New amendments to the ADA went into effect on January 1.
The new term is “substantially limited” which is supposed to be defined by the EEOC. Unfortunately, the EEOC has not promulgated this definition.
The question of disability is still considered on a case-by-case basis. Employer needs to determine if the accommodation requested is reasonable. Employer is not required to lower quantitative or qualitative standards as a “reasonable accommodation.” Conduct standards can be enforced if “job related and consistent with business necessity” and applied consistently.
Steve Feldstein looked closer at the EEOC enforcement guidance. An employee who first requests the accommodation during a discipline process still remains subject to the discipline. If you go to fire a person and person first claims a disability, it is too late for the employee.
An employer should not raise the possibility of disability in discussing a performance problem. Leave it up to the employee.
California has a different standard than the federal law for disabilities. It is not a “substantial impairment of a major life activity.” It is just an “impairment of a major life activity.” In making a reasonable accommodation it requires you to engage in an interactive process.
Rob Hale moved on to the new FMLA regulations. There were many changes and extensive. But the substance did not change much. Rob focused on three types of changes: (1) National Defense Re-Authorization act and military leaves, (2) some substantive leave changes, and (3) changes in the notice and information right.
The military change only applies to reserve and national guard being called up for military service. Allows time off for when the soldier returns. Also allows leaves for childcare when a family member leaves for service.
Rob moved on to new substantive changes.
Rob moved on to the new notice changes. There is a new poster you need to put up. (Ours is up.) Rob points out that you can also post it electronically.
The designation notice needs to be delivered in five days. Employee notifications have largely not changed. They have to state that they want to take a FMLA leave. Saying you want to take time off to take care of a sick child (etc.) may not be enough. There is more pressure on frontline managers to determine if the reason is FMLA eligible.
Employer can impose requirements on FMLA request that they do with other leave request. So you can require written notice or require them to call a certain number.
There are new forms for medical certification. There are also some new procedures for completing the form and what to do if the form is incomplete.
Rob emphasized the need to have a leave counting period. Employers need to designate the 12 month period during which they can use the 12 weeks of leave. He has seen some employees win suits by using an alternative counting method.
Steve pointed out that California has an alternative law covering medical leave: California Family Rights Act. California allows leave for domestic partners (registered with the state and living in the same residence). Pregnancy gives you a longer time off. Interestingly, the domestic partner situation allows a longer time off because you can take the CFRA leave and then the FMLA since the domestic partner leave is not recognized under the FMLA.
Goodwin also made some materials available:
Meric Craig Bloch theorizes that punishing people who are caught committing fraud is not an effective way to deter fraud. The reasons behind his theory:
- Employees who commit fraud don’t anticipate getting caught. The threat of sanctions does not deter them because they don’t expect to face them. To deter them, you have to raise the “perception of detection” – people who believe they will be caught committing fraud are less likely to commit it.
- Employees who commit fraud rationalize their conduct so that it seems legal or justified. They do not see their actions as wrong.
- Because employees who commit fraud are primarily motivated by status, the greatest threat they face is that their crime will be detected.
- Sanctions are reactive – you are punishing someone after the damage to the company has been done.
EthicsPoint published this webinar focusing on proper and efficient investigations.
The presenter was Meric Craig Bloch, VP Compliance and Corporate Investigations of Adecco Group North America.
Meric predicted more fraud coming into the workplace as part of this down economy. Managers are focused on making their numbers and it is harder to do.
Profile of a fraudster:
It is obvious from this that fraud risk is less on the person and more on the internal situation and pressures. The fraud triangle is a combination of:
In this down economy the pressure is increased. So we need to remove the opportunities.
What is the ideal opportunity for a fraudster:
What is the best way to respond
Meric calls for doing a fraud risk assessment. Learn about the potential fraud risks inside your company and the impact on the external view of your company. You need to determine your own tolerance for fraud risk. You need assess both the likelihood and impact of the fraud. Then you can evaluate your internal controls to see if they are designed effectively and are they operating effectively. Then you need to address the residual risks that are not mitigated by existing controls or anti-fraud programs.
Meric points out that you need to take steps to detect fraud. One tool is a whistleblower hotline. But hotlines are passive. You need someone sufficiently motivated to pickup the phone and make the call. You should make fraud reporting a mandatory requirement.
Fraud generally continues until detected. Half of fraud schemes are discovered by accident.
Fraud allegations can come from many sources, so you should have a consistent protocol for investigating fraud. Your organization should have a best practice for investigations. You need to make sure the investigations are run consistently and are well-documented.
The investigator is not the police. As the investigator you need to think about the business needs. Your investigation should lead to process improvements and better internal controls.
One of the questions was how to prove ROI. Of course, compliance is all about preventing fraud and loss. So it is hard to show savings for events that did not happen.
California requires disclosure of gifts to officials at public agencies. The disclosure is made using Form 801 (.pdf).
This form is for use by all state and local government agencies to disclose payments made to the agency when the payments provide a personal benefit to an official of the agency. Examples may include travel, meals or other benefits. Under certain circumstances, these payments will not result in a gift to the official, but will be considered a gift to the agency. The payments must be used for official agency business and must meet other requirements that are set out in FPPC Regulation 18944.2 (.pdf), which is available on the FPPC website www.fppc.ca.gov. This form must be filed within 30 days of the use of the payment.
California treats the giving of tickets to officials at state and local agencies slightly differently. FPPC Regulation 18944.1 (.pdf) regulates this practice, with disclosure made on Form 802 (.pdf)
There is a whole series form for reporting lobbying activity:
Fortunately the FPPC put together a Lobbying Disclosure Information Manual (.pdf)
There is an extensive collection of campaign disclosure forms for California.
The key form may be Form 461 — Independent Expenditure Committee and Major Donor Committee Campaign Statement. There is an associated manual: Campaign Disclosure Manual 5 – Information for Major Donor Candidates (.pdf). Chapter 4 of the Manual (.pdf) details the reporting requirements.
The FPPC Regulations are very long and detailed.
The Colorado voters passed Amendment 54 in the November, 2008 elections, which amends the Colorado Consitution to limit campaign contributions: Text of the Proposed Initiative (.pdf) and Text of the Constitutional Amendment (.pdf).
The consitutional amendment carries a presumption of impropriety between contributions to political campaigns and the award of sole source government contracts.