Month: February 2015

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

SEC Commissioners Push Lifetime Bans on Executives by Joel Schectman in WSJ.com’s Risk & Compliance Journal

The U.S. Securities and Exchange Commission is divided over whether it should impose severe restrictions on banks and their executives who break securities rules. For top executives, those punishments could include a lifetime ban from working at publicly traded companies. And some at the Commission are advocating greater use of “bad actor” bars against financial firms found to have committed misconduct, which would impose strict limitations on their ability to sell wealthy investors stakes in private offerings like hedge funds.

Know more about the Fed than Rand Paul does by Mark Schoeff Jr. in Investment News

In a speech in Iowa this past Presidents’ Day weekend, Sen. Rand Paul, R-Ky., criticized the Federal Reserve, but was called out by experts for having a limited understanding of how the institution actually works.

How well do you know the Fed?

The SEC’s Year of Enforcement by John Sikora Jr.

It is important to heed the messages that the SEC has been sending about its view of private equity as SEC enforcement actions often follow warnings by SEC staff members in public speeches.  For example, months after a 2013 speech by the Chief of the SEC’s Asset Management Unit warning against using inflated interim valuations while raising a few fund, the agency brought two related cases alleging the use of inflated valuations in fund marketing materials.

Snowball Firing Squad by Derek Rust

It’s been a tough week in Boston dealing with the historic level of snow.

As of February 17, the snow depth near Boston was greater than in all but two reported locations in Alaska. It was significantly higher than the notoriously snowy states of Michigan, Wisconsin, and Minnesota. Only Buffalo, New York, had a higher snow pack. NASA’s Earth Observatory

But I found a few minutes to focus on these compliance-related stories.

Feds: Employee Impersonated Firm’s President in SEC Inquiry by Bruce Carton in Compliance Week

Yesterday, federal prosecutors in the Southern District of New York announced that they have charged Steven Hart with obstruction of justice and perjury relating to an SEC investigation. In 2009, the SEC was investigating, among other things, whether Hart, who was a portfolio manager at an investment firm, had conducted improper “match trades” or “cross trades” between his personal fund and a fund he managed. Prosecutors allege that on two occasions when an SEC attorney called Hart’s investment firm to speak with the firm’s president, Hart received the call and impersonated the president. Pretending to be the president, Hart allegedly told the SEC, falsely, that (1) the president was aware of Hart’s improper trading activity, but nevertheless wanted Hart to remain an employee of the firm; and (2) that the president had approved Hart’s match trading activity.

One Good Thing and One Bad Thing about SEC Administrative Proceedings by David Smyth in Cady Bar the Door

One of my favorite lines from my kids’ books involves a cat named Pickles who’s having something of an identity crisis. Pickles doesn’t really have an owner, but does have a temporary caretaker, who tells him, “Pickles, you’re not a bad cat. You’re not a good cat. . . . You’re a mixed up cat.” So it is with many of us, I guess, and so it is with SEC administrative proceedings.

Fancy footwork: How businesses linked to blacklisted oligarchs avoid Western sanctions in The Economist

In several cases, however, companies that would have been subject to sanctions because of their links to “designated” Russian oligarchs have managed to wriggle free of the restrictions with well-timed transactions. These have had the effect of reducing the stakes held by parties subject to sanctions below thresholds that would trigger penalties against their businesses. “The blatant manner in which [some Russian entities] have avoided sanctions raises questions about the effectiveness of the existing system and the willingness of the West to enforce its own rules,” concludes an unpublished report by a corporate-investigations firm that has been seen by The Economist. It was compiled for one of the many Western companies that fret about whom they can or cannot do business with under the sanctions regime.

Boston’s Ridiculous February Snowfall In One Chart in Five Thirty Eight

And this data undersells what Boston has gone through in 2015. In January and February so far, a total of 92.8 inches of snow have hit Boston. That’s 22.9 inches more than the previous two-month record (January and February 1994), and it’s greater than the total seasonal snowfall of all but two (98 percent) of the last 124 winters.

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

The S.E.C.’s Hazy Approach to Crime and Punishment by Peter J. Henning in NY Times.com’s DealBook

In Gilbert and Sullivan’s “The Mikado,” a line expresses the need “to let the punishment fit the crime.” The Securities and Exchange Commission is struggling with that notion when it decides whether to grant a waiver to an automatic bar from certain securities trading.

The issue has been nagging the S.E.C. for the last year in settlements with banks and brokerage firms for violations of the securities laws that earns them the label of “bad actor,” which results in the automatic bar, which can be costly. Last week, two commissioners, Luis A. Aguilar and Kara M. Stein, issued a dissent from an order that granted a waiver to Oppenheimer & Company despite what they described as “egregious misconduct.”

The most interesting conflict of interest case of the (still young) year by Jeff Kaplan in Conflict of Interest Blog

As reported initially by the Bergen Record:   “Federal prosecutors have [launched a probe] into a flight route initiated by United [Airlines] while [David] Samson was chairman of the [Port Authority, which] operates [Newark Liberty Airport]. The route provided non-stop service between Newark and Columbia Metropolitan Airport in South Carolina — about 50 miles from a home where Samson often spent weekends with his wife. United halted the non-stop route on April 1 of last year, just three days after Samson resigned under a cloud. Samson referred to the twice-a-week route — with a flight leaving Newark on Thursday evenings and another returning on Monday mornings — as ‘the chairman’s flight,’ one source said. Federal aviation records show that during the 19 months United offered the non-stop service, the 50-seat planes that flew the route were, on average, only about half full. United… was in regular negotiations with the Port Authority and the Christie administration during Samson’s tenure over issues that included expansion of the airline’s service to Atlantic City and the extension of the PATH train to Newark…” A story from NJ.Com added that the  flight’s booking rate of 50% was significantly lower than “the rate of 85 percent or higher common among carriers” and also that the Chair of the NJ assembly’s transportation committee said the benefit to United of running this unprofitable route “could be PATH. It could be how much they pay for landing planes. It could be for how flights are dispatched at the airport. It could be a multitude of things. And it could be none of them.” – See more at: http://conflictofinterestblog.com/2015/02/the-most-interesting-conflict-of-interest-case-of-the-still-young-year.html#sthash.mKOQRWa3.dpuf

The Chamber’s True Position is that Corporate Compliance Programs are a Tool for Corporate Attorneys to Collect Information in Order to Protect the Company – Not the Public by Stephan Kohn in Whistleblower Protection Blog
By Stephen Kohn

The Chamber of Commerce uses the phrase “corporate compliance” in a misleading and disingenuous manner. In a major U.S. Court of Appeals 2014 case, the Chamber’s position on such internal compliance programs was clarified. The Chamber vigorously argued that such programs were, as a matter of law, part of a company’s General Counsel. They argued that compliance departments were not independent investigatory bodies, but simply fact-finding bodies designed to provide information to company attorneys. As such, compliance investigations could operate in complete secrecy, and their findings could be kept secret from the government, even if subpoenaed.

Historical Echoes: No Valentines Please, We’re British by Amy Farber in Liberty Street Economics

It’s almost Valentine’s Day, and we’re not asking you questions or dispensing advice about it—that’s not (yet) our business. However, we can offer two attempts at humor regarding the Bank of England and amorous activity. The first touches upon a central bank’s fear for its reputation and the second its fear of being “manhandled” by the government.

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

Alstom Gets Break on Fine by Rachel Louise Ensign and Ted Mann in the Wall Street Journal

When the U.S. Justice Department announced a record $772 million foreign-bribery settlement with Alstom SA in December, there was a hitch: The French engineering company couldn’t pay without hurting its ability to do business.

So Alstom got a break: approval from a court to wait until its $17 billion deal with General Electric Co. closes before making the payment.

A Day In The Life Of Private Equity Giant TPG by Ben Walsh and Ryan Grim in the Huffington Post

At a 2012 investor conference, private equity giant TPG, which manages about $65 billion, showed a video documenting a day in the life of the firm to the audience of pension fund managers and other large, institutional investors. ” The video is set to the chords of Coldplay’s “Viva La Vida” and zooms around to TPG’s global offices.

The video, which has not previously been made public and was obtained by The Huffington Post, tries hard to make that day seem like an ostentatiously unglamorous, elite, ultra-competent corporate mission where value is delivered to investors with a smile.

As Regulators Focus on Culture, Wall Street Struggles to Define It by Emily Glazer and Christina Rexrode in the Wall Street Journal

As they emerge from years of bruising fines, layoffs and losses, big banks are trying more than ever to monitor employee attitudes and values to avoid future problems.

But they also have little choice: Senior officials with the Federal Reserve and other agencies in recent weeks have made it clear that they believe bad behavior at banks goes deeper than a few bad apples and are advising firms to track warning signs of excessive risk taking and other cultural breakdowns. Still, even regulators acknowledge culture is a difficult thing to measure.

Image of Snowy Brick Wall is by Kathleen Conklin