Wind of Change*: A New Model for Incentivizing Antitrust Compliance Programs
Makan Delrahim Assistant Attorney General
U.S. Department of Justice
Remarks as Prepared for Delivery at New York University School of Law Program on Corporate Compliance and Enforcement (July 11, 2019)
Thank you, Professor First for your kind introduction and for inviting me back to this great institution. Let me also thank Professor Jennifer Arlen and Executive Director Allison Caffarone, along with everyone involved in the Program on Corporate Compliance and Enforcement (PCCE), for organizing this event. You should be proud of the incredible enduring program you have developed exploring the causes of corporate misconduct and the nature of effective enforcement and compliance.
It is great to be back at NYU Law School and to be joined by many colleagues from across the Department of Justice and other government officials, scholars, and leaders in the antitrust bar and the world of corporate compliance. Continue reading →
The Supreme Court has updated an important Freedom of Information Act (“FOIA”) exemption for the digital age. In Food Marketing Institute v. Argus Leader Media (PDF: 125 KB), the Supreme Court last week significantly expanded the scope of FOIA Exemption 4. FOIA Exemption 4 is the exemption most commonly claimed by private-sector entities when seeking to protect competitively sensitive information that must be disclosed to a federal agency. It shields from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” Beginning with a D.C. Circuit decision in 1974, National Parks & Conservation Ass’n v. Morton, 498 F.2d 765 (D.C. Cir. 1974), courts have interpreted FOIA Exemption 4 narrowly. For commercial or financial information to be “confidential,” a number of federal courts of appeals have required a showing of “substantial competitive harm” from disclosure. Proving “substantial competitive harm” has proven difficult in practice, and, in this digital age, there is an increasing awareness that information and data are valuable. The majority opinion in Food Marketing, written by Justice Gorsuch, squarely repudiated the “substantial competitive harm” test in favor of a less difficult standard, thereby broadening Exemption 4.
It is significant that the justices were unanimous in rejecting the “substantial competitive harm” test. They disagreed about whether harm has any role to play in Exemption 4. In an opinion concurring in part and dissenting in part, Justice Breyer explained that he “would clarify that a private harm need not be ‘substantial’ so long as it is genuine.” In contrast, the majority wouldn’t apply a harm test at all, arguing that such a test is not supported by the statute. Instead, the majority explained its test as follows: Continue reading →
DOJ Issues Guidance on Cooperation In False Claims Act Investigations
On May 7, 2019, the Department of Justice (“DOJ” or “the Department”) issued formal guidance to DOJ’s False Claims Act (“FCA”) litigators on the circumstances in which DOJ will grant credit for cooperation during FCA investigations. The guidance explains the factors that DOJ considers in determining whether to award cooperation credit in FCA investigations and the types of credit available.
Under the guidance, cooperation credit in FCA cases may be earned by voluntarily disclosing misconduct unknown to the government, cooperating in an ongoing investigation or undertaking remedial measures in response to a violation of the FCA. Aside from taking these steps, a company may receive at least partial credit by identifying individuals with relevant information about the conduct, preserving relevant documents and information beyond existing business practice or legal requirements, and assisting in an ongoing investigation by disclosing relevant facts, among others. Cooperation credit will take the form of reducing the penalties or damages multiple sought by the DOJ. The maximum credit that a defendant receives may not surpass the amount of full compensation the government would receive for losses caused by the defendant’s misconduct. This amount includes government damages, lost interest, costs of investigation and relator share. Continue reading →
On April 30, 2019, Assistant Attorney General Brian Benczkowski announced an updated version of the Evaluation of Corporate Compliance Programs (the “Updated Guidance”). This Updated Guidance supersedes a document of the same name that the Fraud Section of DOJ’s Criminal Division published online in February 2017 without any formal announcement (the “2017 Guidance”). Although not breaking much new ground, we believe the Updated Guidance can serve as a valuable resource for those grappling with how best to design, implement, and monitor an effective corporate compliance program.
In contrast to the 2017 Guidance—which listed dozens of questions to consider in evaluating a compliance program without providing much context—the Updated Guidance employs a more holistic approach. It focuses on three fundamental questions drawn from the Justice Manual:
Is the corporation’s compliance program well designed?
U.S. Supreme Court Rules That Defendants Can Be Held Primarily Liable for Securities Scheme Fraud for Knowingly Disseminating the Misstatements of Others
Yesterday, in a widely watched securities case, the U.S. Supreme Court held in Lorenzo v. SEC that a defendant who disseminates the material misstatement of another—and thus cannot be liable under SEC Rule 10b-5(b) for “making” the statement—can nevertheless be liable under other provisions of the securities laws that proscribe “any device, scheme, or artifice to defraud” or “any act, practice or course of business which operates or would operate as a fraud or deceit.” The Court’s decision may affect long-standing case law in various federal circuits—including those covering New York and California—which had held that alleged frauds solely involving material misstatements or omissions could not be pursued under provisions other than Rule 10b-5(b). Although Lorenzo potentially broadens the scope of conduct subject to securities fraud liability based on dissemination of material misstatements, the opinion emphasizes certain factual circumstances present in this case that may limit its future application in other circumstances. Continue reading →
On February 12, 2019, the Commodity Futures Trading Commission (CFTC or Commission) published for the first time its examination priorities for the coming year. 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 →
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.
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 →
In 2014, the Securities and Futures Commission (the “SFC”) commenced an investigation into share trades undertaken by the First Applicant in 2013, after receiving a report from another licensed corporation indicating suspected market manipulation activities by a fund managed by the First Applicant. The trades concerned shares in Nitto Denko Corporation, a Japanese company listed on the Tokyo Stock Exchange.
During the course of the investigation, the SFC sought and obtained various materials from the First Applicant and its majority shareholder and responsible officer, the Second Applicant, pursuant to section 181 of the Securities and Futures Ordinance (the “SFO”). This section empowers the SFC to require the production of information including information about a client, details of a transaction and instructions relating to a transaction from a licensed person. Failure to comply with a demand from the SFC under section 181 without a reasonable excuse is a criminal offence.
In July 2014, the SFC received and acceded to a request for assistance from two Japanese regulators, the Financial Services Agency (the “FSA”) and the Securities and Exchange Surveillance Commission (the “SESC”). In particular, the SFC permitted the Japanese regulators to attend an SFC interview with the Second Applicant and provided them with materials previously disclosed by the Applicants in response to the SFC’s requests for information. Continue reading →
New cyber regulations, such as the California Consumer Privacy Act, have companies concerned about expanding potential liability. Companies fear that private rights of action are being created that will allow consumers to sue by alleging that the companies failed to protect their personal information. But attention should also be paid to plaintiffs’ recent successes in applying existing legal frameworks—such as basic tort law—to cyber cases. We have previously written about the use of state consumer protection acts to recover in data breach cases. Recently, plaintiffs have also made some significant inroads in bringing negligence actions against companies that have experienced cyber events.
On January 28, 2019, the U.S. District Court for the Northern District of Georgia issued a decision in the Equifax Consolidated Consumer Class Action, allowing the consumers’ negligence claims against Equifax to move forward. Judge Thrash found that the consumers had sufficiently alleged injuries resulting from the breach, pointing to the “unauthorized charges on their payment cards as a result of the Data Breach” as actual, concrete injuries that are legally cognizable under Georgia law. The Court rejected Equifax’s arguments that the consumer’s injuries should be attributed to the hackers and could have been caused by data breaches at other companies. The Court noted that allowing companies “to rely on other data breaches to defeat a causal connection would ‘create a perverse incentive for companies: so long as enough data breaches take place, individual companies will never be found liable.’” Critically, the Court found that, given the foreseeable risk of a data breach, Equifax owed consumers an independent legal duty of care to take reasonable measures to safeguard their personal information in Equifax’s custody. In doing so, the Court found that the economic loss doctrine was not a bar to the consumers’ recovery because Equifax owed an independent duty to safeguard personal information. Continue reading →
Since leaving the Securities and Exchange Commission in 2004, I’ve done my share of critiquing SEC enforcement policy. So it’s only fair, nearly two years into the tenure of current SEC leadership, to give credit where it’s due.
And as it happens, plenty of credit is due in at least six areas of SEC enforcement policy:
About ten years ago, the SEC departed from historical practice by delegating to senior enforcement staff the commissioners’ legal responsibility for launching formal investigations and unleashing the power to issue subpoenas. Some of us publicly expressed concerns at the time about this dilution of political accountability, given the severe reputational harm and financial expense that can result from investigations, even if no wrongdoing is ever uncovered. Continue reading →