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.

Dealing With JV Compliance Takes Varsity Skills

February 22, 2012

A recent Justice Department FCPA settlement against a participant in an energy joint venture in Nigeria is yet another reminder of how challenging ethics and compliance can be in such arrangements. "The average JV hasn't been around a long time. It probably doesn't have a compliance officer; it doesn't have a lot of processes," says lawyer Jeff Kaplan. A close look at how to establish strong conduct at "JVs" is inside.
 

Delaware Court to Rule on Exclusive-Forum Bylaws

February 22, 2012

Investor activists are waging a courtroom battle this spring against scores of companies that have adopted bylaws designating Delaware as the exclusive legal forum for deciding shareholder litigation. If the Delaware Chancery Court upholds such "forum bylaws," expect more companies to follow suit, says Steven Haas, a lawyer with law firm Hunton & Williams.
 

Dateline Reykjavik: Supreme Court Upholds Iceland's First-Ever Insider Trading Conviction

February 17, 2012

Iceland's Supreme Court upholds a lower court ruling that found the former permanent secretary at Iceland's finance ministry guilty of insider trading, the country's first such conviction.
 

Brit Regulator Who Warned Cos. 'Be Frightened' Takes Her Leave

February 15, 2012

Margaret Cole, head of enforcement at Britain's Financial Services Authority, who steered the FSA from its famed "light touch" approach to regulation to warning companies they should "be frightened" of stronger enforcement, has decided to leave the FSA after seven years at the top.
 

President Proposes Over $1.5 Billion SEC Budget for FY2013, But House Likely to Resist

February 14, 2012

The Obama Administration proposed a $1.566 billion budget for the SEC for fiscal year 2013, which would increase the agency's appropriation by 19 percent from the current year. The increase would cover plans to hire an additional 191 staffers. Whether Congress will approve that is a different story.
 

FTC Scrutinizing Information-Sharing Agreements

February 14, 2012

A recent FTC enforcement action against three businesses for collusion via an industry trade association is sounding alarm bells, since the practice is so common. A consent decree with one of the businesses even overturns established safe-harbor practices. "This should be of interest to any company involved in competitor information exchanges," says Kathryn Fenton of law firm Jones Day.
 

If the SEC Forces Companies to Admit Guilt ...

February 14, 2012

The SEC has been under pressure for a while to change its policy of allowing defendants to settle charges without admitting guilt, and now a court could force its hand on the issue. A policy change would have dire consequences for companies, since it would set up a difficult decision to admit guilt or to fight lengthy court battles with the SEC. More details inside.
 

Stressed-Out Compliance Officers May Soon Feel Even More Heat From SEC

February 08, 2012

In recent speeches, SEC officials have suggested that they may scrutinize compliance programs at investment firms more closely and may bring more enforcement actions against compliance officers. The question, left unresolved by a recent case, is whether compliance officers can be considered "supervisors," which opens them to litigation.
 

Senate Passes STOCK Act, House Will Consider Bill Next Week

February 03, 2012

Last week, the Senate voted in favor of its version of the STOCK Act, which bans members of Congress and their staff from trading securities based on information gleaned from the legislative process. The House of Representatives, where the measure is less popular, is expected to take up the issue this week.
 

SEC Rolls Out First iPhone App

February 02, 2012

Last week the SEC quietly rolled out its first iPhone app. The app is basic, but for an agency that has often lagged behind in technology and social media, it is a step in the right direction. The app offers quick access to SEC news, upcoming events, and contact to the public affairs office.
 

Carlyle IPO to Test Mandatory Arbitration in Shareholder Disputes

January 31, 2012

The private equity firm Carlyle is testing the bounds of shareholder rights, with a proposal in its upcoming IPO to require arbitration (rather than class-action lawsuits) to settle shareholder disputes. The SEC has yet to rule on that idea, but battle lines are already emerging. "The benefit of arbitration is improving the efficiency of the process," says Douglas Smith, a partner at law firm Gibson Dunn.
 

Web Watch: Best of the Week Ending January 27

January 27, 2012

My picks for this week's most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation.
 

Pharma Rang Up Record FCA Fines in 2011; 2012 Will Be Worse

January 24, 2012

No rest for compliance officers at government contractors: 2011 saw a record-setting $2.8 billion in penalties for the False Claims Act last year, with 2012 looking no better. Already GlaxoSmithKline is edging toward a $3 billion settlement, and industry totals this year could hit $9 billion. Among the violations that can snare drug companies is failure to return Medicare overpayments on time. More details inside.
 

Must-Read: WSJ on 'The FBI Agent Who Flips Insider-Trading Witnesses'

January 20, 2012

Meet David Makol, the FBI's go-to guy for "flipping" suspects in insider trading investigations.
 

Stanford/Cornerstone Reports Breaks Down 2011 Securities Class Actions

January 19, 2012

A report issued by the Stanford Law School Securities Class Action Clearinghouse offers a number of interesting findings about securities class action filings in 2011, including a surge in litigation against Chinese issuers and a sizable fraction of lawsuits stemming from merger and acquisition transactions. CW legal blogger Bruce Carton has more inside.
 

Can Whistleblower Retaliation Lead to Racketeering Charges?

January 17, 2012

A recent court decision expands protections for whistleblowers and could put companies that retaliate against them in violation of racketeering laws enacted to combat organized crime. Based on the ruling, companies could also be exposed to whistleblower retaliation claims even if they are later cleared of the alleged wrongdoing. More details inside.
 

Web Watch: Best of the Week Ending January 13

January 13, 2012

Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending January 13.
 

Judge Rejects Stanford Lawyers' Bid to Withdraw, Jan. 23 Trial Date Still Stands

January 13, 2012

Despite last-minute motions to dismiss the case and for his entire legal team to withdraw, Allen Stanford's criminal trial remains on track to begin on January 23. Given the case's history, however, it is probably wise to expect the unexpected between now and then.
 

Business Roundtable Files Brief in Support of SEC in 'Neither Admit Nor Deny' Battle

January 12, 2012

The SEC and business groups such as the Chamber of Commerce and Business Roundtable often end up on opposite sides of key issues, such as the extent to which the agency should be reformed, proxy access and other issues. But on one current issue, the Business Roundtable announced today that it has filed an amicus brief with the Second Circuit Court of Appeals supporting the SEC.
 

The SEC Conducts Polygraph Tests?

January 11, 2012

Is the SEC conducting polygraph tests when investigating insider trading and relying on the results? A recent article says the SEC asked to administer a polygraph test to a person it was investigating for insider trading. Inside, CW legal blogger Bruce Carton examines the claim and what it means for SEC enforcement.
 

Web Watch: Best of the Week Ending January 6

January 06, 2012

Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending January 6.
 

A Third Lawsuit by Madoff Investors Against the SEC Gets Dismissed

January 04, 2012

The cases were longshots from the beginning, but you can hardly blame the numerous Madoff victims who have pursued lawsuits against the SEC for its alleged gross negligence in its oversight, investigations, and examinations of Bernard Madoff and his firm. To date, however, each of these cases to date has ended in dismissal, including the most recent decision which was issued on December 8, 2011.
 

SEC Takes Tougher Stance Against Investment Advisers

January 03, 2012

The SEC wrapped up 2011 with a series of enforcement actions against investment advisers, complete with allegations of deficient compliance programs, since investment advisers are legally obligated to maintain reasonable compliance procedures. "Not all compliance failures result in fraud, but many frauds take root in compliance deficiencies," says SEC Enforcement Director Robert Khuzami.
 

2012 Will Be Another Busy Year in Regulation and Compliance

January 03, 2012

Amid holiday cheers and winter chills, legal experts say 2012 will be yet another busy year in regulation. Inside, we take a look at what's next for the SEC's Office of the Whistleblower, rulemaking under the Dodd-Frank Act, insider trading enforcement, and more.
 

Web Watch: Best of the Week Ending December 30

December 30, 2011

Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending December 30.
 

The SEC's Holiday Battle With Judge Jed Rakoff

December 30, 2011

While you have been busy decking the halls and such over the past week or so, the SEC's Enforcement Division has been locked in yet another battle with U.S. Judge Jed Rakoff of the Souther District of New York. This time things seem to be getting a bit heated. Full details inside.
 

Web Watch: Best of the Week Ending December 23

December 23, 2011

Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending December 23.
 

SEC Appeals Rejection of Citigroup Settlement, Objects to 'New and Unprecedented Standard"

December 15, 2011

The SEC has filed papers to appeal federal district court judge Jed Rakoff's decision not to approve the SEC's settlement with Citigroup. Enforcement Director Robert Khuzami said that the Commission believes Rakoff erroneously applied a "new and unprecedented standard" in "requiring an admission of facts—or a trial—as a condition of approving a proposed consent judgment."
 

Whatever Happened to Honor Among Thieves?

December 13, 2011

Should you believe your co-conspirator when he declares that he will never mention your name to authorities "no matter what happens?"
 

Settling SEC Defendants Never 'Admit' Wrongdoing But They Sometimes Later 'Deny' It

December 07, 2011

The SEC is emphasizing "no denials" as a key reason why its current policy should not be questioned by the courts, but defendants continue to deny wrongdoing in SEC cases shortly after the ink dries on their settlements. As the SEC continues to defend its policy, expect a crackdown on the practice.
 

If You Are an SEC Employee and You Are Not Being Investigated, Just Wait a Few Minutes

December 06, 2011

The latest vicious investigatory spiral at the SEC: An SEC employee disagreed with the results of an IG investigation of another employee; re-investigated the matter herself and got that employee disciplined; promptly became the subject of an IG investigation herself; and has now demanded that the IG be under investigation for his investigation of her.
 

Web Watch: Best of the Week Ending December 2

December 02, 2011

Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending December 2.
 

Outliers Identified in SEC's 'Aberrational Performance Inquiry' Initiative Sued for Fraud

December 02, 2011

Yesterday, the SEC announced that it had brought enforcement actions against three advisory firms and six individuals for misconduct including improper use of fund assets, fraudulent valuations, and misrepresenting fund returns. Notably, the SEC stated that the cases were "part of an initiative to combat hedge fund fraud by identifying abnormal investment performance."
 

Make it Stop: Inspector General Who Investigates SEC Investigators Will Now Himself Be Investigated

December 01, 2011

The SEC is routinely criticized for not doing this, not doing that, not doing enough, and so on. Perhaps the agency could get more done if the people there would stop spending so much time investigating each other?
 

Judge Rakoff Rejects Citigroup Settlement: So Now What?

November 29, 2011

As the SEC likely feared, U.S. District Court Judge Jed Rakoff refused to approve the $285 million proposed settlement between the SEC and Citigroup over the sale of toxic mortgage securities. So now what? SEC options include appealing the Judge's order or moving to an enforcement model based more on administrative proceedings and less on litigation.
 

SciClone Raises Standards, and Eyebrows, With FCPA Deal

November 29, 2011

SciClone Pharmaceuticals, a middle-weight drug development business with only 260 employees, struck a memorable blow for corporate compliance this month: The company agreed to profound changes in its anti-corruption program solely to settle a shareholder lawsuit. "I'm not aware of any other case, certainly in the FCPA area, where this sort of result has occurred," says Lucinda Low of the law firm Steptoe & Johnson.
 

Whistleblower Complaints Speak Volumes

November 29, 2011

The SEC has published its first analysis of whistleblower complaints it has received, and compliance officers have plenty to digest. "Companies should be concerned. If you look in broad view, [the program] is still in its infancy, no award has been given out yet, and they are showing this number," says Steven Pearlman of law firm Seyfarth Shaw. A breakdown of all the data is inside.
 

Compliance 101: Wage & Hour Risk

November 29, 2011

Sure your company might someday be caught up in a sweeping regulatory enforcement case requiring a nine-figure settlement over the Foreign Corrupt Practices Act. But basic, block-and-tackle compliance threats are far more likely to leave a company fighting a rear-guard action against regulators and plaintiff lawyers. Like, say, wage-and-hour violations. How can you reduce that risk? Details inside.
 

U.K.'s Serious Fraud Office Highlights 'Corruption Indicators'

November 23, 2011

Britain's Serious Fraud Office has published a list of what it calls "corruption indicators." The SFO says that it has identified a number of questionable practices within various sectors that may be red flags for corrupt practices, including high commission fees, missing documentation, and a refusal by employees to take vacation time. More indicators inside.
 

SEC's Deputy Director of Enforcement to Step Down

November 23, 2011

Lorin Reisner, current deputy head of enforcement at the SEC, announced he is leaving to join the U.S. Attorney's Office for the Southern District of New York. Reisner, who joined the SEC in August of 2009, will reportedly begin work in the U.S. Attorney's Office early next year.
 

Employee Contradicts Madoff, Says Ponzi Scheme Went Back to Early 1970s

November 22, 2011

When he pleaded guilty, Bernard Madoff told the court that for about two decades, he did actually invest his client's money in securities. He said it was not until the recession of the early to mid-'90s that he started using new money to pay redemptions requested by other clients. It now appears that even this version of the truth from Madoff was false, and that the scheme actually began in the early 1970s.
 

SEC Pursues Small Company Over Lax Internal Controls

November 22, 2011

The SEC is sending a message to small companies that it will pursue cases where internal controls are so poor that they don't reasonably assure accurate financial reporting. Case in point: Koss Corp., where CEO Michael Koss agreed to pay back $450,000 in compensation because he failed to recognize a fraud by another senior executive. "It's a shot across the bow," says Cynthia Krus, a partner at law firm Sutherland Asbill & Brennan.
 

Are Companies Liable in the U.S. for Abuses Abroad?

November 22, 2011

A split has emerged among federal appeals courts over whether corporations can be held liable in U.S. courtrooms for human rights abuses conducted overseas. Now the Supreme Court has agreed to weigh in on the dispute; if it decides in favor of companies, that might drive plaintiffs to pursue individual executives and board members instead. More details inside.
 

Web Watch: Best of the Week Ending November 18

November 18, 2011

Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending November 18.
 

Twitter Users, I Give You: @SEC_Litigation

November 17, 2011

I have said for some time that creating a Litigation Releases Twitter feed tied to the SEC's website and automatically updated "should be a very simple task, as there are many free services that permit websites to have newly added content automatically posted to a Twitter feed." I meant a "very simple task" for the SEC, but the agency has shown no interest in creating such a feed, so I decided to give it a shot today. 5 minutes later, @SEC_Litigation was born.
 

The Congressional Insider Trading Cycle: Could It Be Different This Time?

November 15, 2011

Usually, this would be the time for Congress' to commence its deafening silence and disregard of the proposed STOCK Act, and that may still very well end up being the case. This time, however, things feel a bit different, and even a presidential candidate is now calling for a law to outlaw insider trading by members Congress.
 

Delaware Court Delivers Sharp Rebuke to Directors

November 15, 2011

The Delaware Court of Chancery warned directors in two recent decisions to put the interests of the company and its shareholders first. In one case, the court found the directors breached their duty of loyalty by allowing the company's largest shareholder to exert undue influence. In another case, the court ruled that the board erred when it issued preferred shares as a defense mechanism. Details inside.
 

Web Watch: Best of the Week Ending November 11

November 11, 2011

Throughout the week over at Securities Docket I highlight the most interesting columns and blog posts from around the web on the subjects of SEC enforcement and securities litigation. Here is a digest of my picks for the week ending November 11.
 

Stanford May No Longer Be Addicted to Anti-Anxiety Drugs, But Now He Says He Has Amnesia

November 11, 2011

It appears that Allen Stanford may have finally weaned himself off of the anti-anxiety drug Klonopin. But now he says he has a new ailment that will further delay the case. According to an attorney representing many Stanford investors trying to get their money back, "Allen Stanford says he has amnesia. He can't remember anything about his past and what he did for 20 years there in Antigua."
 

Groundhog Day: The Congressional Insider Trading Cycle--2011 Edition

November 11, 2011

It has been about a year, so it must be time for the media to jump back on the issue of Congressional insider trading. This time, however, some heavy artillery is on the way in the form of an upcoming piece by CBS' "60 Minutes" on whether Congress' "influence and control of legislation gives them a leg up in playing the stock market and making other investments."
 
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