1. Prosecution Of Fraud And Crimes In The C-Suite

    Attorney Stanley Soya of Pepper Hamilton on what corporations can learn from recent prosecution of business executives who committed corporate crimes.

  2. Federal Regulators Are Stepping up the Fight Against Insider Trading

    Corporate executives that use Rule 10b5-1 plans when they buy and sell company stock might be inadvertently giving federal regulators a new weapon in the fight against insider trading, writes Jay Dubow of law firm Pepper Hamilton

    “[R]ecent Wall Street Journal articles have described civil and criminal investigations into possible misuse of Rule 10b5-1 plans by executives at a number of companies… 

    The … articles describe stock trading by executives that was done pursuant to Rule 10b5-1 plans but the trades in question may be challenged by the government. These recent articles follow an earlier article in which the Wall Street Journal analyzed stock trading by corporate insiders and found that profitable and well-timed trades were executed by more than 1,400 executives. There are at least three areas into which the government may be scrutinizing trading pursuant to Rule 10b5-1 plans.”

    Read the full update, Rule 10b5-1 Stock Trading Plans Are Not Bulletproof - Pepper Hamilton LLP»

  3. SEC Raises the Stakes for Negligent Corporate Directors

    Officers and directors of public corporations are facing increasing scrutiny from the SEC, says White & Case trial lawyer Gregory Little in this interview with Richard Levick. Which means more prosecution is likely:

    “… the SEC has also announced a willingness to pursue civil cases in which defendants are accused of negligence only. Traditionally, the SEC pursued individuals engaged in intentional misconduct leading to investor losses. By pursuing negligence-based claims, the SEC will increase the number of potential targets to include those who had no intent to deceive investors but simply did not act in a reasonable manner. If a business decision results in significant shareholder loss, there may be a tendency to view all actions and disclosures surrounding that decision as unreasonable. The bottom line is the SEC will potentially be bringing more claims with a significantly reduced burden of proof.”

    Read the full interview, What’s Next in the Boardroom: Greg Little on Criminal and Civil Litigation and Investigations – Levick 

  4. Can Corporations Be Too Helpful in Government Investigations?

    When facing criminal allegations, corporate counsel know that sharing internal information can lead to reduced charges or other “cooperation credit.” But can you share too much? From Manatt, Phelps & Phillips

    “… when a corporation takes significant steps to ‘cooperate’ with the government by requiring employees to submit to interviews during the internal investigation – and then shares the results of those interviews with the government - at what point do the lawyers conducting the investigation become government actors? 

    This was precisely the question recently raised in the federal district court by the defendants in United States v. Stuart Carson…

    Carson is a stark reminder that corporations must tread carefully in deciding whether and how to share privileged information with the government when threatened with the possibility of indictment. While corporations may be understandably eager to cooperate with the government in the hopes of procuring a deferred prosecution agreement or avoiding indictment altogether, that eagerness should be tempered by considerations regarding privilege and witnesses’ rights against self-incrimination.”


    Read the update: Sleeping With the Enemy: Can Corporate Counsel Be “Too Cooperative” With the Government? - Manatt, Phelps & Phillips, LLP»

  5. Weeding Out Corporate Fraud

    Internal fraud can damage both a company’s reputation and its revenue, writes attorney Michael Diaz, who proposes a multi-pronged approach to identifying, investigating, and ending such criminal activities: 

    “There are a number of ways in which internal fraud may be detected – for example, by monitoring high risk jobs, receiving tips or complaints from someone, or conducting reviews and internal audits… All allegations of fraud should be recorded.  This need not be a costly or unnecessarily complicated procedure. Depending on the size of the company and the type of fraud, this might entail a simple spreadsheet, a reporting database, or a full blown case management system…

    In-house counsel should make sure that appropriate persons are assigned to investigate an allegation of fraud.  Investigators must be objective and not have an interest in the outcome of the matter. The team investigating the situation should be carefully selected and may include a senior auditor of the company, someone from corporate security, in-house counsel, and other trusted individuals.”

    Read the update: Tackling Internal Fraud: Weeding Out The Enemy Within - Michael Diaz Jr.»

  6. Corruption Roundup: Biomet, UK and US Regulations, Sanctions in Burma and Europe, & More

    For your reference, here is a roundup of recent law firm advisories covering corruption-related happenings around the globe. Ranging from Burma sanctions to Biomet settlements, see: 

    Fools Rush In: Social and Environmental Due Diligence in Burma (Foley Hoag LLP)

    “… companies should consider how they would conduct business responsibly in Burma, were the investment-related sanctions to be lifted.  Widespread corruption, ethnic conflict, and antiquated social and environmental regulations present significant challenges. Companies will need to conduct robust social and environmental due diligence that takes into account the specific industry and location — general country due diligence will not suffice.” Read the full update»

    The Expansion of EU Sanctions (Dechert LLP)

    “Recent weeks have seen an expansion of EU sanctions in relation to Iran, Syria and Belarus. In addition, the UK continues to extend the scope of EU sanction provisions to its overseas territories. The scope of EU sanctions continues to widen. New measures which extend EU sanctions against Iran were adopted on 23 March 2012. The UK has extended part of these measures to its overseas territories. In addition, the list of individuals and entities subject to both the Syrian and Belarusian asset-freezing measures has been extended.” Read the full update»

    UK Financial Regulator Issues Report on Bribery and Anti-Corruption Controls, Proposes New Guidance (BuckleySandler LLP)

    “On March 29, the United Kingdom’s Financial Services Authority (FSA) published the findings of its thematic review into anti-bribery and corruption systems and controls in U.K.-based investment banks. The FSA review also looked at related topics including (i) gift-giving practices and controls, (ii) staff recruitment and vetting, (iii) training, and (iv) incident reporting.” Read the full update»

    FinCEN Proposes Customer Due Diligence Requirement of Beneficial Ownership Identification to Enhance Federal Anti-Money Laundering and Counterterrorism Efforts (Davis Wright Tremaine LLP)

    “… the Financial Crimes Enforcement Network issued an advance notice of proposed rulemaking seeking comments on a proposed customer due diligence (CDD) regulation that would explicitly require covered financial institutions to institute defined programs to identify the real or beneficial ownership of accountholders… The proposed CDD is intended to enhance federal anti-money laundering and counterterrorism efforts, and to establish a uniform and consistent CDD obligation with respect to beneficial ownership across financial institution sectors.” Read the full update»

    DOJ Reaches FCPA Settlement With Medical Device Company (BuckleySandler LLP)

    “DOJ alleges that Biomet, its subsidiaries, employees, and agents made illegal payments to publicly-employed health care providers in Argentina, Brazil, and China in exchange for business with certain hospitals in those countries and then falsely recorded the payments on its books to conceal the true nature of the payments.” Read the full update»

    Biomet: Lessons from the latest FCPA settlement involving Latin America (Matteson Ellis)

    “Biomet’s Brazilian and Chinese subsidiaries were aware that their distributors were paying doctors between 5 and 25 percent of the value of the medical devices in exchange for the purchases. Had the subsidiaries conducted appropriate anti-corruption due diligence on the distributors, they would probably have identified such practices before they started.” Read the full update»

    DOJ’s Strategies – FCPA and Health Care Fraud (Mintz Levin)

    “On March 26th … another device manufacturer, Biomet, Inc., announced that it entered into a new Deferred Prosecution Agreement (DPA) and accompanying settlements with DOJ and the Securities and Exchange Commission.  Coupled with the DPAs DOJ entered into with Johnson & Johnson in April 2011 and Smith & Nephew in February 2012, this announcement signals the fact that DOJ apparently is looking beyond United States’ boundaries for health care fraud enforcement opportunities.” Read the full update»

    Washington D.C.: An Era of Unprecedented Enforcement (Michael Volkov)

    “The most aggressive – and successful criminal prosecution programs have been Foreign Corrupt Practices Act and healthcare fraud.   Over last 4 years, the government has collected $4.1 billion in fines for FCPA violations.  Last year, the government collected $2.5 billion in fines for health care fraud cases, including a record number of False Claims Act cases. Antitrust enforcement has increased with a larger number of civil filings and over $1 billion last year collected for cartel conduct.  SEC and CFTC filings and disgorgement amounts are at record levels. Civil penalties increased to $168 million in FY 2011 from $110 million in FY 2010.” Read the full update»

    FCPA Enforcement: Why Corporations Support DPAs and NPAs (Thomas Fox)

    “One of the points [Mike Koehler] raised was regarding the proliferation of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) during the tenure of Mendelsohn at the Department of Justice (DOJ). The Professor argued that DPAs and NPAs, which did not come into wide spread use until the last decade, were tools which should not be employed for FCPA enforcement. One of the reasons he articulated this was that by use of these agreements the DOJ is not required to put proof in front of a judge or jury, hence the DOJ can expand its interpretation of the FCPA without appropriate judicial oversight.” Read the full update»

    The Sherman Act’s Increasingly Long Arm (Morgan Lewis)

    “…foreign companies involved in the manufacture or distribution of products outside the United States can no longer assume that the U.S. antitrust laws do not apply to their activities. This is presently an evolving area of the law with substantial uncertainty. It will take time for these issues to be sorted out in the courts and for clarity to emerge regarding the extraterritorial reach of the U.S. antitrust laws.” Read the full update»


    Find additional Criminal Law updates on»

  7. The Economic Espionage Act

    Foreign corporate spying and the theft of trade secrets are alive and well, according to the federal government. And the Economic Espionage Act is an important tool in combatting such activities. From law firm Quinn Emanuel:

    “The [Economic Espionage Act] is a far-reaching law that criminalizes two distinct but related types of trade secret misappropriation: ‘Economic espionage’ and ‘theft of trade secrets.’ These offenses share three elements: (1) misappropriation of information; (2) with knowledge or belief that the information is a trade secret; and (3) that the information is, in fact, a trade secret… In addition to the substantive offenses of economic espionage and theft of trade secrets, the EEA also punishes attempt and conspiracy to commit either offense. While trade secrets lie at the heart of the substantive offense, in the case of a conspiracy or attempt charge, ‘the existence of an actual trade secret’ is not required, but ‘rather, proof only of one’s attempt or conspiracy with intent to steal a trade secret.’”

    Read the full update, Spotlight on the Economic Espionage Act, Quinn Emanuel Urquhart & Sullivan, LLP»

  8. Compliance Roundup: “Instrumentality” under the FCPA, Corruption Due Diligence, & More

    Two recent updates on corruption and bribery provide important perspective on the challenges for multinationals in complying with the US Foreign Corrupt Practices Act and the UK Bribery Act. 

    From law firm Warner, Norcross & Judd, a warning for companies doing business outside the United States that US officials – and the courts – continue to take a broad view when they interpret terms of the Foreign Corrupt Practices Act:

    “Two California district courts have recently upheld the government’s expansive definition of ‘instrumentality’ under the Foreign Corrupt Practices Act, holding that payments to state-owned enterprises for the purposes of securing business may subject the payor company to civil and criminal liability.

    The Foreign Corrupt Practices Act (‘FCPA’) … defines ‘foreign official’ as including the officers and employees of any ‘instrumentality’ of a foreign government.  The Department of Justice and the Securities Exchange Commission, the two primary government enforcers of the FCPA, have always interpreted this broadly, taking the position that a state-owned or state-controlled enterprise can be an ‘instrumentality’ under the FCPA… Recently, district courts faced with this theory have agreed, subject to a factual analysis of the particular state-owned enterprise at issue.  With approximately half of recent FCPA enforcement actions based, in whole or in part, on this enforcement theory, and more than $2 billion in penalties applied under the FCPA in 2010 and 2011, these decisions are yet another reason why FCPA training and compliance programs must be a point of focus for business entities with an international presence.” (FCPA Update: Definition of “Instrumentality” of the State by Warner Norcross & Judd»

    Writing of anti-corruption regulation in the context of energy industry M&A, law firm King & Spalding reminds purchasers that both US and UK officials hold acquiring companies liable for bribery committed by their targets:

    “It is the [US Department of Justice’s] view that liability can attach to purchasers for pre-closing conduct of the target and has accordingly brought actions consistent with this view. In its Opinion Procedure Releases (notably in relation to Haliburton’s proposed purchase of a UK-based company), the DOJ advised that a purchaser can minimise its (or insulate itself from) liability for unlawful payments made by entities it acquires by performing adequate due diligence prior to acquisition, disclosing any pre-acquisition government, and implementing effective compliance procedures thereafter…

    A principal offence [under the UK Bribery Act] will be committed if the purchaser knowingly joins with, encourages, or turns a blind eye to (by way of consent or connivance) the bribery activities of the target entity, and may occur where the diligence process has revealed bribery by the target and the purchaser continues with the bribery, or allows it to continue, post-closing. Likewise, if the purchaser knows of on-going bribery and deliberately fails to conduct diligence so that the deal closes, this conduct could be viewed as criminal intent to participate in on-going corruption.” (Transactions: Corporate/London: M&A: The Importance of Bribery and Corruption Due Diligence - A UK Perspective by King & Spalding) 

    Other Recent Commentary and Analysis

    - Due Diligence Nuts and Bolts (Michael Volkov)

    “The focus of a due diligence inquiry is “reasonable inquiries” to identify and assess the risks that a third party will engage in bribery.  Of course, the specific aspects of the inquiry will change depending on the particular facts surrounding the third party, the presence of red flags, and the country in which the third party will operate.” Read the full update»

    - Wynn Casinos and Charitable Donations under the FCPA (Thomas Fox)

    “The recent events surrounding Wynn Casinos and its now former director, Kazuo Okada, have almost been breath-taking in their family feud nature… Wynn provided the opening salvo in this battle of titans by summarily booting Okada off the Wynn Casino Board of Directors and ‘forcibly cashed out’ his stake in the company, all for alleged violations of the Foreign Corrupt Practices Act.” Read the full update»

    - Sanctions, Export Controls and Supply Chain Due Diligence (Thompson Coburn LLP)

    “The affirmative duties imposed by the sanctions and export control laws of the United States create intertwining compliance obligations among the intermediaries to an international transaction and the principals. While it is, perhaps, a tautology to state that each party is responsible for its own actions, in the international trade environment, each party is best served by exercising due diligence over its trading partners and formalizing coordination with their compliance systems.” Read the full update»

    - FCPA Reform and Corporate Leniency (Michael Volkov)

    “As the calls for FCPA reform grow louder, I thought it would be timely to examine one of the more significant FCPA reform proposals: Robert W. Tarun and Peter P. Tomczak, Baker & Mckenzie partners authored ‘A Proposal for a United States Department of Justice Foreign Corrupt Practices Act Leniency Policy,’ in which they propose an FCPA Leniency Policy modeled on the Department of Justice’s Antitrust Leniency Policy. While at first glance, there are positive points to their proposal, their proposal fails any rational justification.” Read the full update»

    - How FATF Recommendations on Anti-Money Laundering Inform Your Compliance Program (Thomas Fox)

    “The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. Its mandate is to set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system… FATF recently released a new document, entitled ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’.” Read the full update»


    Find additional Criminal Law updates on JD Supra»

  9. Corporate Crime Roundup: Price-Fixing, Antitrust Violations, Insider Trading, Tax Fraud & More

    For reference, a roundup of recent legal commentary and analysis:

    Five Major Freight Forwarding Companies Debarred by U.S. Government (King & Spalding)

    “Five freight forwarders who have performed significant work for the U.S. Government and Government contractors have been added to the Excluded Party List System (EPLS), meaning that they have been debarred from U.S. Government contracting… The debarment follows a September 30, 2010 guilty plea by certain of these companies to criminal price-fixing charges, antitrust violations, and an agreement by them to pay $50.7 million in criminal fines to the United States Government.” Read more»

    David Einhorn and Greenlight Capital Inc. Fined £7.2M for Insider Trading (Katten Muchin Rosenman LLP)

    “On January 25, the UK Financial Services Authority (FSA) announced the imposition of penalties totaling £7.3M (approximately $11.5M) on David Einhorn and Greenlight Capital Inc., for market abuse in June 2009 in relation to trading in equities of Punch Taverns… The FSA Decision Notice states that, ‘…Mr. Einhorn did not believe that the information that he had received was inside information, and he did not intend to commit market abuse. Nevertheless, the FSA considers Mr. Einhorn’s error of judgment to be a serious failure to act in accordance with the standards reasonably expected of market participants.’” Read more»

    Two Officers Of The Company That Owns The Ambassador Bridge Will Both Return To Jail (Warner Norcross & Judd - Appellate Practice Group)

    “Moroun and Stamper argued that they were not afforded due process in the contempt proceedings because DIBC was held in contempt, and DIBC is a separate entity from them. In her opinion, Judge Kelly rejected this argument, noting that the corporation could act only through its agents and that Moroun did have authority over DIBC, despite his contentions to the contrary. She also concluded that both men had notice of the hearings in advance, given that Stamper received the show-cause order and had been previously imprisoned for civil contempt in this case, and given that Moroun filed a motion in advance of the hearing asking to be excused from it.” Read more»

    Criminal Competition Law Developments in 2011 (Osler, Hoskin & Harcourt LLP)

    “On November 30, a former executive of a Peruvian airline, Cierlos Airlines, pleaded guilty to a charge of participating in an antitrust price fixing conspiracy by agreeing to impose an increase to fuel surcharges on air cargo shipments from the U.S. to locations in South and Central America, over the period September 2005 until at least November 2005. Two other executives had previously pleaded guilty on their participation in the alleged conspiracy” Read more»

    Sixth Circuit Vacates White-Collar Conviction For Insufficient Evidence (Warner Norcross & Judd - White Collar)

    “In an unusual move, the Sixth Circuit ordered that a Tennessee businessman’s conviction for bank fraud must be vacated. Timothy Parkes has apparently spent more than two years in prison awaiting appeal.  The Sixth Circuit held that the jury convicted him with insufficient evidence of guilt beyond a reasonable doubt.  The Sixth Circuit also held that the Court improperly excluded motive evidence critical to the defense.” Read more»

    More of Your Assets May Be Exposed Than You Think (Akerman Senterfitt)

    “Following the precedent set by the United States Government’s settlement with UBS in 2009, the United States Government has offered eleven financial institutions in Switzerland and Israel a settlement agreement in which the United States Government’s investigations in these financial institutions for aiding tax evasion and potential prosecution would be dropped. The terms of this agreement … would require each of the eleven Swiss and Israeli financial institutions to share data regarding United States clients and, most likely, pay a fine.” Read more»

    Swiss Bankers Charged by IRS Identified (Darrin Mish) 

    “The word is out. The identity of the three Swiss bankers charged by the IRS of abetting wealthy US taxpayers in avoiding taxes is revealed. The three work for Switzerland’s Wegelin & Co and are accused of helping US taxpayers dodge taxes on more than $1.2 billion in taxable income… The three individuals face a prison term of at least 5 years if convicted.” Read more»


    See also: Liability and Immunity for Human Rights Violations: The Impact of Current Legal Developments on Corporate Responsibility (Foley Hoag LLP) 


    Find additional Criminal Law updates on JD Supra»