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 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.
 

Wall Street Journal Reports Its Own Bribery Investigation

March 17, 2013

The Wall Street Journal reported over the weekend that the Justice Department investigated the paper last year for possible violations of the Foreign Corrupt Practices Act in China—one of the more memorable examples of self-disclosure in FCPA lore. No incidents of bribery are believed to have been found, but the rumor was the latest in a line of bribery-related headaches for News Corp. and CEO Rupert Murdoch.
 

SEC Announces Record $600 Million Insider Trading Settlement

March 15, 2013

The SEC's $600 million settlement with CR Intrinsic Investors, an affiliate of S.A.C. Capital Advisors, is the largest ever in an insider trading case. More details inside.
 

Supreme Court Rulings a Mixed Bag for Companies

March 12, 2013

The U.S. Supreme Court issued a pair of decisions last month with implications on corporate compliance: one could make it easier for shareholders to bring securities class-action lawsuits, the other could put more pressure on the Securities and Exchange Commission to move quicker on fraud and corruption investigations. Details inside.
 

SEC Brings Second-Ever Case Against a State for Public Pension Disclosures

March 11, 2013

Today's case charging Illinois with misleading municipal bond investors about the state's approach to funding its pension obligations is just the second of its kind, but probably will not ruffle too many feathers in the Land of Lincoln.
 

A Refreshing Perspective on the Revolving Door Issue

March 08, 2013

With a never-ending supply of cynicism and conspiracy theorists out there on the subject of the SEC, it is always refreshing and a bit surprising to come across commentary from other perspectives -- such as Prof. David Zaring's take on Mary Jo White and the "revolving door" issue.
 

Study Shows Even Greater Levels of M&A Litigation in 2012

March 07, 2013

Considering a merger or acquisition? Prepare for shareholder class-action litigation to follow the deal. Shareholder lawsuits accompanied 93 percent of proposed acquisitions valued at more than $100 million in 2012 and 95 percent of deals over $500 million, according to analysis by Cornerstone Research. The majority of such lawsuits (64 percent) were settled shortly after they were filed.
 

An FCPA Scholarship Smorgasbord

March 05, 2013

Check out the 14 free papers included in Volume 73 of the Ohio State Law Journal, which one FCPA expert says "likely represents the most extensive collection of FCPA scholarship between two covers."
 

Wal-Mart's $604,000 Per Day Legal Mess

March 01, 2013

Question of the Day: In its FY 2013, what did Wal-Mart pay an average of $604,000 in professional fees and expenses on per working day?
 

People Need to Stop Selling Earnings Info to Undercover FBI Agents

February 28, 2013

I thought it had been pretty well-established in the Bonnie Hoxie/Yonni Sebbag case in 2011 that selling stolen, pre-release earnings report information about a company was a foolish, "Go Directly to Jail"-type of offense. I guess not.
 

Rajat Gupta Ordered to Repay 'Victim' Goldman Sachs $6.2 Million in Legal Fees

February 26, 2013

In a ruling handed down yesterday, ever-present U.S. District Court Judge Jed Rakoff ordered former Goldman Sachs board member Rajat Gupta to pay Goldman $6.218 million in restitution under the Mandatory Restitution Act of 1996. The court allowed Goldman to recover $6.218 million it paid in legal fees related to Gupta's criminal insider trading case.
 

Satyam Shareholders in India Have No Recourse, No Recovery

February 25, 2013

In the U.S., Satyam shareholders were able to secure a $125 million settlement with the company in the wake of the fraud coming to light. Indian shareholders have had no such luck, however, and their prospects for any future recovery are bleak.
 

Web Watch: Best of the Week Ending February 22

February 22, 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 interesting takes on executive compensation litigation, Mary Jo White's possible conflict of interest and why local employees appreciate anti-bribery policies.
 

Shareholders Score Massive Settlement in Merck/Schering Class Action

February 21, 2013

Shareholders of Merck, Schering-Plough, and the now combined company agreed to a $688 million settlement to resolve charges the two companies hid material information about the effectiveness of their cholesterol drugs. The settlement ranks among the top 15 largest securities class-action settlements for cases filed since the passage of the Private Securities Litigation Reform Act of 1995.
 

U.S. Chamber of Commerce Pushes for Further FCPA Clarity and Reforms

February 20, 2013

The U.S. Chamber of Commerce and a fleet of smaller business groups have picked up the call to reform the Foreign Corrupt Practices Act yet again, sending a letter to enforcement chiefs at both the SEC and the Justice Department that praised their recent FCPA guidance but also listed numerous areas where compliance departments are still "left guessing."
 

Sen. Warren to Financial Regulators: 'How Tough Are You?'

February 15, 2013

Yesterday, in her first hearing as a member of the Senate Banking Committee, Sen. Elizabeth Warren asked the nation's seven top financial regulators to discuss the last time they'd actually taken a big Wall Street bank to trial. Not one of the regulators present responded with an example.
 

SEC Chair Walter Tells Senate Budget Cuts Won't Cut It in FY 2013

February 14, 2013

"Sequestration" at federal agencies, including the SEC, is scheduled to result in significant budget cuts on March 1. Today, SEC Chair Elisse B. Walter told legislators that the agency needs more resources, not fewer, to properly implement Dodd-Frank.
 

Shareholder Lawsuits Push for More Pay Disclosure

February 12, 2013

Shareholder are pushing for more executive compensation disclosure with lawsuits that contend companies aren't providing enough information for investors to make sound decisions about executive pay. Some see them as a tactic by plaintiffs' attorneys to force companies into pricey settlements. They're "putting virtually no time into researching the merits of their claims," asserts Michael Melbinger, partner at law firm Winston & Strawn.
 
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