These are some compliance-related stories that recently caught my attention:

The Fallout from the Latest NLRB Salvo on Social Media by Daniel Schwartz In Connecticut Employment Law Blog

[E]very pronouncement from the NLRB is treated as if it is written in stone with lots of suggestions on how to rewrite all of your policies.

The latest was an updated report last month from the NLRB on the topic again.  Rather than jump on board with a quick summary, I’ve decided to take a step back and really look at how significant this report really is.

According to Jon Hyman at the Ohio Employer’s Law Blog, it’s a ”mess.  In a mere 35 pages, the NLRB appears to have ripped the guts out of the ability of employers to regulate any kind of online communications between employees.”

Stressed-Out Compliance Officers May Soon Feel Even More Heat From SEC by Bruce Carton in Compliance Week’s Enforcement Action

Unfortunately, this stress level is about to go even higher for compliance officers at investment firms if the SEC follows through on a recent decision that such compliance officers may themselves be sued as “supervisors.” According to Investment News, the SEC “sees compliance as an area ripe for scrutiny.” At a compliance seminar in January, the SEC Enforcement Division’s Bruce Karpati, co-chief of the Asset Management Unit, said that “compliance programs are front and center for us. There’s going to be more soon on that in terms of enforcement actions.”

Crowdfunding and Other Recent Legislative Initiatives Focused on Capital Raising and Job Creation by Louis A. Bevilacqua, Joseph R. Tiano, Jr., David S. Baxter, Ali Panjwani and K. Brian Joe In Pillsbury’s Investment Fund Law Blog

This article summarizes various legislation introduced in Congress that would make it easier for smaller companies to raise capital and would lessen the regulatory burden on those companies.

2011 Annual FISMA Executive Summary Report (.pdf) from the SEC’s Office of Inspector General

The purpose of this law is to recognize the importance of information security to the economic and national security interests of the United States. The law emphasizes the need for organizations to develop, document, and implement organization-wide programs that provide security for the information systems that support the organization’s operations and assets, as well as information systems that are provided or managed by other agencies, contractors, or other sources.

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

Private Equity Bets On Compliance Market With EthicsPoint Deal by Nick Elliott in WSJ.com’s Corruption Currents

In a further sign of rising demand for compliance services, private equity firm Riverside Co. has signed a deal to acquire EthicsPoint Inc., which it will merge with its existing portfolio companies ELT Inc. and Global Compliance Services Inc.

Treasury Will Work to Satisfy EU Privacy Concerns Regarding Provision of FATCA Information and Gradually Phase In FATCA Regulations in Jim Hamilton’s World of Securities Regulation

The Foreign Account Tax Compliance Act can be implemented in a way that is not overly burdensome when compared to its benefits and, over time, will serve as a complement and a catalyst to the ongoing global efforts to combat offshore tax evasion, said a senior Treasury official. In remarks at the annual meeting of the New York State Bar Association tax section, Acting Assistant Secretary for Tax Policy Emily McMahon said that Treasury is aware that FATCA imposes significant new duties on foreign financial institutions, but also noted that FATCA was enacted in the wake of serious offshore tax evasion.

The Gun Sting Case Defeats and What it means For FCPA Enforcement? Absolutely Nothing! by Tom Fox

In a stunning rebuke of the Department of Justice’s (DOJ) trial strategy, all defendants in the second group of Gun Sting defendants walked out of the federal courthouse, still free. Two defendants were acquitted and the remaining three defendants were granted a mistrial. One defendant was dismissed at the close of the prosecution’s case in December as was the DOJ’s Foreign Corrupt Practices Act (FCPA) conspiracy count against all defendants. So, as the FCPA Professor noted, the DOJ is 0-10 in trial prosecutions in its Gun Sting case. However, that stark number does not tell the full picture of what is going on in enforcement of the FCPA.

What everyone missed in Facebook’s IPO filing in Alison Frankel’s On The Case

The New York Times reported in Dec. 2010 that the SEC was looking into the red-hot secondary market for trading in the privately-held shares of Facebook, Zynga, LinkedIn, Twitter, and some other Internet darlings. The leading market-maker for such trading, SecondMarket, confirmed last January that it had received a voluntary request for information from the SEC (which has never confirmed the investigation). But Facebook is the first company to offer any hard facts about what the agency is probing.

My Favorite Risk Factors in the Facebook S-1 by Seattle lawyer William Carleton

1. The Threat of the Open Web
2. User Disdain for Advertising
3. Conflicts with Independent Developers
4. A Fine Point About Fiduciary Duties

These are some compliance-related stories that recently caught my attention:

Charles Ponzi

Ponzi Scheme and Investment Fraud Red Flags by Tracy Coenen in the Fraud Files Blog

How do you know if you’re considering investing in a Ponzi scheme? The promoters will never come out and tell you they are running a pyramid scheme, so the investors have to be smart enough to recognize them on their own. The good news is it is easy to spot a Ponzi scheme.

Here are some red flags about the “investment” you’re considering that might indicate it is a Ponzi scheme. (There were many red flags related to infamous scammer Bernie Madoff.) You can find out more about spotting Ponzi schemes and investment schemes in my book, Expert Fraud Investigation: A Step-by-Step Guide.

Four convicted for commercial (not government) bribery by SFO in thebriberyact.com

Amounting to around £70 million, the contracts affected were for engineering and procurement projects based in Iran, Egypt, Sakhalin Island (Russia), Singapore and Abu Dhabi, over the period 2001 to 2009….The confidential information supplied to bidders was held by companies acting as procurement agents for the projects. It is an industry where individuals who work for such companies often do so on a short term basis. Crucially, the defendants had access to inside information which they passed on to targeted bidding companies who either made, or agreed to make, corrupt payments for the information. Disguised as “consultancy services”, the illicit payments were shared out amongst the co-conspirators.”

Riverside’s Hendrickson wins PEI Leadership Award

Pam Hendrickson receives PEI’s Leadership Award for her work as an industry advocate in Washington DC and for her crucial contributions to Riverside as its chief operating officer. Pam Hendrickson, chief operating officer of global mid-market firm The Riverside Company, was last week awarded the 2012 Leadership Award by Private Equity International sister title Private Equity Manager.

Making Sense of Jones by Scott Greenfield in Simple Justice

Since the opinions were released yesterday morning, the blawgosphere has cranked out a ton of posts about what the Jones v. United States decision means. The majority decision was written by Scalia, with concurrences by Alito and Sotomayor. While it was 9-0 on outcome, it was anything but on rationale.  …

That one justice of nine seems to have some appreciation of the danger ahead, how poorly law developed to deal with normal-sized coaches and full-height constables applies in the digital age, is better than nothing.  But given how the Court broke down here, it’s clearly not good enough.

Does the plant of a GPS device on a car require a warrant? Under the particular facts of Jones, yes. (Addendum: this is the net result, not the holding of the case, which skirted the issue entirely.) Under other facts, who knows. And how does that translate to the next shiny device? Only lone Justice Sotomayor even cares, while the rest seem determined to ignore the digital age at all costs.

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

Bruce Carton’s “2011: The Year in Enforcement” in Securities Docket

2011 was another difficult year for the Securities and Exchange Commission, even though another Madoff or Stanford-like scandal didn’t emerge to bring new embarrassment. Indeed, the SEC seemed to be under attack from all sides throughout the year—by Congress, by the judiciary, by its own inspector general, by private litigation, and, of course, by the media. Here is my look back at 2011, including the good, the bad, and the ugly in the world of securities enforcement.

California Proposes Private Fund Adviser Exemption in Hedge Fund Law Blog

As a general proposition, managers who are located in California must register as an investment adviser if they are providing investment advice for compensation.  There are exemptions from the registration requirement which we have detailed previously.  Because of the changes in the statutes and regulations at the Federal level, the states are changing their laws with respect to adviser registration.  Some states, such as California (see post), have adopted interim orders for certain advisers to address gaps in the Federal and state laws until state laws or appropriate regulations can be adopted.  California is proposing to adopt laws which would exempt many hedge fund managers from registration with the California Securities Regulation Division.

TRACE Global Enforcement Report (.pdf)

International anti-bribery enforcement continues to increase worldwide, as more countries move slowly from
enacting anti-bribery laws to initiating actions to identify and prosecute the individuals and companies who break
them. The TRACE GER 2011 summarizes known international enforcement actions by countries to date. New
developments and ongoing trends are highlighted below…

Here are some compliance-related stories for Friday the 13th:

Regulatory Risk Factors in the Carlyle Group S-1 by Seattle lawyer William Carleton.

The Carlyle Group is preparing to go public. There are some interesting risk factors in the S-1 registration statement relating to use of leverage in investments, continued control of prior owners following the offering, and other topics. But I was drawn to the risk factors having to do with the regulatory environment. It’s a different angle from which to think about the financial crisis, financial regualtory reform, and the scourge of lobbying and campaign contributions.

Lawyers v. Businessmen: Where Are the Bad Men?

In the glamorous/murky/elite/financially rewarding world of commercial law is it clients or lawyers who are the bad guys?  Put another way, does business corrupt law or do lawyers corrupt business?  This is the question that lies at the heart of Parker, Rosen and Nielsen’s paper.   Since the Savings and Loan scandals via WorldCom, Enron and latterly UK’s ownHackgate, corporate wrongdoing is often accompanied by the question, Where were the lawyers?  And as Big Law turns increasingly, well, ‘big’, the “is law a business or a profession” question is posed increasingly nostalgically, usually with deliberate exaggeration and answered only with speculation rather than evidence.  It is refreshing, therefore, to report on a study which is deals with the relationship between law and business empirically and with imagination which also deals with conceptually important questions.

]]> http://www.compliancebuilding.com/2012/01/13/compliance-bits-and-pieces-for-january-13th/feed/ 0 http://www.compliancebuilding.com/2012/01/06/compliance-bits-and-pieces-for-january-6/ http://www.compliancebuilding.com/2012/01/06/compliance-bits-and-pieces-for-january-6/#comments Fri, 06 Jan 2012 13:00:08 +0000 Doug Cornelius http://www.compliancebuilding.com/?p=10936

These are some compliance-related stories that recently caught my attention:

Obeying the Law is Hard by Chris MacDonald in the Business Ethics Blog

For businesses, following the law doesn’t exhaust ethical responsibilities, but it’s an awfully good start. Most of us probably think that following the law is absolute minimally-decent behaviour for business. You absolutely must follow the law, and a business certainly shouldn’t be praised for achieving that basic minimum, right? But in fact, it’s not always so easy for companies to follow the law.

ERC’s National Business Ethics Survey

45 percent of U.S. employees observed a violation of the law or ethics standards at their places of employment. Reporting of this wrongdoing was at all-time high – 65 percent – but so too was retaliation against employees who blew the whistle: more than one in five employees who reported misconduct they saw experienced some form of retaliation in return.

Ten Compliance Issues from 2011 by Tom Fox

So as part of the compliance commentariati, I submit, for your consideration, my Top Ten anti-corruption and anti-bribery issues over the past 12 months.

1. Amendments to the FCPA?…
2. UK Bribery Act goes live…
3. Crystal Ball Reading…
4. Chief Compliance Officer Upgrade…
5. Investigating Private Equity…
6. ….

Conflict of Interest Risk Assessments – Part One by Jeff Kaplan in the Conflict of Interest Blog

Risk assessments are increasingly seen as essential to effective C&E programs. This is true for programs generally, of course, under the 2004 amendments to the Federal Sentencing Guidelines for Organizations. Risk assessments are also contemplated for anti-corruption compliance under the Good Practices Guidance of the OECD Anti-Bribery Working Group, the UK Bribery Act compliance guidance issued by the Ministry of Justice and settlements of various FCPA cases involving both compliance failures and model compliance programs.

Fraud Flashpoints: The Perils of Fake Social Media Profiles – A Growing GRC Concern – Part 1 by Daniel W. Draz in Corporate Compliance Insights

Everyone is talking about the use of social media applications in business, in fact it’s “all the rage!” While there’s no doubt it has incredible value and potential in a variety of business applications, something that most governance, risk and compliance (GRC) professionals don’t seem to be talking about is how the technology and usage of it applies in a corporate environment, where misinformation, competitive business intelligence, industrial espionage, “false profiles” and reliance on errant information, all generate the potential for significant business risk and liability.

In Depth On The Magyar Telekom and Deutsche Telekom Enforcement Action by the FCPA Professor

Total fines and penalties were approximately $95 million ($59.6 million against Magyar Telekom via a DOJ deferred prosecution agreement, $4.4 million against Deutsche Telekom via a DOJ non-prosecution agreement, and $31.2 million against Magyar Telekom via a settled SEC civil complaint). The SEC action against former Magyar executives remains active.

Handcuffs is from VectorPortal.com

These are some compliance related stories that caught my attention:

Dodd-Frank Rules Will Crush Employment, Banks Warn by Paul Sperry for Investors Business Daily

Job-killing bank regulations threaten to wipe out all the gains in private-sector employment since the recovery began, the industry warns. Washington, however, is hiring thousands more bureaucrats to enforce the rules. Signed into law last year, the Dodd-Frank Act is the biggest rewrite of financial regulations since the New Deal. It was intended to rein in Wall Street “excesses.” But the banking industry says burdensome red tape is hurting economic growth and jobs in a still-sluggish labor market.

The SEC’s Plan of Operations In the Event of a Government Shutdown by Vanessa Schoenthaler in 100 F Street

Faced, yet again, with the possibility of a government shutdown (tomorrow at midnight), the Securities and Exchange Commission has published its latest Plan of Operations During a Lapse in Appropriations.

SEC Reform After Dodd-Frank and the Financial Crisis by Commissioner Daniel M. Gallagher

The Dodd-Frank Act presented an opportunity to make changes that could have served the U.S. capital markets very well. Indeed, the 2,319 pages of legislation were meant to address the problems associated with the Financial Crisis. It was both expected and necessary that Congress respond to those events. Although the full impact of the legislation will not be known for years as regulators toil on the implementation of the Act, it is becoming clear that the SEC will need to focus on a number of issues within the Commission’s core competencies that were not addressed in the legislation.

Feds Probe Richardson For Alleged Pay-To-Play Scheme by in the Christopher Matthews WSJ.com’s Corruption Currents

A federal grand jury in Albuquerque has been looking into “pay to play” complaints from former and current state officials, people familiar with the matter told the Journal. The officials contend in court filings and interviews that Richardson’s close allies steered more than $2 billion of public money into investment funds run by money managers who in turn agreed to pay millions of dollars in consulting fees to high-profile Democratic fund-raisers and other supporters of Richardson.

MF Gloabl clearly took a big bet on European sovereign debt. It looks like Jon Corzine, the head of the company, essentially went “all-in” and bet the company on the trades.  He lost. His counterparties called collateral and the company quickly lost liquidity and solvency. On Halloween, MF Global filed for bankruptcy, listing $39.7 billion in debt and $41 billion in assets and put thousands of people out of work.

Unfortunately, it looks like some of the customer accounts were tied up in the company’s proprietary trading. It looks like $1.2 billion is missing from customer accounts.

MF Global and the great Wall St re-hypothecation scandal by Christopher Elias in Thomson Reuters

Under the U.S. Federal Reserve Board’s Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client’s liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.

But in the UK, there is absolutely no statutory limit on the amount that can be re-hypothecated. In fact, brokers are free to re-hypothecate all and even more than the assets deposited by clients. Instead it is up to clients to negotiate a limit or prohibition on re-hypothecation. On the above example a UK broker could, and frequently would, re-hypothecate 100% of the pledged securities ($500).

Statement of Jon S. Corzine before the US House of Representatives Committee on Agriculture (.pdf)

Recognizing the enormous impact on many peoples’ lives resulting from the events surrounding the MF Global bankruptcy, I appear at today’s hearing with great sadness. My sadness, of course, pales in comparison to the losses and hardships that customers, employees and investors have suffered as a result of MF Global’s bankruptcy. Their plight weighs on my mind every day – every hour. And, as the chief executive officer of MF Global at the time of its bankruptcy, I apologize to all those affected.

Before I address what happened, I must make clear that since my departure from MF Global on November 3, 2011, I have had limited access to many relevant documents, including internal communications and account statements, and even my own notes, all of which are essential to my being able to testify accurately about the chaotic, sleepless nights preceding the declaration of bankruptcy. Furthermore, even when I was at MF Global, my involvement in the firm’s clearing, settlement and payment mechanisms, and accounting was limited.

Corzine Rebuffed Internal Warnings on Risks by Aaron Lucchetti and Julie Steinberg in the Wall Street Journal

MF Global Holdings Ltd.’s executive in charge of controlling risks raised serious concerns several times last year to directors at the securities firm about the growing bet on European bonds by his boss, Jon S. Corzine, people familiar with the matter said.

The board allowed the company’s exposure to troubled European sovereign debt to swell from about $1.5 billion in late 2010 to $6.3 billion shortly before MF Global tumbled into bankruptcy Oct. 31, these people said. The executive who challenged Mr. Corzine resigned in March.

The disagreement shows that concerns about the big bet grew inside the company months before the trade rattled regulators, investors and customers. The executive, Michael Roseman, whose title was chief risk officer, also expressed concerns directly to Mr. Corzine in meetings of just the two men and with other people present, people familiar with the situation said.

The Corzine lesson on executive departures by Theo Francis in Footnoted*

The only other indicator that something might be wrong was the fact that MF Global paid Roseman $1.35 million as he left. But this is all MF Global’s July proxy had to say on the subject:

“Mr. Michael Roseman’s employment with the Company ended effective March 31, 2010. In connection with his separation from the Company, Mr. Roseman was paid severance totaling $1,350,000 under his employment agreement. Mr. Roseman’s severance payment was calculated by adding his fiscal 2011 target cash bonus amount ($500,000), his fiscal 2011 target equity bonus amount ($500,000) and his fiscal 2011 salary ($350,000). All of Mr. Roseman’s unvested restricted stock units vested as of March 31, 2011.”

This is where reading between the lines becomes so critical. Executives who quit of their own volition, especially non-CEOs, rarely get big bucks on their way out the door. Often, that’s a sign that they went unwillingly. And yet, it offers no hint as to why he left: Poor performance? Personality conflict? Someone’s brother-in-law needed a job? There are a million potential reasons, good and bad, for easing someone out, and investors shouldn’t be left to guess.

Here are some recent compliance-related stories that caught my attention.

The Enron cast: Where are they now? by Richard Partington in Financial News

The leading characters in the Enron saga have had varied fortunes since the disgraced trading giant collapsed into Chapter 11 bankruptcy a decade ago this week. A few went to prison, a couple have since died, while another employee went on to become a hugely successful billionaire trader. Financial News has ploughed through newspaper reports, personal and company websites and – where possible – contacted those involved to see where they are all now.

SEC Examines Internal Watchdog’s Interview By Robert Schmidt and Joshua Gallu in Bloomberg

The U.S. Securities and Exchange Commission’s internal watchdog has come under scrutiny for comments he made in a 75-minute videotaped interview about the agency and the stock market to a man who markets a “crash-proof retirement” plan through the Internet and a paid radio program. SEC Inspector General H. David Kotz has been contacted about the matter by the agency’s general counsel’s office, which also has briefed the SEC’s commissioners over concerns the interview could be construed as investment advice or an endorsement of financial services, according to two people briefed on the situation.

For Wall Street Watchdog, All Grunt Work, Little Glory by Ben Protess in DealBook

In an office park 20 miles outside Washington, the Financial Industry Regulatory Authority, Wall Street’s nonprofit self-regulator, has quietly built a small army of market police. Since Wall Street’s financial crisis in 2008, this fledgling fraud task force has entered the front lines of fighting insider trading, even if the group rarely earns the credit. Finra’s fraud group is akin to being the sous chef to the S.E.C. and other government regulators: the team prepares evidence against America’s most-wanted traders, but receives little of the glory when the cases are served.

These are some recent compliance related stories that caught my attention:

Where the Bribes Are by the James Mintz Group

The Foreign Corrupt Practices Act, passed in 1977, has led to more than 200 cases covering activity in about 80 countries. On this map, the darker red that a country appears, the larger the total penalties assessed for FCPA violations in that country. Roll over a country to see the FCPA cases there (the bigger the box, the larger the penalty in that case). Click on each box for case details. Click on the sector list (lower left) for a breakdown by industry.

EEOC Advisory Opinion on Employer Use of Arrest & Conviction Records During Hiring Process in Littler’s  Privacy and Data Protection Practice Group

The Equal Employment Opportunity Commission’s Office of Legal Counsel released an advisory opinion on employer use of arrest and conviction records during the hiring process. The non-binding letter provides some insight into the Commission’s current enforcement position and suggests the Commission: (1) will continue to differentiate between arrest and conviction records; (2) may not be prepared to adopt a presumption of disparate impact in this context; and (3) will in the event of a finding of disparate impact, closely scrutinize the employer’s policy with regard to both how long convictions are disqualifying and whether the underlying criminal conduct is related to the job duties for the position in question.

Louis XIV, the Old Pretender and Splitting the GC/CCO Roles by Tom Fox

Hence the War of the Spanish Succession and all may not be as it appears at first blush. This is because a GC often prefers to keep issues in-house and “not take on the responsibility of reporting to an enforcement agency.” Recognizing that such a decision is not made lightly or without thorough discussions, if the GC is also the CCO, “In difficult situations, a CCO’s perspective about a controversial transaction or event would obviously go unnoticed, if that person was also serving as the GC who happened to agree with executive management.” Hutchins concludes by noting, even the attorney who balances the two roles “will face the challenges of conflicts and the consequences of the silent compliance voice when defaulting to the professional responsibility obligations of the legal profession.”

12 Tips on How to Build a Comprehensive Anti-Corruption Compliance Program by William M. Sullivan, Jr. and G. Derek Andreson of Pillsbury

Legal Issues Surrounding Social Media Background Checks by Michelle Sherman in TOm Fox’s FCPA Complinace and Ethics Blog