Author Archives: Jonathan Silverstone

The CARES Act – Lenders Beware

by Lee Richards, Daniel Zinman, Rachel Mechanic and David Daniels

The financial institutions, thrust as emergency lenders into the middle of loan programs under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), will necessarily also be in the middle of government fraud investigations that Congress has made clear will follow. Even given the laudably urgent nature of the program and the apparently limited duties of lenders under the Act, how those lenders handle loan applications and certifications will have profound implications for their efforts to navigate the investigations to come. Continue reading →

NYDFS Issues Enforcement Action Against Industrial Bank of Korea

by Matthew Levine

The New York State Department of Financial Services (“NYDFS”) recently issued an enforcement action against the Industrial Bank of Korea (“IBK”) for violations of New York’s anti-money laundering and recordkeeping obligations. It is the first of either of these types of BSA/AML enforcement actions issued by the Department in some time; this is not surprising, given that NYDFS, like other regulators, has been consumed with responding to the COVID-19 pandemic. Continue reading →

FINMA Annual Report Indicates Decline in Enforcement, Highlights Money Laundering Risk Factors

by Jonathan J. Rusch

In the world of global financial crimes compliance, one national regulator that has become increasingly visible and assertive is the Swiss Financial Market Supervisory Authority (FINMA). FINMA’s supervisory and regulatory mandate extends across the Swiss financial sector to banks, insurance companies, financial institutions, collective investment schemes, and their asset managers and fund management companies.[1]

In carrying out that mandate, FINMA has been active on a variety of fronts relating to financial crimes. These include issuance of a revised Anti-Money Laundering (AML) Ordinance, sanctioning of leading Swiss bank Julius Baer for serious AML failings, and continuing cooperation with U.S. and other financial regulators and enforcement authorities.[2]

On April 2, FINMA published its 2019 Annual Report, which for the first time integrates FINMA’s Enforcement Report.[3] While the Report covered all aspects of FINMA’s supervisory and regulatory activity, it included three topics that are of particular interest from a risk and compliance perspective. Continue reading →

CMA Prohibits Merger That DOJ Tried – But Failed – To Block

by Juan Rodriguez and Marielena Doeding

SUMMARY

On 9 April 2020, the UK Competition and Market’s Authority (“CMA”) issued its final report prohibiting the proposed acquisition of Farelogix, Inc. (“Farelogix”) by Sabre Corporation (“Sabre”) (the “Transaction”). The CMA’s decision comes only two days after Judge Leonard Stark of the U.S. District Court in Delaware dismissed a lawsuit brought by the Antitrust Division of the U.S. Department of Justice (“DOJ”) seeking to block the Transaction.

The CMA’s decision is notable because it demonstrates the CMA’s willingness to take a bold stance even when reviewing a merger that lacks an obvious jurisdictional link to the UK, and in the face of a conflicting litigated outcome in a U.S. court. Sabre/Farelogix also serves as a stark reminder of the increased focus by antitrust regulators on the importance of innovation in the technology sector, and on the protection of “nascent competition”, as well as the practical impact of the antitrust conceptions of “two-sided markets” in the UK and in the U.S. Continue reading →

What the Hoskins Rule 29 Acquittal Reveals About Contesting “Jurisdictional” Issues in American Criminal Justice

by Frederick T. Davis

On February 26, 2020, Judge Janet B. Arterton of the federal district court in Connecticut granted a motion under Rule 29 of the Federal Rules of Criminal Procedure to acquit a defendant of seven counts of which he had been convicted by a jury in November 2019. A post-conviction Rule 29 acquittal is uncommon: A prosecutor armed with a jury verdict only rarely is found not to meet the quite lenient standard that the factual evidence, when viewed “in the light most favorable to the government,” provided a basis for a reasonable jury to convict. Even more unusually, the issue on which Judge Arterton found the prosecution lacking did not go to whether the defendant committed the acts of which he was charged or had the requisite state of mind, but whether the criminal statute applied to him at all—an issue that in much of the world is considered to be a question of “jurisdiction” (or, in Europe, of “competence”). The decision raises troubling questions about how threshold issues in criminal cases are resolved under American criminal procedures. Continue reading →

Accounting Fraud 2.0: Increased Enforcement Activity Based on Non-GAAP Metrics

by Arthur Greenspan, James Walker, David Massey and Jakob Sebrow

Accounting fraud has long been a staple of the enforcement program at the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ), as corporate officers and employees continue to engage in efforts to improperly enhance financial results. Based on the widespread use of “non-GAAP” financial metrics by public companies and recent SEC and DOJ emphasis on such measures, we believe that non-GAAP metrics will feature prominently in the government enforcement priorities that are likely to follow the significant market correction caused by COVID-19.

As we discuss below, companies and their senior executives risk SEC and criminal fraud charges based on misuse of non-GAAP metrics, and audit committee members risk scrutiny for failure to maintain adequate internal controls concerning non-GAAP metrics. United States v. Carroll, a criminal case currently pending before Chief Judge Colleen McMahon in the Southern District of New York, is an important example of the government’s expansive theories of materiality and the real risks faced by companies and executives who emphasize non-GAAP measures in their public disclosures and comments. Indeed, a confluence of factors—including the prosecutors’ core theory that the defendants sought to “smooth” an ancillary non-GAAP metric, their reliance on qualitative materiality, and their willingness to bring criminal charges notwithstanding the conclusion of the outside auditors that the misstatements were immaterial—makes Carroll a striking and novel prosecution. Continue reading →

Insider Trading Issues Raised by News of Senators’ Reported Trades

by Stephen L. Ascher, Charles D. Riely, and Jeremy H. Ershow

As the world coped with the Coronavirus (COVID-19) pandemic, news spread that four senators made well-timed sales of well-chosen securities before the market started its precipitous decline—at a point in time when the federal government was still minimizing the risk of a pandemic. While the political condemnation was swift and definitive, the question of liability for insider trading is more nuanced and fact-intensive: if the senators are investigated by the Department of Justice or Securities and Exchange Commission (SEC), counsel will likely argue that the information the senators had was already in the public domain. The key issue will be whether the closed-door briefings included distinctive nonpublic facts that gave the senators unique insight into the impending crisis and its likely impact on securities markets. Several senators have also stated that the securities trades were made by others. These assertions will likely be tested by a detailed reconstruction of the communications between the senators, their family members and any others responsible for administering the accounts. Even if the senators prove somebody else placed the trade, investigators will carefully review whether the senators tipped any material nonpublic information to the people managing their accounts. Ultimately, legal liability is less assured than the political fall-out. Continue reading →

COVID-19 and the Compliance Risks Related to Sales and Marketing Practices

by Jennifer Kennedy Park and Jonathan Kelly

The World Health Organization has now declared COVID-19 a pandemic, and as more businesses begin to face the impacts of quarantines and travel restrictions, they may find themselves managing unexpected legal risks. Among those are risks related to communications with customers by sales and marketing functions. Continue reading →

Compliance and Enforcement