Category: Compliance Bricks and Mortar

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

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Do Private Equity Managers Raise Funds on (Sur)real Returns?
by Niklas Huether
The CLS Blue Sky Blog

By analyzing valuations at the deal-level, I do not find any evidence of window dressing in private equity. The key factor for performance peaks lies in the deal composition rather than in inflated NAVs.

http://clsbluesky.law.columbia.edu/2019/12/10/do-private-equity-managers-raise-funds-on-surreal-returns/

The Incomparable Value of Service in Secret: Lessons from the SEC’s Office of the Whistleblower
by Jordan A. Thomas
NYU Law’s Compliance & Enforcement blog

Nearly ten years ago, following a global financial collapse spurred by serial wrongdoing, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. Within its 2,000 pages of sweeping reform was the charge to establish an investor protection initiative, which emerged as the SEC Whistleblower Program. Its three pillars—anonymity safeguards, substantial monetary bounties, and significant employment protections—shaped a first-of-its-kind paradigm to encourage individuals to report suspected violations of the federal securities laws. The formidable combination of these programmatic mainstays and an enforcer armed with early actionable intelligence has proven to be a game changer. It’s not just recoveries and reform, however. Behind the results, including in the just-released Office of the Whistleblower’s Annual Report to Congress, stand everyday people willing to take a bold step forward, to be the outsider and the anti-hero, no matter the size of Goliath and his balance sheet.

https://wp.nyu.edu/compliance_enforcement/2019/12/03/the-incomparable-value-of-service-in-secret-lessons-from-the-secs-office-of-the-whistleblower/

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Betrayed by the Big Four: whistleblowers speak out
by Madison Marriage
Financial Times

These individuals worked for four of the most renowned names in the business world: EY, Deloitte, KPMG and PwC. They are among 20 former employees from the Big Four accounting firms who have spoken to the Financial Times about their experience of harassment, bullying and discrimination in the workplace over the course of a year’s investigation into how these firms treat whistleblowers within their ranks.
The FT identified a disturbingly common pattern in terms of how complainants were treated: most initially felt ignored, then isolated and were eventually pushed out. Legal clauses aimed at silencing them swiftly followed; nine of those interviewed said they were pressured into signing restrictive non-disclosure agreements. Others were asked to sign but resisted.

https://www.ft.com/content/78f46a4e-0a5c-11ea-bb52-34c8d9dc6d84

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Women in Compliance 2020 Finalists

Recognising and celebrating the achievements female compliance professionals make every day in the world of compliance and business from every industry around the world.
Bringing together female compliance professionals to provide practical learning skills in the compliance world as well as worthwhile opportunities for networking and mentoring.
25-26 March 2019 | London, UK
Discover more information

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The Securities and Exchange Commission wants bad guys to know: ‘We’re watching’
by Bob Pisani
CNBC

I spent a day at SEC headquarters with the regulators Chairman Jay Clayton and the co-directors of the Division of Enforcement, Stephanie Avakian and Steven Peikin. The highlight was a visit to the Forensics Lab, a copper-lined room where the SEC extracts data from cell phones and computers from traders and others who may be engaged in suspicious activity.

https://www.cnbc.com/2019/12/11/the-sec-wants-bad-guys-to-know-were-watching.html

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New List: The FCPA Top 40
by Richard L.Cassin
The FCPA Blog

There’s a surprisingly wide geographical distribution of the companies in the top 40. Ten come from the United States and five from France. Four companies are from Germany, followed by three each from Switzerland, Japan, Brazil, the Netherlands, and the United Kingdom.

https://fcpablog.com/2019/12/12/new-list-the-fcpa-top-40/

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These are some of the compliance-related stories I’ve been reading while digging out of the snow this week.

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Can the S.E.C. Force Repayment of Ill-Gotten Gains?
by Peter Henning
DealBook

The issue before the Supreme Court will be whether a District Court can order a defendant to repay money obtained by fraud or trading on confidential information, or whether it is a penalty beyond the “equitable” power of the courts to require. The S.E.C. is sure to argue that a defendant who engages in fraud or insider trading should not be allowed to keep the profits, much as a thief has no claim to the money that is stolen.

https://www.nytimes.com/2019/11/29/business/dealbook/sec-fraud-disgorgement.html

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A Common-Sense Approach to Corporate Purpose, ESG and Sustainability
by Frank B. Glassner
Harvard Law School Forum on Corporate Governance and Financial Regulation

The [Business Roundtable] lists stakeholders in the order of “customers” first, followed by “employees,” “suppliers,” “communities” and finally “shareholders.” This sequence does not alter the longstanding presumption that shareholders occupy the position of first among equals. As equity owners and providers of capital, shareholders have always required a high and continuous level of attention from companies. Voting power gives shareholders a direct voice in corporate governance; their investment decisions determine a company’s stock price and cost of capital. Accordingly, shareholders remain the primary audience for a company’s sustainability story. It is also important to remember that a company’s creditors, specifically investors in its fixed income securities, rank with shareholders at the top of the stakeholder list.

https://corpgov.law.harvard.edu/2019/12/01/a-common-sense-approach-to-corporate-purpose-esg-and-sustainability-2/

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Compliance Under Fire: Two More Tales
by Matt Kelly
Radical Compliance

Neither of these stories is good. They, along with other tales of retaliation against CCOs I’ve collected over the years, are a reminder that corporate compliance must be important after all — because when you do the job well, you can piss people off. Let’s stand by those compliance folks who do the right thing. Attention must be paid.

http://www.radicalcompliance.com/2019/11/27/compliance-under-fire-two-more-tales/

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Does ethics training actually affect business conduct?
by Jeff Kaplan
Conflict of Interest Blog

In “Can Ethics be Taught? Evidence from Securities Exams and Investment Adviser Misconduct,” forthcoming in the Journal of Financial Economics,  Zachary T Kowaleski of University of Notre Dame, Andrew Sutherland of the Massachusetts Institute of Technology, and Felix Vetter of the London School of Economics “study the consequences of a 2010 change in the investment adviser qualification exam that reallocated coverage from the rules and ethics section to the technical material section. Comparing advisers with the same employer in the same location and year, we find those passing the exam with more rules and ethics coverage are one-fourth less likely to commit misconduct. The exam change appears to affect advisers’ perception of acceptable conduct, and not just their awareness of specific rules or selection into the qualification. 

http://conflictofinterestblog.com/2019/11/does-ethics-training-actually-affect-business-conduct.html

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Why complying with Reg BI can’t wait for the last minute
by Jeff Benjamin
InvestmentNews

The good news is, the Securities and Exchange Commission’s upcoming Regulation Best Interest is not expected to dramatically change most daily business activities for financial advisers and registered representatives.

The good news is, the Securities and Exchange Commission’s upcoming Regulation Best Interest is not expected to dramatically change most daily business activities for financial advisers and registered representatives. The bad news is, advisers and broker-dealer reps will still need to prepare for Reg BI, and that preparation might be expensive and time-consuming.

https://www.investmentnews.com/article/20191204/FREE/191209976/why-complying-with-reg-bi-cant-wait-for-the-last-minute

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

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Death Knell for Regulatory Guidance Hits Most Federal Agencies…
Broc Romanek
TheCorporateCounsel.net

We’ve been covering the Administration’s gradual squeeze on regulatory guidance for some time (here’s our latest from April). As noted in this DLA Piper memo, President Trump signed two ‘Executive Orders’ recently that limit the practice of “regulation by guidance.” Here’s the “improved agency guidance” order that requires each agency to post its guidance documents on an indexed, searchable website after the OMB has issued implementing guidance about how to accomplish that (here’s a comprehensive Davis Polk memo on this order).

https://www.thecorporatecounsel.net/blog/2019/11/death-knell-for-regulatory-guidance-hits-most-federal-agencies.html

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How co-working magnifies compliance perils
Richard L. Cassin
The FCPA Blog

Here’s the problem. Some people here lack, um, situational awareness. They forget (or don’t care?) that when they talk to colleagues in the common areas — at the big open work tables, in the community lunchroom, around the water cooler — other people might be listening in. When they yell into their phones while walking the halls, or put their calls on speaker, it all reaches the ears of outsiders. When they hold meetings in the conference rooms scattered throughout the workspace, the walls aren’t nearly thick enough to keep all the sound inside.

https://fcpablog.com/2019/11/14/how-co-working-magnifies-compliance-perils/

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Sexual Harassment Prevention Lessons from the Television’s “Survivor”
by Daniel Schwartz
Connecticut Employment Law Blog

Why?  Here are a few things that stood out to me from an employment perspective:
First, a female player (Kellee) complained to a producer that another male player (Dan) was a little too “touchy” and made her feel uncomfortable. To be sure, there was plenty of video evidence to back her up.   The male player was given a “warning” and play continued.  But here’s the thing: The female player never knew that a warning was issued and Dan worked with others to get Kellee voted out of the game immediately thereafter.  Not telling the complainant what was going on with her complaint is just one of the ways the producers seem to have mishandled things.

https://www.ctemploymentlawblog.com/2019/11/articles/sexual-harassment-prevention-lessons-from-the-televisions-survivor/

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2019 Was Big for the SEC. 2020 Will Be Huge.
By John Manganaro
PlanAdviser.com

Given its broad authority, the SEC is normally engaged in a wide range of rulemaking and regulatory activities in any given year—and that has certainly been the case in 2019. For plan advisers, three or four of the SEC’s ongoing regulatory activities should take precedence while planning for compliance in 2020. These are the Regulation Best Interest (Reg BI) package, the new advertising rules for advisers and brokers, and the revised approach to rules and requirements related to proxy voting and the use of proxy advisers.

https://www.planadviser.com/2019-big-sec-2020-will-huge/

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SEC Enforcers Continue to Focus on Undisclosed Fees
by Joshua M. Newville & Brian Hooven

In a series of enforcement cases over the past few months, the SEC has continued to bring actions focused on undisclosed fees charged to clients. Many of these cases have charged firms with fraud and other violations based on fees that were not adequately disclosed. While some attention has focused on retail wealth managers, institutional advisers to private funds have attracted scrutiny for undisclosed fees, leading to the following enforcement actions:

https://www.lexblog.com/2019/11/12/sec-enforcers-continue-to-focus-on-undisclosed-fees/

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Paul Weiss Discusses Delaware Decisions Showing Renewed Focus on Board Oversight

Breach of the duty of oversight claims against Delaware directors are known as “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.”[1]  The plaintiff must successfully argue that the directors either “utterly failed to implement any reporting or information system or controls” or “having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”[2]  These “Caremark claims”—named after the Court of Chancery’s seminal decision in this area, In re Caremark International Inc. Derivative Litigation—require well-pled allegations of bad faith (i.e., that “the directors knew that they were not discharging their fiduciary obligations,” a standard of wrongdoing “qualitatively different from, and more culpable than . . . gross negligence”) to survive dismissal.[3]  As a result of these high pleading standards, Caremark claims have historically had limited success.

http://clsbluesky.law.columbia.edu/2019/11/20/paul-weiss-discusses-delaware-decisions-showing-renewed-focus-on-board-oversight/

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Thoughts on Compliance Career Risk
by Matt Kelly
Radical Compliance

Career success is always about demonstrating how you add value to an organization larger than yourself. In our case, it’s about refashioning what you do away from executing a task (testing controls, bargaining with regulators, training employees, writing policies) toward providing a resource executive management needs: a greater awareness of the company’s overall risk posture, so that managers can make better decisions. 

http://www.radicalcompliance.com/2019/11/21/thoughts-on-compliance-career-risk/

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

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The SEC Cancels Another Open Meeting: What Gives?
Broc Romanek
TheCorporateCounsel.net

The SEC has cancelled tomorrow’s open Commission meeting about proposing changes to its whistleblower office. I think this is the third cancelled open meeting in as many months. Does it matter? Not really. Is it worth blogging about? Probably not. Did I blog about it anyway? Yes.
Here’s a few thoughts:

https://www.thecorporatecounsel.net/blog/2019/10/the-sec-cancels-another-open-meeting-what-gives.html

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Broken Windows: Remarks before the 51st Annual Institute on Securities Regulation
by Commissioner Hester M. Peirce

How can we make our enforcement program even better than it is? Over the past nearly two years, I have thought a lot about this question as I read the enforcement recommendations sent to my office and talk with our enforcement staff. The SEC’s enforcement program effectively serves American investors and the capital markets that underpin the broader economy. There is, however, always room for improvement. Therefore, in my remaining time with you this morning, I will suggest several avenues for improvement. Some of these themes are familiar, but they are ones that merit being raised with you. I welcome feedback on these suggestions from this room full of seasoned lawyers.

https://www.sec.gov/news/speech/peirce-broken-windows-51st-annual-institute-securities-regulation

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The 10 Most Significant Changes in the Proposed Adviser Advertising Rule
Cipperman Compliance Services

The 10 Most Significant Changes in the Proposed Adviser Advertising Rule
1. Expanded Definition of “Advertisement”. The proposed rule applies to “any communication, disseminated by any means.”  This definition includes all digital and social media communications.

…

https://cipperman.com/2019/11/08/the-friday-list-the-10-most-significant-changes-in-the-proposed-adviser-advertising-rule/

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Study: Second-Hand Reports More Reliable
by Matt Kelly
Radical Compliance

Some news that’s both useful to corporate compliance officers and totally relevant to our political drama in Washington: fresh research shows that whistleblower reports based on second-hand information tend to be more reliable than those from first-hand reporters. 
Moreover, second-hand reports are more likely to be about accounting or business integrity issues; and the more second-hand reports a company gets, the fewer lawsuits and smaller regulatory settlements it’s likely to pay out in future years. 

http://www.radicalcompliance.com/2019/11/01/study-second-hand-reports-more-reliable/

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These are some of the compliance-related stories that I read recently while getting ready for Halloween.

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It’s the Great Pumpkin: Lessons in Process Validation Through Monitoring
by Tom Fox
FCPA Compliance & Ethics

The compliance lesson from Linus’ adventure; it is process validation. Unlike Santa Claus, who we have been repeatedly told “Yes, Virginia there is a Santa Claus”; there has been no process validation for the Great Pumpkin. Linus faints when he thinks he sees the Great Pumpkin rising from his pumpkin patch; unfortunately it is only Snoopy. In the compliance world, process validation comes through oversight. Two of the seven compliance elements in the 1992 US Sentencing Guidelines call for companies to monitor, audit and respond quickly to allegations of misconduct. 

http://fcpacompliancereport.com/2019/10/its-the-great-pumpkin-lessons-in-process-validation-through-monitoring/

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Enforcement Co-Director Peikin touts self-reporting, creative remedies at Securities Docket conference
by Amanda Maine, J.D.
Jim Hamilton’s World of Securities Regulation

Regarding self-reporting in general, former SEC Enforcement Director William McLucas, now at Wilmer Hale, said that the lack of guidance about self-reporting from the SEC can result in tough discussions with clients because there are no guarantees for self-reporting in contrast to the detailed guidelines from the Department of Justice. George S. Canellos, formerly of the SEC’s Enforcement Division and currently at Milbank, agreed, stating that without formal guidelines for cooperation credit, the SEC is “all over the map.”

https://jimhamiltonblog.blogspot.com/2019/10/enforcement-co-director-peikin-touts.html

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Compliance Job Interview Questions and Answers
by Corporate Compliance Insights

At CCI, we know what questions reveal a candidate’s qualifications, and we know what answers a hiring authority is looking for. If you’re hiring a compliance officer, you need to ask these questions.  If you’re interviewing for a compliance position, you need to be prepared to answer them.

https://www.corporatecomplianceinsights.com/compliance-job-interview-questions-and-answers/

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Corporate Oversight and Disobedience
by Elizabeth Pollman

Over a decade has passed since landmark Delaware corporate law decisions on oversight responsibility, and only a small handful of cases have survived a motion to dismiss. Scholars have puzzled over what it means to have the potential for corporate accountability lodged within the duty of good faith, but almost never brought to fruition in terms of trial liability. …

Under current Delaware case law, courts have allowed Caremark claims to proceed where evidence exists to infer that the board utterly failed to implement a compliance monitoring system or that the directors engaged in disobedience by knowingly managing legal risk or flouting, violating, or ignoring the law.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3474337

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Is the SEC up to its $84-trillion RIA challenge?
by Tobias Salinger
Financial Planning

Agency officials have said as much: The SEC’s latest annual performance review cites the notable rise in the share of RIAs receiving exams but also two missed goals around enforcement. This month, the agency’s inspector general took it to task over those findings.
The average time it takes the SEC to start an enforcement action after opening an investigation is two years and one month. Only 49% of the time was the agency able to file cases within two years of starting its investigation. The figures came nowhere near the SEC’s own targets.

https://www.financial-planning.com/news/sec-enforcement-cases-of-rias-take-two-years-ig-says

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

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The Cost to Retail Investors and Public Markets of “Harmonizing” Securities Offering Exemptions
By Erik F. Gerding
The CLS Blue Sky Blog

Investing in private securities would pose considerable additional risks for retail investors, relative to investing in public securities, and existing research suggests that these additional risks would not be sufficiently offset by higher expected returns.  In fact, if retail investors are given more direct access to the private markets, they are likely to earn lower risk-adjusted returns overall than they do in the public markets, for several reasons: …

http://clsbluesky.law.columbia.edu/2019/10/01/the-cost-to-retail-investors-and-public-markets-of-harmonizing-securities-offering-exemptions/

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ANALYSIS: Lack of Removal Power Could Threaten SEC ALJ Regime
by Peter Rasmussen
Bloomberg Law

Are the job security provisions enjoyed by SEC administrative law judges unconstitutional? The Supreme Court majority kicked that question down the line in its 2018 Lucia v. SEC decision. The Fifth Circuit may just have picked it up, as a three-judge panel enjoined an administrative rehearing of a pre-Lucia accounting violations case against Michelle Cochran. It is too early in the process to read too much into a preliminary injunction, but the Fifth Circuit’s action does indicate that Lucia has not yet been laid to rest.

https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-lack-of-removal-power-could-threaten-sec-alj-regime

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Some Places Are Much More Unequal than Others
by Jaison R. Abel and Richard Deitz
Liberty Street Economics

Economic inequality in the United States is much more pronounced in some parts of the country than others. In this post, we examine the geography of wage inequality, drawing on our recent Economic Policy Review article. We find that the most unequal places tend to be large urban areas with strong economies where wage growth has been particularly strong for those at the top of the wage distribution. The least unequal places, on the other hand, tend to have relatively sluggish economies that deliver slower wage growth for high, middle, and lower wage earners alike. Many of the least unequal places are concentrated in the Rust Belt. These differences in the degree of wage inequality are tied to powerful economic forces arising from technological change and globalization, which have pushed up wages strongly for high-skilled workers in locations that have become the most unequal. Yet those same forces have kept wage growth compressed within a fairly narrow range for workers in places that are the least unequal.

https://libertystreeteconomics.newyorkfed.org/2019/10/some-places-are-much-more-unequal-than-others.html

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Attorney General Barr Speaks at SEC’s Criminal Coordination Conference

I’ll begin with our coordination to punish wrongdoers and to protect investors. As I have mentioned, the white-collar crime, financial fraud, and corruption cases that our agencies handle are some of the most complex and difficult cases to uncover, investigate, and prosecute. Together, however, through information sharing and open dialogue, we are able to overcome those challenges.

http://clsbluesky.law.columbia.edu/2019/10/07/attorney-general-barr-speaks-at-secs-criminal-coordination-conference/

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Compliance and Careers Amid Corporate Upheaval
by Matt Kelly
Radical Compliance

This week I was in Denver attending the Converge 2019 conference hosted by Convercent, and as one might expect, lots of the sessions there focused on how to apply technology to compliance programs. 
For my money, however, the most interesting session explored something quite different: how compliance officers can navigate their careers amid upheaval at your company — a merger, breakup, restructuring, or some other ordeal that leaves everyone on edge. Including you.

http://www.radicalcompliance.com/2019/10/04/compliance-careers-amid-corporate-upheaval/

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A new (and more transparent) way to calculate SEC whistleblower awards
by Amanda M. Rose
The FCPA Blog

How should SEC whistleblower awards be calculated? In a working paper, I address this timely question.

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My analysis suggests that the controversial proposed amendments are warranted, but incomplete. For reasons that I explain, a hybrid percentage-dollar approach that ties a whistleblower award to the value of the punishment imposed on the wrongdoer, while also taking into account the costs a whistleblower anticipated incurring by coming forward, makes sound policy sense.

…

A full copy of my paper can be downloaded here.

https://www.fcpablog.com/blog/2019/10/9/a-new-and-more-transparent-way-to-calculate-sec-whistleblowe.html

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

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Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat

The SEC’s mission is to: (1) protect investors; (2) maintain fair, orderly, and efficient markets; and (3) facilitate capital formation. The SEC oversees over 27,000 market participants, including investment advisers, mutual funds and exchange traded funds, broker-dealers, national securities exchanges, credit rating agencies, clearing agencies, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), and the Financial Accounting Standards Board (FASB). The SEC also oversees over $97 trillion in securities trading annually and reviews the disclosures of approximately 4,400 exchange-listed public companies with an approximate aggregate market capitalization of $34 trillion.

• Background Memo from House Staff
• The Honorable Jay Clayton Testimony
• The Honorable Robert J. Jackson Jr Testimony
• The Honorable Hester M. Peirce Testimony
• The Honorable Elad L. Roisman Testimony
• The Honorable Allison Herren Lee Testimony
• Video of the Hearing
  

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Inside Airbnb, Employees Eager for Big Payouts Pushed It to Go Public
by Erin Griffith
New York Times

On behalf of more than a dozen employees, they pleaded to be able to sell their Airbnb stock options. Because Airbnb is privately held, its shares cannot be easily traded or cashed in. So the employees also asked that the company go public, a move that would let them freely sell their shares, said five people who saw or were briefed on the document and were not authorized to speak publicly.

https://www.nytimes.com/2019/09/20/technology/airbnb-employees-ipo-payouts.html#click=https://t.co/ymuwKpmf4l

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Ten reasons why compliance fails
by Andrew Hayward and Tony Osborn
The FCPA Blog

This is despite the increasing ethical demands stakeholders are making of business, the exposing power of social media, the proliferating requirements of compliance laws and regulations, and the burgeoning numbers of policies, procedures and compliance officers which have been put in place in response.
So what’s going on? Why isn’t compliance working? Here are ten reasons why it can fail:

https://www.fcpablog.com/blog/2019/9/20/ten-reasons-why-compliance-fails.html

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In the Decade Since Madoff, Ponzi Schemers Try New Tactics
by Angela Wang
New York Times

The S.E.C. brought 50 percent more Ponzi prosecutions in the decade after Mr. Madoff’s arrest than in the 10 years before, according to a New York Times analysis of the agency’s enforcement announcements.
Whether the increase is the result of enhanced enforcement or a proliferation of scammers, records show that Ponzi victims lost $31 billion in the decade beginning 2009, more than three times the amount lost in non-Madoff schemes in the previous decade. (The figures are not adjusted for inflation.)

https://www.nytimes.com/2019/09/22/business/ponzi-scheme-bernie-madoff.html

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Veil-Piercing Risks for Private Equity Managers Highlighted in Recent Court Decision
By Joshua M. Newville and Alexandra V. Bargoot 

A recent case in a North Dakota district court is a reminder to private equity funds and managers that, under certain conditions, they may be held responsible for actions of a fund’s portfolio companies.  Courts allow plaintiffs to pierce the corporate veil as a check against improper abuse of the corporate form.  When one corporate entity is under such extensive control by another that the first is merely an alter ego of the second, a court may permit a plaintiff to reach through the corporate structure to gain recovery.  This is particularly true if the first entity is undercapitalized.

https://www.privateequitylitigation.com/2019/09/veil-piercing-in-private-equity-risks-for-funds-and-managers/

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Minimum Wage Impacts along the New York-Pennsylvania Border
by Jason Bram, Fatih Karahan, and Brendan Moore
Liberty Street Economics

While New York began raising its minimum wage from $7.25 per hour in 2014, neighboring Pennsylvania has left its minimum wage unchanged at the federal floor. Minimum-wage variation between contiguous states has allowed researchers to evaluate the respective impacts on employment and average earnings. In this post, we gauge the effect of New York’s recent minimum-wage hikes by comparing low-wage sectors in counties along the New York-Pennsylvania border.

https://libertystreeteconomics.newyorkfed.org/2019/09/minimum-wage-impacts-along-the-new-york-pennsylvania-border.html

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

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How to Ace Compliance Interviews: Advice for the Next Generation of Compliance Officers
by Mary Shirley
Corporate Compliance Insights

Your hard work tailoring applications to the job and company has paid off and you’ve been invited to interview. Congratulations on being shortlisted! How do you increase your chances of clinching an offer? Here are share some tips for how to maximize this opportunity to shine and avoid common issues experienced in the interview process that may detract from your talents.

https://www.corporatecomplianceinsights.com/advise-compliance-interviews/

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The Problem of Algorithmic Corporate Misconduct
by Mihailis E. Diamantis
NYU Law’s Compliance & Enforcement

Technology will soon force broad changes in how we conceive of corporate liability.  The law’s doctrines for evaluating corporate misconduct date from a time when human beings ran corporations.  Today, breakthroughs in artificial intelligence and big data allow automated systems to make many business decisions like which loans to approve,[1] how high to set prices,[2] and when to trade stock. [3]  As corporate operations become increasingly automated, algorithms will come to replace employees as the leading cause of corporate harm.  The law is not equipped for this development.  Rooted in an antiquated paradigm, the law presently identifies corporate misconduct with employee misconduct.  If it continues to do so, the inevitable march of technological progress will increasingly immunize corporations from most civil and criminal liability.

https://wp.nyu.edu/compliance_enforcement/2019/09/16/the-problem-of-algorithmic-corporate-misconduct/

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Accounting Firms, Private Funds, and Auditor Independence Rules
by David E. Wohl
Harvard Law School Forum on Corporate Governance and Financial Regulation

The SEC recently charged a large public accounting firm (Accounting Firm) with violations of its auditor independence rules (Independence Rules) in connection with more than 100 audit reports involving at least 15 audit clients, including several private funds. [1] According to the SEC’s order, the Accounting Firm represented that it was “independent” in audit reports issued on the clients’ financial statements. However, the SEC found that the Accounting Firm or its affiliates provided prohibited non-audit services to affiliates of those audit clients (including to portfolio companies of the private funds), which violated the Independence Rules. The prohibited non-audit services included corporate secretarial services, payment facilitation, payroll outsourcing, loaned staff, financial information system design or implementation, bookkeeping, internal audit outsourcing and investment adviser services. The SEC also found that certain of the Accounting Firm’s independence controls were inadequate, resulting in its failure to identify and avoid these prohibited non-audit services.

https://corpgov.law.harvard.edu/2019/09/18/accounting-firms-private-funds-and-auditor-independence-rules/

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Financial planners join battle over SEC’s Regulation BI
by Mark S. Nelson, J.D.
Jim Hamilton’s World of Securities Regulation

XYPN’s complaint, filed in the federal court in the Southern District of New York, tells a remarkably similar story to the complaint by eight state attorneys general filed days earlier. Both complaints lament that the distinctions between investment advisers and broker-dealers have become increasingly blurred and that Regulation BI does little to clarify those differences. Both complaints note that a majority of the Commission, in adopting Regulation BI, disregarded the recommendation of SEC staff who conducted the Dodd-Frank Act-mandated study that the Commission impose a uniform fiduciary duty without regard to the financial interests of a broker-dealer. 

https://jimhamiltonblog.blogspot.com/2019/09/financial-planners-join-battle-over.html

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I want to thank the many readers of Compliance Building who donated to my Pan Mass Challenge ride that raised money to fight cancer.

This weekend I’m entered in another charity bike ride. This 100-mile ride in Saratoga Springs is to raise money for the Juvenile Diabetes Research Fund. My teenage son was hospitalized and diagnosed with Juvenile (Type 1) Diabetes last year. This auto-immune disease makes him insulin dependent. JDRF was incredibly helpful in getting him, and my family adjusted to treating this disease. JDRF is also instrumental in funding research to treat and someday, hopefully, to find a cure. If you are interested in donating to this cause, you can do so here: http://www2.jdrf.org/goto/dougcornelius

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

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Seven States Sue SEC on Concern Broker Rule Is Weak
by Dave Michaels
Wall Street Journal

The lawsuit, filed in Manhattan federal court by the states’ Democratic attorneys general, illustrates how a rule intended to protect mom-and-pop investors has become a political lightning rod for the Securities and Exchange Commission. The states and consumer advocates generally insist the rule is too weak to help clients, while the SEC says it improves investor protections while preserving the broker-dealer industry’s business model.

https://www.wsj.com/articles/seven-states-sue-sec-on-concern-broker-rule-is-weak-11568085859?shareToken=stcedbf5af4b864c7cb3da065fd94f41b4

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How Kim Kardashian Helped Get Ex-Billionaire Raj Rajaratnam Out Of Jail
by Lisette Voytko

About two years before the end of his 11-year prison sentence for insider trading, ex-billionaire hedge fund manager Raj Rajaratnam was quietly released to house arrest, thanks to a new federal law that Kim Kardashian had lobbied President Trump to sign.

https://www.forbes.com/sites/lisettevoytko/2019/09/10/how-kim-kardashian-helped-get-ex-billionaire-raj-rajaratnam-out-of-jail/#66fc79b77a5f

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The Current State of the Compliance and Internal Audit Partnership
by Matt Stankiewicz
SCCE’s

Compliance officers and internal auditors are natural partners and allies in the compliance governance landscape.  As the compliance profession and influence grew, compliance officers often leaned on internal auditors for help in assessing risks, uncovering financial misconduct, and assessing compliance functions and controls.  Recently, however, I have noticed some changes in their relationship, suggesting that they both are maturing and gaining independence from each other.

http://complianceandethics.org/the-current-state-of-the-compliance-and-internal-audit-partnership/

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SEC Chairman Talks Main Street Investors, Foreign Corruption, and Market Issues at the New York Economic Club

My remarks will proceed in three parts.  First, an overview of some of our recent initiatives.  Second, some observations on our efforts to combat offshore corruption, including the undesirable effects of a continuing lack of global coordination and commitment in this area.  And third, a discussion of some of the current market issues we are monitoring.  In addition, because this is the “Economic” Club, and more because I enjoy acknowledging the insights the field of Economics has provided us, I will mention some of the economic tenets and related luminaries we reference from time to time.  For example, when we discuss issues of leverage and capital structure more generally, I will turn to our Chief Economist, S.P. Kothari, and say something like “Miller Modigliani.”  Generally, S.P. smiles back.  I know better than to ask if he’s just humoring me.   

https://www.sec.gov/news/speech/speech-clayton-2019-09-09

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The Whistleblower Whisperer
by Jacob Goldstein
NPR’s Planet Money

Jordan Thomas is one of the top whistleblower lawyers in the country. When people on Wall Street see some kind of financial wrongdoing and want to report it, they can work with him to bring evidence to the SEC anonymously. Tips his clients have brought to the SEC have led to huge cases against some of the biggest banks in the world.

https://www.npr.org/2019/05/29/728001911/episode-916-the-whistleblower-whisperer

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Study Law to Advance Compliance Career?
by Matt Kelly
Radical Compliance

The other day I was speaking with a compliance professional who had taken a few years to pursue other ventures, and is now looking to get back into the field. She’s been having some frustrations with her job search, and asked: Is there a new trend of companies demanding a law degree for compliance work? Would it be wise for her to return to law school for a non-JD program if she wants to resume her career? 

http://www.radicalcompliance.com/2019/09/05/study-law-advance-compliance-career/

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