Category: Compliance Bricks and Mortar

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

Compliance Leadership and “The Grey Area” by Roy Snell in SCCE’s The Compliance & Ethics Blog

When people sit in a room, especially under stress, after finding a potential problem, they tend to try to broaden the definition of the law rather than narrow it. The problem is that they should have probably tried to narrow the grey areas of the law rather than broaden them. They should have talked about the spirit of the law to help narrow the definition. They should discuss what it would look like in the local newspaper to narrow it. They should talk about their principles and ethical culture to try to narrow it.

SEC’s Ceresney: Common FCPA Violations in Pharma Industry by Jaclyn Jaeger in Compliance Week

In remarks this week at CBI’s Annual Pharmaceutical Compliance Congress in Washington D.C., SEC Director of Enforcement Andrew Ceresney highlighted three types of misconduct that most often arise in the pharmaceutical industry concerning violations of the Foreign Corruption Practices Act.

The Parameters of the Attorney/Client Privilege and Grinding it out with Anthony Mason by Tom Fox in the FCPA Compliance and Ethics Blog

Just as Mason did the hard work in Riley’s grind-it-out offense; for the attorney/client privilege to be of use to you, certain hard work must be done to establish the attorney/client privilege in the corporate context. The five prongs listed by Keltner must be fulfilled for the privilege to apply. Simply having a chat with your lawyer or even the company’s lawyer will not invoke the privilege or protect you.

Regulating the Underground: Secret Supper Clubs, Pop-Up Restaurants, and the Role of Law by Sarah Schindler in the CLS Blue Sky Blog

As manifestations of the so-called sharing economy become more common in more municipalities, local governments must consider how to handle their emergence. The goal should be devising a regulatory scheme that is easy and inexpensive enough to ensure that these creative additions to the local economy will be able to operate, but that is also protective of public health and safety.

Fed Stress Tests Find Banks Adequately Capitalized by Ryan Tracy and Victoria McGrane in the Wall Street Journal

The largest U.S.-based banks are strong enough to keep lending during a severe recession, the Federal Reserve said Thursday, a sign many banks will soon get permission to return profits to investors by raising dividends or buying back shares.

Regulatory Rollback Unlikely Despite Gallagher by Ben Dipietro in WSJ.com’s Risk & Compliance Journal

U.S. Securities and Exchange Commission Commissioner Daniel Gallagher issued a statement this week saying the accumulated effect of regulations on the financial services industry since the Dodd-Frank Act was passed have amounted to “death by a thousand cuts.” As Mr. Gallagher put it: “No regulator, as far as I know, has considered the overall regulatory burden on financial services firms when determining whether to impose additional costly regulations,” adding regulators are like “the proverbial ostrich–head firmly entrenched in the sand” when it comes to understanding how these rules divert capital from creating real economic growth. Attorneys who track SEC issues say the comments reflect the sentiments of the big banks but doubt they’ll lead to a reduction in the number and scope of such rules.

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

SEC Commissioners Push Lifetime Bans on Executives by Joel Schectman in WSJ.com’s Risk & Compliance Journal

The U.S. Securities and Exchange Commission is divided over whether it should impose severe restrictions on banks and their executives who break securities rules. For top executives, those punishments could include a lifetime ban from working at publicly traded companies. And some at the Commission are advocating greater use of “bad actor” bars against financial firms found to have committed misconduct, which would impose strict limitations on their ability to sell wealthy investors stakes in private offerings like hedge funds.

Know more about the Fed than Rand Paul does by Mark Schoeff Jr. in Investment News

In a speech in Iowa this past Presidents’ Day weekend, Sen. Rand Paul, R-Ky., criticized the Federal Reserve, but was called out by experts for having a limited understanding of how the institution actually works.

How well do you know the Fed?

The SEC’s Year of Enforcement by John Sikora Jr.

It is important to heed the messages that the SEC has been sending about its view of private equity as SEC enforcement actions often follow warnings by SEC staff members in public speeches.  For example, months after a 2013 speech by the Chief of the SEC’s Asset Management Unit warning against using inflated interim valuations while raising a few fund, the agency brought two related cases alleging the use of inflated valuations in fund marketing materials.

Snowball Firing Squad by Derek Rust

It’s been a tough week in Boston dealing with the historic level of snow.

As of February 17, the snow depth near Boston was greater than in all but two reported locations in Alaska. It was significantly higher than the notoriously snowy states of Michigan, Wisconsin, and Minnesota. Only Buffalo, New York, had a higher snow pack. NASA’s Earth Observatory

But I found a few minutes to focus on these compliance-related stories.

Feds: Employee Impersonated Firm’s President in SEC Inquiry by Bruce Carton in Compliance Week

Yesterday, federal prosecutors in the Southern District of New York announced that they have charged Steven Hart with obstruction of justice and perjury relating to an SEC investigation. In 2009, the SEC was investigating, among other things, whether Hart, who was a portfolio manager at an investment firm, had conducted improper “match trades” or “cross trades” between his personal fund and a fund he managed. Prosecutors allege that on two occasions when an SEC attorney called Hart’s investment firm to speak with the firm’s president, Hart received the call and impersonated the president. Pretending to be the president, Hart allegedly told the SEC, falsely, that (1) the president was aware of Hart’s improper trading activity, but nevertheless wanted Hart to remain an employee of the firm; and (2) that the president had approved Hart’s match trading activity.

One Good Thing and One Bad Thing about SEC Administrative Proceedings by David Smyth in Cady Bar the Door

One of my favorite lines from my kids’ books involves a cat named Pickles who’s having something of an identity crisis. Pickles doesn’t really have an owner, but does have a temporary caretaker, who tells him, “Pickles, you’re not a bad cat. You’re not a good cat. . . . You’re a mixed up cat.” So it is with many of us, I guess, and so it is with SEC administrative proceedings.

Fancy footwork: How businesses linked to blacklisted oligarchs avoid Western sanctions in The Economist

In several cases, however, companies that would have been subject to sanctions because of their links to “designated” Russian oligarchs have managed to wriggle free of the restrictions with well-timed transactions. These have had the effect of reducing the stakes held by parties subject to sanctions below thresholds that would trigger penalties against their businesses. “The blatant manner in which [some Russian entities] have avoided sanctions raises questions about the effectiveness of the existing system and the willingness of the West to enforce its own rules,” concludes an unpublished report by a corporate-investigations firm that has been seen by The Economist. It was compiled for one of the many Western companies that fret about whom they can or cannot do business with under the sanctions regime.

Boston’s Ridiculous February Snowfall In One Chart in Five Thirty Eight

And this data undersells what Boston has gone through in 2015. In January and February so far, a total of 92.8 inches of snow have hit Boston. That’s 22.9 inches more than the previous two-month record (January and February 1994), and it’s greater than the total seasonal snowfall of all but two (98 percent) of the last 124 winters.

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

The S.E.C.’s Hazy Approach to Crime and Punishment by Peter J. Henning in NY Times.com’s DealBook

In Gilbert and Sullivan’s “The Mikado,” a line expresses the need “to let the punishment fit the crime.” The Securities and Exchange Commission is struggling with that notion when it decides whether to grant a waiver to an automatic bar from certain securities trading.

The issue has been nagging the S.E.C. for the last year in settlements with banks and brokerage firms for violations of the securities laws that earns them the label of “bad actor,” which results in the automatic bar, which can be costly. Last week, two commissioners, Luis A. Aguilar and Kara M. Stein, issued a dissent from an order that granted a waiver to Oppenheimer & Company despite what they described as “egregious misconduct.”

The most interesting conflict of interest case of the (still young) year by Jeff Kaplan in Conflict of Interest Blog

As reported initially by the Bergen Record:   “Federal prosecutors have [launched a probe] into a flight route initiated by United [Airlines] while [David] Samson was chairman of the [Port Authority, which] operates [Newark Liberty Airport]. The route provided non-stop service between Newark and Columbia Metropolitan Airport in South Carolina — about 50 miles from a home where Samson often spent weekends with his wife. United halted the non-stop route on April 1 of last year, just three days after Samson resigned under a cloud. Samson referred to the twice-a-week route — with a flight leaving Newark on Thursday evenings and another returning on Monday mornings — as ‘the chairman’s flight,’ one source said. Federal aviation records show that during the 19 months United offered the non-stop service, the 50-seat planes that flew the route were, on average, only about half full. United… was in regular negotiations with the Port Authority and the Christie administration during Samson’s tenure over issues that included expansion of the airline’s service to Atlantic City and the extension of the PATH train to Newark…” A story from NJ.Com added that the  flight’s booking rate of 50% was significantly lower than “the rate of 85 percent or higher common among carriers” and also that the Chair of the NJ assembly’s transportation committee said the benefit to United of running this unprofitable route “could be PATH. It could be how much they pay for landing planes. It could be for how flights are dispatched at the airport. It could be a multitude of things. And it could be none of them.” – See more at: http://conflictofinterestblog.com/2015/02/the-most-interesting-conflict-of-interest-case-of-the-still-young-year.html#sthash.mKOQRWa3.dpuf

The Chamber’s True Position is that Corporate Compliance Programs are a Tool for Corporate Attorneys to Collect Information in Order to Protect the Company – Not the Public by Stephan Kohn in Whistleblower Protection Blog
By Stephen Kohn

The Chamber of Commerce uses the phrase “corporate compliance” in a misleading and disingenuous manner. In a major U.S. Court of Appeals 2014 case, the Chamber’s position on such internal compliance programs was clarified. The Chamber vigorously argued that such programs were, as a matter of law, part of a company’s General Counsel. They argued that compliance departments were not independent investigatory bodies, but simply fact-finding bodies designed to provide information to company attorneys. As such, compliance investigations could operate in complete secrecy, and their findings could be kept secret from the government, even if subpoenaed.

Historical Echoes: No Valentines Please, We’re British by Amy Farber in Liberty Street Economics

It’s almost Valentine’s Day, and we’re not asking you questions or dispensing advice about it—that’s not (yet) our business. However, we can offer two attempts at humor regarding the Bank of England and amorous activity. The first touches upon a central bank’s fear for its reputation and the second its fear of being “manhandled” by the government.

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

Alstom Gets Break on Fine by Rachel Louise Ensign and Ted Mann in the Wall Street Journal

When the U.S. Justice Department announced a record $772 million foreign-bribery settlement with Alstom SA in December, there was a hitch: The French engineering company couldn’t pay without hurting its ability to do business.

So Alstom got a break: approval from a court to wait until its $17 billion deal with General Electric Co. closes before making the payment.

A Day In The Life Of Private Equity Giant TPG by Ben Walsh and Ryan Grim in the Huffington Post

At a 2012 investor conference, private equity giant TPG, which manages about $65 billion, showed a video documenting a day in the life of the firm to the audience of pension fund managers and other large, institutional investors. ” The video is set to the chords of Coldplay’s “Viva La Vida” and zooms around to TPG’s global offices.

The video, which has not previously been made public and was obtained by The Huffington Post, tries hard to make that day seem like an ostentatiously unglamorous, elite, ultra-competent corporate mission where value is delivered to investors with a smile.

As Regulators Focus on Culture, Wall Street Struggles to Define It by Emily Glazer and Christina Rexrode in the Wall Street Journal

As they emerge from years of bruising fines, layoffs and losses, big banks are trying more than ever to monitor employee attitudes and values to avoid future problems.

But they also have little choice: Senior officials with the Federal Reserve and other agencies in recent weeks have made it clear that they believe bad behavior at banks goes deeper than a few bad apples and are advising firms to track warning signs of excessive risk taking and other cultural breakdowns. Still, even regulators acknowledge culture is a difficult thing to measure.

Image of Snowy Brick Wall is by Kathleen Conklin

I have finally dug myself out from the 2+ feet of snow that buried me this week. These compliance-related stories caught my eye in between snow shoveling sessions.

SEC Co-Chief of Division of Enforcement’s Asset Management Unit Identifies 2015 Exam Priorities for Hedge and Private Equity Funds in the National Law Review

On November 18, 2014, Julie M. Riewe, Co-Chief of the Division of Enforcement’s Asset Management Unit of the Securities and Exchange Commission (the “SEC”), spoke at a Practicing Law Institute seminar and identified 2015 SEC examination priorities for investment managers of private funds. Ms. Riewe identified three themes on which the SEC will focus in its examinations of hedge and private equity funds: (i) conflicts of interest, (ii) valuation and (iii) compliance and controls. She discussed how these thematic issues related to both hedge funds and private equity funds.

S.E.C. Faces Challenges Over the Constitutionality of Some of Its Court Proceedings by Peter J. Henning in NYTimes.com’s DealBook

It is probably not a stretch to say that the Securities and Exchange Commission likes to win every case that it decides to bring.

But a recent push by the agency to bring more cases before its administrative law judges rather than filing charges in federal district court is drawing increased attacks from defense lawyers claiming that the entire process is not just unfair, but also unconstitutional. Those criticisms could call into question the legality of the process used by a number of federal agencies that have in-house judges who decide whether laws were violated.

Welcome to COSO and the World of Internal Controls – Part I and Part II by Tom Fox in the FCPA Compliance and Ethics Blog

[T]here is one area of FCPA enforcement, which I think underwent a sea change in 2014 and has significant implications for the Chief Compliance Officer (CCO) and compliance practitioner in 2015 and far beyond. That change will be in the enforcement by the Securities and Exchange Commission (SEC) of the internal controls provisions of the FCPA. Last fall we saw three SEC enforcement actions, where there was no corresponding Department of Justice (DOJ) enforcement action yet there was a SEC enforcement action around either the lack or failure of internal controls. Those enforcement actions were Smith & Wesson, Layne Christensen and Bio-Rad.

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

RBS Loses Senior Compliance Staff, Some Poached by HSBC by Margot Patrick And Rachel Louise Ensign in the Wall Street Journal

The departures come as RBS, 80%-owned by the British government, faces a potential multibillion-dollar settlement with the Federal Housing Finance Agency over mortgage-backed debt it sold to Freddie Mac and Fannie Mae before the 2008 financial crisis.

Say Hello to the SEC’s Digital Currency Working Group (.pdf) by Marco Santori and Jeffrey Jacobi from Pillsbury

Now that enforcement agencies have determined that digital currencies are more than a passing fad, they are establishing more permanent efforts focused on the novel legal issues digital currencies present. The SEC’s formation of its multi-office Digital Currency Working Group may foreshadow an increase in the agency’s exercise of regulatory authority over entities offering interests in Bitcoin and other digital currencies

Justice Department Files First FCPA Case of 2015, Reminds Lawyers to Watch Out by David Smyth in Cady Bar The Door

Last week, the Justice Department filed the first FCPA case of 2015 when it indicted Dmitrij Harder, the former owner and president the Chestnut Consulting Group in Huntingdon Valley, Pa…

The case is interesting to me for at least four reasons. First, the European Bank for Reconstruction and Development is based in the United Kingdom, not a high-risk country for corruption issues. Second, the case doesn’t involve third party sales agents, as so many FCPA cases tend to do in one way or another. Instead, if the indictment is to be believed, here we have a company president’s single-minded determination to pay some bribes to win business, one way or the other. Third, the case invokes the “public international organization” facet of the foreign official element to establish jurisdiction over the conduct at issue. Doesn’t happen very often!

SEC Enforcement – An Analysis of Key Developments in 2014 by Bruce Carton in Compliance Week

In a webcast I moderated yesterday, a panel consisting of four former senior SEC enforcement attorneys and accountants–including former SEC Enforcement Director Bill McLucas of law firm WilmerHale–analyzed the most important developments in SEC enforcement from 2014, and looked ahead at what they expect in 2015.

Black & White Bricks is by Mike

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

Majority of RIAs should move under state regulation: Study by Mark Schoeff Jr. in InvestmentNews

Shifting oversight of more registered investment advisers from the Securities and Exchange Commission to states would increase exam coverage at less cost than establishing third-party reviewers, a new report asserts. A study by the compliance firm RIA in a Box calls for advisers with less than $500 million in assets under management to transition to state regulation, a move that would involve about 7,250 of the approximately 11,400 investment advisers currently registered with the SEC.

D&O Insurance: No Coverage for Enforcement Action Because Claim First Made When SEC Subpoena Served Before Policy Inception by Kevin LaCroix in The D&O Diary

A recurring D&O insurance coverage issue involves the question of whether or not a subpoena constitutes a claim, as I have noted on prior posts (for example, here). When this issue comes up, the dispute is usually over whether or not there is coverage under the policy for the costs of responding to the subpoena and ensuing costs. But there are other implications if a subpoena is a claim, as was demonstrated in a January 6, 2015 decision (here) by District of Massachusetts Judge Rya Zobel.

SEC Use of Administrative Proceedings Challenged Again by Thomas O. Gorman in SEC Actions

Bebo v SEC, Case No. 15-cv-00003 (E.D. Wis. Filed Jan. 2, 2015) is another suit challenging the decision to bring an action as an administrative proceeding rather than in Federal District Court. The underlying administrative proceeding named as Respondents Laurie Bebo and John Buono, respectively, the CEO and CFO of Assisted Living Concepts, Inc. In the Matter of Laurie Bebo and John Buono, Adm. Proc. File No. 3-16293 (December 3, 2014). The firm is a publicly-traded assisting living and senior residence firm based in Wisconsin. The Order, which alleges violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)B) and 13(b)-5, centers on claimed false disclosures in the SEC filings of the company. Those filings represented Assisted Living was in full compliance with a lease for certain properties when in fact the Respondents had falsified certain occupancy data to deceive the lessee into believing that the company was in compliance, according to the Order.

The Bebo complaint alleges due process and equal protection violations, a violation of the right to a jury trial and presents a separation of powers issue.

SEC Fights ‘Pre-taliation’ Against Dodd-Frank Whistleblowers by Bruce Carton in Compliance Week

Image of bricks is by Peter Alfred Hess