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Enforcement & Litigation

Below is some of the most recent Compliance Week coverage on issues related to enforcement and litigation. Coverage focuses on developments related to SEC and DoJ enforcement, class action filings, precedent-setting court decisions, and more. Don't forget other Compliance Week resources, including former SEC staffer Bruce Carton's blog, and our weekly update on investigations and probes, and our ongoing list of class action filings and settlements.

SEC to Require Admissions of Wrongdoing in Settlements of Most Egregious Cases

June 19, 2013

SEC Chairman Mary Jo White announced yesterday that the agency is changing its long-standing "neither-admit-nor-deny" settlement policy to require admissions of wrongdoing from defendants in cases involving "egregious intentional misconduct" or "misconduct that harmed large numbers of investors." More details inside.
 

Video: Former KPMG Partner's Frank Interview on Courthouse Steps Should Be Wake Up Call

June 18, 2013

Former KPMG partner Scott London's frank and remorseful interview outside of the federal courthouse in Los Angeles where he was arraigned on insider trading charges should become required viewing at Big 4 compliance training sessions.
 

Internal Investigations Are Moving Out of the Shadows and Into the Spotlight

June 18, 2013

Companies are under increasing pressure to provide more transparency to internal investigations. They find they need to demonstrate that internal problems were handled fairly and completely and that those responsible for the wrongdoing have been disciplined or removed. The days of under-the-radar investigations may be over. "Keeping things under wraps is almost impossible," says Lee Smith, who specializes in internal investigations for the law firm Hinshaw & Culbertson.
 

Ralph Lauren vs. Total: A Tale of Two FCPA Violators

June 18, 2013

When clothing retailer Ralph Lauren Corp. and French oil and gas company Total S.A. recently resolved charges of Foreign Corrupt Practices Act violations, the results couldn't have been any more different. Total was hit with nearly $400 million and saddled with a compliance monitor, while the clothing retailer got a slap on the wrist. Inside, we look at the factors that contributed to such different enforcement outcomes.
 

Amelia Cottrell Promoted to Associate Regional Director for Enforcement in NY

June 17, 2013

The SEC's Amelia Cottrell has been promoted to the position of Associate Regional Director for Enforcement in the agency's New York Regional Office, the position previously held by current Senior Associate Regional Director Sanjay Wadhwa.
 

The Internal Audit Function and Anti-Corruption Compliance

June 14, 2013

Corporations' internal auditors are Increasingly becoming involved in anti-corruption compliance efforts. Yesterday, I moderated a very interesting webcast that examined key issues such as the role of internal audit in anti-corruption compliance risk assessments, internal investigations, and post-enforcement remediation.
 

SEC Official Expects 'Extremely Significant Whistleblower Awards' in Coming Months

June 12, 2013

The wait for the SEC's Whistleblower Office to make a splash may soon be over. A senior official in the Enforcement Division stated recently that he expects to see the SEC bring some "incredibly impactful cases" with significant whistleblower awards in the next six to twelve months. Since the SEC's Whistleblower office opened nearly two years ago, it has paid only one award of just $50,000. More inside.
 

SEC Hammers CBOE for Lacking 'Fundamental Understanding' of Abusive Short Selling

June 11, 2013

The SEC charged the CBOE today with failing to adequately enforce Regulation SHO because CBOE staff never received any formal training and lacked a "fundamental understanding" of the rule.
 

SEC's White Defends 'No Admission' Settlements, But Says Policy Under Review

June 11, 2013

In a letter last week to Sen. Elizabeth Warren (D-Mass.) SEC Chairman Mary Jo White stated that while she believes the SEC's "neither-admit-nor-deny" settlement policy provides public accountability, it is under "active review." White says the SEC is looking at whether it is making "full appropriate use of its leverage in the settlement process."
 

Regulators Intensify Scrutiny of Online Data Privacy Practices

June 11, 2013

Regulators have long taken a reactive approach to data privacy issues related to Websites and mobile apps, generally waiting for an incident, such as a data breach, before taking action. More recently, however, regulators are stepping up regular scrutiny of online data privacy practices. They "have become a lot more proactive in policing these things," says Lynn Percival, an associate with law firm Poyner Spruill.
 

After Monitoring Rakoff-SEC Battle, Ontario Limits 'No-Contest' Settlements

June 07, 2013

After monitoring the growing frustration by U.S. judges on approving "no admit, no deny" SEC settlements, the Ontario Securities Commission limited a proposed new rule that would have allowed such no-contest settlements in its enforcement cases. Institutional shareholders had argued that allowing defendants to settle cases without admitting guilt could lead them to view penalties as the cost of doing business. More inside.
 

Big Four Professionals Face Insider Trading Consequences in U.S., Australia

June 07, 2013

Just ten days but thousands of miles apart, two former Big Four professionals separately found themselves in hot water on insider trading charges.
 

Why Wall Street Could Be Next Up in the FCPA Crosshairs

June 04, 2013

The Justice Department and the SEC may be turning their attention to Wall Street, as their aggressive pursuit of Foreign Corrupt Practices Act violations continues. Some attorneys view criminal charges filed against two employees of broker-dealer Direct Access Partners as a shot across the bow of the financial services industry. "They're always happy to spread into new industries and be creative about how they enforce the FCPA," says Demme Doufekias, a partner with law firm Morrison Foerster.
 

Web Watch: Best of the Week Ending May 31

May 31, 2013

My picks for the most interesting recent columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation, including an FCPA case that goes back to 1995, how to maximize your chances of scoring an FCPA declination, and the need for independent compliance departments.
 

Total S.A. to Pay $398 Million to Resolve Bribery Charges

May 30, 2013

Total S.A. has agreed to settle FCPA charges from the SEC and Justice Department by paying a combined $398 million in disgorgement and penalties, and agreeing to other terms including a deferred prosecution agreement for a term of three years and the retention of an independent corporate compliance monitor.
 

Sen. Warren Asks SEC for Any Research on Benefits of 'No Admission' Settlements

May 30, 2013

Senator Elizabeth Warren asks the SEC to provide her with any research it has done on "trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation as necessary to obtain such admission."
 

Professional SEC Whistleblower Firm Seeks Investors to Finance Investigations

May 29, 2013

The first generation of professional SEC whistleblowers is upon us. Ted Siedle, a former SEC lawyer, now a self-proclaimed industry watchdog, is reportedly seeking to raise about $1.8 million from investors to create an "investment fund to cash in on the agency's new whistleblower program." More details inside.
 

SEC Wraps Up Its 'Golden Goose' Insider Trading Case

May 16, 2013

Yesterday, four and a half years after the SEC filed its complaint in what is now known even by the agency as the "Golden Goose" case, the SEC announced that final settlements were reached with the last remaining defendants in the high-profile matter.
 

SEC Charges 'Imaginary' Cloud Computing Business with Financial Fraud

May 15, 2013

The SEC brings dozens of financial fraud cases each year. In most cases, there is (or was) an underlying business at the company involved and management is simply trying to make it look better than it really is through financial shenanigans. But sometimes the entire business is "imaginary."
 

Don't Be Fooled by the Lull in FCPA Enforcement Actions

May 14, 2013

It has been quiet on the Foreign Corrupt Practices Act front, with the Justice Department and the SEC bringing just three enforcement actions against companies so far in 2013, compared to a combined 19 last year and 48 in 2010. But don't be lulled by that eerie calm; lawyers say it won't be long before regulators are once again piling up FCPA settlements. "All signs indicate that those numbers will shoot back up," says John Davis, a partner at law firm Miller & Chevalier.
 

Harbinger Discloses Settlement With SEC Imposing Two-Year Bar on Philip Falcone

May 10, 2013

In June 2012, the SEC sued hedge fund adviser Philip Falcone and Harbinger Capital for alleged misconduct that it claimed resembled "the final exam in a graduate school course in how to operate a hedge fund unlawfully." This week a settlement was reached that, among other things, would bar Falcone from serving as an investment adviser for two years.
 

SEC's White Testifies Current Budget 'Not Sufficient,' Seeks 26% Increase

May 08, 2013

In her first testimony before Congress as SEC chairman, Mary Jo White made her case for why the SEC's budget should be increased by 26 percent in fiscal year 2014. White testified that the SEC's current budget was not sufficient to permit the SEC to properly enforce the securities laws "in a way that investors deserve and expect."
 

Companies Prepare for Disclosure on Social Media

May 07, 2013

After the SEC clarified that companies can use social media outlets to announce material information, several companies, including Netflix, GE, and AutoNation, filed details with the SEC on their intentions to disclose information on sites such as Twitter and Facebook. Some corporate communication specialists, however, are urging caution. "I think there are some pitfalls," says Laurie Green, a partner with the law firm Holland & Knight. "There are liabilities that go with it."
 

Lessons From SEC's First FCPA Non-Prosecution Agreement

May 07, 2013

Last month the SEC struck a deal with clothing retailer Ralph Lauren Corp. not to prosecute the company for alleged violations of the Foreign Corrupt Practices Act in exchange for the payment of fines and other concessions. Ralph Lauren Corp.'s actions—it conducted a thorough investigation and quickly self-reported the violation—provide new insights on how to win credit from government agencies when allegations of corruption arise. Full details inside.
 

Must-Read: Vanity Fair's 'The Hunt for Steve Cohen'

May 06, 2013

"The Hunt for Steve Cohen" in the June 2013 issue of Vanity Fair is a terrific, in-depth look at the broad investigation conducted by Preet Bharara of the Southern District of New York into insider trading by hedge funds. It shows that while SAC Capital's Steve Cohen has not been named as a defendant in Bharara's massive sweep, Bharara is "getting closer to the biggest fish of them all."
 

SEC Enforcement's David Bergers Leaving Agency After 13 Years

May 02, 2013

The SEC announced today that David P. Bergers, Acting Deputy Director of the SEC's Enforcement Division and Director of the Boston Regional Office, will be leaving the SEC this spring after 13 years with the agency.
 

SAC's Cohen Pledges 'Zero Tolerance' for Insider Trading, Rolls Out Clawbacks

May 02, 2013

After months of being buffeted by news of SAC Capital employees charged with insider trading, the firm's founder, Steve Cohen, who is also the target of an insider-trading investigation, is trying to flip the script a bit. Cohen recently told investors that the firm would increase the compliance staff by 25 percent and institute a clawback program on deferred compensation. More inside.
 

Insider Trading Goes Mainstream, Part II: Bharara as Ahab, Steve Cohen as Moby Dick

May 01, 2013

The June issue of Vanity Fair takes the "Preet-as-pop-icon" movement one step further, with some interesting art that is almost guaranteed to end up on Bharara's office wall. The art for the VF article "The Hunt for Steve Cohen" depicts Bharara as Ahab and SAC Capital's billionaire founder Steve Cohen as Moby Dick.
 

Are All NLRB Rulings Since Early Last Year Invalid?

April 30, 2013

Several companies, including Starbucks, McDonald's, and Time Warner, are contesting the validity of decisions made by the National Labor Relations Board, due to a dispute over the legitimacy of President Obama's recess appointments to the board. An appeals court ruled earlier this year that the appointments weren't legal. As the case heads to the Supreme Court, labor lawyers are urging companies not to discount recent NLRB decisions or to make major changes to labor practices. More inside.
 

U.K. DPAs Could Come With More Strings Attached

April 30, 2013

The British government formally approved the use of deferred prosecution agreements in the United Kingdom last week. While the new prosecutorial tool should help Britain settle more bribery cases, increased judicial involvement in the negotiations are likely to mean stricter terms for companies that enter into them, with fewer guarantees. "The ultimate sanction power will lie with the judge," says Kathleen Harris, a partner in the London office of law firm Arnold Porter.
 

Jon Stewart Rains Down on Congress for Weakening STOCK Act

April 24, 2013

Earlier this month, Congress quietly repealed a key provision of the STOCK Act that applied to roughly 28,000 senior government officials. It was not quiet enough to escape notice by Comedy Central's Jon Stewart, however, who ridiculed Congress last night for weakening the STOCK Act in his standard, hilarious fashion.
 

Ruling Finds Communication With Federal Regulators Not Privileged Information

April 23, 2013

A recent district court ruling could push banks and other companies to be more careful with what they share with regulators, including the information they provide on compliance with certain regulations. A judge ordered Bank of China to provide plaintiffs in a lawsuit with information, including internal-analyses of its compliance systems, proposed actions, and changes to its compliance procedures that generally have been considered privileged in the past. More inside.
 

SEC Names George Canellos and Andrew Ceresney Co-Directors of Enforcement Division

April 22, 2013

The SEC announced that Acting Director of Enforcement George Canellos will serve as a co-director of the Division of Enforcement, along with Andrew Ceresney, a partner at law firm Debevoise & Plimpton, where he worked with new SEC chairman Mary Jo White. It is believed to be the first time the role has been filled with two individuals.
 

Chairman White Reportedly Set On Ceresney as Next Enforcement Director

April 18, 2013

It is still not official, but Reuters is now reporting that Andrew Ceresney, said for over a month to be the leading candidate to follow Robert Khuzami as the SEC's next Director of Enforcement, will in fact be named to that post by Chairman Mary Jo White in the near future.
 

Before You Accept that Envelope Full of Cash In Exchange for Inside Info...

April 12, 2013

Before you accept that envelope stuffed with cash in exchange for inside information about public companies, just remember that sometimes it is a set-up. And the FBI is watching and taking photographs that, in short order, may become "Exhibit A" in the U.S. Attorney's Office criminal complaint against you for securities fraud.
 

Will Compliance Officers' New Favorite Tool Be ... Google Glass?

April 11, 2013

Is Google Glass, a wearable computer that looks like eyeglasses, the answer for compliance officers seeking to reduce the risks associated with rogue traders and other corporate ne'er-do-wells? Some say the device could be used by employers to monitor and record every move their employees make. Cue the privacy debate now.
 

'Sympathetic' Second Circuit Rules Against Madoff Victims in Suit vs. SEC

April 11, 2013

A "sympathetic" Second Circuit nonetheless becomes the second appeals court to rule against Madoff victims seeking to impose liability against the Securities and Exchange Commission for the agency's negligence in handling and investigating the Madoff Ponzi scheme. The Ninth Circuit and at least four lower courts have already ruled against the Madoff victims.
 

Report Shows Sharp Decline in Number of Accounting Class Actions

April 10, 2013

A report on securities class-action filings and settlements shows that the number of new accounting class actions filed in 2012 fell sharply to the lowest level in recent years. Accounting class-action settlements continue to represent a disproportionately high share of total settlement dollars, however. More findings inside.
 

'Rogue' Audit Partner Leads KPMG Resignations

April 09, 2013

Audit firm KPMG has fired one of the top audit partners in its Los Angeles office amid allegations of insider trading, and then resigned from two client companies, Herbalife and Skechers USA, ensnared in the scandal. Both the Justice Department and the Securities and Exchange Commission are now circling.
 

SEC's Social Media Guidance Raises as Many Questions as it Answers

April 09, 2013

Last week the Securities and Exchange Commission approved the use of social media sites such as Facebook and Twitter to make company announcements. While some criticized the agency for taking so long to embrace modern communication technology, others quickly pointed out that the guidance raises lots of new questions on using social media to disclose material information. Details inside.
 

The Corrections: Battle Lines Drawn Over Dodd-Frank Act Fixes

April 09, 2013

After Congressional Republicans failed in repeated attempts to repeal the Dodd-Frank Act completely, they are taking a new tack—looking for smaller fixes—that is finally starting to get some bipartisan support. "The current Congress is more open to making tweaks that need to be made to make the law workable," says Christina Crooks, senior manager of government affairs for Financial Executives International.
 

DOJ Discloses it May Reduce Former Enron CEO Skilling's Prison Sentence

April 05, 2013

The Justice Department disclosed last week that it is considering entering into a sentencing agreement with former Enron CEO Jeffrey Skilling that would reduce his sentence. In 2006, Skilling was convicted on fraud and conspiracy charges related to the fall of Enron and sentenced to 24 years in prison. Details inside.
 

Departing SEC Chair Schapiro Joins Other Former SEC Officials at Promontory Financial

April 02, 2013

Consulting firm Promontory Financial Group is becoming a sanctuary for former SEC chairmen and other senior officials. Most recently, Mary Schapiro, who stepped down last December, joined the firm as a managing director and chairman of its governance and markets practice. See the list of other notable SEC alumni already employed or affiliated with Promontory inside.
 

Legal Departments Struggle With Technology Shifts

April 02, 2013

Cloud-based storage and the ubiquity of smart phones and tablets are pushing legal teams in charge of e-discovery to the limit. Two separate surveys released in March indicate that the legal department is falling behind on managing electronic discovery. The studies also reveal a significant lack of communication and collaboration among legal, IT, records management, and other business units.
 

Lawmakers Demand Information on Cost of SEC's Pursuit of Gabelli Litigation

April 01, 2013

Two members of Congress question the SEC's use of limited resources to pursue the Gabelli appeal, and ask the agency for a full accounting of its hours and dollars spent litigating and appealing the case.
 

DOJ's Breuer Joins Covington & Burling as Vice Chair

March 28, 2013

Lanny A. Breuer, former Assistant AG for the Criminal Division at the DOJ, will be rejoining the law firm of Covington & Burling as Vice Chair of the firm. While ethics rules prohibit Breuer from entering an appearance in any DOJ matter for a client for two years, he may still counsel clients on DOJ matters "from behind the scenes."
 

DOJ and SEC Allege $27 Million Insider Trading Scheme

March 27, 2013

The DOJ and SEC alleged yesterday that inside information leaked by a former executive at Foundry Networks Inc. led to a $27 million insider trading scheme.
 

How to Make SEC Enforcement of Private Equity More Interesting

March 22, 2013

Usually the most "exciting" bit of promotion you see out of lawyers practicing in the SEC enforcement area is to author a client memo or article breaking down some new development. This slick video by WilmerHale's Jonathan Shapiro discussing a likely ramp-up by the SEC of private equity may signal a new type of thought leadership.
 

Former CalPERS CEO Indicted for Fraud, False Statements

March 19, 2013

Former CalPERS CEO Federico Buenrostro and a friend were indicted yesterday for a scheme that allegedly involved fabricating investor disclosure letters to help secure at least $14 million in fees for the friend's placement agent firm.
 

Export Control Overhaul Begins; Manufacturers Rejoice, Cautiously

March 19, 2013

The Obama Administration has begun its long-awaited reform of the country's export control system. Gone will be the current system's archaic rules, in favor of a more risk-based system focused on end products. "The practical effect will be that we'll be able to focus our resources on controlling the most important national security technologies," says Kathryn Greaney, head of global trade controls at Boeing.
 
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