Month: December 2008

The Roles and Responsibilities of the General Counsel in the Organization’s Ethical Culture

The Markkula Center for Applied Ethics at Santa Clara University hosted a panel discussion on The Roles and Responsibilities of the General Counsel in the Organization’s Ethical Culture. The panel consisted of:

  • Tom McCoy, executive vice president, legal affairs, and chief administrative officer, Advanced Micro Devices, moderator
  • Craig Nordlund, senior vice president, general counsel and secretary, Agilent Technologies
  • Martin Collins, senior vice president and general counsel, Novellus
  • Fred Gonzalez, vice president, general counsel, and secretary, SonicWall

You can also listen to an audio recording of the panel discussion. (MP3)

Craig offers up the Winona Ryder paradigm as the reason Enron happened:

“Why did she do it? Well, first of all, she figured she wouldn’t get caught. And secondly, if she did get caught, she figured because she was famous, she would get off scot-free. And so he said in the environment in which Enron was operating, Ken Lay and his executive team had that same sort of sense, that they probably wouldn’t get caught, but if they did, nobody was punishing white collar crime of that magnitude, and so they’d get off and they could move on successfully to another job.”

Craig sees the role of the general counsel shifting from one acting as an advocate to one acting as a policeman. The Chief Compliance Officer, the General Counsel and the Audit Committee are holding the company accountable as a whole.

Martin likes to look at general counsel as a “consigliere,” someone that is turned to for their advice and their judgment. If you are just repeating the law as it’s written down by outside counsel, you are not doing your job. General counsel needs to focused on preventing problems from arising in the first place.

Fred believes that general counsel needs to “avoid underestimating the risk of suppressing facts solely to preserve internal solidarity.”

Is it unethical if you do not get caught? Of course it is still wrong.

Is ethics a function of the general counsel. One response is that it is not a function at all. It is a set of values and a vision.

GE To Stop Offering Quarerly Earnings Forecasts

GE had originally begun making quarterly earnings forecast to display its consistent earnings to Wall Street. According to the Wall Street Journal, some GE observers think the earnings forecast prompted executives to sell assets or make other moves to hit their estimates.

From a compliance perspective, you would be worried that the pressure to hit the numbers could lead to fudging of numbers.

Good for GE for stepping away from their old practice.

FCPA Trends and Patterns

Danforth Newcomb and Philip Urofsky of Shearman and Sterling have updated their  FCPA Digest of Cases and Review Releases and Recent Trends and Patterns in FCPA Enforcement (.pdf).

In addition to a general increase in FCPA enforcement activity in recent years, four distinctive new trends can be seen. First, both the frequency and severity of enforcement have increased in recent years. While there are fluctuations over short periods, over the past five years there is clearly the trend toward more aggressive investigations and enforcement proceedings by the DOJ and the SEC, including a steady increase in proceedings brought against individuals. These proceedings are also resulting in more severe punishments in the form of fines for corporations and jail time for individuals.

The second trend is the use of more creative methods in resolution of criminal cases. In recent years, the DOJ has increasingly used non-prosecution (or deferred prosecution) agreements in FCPA matters apparently to provide a reward to defendants who voluntarily disclose and cooperate in the DOJ’s investigation and, of course, to provide an incentive to other companies to do likewise.

Third, the DOJ and the SEC have increasingly included a requirement that a company retain an independent compliance monitor as part of any settlement – whether it be a plea, deferred prosecution, or civil settlement. In the past year, however, the DOJ has issued guidance on the circumstances in which a monitor is appropriate and the manner in which one should be selected. In addition, in several recent cases, the DOJ has chosen not to impose a monitor apparently in recognition of the company’s own credible remedial steps.

The final development is a spike in enforcement actions resulting from self-reporting of FCPA problems discovered as part of merger or acquisition activity. This may be somewhat of a self-fulfilling prophecy as more parties are worried about successor liability arising from prior corrupt conduct by the acquired company.

Time may show each of these trends to be mere anomalies in a larger anti-corruption movement, but at this point, one thing is clear: this is a period of rapid change in anticorruption enforcement activity.

Canadian Real Estate Developers and Money Laundering

Eli Udell of Perley-Robertson, Hill and McDougall LLP penned a summary of the effect of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act on Canadian real estate developers: Real Estate Developers And Money Laundering Law – What You Need To Know.

What Must a Developer Do To Comply?

1)  Implementation of a “Compliance Regime”
2)  Obligation to Report Certain Transactions
3)  New Record-keeping Requirements

See:

FSA Berates Compliance Officers in Crackdown on Data Security Breaches

Joanne Wallen of  Complinet writes about the reaction of the U.K.’s Financial Service Authority: FSA Berates Compliance Officers in Crackdown on Data Security Breaches (.pdf).

The FSA focused on compliance officers for not putting enough focus on data security.

Examples of good practice at firms that the FSA visited included encrypting laptops and using secure internet links to transfer data to third parties. This was something that HSBC claimed it usually did, but the bank was caught out when its electronic system went down and it instead transferred the records of 370,000 life insurance customers onto a disc that it then sent in the post to its reinsurer at the beginning of February. As of the beginning of April, the disc had not yet turned up. Other examples of best practice include masking customers’ financial details where they are not necessary for staff to do their jobs and appointing a senior manager with overall responsibility for data security.

No Laughing Matter; National Lampoon Subject to SEC Complaint

See a copy of the complaint at JD supra: SEC v. National Lampoon.

The Commission’s complaint alleges that, from at least March 2008 through June 2008, Laikin, Barsky, Rodriguez and Dougherty engaged in a fraudulent scheme to manipulate the market for the common stock of National Lampoon. Specifically, Laikin, along with Barsky, paid kickbacks in exchange for generating or causing purchases of National Lampoon stock to Rodriguez, a corrupt stock promoter, and the CW, whom Laikin, Barsky and Rodriguez believed had connections to corrupt registered representatives. As part of this scheme, Dougherty generated purchases of National Lampoon stock in exchange for a portion of the kickbacks. Dougherty made his purchases over the course of a number of days and used various accounts to give the false impression of a steady demand for the stock.

The complaint alleges that Laikin and Barsky paid at least $68,000 that went to Rodriguez, Dougherty, and the CW to cause the purchase of at least 87,500 shares of National Lampoon stock. Through these efforts, Laikin and Barsky sought to artificially push National Lampoon’s stock price from under $2 per share to at least $5 per share, in part, to keep the company’s stock price above the minimum listing requirements of the AMEX, and to increase National Lampoon’s ability to enter into possible “strategic partnerships” and acquisitions. In addition to paying others to purchase the stock, Laikin shared confidential financial information regarding National Lampoon, non-public news releases, and confidential shareholder lists, and coordinated the release of news with the illegal purchases in the stock. Barsky helped direct the purchases and facilitated the kickback payments. National Lampoon and Laikin also made materially misleading statements in a tender offer.

The complaint alleges violations of Section 17(a) of the Securities Act of 1933, Sections 9(a)(2), 10(b) and 13(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13e-4 thereunder. The complaint seeks permanent injunctions against all defendants, disgorgement of ill-gotten gains, together with prejudgment interest, and civil penalties, from the individual defendants, and an officer and director bar against Laikin.

Video Inviting You To Help Fight Against Corruption

To mark the World Economic Forum’s International Anti-Corruption Day on Dec. 9, 2008, executives from companies in the Forum’s Partnering Against Corruption Initiative appear in this video inviting ideas on how to fight corruption.

Speaking in the the video are (in order of appearance) Peter Bakker, Chief Executive Officer, TNT, Netherlands; Alan L. Boeckmann, President and Chief Executive Officer, Fluor Corporation, USA; Samuel A. DiPiazza Jr, Chief Executive Officer, PricewaterhouseCoopers International, USA; and Richard OBrien, President and Chief Executive Officer, Newmont Mining Corporation, USA.

By becoming a PACI signatory, a company commits to a zero-tolerance policy towards bribery and corruption and agrees to put in place an internal anti-corruption programme that reflects the PACI Principles for Countering Bribery.

A Triumph Of Sports Ethics

With all of the fraud and corruption stories in the news, how about a feel-good story: J.P.  Hayes. Mr. Hayes disqualified himself from a PGA Tour qualifying event when he realized he had accidentally used an unapproved golf ball for two shots. Not two rounds; Not two holes; two shots.

By disqualifying himself he became ineligible to play full-time on the PGA Tour in 2009.

On his 12th hole of the first round at Deerwood Country Club, Hayes’ caddie reached into his golf bag, pulled out a ball and flipped it to Hayes, who missed the green with his tee shot. He then chipped on and marked his ball. It was then that Hayes realized the ball was not the same model Titleist with which he had started his round. That was in violation of the one-ball rule, which stipulates that a player must play the same model throughout a round. He called an official over and took the two shot penalty. With the two-stroke penalty, Hayes shot a 74. He came back with a 71 on Thursday and was in good shape to finish among the top 20 and advance to the final stage to earn exempt status on the PGA Tour for the following year.

After the second round, Hayes realized that the wrong ball he had played in the first round might not have been on the USGA’s approved list. It was a Titleist prototype he test a few weeks earlier. Hayes called an official, confirmed the problem and accepted the disqualification.

It is easy to be noble and upstanding when people are watching you. When nobody is watching and  you can get away with doing the wrong thing is when you find out what kind of person you are.

Mr. Hayes can sleep better at night knowing he did the right thing. You can’t buy that kind of sleep.

Don’t think that tournament sponsors didn’t notice this story. I would bet they would love to have story of integrity as part of their 2009 tournament. Maybe Hayes will end up getting more special invites to play in upcoming events than he would if he made Q school.

See:

How To Keep The Corporate Website In Compliance With Securities Laws

Timothy Hearn of Dorsey and Whitney, penned SEC Provides Guidance On Use Of Company Web Sites in Cyberspace Lawyer Vol. 13, No. 9, Pgs. 8-12. Bowne’s Digest of Compliance professionals abstracted some of the highlights: Tips On How To Keep The Corporate Website In Compliance With Securities Laws.

The SEC has issued an interpretive release (SEC Rel. No. 34-58288) on how to manage a corporate website in compliance with the federal securities laws.