Compliance Bricks and Mortar for March 13

These are some of the compliance-related stories that recently caught my attention. It’s a lot of Coronavirus, but not all of it.


New FINRA Guidance on Pandemic Risks
Matt Kelly
Radical Compliance

Another day, another gumdrop of guidance from financial regulators that’s worth reading for the whole compliance community. This time it’s FINRA, which published a bulletin Monday reminding broker-dealer firms about how to manage pandemic risk.
FINRA has Rule 4370 for broker-dealers, which requires them to draft and maintain a business continuity plan. That rule doesn’t cite pandemics per se, but does say the business continuity plan (BCP) should address “significant business disruption,” which coronavirus certainly is. 

http://www.radicalcompliance.com/2020/03/10/new-finra-guidance-pandemic-risks/

Coronavirus and securities compliance related considerations
Brian Dunlay
Federal Securities Law Source

On March 4, 2020, the Securities and Exchange Commission issued an Order granting conditional relief from certain filing obligations under the federal securities laws for reporting companies whose compliance may be delayed by the coronavirus disease (COVID-19). In the press release accompanying this unprecedented Order, SEC Chairman Jay Clayton noted, “The health and safety of all participants in our markets is of paramount importance. While timely public filing of Exchange Act reports is a cornerstone of well-functioning markets, we recognize that this situation may prevent certain issuers from compiling these reports within the required timeframe.”

https://www.fedseclaw.com/2020/03/articles/other-articles/coronavirus-and-securities-compliance-related-considerations/

COVID-19: Evaluating the Need for In-Person Fund Board Meetings and Other Considerations for U.S. Asset Managers
Lori L. Schneider and Marguerite W. Laurent
The National Law Review

In our recent experience, fund boards of directors, in consultation with fund advisers, have begun to consider alternative options to in-person board meetings in light of COVID-19 concerns. Some have decided to hold their meetings telephonically, while others have opted to permit those directors who would need to travel to the meeting to instead attend the meeting telephonically, with those who live in close proximity to the meeting location attending in person. Fund complexes likewise have been reviewing meeting agendas to determine whether any in-person approvals are required under the 1940 Act. To the extent they are, funds that determine to rely on the IDC Letter and/or IM Statement should have the board make a determination (presumably before or at the beginning of the meeting) regarding the unforeseen or emergency circumstances that make reliance on the no-action position appropriate.

https://www.natlawreview.com/article/covid-19-evaluating-need-person-fund-board-meetings-and-other-considerations-us

Pervasive Threat of Business Email Compromise Fraud
Jennifer Archie and Serrin Turner
Harvard Law School Forum on Corporate Governance

Business email compromise is a type of Internet-based fraud that typically targets employees with access to company finances—using methods such as social engineering and computer intrusions. The objective of the fraud is to trick the employee into making a wire transfer to a bank account thought to belong to a trusted partner, but that in fact is actually controlled by the fraudster. According to the FBI, between May 2018 and July 2019, there was a 100% increase in identified global exposed losses due to BEC. 

https://corpgov.law.harvard.edu/2020/03/09/pervasive-threat-of-business-email-compromise-fraud/

Practice Alert: Is every email another FCPA violation?
Bill Steinman
The FCPA Blog

In U.S. v. Coburn and Schwartz, Judge McNulty held that when it comes to charging defendants with violating the FCPA, the relevant question isn’t the number of bribes paid, but the number of calls made or emails sent. To reach this decision – one of first impression under the FCPA – Judge McNulty simply relied on the statute’s plain language. Chatty defendants beware: you can face a separate criminal count for each individual missive you send about the same overall bribery scheme.

https://fcpablog.com/2020/03/10/practice-alert-is-every-email-another-fcpa-violation/

BlackRock and the Curious Case of the Poultry Farmer
Paul Rissman
Harvard Law School Forum on Corporate Governance

Typically, an 11% vote is the end of the story, at least until the next annual meeting when the shareholder may try again. Yet, in this case something unusual happened. Later that same day, a Sanderson press release informed the public that it was going beyond the request of the resolution to issue a report fully compliant with all applicable environmental and social standards set by SASB. Notably, the press release explained that, after “recent extensive engagement with many of its largest stockholders, and in recognition of evolving investor expectations in regard to sustainability reporting,” Sanderson had reversed course.

https://corpgov.law.harvard.edu/2020/03/10/blackrock-and-the-curious-case-of-the-poultry-farmer/

The Latest Revisions to the California Consumer Privacy Act Regulations: Key Considerations for Private Fund Managers
Shulte Roth & Zabel

Although the California Consumer Privacy Act (“CCPA”) went into effect on Jan. 1, 2020, the California Attorney General’s regulations are not yet final, and likely will not go into effect until July 2020. Nonetheless, the most recent version of the proposed regulations, which were issued in February (“Proposed Regulations”), addresses some of the questions fund managers raised during initial compliance with the law.

https://www.srz.com/resources/the-latest-revisions-to-the-california-consumer-privacy-act.html

FinCEN Imposes Its First Penalty on a Bank Compliance Officer for $450,000 for Failing to Prevent AML Violations
NYU Law’s Compliance & Enforcement

On March 4, 2020, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued a consent order assessing a $450,000 civil money penalty against Michael LaFontaine, a former Chief Operational Risk Officer at U.S. Bank NA (“U.S. Bank”), for his alleged failure to prevent Bank Secrecy Act/anti-money laundering (“BSA/AML”) violations that took place during his tenure.[1] This action—which follows U.S. Bank’s 2018 BSA/AML-related resolution with FinCEN, the U.S. Department of Justice (“DOJ”), the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve for a combined $613 million in financial penalties—marks the first time FinCEN has imposed a penalty on a bank compliance officer for his role in failing to prevent BSA/AML compliance program failures.

https://wp.nyu.edu/compliance_enforcement/2020/03/11/fincen-imposes-its-first-penalty-on-a-bank-compliance-officer-for-450000-for-failing-to-prevent-aml-violations/

Compliance Bricks and Mortar for March 6

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


SEC Provides Conditional Regulatory Relief and Assistance for Companies Affected by the Coronavirus Disease 2019 (COVID-19)

Securities and Exchange Commission announced that it is providing conditional regulatory relief for certain publicly traded company filing obligations under the federal securities laws. The impacts of the coronavirus may present challenges for certain companies that are required to provide information to trading markets, shareholders, and the SEC. These companies may include U.S. companies located in the affected areas, as well as companies with operations in those regions.

To address potential compliance issues, the Commission has issued an order that, subject to certain conditions, provides publicly traded companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020. Among other conditions, companies must convey through a current report a summary of why the relief is needed in their particular circumstances. The Commission may extend the time period for the relief, with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant. Companies and their representatives are encouraged to contact SEC staff with questions or matters of particular concern.

https://www.sec.gov/news/press-release/2020-53

How’s Your Business Continuity Plan?
Bruce MaCEwen
Adam Smith, Esq.

Doing all you can to support the professionals and staff who work for you, to provide ongoing reassurance to clients, and to be, to the best of your ability, a genuinely helpful and calming resource to those who might be hit more severely, is your professional and ethical duty.

https://adamsmithesq.com/2020/03/hows-your-business-continuity-plan/

Emergency Preparedness Plan
Joshua M Brown
The Reformed Broker

There’s a regulation in place for investment advisory firms like ours that an emergency preparedness plan must be in place in the event that employees are unable to reach their primary place of business. When regulators come in to a registered investment advisor’s office, they will usually request a copy and check to see if the firm’s plans are up to date and appropriate. It’s part of their normal course of protecting the public.

https://thereformedbroker.com/2020/03/05/emergency-preparedness-plan/

Mapping the Landscape of Comments to the SEC’s New Proxy Rules
Jens Frankenreiter
The CLS Blue Sky Blog

A couple of interesting features of this graphical representation stick out immediately. First, comments by institutional authors (which mostly appear in the upper half of the graph) seem to be qualitatively different from comments by private senders (which mostly appear in the lower half). Second, there are several tight clusters of documents, indicating nearly identical letters. In fact, a simple plagiarism tool indicates that 67 documents (roughly 13 percent) share 50 percent or more of their text with at least one other document. Most of these documents can be found in clusters 6, 7, and 8. On the other hand, 384 documents (around 73 percent) contain language deemed to be at least 90 percent unique, suggesting that a majority of authors produced highly bespoke opinions (rather than relying on a copy-and-paste template).

https://clsbluesky.law.columbia.edu/2020/03/04/mapping-the-landscape-of-comments-to-the-secs-new-proxy-rules/

Russia updates crypto regulations after string of scandals
Selva Ozelli
The FCPA Blog

With plans to launch its own cryptocurrency later this year, Russia has updated its anti-bribery and AML laws to aid its burgeoning digital economy while dealing with corruption risks associated with the new technology amid reports the Federal Security Service (FSB) allegedly tried to extract a bribe worth $1 million in bitcoin from a media mogul last year.

https://fcpablog.com/2020/03/04/russia-updates-crypto-regulations-after-string-of-scandals/

In A Setback For The DOJ, Judge Grants Hoskin’s Motion For Acquittal Of All FCPA Charges
FCPA Professor

[I]n a setback for the Department of Justice and its FCPA theory of prosecution, Judge Janet Bond Arterton (D. Conn) granted Hoskin’s motion for acquittal on the seven FCPA charges he was convicted of by the jury (See here for the decision. The judge denied Hoskin’s motion for acquittal on the five money laundering charges he was convicted of by the jury).

http://fcpaprofessor.com/setback-doj-judge-grants-hoskins-motion-acquittal-fcpa-charges/

Prosecutors urge the judge to deny early prison release for Bernie Madoff
CNBC

Over 500 victims had written to a Manhattan federal court judge to oppose early release for the 81-year-old Madoff from a 150-year sentence imposed in 2009, while only 20, or 4% of letter writers, supported it, prosecutors said.

https://www.cnbc.com/2020/03/05/prosecutors-urge-the-judge-to-deny-early-prison-release-for-bernie-madoff.html

Compliance Patterns in Raked Leaves
Tom Fox
FCPA Compliance & Ethics

Patrick Taylor has said that AI allows the compliance practitioner to understand the “subtle clues in that pattern of activity that will clue me in to take a different look.” He likened it to seeing “patterns in raked leaves” which allows you to then step in and take a deeper and broader look at an issue, either through an audit or investigation. This is where compliance practitioner can step back and literally keep an eye on the big picture and longer term as opposed to just the immediate numbers and information in front of them. It may also be the best hope for finding that kind of systemic fraudulent behavior.

http://fcpacompliancereport.com/2020/03/compliance-patterns-raked-leaves/

Compliance Bricks and Mortar for February 28

We get a bonus day this year with the once-every-four year appearance of February 29 tomorrow. That means an extra day to catch up on some compliance reading.


Exam Recap: What’s hot during OCIE Exams
by Carl Ayers
Private Funds CFO

Don’t expect the SEC to admit to conducting new sweep exams but sources are telling sister publication RCW that OCIE’s looking at compliance with the liquidity risk management rule and how advisor’s handle sweep accounts.

https://www.privatefundscfo.com/exam-recap-whats-hot-during-ocie-exams (subscription required)

The Supreme Court Takes on SEC Disgorgement
by Daniel Walfish
NYU Law’s Compliance & Enforcement

One of the Securities and Exchange Commission’s core enforcement powers may soon be overhauled or even scrapped entirely. For fifty years the SEC has sought “disgorgement” of the proceeds of unlawful activity as one of its main remedies in federal court, even though there is no explicit statutory authority for doing so. On March 3, 2020, the Supreme Court will hear oral argument in Charles C. Liu and Xin Wang v. SEC, No. 18-1501, in which the Justices have agreed to consider whether courts can order disgorgement as an “equitable remedy” for a violation of the securities laws. This post discusses the case’s legal backdrop, some of the ways the Court could decide it, and some of its potential consequences.

https://wp.nyu.edu/compliance_enforcement/2020/02/22/the-supreme-court-takes-on-sec-disgorgement/

10 TYPES OF PROHIBITED REVENUE SHARING
Cipperman Compliance Services

Although, in theory, sufficient disclosure should allow advisers to receive revenue sharing, in practice, the SEC attacks revenue sharing in all its forms regardless of the extent of the disclosure.  Our conclusion is that the SEC has effectively banned revenue sharing.  As support for our position, below are ten types of revenue sharing outlawed by the SEC (cases hyperlinked).

https://cipperman.com/2020/02/21/the-friday-list-10-types-of-prohibited-revenue-sharing/

Ethisphere Announces the 2020 World’s Most Ethical Companies

Ethisphere’s research supports the conclusion that ethics and financial performance go hand-in-hand. Our annual practice of tracking how the stock prices of publicly traded honorees compare to the Large Cap Index found that listed 2020 World’s Most Ethical Companies outperformed the large cap sector over five years by 13.5 percent. This “Ethics Premium” forms the basis upon which companies can correlate responsible behavior with shareholder value.

https://ethisphere.com/ethisphere-announces-the-2020-worlds-most-ethical-companies/

Why Financial Regulation Keeps Falling Short
By Dan Awrey and Kathryn Judge
The CLS Blue Sky Blog

Modern finance is fast moving, extremely complex, and contributes to pervasive unknowns. Yet the processes governing how finance is regulated are typically slow, highly deliberative, and often reflect deeply ingrained and incredibly optimistic assumptions about our ability to understand the financial system and the potential impact of regulatory intervention. In our new paper, “Why Financial Regulation Keeps Falling Short,” we identify the key drivers of this fundamental mismatch between finance and financial regulation, demonstrate how this mismatch contributes to undesirable policy outcomes, and lay the conceptual foundations for understanding how the processes governing the creation of financial regulations can be improved to help close this gap.

https://clsbluesky.law.columbia.edu/2020/02/25/why-financial-regulation-keeps-falling-short/

A Closer Look at Warren Buffett’s Annual Letter to Berkshire Shareholders
by Kevin M. LaCroix 
The D&O Diary

Like many others, I look forward to Warren Buffett’s annual letter to Berkshire Hathaway shareholders, and like many others, I read his annual letter closely, looking for any investment insights I can glean as well for Buffett’s now-famous homespun brand of wisdom and humor. Although Buffett latest letter to Berkshire shareholders – which was published Saturday morning – does offer readers a little under each of these headings, I think many reading Buffet’s latest letter might have come away a little disappointed, as I discuss further below. 

https://www.dandodiary.com/2020/02/articles/warren-buffett/a-closer-look-at-warren-buffetts-annual-letter-to-berkshire-shareholders/

Ponzi Schemes Surge In 2019 – Coincidence Or Cause For Concern?
PonziTracker

According to Ponzitracker’s research, 60 Ponzi schemes were allegedly uncovered in 2019 that involved a collective $3.245 billion in investor funds. The statistics mark an abrupt reversal to a multi-year downward trend that in 2018 saw the lowest number of alleged Ponzi scheme discoveries in ten years. In addition, the surge in alleged schemes – the largest percentage increase since 2009 – also comes on the heels of a blockbuster year for financial markets in 2019. While it remains to be seen whether the reversal is an anomaly or cause for concern, all of the data points suggest that 2019 was a banner year for Ponzi scheme discoveries and enforcement.

https://www.ponzitracker.com/home/ponzi-schemes-surge-in-2019-anomaly-or-cause-for-alarm

Compliance Bricks and Mortar for January 24

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



Two Anti-Corruption Items of Note
Matt Kelly
Radical Compliance

Good news for anti-corruption enthusiasts looking for something to read — we have two fresh pieces of literature this week that you can study and shoehorn into your compliance programs. First, Transparency International just released its 2019 Corruption Perceptions Index, which is one of the go-to benchmarks to help compliance officers perform a corruption risk assessment. The short version: lots of countries are backsliding into more corruption. Second, Britain’s Serious Fraud Office has quietly released its in-house guidance for how investigators should assess corporate compliance programs, akin to the U.S. Justice Department’s own guidance on how to evaluate compliance programs. The SFO material is much shorter and probably less informative, but still, it’s now available to the public.

http://www.radicalcompliance.com/2020/01/23/two-anti-corruption-items-note/

New Year Brings New Responsibilities for Some Asset Managers Who Are Exempt from Registration with the CFTC
Ropes & Gray

With the New Year comes new responsibilities for certain asset managers who are exempt from registration with the U.S. Commodity Futures Trading Commission (“CFTC”) as commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”). Following recent amendments to CFTC rules applicable to asset managers (discussed further here), family offices, operators of business development companies (“BDCs”) and certain operators of registered investment companies (“RICs”) should reevaluate their CPO registration exemptions and, with respect to family offices, CTA registration exemptions. Asset managers affected by the rule amendments may be required to take additional action. In addition, as in years past, certain CPO and CTA registration exemptions, including those claimed under CFTC Rule 4.5, 4.13(a)(3) and 4.14(a)(8), must be renewed by March 2, 2020.

https://www.ropesgray.com/en/newsroom/alerts/2020/01/New-Year-Brings-New-Responsibilities-for-Some-Asset-Managers-who-are-Exempt-from-Registration?

So Maybe The SEC Does Need Whistleblowers’ Help?
Jon Shazar
DealBreaker

Ah, right, those whistleblowers the SEC has made as clear as possible it neither needs nor wants nor intends to compensate. Surely, then, Jay Clayton’s boys can’t have missed too much, right?

https://dealbreaker.com/2020/01/tca-hedge-fund-shuts

Preventing Phishing Attacks
Michele R. O’Brien
The Compliance & Ethics Blog

Your organization’s staff should always be considered the first line of defense against cyber threats. Unfortunately, they can also be the biggest risk factor when it comes to phishing. It takes just one employee to take the bait and that’s enough for attackers to steal intellectual data. 

https://complianceandethics.org/preventing-phishing-attacks/

Fried Frank Discusses Delaware Chancery’s Latest Decision on Material Adverse Change Clauses
By Gail Weinstein, Warren S. de Wied, David L. Shaw, Steven Epstein and Andrew J. Colosimo
The CLS Blue Sky Blog

Channel Medsystems, Inc. v. Boston Scientific Corporation (Dec. 18, 2019) is the Delaware Court of Chancery’s first decision issued since the Delaware Supreme Court’s 2018 Akorn decision to evaluate whether an acquiror had a right, under a merger agreement, to terminate a pending acquisition on the grounds that there was a “Material Adverse Effect” or “Material Adverse Change” in the target company. (We use “MAE” and “MAC” interchangeably in this memorandum.) Akorn was the first case in which the Court of Chancery, post-trial, found the existence of an MAE and the first post-trial Delaware decision to find that an acquiror had the right to terminate a merger agreement based on an MAE. In Channel, by contrast, Chancellor Bouchard ruled, after trial, that there was not an MAE and that the acquiror was required to close the merger.

https://clsbluesky.law.columbia.edu/2020/01/21/fried-frank-discusses-delaware-chancerys-latest-decision-on-material-adverse-change-clauses/

SEC/Telegram Litigation Commentary & Compendium (A Must Read for FinTech Players)
John Reed Stark

[T]he SEC Telegram matter is more than just the typical SEC emergency enforcement action. The SEC Telegram docket does not just provide a rapid-fire presentation of just about every issue facing cryptocurrency market participants today. The matter also offers a rare and vivid glimpse into the dramatic disparity between on the one hand, how the SEC enforcement division views digital token offerings (they should all be registered!) and on the other hand, how the so-called fintech bar views digital token offerings (they are not always securities!). 

https://www.linkedin.com/pulse/sectelegram-litigation-commentary-compendium-must-read-stark

Compliance Bricks and Mortar for January 17

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

Investment Funds – Year-end Compendium of Our 2019 Client Updates
Sidley Austin

As the developments affecting the investment management industry continue to unfold, we have once again prepared our semiannual compendium of relevant Sidley Updates for our investment fund and adviser clients and friends. The compendium includes a summary of each Sidley Update year-to-date, in reverse chronological order, along with a link to its full text. We have included all of the updates, making the compendium repetitive in instances where we revisited a topic to report on emerging information and breaking news in the industry.

https://www.sidley.com/en/insights/newsupdates/2020/01/year-end-compendium-2019

Samsung Signs on the Compliance Line
Matt Kelly
Radical Compliance

Quite the compliance moment was witnessed in Korea this week, when the executive team at Samsung Electronics made a public display of signing a pledge to obey anti-corruption laws and build a new culture of compliance at the firm. The firm’s top three executives — president Kim Hyun-seok, vice chairman Kim Ki-nam, and mobile communications head Koh Dong-jin — signed the pledge at a publicity event at Samsung headquarters on Monday. Like, in front of the cameras. With reporters around and publicity photos issued.

http://www.radicalcompliance.com/2020/01/14/samsung-signs-compliance-line-pledge/

The Astros Cheating Scandal and Compliance
Tom Fox
FCPA Compliance & Ethics

Over the next few blogs, I will be exploring the MLB Report in detail, how it demonstrates that culture must be on the forefront of every Chief Compliance Officer (CCO) and corporation, what it means for the compliance community and how the MLB Report informs enforcement of anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA).

Part 1 – The Cheating Scheme
Part 2 – Hinch and Luhnow


Private equity firms fear a Democrat topping Trump in 2020
Dan Primack
Axios

What’s happening: The result is that private equity investors are talking about clearing the portfolio decks this year, locking in profits under the current taxation scheme.

The big picture: This is different than the decades-long debate over carried interest, which was about if PE investment profits should be taxed as capital gains or as ordinary income. If you no longer have a difference between the two rates, it no longer matters how carried interest is classified.

https://www.axios.com/private-equity-fears-democrats-2020-presidential-election-79b046d3-78a7-44ed-ade6-be93d02528cb.html?

Into the Mainstream: ESG at the Tipping Point
 Rakhi Kumar, Nathalie Wallace, and Carlo Funk
Harvard Law School Forum on Corporate Governance

In 2017, we conducted a major global survey to give deeper insight into the increasingly important Environmental, Social and Governance (ESG) market. Performing for the Future revealed a picture of ESG investment driven by performance beliefs, coupled with challenges and evolving pathways to adoption. …

Our latest research uncovers the views of more than 300 institutional investors and world-leading institutions, revealing what is driving organizations to adopt ESG, how this is influencing adoption, and the barriers that must be overcome to deliver the best outcomes.

https://corpgov.law.harvard.edu/2020/01/13/into-the-mainstream-esg-at-the-tipping-point/

Compliance Alert: Expensive watches raise red flags
Harry Cassin
The FCPA Blog

One luxury item is showing up more often in alleged graft-related asset seizures: wrist watches, especially the high-end variety with eye-watering price tags. In November 2018, Venezuela’s former national treasurer Alejandro Andrade was sentenced in the United States to ten years in prison for his role in a plot to launder $1 billion in bribes. He also forfeited $1 billion in personal assets, including bank accounts, aircraft, real estate, vehicles, horses, and watches. Andrade used watches to pay some of the bribes.

https://fcpablog.com/2020/01/08/compliance-alert-expensive-watches-raise-red-flags/

Marginalization of counsel … and compliance officers
Jeff Kaplan
Conflict of Interest Blog

Years ago, a firm I knew moved its chief compliance officer from a relatively nice office to a decidedly not nice one. The move was intended to send a message and it was received that way. I noted at the time that this would not end well for the firm. Sadly, I turned out to be right. In a recent post on the Harvard Corporate Governance Blog, “Bernie Ebbers and Board Oversight of the Office of Legal Affairs,” Michael W. Peregrine, McDermott Will & Emery LLP revisits the once-famous World Com accounting fraud scandal from the early 2000s and particularly the aspect of it that entailed the CEO (Ebbers) marginalizing corporate counsel. The details of this matter are less important (to me) than are the author’s very useful recommendations for mitigating this sort of risk.

http://conflictofinterestblog.com/2020/01/marginalization-of-counsel-and-compliance-officers.html

OCIE’s 2020 Exam Priorities — Key Takeaways for Private Fund Managers
Proskauer

Last week, the SEC’s Office of Compliance Inspections and Examinations released its 2020 Exam Priorities with a number of areas of interest to private fund managers. OCIE reported that it examined 15% of registered investment advisers (RIAs) during fiscal year 2019, down from approximately 17% of RIAs during FY 2018 but consistent with FY 2017’s 15% coverage rate. The four-week government shutdown in January 2019 reduced exam activity last year, but we expect the numbers to trend upward in 2020.

https://www.proskauer.com/alert/ocies-2020-exam-priorities-key-takeaways-for-private-fund-managers

Compliance Bricks and Mortar for January 3

Happy New Year! Here are some of the year-end and start-of-the-year stories for you.


SEC And CFTC Regulatory Priorities To Watch In 2020

The Securities and Exchange Commission and the Commodity Futures Trading Commission expect to tackle a busy regulatory slate in 2020. For the chairs of both agencies — Jay Clayton at the SEC and Heath Tarbert at the CFTC — this year could also be their final opportunity to leave their mark given the looming presidential election and potential change in administration.
While both bodies share certain concerns, including confronting regulatory challenges posed by the growth of digital assets, each have distinct priorities that appear ripe for action in 2020. Lawyers also note that regulators are facing a tight time frame to complete priorities given that the nation’s attention will shift to the presidential campaign by Labor Day.

https://www.law360.com/securities/articles/1228214

7 Compliance Items to Watch for 2020
Matt Kelly
Radical Compliance

Welcome to 2020, everyone! This has been a long winter break, but before we return to the grind of emails to answer and staff meetings to avoid, let’s spare a few moments to ponder how the corporate compliance landscape in the coming year.

Without further delay, then: my annual list of compliance issues worth watching in the next 12 months. In no particular order…

http://www.radicalcompliance.com/2020/01/01/7-compliance-items-watch-2020/

My 2020 Legal Market Predictions
Ron Friedmann
Prism Legal

Clickbait titles don’t appeal to me but my original idea for a title here – “Incremental Change in 2020” – just sounded too lame. Unlike many other commentators, I shy away from bold predictions of big changes coming soon. I’ve worked for three decades in the corporate legal market and have witnessed many incremental changes but few dramatic ones. Yet Big Law today does look rather different than it did when I started in the 1980s. The new look, however, flows from many small changes.

https://prismlegal.com/my-2020-legal-market-predictions/

2019 FCPA Enforcement Index
Richard L. Cassin
The FCPA Blog

Last year 14 companies paid a record $2.9 billion to resolve FCPA cases. That includes amounts assessed in resolutions with the DOJ or SEC or both. There were four enforcement actions last year in the mega category — Ericsson at $1 billion, MTS at $850 million, Walmart at $282.7 million, and Fresenius at $231.7 million. Both Ericsson and MTS landed on our list of the ten biggest FCPA enforcement actions of all time.

https://fcpablog.com/2020/01/02/2019-fcpa-enforcement-index/

31 Days to a More Effective Compliance Program –
Day 1| What 2019 Brought to Compliance Programs

Tom Fox
FCPA Compliance & Ethics

2019 was a very significant year for every compliance practitioner and compliance program. Not only was it the year with the single highest amount of FCPA enforcement actions, fines and penalties assessed against corporations but it also saw the greatest number of individual prosecutions. Yet perhaps most significantly there were three noteworthy releases of information by the federal government which directly impacted compliance professionals in 2019. Two came from the Department of Justice (DOJ) and one came from the Department of Treasury, Office of Foreign Asset Control (OFAC). These three guidance’s contributed to the continued evolution of what constitutes a best practices compliance program.

http://fcpacompliancereport.com/2020/01/31-days-effective-compliance-program-day-1-2019-brought-compliance-programs/

Compliance Bricks and Mortar for December 20

Here is my Star Wars: The Rise of Skywalker spoiler-free collection of compliance-related stories that I’m reading while waiting to watch the movie.

The Intersection of Star Wars and Compliance
Tom Fox and Jay Rosen


The Hallmark of New Stakeholder Risk
Matt Kelly
Radical Compliance

I always enjoy a good drama, and what happened at the Hallmark Channel this week did not disappoint. Ethics and compliance officers might want to consider what happened there since the same basic plot line seems to be happening at lots of large organizations.

You might already have heard what happened, although the whole thing happened so fast that maybe you didn’t. Hallmark had agreed to air several ads from Zola Inc., a wedding planning firm, including one ad that featured a same-sex couple. That ad (with two women) started airing several weeks ago, during what is normally Hallmark’s busy season of broadcasting schlocky Christmastime romance movies. 

http://www.radicalcompliance.com/2019/12/19/hallmark-new-era-stakeholder-risk/

Court Finds Fund a “Beneficial Owner” Subject to Section 16 Despite Delegation to Investment Adviser
Sidley Austin

A federal district court found a private fund to be a “beneficial owner” subject to Section 16 of the Securities Exchange Act of 1934, even though the fund had delegated voting and investment power to its investment adviser.1 Delegation has been relied upon by private funds in taking the position that the fund is a not a “beneficial owner” subject to Section 16. This ruling is likely to attract the interest of the Section 16(b) plaintiff’s bar, which reviews SEC filings for potential theories of private litigation.

https://www.sidley.com/en/insights/newsupdates/2019/12/court-finds-fund-a-beneficial-owner-subject-to-section-16-despite-delegation

Compliance Bricks and Mortar for December 13

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


Do Private Equity Managers Raise Funds on (Sur)real Returns?
by Niklas Huether
The CLS Blue Sky Blog

By analyzing valuations at the deal-level, I do not find any evidence of window dressing in private equity. The key factor for performance peaks lies in the deal composition rather than in inflated NAVs.

http://clsbluesky.law.columbia.edu/2019/12/10/do-private-equity-managers-raise-funds-on-surreal-returns/

The Incomparable Value of Service in Secret: Lessons from the SEC’s Office of the Whistleblower
by Jordan A. Thomas
NYU Law’s Compliance & Enforcement blog

Nearly ten years ago, following a global financial collapse spurred by serial wrongdoing, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. Within its 2,000 pages of sweeping reform was the charge to establish an investor protection initiative, which emerged as the SEC Whistleblower Program. Its three pillars—anonymity safeguards, substantial monetary bounties, and significant employment protections—shaped a first-of-its-kind paradigm to encourage individuals to report suspected violations of the federal securities laws. The formidable combination of these programmatic mainstays and an enforcer armed with early actionable intelligence has proven to be a game changer. It’s not just recoveries and reform, however. Behind the results, including in the just-released Office of the Whistleblower’s Annual Report to Congress, stand everyday people willing to take a bold step forward, to be the outsider and the anti-hero, no matter the size of Goliath and his balance sheet.

https://wp.nyu.edu/compliance_enforcement/2019/12/03/the-incomparable-value-of-service-in-secret-lessons-from-the-secs-office-of-the-whistleblower/

Betrayed by the Big Four: whistleblowers speak out
by Madison Marriage
Financial Times

These individuals worked for four of the most renowned names in the business world: EY, Deloitte, KPMG and PwC. They are among 20 former employees from the Big Four accounting firms who have spoken to the Financial Times about their experience of harassment, bullying and discrimination in the workplace over the course of a year’s investigation into how these firms treat whistleblowers within their ranks.
The FT identified a disturbingly common pattern in terms of how complainants were treated: most initially felt ignored, then isolated and were eventually pushed out. Legal clauses aimed at silencing them swiftly followed; nine of those interviewed said they were pressured into signing restrictive non-disclosure agreements. Others were asked to sign but resisted.

https://www.ft.com/content/78f46a4e-0a5c-11ea-bb52-34c8d9dc6d84

Women in Compliance 2020 Finalists

Recognising and celebrating the achievements female compliance professionals make every day in the world of compliance and business from every industry around the world.
Bringing together female compliance professionals to provide practical learning skills in the compliance world as well as worthwhile opportunities for networking and mentoring.
25-26 March 2019 | London, UK
Discover more information


The Securities and Exchange Commission wants bad guys to know: ‘We’re watching’
by Bob Pisani
CNBC

I spent a day at SEC headquarters with the regulators Chairman Jay Clayton and the co-directors of the Division of Enforcement, Stephanie Avakian and Steven Peikin. The highlight was a visit to the Forensics Lab, a copper-lined room where the SEC extracts data from cell phones and computers from traders and others who may be engaged in suspicious activity.

https://www.cnbc.com/2019/12/11/the-sec-wants-bad-guys-to-know-were-watching.html

New List: The FCPA Top 40
by Richard L.Cassin
The FCPA Blog

There’s a surprisingly wide geographical distribution of the companies in the top 40. Ten come from the United States and five from France. Four companies are from Germany, followed by three each from Switzerland, Japan, Brazil, the Netherlands, and the United Kingdom.

https://fcpablog.com/2019/12/12/new-list-the-fcpa-top-40/

Photo by Evan Nitschke at Pexels.
https://www.pexels.com/photo/brick-leading-line-lines-snow-1009302/

Compliance Bricks and Mortar for December 6

These are some of the compliance-related stories I’ve been reading while digging out of the snow this week.


Can the S.E.C. Force Repayment of Ill-Gotten Gains?
by Peter Henning
DealBook

The issue before the Supreme Court will be whether a District Court can order a defendant to repay money obtained by fraud or trading on confidential information, or whether it is a penalty beyond the “equitable” power of the courts to require. The S.E.C. is sure to argue that a defendant who engages in fraud or insider trading should not be allowed to keep the profits, much as a thief has no claim to the money that is stolen.

https://www.nytimes.com/2019/11/29/business/dealbook/sec-fraud-disgorgement.html

A Common-Sense Approach to Corporate Purpose, ESG and Sustainability
by Frank B. Glassner
Harvard Law School Forum on Corporate Governance and Financial Regulation

The [Business Roundtable] lists stakeholders in the order of “customers” first, followed by “employees,” “suppliers,” “communities” and finally “shareholders.” This sequence does not alter the longstanding presumption that shareholders occupy the position of first among equals. As equity owners and providers of capital, shareholders have always required a high and continuous level of attention from companies. Voting power gives shareholders a direct voice in corporate governance; their investment decisions determine a company’s stock price and cost of capital. Accordingly, shareholders remain the primary audience for a company’s sustainability story. It is also important to remember that a company’s creditors, specifically investors in its fixed income securities, rank with shareholders at the top of the stakeholder list.

https://corpgov.law.harvard.edu/2019/12/01/a-common-sense-approach-to-corporate-purpose-esg-and-sustainability-2/

Compliance Under Fire: Two More Tales
by Matt Kelly
Radical Compliance

Neither of these stories is good. They, along with other tales of retaliation against CCOs I’ve collected over the years, are a reminder that corporate compliance must be important after all — because when you do the job well, you can piss people off. Let’s stand by those compliance folks who do the right thing. Attention must be paid.

http://www.radicalcompliance.com/2019/11/27/compliance-under-fire-two-more-tales/

Does ethics training actually affect business conduct?
by Jeff Kaplan
Conflict of Interest Blog

In “Can Ethics be Taught? Evidence from Securities Exams and Investment Adviser Misconduct,” forthcoming in the Journal of Financial Economics,  Zachary T Kowaleski of University of Notre Dame, Andrew Sutherland of the Massachusetts Institute of Technology, and Felix Vetter of the London School of Economics “study the consequences of a 2010 change in the investment adviser qualification exam that reallocated coverage from the rules and ethics section to the technical material section. Comparing advisers with the same employer in the same location and year, we find those passing the exam with more rules and ethics coverage are one-fourth less likely to commit misconduct. The exam change appears to affect advisers’ perception of acceptable conduct, and not just their awareness of specific rules or selection into the qualification. 

http://conflictofinterestblog.com/2019/11/does-ethics-training-actually-affect-business-conduct.html

Why complying with Reg BI can’t wait for the last minute
by Jeff Benjamin
InvestmentNews

The good news is, the Securities and Exchange Commission’s upcoming Regulation Best Interest is not expected to dramatically change most daily business activities for financial advisers and registered representatives.

The good news is, the Securities and Exchange Commission’s upcoming Regulation Best Interest is not expected to dramatically change most daily business activities for financial advisers and registered representatives. The bad news is, advisers and broker-dealer reps will still need to prepare for Reg BI, and that preparation might be expensive and time-consuming.

https://www.investmentnews.com/article/20191204/FREE/191209976/why-complying-with-reg-bi-cant-wait-for-the-last-minute

Compliance Bricks and Mortar for November 22

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


Death Knell for Regulatory Guidance Hits Most Federal Agencies…
Broc Romanek
TheCorporateCounsel.net

We’ve been covering the Administration’s gradual squeeze on regulatory guidance for some time (here’s our latest from April). As noted in this DLA Piper memo, President Trump signed two ‘Executive Orders’ recently that limit the practice of “regulation by guidance.” Here’s the “improved agency guidance” order that requires each agency to post its guidance documents on an indexed, searchable website after the OMB has issued implementing guidance about how to accomplish that (here’s a comprehensive Davis Polk memo on this order).

https://www.thecorporatecounsel.net/blog/2019/11/death-knell-for-regulatory-guidance-hits-most-federal-agencies.html

How co-working magnifies compliance perils
Richard L. Cassin
The FCPA Blog

Here’s the problem. Some people here lack, um, situational awareness. They forget (or don’t care?) that when they talk to colleagues in the common areas — at the big open work tables, in the community lunchroom, around the water cooler — other people might be listening in. When they yell into their phones while walking the halls, or put their calls on speaker, it all reaches the ears of outsiders. When they hold meetings in the conference rooms scattered throughout the workspace, the walls aren’t nearly thick enough to keep all the sound inside.

https://fcpablog.com/2019/11/14/how-co-working-magnifies-compliance-perils/

Sexual Harassment Prevention Lessons from the Television’s “Survivor”
by Daniel Schwartz
Connecticut Employment Law Blog

Why?  Here are a few things that stood out to me from an employment perspective:
First, a female player (Kellee) complained to a producer that another male player (Dan) was a little too “touchy” and made her feel uncomfortable. To be sure, there was plenty of video evidence to back her up.   The male player was given a “warning” and play continued.  But here’s the thing: The female player never knew that a warning was issued and Dan worked with others to get Kellee voted out of the game immediately thereafter.  Not telling the complainant what was going on with her complaint is just one of the ways the producers seem to have mishandled things.

https://www.ctemploymentlawblog.com/2019/11/articles/sexual-harassment-prevention-lessons-from-the-televisions-survivor/

2019 Was Big for the SEC. 2020 Will Be Huge.
By John Manganaro
PlanAdviser.com

Given its broad authority, the SEC is normally engaged in a wide range of rulemaking and regulatory activities in any given year—and that has certainly been the case in 2019. For plan advisers, three or four of the SEC’s ongoing regulatory activities should take precedence while planning for compliance in 2020. These are the Regulation Best Interest (Reg BI) package, the new advertising rules for advisers and brokers, and the revised approach to rules and requirements related to proxy voting and the use of proxy advisers.

https://www.planadviser.com/2019-big-sec-2020-will-huge/

SEC Enforcers Continue to Focus on Undisclosed Fees
by Joshua M. Newville & Brian Hooven

In a series of enforcement cases over the past few months, the SEC has continued to bring actions focused on undisclosed fees charged to clients. Many of these cases have charged firms with fraud and other violations based on fees that were not adequately disclosed. While some attention has focused on retail wealth managers, institutional advisers to private funds have attracted scrutiny for undisclosed fees, leading to the following enforcement actions:

https://www.lexblog.com/2019/11/12/sec-enforcers-continue-to-focus-on-undisclosed-fees/

Paul Weiss Discusses Delaware Decisions Showing Renewed Focus on Board Oversight

Breach of the duty of oversight claims against Delaware directors are known as “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.”[1]  The plaintiff must successfully argue that the directors either “utterly failed to implement any reporting or information system or controls” or “having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”[2]  These “Caremark claims”—named after the Court of Chancery’s seminal decision in this area, In re Caremark International Inc. Derivative Litigation—require well-pled allegations of bad faith (i.e., that “the directors knew that they were not discharging their fiduciary obligations,” a standard of wrongdoing “qualitatively different from, and more culpable than . . . gross negligence”) to survive dismissal.[3]  As a result of these high pleading standards, Caremark claims have historically had limited success.

http://clsbluesky.law.columbia.edu/2019/11/20/paul-weiss-discusses-delaware-decisions-showing-renewed-focus-on-board-oversight/

Thoughts on Compliance Career Risk
by Matt Kelly
Radical Compliance

Career success is always about demonstrating how you add value to an organization larger than yourself. In our case, it’s about refashioning what you do away from executing a task (testing controls, bargaining with regulators, training employees, writing policies) toward providing a resource executive management needs: a greater awareness of the company’s overall risk posture, so that managers can make better decisions. 

http://www.radicalcompliance.com/2019/11/21/thoughts-on-compliance-career-risk/