Category Archives: Securities and Exchange Commission (SEC)

Creating a Culture of Compliance

by Michael C. Neus

Many constituents have a vested interest in determining a firm’s culture of compliance:  regulators, investors, prospective employees, among others.  Investment advisers registered with the Securities and Exchange Commission must demonstrate their compliance culture during periodic examinations by the Office of Compliance, Inspection and Examinations.  Current and former SEC examination staff often state that the primary indicator of a healthy compliance culture is the “tone from the top.”  There are a number of steps that a firm can take to demonstrate that top management fosters an effective compliance culture. Continue reading

“The Big Chill”: Personal Liability and the Targeting of Financial Sector Compliance Officers

by Court E. Golumbic

Introduction   

Prominent law enforcement and regulatory officials have referred to financial sector compliance officers, as “essential partners”[1] in ensuring compliance with relevant laws and regulations, whose “difficult job[s]” merit “appreciat[ion] and respect.”[2] Officials have noted the critical role these professionals play in shaping the culture of financial institutions, as well as the industry more generally.[3] However, a series of recent enforcement actions in which financial sector compliance officers have been personally sanctioned[4] has strained this partnership, fueling concerns among financial sector compliance officers that they are being unfairly targeted.[5]

Law enforcement and regulatory officials have responded to these concerns with assurances that both the ethos of a partnership and their even-handed enforcement approach remain intact.[6] Officials have stressed that in the rare instances in which financial sector compliance officers have been held personally accountable, the majority had engaged in affirmative misconduct.[7] Rarer still, they contend, are cases where compliance officers were found to have exhibited “wholesale” or “broad-based” failures in carrying out responsibilities assigned to them.[8] In these particular cases, officials have stressed that the enforcement actions proceed only when, after carefully weighing the evidence, the facts indicate that the compliance officers “crossed a clear line.”[9] Continue reading

Securities Fraud Class Action Suits following Cyber Breaches: The Trickle Before the Wave

by Michael S. Flynn, Avi Gesser, Joseph A. Hall, Edmund Polubinski III, Neal A. Potischman, Brian S. Weinstein, Peter Starr and Jessica L. Turner

Overview

Large-scale data breaches can give rise to a host of legal problems for the breached entity, ranging from consumer class action litigation to congressional inquiries and state attorneys general investigations.  Increasingly, issuers are also facing the specter of federal securities fraud litigation.[1]

The existence of securities fraud litigation following a cyber breach is, to some extent, not surprising.  Lawyer-driven securities litigation often follows stock price declines, even declines that are ostensibly unrelated to any prior public disclosure by an issuer.  Until recently, significant declines in stock price following disclosures of cyber breaches were rare.  But that is changing.  The recent securities fraud class actions brought against Yahoo! and Equifax demonstrate this point; in both of those cases, significant stock price declines followed the disclosure of the breach.  Similar cases can be expected whenever stock price declines follow cyber breach disclosures.  Continue reading

Oral Downloads of Interview Memoranda to Government Regulators Waive Work Product Protection

by Andrew J. Ceresney, Bruce E. Yannett, Kara N. Brockmeyer, Robert B. Kaplan, Julie M. Riewe, Colby A. Smith, Jonathan R. Tuttle, Ada Fernandez Johnson, and Ajani B. Husbands

In a decision that makes clear the importance for counsel conducting internal investigations to think carefully about the consequences of providing oral summaries of witness interviews to government investigators, a federal Magistrate Judge recently held that a law firm waived work product protection for its interview memoranda when counsel provided oral downloads of those interviews to the U.S. Securities and Exchange Commission (“SEC”).[1] Noting that “very few decisions are consequence free events,” the Court held that there was “little to no substantive distinction” for purposes of work product waiver between providing the actual notes and memoranda and reading or orally summarizing the notes. The Court, however, rejected the notion that a waiver of work product protection extends to information the law firm shared with its client’s accounting firm, holding that the accounting firm and the company shared a “common interest.” Continue reading

Roadmap to an Effective Annual Review

by Michael C. Neus

As the year ends, SEC registered investment advisers to private funds start considering how to assess their firm’s compliance culture.  The Advisers Act of 1940 requires a formal annual review of the adequacy of “written policies and procedures reasonably designed to prevent violation of securities laws.”[1]  In other words, every year Chief Compliance Officers ask themselves how they can actually demonstrate their effectiveness.

Rather than viewing this process as a comprehensive narrative report identifying all deficiencies, perhaps a more useful construct is to think of the annual review as a way of collating and assessing activity throughout the year.  Paradoxically, assembling information used throughout the year makes the process easier than attempting a comprehensive one-shot evaluation.[2]   Effective annual reviews are more like a movie than a photograph. Continue reading

Behind the Annual SEC Enforcement Report: 2017 and Beyond, Part III

by Urska Velikonja

The following is the third post in a series of three on recent SEC enforcement. The full report can be accessed here. A note of caution to the readers: the SEC does not share enforcement data. All three posts are based on a database of SEC enforcement actions I have put together along with several research assistants, covering the period between 2007 and 2017. The data was collected by hand, and reviewed at least once. Entries were compared with SEC releases and reports, but the chance of error remains.

Litigation Venue

The Dodd-Frank Act authorized the SEC to bring almost any enforcement action in an administrative proceeding. Before Dodd-Frank, the SEC could secure civil fines against registered broker-dealers and investment advisers in administrative proceedings, but had to sue in court non-registered firms and individuals, including public companies and executives charged with accounting fraud, as well as traders charged with insider trading violations. After the Dodd-Frank amendment, save for a few remedies that can only be obtained in court, the SEC can choose the forum in which it prosecutes enforcement actions. Continue reading

Behind the Annual SEC Enforcement Report: 2017 and Beyond, Part II

by Urska Velikonja

The following is the second post in a series of three on recent SEC enforcement. The full report can be accessed here. A note of caution to the readers: the SEC does not share enforcement data. All three posts are based on a database of SEC enforcement actions I have put together along with several research assistants, covering the period between 2007 and 2017. The data was collected by hand, and reviewed at least once. Entries were compared with SEC releases and reports, but the chance of error remains.

I. Enforcement Against Entities

The first post observed that enforcement against individual defendants remained largely unchanged in the second half of the 2017 fiscal year. Enforcement against entities, on the other hand, has changed quite substantially. Fewer entities were targeted in actions brought in the second half of FY 2017: 34% of defendants (165 of 488) in standalone actions in the second half were entities, compared with 47% (201 of 427) in the first half of the year. Continue reading

Behind the Annual SEC Enforcement Report: 2017 and Beyond, Part I

by Urska Velikonja

The following is the first post in a series of three on recent SEC enforcement. The full report can be accessed here. A note of caution to the readers: the SEC does not share enforcement data. All three posts are based on a database of SEC enforcement actions I have put together along with several research assistants, covering the period between 2007 and 2017. The data was collected by hand, and reviewed at least once. Entries were compared with SEC releases and reports, but the chance of error remains.

Last week, the SEC released its enforcement report for fiscal year 2017. In it, the SEC reported moderate declines in the number of filed enforcement actions, 754 compared with 868 in fiscal year 2016, and in the total monetary penalties ordered, $3.8 billion compared with $4.1 billion in fiscal 2016. The narrative accompanying the release suggests that despite the change in SEC leadership, enforcement remains consistent. Continue reading

Reflections on the Past, Present, and Future of the SEC’s Enforcement of the Foreign Corrupt Practices Act

New York University School of Law, New York, NY

Nov. 9, 2017

Good afternoon, and thank you for inviting me to speak today. Before I begin, let me give the required disclaimer that the views I express here today are my own and do not necessarily represent the views of the Commission or its staff.[1]

I am honored to be here to mark with you the 40th anniversary of the enactment of the Foreign Corrupt Practices Act (FCPA) and the 20th year of the OECD anti-bribery convention. I want to thank New York University’s Program on Corporate Compliance and Enforcement for hosting this event. Programs like this one provide important forums for dialogue on critical enforcement issues, and I am pleased that this gathering has assembled so many familiar and distinguished practitioners in FCPA enforcement, our colleagues in domestic and international law enforcement, and academics who are interested in this space. Collaboration and coordination is integral to the Division of Enforcement’s efforts to combat bribery through the enforcement of the FCPA, and the OECD has played a pivotal role in fostering global efforts against bribery and corruption.

Continue reading

Acting Assistant Attorney General Kenneth Blanco Keynote Address on FCPA and Anti-Bribery Convention

by Kenneth A. Blanco

Acting Assistant Attorney General Kenneth A. Blanco Delivers Remarks at FCPA/OECD Anniversary Conference Organized by the DOJ, OECD, and SEC, and Hosted by PCCE November 9, 2017

Good morning and thank you for that kind introduction, Sandra.

It is a pleasure to be here today.  I want start to by thanking the U.S. Securities and Exchange Commission (SEC) and the Organization for Economic Cooperation and Development (OECD) for co-organizing this event with the Department of Justice.  I also want to thank the New York University School of Law for hosting us.

Today, I have the honor and the privilege of speaking with you as the Acting Assistant Attorney General for the Criminal Division of the United States Department of Justice.

As many of you know, the Criminal Division spearheads the Department’s efforts in financial investigations, transnational crime, health care fraud, securities fraud, intellectual property theft, computer hacking, money laundering, sanctions violations, illicit finance, asset recovery, and, of course, the Foreign Corrupt Practices Act (FCPA) and kleptocracy initiative, to name just a few areas in which we are leading.

Continue reading

Follow

Follow this blog

Get every new post delivered right to your inbox.

Email address