Category: Compliance Bricks and Mortar

Here are some compliance-related stories that recently caught my eye:

April 5 Webcast: The SEC’s Asset Management Unit and Strategies for Avoiding Trouble in 2011 and Beyond in Securities Docket

In this webcast, Bruce Karpati, the co-head of the SEC’s Asset Management unit since its inception, will discuss his unit’s successes over the past year, and what it is currently prioritizing and pursuing. He will be joined on the panel by John Reed Stark, Managing Director of Stroz Friedberg and former Chief, SEC Office of Internet Enforcement; and Bradley J. Bondi, a litigation partner at Cadwalader, Wickersham & Taft LLP and former counsel to SEC Commissioners Troy Paredes and Paul Atkins for enforcement matters.

Wall Street’s Biggest Bargain May Be Wall Street Office Space by David M. Levitt in Bloomberg

Demand for downtown space, like in much of the city, froze after the global credit crisis and plunge in financial-industry jobs. Wall Street was hurt by two additional factors: Goldman Sachs Group Inc. (GS)’s decision to sublease space at a building a block south, and departures at Donald Trump’s 40 Wall St., the biggest multitenant tower on the street, according to Shapses.

Luddites and the Law by Simon Fodden in SLAW

Over the last couple of decades as the rate of change in information technology has accelerated, it’s become fashionable for some to claim with pride and others to award with scorn the title of Luddite. As it happens, this March marks the bicentennial of the real Luddite uprising in the north of England. Richard Conniff has written a piece, “What the Luddites Really Fought Against,” that’s available on Smithsonian.com, correcting the misunderstandings that most of us have about who these followers of Ludd actually were and why they took to breaking machines.

Financial services & corruption: Private Equity in the spotlight? and Financial Services: M&A, Private Equity and the lifebelt in thebriberyact.com

We wrote on Tuesday about Private Equity and increased interest by US investigators.  Anti-corruption and money laundering laws touch on Financial Services and Private Equity in a number of ways. One obvious hot spot is M&A activity.  The US Securities & Exchange Commission has recently targeted Private Equity for activities of a portfolio company.  We wrote yesterday that what happens accross the Atlantic has a habit of turning up in the UK.

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

Inside The Mind of An Inside Trader by Francine McKenna in re: The Auditors

No Big 4 audit firms or their partners have been named in the insider trading scandal surrounding the now-defunct hedge fund Galleon Management. But the SEC has accused one of the most prominent businessmen ever implicated in such crimes, Rajat Gupta, a former McKinsey & Company Global Managing Director.

SEC `Capacity Gap’ Risks Oversight Lapses as Regulator’s Targets Multiply by Robert Schmidt and Jesse Hamilton in Bloomberg

The U.S. Securities and Exchange Commission is about 400 employees short of what it needs to manage its current workload, according to a consultant’s four- month internal review mandated by the Dodd-Frank Act. The preliminary findings by Boston Consulting Group Inc. reinforce arguments by SEC officials that the agency is underfunded and understaffed as it takes on oversight of derivatives, credit-rating firms and municipal bonds, according to a draft copy of the report obtained by Bloomberg News.

Is it Really Illegal to Require an Applicant or Employee to Disclose her Password to a “Friends-Only” Facebook Page? in Littler’s Workplace Privacy Counsel

Recently, the American Civil Liberties Union of Maryland tried to publicly embarrass the Maryland Department of Public Safety and Correctional Services (the “Maryland Corrections Department”) into suspending its practice of asking job applicants to disclose their Facebook password so that the Department could check whether the applicant’s wall or stored e-mail revealed any connection to criminal activity. According to a letter dated January 25, 2011 (pdf), sent by the ACLU to the Maryland Corrections Department, this practice “is illegal under the federal Stored Communications Act (SCA), 18 U.S.C. §§2701-11 and its state analog, Md. Courts & Jud. Proc. Art., §10-4A-01, et seq.” The ACLU’s contention is inaccurate.

Buying a Private Fund Manager: An Overview of Legal Issues by Nathan J. Greene, Kwang-Duk (Kasey) Choi of Shearman & Sterling

An unprecedented degree of uncertainty has characterized the asset management business environment over 2009 and 2010—a period that saw extreme market volatility, threatened changes to key tax structures, a rapidly shifting regulatory environment, and rising expectations from institutional investors. One collateral result is a dramatic fall-off in asset management industry mergers-and-acquisitions (M&A) deal activity relative to 2006 and 2007. But the same forces of change that put dealmakers on the sidelines carry the seeds for a rebound in activity. Moreover, the Volcker Rule and other significant regulatory changes under the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)—the import of which are just becoming clear—will themselves prompt new M&A activity.

FASB Sounds Retreat on New Accounting Standards for Leases by John W. Hanley, Jr. in Davis Wright Tremaine LLP’s Corporate Finance Law Blog

It now appears that the FASB may be ready to reverse course, and perhaps even to adhere to its current rules, which draw a bright line between capital and operating leases. We believe that those who have been preparing for the new rules may want to hold tight until the FASB’s direction becomes more certain. In a nutshell, the new rules would discard the fundamental distinction in today’s generally accepted accounting principles (GAAP) between an operating lease and a capital lease. The premise of the new rules is that all leases—no matter the duration or economic terms—should give rise to an asset, and a liability, on the balance sheet of both the lessor and the lessee. These new accounting standards would create real challenges for lessees, since a lessee is required to value the future liability created by a lease using a complex “expected outcome analysis.”

Here are some recent compliance-related stories that caught my attention. But not enough attention to anything with them other post a snippet of the story.

Board Member of Goldman Sachs and Procter & Gamble Charged in Insider Trading Scheme

The Securities and Exchange Commission today announced insider trading charges against a Westport, Conn.-based business consultant who has served on the boards of directors at Goldman Sachs and Procter & Gamble for illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending $5 billion investment by Berkshire Hathaway in Goldman.

Executive Compensation, a Divided Commission, and the Consequences of Dissent (Part 2) by J. Robert Brown Jr. in The Race to the Bottom

[T]he dissent is liberating. The staff know that, by voting against the proposal, the two commissioners will likewise vote against the final rule when it is proposed, assuming the substantive requirements remain in place. That means that the rule can be written without worrying about the views of the dissenting commissioners.

Ponzi Operater Rides Phony Pedigree to Profits in Investor’s Watchdog

Sometimes, as alleged in this case, the claimed credentials are phony. Vigilant investors investigate to find that out. Sometimes, though, the scamster actually graduated from an Ivy League school. What do Marc Dreier, Kirk Wright, and Alicia Eimicke have in common? Two things. All of them ran investment frauds, and all of them graduated from Harvard. I don’t mean to pick on Harvard. There are plenty of Yale and Princeton grads who’ve also run Ponzi schemes. The point is that, while a degree from an impressive university might say something about a person’s intelligence and work ethic, it says nothing about his or her character, per se. And character is what a vigilant investor is looking for.

Chancery Declines to Dissolve LP and Declines to Appoint Receiver of Failing Investment Fund by Francis G.X. Pileggi in Delaware Corporate and Commercial Litigation Blog
The limited partner of a limited partnership sought to force a dissolution of the LP that had invested most of its assets in an investment fund based in the Cayman Islands.

What are the differences in the FCPA and Bribery Act? by Tom Fox

With the recent information coming out, largely from reports by the UK Telegraph, we thought it might a propitious time to review the differences in the Bribery Act and the Foreign Corrupt Practices Act (FCPA) so that US companies might begin to plan to acclimate their FCPA based compliance program to one which includes concepts found in the Bribery Act, if such action is appropriate.

Here are some compliance-related stories that caught my eye:

A Blank Check for Cleaning Up Madoff’s Mess by Floyd Norris in the New York Times

But the Bernard L. Madoff fraud is proving to be different, and not just because Mr. Madoff ran by far the largest Ponzi scheme ever encountered. … SIPC (pronounced SIP-ick), a Congressionally chartered company that finances itself from assessments levied against brokerage industry revenue, estimates that it will spend a further $1.1 billion on the case. That is equal to the entire annual budget of the Securities and Exchange Commission.

Sean McKessy Tapped To Head SEC Whistleblower Office by Joe Palazzolo in WSJ.com’s Corruption Currents

Sean McKessy, former corporate secretary at AOL Inc. and Altria Group Inc., will head the Securities and Exchange Commission’s new whistleblower office, the agency said Friday.

FINRA Imposes Fines Totaling $600,000 Against Lincoln Financial Securities and Lincoln Financial Advisors for Failure to Protect Confidential Customer Information

Securities and Exchange Commission (SEC) and FINRA rules require every broker-dealer to adopt written policies and procedures that address safeguards for the protection of customer records and information. FINRA found that for extended periods of time – seven years for LFS and approximately two years for LFA – certain current and former employees were able to access customer account records through any Internet browser by using shared login credentials. From 2002 through 2009, between the two firms, more than 1 million customer account records were accessed through the use of shared user names and passwords. Since neither firm had policies or procedures to monitor the distribution of the shared user names and passwords, they were not able to track how many or which employees gained access to the site during this period of time. As a result of the weaknesses in access controls to the firms’ system, confidential customer records including names, addresses, social security numbers, account numbers, account balances, birth dates, email addresses and transaction details were at risk.

Does Your Company Know What It Knows? by Andrew McAfee

During times of great business change, two fundamental questions are: what kinds of companies are able to make the transition, and what happens when they do?

Here are some recent compliance-related stories that caught my eye:

FIFA, the World Cup Selection and the FCPA by Tom Fox

I was very interested in the allegations of bribery and corruption leveled at FIFA during the selection process, known, these days, as the “world’s richest and most influential single-sport ruling body”. As has been reported extensively throughout the world, two members of FIFA’s 24 member executive committee were suspended for allegedly offering their votes to determine which countries would host the 2018 and 2022 World Cups. Both men were caught on videotape by the UK Sunday Times asking for specific sums of money, apparently in exchange for their votes.

Compliance Community to DoJ: More Info Please by Melissa Aguilar in Compliance Week

Members of the compliance and ethics profession are pushing the U.S Department of Justice to provide more information about when and how it gives credit to organizations for ethics and compliance programs in its enforcement actions.

SEC’s Sovereign Wealth Fund Probe Is More Than Name Suggests by Joe Palazzolo in WSJ.com’s Corruption Currents

The Securities and Exchange Commission’s foreign bribery probe of banks and private-equity firms is looking beyond their dealings with sovereign-wealth funds to other types of sovereign investment, said a lawyer familiar with the investigation. The lawyer said the SEC has made it clear that investigators are interested in a broader set of data than that associated with traditional sovereign-wealth funds, including information on dealings with national pension funds.

Tyson Foods Settles FCPA Enforcement Action Involving Mexican Veterinarians And Their No-Show Wives in FCPA Professor

Yet another FCPA enforcement action raises the issue of whether the FCPA’s “obtain or retain business” element means anything anymore or whether the FCPA, contrary to Congressional intent, has morphed into an all-purpose corporate ethics statute and – in a game of chicken – companies opt to settle rather than mount a legal defense. Yesterday, Tyson Foods, one of the world’s largest processors of chicken and other food items, agreed to resolve an FCPA enforcement action focused on payments to Mexican veterinarians (and their no-show wives) responsible for certifying product for export.

The diamond soccer ball is offered by Gem Stone King

Here are some recent compliance-related stories that caught my eye:

Leadership (as told by the Pointy-Haired Boss)

Paper Lion Ahead for SEC’s Pay-to-Play Exemption? by Allix Magaziner in the Pay to Play Blog

On March 14, the SEC’s pay-to-play rule will come into effect and there is growing concern that the rule’s exemption for accidental violations will result in an administrative hailstorm. The rule allows an advisor to apply to the SEC for an order exempting it from application of the two-year ban. Under such provision, the SEC can exempt advisers from the time out requirement where the adviser discovers triggering contributions after they have been made, and when imposition of the prohibition is unnecessary to achieve the rule’s intended purpose. An exemption would be based on the facts and circumstances of each applicant, including the SEC’s consideration of factors such as whether the adviser had a compliance program in place.

Chancery Allows Claim to Enforce “Agreement to Negotiate in Good Faith” by Francis G.X. Pileggi in Delaware Corporate and Commercial Litigation Blog

The Court explained that “an agreement to negotiate in good faith may be binding under Delaware law,” and specific performance could, in theory, be an appropriate remedy for breach of such a provision. In practice, however, “the problems with ordering parties to negotiate in good faith are significant.”

Smarsh is conducting a survey on the attitudes and opinions of compliance professionals in the financial services industries regarding the oversight of electronic communications (such as email, instant messaging, social media, etc.) at www.smarsh.com/compliancesurvey

Barney Frank will Seek Reelection

Frank identified as his top two issues defending the Wall Street Reform and Consumer Protection Act, which he called “under attack by those who oppose meaningful regulation and who would undermine it” and addressing “excessive military spending.”  Frank said, “My second national priority is to reduce significantly America’s swollen, unnecessary, worldwide military footprint – this is the only way to reconcile the need for us to spend wisely, to promote our economy and to accomplish significant deficit reduction.”  Frank also flagged fishing industry protections, low-income housing and “fighting for full legal equality for all citizens” as priorities.

Here are some recent compliance-related stories that caught my eye:
Compliance Professionals Ask Justice Department for Data Showing Programs Pay Off

Corporate ethics and compliance officers want the U.S. Department of Justice to provide data “that identifies how often an effective ethics and compliance program yields a direct return in enforcement decisions,” according to three leading professional organizations. In a letter to the Department of Justice (DOJ), the three organizations – the Ethics Resource Center (ERC), Ethics & Compliance Officer Association (ECOA), and the Society of Corporate Compliance and Ethics (SCCE) – said that recent surveys of 1,223 ethics and compliance officers indicate “disappointment” with DOJ statements on past cases which linked favorable treatment for offenders to their cooperation with investigators yet ignored the value of existing ethics and compliance programs.

Real estate managers’ co-investments no comfort to investors by Arleen Jacobius in Pensions & Investments

Real estate managers have been sampling their own cooking for decades, but that didn’t make losses among the largest co-investments any more palatable to outside investors after the economic meltdown of 2008-“09.

Institutional Limited Partners Association Publishes New Private Equity Fund Guidelines by Michael Wu in the Investment Law Blog

Earlier this month, the Institutional Limited Partners Association (“ILPA”) published Version 2.0 of its Private Equity Principals (the “Principals”). The Principals set forth the ILPA’s take on the best practices in establishing private equity partnerships between limited partners (“LPs”) and the general partner (“GP”). The Principals focus on three guiding tenets for developing effective partnership agreements: Alignment of Interest Between LPs and GP, Fund Governance and Transparency to Investors. The revised version of the Principals incorporate feedback from GPs, LPs and third parties in the industry to increase “focus, clarity and practicality.”

California Commissioner Expresses Concern About Proposed Venture Capital Fund Definition by Keith Paul Bishop in California Corporate & Securities Law blog

As I wrote in this early posting, California is ground zero for the venture capital industry.  Many of our most succesful and innovative companies have been funded by the venture capital industry.  Thus, it is good to see that Commissioner Preston DuFauchard has submitted this letter of comment with respect to the Securities and Exchange Commission’s proposed rule defining “venture capital fund”.

SEC looks at Cahill, Goldman Sachs link by Frank Phillips in the Boston Globe

The US Securities and Exchange Commission has delivered subpoenas to the state treasurer’s office in a wide-ranging request for documents concerning dealings between investment banking giant Goldman Sachs and former treasurer Timothy P. Cahill, onetime top staff members, and former campaign aides, according to an official briefed on the document request.The agency’s subpoenas, which seek e-mails, phone records, schedules, files, and memorandums, come just over a month after Goldman Sachs removed itself from two state bond deals in Massachusetts following the disclosure that a vice president at the firm, Neil Morrison, was active in Cahill’s 2010 gubernatorial campaign, which could violate federal securities regulations. Morrison had previously served as a top deputy to Cahill in the treasurer’s office.

Here are some recent compliance-related stories that recently caught my eye:

The Swiss Compliance House: a Model for FCPA Compliance? by Thomas Fox

The Compliance House is a model which has been developed by Swiss businesses to use as the foundation of effective compliance management by ensuring that by “binding values and appropriate compliance management they can safeguard their integrity, and avoid or contain breaches of the law.” Buhr believes that it is the basic legal responsibility of any company board of directors to make certain breaches of law are either avoided or, if they occur, are detected early enough so that the company may remedy the situation.

Ex-JPMorgan banker loses whistleblower case by Jonathan Stempel for Reuters

A federal judge dismissed a whistleblower lawsuit by a former JPMorgan Chase & Co private banker who said she was fired for questioning the dealings of a lucrative client. …. In his ruling, [U.S. District Judge Robert] Sweet said the plaintiff failed to properly allege a Sarbanes-Oxley claim because she did not identify the specific illegal conduct forming the basis of her whistleblower complaint.

Why Did Goldman Blink? in DealBook

Goldman Sachs’s decision to offer shares of Facebook only to offshore investors is simple risk management. The risk here can be attributable to the scrutiny that this transaction, and Goldman Sachs generally, are now under. …. The media hoopla surrounding the announcement of the sale could be characterized as coordinated in a way to create the type of hype that the securities rules are trying to avoid. The stampede of Goldman clients seeking to invest is evidence of this hype. In other words, Goldman arranged the mechanics of this sale to create a media fury that constituted a “general solicitation.”

Advice for Young Compliance Officers by Matt Kelly in Compliance Week

Congratulations on finishing your education and entering the workforce. If corporate compliance is where you want to make your career, you’re in a superb position to attract the attention of global corporations. Those businesses are desperate for skilled labor to bolster their ethics and compliance departments. With some thoughtful career moves now, you can have a bright future for a long while.

Global Hedge Fund Association Comments on Implementing EU Hedge Fund Legislation in Jim Hamilton’s World of Securities Regulation

A global hedge fund association has called for the national implementation of the EU hedge fund adviser legislation to be flexible and proportionate and based on the principles of openness and transparency. The Alternative Investment Fund Managers Directive was passed by the European Parliament last year. The Alternative Investment Management Association (AIMA) comments were a consultation response sent to the new European Securities and Markets Authority (ESMA). The authority released a Call for Evidence ahead of the rule-making Level 2 of the legislative process. The industry was asked to respond in January to the main issues raised in the Directive and AIMA immediately established a working group of member firms to study the proposals and contribute to the response.

Image of Old Swiss House by LinksmanJD

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

“Foreign Official” Limbo … How Low Can It Go? in FCPA Professor

Move over 49%, there is a new “foreign official” “limbo low” – 43%.

In the recent Alcatel-Lucent enforcement action (see here for a complete analysis) paragraph 21 of the DOJ’s information (here) states as follows.

“Telekom Malaysia Berhad (‘Telekom Malaysia’) was a state-owned and controlled telecommunications provider in Malaysia. Telekom Malaysia was responsible for awarding telecommunications contracts during the relevant time period. The Malaysian Ministry of Finance owned approximately 43% of Telekom Malaysia’s shares, had veto power over all major expenditures, and made important operational decisions.

Facebook Tries to Befriend the Public Markets by Matt Kelly in Compliance Week

The modern U.S. regime of regulatory compliance is not easy, not cheap, and not popular—until you consider the alternatives. Then you can see that, as Winston Churchill once said in a somewhat different context, it’s the worst system in the world, except for all the others.

Judges Berate Bank Lawyers in Foreclosures by John Schwartz in the New York Times

With judges looking ever more critically at home foreclosures, they are reaching beyond the bankers to heap some of their most scorching criticism on the lawyers. In numerous opinions, judges have accused lawyers of processing shoddy or even fabricated paperwork in foreclosure actions when representing the banks.

Personal criminal liability, the nuclear deterrent: What every director, senior officer & General Counsel needs to know in The Bribery Act .com

The SFO is fond of saying that criminal liability under the Bribery Act is brought straight into the Board Room.

It is an attention grabbing headline and it’s meant to be.

A key weapon in the SFO’s armoury (akin to a nuclear deterrent) is the focussing of the mind in the Board and senior management levels (including General Counsel) which inevitably flows from the risk they face of a very lengthy (up to 10 years) prison sentence and an unlimited fine if the corporate engages in bribery.

The SFO hopes this threat will motivate the Boards and senior officers of corporates subject to the Bribery Act to adopt and implement Adequate Procedures to prevent bribery.