Category: Compliance Bricks and Mortar

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

Mark Cuban vs. The SEC in WealthManagement.com

The only way to reform what ails the Securities and Exchange Commission is to “burn it down and start again,” says Mark Cuban, billionaire entrepreneur, host of the television show “Shark Tank,” and the owner of the Dallas Mavericks.

Corruption Allegations Lead to Securities Lawsuits by Kevin LaCroix in The D&O Diary

I was on a panel at a law firm event last week during which I was asked to make some predictions for 2015. Among other things, I said that I thought we would see an increase of securities class action lawsuit filings following in the wake of regulatory investigations, especially bribery investigations. I also said that many of these lawsuits next year will involve bribery investigations being led by governments other than that of the United States. Well, we not yet into the new year, but there has already been a flurry of activity consistent with my predictions.

Forum Selection For SEC Cases – District Court or Administrative Proceeding? by Thomas O. Gorman in SEC Actions

Under this approach the seven insider trading cases filed as administrative proceedings since September would not represent a new trend or a move toward bringing these actions as administrative proceedings rather than the traditional civil injunctive action. At the same time the filing of so many insider trading cases as administrative proceedings in a brief period does represent a significant departure from prior practice. That is particularly notable for an agency which frequently looks for consistency. No doubt, the Director is correct that selecting the administrative forum quickly ends the matter – there is no district court to seek the assistance of or to ask questions and delay the entry of the settlement.

SEC Chief Is Not Pleased Over Insider Trading Decision by Michelle Celarier in the NY Post

Securities and Exchange Commission chief Mary Jo White is none too pleased about Wednesday’s landmark federal appeals court ruling that overturned two insider trading convictions. “My initial sense is that it is an overly narrow view of the insider trading law, and that is a concern,” she said at a conference in New York on Thursday.

Brick Pattern is by AGF81 at DeviantArt

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

Sherlock Holmes and Innovation in the Compliance Function, Part I – A Study In Scarlet by Tom Fox in the FCPA Compliance and Ethics Blog

First I am back with an homage to Sherlock Holmes, for it was in the magazine Beeton’s Christmas Annual that the characters Sherlock Holmes and Watson were introduced to the world in 1887, in the short story A Study in Scarlet. The second theme will be innovation in the compliance department. I will take some recent concepts explored in the December issue of the Harvard Business Review (HBR) and apply them to innovation and development of your compliance function. I hope that you will both enjoy my dual themed week and find it helpful.

Be Careful When You Are 100% Correct by Roy Snell in SCCE’s Compliance & Ethics Blog

People are often careful when they are not sure how to fix a particular problem. They do their research and bring everyone along. Everything is covered and everything is explained, when you are in doubt. However, when we are 100% correct we let our guard down. At least I do. I get indignant and ask questions like “why do I have to explain this all over again?”

2015 SEC Trial Scorecard Update: Agency is Undefeated After Two Trials by Bruce Carton in Compliance Week

To date in FY 2014 (which began on October 1, 2014), the SEC has had two trials in federal court reach a verdict. The first verdict was in the SEC’s case against iShopNoMarkup.com, Inc. in the U.S. District Court for the Eastern District of New York. In that case, the SEC charged that in 1999-2000, among other things, iShop conducted a fraudulent and unregistered securities offering.

Compliance Yesterday, Today, and Tomorrow by Matt Kelly in Compliance Week

Part of the challenge, of course, comes from the huge advances in technology that have allowed businesses to do more things, and to do them more efficiently—because once you can do something more efficiently, it’s only a matter of time before “the market” compels you to do something  more efficiently. Hence the quest to develop new products, to reach new customers, to launch new mergers, to enter new markets—more than we could ever dream of 50 years ago. All of those things bring new risks, and new ways to manage them.

Largest Derivative Lawsuit Settlements by Kevin LaCroix in the D&O Diary

My purposes in posting this list are two-fold: first, in response to several requests, to share the information I have; and two, to encourage others who may have different or additional information to share the information so that I can update or supplement the list as appropriate. Here is my list of the eight largest derivative lawsuit settlements of which I am aware:

Get the SEC Out of the PR Business by Russell G. Ryan in the Wall Street Journal (opinion section)

Given the SEC’s peculiar quasi-judicial role in these cases, you might think the agency would refrain from gratuitously stoking prehearing publicity against the accused. Think again. The SEC now routinely issues press releases when it files charges in administrative cases it will eventually decide. This practice calls into question the agency’s ability to decide those cases fairly and impartially.

Commissioner: ‘Millionaires can fend for themselves’ by Mark Schoeff Jr. in Investment News

“This obsession with ‘protecting’ millionaires — potentially at the cost of hindering the wildly successful and critically important private markets — strains logic and reason,” said SEC member Daniel Gallagher Jr. “Millionaires can fend for themselves.”

S.E.C.’s Delay on Crowdfunding May Just Save It by Steven Davidoff Solomon in the NY Times.com’s DealBook

But the crowdfunding industry is eager for guidelines. And so it has started to go to the states to work around the S.E.C.’s inertia. Under the securities laws, an offering made in a state by company from that state is exempt from the S.E.C. rules on securities offerings. This was intentional when the Securities Act of 1933 was passed. The idea was that individual states should maintain jurisdiction of offerings limited to their borders because only their residents would be affected.

SEC Whistleblower program has historic year by Mary Jane Wilmoth in the Whistleblower Protection Blog

On November 17, 2014, the U.S. Securities and Exchange Commission’s Office of the Whistleblower released its 2014 Annual Report to Congress. According to the report, 2014 was a historic year for the SEC Whistleblower program in terms of both the number and dollar amount of whistleblower awards. The SEC issued whistleblower awards to more individuals in 2014 than in all previous years combined.

Opinion Release 14-02: Dis-Linking The Illegal Conduct Going Forward by Tom Fox

One of my favorite words in the context of Foreign Corrupt Practices Act (FCPA) enforcement is dis-link. I find it a useful adjective in explaining how certain conduct by a company must be separated from the winning of business. But it works on so many different levels when discussing the FCPA. Last week I thought about this concept of dis-linking when I read the second Opinion Release of 2014, that being 14-02. One of the clearest ways that the Department of Justice (DOJ) communicates is through the Opinion Release procedure. This procedure provides to the compliance practitioner solid and specific information about what steps a company needs to take in the pre-acquisition phase of due diligence. However, 14-02 directly answers many FCPA naysayers long incorrect claim about how companies step into FCPA liability through mergers and acquisitions (M&A) activity.

SEC: Sending Saudi Officials on ‘World Tour’ Was FCPA Violation by Bruce Carton in Compliance Week

In case there was any ambiguity that companies may not send foreign government officials on a “world tour” in order to secure business, the SEC made that clear yesterday. In an administrative proceeding filed yesterday, the SEC sanctioned two former employees in the Dubai office of U.S.-based FLIR Systems Inc. for violating the FCPA via such conduct.

Image of Kingston Brick Wall is by Nicholas Laughlin

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

The SEC and the DMV by Thomas O. Gorman in SEC Actions

“The SEC Should Copy the DMV” is the title of an article published in the New York Times by Joseph S. Fichera recently. The article focuses on the use of corporate fines, questioning whether they are effective: “The SEC and other federal regulators have levied over $125 billion in penalties on Wall Street since the global financial crisis of 2008. Yet few believe that these fines are enough to change behavior. For the largest financial institutions, a multibillion-dollar penalty can amount to a speeding ticket – another cost of doing business,” Mr. Fischera notes. He goes on to argue that the point system of the DMV might be adopted. Under that system drivers collect points for each infraction. When the driver accumulates enough points their driving privileges are revoked for a period of time. If the SEC adopted a similar system, then the market place might force firms into effective compliance as points pile up.

Trial Lawyering and FCPA Compliance by Tom Fox in the FCPA Compliance and Ethics Blog

It is that type of trial lawyer mentality which also seems to seep into the debate about a compliance defense under the FCPA. Leaving aside the Arthur Andersen effect of 63,000 people losing there livelihoods because one corporation made an idiotic decision to go to trial; the trial lawyer mentality that wants to tee it up with the DOJ does not serve the counseling function which corporations require. What does a trial lawyer tell a client about its chances at trial? You have a 10% chance; 20% chance; 50% chance; 75% chance of winning? What is that based on? Knowing what 12 (or perhaps 6) citizens will say? If there is a potential $500MM fine for a guilty verdict and there is a 10% chance of losing, is settling for $50MM reasonable? What if your illegal conduct was over five years ago, are you really going to trial on statute of limitations defense, where your own conduct hid the FCPA violations? Want to try and use that fact issue to persuade a jury that the government waited too long to indict?

SEC’s Increased Use of Administrative Proceedings Draws Criticism and Legal Challenges by Chip Phinney in Mintz Levin’s Securities Litigation & Compliance Matters

The SEC’s plan to bring more enforcement actions as administrative proceedings before its own administrative law judges rather than in the federal district courts — even in insider trading cases — has been drawing increasing criticism and legal challenges.  Most recently, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York questioned  the SEC’s use of administrative proceedings in a speech last Wednesday before the Practising Law Institute’s Annual Institute on Securities Regulation.  Judge Rakoff observed that the SEC’s administrative powers, which were originally quite limited, have been expanded considerably by the Sarbanes-Oxley Act of 2002 and especially by Section 929P(a) of the Dodd-Frank Act of 2010, which respectively enabled the SEC to obtain administrative orders barring defendants from serving as officers and directors of registered companies and assessing monetary penalties.

AIFMD Reporting by non-EEA AIFMs by Winston Penhall and Paul Moran in ReedSmith’s Private Funds Law Update

AIFM that are authorised by the UK Financial Conduct Authority (or “FCA”) are already subject to compulsory reporting, while non-EEA AIFM become subject to FCA reporting when they register with the FCA under the UK national private placement regime (the “UK NPPR”).

Digging into the Data by Matt Kelly in Compliance Week

There are two truths about corporate compliance: no universal solution exists for all businesses, and everyone wants to know what everyone else is doing. As part of Compliance Week’s effort to better serve the compliance community, we now have a way to address both those points of pressure.

Decay – Aged brick & mortar in Puerto Rico is by Rusty Long

 

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

Fordham Law offers LL.M in Corporate Compliance, expands JD training by Sean J. Griffith in the FCPA Blog

The new compliance programs are good news for law students. According to The Wall Street Journal, starting salaries for compliance officers have been rising 3.5% each year since 2011. Moreover, those officers with a law degree are generally in a better position to advance to the higher end of the pay scale. In some large companies this salary may figure at more than $200,000.

Compliance Professionals Getting Grief by Roy Snell in SCCE’s Compliance & Ethics Blog

On occasion I get a little grief for being in the compliance profession. Sometimes it’s misguided because they think compliance professionals make up all the rules and they don’t like rules. But it’s still tiresome.

On Fifth Anniversary Of Rothstein’s $1.2 Billion Ponzi Scheme, Questions Remain by Jordan D. Maglich in Ponzitracker

Five years ago on a late October night, prominent lawyer Scott Rothstein hurried down an empty tarmac towards a waiting Gulfstream plane bound for Morocco – a country that lacked an extradition agreement with the United States. Rothstein’s once-extravagant lifestyle was collapsing before his eyes, with hundreds of investors soon to learn that Rothstein had masterminded a massive $1.2 billion Ponzi scheme. Carrying a duffel bag stuffed with over $500,000 and with $16 million sitting in a Moroccan bank account, Rothstein had little intention of returning to the U.S. to face the music.

Gallagher: Dodd-Frank Has SEC ‘Shoveling Manure’ for ‘No Discernible Purpose’ by Bruce Carton in Compliance Week

In his latest attack on the law he recently called “Dodd-Frankenstein,” SEC Commissioner Daniel S. Gallagher stated that the Dodd-Frank Act has left the Commission spending “much, if not most, of its time and resources for nearly half a decade shoveling manure, in some cases for no discernible purpose whatsoever.”

 

 

Rainbow Bricks by fusion-of-horizons

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

Mathew Martoma’s Wife Fights to Keep Couple’s Florida Home, Millions in Cashby Bruce Carton in Compliance Week

Martoma will begin serving his prison term next month, but his wife, Rosemary Martoma, is now challenging the $9.4 million forfeiture order. This week Rosemary Martoma asked the court to allow her to keep her share of the couple’s assets–including a $2.2 million home in Boca Raton, Florida and approximately $4.5 million in cash.

The New Vocabulary of Compliance Communications by Joel A. Rogers in Communicating Compliance

Every time there is a paradigm shift in any arena, a new vocabulary – either new words or new meanings to older words – emerges to account for a host of novel concepts. … The same thing is true in compliance, as I learned in the reader comments to my last blog post, in which I made reference to “low-bandwidth” compliance communications, a term which caused confusion for at least one reader. As the paradigm of compliance communications shifts away from long, burdensome elearning programs toward quick bursts of information delivered in an organized, structured fashion, a new vocabulary has emerged to account for its conceptual differences from “traditional” practices.

SEC Whistleblower Program Achieves Critical Mass by Matt T. Morley in the HLS Forum on Corporate Governance and Financial Regulation

Two recent Dodd-Frank whistleblower awards suggest that the program is becoming the kind of “game changer” for law enforcement that many had predicted. The program, which took effect in August 2011, mandates the payment of bounties to persons who voluntarily provide information leading to a successful securities enforcement action in which more than $1 million is recovered. Informants are entitled to receive between 10 and 30 percent of the amounts recovered, with the precise amount to be determined by the SEC.

Complicating Sanctions Compliance: OFAC Redefines 50 Percent Rule by Michael Volkov in Corruption, Crime & Compliance

OFAC’s revised policy addresses the ownership requirement under which a person related to an SDN has to be blocked under OFAC regulations. Going back around six years ago, OFAC adopted a policy that ownership for purposes of sanctions extends to any entity that is 50 percent or more owned by a single SDN.

The Second Time Around Analyst Is Charged With Insider Trading by Thomas O. Gordon in SEC Actions

The second time around proved to be the undoing of a senior financial analyst at a pharmaceutical company identified only as Pharma Co. Two years ago he supposedly furnished material non-public information about a proposed take-over to his longtime friend, identified as Trader. Trader traded and profited. No action was brought. In 2014 the analyst supposedly furnished the same friend inside information on another transaction. This time the SEC and the Manhattan U.S. Attorney filed civil and criminal charges against the analyst. SEC v. Zwerko, Civil Action No. CV 8181 (S.D.N.Y. Filed Oct. 10, 2014).

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

Fixing a Company’s Ethics and Compliance Culture by Michael Volkov in Corruption, Crime & Compliance

A company’s ability to enact meaningful change depends on the innate desire of its leadership to execute real change. It is too easy to say that such change depends on the CEO. Instead, a change in culture requires the dedication of two important players – the CEO and the board of directors.

SEC Finds Deficiencies at Hedge Funds by Andrew Ackerman and Rob Copeland in the Wall Street Journal

Mr. Bowden, who spoke at an investment advisory conference sponsored by industry newsletter IA Watch, said regulators have discovered some funds engaging in what he called “flip-flopping,” boosting valuations by changing the way they measure holdings several times a year. In some instances, the funds chose the measurement with the highest value or intentionally classified certain assets in a way that gave the fund manager more flexibility to inflate the price of the fund’s holdings.

SEC Awards Largest Ever Whistleblower Bounty, $30 Million by Joe Mont in Compliance Week

“Our client exposed extraordinarily deceitful and opportunistic practices that were deeply entrenched and well hidden,” Erika Kelton, an attorney with the law firm Phillips & Cohen and legal counsel to the whistleblower says. “Federal regulators never would have known about this fraud otherwise, and the scheme to cheat investors likely would have continued indefinitely.”

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

Let’s Get This Straight, A URL Is Not An Address (At Least In This Case) by Keith Paul Bishop in California Corporate and Securities Law

The tenant argued that the notice was defective because it included a URL (uniform resource locator) address rather than the address of a physical location. The Appellate Division agreed, finding that the correlation of the address to a person in the statute “indicates that the ‘address’ which is intended is a physical address where that person can be found to receive rent payment, and not a string of characters identifying the location of a website.”

Students Required to Learn Business Fundamentals at Boston University School of Law

Boston University School of Law will now require all JD students to complete a foundational course in business literacy, Introduction to Business Fundamentals, beginning with the Class of 2017. The course offers instruction in business, financial accounting, corporate finance and related concepts, while the format—an asynchronous, online series of one-hour modules—allows students to approach each concept at an individual pace, based on their familiarity with the topic.

SEC Announces Creation of New Office Within its Division of Economic and Risk Analysis

The Securities and Exchange Commission today announced the creation of a new office within the Division of Economic and Risk Analysis (DERA) that will coordinate efforts to provide data-driven risk assessment tools and models to support a wide range of SEC activities.

Pension Funds Sue Stock Exchanges Over High-Frequency Trading by Scott Patterson in WSJ.com’s Law Blog

The complaint, filed Sept. 2, alleges stock exchanges provided high-frequency firms “enhanced trading information at faster speeds” than other investors received. The exchanges also crafted “complex order types” that gave sophisticated traders advantages, such as the ability to trade in front of other investors to get a better price.

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

Fantasy Football: A Real and Present Danger to the Workplace? by Daniel Schwartz in Connecticut Employment Law Blog

So to answer my own question in the title: No, fantasy football is not a critical threat to your business. But sometimes, fantasy football can be used support a claim of harassment or discrimination.

Fantasy football, despite its name, is a real industry and those companies that treat it as mere child’s play, do so at their own risk.

Pro Football and the FCPA Professor by Tom Fox in the FCPA Compliance and Ethics Blog

In football players certainly want to play hard but face penalties for playing too aggressively. I would add that sometimes there are grey areas in the rules that can get players into trouble. Moreover, just as each football team will have its own risk tolerance, businesses will as well. The Professor states, “The same is true for FCPA compliance. Business organizations, particularly those accountable to shareholders to increase value, should aggressively compete in the global marketplace to gain a competitive edge over competitors. Yet the practical reality is that much of what happens in the global marketplace can also fall into a gray area given the FCPA’s provisions, which have frequently been found to be vague and ambiguous when subjected to judicial scrutiny.

For Hedge Fund Whistleblower, Waiting Was the Hardest Part by Lillian Rizzo in WSJ.com’s Risk and Compliance Journal

When Frank Harrison decided in 2009 to go to the Federal Bureau of Investigation with allegations of fraud at hedge fund New Stream Capital LLC, he wasn’t prepared for one of the most nerve-wrecking aspects of being an informant—a long wait with little inkling of action being taken

The FBI’s Interesting Endgame with Michael Lucarelli by Bruce Carton in Compliance Week

Based on his trading patterns related to other client information, the FBI anticipated that Lucarelli might trade based on the Trex information. Indeed, a few days after the search, Lucarelli did purchase shares of Trex, and allegedly made nearly $90,000 in illegal profits when he sold the stock after the public disclosure of Trex’s improved sales and income caused its stock price to increase nearly 15%.

The SEC Brings Another Case Centered on the EB-5 Immigration Program by Thomas O. Gorman in SEC Actions

The government’s EB-5 program is supposed to be a win win for everyone. For immigrants seeking admission to the United States it is supposed to provide a path to citizenship if the requirements, centered on the investment of $500,000 or more in select projects, are met. For the U.S. it is a job creation mechanism since the investments from those seeking admission under the program, administered by the United States Citizenship and Immigration Service, are supposed to be used to create jobs in this country. Unfortunately the program is now at the center of yet another SEC enforcement action and a parallel criminal case. SEC v. Lee, Civil Action No. 2:14-cv-06865 (C.D. Cal. Filed September 3, 2014).

What Does Delaware’s Wal-Mart Decision Mean for the Attorney-Client Privilege and Internal Investigations? by Chip Phinney in Mintz Levin’s Securities Litigation and Compliance

In some respects the Wal-Mart decision is disconcerting for corporate counsel. It suggests that counsel conducting internal investigations of allegations of corporate wrongdoing should bear in mind the possibility that someday their privileged communications, which they assume to be confidential, may be subject to review by a shareholder plaintiff’s counsel seeking grounds to sue the corporation’s directors and officers. But the Walmart case involved unusual circumstances and should not be read as opening privileged communications by corporate counsel to widespread discovery in most shareholder litigation.