Compliance Bricks and Mortar for August 2

Bricks 6

These are some of the compliance-related stories that recently caught my attention.

At SAC, Rules Compliance With an ‘Edge’ by James B. Stewart in the New York Times

Whatever else might be said about SAC’s compliance program, the bottom line is that it failed. Whether that failure can be attributed to Mr. Cohen or his top compliance officials remains to be seen. But Mr. Pitt, for one, came away from his visit to the firm unimpressed. “My sense was that it was a check-the-box mentality, not a serious commitment,” Mr. Pitt told me.

The Indictment of S.A.C. Capital Advisors: Where Was The Auditor? by Francine McKenna in re: The Auditors

Looks like investors can’t count on “independent” auditors like PwC, which was also MF Global’s “independent” auditor, to spot illegal activity either.

Sun Capital Court Ruling Threatens Structure of Private Equity by Victor Fleischer in Dealbook

Last week, the United States Court of Appeals for the First Circuit issued a ruling that will make it harder for private equity funds to walk away from the unfunded pension liabilities of companies they have bought if the company goes bankrupt.

Specifically, the court ruled that one of Sun Capital’s private equity funds was “not merely a ‘passive’ investor” but actively involved in the operations of Scott Brass Inc., a portfolio company that went bankrupt in 2008. The case was brought by the New England Teamsters and Trucking Industry Pension Fund.

Avoiding five potential traps in “new” Rule 506 offerings by David C. Scileppi in Securities Edge

The removal of the ban is a huge change in the way private offerings may be conducted and welcome relief to the thousands of issuers each year who have tapped out their “friends and family,” but yet are too small to attract private equity funds.  With these new changes, however, bring challenges in making sure you conduct a “new” Rule 506 offering (a/k/a Rule 506(c) offering) correctly.

So, with the caveat that best practices are still being developed for Rule 506(c) offerings and issuers and attorneys are still parsing through the new rules, here are five potential pitfalls to avoid: ….

Criminal Forfeiture and SAC Capital by David Smyth and Wes Camden in Cady Bar the Door

But in the event of a conviction, the criminal case does have at least one prominent feature that the SEC’s case does not: the prospect of a massive criminal forfeiture of assets gained by any criminal conduct.  In addition to the indictment, prosecutors filed a civil forfeiture complaint for what it alleges is money laundering activity by the defendants.  The Wall Street Journal reported on Thursday that the government will seek forfeiture of around $10 billion, “according to a person familiar with the matter.”