Insider trading is generally a profit making venture. But not always as a group of golf friends recently learned…
In the wake of Mary Jo White’s appointment as the new Chair of the Securities and Exchange Commission, the SEC’s Division of Enforcement has sought to aggressively investigate alleged accounting violations….
Why do otherwise good people end up doing bad things?
A key part of the new “get tough” enforcement doctrine is omnipresence – that is, creating the impression that the SEC’s Division of Enforcement is everywhere all the time. This theory, a variation of the “cop on the beat” approach, posits that if would-be law violators believe the SEC cops are everywhere, then they will refrain from violating the law. Deterrence will be achieved…
Sean McKessy, the Securities and Exchange Commission;’s whistleblower chief, cautioned in-house attorneys who draft contracts incentivizing employees to report…
Foreign Corrupt Practices Act enforcement activity in 2013 was robust, with DOJ and the SEC bringing 31 new FCPA enforcement actions, exceeding the 2012 total of 25. Total penalties amounted to more than $720 million, the second highest year on record.
In 2013, DOJ brought:
- nine enforcement actions against corporate defendants, compared with 11 each year during 2012 and 2011.
- 14 enforcement actions against individual defendants, compared to only two in 2012, and 12 in 2011. The 14 DOJ enforcement actions in 2013 stemmed from five corporate investigations.
Read Venable’s 12-page FCPA Snapshot 2013 »
Contorting The Law Of Disgorgement In Contorinis: Disgorging Ill-Gotten Gains That Were Never Gotten
Several months ago, I raised the question of why the large-scale accounting fraud cases of the type that had been so prevalent in the early 2000s were no longer a staple for either federal prosecutors or the SEC. In so doing, I was not the only one to have noted a dramatic shift away from such cases towards investigations involving Ponzi schemes, allegations of insider trading, violations of the Foreign Corrupt Practices Act, or other types of financial improprieties. Accounting commentators have noted the decline of such cases – as well as the financial restatements that often precede them – for some time now…
"A trader who uses material nonpublic information to execute trades but does not personally benefit from the resulting gains may nonetheless face disgorgement of all profits, according to a recent Second Circuit opinion."
From attorney Aaron Tidman of Mintz Levin, a report on comments made by Kara Brockmeyer, Chief of the Foreign Corrupt Practices Act Unit at the SEC, at this year’s “SEC Speaks” conference. Some highlights:
- The SEC has already brought the same number of FCPA enforcement actions in 2014 than it brought in all of 2013. The clear message from Ms. Brockmeyer was that although FCPA enforcement decreased in 2013, companies should not forget that the FCPA is still a priority for the SEC.
- The biggest issues in FCPA enforcement right now are third-party intermediaries and travel and entertainment expenses. Ms. Brockmeyer noted that she is “amazed” to see companies enter into arrangements with third parties to get business without knowing anything else about that third party. Ms. Brockmeyer’s message was clear: third-party due diligence is critical.
- Ms. Brockmeyer said that the fact that Ralph Lauren only discovered bribery problems in one subsidiary in one country also made a difference in the NPA decision. The company probably would not have qualified for an NPA if the problems were more widespread or systematic.
- The SEC is continuing to observe companies put more thought and analysis into their compliance programs and internal controls. Ms. Brockmeyer noted that companies are using the FCPA Guidance from November 2012 to strengthen their compliance programs, including integrating the hypotheticals from the Guidance into their training programs, which is exactly what the SEC intended.
- Ms. Brockmeyer said that many companies are self-reporting FCPA issues, including small problems that the company immediately remediates, and the SEC takes no action.
- Ms. Brockmeyer commented that more and more countries are enforcing their own domestic bribery laws, as well as their international bribery laws. The SEC has also seen an increase in parallel investigations, in sharing of documents across international borders, and in cooperation between national governments in interviewing foreign witnesses.
Read the full update: The SEC Speaks About FCPA»
Contorinis gives the SEC a powerful tool to impose considerably greater financial liability against fund managers and others who trade on behalf of third parties, including the investment entities that they own or that employ them, using insider information.
— Attorneys Zachary LeVasseur and Paul Monnin of DLA Piper in SEC v. Contorinis: Second Circuit gives SEC a powerful new tool – for now
From Corporate Law Report:
It’s that time of the year again, when the Securities and Exchange Commission announces its priorities at its annual “SEC Speaks Conference.” Here’s a look at key takeaways, from attorneys at Perkins Coie:
A move from rule-making to rule enforcement:
“During their annual turn on the bully pulpit, several of the Commissioners themselves remarked that the congressional rule-making mandates of the Dodd-Frank Act and the JOBS Act have profoundly affected the scope and priorities of the SEC, which has in turn adversely impacted both staff morale and enforcement resources. Emerging into what was characterized as the “post-financial crisis” world, the SEC leadership also noted that the market in many ways has become more complex and less transparent. To face these new challenges, the SEC stands ready to use its traditional statutory toolbox, enhanced by hundreds of newly enacted rules and technological resources, to identify and investigate financial fraud. However, given the overwhelming task at hand, the real question may likely be not when, but whether, the market’s watchdogs can gain sufficient traction to capitalize on their new arsenal in some meaningful fashion.”
Ongoing focus on admissions of wrongdoing:
“Director of Enforcement Andrew Ceresney commented on the increased focus within the SEC of obtaining admissions as part of its settlements. Director Ceresney also noted that the SEC has recently filed a number of settled matters with admissions of wrongdoing, including the SEC’s February 21, 2014 settlement with Credit Suisse. […] Echoing Chairman White’s opening comments, Director Ceresney stated that the SEC will continue to aggressively pursue admissions of wrongdoing in cases with egregious misconduct that either harmed, or had the potential to harm, investors.”
Aggressive FCPA enforcement to continue:
“Kara Brockmeyer, Chief of the SEC’s Foreign Corrupt Practices Act (FCPA) Unit, noted that while enforcement activities seemingly tapered in fiscal year 2013, the FCPA Unit was off to a strong start in 2014, having brought an equal number of cases so far in this fiscal year as it did all last year. She stated that the SEC will continue to bring cases that span “old school” bribery, e.g., Weatherford and Alcoa; travel and entertainment abuses, e.g., Diebold; and even cases involving improper charitable donations, such as the allegations included in the Stryker action. She also noted that companies can expect to see more cases resolved in administrative proceedings, and that the FCPA Unit is considering bringing litigated FCPA cases through administrative proceedings as well.”
Increased reliance on big data:
“Jina Choi, the San Francisco Regional Director, reflected on the SEC’s increasing reliance on technological tools to detect and prosecute fraud in light of the limited resources available to the SEC. Choi cited as examples i2 analyst notebooks and an analytical platform that the agency is developing to marry internal SEC data with external documents. She also highlighted the importance of the SEC’s digital forensic lab, which allows the SEC to preserve, collect and analyze information on electronic devices, even when that information has been deleted or wiped. These tools permit the SEC to monitor and analyze much more activity and data than it otherwise could with manpower alone.”
Evolving litigation strategy:
“Joseph Brenner, the Chief Counsel of Enforcement, observed that the SEC is utilizing statutes and rules that either had never been employed before, or had not been used in a very long time, to refine its enforcement efforts. He indicated that post-Janus, a 2011 U.S. Supreme Court ruling limiting the circumstances in which securities fraud defendants can be held primarily liable for the misstatement of others, the Enforcement Division will likely enhance its use of section 20(b) of the Exchange Act because the statute does not require proof of an underlying primary violation in order to impose liability in certain false statement cases.”
Read the full update: The SEC Speaks In 2014: Enhanced Statutory Regime Combined With Data Analytics Tools Results In Enforcement 2.0 – Travis Exstrom, Jalina Joy Hudson, Regina LaMonica, Jose Lopez, and Pravin Rao of Perkins Coie
[A]ccording to the SEC, over the last three years it has filed more insider trading enforcement actions than in any other three-year period in its history.
— Attorneys at King & Spalding on why public companies should periodically reevaluate and revise their insider trading policies.
Another example of the Commission’s new and evolving ad hoc admissions policy emerged from the settlement of an administrative proceeding with Credit Suisse Group AG. […] To resolve the proceed which, centers on violations of the broker-dealer registration provisions, the firm admitted to factual allegations in the Order as well as to violating the “federal securities laws.” The firm did not admit to violating the specific provisions of the statutes cited in the Order.
Though investors might have assumed that the entire Securities and Exchange Commission was their advocate to begin with, on February 12th the agency announced that it had hired Rick Fleming to be its very first Investor Advocate in the recently created Office of the Investor Advocate.
What the defendants did just doesn’t seem that unfair. It seems like a bunch of dudes piecing together information and making a bet on it. […] I think the lack of injustice in the facts is why the SEC had trouble with the jury, and will continue to in marginal cases like this one.
— Attorney David Smyth of Brooks Pierce on the jury verdict in the recently decided insider trading trial SEC v. Steffes.