Tag: Bruce Carton

Your Compliance Program and Enforcement

compliance-week-dark-blue

This session at Compliance Week Conference 2009 was another “dark session” so I am not sharing detailed notes, merely a perspective on some issues that were presented. John Roth, an Assistant U.S. Attorney in the Fraud and Corruption Section shared his insights and Bruce Carton did his best Phil Donahue impression by eliciting questions from the audience.

There was a big turnout for this session. The organizers were only expecting 20-30 and ended up with over 100. Anything said by Mr. Roth was his opinion alone and not necessarily those of his office or the Attorney General.

One item was the difference between the Principles of Prosecution in the U.S. Attorney General’s Handbook and the Federal Sentencing Guidelines. The Guidelines only come into play once the organization has been indicted and convicted. The Principles of Prosecution help the Attorney General’s Office decide whether to prosecute in the first place. The Guidelines are a product of compromise between the Attorney General, the defense bar and federal judges. At this point they have also been made discretionary instead of mandatory. It seems that compliance programs should be more focused on the Principles of Prosecution instead of the Federal Sentencing Guidelines.

There was much discussion that it is much easier to identify a bad compliance program (or no compliance program) than a good compliance program. Much of the learning comes from failures of compliance programs instead of the successes.

Prosecution success causes more prosecution in those areas. FCPA prosecutions are increasing because they are being successful. We can expect to see more. The were rumors that the FBI has formed a squad to focus on FCPA criminal investigations.

Re-Post – Web 2.0: Leveraging New Media to Maximize Your Securities & Compliance Practice

On February 17, 2009, Securities Docket is sponsoring a webcast that will look at the numerous ways that securities and compliance counsel and professionals can now use web 2.0 to promote, market, and network themselves, their practices and their firms as never before.

Please join Bruce Carton, Editor of Securities Docket, and me for a webcast that will discuss the best new tools and strategies available to securities and compliance counsel and professionals.

twitter_logoWe will also be monitoring Twitter before, during and after the webcast for questions and comments using the #SecuritiesD hashtag.

To attend this webcast scheduled for February 17, at 2 pm Eastern, please sign up on the Securities Docket website.

Web 2.0 – Leveraging New Media to Maximize Your Securities & Compliance Practice

On February 17, 2009, Securities Docket is sponsoring a webcast that will look at the numerous ways that securities and compliance counsel and professionals can now use web 2.0 to promote, market, and network themselves, their practices and their firms as never before.

Please join Bruce Carton, Editor of Securities Docket, and me for a webcast that will discuss the best new tools and strategies available to securities and compliance counsel and professionals, including:

  • RSS;
  • Social Media, such as Twitter, LinkedIn, and Facebook;
  • Blogs;
  • and much more.

To attend this webcast scheduled for February 17, at 2 pm Eastern, please sign up on the Securities Docket website.

Draft SEC Filings Can Be Protected From Discovery

In a January 9, 2009 order, Magistrate Judge Morton Denlow of the US District Court for the Northern District of Illinois ruled that Aon was not required to produce an email seeking comments on draft disclosure language for Aon’s Form 10-K because it was protected by the attorney-client privilege. Magistrate’s Opinion and Order in Roth v. Aon

The ruling is part of a securities class action suit against Aon. The plaintiffs were seeking an email with with a draft portion of Aon’s 10-K. In rejecting the plaintiff’s request, Judge Denlow recognized that the process of preparing SEC filings involves legal judgments throughout, even where the disclosure in question concerns operational rather than legal matters. Judge Denlow lays out the eight prong test for attorney-client privilege:

“(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.”

Judge Denlow goes on to point out that the inclusion of non-lawyers as recipients of the email did not waive the attorney-client privilege so long as all other recipients were employees of Aon.

Judge Denlow also rejected the argument that because the final 10-k was a public document that drafts should not subject to the privilege.

A key take-away is that communications to be protected by the attorney-client privilege must only be exchanged among in-house or outside counsel and company employees. Including outsiders, such as the company’s auditors or other consultants, as recipients could waive the privilege. You should also label these drafts as preliminary drafts and as confidential attorney/client privilege.

Although this ruling is based on SEC filings, you should be able to apply the same analysis to private placement memorandum and other documents related to private investment fund-raising.

See also:

SEC Internet Enforcement

In the December Issue of Compliance Week, Bruce Carton tells some of the history of the SEC’s enforcement history.  One of the first internet efforts was an email address for the public to send tips. Back in 1996 there were about 20 complaints a day. Now there as many as 10,000 a day.

With all the complaining about the SEC, it is important to note that the SEC cannot uncover every violation or financial scam out there. How do you deal with 10,000 emails a day? Clearly the SEC missed some things in its Madoff investigations.  Maybe they were a little soft on him given his reputation. Given that he convinced so many smart, rich people money, I assume he his very persuasive.

You have an under-manned agency looking at a charming man with a great reputation. There are lots of other bad guys out there. You move on and look for more problems.

The 2008 Year in Review from Securities Docket

This panel joined Securities Docket’s Bruce Carton to look back at the most important and interesting developments in 2008, and offer their predictions for 2009.

Kevin started off noting that the number of securities class action lawsuits in 2008 is a 33% increase over last year and the highest since 2004. He sees the increase as a result of the credit crisis, starting with the sub-prime loan programs and them spreading.

Kevin predicted that 2009 will see even more securities class action lawsuits.

Tom focused on SEC enforcement actions. He started with the Siemens FCPA case. He then mentioned the Faro Technologies case involving payments in China (Admin File No. 3-13059, June 5, 2008). Last he mentioned the UnitedHealth Group option back-dating case. Of course the big case is the Madoff scandal.

Tom expects to see a big re-shaping of the SEC and its enforcement division.

Francine looked at auditor litigation. Either the public accountants fell down while acting as the watchdogs against fraud on the public or that it is that they were also duped by management. The Big 4 has escaped sub-prime exposure so far but will likely get hit in Madoff. She sees BDO Seidman as having significant exposure from the Banco Espiritu Santo judgment. All of the Big 4 are subject to wage/overtime suits. Deloitte has sued their former vice chairman for insider trading.

Francine predicts that a Big 4 firm will take a significant hit for failing to make a “going concern” opinion prior to a big failure.

Walter sees the federal government’s bailout amplifying the effect of the financial markets meltdown. This was not just a Wall Street problem; it is now a taxpayer problem. Walter also expects to see more criminal prosecutions against individuals. He points out that the cutting edge risk methods blew up. CDSs and CDOs caused explosive damage. Also low-tech methods failed. The personal relationships of Madoff still failed investors. peopel are looking for lessons as to whether more regulations would have prevented the financial meltdown.

Walter predicts another AAA rated firm will have its executives indicted or be revealed as insolvent.

Bruce sees the Madoff case as the biggest development in 2008. He also sees the SEC getting worked over by Congress. The SEC admitted that they ignored credible evidence about Madoff.

Bruce predicts 90% of big law firms will begin to use Twitter for public relations.

A public vote found that Tom’s prediction was most likely to happen (41%) with Kevin following close behind (40%).