Author Archives: Michelle Louise Austin

CFTC Releases Enforcement Manual in Hopes of Increasing Transparency

By Paul M. ArchitzelElizabeth L. Mitchell, Petal P. WalkerMatthew Beville, and Seth Davis

Intending to bring greater transparency to the operation of its enforcement program, the Commodity Futures Trading Commission’s (CFTC or Commission) Division of Enforcement (the Division) recently, for the first time, made public its Enforcement Manual (Manual).[1] The Manual provides market participants, industry professionals and the enforcement bar with insights into the Division’s detections, investigations, and pursuit of violations (and potential violations) of the Commodity Exchange Act (CEA) and the regulations thereunder. According to CFTC Director of Enforcement James McDonald, this move is intended to “promote fairness, increase predictability, and enhance respect for the rule of law.”

The public release of the Manual brings CFTC practice in line with those of other enforcement agencies, including the Department of Justice and the Securities and Exchange Commission (SEC).[2] The Manual provides a roadmap of the life cycle of a CFTC enforcement action, from the opening of an investigation through the Wells process to resolution. Although the Manual provides broad insight into the general policies and procedures that guide the work of the Division’s Staff, it does not provide concrete guidance on how those general policies may be applied in particular cases. 

Below, we highlight several of the Manual’s more significant provisions. Continue reading

French Anti-Corruption Authority Raises Alarm About M&A Transactions

by Antoine F. Kirry, Frederick T. Davis, and Alexandre Bisch

The French Anti-Corruption Authority (AFA) is zeroing in on corruption risks hidden in acquisition targets of French companies, in France and overseas.

In a statement reported yesterday, AFA representatives alerted would-be acquirers to the need to conduct in depth pre-acquisition anti-corruption due-diligences.  The AFA observed that most companies and investment bankers seem insufficiently aware of this need, and urged them not to underestimate the reputational damage that may result from potential corruption issues in target companies, in addition to potential sanctions. Continue reading

Ephemeral Messaging for Businesses: Balancing the Risks of Keeping and Deleting Data by Default

by Avi Gesser, Daniel F. Forester, and Mengyi Xu

One way for companies to decrease their cybersecurity risks, as well as their risks from new privacy regulations, is through data minimization—significantly reducing the amount of their data.  By deleting old data and collecting less new data, companies will have less sensitive information to protect and process in accordance with their regulatory obligations.  But getting rid of old data isn’t easy, in part because of the legal limitations on what can be deleted.  We have previously written about these challenges, as well as the benefits of data minimization, which include reducing:

  • the growth of a company’s data over time, and the associated storage costs;
  • lost productivity associated with searching large volumes of irrelevant data;
  • the cybersecurity and privacy risks of having large volumes of unneeded data, especially considering CCPA and GDPR-type rights of access and erasure;
  • internal audit and compliance risks;
  • contractual risks (e.g., obligations to clients and customers to delete data once it is no longer needed); and
  • the volume of documents that may be unhelpful to the company in potential, but not yet reasonably anticipated, litigation or regulatory inquiries.

Continue reading

The FTC Moves Toward a Rules-Based Approach to Cybersecurity Regulation for Financial Institutions

by Avi Gesser, Kelsey Clark, Jennifer E. Kerslake, and Eric McLaughlin

In our first Cyber Blog post, we predicted that the rules-based approach adopted by the NYDFS would become the model for cybersecurity regulation.  Two years later, we’re feeling pretty good about that prediction, as the FTC recently proposed incorporating a number of aspects of the NYDFS cybersecurity rules into its Standards for Safeguarding Customer Information rule (the “Safeguards Rule”).  The proposal would also expand the Safeguards Rule’s definition of “financial institution” to include “finders,” or companies that connect potential parties to a transaction.  As a reminder, the Safeguards Rule applies to financial institutions that are not regulated by the federal banking agencies, the SEC, or state insurance authorities, including non-bank mortgage lenders, payday lenders, finance companies, check cashers, money transmitters, collection firms, and tax preparers. Continue reading

Energy Market Manipulation Remains a Hot Issue at FERC

by Jonathan G. Cedarbaum, H. David Gold, and Nathaniel B. Custer

Since the passage of the Energy Policy Act of 2005, fraud and market manipulation have been top enforcement priorities of the Federal Energy Regulatory Commission (FERC or the Commission).  FERC’s most recent annual report on enforcement (PDF: 2.72 MB) shows that, in fiscal year 2018, FERC opened some 16 investigations into market manipulation (out of 24 total) and recovered almost $150 million in civil penalties and disgorgement of profits, much of which was from market manipulation cases. 

Recent case law, meanwhile, indicates that courts interpret FERC’s authority in this sphere permissively. The courts, for example, have sided with FERC in allowing considerable time to bring enforcement actions in market manipulation cases, notwithstanding statute of limitations defenses raised by the regulated entities subject to enforcement. 

Energy companies and other businesses subject to FERC’s enforcement authority should continue to monitor developments in this area and make sure that their compliance programs are up to date. Continue reading

CFTC Enters the Market for Anti-Corruption Enforcement

by Alice S. Fisher, Douglas K. Yatter, William R. Baker III, Douglas N. Greenburg, Robyn J. Greenberg, and Benjamin A. Dozier

New enforcement advisory encourages reporting of foreign corrupt practices that the agency intends to pursue under the Commodity Exchange Act.

On March 6, 2019, the Division of Enforcement (Division) of the US Commodity Futures Trading Commission (CFTC or Commission) announced that it will work alongside the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) to investigate foreign bribery and corruption relating to commodities markets.[1] CFTC Enforcement Director James McDonald announced the agency’s new interest in this area as the Division issued an enforcement advisory on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices.[2]

For companies and individuals who participate in the markets for commodities and derivatives — or whose activities may impact those markets — the CFTC announcement adds a new dimension to an already crowded and complex landscape for anti-corruption enforcement. A range of industries, including energy, agriculture, metals, financial services, cryptocurrencies, and beyond, must now consider the CFTC and the CEA when assessing global compliance and enforcement risks relating to bribery and corruption. This article summarizes the new developments and outlines key considerations for industry participants and their legal and compliance teams. Continue reading

The Weakness in Two-Factor Authentication—Your Lost Phone Policy

by Avi Gesser, John R. Kapp, and Michelle Adler

Two-Factor authentication is one of the most common measures that companies use to reduce cyber risk, but it is not very effective if companies don’t also have a good lost phone protocols.

Various regulations and industry rules require two-factor authentication (also referred to as multi-factor authentication or MFA) including the NYDFS cyber rules (PDF: 97.5 KB), the NIST identification and authentication requirements, the Payment Card Industry (PDF: 1.05 MB) (“PCI”) Data Security Standard 8.3, as well as the proposed amendments to GLBA.

MFA involves confirming that a purposed user of a certain login credential and password is actually the authorized user, by employing an additional verification method, such as a passcode sent to an employee’s phone by text message or through an authenticator app like Duo or Google Authenticator.  But, not all forms of verification are equal.  In 2016, the NIST considered not recommending SMS messages as a form of second-factor authentication due to their susceptibility to being redirected by attackers. Continue reading

The Future of Anti-Corruption Enforcement Involving Brazil and the United States

by Bruce E. Yannett, David. A. O’Neil, Andrew M. Levine, Kara Brockmeyer, and Daniel Aun

The beginning of the year allows us to look back at recent developments in the white collar front involving Brazil and the United States, and prompts us to consider what to expect going forward, especially in light of the election of President Jair Bolsonaro and the appointment of former judge Sergio Moro as Minister of Justice. 

Lava Jato, Carne Fraca, and Zelotes are among the Brazilian anti-corruption operations that have echoed in the United States over the last few years.  Intensified cooperation between authorities in the two countries has fueled countless investigations, settlements, convictions, and related civil litigation.  U.S. criminal enforcement also has reverberated in Brazil, with the FIFA prosecutions being perhaps the most headline-making example.  Continue reading

CFTC Publishes Examination Priorities for 2019

By Seth Davis, Paul M. ArchitzelPetal P. Walker and Joseph M. Toner

On February 12, 2019, the Commodity Futures Trading Commission (CFTC or Commission) published for the first time its examination priorities for the coming year.[1] The release of the priorities will provide legal and compliance staff of CFTC-regulated entities greater insight into the Commission’s examination programs and assist them in better preparing for, and successfully navigating, an examination. The Commission bases its priorities on four pillars: (1) effective communication, (2) a risk-based determination of priorities, (3) continuous improvement and (4) efficiency. Continue reading

Strong Whistleblower Protections Reflect a Positive Compliance Culture

By Maria T. Vullo

In a recent submission (PDF: 2.36 MB) to Congress, the U.S. Securities & Exchange Commission (SEC) reported that, for fiscal year 2018, the SEC paid the largest whistleblower awards since the institution of its program in 2012 following the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  Specifically, in FY 2018, the SEC awarded 13 individuals over $168 million collectively for tips that led to actions by the SEC to protect investors.[1]

Other statutes likewise provide financial incentives to whistleblowing.  Under the False Claims Act (FCA), for example, persons who report fraud in government contracting can receive up to 30 percent of the government’s recovery in an action.  Many states, including New York, have enacted state-level equivalents of the FCA.  For many decades, the FCA has contributed to large recoveries to the U.S. Treasury, with an expansion of recoveries in part due to the reporting of violations by whistleblowers. Continue reading