Requires Description of any Hedging Policies or Practices Adopted, Not Specified Transactions; Will Apply to Most Companies Beginning in 2020
On December 18, 2018, the SEC adopted rules requiring disclosure of policies and practices regarding hedging for directors, officers and employees of U.S. public companies. These rules require public companies to describe, in any proxy or information statement relating to director elections, any practices or policies they have adopted regarding the ability of its directors, officers or employees to engage in transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities of the public company or its affiliates. The rules cover both equity securities granted as part of compensation and those otherwise held directly or indirectly.
The final rules do not require any company to prohibit hedging transactions or to otherwise adopt hedging policies and do not require disclosure of any particular hedging transactions.
These rules will generally apply to proxy and information statements with respect to the election of directors during fiscal years beginning on or after July 1, 2019, although there is a one-year transition period for emerging growth companies and smaller reporting companies. Continue reading →
FinCEN and Federal Financial Institution Supervisory Agencies Issue Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing
On December 3, 2018, the Financial Crimes Enforcement Network (“FinCEN”) and the four federal financial institution supervisory agencies (“the agencies”) issued a joint statement (“Joint Statement”) encouraging banks (i.e., banks, savings associations, credit unions, and foreign banks) “to consider, evaluate, and, where appropriate, responsibly implement innovative approaches to meet their Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations, in order to further strengthen the financial system against illicit financial activity.”Continue reading →
A little-noticed consent decree entered into by the U.S. Securities and Exchange Commission earlier this year should be setting off alarm bells for financial firms and their boards of directors.
In a cease and desist order against Voya Financial Advisors, the investment advisory unit of Voya Financial, the SEC – for the first time – enforced its “Identity Theft Red Flags Rule” in punishing the firm for allegedly lackluster data security practices. The SEC charged that hackers were able to access sensitive client information including Social Security Numbers, account balances and even details of client investment accounts. The commission called out the company’s board of directors for failing to “administer and oversee” compliance with the rule. Continue reading →
A new Department of Justice policy (the “Policy”) modifies critical elements of the prominent 2015 “Yates Memorandum” on individual accountability. Introduced on November 29 by Deputy Attorney General Rod J. Rosenstein (the “DAG”), the Policy is manifested, in part, by specific revisions toJustice Manual (previously referred to as the U.S. Attorneys’ Manual).
The Policy clarifies the relationship between the scope of a defendant’s disclosures regarding individuals and qualifying for cooperation credit, particularly in the context of civil litigation. In so doing, it also raises critical compliance oversight issues for corporate governance. Continue reading →
On November 15, 2018, the Division of Enforcement (the “Division”) of the U.S. Commodity Futures Trading Commission (“CFTC”) released its Annual Report on the Division of Enforcement (PDF: 1.95 MB) (the “Report”), highlighting the enforcement division’s recent initiatives and reinforcing its focus on cooperation and self-reporting. The Report provides a succinct overview of the Division’s enforcement priorities over the last year, discusses its overall enforcement philosophy, sets out key metrics about the cases brought in the last year, and highlights its key initiatives for the coming year. While the Division’s priorities—preserving market integrity, protecting customers, promoting individual accountability, and increasing coordination with other regulators and criminal authorities—do not mark a departure from prior guidance, the Report does highlight the Division’s particular focus on individual accountability and a few target areas of enforcement. Continue reading →
In a pair of settled enforcement actions announced on November 16 in which it concluded that initial coin offerings conducted by Paragon Coin, Inc. (PDF: 232 KB) and AirFox (PDF: 223 KB) were illegal unregistered securities offerings, the SEC imposed an agreed-upon remedy that it will likely seek to use as the template for resolving its backlog of investigations into recent ICOs. Significantly, both ICOs took place after the SEC issued its July 2017 Section 21(a) report (PDF: 168 KB) addressing a crypto-token offering by The DAO, where the SEC warned the market (PDF: 169 KB) that some ICOs may violate the federal securities laws.
Neither Paragon nor AirFox agreed to conduct a “rescission offer” whereby the company would offer to repurchase the illegally offered tokens and any investor who declined the offer would retain freely tradable tokens (a remedy that Googleundertook shortly after its IPO in order to resolve claims that certain pre-IPO compensatory equity grants were made in violation of the registration provisions of the Securities Act of 1933). Instead, each company agreed to distribute a “claim form” to all token purchasers offering return of the consideration paid, plus interest, in exchange for tender of the tokens, or offering damages to token purchasers who no longer hold their tokens. Purchasers of tokens located outside the United States are apparently not excluded from participation. Each company was also fined $250,000 and required to register its token as a security and become an SEC-reporting company for at least one year. Continue reading →
OCC’s New and Revised Sections of Policies and Procedures Manual Relating to Enforcement Actions Suggest Continued Heightened Interest in Actions Against Individuals
Historically, the Office of the Comptroller of the Currency (the “OCC”) has applied a single set of internal policies and procedures to enforcement actions brought against individuals (institution-affiliated parties (“IAPs”)) and institutions (national banks, federal savings associations, and federal branches and agencies of foreign banks (collectively, “banks”)). On November 13, the OCC issued a new section to its Policies and Procedures Manual (“PPM”) specific to enforcement actions against IAPs (the “IAP PPM”) and simultaneously updated the existing sections for Bank Enforcement Actions and Related Matters (the “Bank PPM”)and for Civil Money Penalties (“CMPs”) (the “CMP PPM”). The new IAP PPM generally breaks no new ground, and most changes to the Bank PPM and CMP PPM align those two sections with, and reflect the issuance of, the IAP PPM. There are, however, several notable additions and modifications to the new and revised sections that serve to improve the clarity and transparency of the OCC’s enforcement action process.
Beyond those distinctions, the issuance of a standalone IAP PPM suggests a continued, if not increased, focus by the OCC on actions against IAPs going forward, and is consistent with the broader theme, evidenced over the last several years, of regulatory and law enforcement focus on holding individuals accountable in cases of financial institution wrongdoing. The new OCC IAP PPM suggests a continual focus on holding individuals accountable for corporate misconduct in the financial industry. Continue reading →
The settled order is the first SEC action charging a seller of digital tokens as an unregistered broker-dealer.
On September 11, 2018, the U.S. Securities and Exchange Commission (SEC) announced a settled order instituting cease-and-desist proceedings and imposing remedial sanctions against TokenLot LLC (TokenLot), a self-described “ICO Superstore,” and its owners in connection with their sales of digital tokens to the general public through a website. The SEC found that TokenLot and its owners acted as unregistered broker-dealers in violation of Section 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and engaged in unregistered securities offerings in violation of Section 5 of the Securities Act of 1933 (Securities Act). Continue reading →
Over 3,000 commenters submitted letters to the Securities and Exchange Commission (“SEC”) concerning the agency’s recently proposed amendments to its whistleblower rules. This response reflects the perceived importance of the SEC’s proposal to companies and employees.
The most controversial of the proposed amendments would allow the SEC discretion to decrease the size of an award if it determines that the award would otherwise be too large to advance the goals of the whistleblower program. Under current rules, if a whistleblower qualifies for an award, the SEC determines the size of the award by considering a number of specified factors that can increase or decrease the award amount within the range of 10 to 30 percent of the monetary sanctions recovered. To decrease the amount of an award, the SEC can consider only the culpability of the whistleblower; whether the whistleblower unreasonably delayed reporting the misconduct to the SEC; and whether the whistleblower interfered with the company’s internal compliance and reporting systems.Continue reading →
On July 12 and 16, 2018, the U.S. Commodity Futures Trading Commission (“CFTC”) announced two awards to whistleblowers, one its largest-ever award, approximately $30 million, and another its first award to a whistleblower living in a foreign country. These awards—along with recent proposed changes meant to bolster the Securities and Exchange Commission’s (“SEC” or “Commission”) own whistleblower regime—demonstrate that such programs likely will continue to be significant parts of the enforcement programs of both agencies and necessarily help shape their enforcement agendas in the coming years.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) authorized the CFTC to pay awards of between 10 and 30 percent to whistleblowers who voluntarily provide original information to the CFTC leading to the successful enforcement of an action resulting in monetary sanctions exceeding $1 million. Following the introduction of implementing rules, the CFTC’s program became effective in October 2011. Over the next six-and-a-half years, the CFTC has paid whistleblower bounties on only four prior occasions, with awards ranging from $50,000 to $10 million. The $30 million award announced last week, thus, reflects a significant increase. This week’s award to a foreign whistleblower also represents another first for the CFTC’s program and reflects the global scope of the program. Continue reading →