Mitigating Legal and Regulatory Risks in Winding Down Funds

by Michael C. Neus

A fund manager typically spends most of its time not only contemplating how to maximize returns for investors, but also navigating the array of compliance and regulatory concerns involved in running a private fund. Because the manager is so caught up in thinking about these daily considerations, it may lose sight of the multitude of issues that arise when it comes time to wind down that same fund. If the manager exercises some foresight regarding the fund’s eventual wind-down and puts proper procedures in place, however, the whole process can be both smoother and less fraught with legal and regulatory risks. Once a manager decides to wind down a fund, it must navigate myriad considerations and decisions during the process. Continue reading

The Rise of FinTech and Compliance

by Tom C.W. Lin

An important transformation is happening in the financial industry. The rise of new technology and compliance has dramatically altered many of the key functions and functionaries of modern finance. Artificial intelligence, algorithmic programs, and supercomputers, instead of human actors, now constitute the core of many financial operations. At the same time, compliance officers have become just as critical to financial institutions as traders, bankers, and analysts. Finance as we knew it has changed and continues to change.

My recent article, Compliance, Technology, and Modern Finance, offers a detailed commentary on these unfolding changes—the crosscutting developments in compliance, technology, and modern finance. It examines the concurrent and intersecting ascents of new financial technology and compliance as well as the potential perils linked with their ascents. It also highlights the larger implications of the changing financial landscape due to the growing roles of new technology and compliance. In particular, it focuses on the challenges of financial cybersecurity, the integration of technology and compliance, and the role of humans in modern finance. Continue reading

Who Is a Whistleblower Under Dodd-Frank’s Anti-Retaliation Provisions?

by Erika A. Kelton and John W. Tremblay

Who counts as a “whistleblower” when it comes to Dodd-Frank’s statutory protections against employment retaliation? In recent years, corporate defendants have argued that employees who complain internally about wrongdoing are not protected by Dodd-Frank’s whistleblower anti-retaliation provisions if they do not report wrongdoing to the Securities and Exchange Commission before they suffer retaliation. Continue reading

Why the Securities and Exchange Commission’s Administrative Law Judges are Unconstitutional

by Linda D. Jellum

The Securities and Exchange Commission (SEC) faces a constitutional crisis: the Tenth Circuit recently held that SEC administrative law judges (ALJs) are unconstitutionally appointed.[1] And the D.C. Circuit will likely soon follow suit. So far, the SEC is fighting hard to protect thousands of past and pending SEC adjudications; however, the battle may well have been lost. Here’s the story of how the SEC’s greatest constitutional challenge unfolded. Continue reading

Materiality and Scandal

by Adam C. Pritchard

Media reports recently revealed that the U.S. Attorney’s office for the Southern District of New York was investigating 21st Century Fox Inc., trying to determine whether Fox had adequately disclosed settlements of sexual harassment claims brought against former against Fox News Chairman and Chief Executive Roger Ailes. Ailes resigned last summer after former Fox News anchor Gretchen Carlson sued him and Fox for sexual harassment; Carlson’s suit encouraged a number of additional women to come forward also alleging sexual harassment at Fox. Carlson and Fox ultimately settled her claims for a reported $20 million. It was also reported that other women had settled claims for smaller amounts, which apparently led to the current federal investigation. News of the SDNY investigation came out when a lawyer for one of the women currently suing Fox News for harassment disclosed that his client had received a subpoena to testify before a grand jury.

The reported investigation reflects the “when it rains, it pours” quality of securities enforcement. Any time a public company reveals a problem with its business, it has to worry that the disclosure will prompt an investigation by the SEC or a prosecutor (federal or state). Continue reading

The Extent and Intensity of Insider Trading Enforcement – an International Comparison

by Lev Bromberg, George Gilligan, and Ian Ramsay

Insider trading, a form of misconduct criminalized in many countries, was again in the headlines recently with the U.S. Federal Bureau of Investigation’s “Operation Perfect Hedge”, an investigation relating to hedge funds which uncovered interweaving webs of trading networks spanning several industries. Indeed, the operation at one point provided the U.S. authorities with a perfect record of 85 convictions for insider traders. The convictions of those involved – including Galleon founder Raj Rajaratnam and former S.A.C Capital Advisors portfolio manager Mathew Martoma – resulted in record prison sentences and monetary fines for insider trading. But how do these significant insider trading penalties compare with those imposed in other countries?

Our recent article, The Extent and Intensity of Insider Trading Enforcement – an International Comparison, presents the results of a detailed comparative empirical study of sanctions imposed for insider trading in Australia, Canada (Ontario), Hong Kong, Singapore, the United Kingdom, and the United States over a seven year period to 2015. Continue reading

Does Shareholder Litigation Deter Insider Trading?

by C.S. Agnes Cheng, Henry He Huang, and Yinghua Li

Our research explores whether shareholder securities litigation can deter informed insider trades for both defendant firms and their peers. Corporate insiders have an information advantage over other market participants and can exploit this advantage by engaging in informed insider trades to obtain private benefits. These trades undermine the confidence of outsider shareholders in the fairness of the equity markets and reduce their participation. Consequently, regulators and investors have made it a top priority to constrain informed insider trades. However, in light of high litigation costs, it is important to question whether securities litigation can in fact constrain informed insider trades.

In a recent paper, we examine whether the level of informed insider trades decreases after the filing of Section 10b-5 federal private securities class actions, and whether this decrease is contingent on the merits and rigorousness of the litigation. Continue reading

Important New Compliance Program Guidance from DOJ

by Michael W. Peregrine

The recent release of substantive compliance program guidance by the Fraud Section of the Department of Justice (“DOJ”) provides an excellent opportunity for corporations to re-examine the effectiveness of their current internal compliance mechanisms. While the “Evaluation of Corporate Compliance Programs” (“the Guidance”) is not specific to the any particular industry, it provides a practical set of benchmarks that can be referred to throughout an organization and is of particular relevance to the board of directors (logically through its audit & compliance committee), in the exercise of its compliance oversight duties. Continue reading

A Fox News Reminder: The Perils of Hush-hush

by Donald C. Langevoort

Recent media reports say that certain parties associated with Fox News have been subpoenaed by federal prosecutors to obtain testimony and information about allegations that Fox may have quietly settled a series of sexual harassment cases brought by Fox employees against former Chairman Roger Ailes.  This is all far too sketchy and preliminary to draw any inferences about actual violations of law, especially as the reports came out in the course of nasty private litigation.  But the news is a timely reminder to lawyers and compliance officials of how treacherous the waters are for anyone caught up in this kind of narrative—one where a key company official (often the one sitting on the corporate throne) may have engaged in serious unethical or unlawful behavior, with a strong desire in-house that the troublesome allegations never become public. Continue reading

CFTC Releases New Enforcement Cooperation Guidelines

by Richard D. Owens and Douglas K. Yatter

On January 19, 2017, the Division of Enforcement (Division) of the U.S. Commodity Futures Trading Commission (CFTC or Commission) issued two Enforcement Advisories outlining its approach for evaluating cooperation by corporations and individuals in the agency’s investigations and enforcement actions. The Division investigates and prosecutes alleged violations of the Commodity Exchange Act and Commission regulations involving registered firms and other market participants across the financial, energy, and agricultural sectors as well as other commodities markets. The new Enforcement Advisories are the first update to the CFTC’s corporate cooperation guidelines since 2007 and the Division’s first statement of its policy for cooperating individuals. This article highlights how the CFTC’s new cooperation guidelines address certain important issues in the continually evolving landscape for engaging with civil and criminal enforcement authorities. Continue reading