Category: Compliance Bricks and Mortar

These are some of the compliance-related stories that recently caught my attention.

District Court Rules Plaintiff Failed To Plead Real Estate Investment Was A “Security” by Keith Paul Bishop in California Corporate & Securities Law

In ruling on the defendants’ motion, Judge Benitez correctly observed that the plaintiff’s securities law claims require that there be a “security”.  He then analyzed the plaintiff’s allegations in light of the U.S. Supreme Court’s definition of an “investment contract” in SEC v. Howey, 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244 (1946) (“whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others”).  Applying Howey, Judge Benitez ruled that the plaintiffs had failed to allege adequately the existence of a security [More…]

Sessions Dodges, Weaves, Promises on FCPA by Matt Kelly in Radical Compliance

Then again, Sessions also danced around the question of whether zealous U.S. enforcement of anti-corruption laws puts U.S. companies at a competitive disadvantage on the global stage. At one point in his speech, he praised anti-corruption enforcement as a vehicle to reward the many good companies out there that don’t bribe their way to success. [More...]

An app that pinpoints white-collar criminals works like predictive-policing software by Jack Smith IV, Mic

A new app and website called White Collar Crime Risk Zones , which goes by the initials WCCRZ, shows exactly what neighborhoods are chock full of financial criminals, how much damage they’re doing and even what they might look like.

Using data from the Financial Industry Regulatory Authority, a team of technologists affiliated with the left-wing magazine  New Inquiry created the open-source tool so that anyone can put a face on the labyrinthian world of white collar crime hidden in their own home town. [More…]

Yates Memo – Time for Reassessment? by Sharon Oded in NYU Law’s Compliance & Enforcement

While other U.S. authorities have recognized individual accountability as an important enforcement goal, the DOJ’s policy as promulgated by the Yates Memo demonstrates a more rigorous approach. In contrast to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which consider a company’s disclosure of individuals’ involvement in the misconduct as an important factor in their analysis,[[iii]] the Yates Memo has adopted an “all-or-nothing” approach: it requires corporations to disclose to the DOJ all relevant facts about individuals’ involvement in the misconduct in order to qualify for any cooperation credit. Accordingly, regardless of whether the company has voluntarily reported the misconduct and fully cooperated with the investigation—e.g., by sharing relevant information, facts, analyses and internal investigation reports, making employees available for interviews and facilitating their representation, or taking state-of-the art remediation action to prevent reoccurrence—it cannot benefit from any credit unless it has ‘sacrificed’ the involved employees. [More…]

Does your team botch the NFL draft? Find out here: How every team’s draft picks since 1996 lived up to expectations. by Reuben Fischer-Baum in the Washington Post

By comparing how much value teams should get given their set of picks with how much value they actually get, we can calculate which franchises make the most of their draft selections. Approximate Value (AV), a stat created by Pro Football Reference that measures how well a player performed overall in a season, is useful here. Based on this metric, we find that the Browns draftees have underperformed in the NFL given their draft position, especially when compared to the draftees of a team like, say, the Seahawks .[more…]

These are some of the compliance-related stories that recently caught my attention.

You Need to Know This: YTD Securities Class Action Lawsuit Filings are Off the Charts by Kevin LaCroix in the D&O Diary

Securities class action lawsuit filings have been going crazy. Securities suit filings during the first quarter 2017 set a pace that if continued would mean an unprecedented number of securities lawsuit by year end. But even more significant than the sheer number of lawsuits is the rate of litigation. The percentage of listed companies sued in the first quarter, if annualized, would mean that U.S. public companies are being sued at four times the long-term historical rate. As discussed below, three factors account for much of the upsurge in securities suit filings. [More…]

Denials and Admissions in Civil Enforcement – Looking Beyond the SEC by Verity Winship and Jennifer K. Robbennolt in NYU’s Compliance & Enforcement blog

Should agencies require admissions of guilt from the targets of civil enforcement? The SEC’s policy of letting enforcement targets settle while neither admitting nor denying allegations provoked judicial rebukes and a public debate. But the SEC is only the tip of the iceberg. Administrative agencies rely heavily on settlement as a key enforcement tool. Admissions of guilt—or, more commonly, declarations that nothing is admitted—form part of these settlement agreements and the underlying negotiations. [More…]

The Easiest Way to Help Save the Planet: Get a Bike

From eradicating health concerns linked to inactivity, to mitigating climate change, to boosting local economies and building community, biking… is an integral part of the solution. It just has some image and infrastructure issues to overcome. [More…]

It’s been a busy week, getting information and drafting for the Form ADV filing. I have a big stack of stories to read and write, but these are some of the compliance-related stories that recently caught my attention.

United’s Policy Management Lessons by Matt Kelly in Radical Compliance

Compliance officers who want a glimpse of your future, look no further than the spectacle that unfolded Sunday morning at Denver International Airport: a tale of policy management mismanaged, reputation risk, and plenty of commentary on social media.

Some day, some way, a headache like this will be yours. This time the lucky company was United Airlines. Let’s taxi into this teachable moment. [More…]

The myth of the 70,000-page federal tax code by Dylan Matthews in Vox

The US tax code is definitely complicated at points, so it’s no wonder that the claim that it is 70,000 pages long has become a widely cited factoid, most recently in messaging from Republicans on the House Ways and Means Committee, the committee that’s leading the Republican effort to simplify and reform income taxes:

The tax code has nearly tripled in length over the last 30yrs. Americans deserve a simpler, fairer, and flatter codehttps://t.co/36dRx905EXpic.twitter.com/m0EuR2Bd0m

— Ways and Means (@WaysandMeansGOP) March 29, 2017

The only problem with this claim is that it’s clearly false. As of 2014, the tax code was only about 2,600 pages long. [more…]

SEC Private Equity Enforcement: A More Aggressive Approach by Andrew J. Lichtman and Howard S. Suskin in the Compliance & Enforcement blog sponsored by NYU Law’s Program on Corporate Compliance and Enforcement

Over the last several years, the Securities and Exchange Commission (“SEC”) has targeted private equity funds for various fee allocation arrangements and conflicts of interest.  Rather than describing the fee practices as fraudulent, which would require a showing of scienter, the SEC has concluded that the private equity advisers committed disclosure violations.  However, a recent proceeding in which the SEC secured a settlement based on both breach of fiduciary duty and fraud may foreshadow a more aggressive approach.  Some context first. [more…]

Why the SCCE and HCCA Don’t Care by Adam Turteltaub in the SCCE’s Compliance & Ethics Blog

With a combined membership of over 17,000 dues-paying individuals, the SCCE and HCCA are, obviously the go-to resource for compliance professionals. And, it’s also the go-to resource for vendors wanting to reach compliance professionals.

And, from time to time, those vendors will ask for an endorsement, to offer special discounts to our members, or want their product or work formally recognized. Inevitably, and to them dismayingly quickly, we say no. [More…]

These are some of the compliance-related stories that recently caught my attention.

Women in banking To err is human, to get fired for it … female by Tanaya Macheel in American Banker

One of the latest studies of gender differences in financial services finds female advisers accused of wrongdoing are 20% more likely to lose their jobs than male advisers accused of wrongdoing. The women also are 30% less likely to be rehired than the men within a year following the incident, even though the women are less likely than the men to commit another offense, according to the study’s findings. The infractions cover a wide range, including misrepresenting or omitting key facts and committing fraud. But even controlling for factors like the severity of the offense — as well as qualifications and experience level — women fared worse than men. The study identified Wells Fargo Advisors as the biggest offender, saying its female advisers were 25% more likely to experience a “job separation” after misconduct than their male counterparts. That figure is about 20% for Morgan Stanley’s female advisers and close to 15% for those from Bank of America Investment Services and JPMorgan Securities. The report is titled “When Harry Fired Sally.” You can access it here. [More…]

Trump’s SEC Pick Set for Tense Reunion With Elizabeth Warren by Benjamin Bain and Elizabeth Dexheimer in Bloomberg

Two decades ago, Warren was a little-known law professor at the University of Pennsylvania. Clayton was a Penn law student at the same time. She went on to become the finance industry’s most relentless critic, while he made millions as a lawyer representing big banks and hedge funds. Their paths will cross again Thursday at Clayton’s Senate confirmation hearing, where Warren will be among the most outspoken lawmakers questioning his work on behalf of the industry. [More…]

Anthem’s Blow Against Corporate Trust by Matt Kelly in Radical Compliance

This isn’t an abstract problem. Distrust in institutions is growing, with real consequences for corporations and compliance officers charged with keeping them on a trustworthy path.

I explored this in a recent post on the NAVEX Global blog. We have the Edelman Trust Report, an annual survey of public trust in various institutions: it shows trust declining for all types of institutions, including businesses and governments, around the world. We also have the PwC CEO Survey of 2017: it cites organizational trust as an emerging risk for businesses, and noted that companies able to foster trust will have a competitive advantage in the future. [More…]

Why the Securities and Exchange Commission’s Administrative Law Judges are Unconstitutional by Linda D. Jellum in NYU’s Compliance & Enforcement

I answer these and other questions are in my recent article,[27] explaining why the SEC ALJs’ appointment violates the United States Constitution and why there is no easy fix. Further, I note that it is not just the SEC ALJs’s appointment process that is constitutionally infirm. In addition, the SEC ALJs, indeed all ALJs, are subject to multiple for-cause removal protections. In 2010 in Free Enterprise Fund v. Public Company Accounting Oversight Board, the Supreme Court held that dual for-cause removal provisions violate separation of powers.[28] Possibly, the Supreme Court will refuse to extend its holding in Free Enterprise to ALJs given the potential impact on the administrative state. However, if the Court meant what it said and if the case is to have any relevance beyond the agency involved, then the multiple for-cause removal provisions affecting the SEC ALJs specifically and all ALJs generally will need to be fixed. The constitutional challenges raised in these cases are far from inconsequential. Thousands of ALJs may be subject to unconstitutional appointment and removal provisions. Thus, the shadow of Free Enterprise looms large. [More…]

12b-1 Fees: It Is Time To Bid Them Farewell? in Kitces.com

From its start in 1980, the 12b-1 fee was controversial – a distribution charge assessed against current mutual fund investors, that the fund company can use to market the fund to new investors. In other words, the mutual fund got to use investor dollars (rather than its own money) to grow the fund’s assets under management (AUM).

In theory, this use of the mutual fund investor’s own money to market the fund company’s products was supposed to be good for the investor, because it would help grow and scale the fund and bring down its operating expense ratio. However, several decades later, subsequent analysis is finding that while mutual funds that charge 12b-1 fees are successful at incentivizing salespeople to bring in more assets under management, the 12b-1 fee isn’t living up to its promise of helping to scale up and bringing down the expense ratio as the mutual fund grows. [More…]

Cyclists Break the Law to Stay Safe, Study Finds by Joe Lindsey in Bicycling

The study (“Scofflaw Bicycling: Illegal But Rational”), just published in the Journal of Transport and Land Use, details when, how, and why cyclists decide to break traffic laws. The authors, an engineer and sociologist from the University of Colorado and an urban planning professor at the University of Nebraska-Lincoln, set out to study the subject of cyclist misbehavior, which they say has surprisingly scant research.  [More…]

Since I work in Boston and my office is next to the Black Rose, it’s hard to ignore St. Patrick’s Day. And yes, the Black Rose was already full of drinking patrons at 9:00 am. Getting past all the Irish cheer, these are some of the compliance related stories that recently caught my attention.

Super Hedge Fund by Sharon Hannes in Harvard Law School Forum on Corporate Governance and Financial Regulation

Activist hedge funds revolutionized corporate America and generated both excitement and criticism alike. This article suggests that a novel market mechanism, a “super hedge fund,” would maintain the benefits of hedge fund activism, while curbing its downsides. The super hedge fund would not really be a fund but, rather, a contractual arrangement among a broad group of institutional investors and a task force of financial experts. The task force would pool together the potency of the institutional shareholders in a sophisticated manner and then unleash its sting on target corporations. [More…]

Besides greed, what motivates insider traders? by Andrew Snyder

Insider trading is strikingly similar to espionage: stealing information for personal gain or spying for the benefit of another entity. The magnitude of a tipper passing confidential company information and a government insider such as Edward Snowden who hands over national classified secrets are incomparable, but what’s similar is who’s doing the lying, cheating, stealing and why they’re doing it. [More…]

“And” Or “Or” – This Ninth Circuit Opinion Highlights The Difference by Keith Paul Bishop in California Corporate Securities Law

“And” and “or” are classified as conjunctions. They are classified as such because they yoke together words, phrases, clauses and sometimes even sentences. They are not interchangeable, however, as illustrated by the recent opinion by the Ninth Circuit Court of Appeals in Zetwick v. County of Yolo, 2017 U.S. App. LEXIS 3260 (9th Cir. Cal. Feb. 23, 2017). [More…]

Connecting Fraud, Pressure, and Culture by Matt Kelly in Radical Compliance

My theme was fitting the fraud triangle to your organization’s risks—and as sometimes happens, I stumbled into an insight while speaking that was so useful, I wanted to share here.

First, let’s remember the fraud triangle itself. That’s the device auditors use to help think about how fraud might strike an organization. It has three legs: rationalization, opportunity, and pressure.

My contention is that for each leg of the fraud triangle, an opposite force exists.

[More…]

Image: Copyright: xmocb / 123RF Stock Photo

These are some of the compliance-related stories that recently caught my attention.

SEC Reduces Whistleblower Bounty Based On Culpability And Delayed Reporting by Harris Mufson, Steven J. Pearlman and Amy Blackwood in Proskauer Whistleblower Defense

On February 28, 2017, in an Order almost entirely devoid of detail, the SEC announced that a whistleblower will receive 20% of any monetary sanctions collected in an enforcement action commenced as a result of the whistleblower’s tip. The SEC is giving this “reduced” award while acknowledging that the whistleblower (1) was “culpable” in the securities violation at issue, and (2) unreasonably delayed reporting the company’s wrongdoing to the agency. [More…]

Beware of “Virus-Infected” Emails Purportedly From the SEC!!! in TheCorproateCounsel.net

Whoa! Last week, a member received an email claiming to be from EDGAR/SEC that had an attachment for revised 10-K filing instructions. She forwarded the email to her IT department – & it turned out the attachment was a “very nasty piece of malware” that could have infected the entire company. It was a phished email that came from a SEC email address ([email protected]) with a subject line of “Important changes to Form 10-K and Instructions.”

So beware! This is quite a tailored type of malicious email for an in-house lawyer to be receiving! Yesterday, the SEC posted a notice about this phishing scam.

You get what you ask for by Jack Vinson in Knowledge Jolt with Jack

This topic is familiar in many management circles: If you look for something, you will likely find it. If people know you are monitoring or looking for something, they will make an effort to supply that thing. And on the other side, if you don’t ask for that thing / report / result, you won’t get it. [More…]

SEC Enforcement Arm Braces for Cutbacks

The SEC’s enforcement arm is bracing for budget cutbacks that may result in fewer enforcement cases, Bloomberg writes.

Already, the department has halted non-essential travel and the hiring of outside contractors who help in-house lawyers with cases, sources tell the publication. [More…]

Terrorism Financing Via Bitcoin May be Exaggerated by MARA LEMOS STEIN

Law enforcement and regulators best take a measured approach in tackling the potential increase in the use of virtual currencies to finance terrorist activities, as there is still scant evidence the nascent technology will become a preferred method of cash transfer and other means of funding remain readily available and hard to track, said a U.K. intelligence think-tank. [More…]

These are some of the compliance-related stories that recently caught my attention.

WHY SHOULD I GIVE A %$#@! ABOUT OVERSEAS BRIBERY? by Matt Kelly in the FCPA Blog

This is on my mind thanks to a recent column in the legal blog Above the Law, “Is Trump the End of FCPA Enforcement?” The author, a white-collar defense lawyer, speculated about the need for all this attention to corporate bribery and FCPA enforcement. [More…]

Uncertainty Looms Over SEC Enforcement Staff by Sean T. Prosser in Perkins Coie’s White Collar Briefly

The air of uncertainty was palpable as current and former members of the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement spoke at the Securities Regulation Institute’s 44th Annual Conference in Coronado, California earlier this week. Important questions went largely unanswered about the impact of the recent resignations of both SEC Chair Mary Jo White and Enforcement Director Andrew J. Ceresney, and the future direction of the enforcement program under the new presidential administration and proposed SEC Chair Jay Clayton. SEC Enforcement staff in attendance steered clear of prognostications, and instead used the conference as an opportunity to reiterate the agency’s ongoing enforcement initiatives and successes from the past year. [More…]

The Nuts & Bolts of SEC Investigations & Enforcement by Ted Carleton and Tammy Yuen of the Skarzynski Black law firm and John Sikora of the Latham & Watkins in the D&O Diary

The scope and process of the Commission’s activities can be confusing and opaque to practitioners who do not frequently encounter these procedures. This article provides a basic outline of the Commission’s process and protocols with respect to investigations and enforcement proceedings, and highlights some current issues relevant to parties who may become enmeshed in a regulatory action, as well as to the D&O or other professional liability carriers who may provide insurance for the legal fees incurred in such an action. This article also looks ahead to possible changes that may occur under the new Trump administration. [More…]

Kellyanne Conway tells America to ‘buy Ivanka’s stuff,’ may have violated federal law

Your taxpayer dollars just paid for a “free commercial” for the President’s daughter’s business. [More…]