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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 Launch Cybersecurity Exams of Investment Firms, Offers Sample Document Requests

April 18, 2014

On April 15, 2014, the SEC's Office of Compliance Inspections and Examinations quietly disclosed its examination module pertaining to cybersecurity. The disclosure came in the form of a Risk Alert which noted that OCIE will be conducting examinations of more than 50 registered broker-dealers and registered investment advisers.

SEC Charges Two Audit Committee Chairs for Blind Eye

April 17, 2014

The Securities and Exchange Commission recently delivered enforcement actions to two audit committee chairs, a rare enforcement target, accusing both of failing to act on obvious red flags of fraudulent accounting and financial reporting. The cases involve two China companies, AgFeed Industries and L&L Energy, where the SEC says audit committee chairs continued to oversee the filing of financial statements they knew were faulty. More inside.

In Praise of FCPA Opinion Releases

April 15, 2014

When dealing with the Foreign Corrupt Practices Act, that old idea that it's better to ask for forgiveness than permission doesn't work well. What does work well is the Justice Department's opinion release process, which gives companies views on whether specific actions would violate the law. Inside, columnist Thomas Fox looks at some of the latest opinion releases and concludes that the Justice Department responds to well-reasoned arguments better than many might think.

SEC Employee's Goodbye Party Leads to More than Cake and Farewells

April 11, 2014

Somehow, James Kidney's SEC goodbye party departed from standard employee party protocol into an SEC-bashing session eagerly jumped on by the national media. Is the incident suggestive of poor morale at the regulator? More details inside.

SEC Adds Two New Defendants to the Familial Betrayal Tree

April 10, 2014

On March 31, 2014, the SEC brought two unrelated cases that they announced together because of a common denominator we have tracked here for several years: familial betrayal.

Justice Department Uses Wire Fraud to Pursue Product Safety Case

April 08, 2014

The Department of Justice is in hot pursuit of product safety cases, and if the record $1.2 billion settlement it reached with Toyota last month is any indication, General Motors—which is facing its own product safety investigation—could be in for an unwelcome surprise. "It signals that the government will use every means at its disposal to go after what it perceives to be harmful conduct," says Maureen Ruane, a partner with law firm Lowenstein Sandler.

Why Law Firms Are a Breeding Ground for Insider Trading

April 08, 2014

There have been a spate of insider-trading cases against individuals who work at law firms and gain access to information about pending corporate mergers and transactions. And it's not always lawyers who are working on the sensitive cases and deals, but others who gain access to the firms' computer systems. Inside, columnist Bruce Carton looks at the vulnerability of law firms to insider-trading scams and why they need to bulk up their data security practices.

Award Payment to SEC's First-Ever Whistleblower Quadruples

April 07, 2014

Last week the Securities and Exchange Commission quadrupled its first-ever whistleblower award under the Dodd-Frank Act with an additional $150,000 payment to the anonymous informer. The SEC says it is making the additional payment to the whistleblower, who first received $50,000 in 2012, after collecting an additional $500,000 from a defendant involved in the case. More details inside.

SEC Chair White Testifies for FY 2015 Budget, Details Enforcement Initiatives

April 02, 2014

SEC Chairman Mary Jo White called on Congress to provide the agency with the $1.7 billion in funding outlined in President Obama's fiscal year 2015 budget. White explained in testimony that the funds would allow the SEC to hire an additional 639 new staffers and enhance IT. She also laid out a list of initiatives in the enforcement area, including the need to "keep pace with today's high-tech, high-speed markets." More inside.

Delaware Court Ruling Keeps Liability in Place for Deal Advisers

April 01, 2014

The Delaware Chancery Court ruled in a recent case that the protections that shield directors from personal liability in breaches of fiduciary duty do not extend to third-party consultants. The decision could open the door to more liability for deal advisers. "I think you're going to see financial advisers being named as defendants in these lawsuits far more often," says Jason Halper, a partner with law firm Cadwalader.

Nation's Top Energy Regulator Keeping a Close Eye on Wall Street

April 01, 2014

The Federal Energy Regulatory Commission is looking as much these days at certain financial instruments as the physical energy commodities it has traditionally regulated. The agency even struck a deal with the Commodities Futures Trading Commission to cooperate more on regulation. "We are going to see FERC stepping up its enforcement powers to be a little more feared, not only in the energy community, but in financial communities as well," says Felix Shipkevich, a principal at law firm Shipkevich.

60 Minutes: How High-Frequency Traders Have 'Rigged' the U.S. Stock Market

March 31, 2014

Last night on CBS' 60 Minutes, Steve Kroft interviewed author Michael Lewis. Lewis' new book, "Flash Boys," looks at the subject of high-frequency trading, and presents Lewis' conclusion that the U.S. stock market is "rigged."

SEC Charges Company and Founder With False Disclosures on Existence of CFO

March 28, 2014

The SEC announced fraud charges today against L&L Energy Inc., which operates out of China and Taiwan, and its founder for making numerous false disclosures, including a misrepresentation that the company had a CFO at all.

Please Join Me at the 'West Coast SEC Directors Roundtable' -- May 8 in San Francisco

March 25, 2014

Please join me in San Francisco on Thursday, May 8, 2014, where I will be hosting an historic "West Coast SEC Directors Roundtable." The event will feature a panel of six current and former Directors from the SEC's San Francisco and Los Angeles Regional Offices.

Madoff Staff Roundup: Jury Convicts All Five Defendants on All 31 Counts

March 25, 2014

After four days of deliberations, the 11-person jury hearing the marathon criminal trial against five former members Bernard Madoff's staff returned its unanimous verdict, finding all five defendants guilty on all of the 31 combined counts. Here are the key facts you need to know.

Some Questioning if DPAs Will Work in the United Kingdom

March 25, 2014

It's almost four years since Britain passed one of the world's toughest anti-bribery and corruption laws, but its main enforcement body, the Serious Fraud Office, has struggled to bring any major cases. The move to adopt deferred-prosecution agreements could change that, but some remain unconvinced. "Without believing that jail sentences are a real possibility, companies won't see the benefits of volunteering their cooperation," says Andrew Durant, a senior managing director at FTI Consulting.

Juror No. 6 in Madoff Staff Trial Goes Down After One Day of Deliberations

March 21, 2014

However bad your week is going, I'm betting it is still going better than that of Juror No. 6 in the marathon criminal trial of five former associates of Bernard Madoff. After devoting 6 months to hearing the evidence, Juror No. 6 fell ill on day two of jury deliberations and had to be removed from the case.

SEC Says Insider Ring Ate Napkins, Created Phony Documents to Hide Scheme

March 19, 2014

The SEC alleges that the defendants engaged in several maneuvers in an effort to avoid being caught and to avoid liability if they were caught, including eating napkins and creating bogus research and emails.

Six Months Later, Case Against Madoff Staff Finally Reaches the Jury

March 18, 2014

The longest criminal trial in the history of the Southern District of New York has finally reached the jury. On Monday, jurors in the case against five former associates of Bernard Madoff began weighing the evidence following closing arguments in a record six-month trial.

Trade Sanction Enforcement on the Rise

March 18, 2014

As the U.S government considers more trade sanctions against Russia for its actions during the crisis in Ukraine, companies are putting their trade sanction compliance programs in order since enforcement actions are on the rise. The Office of Foreign Assets Control, which is responsible for enforcing violations, brought 27 enforcement actions in 2013, up from 16 in 2012. More inside.

Court Decision Could Advance Compliance at Private Companies

March 18, 2014

A U.S. Supreme Court decision earlier this month has expanded whistleblower protections under the Sarbanes-Oxley Act to private companies that contract with public companies. The ruling could force many private companies to adopt compliance policies for investigating and handling whistleblower complaints. "Private companies might have felt like they had a free pass in the past," says Randy Stephens, vice president of advisory services for NAVEX Global. "This decision clearly ends that misconception."

Facilitation Payments: Bribery or Business as Usual?

March 18, 2014

Companies still struggle mightily when crafting policies that address the use of facilitation payments. Although the payments are exempt from Foreign Corrupt Practices Act enforcement, that doesn't mean they are completely legal. Inside, columnist Thomas Fox examines the laws and legal decisions that apply to facilitation payments and finds plenty of reasons why companies might want to steer clear of them completely.

SEC Strikes Again at S.A.C. Capital Affiliate With New Insider Trading Case

March 13, 2014

Almost exactly one year after the SEC announced a record $600 million insider trading settlement with hedge fund advisory firm CR Intrinsic Investors, it announced a new, unrelated insider trading case and settlement against a former analyst at the S.A.C. Capital affiliate.

Jury Returns Mixed Verdict in SEC's Twelfth Trial in FY 2014

March 12, 2014

After a mixed verdict in SEC v. Jacobs, the SEC's scorecard in FY 2014 now includes 12 completed trials. In those 10 cases, the SEC has three outright victories (in which it won on all of its claims), five losses (in which it lost on all of its claims), and four mixed verdicts (in which it won on some claims and lost on others).

SEC Sues Five From Dewey & LeBoeuf for Allegedly Fraudulent Bond Offering

March 07, 2014

On top of criminal charges brought by the Manhattan D.A. yesterday, the SEC announced its own case against five defendants from collapsed law firm Dewey & LeBoeuf LLP. The SEC alleged that the defendants resorted to a "grab bag of accounting gimmicks" to artificially inflate the firm's income and distort financial performance in advance of a bond offering.

Deutsche Bank Global Head of Compliance Joins Herbert Smith Freehills

March 06, 2014

Andrew Procter, former global head of compliance, government and regulatory affairs at Deutsche Bank, will join the law firm of Herbert Smith Freehills as a partner in the firm's global financial services regulatory practice in June. Details inside.

Compliance Lessons From Doug Cornelius' Dog

March 06, 2014

Usually when the headline to a post reads something like, "What Tibetan Goatherders Can Teach us About Lawyering," the true answer is -- nothing. Bucking this trend, however, is compliance guru Doug Cornelius' Great Dane, Ghost, who actually does dispense some wisdom in Cornelius' post today entitled, "Compliance Lessons From My Dog."

President Requests SEC Budget of $1.7B for FY 2015, But Will Congress Go Along?

March 05, 2014

Yesterday, President Barack Obama proposed a fiscal year 2015 budget of $1.7 billion for the Securities and Exchange Commission--a 26% increase over the agency's FY 2014 budget. The fact that the president is seeking $1.7 billion for the SEC is hardly the end of the agency's budget story for FY 2015, however.

FTC Bolsters Enforcement of EU-U.S. Safe Harbor Framework

March 04, 2014

The Federal Trade Commission is cracking down on companies that falsely certify compliance with the United States and EU safe harbor framework on data protection. In the first six weeks of 2014, the FTC entered into 13 settlements to resolve violations where companies falsely claimed compliance with the safe harbor, compared to none last year. More details inside.

Justice Department, HHS Recover Record $4.3 Billion for Healthcare Fraud

March 03, 2014

The Department of Justice and the Department of Health and Human Services recovered a record $4.3 billion in fiscal year 2013, resulting from joint enforcement efforts to combat healthcare-related fraud and abuse, surpassing the previous year's record of $4.2 billion, according to a recent government report. The agencies also obtained records in the numbers of new cases, charges, guilty pleas, and jury convictions reached. Details inside.

FINRA Fines Suffered a Double-Digit Drop in 2013

March 03, 2014

While the SEC and other government regulators hit companies with record fines in 2013, the self-regulatory organization Financial Industry Regulatory Authority doled out smaller fines and penalties to financial firms last year. Although fines declined by an average of 27 percent, FINRA filed roughly the same number of disciplinary actions in 2013 as it did the year before. More inside.

Morgan Stanley Discloses Tentative $275 Million SEC Settlement

February 26, 2014

In its Form 10-K filed yesterday, Morgan Stanley disclosed that it has reached a tentative agreement to pay $275 million to resolve an SEC investigation into subprime RMBS transactions the firm sponsored and underwrote in 2007. The disclosure appears to signal the end of Morgan Stanley's distinction of being the only major bank to avoid paying a fine to the U.S. government related to its conduct leading up to the financial crisis.

Are You a "Rat Trader?"

February 24, 2014

Are you a "rat trader?" Probably not, but if that phrase is new to you (as it was to me until today), allow me to enlighten you.

Mark Cuban "Wearing a Hoodie and Tweeting Up a Storm" at SEC Speaks

February 21, 2014

Mark Cuban is still in D.C. today, and has surfaced at the annual SEC Speaks conference "wearing a hoodie and tweeting up a storm!"

SEC's Binger Named Director of Philadelphia Regional Office

February 21, 2014

The SEC has named Sharon B. Binger as the new director of its Philadelphia Regional Office. Binger fills the vacancy created in October 2013, when Dan Hawke stepped down as director to focus on leading the Enforcement Division's Market Abuse Unit.

Second Circuit Gives SEC Powerful Weapon to Help Deter Insider Trading

February 19, 2014

The U.S. Court of Appeals for the Second Circuit has issued a ruling that will give the Securities and Exchange Commission an additional weapon in efforts to deter insider trading. It argued that a fraudster should be compelled to return not their own profits, but also those bestowed unto others.

Valentines Day Quarrel: SEC Union Fights for Right to Receive Flowers at Work

February 14, 2014

As I have noted here before, attorneys in the SEC are actually part of a union--National Treasury Employees Union Chapter 293. The latest dust-up at Chapter 293, which has appropriately surfaced on Valentines Day, concerns the rights of SEC employees to receive flowers at work.

Quan Jury Delivers Mixed Verdict But SEC Prevails on Key Fraud Claims

February 13, 2014

A jury's mixed verdict in the SEC's case against fund manager Marlon Quan had both the SEC and Quan declaring victory yesterday, although the SEC seems to have gotten the better of it.

SEC's Canellos Re-Joining Milbank, Tweed as Global Head of Litigation

February 12, 2014

On January 3, 2014, the SEC announced that George S. Canellos, co-director of its Enforcement Division, would be leaving the agency that month but that he had "not yet made future career plans." Today, Canellos' post-government plans were revealed: a return to law firm Milbank, Tweed as Global Head of the firm's Litigation Department.

More Making Third-Party Anti-Corruption Training a Must

February 11, 2014

Companies such as Microsoft, Cisco, and BT Group are becoming more insistent that third parties they do business with provide their employees with anti-corruption training, making it a condition of doing business with them. And they want more say in exactly how that training is conducted. "I expect to see it more and more as a best practice," says Randy Stephens, vice president at Navex Global.

Martomo Roundup: SAC Trader Convicted on Two Counts of Securities Fraud, One Count of Conspiracy

February 07, 2014

Yesterday, a federal jury in Manhattan found Matthew Martomo, a former trader at SAC Capital, guilty on two counts of securities fraud and one count of conspiracy related to an insider trading scheme. Here are the key facts you need to know.

ASIC Takes to YouTube to Defend Decision Not to Pursue Insider Trading Charges in David Jones Case

February 05, 2014

Down Under, Australia's primary securities regulator has begun using its YouTube channel to get the agency's message out about its decisions in cases such as the high-profile David Jones insider trading inquiry in which it declined to take action.

DOJ Prosecutor Patrick Stokes Selected to Head FCPA Unit

February 04, 2014

Patrick Stokes, previously the co-head of the Securities and Financial Fraud unit of the Department of Justice's Fraud Section, has been named as the new Chief of the DOJ's Foreign Corrupt Practices Act unit. Stokes succeeds Chuck Duross, who left the DOJ on January 24.

Cash-Strapped SFO Makes Urgent Request to Treasury for £19M

January 30, 2014

Britain's cash-strapped Serious Fraud Office applied to the U.K. Treasury last week for £19 million ($31 million) to meet cash requirements on existing services and to settle material liabilities. The SFO told the Treasury that the funds are necessary to investigate and prosecute three large, resource-intensive cases, including a criminal investigation into alleged bribery by Rolls-Royce. More inside.

Why CFO is the 'The Most Dangerous Job in Corporate America'

January 29, 2014

Yesterday I moderated an interesting webcast focused on the significant liability risks facing CFOs--risks which, according to the webcasts's panel, add up to make the CFO position "the most dangerous job in Corporate America."

SEC's 'NEAT' Tool Sifts Massive Quantities of Trade Data to Flag Insider Trading

January 28, 2014

In a speech delivered yesterday at the 41st Annual Securities Regulation Institute in Coronado, California, SEC Chair Mary Jo White announced that a "revolutionary" new tool for identifying insider trading by investment firms will be rolled out in 2014.

Huge Fines, Record Whistleblowers Mark 2013 FCA Enforcement

January 28, 2014

The Justice Department collected $3.8 billion in settlements and judgments from cases that involve the False Claims Act last year, including a $2.2 settlement with Johnson & Johnson. And with a backlog of cases already building and the Justice Department looking at other industries outside of drug makers and federal contractors, 2014 will be another busy year in FCA enforcement. Full details inside.

SEC Subpoena Enforcement for Documents and Testimony Results in Rare Arrest

January 23, 2014

It is a long and rarely-traveled road between receiving a subpoena for documents or testimony from the SEC and actually getting yourself arrested, but Anthony Coronati completed the journey down that road today when he was arrested by the U.S. Marshals Service.

Abandoned 'Corp Law Blog' Now a Link Farm for Narcotics Addiction Recovery Website

January 23, 2014

The website for Corp Law Blog (, a former member of corporate and securities blog royalty, has sadly been turned into some kind of a odd link farm for a narcotics addiction recovery website.

Rash of Recent Settlements Indicate FCPA Enforcement Trends

January 22, 2014

The Department of Justice and the Securities and Exchange Commission have settled a raft of Foreign Corrupt Practices Act cases in recent months, including agreements with Alcoa, Diebold, and Weatherford International. The cases point to some important trends in FCPA enforcement: expanded cross-border cooperation and prosecutions, the emergence of the hybrid corporate monitor, and a surge in FCPA fines and penalties. Details inside.
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