Author Archives: Michelle Louise Austin

An Insider Trader’s View on the Compliance Needed to Stop Insider Trading

by Tom Hardin

“It is one of the biggest mysteries on Wall Street: Who is Tipper X, the secret witness at the center of the biggest insider-trading case in a generation? The answer is Thomas Hardin — a young investment analyst who, the authorities claim, traded on inside information and may now lead prosecutors to other crucial players…” – New York Times, January 12, 2010

In 2007, while working at a small hedge fund as a 29-year-old technology stock analyst, I received material nonpublic information (MNPI) from another investor on four occasions; three tips regarding upcoming corporate M&A deals and one tip with information about a company’s quarterly earnings announcement. I placed four trades in those shares (in my mind “small” trades). I did not hesitate to make the trades as trading on MNPI seemed rampant within the technology and healthcare stock analyst communities at the time. One well-regarded tech stock focused hedge fund had several of their largest 2006 winning positions as targets of corporate takeovers. Ultimately, my faulty rationalizations led to a career ending, life-altering situation. In July 2008, I was approached by FBI agents on the street outside my apartment and given the chance to help them build larger cases. I became known as “Tipper X” and was credited with helping the FBI build over 20 of the 80+ cases in Operation Perfect Hedge, a Wall Street house cleaning campaign that morphed into the largest insider trading investigation of a generation. Continue reading →

SEC Releases New Guidance on Cybersecurity Disclosures and Controls

by John F. Savarese, David A. Katz, Wayne M. Carlin, David B. Anders, Sabastian V. Niles, Marshall L. Miller, and Jonathan Siegel

Yesterday, in keeping with a heightened governmental focus on cybersecurity, as exemplified by the Justice Department’s formation of a new Cyber-Digital Task Force (PDF: 62 KB) earlier this week, the Securities and Exchange Commission announced new guidance on cybersecurity disclosures by public companies (the “Guidance (PDF: 139 KB)”).

Much of the Guidance tracks 2011 interpretive guidance from the SEC’s Division of Corporation Finance and retains a focus on “material” cyber risks and incidents.  However, the expanded details and heightened pressure to disclose indicated in the Guidance, along with its issuance by the Commission itself, signal that the SEC expects public companies to consider more detailed disclosure of cyber risks and incidents, and to maintain “comprehensive” policies and procedures in this area.  The SEC is also encouraging, though not requiring, forward-leaning approaches, such as with respect to disclosures about the company’s cyber risk management programs and the engagement of the board of directors with management on cybersecurity issues.  SEC Chairman Jay Clayton has also directed (PDF: 92 KB) SEC staff to monitor corporate cyber disclosures. Continue reading →

Recent Decision Finds Waiver Based on “Oral Downloads” to the SEC

by Brad S. Karp, Jessica S. Carey, Andrew J. Ehrlich, Roberto Finzi, Michael E. Gertzman, Michele Hirshman,  Daniel J. Kramer, Lorin L. Reisner, Richard A. Rosen, Audra J. Soloway, Richard C. Tarlowe, Andrew D. Reich, and Joseph Delich

A federal magistrate judge in the Southern District of Florida recently ruled that a law firm had waived work product protection over notes and memoranda of witness interviews when it provided “oral downloads” of those interviews to the Securities and Exchange Commission (“SEC”).

In a December 5, 2017 opinion, SEC Herrera, No. 17-cv-20301 (S.D. Fla. Dec. 5, 2017), Magistrate Judge Jonathan Goodman indicated that he was “not convinced” that “there is a meaningful distinction between the actual production of a witness interview note or memo and providing the same or similar information orally.”[1]

The opinion serves as an important reminder of the risks of waiver—and the need to take steps to minimize those risks—when disclosing information to a government agency. Continue reading →

English Litigation Privilege in Internal Investigations: Not Quite Dead Yet?

by Kelly Hagedorn

Following the decisions in The RBS Rights Issue Litigation[1] and Serious Fraud Office v Eurasian Natural Resources Corporation Limited[2] (“ENRC”), it was thought that the prospect of claiming legal professional privilege in English proceedings over interview memoranda generated during internal investigations was slim (see our client alert on those two cases (PDF: 172 KB)).  However, a recent decision of the English High Court in Bilta (UK) Limited and Others v (1) Royal Bank of Scotland Plc (2) Mercuria Energy Europe Trading Limited[3] (“Bilta”) has refused the disclosure of interview memoranda on the basis of litigation privilege, providing a glimmer of hope for corporates who seek to protect such documents from disclosure. Continue reading →

Section 7 of the United Kingdom Bribery Act 2010 and the “Fair Warning Principle”

by Jonathan J. Rusch

As governments around the world watch the rising tide of public sentiment and law enforcement actions against corruption,[1] some are looking to the United Kingdom Bribery Act 2010 (the “Act”) as a model for crafting their own criminal sanctions, including with regard to corporate criminal liability.[2]  Section 7 of the Act, which is captioned, “Failure of commercial organization to prevent bribery,” defines the offense in just 45 words:

A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending—

(a) to obtain or retain business for C, or

(b) to obtain or retain an advantage in the conduct of business for C.[3]

Unless the company, as an affirmative defense, can “prove that [it] had in place adequate procedures designed to prevent persons associated with [it] from undertaking such conduct,”[4] it faces a criminal fine without statutory limit.[5] Continue reading →

Deliberate Data Breaches: Consequences for Companies Just Got Even Tougher

by Kelly Hagedorn, Tracey Lattimer, Emily Bruemmer, and Jennifer Yun

In today’s world, data breaches are a regular occurrence.  The size and scale varies, and they have different causes, but those matters are irrelevant if you are a data subject affected – you just want the situation resolved and compensation for any losses you suffer.  Who should be responsible for those breaches?  Where a company has not taken sufficient steps to safeguard personal data, the answer is obvious.  But what about where a rogue employee leaks personal data with the deliberate intention of harming his employer?  The English High Court has recently decided that even in that instance, the employer is liable to data subjects.  Although there is no specific case on this point, we believe that a similar outcome would be reached in an action under US law. Continue reading →

Federal Reserve Takes Severe and Unprecedented Action Against Wells Fargo: Implications for Directors of All Public Companies

by Edward D. Herlihy, Richard K. Kim, and Sabastian V. Niles

In a stinging rebuke, the Federal Reserve on February 2nd issued an enforcement action barring Wells Fargo from increasing its total assets and mandating substantial corporate governance and risk management actions.  The Federal Reserve noted in its press release that Wells will replace three current board members by April and a fourth board member by the end of the year.  In addition, the Federal Reserve released three supervisory letters publicly censuring Wells’ board of directors, former Chairman and CEO John Stumpf and a past lead independent director.  These actions are a sharp departure from precedent, both in their severity and their public nature.  They come on the heels of significant actions already taken by Wells, including appointing a former Federal Reserve governor as independent Chair and replacing a number of independent directors as well as its General Counsel.  Continue reading →

DOJ Creates Potential Opening for Early Dismissal of False Claims Act Suits

By Mark P. Goodman, Maura Kathleen Monaghan, and Jacob W. Stahl

The Department of Justice (the “DOJ”) recently released a memorandum outlining circumstances under which it may seek early dismissal of actions brought under the False Claims Act (the “FCA”). Companies subject to FCA litigation brought by relators may be able to use this memorandum to encourage the DOJ to shut down the litigation (ideally, at an early stage). Continue reading →

The New DOJ FCPA Corporate Enforcement Policy Highlights the Continued Importance of Anti-Corruption Compliance

by Lisa Vicens, Jonathan Kolodner, and Eric Boettcher

In a significant development for companies relating to the Foreign Corrupt Practices Act (FCPA), in late November the U.S. Department of Justice (DOJ) announced a new FCPA Corporate Enforcement Policy (the Enforcement Policy).

The Enforcement Policy[1] is designed to encourage companies to voluntarily disclose misconduct by providing greater transparency concerning the amount of credit the DOJ will give to companies that self-report, fully cooperate and appropriately remediate misconduct. Notably, in announcing the Enforcement Policy, the DOJ highlighted the continued critical role that anti-corruption compliance programs play in its evaluation of eligibility under the Enforcement Policy. Continue reading →