Compliance Bricks and Mortar – #OptOutside

Instead of shopping (or working), I’m off on a bike ride. If you are looking for something compliance-related to read, here are few stories that recently caught my attention.

Stock Trades of SEC Employees by Shivaram Rajgopal (Columbia Business School) and Roger M. White (Arizona State University)

In March 2009, H. David Kotz, then Inspector General (IG) of the SEC, released a report outlining the questionable trading activity of two lawyers employed by the SEC’s enforcement division. IG Kotz admitted in subsequent testimony before Congress that the SEC lacked a compliance system capable of tracking and auditing employees’ trades. This report and testimony, as well as the accompanying public outrage, spurred Mary Shapiro, then SEC Chairman, to impose new, stricter internal rules, beginning in August of 2010, whereby SEC employees must (i) refrain from buying or selling stocks of firms under SEC investigation; (ii) have their transactions pre-approved, and; (iii) order their brokers to provide transaction-level information to the SEC.

In our article, Stock Trades of SEC Employees, we investigate the efficacy of this new regime in restricting informed trading in the SEC workforce. …

Turning to returns, SEC employees beat the market by about 5% overall and by 8% in U.S. stocks (on average, per annum). These abnormal returns come not from buying winners, but rather by avoiding losers (i.e., SEC employees tend to be good at selling securities prior to price declines).


SEC Whistleblower Report Highlights Employers’ Challenge by Henry Cutter

More than four of five people who have received whistleblower payouts from the Securities and Exchange Commission first flagged the problems within their own companies, according to a report to Congress the agency submitted this week. [More…]

Gibson Dunn Discusses Proposed Changes to CFIUS Review by Judith Alison Lee, Caroline Krass, Jose Fernandez and Stephanie Connor

The proposed Foreign Investment Risk Review Modernization Act of 2017 (“FIRRMA”) would modernize the CFIUS review and approval process, which has struggled to keep pace with a surge of foreign investment in the United States over the last several years. If passed, the bill would revamp the CFIUS review process and update the regulations to address the national security concerns implicated in the transfer of sensitive U.S. technology to countries of “special concern,” most notably China. FIRRMA would also expand the Committee’s mandate to include certain joint ventures, minority position investments and real estate transactions near military bases or other sensitive government facilities. The legislation, introduced as President Donald Trump was in Beijing for talks with Chinese President Xi Jinping, would increase the number of foreign investments in the U.S. that would be required to win CFIUS approval.[More…]

A Hedge Fund Manager Committed Fraud. Would the U.S. Let Him Go? by David Enrich

After the financial crisis last decade, the federal government was expected to aggressively pursue criminal cases against top financiers: the fund managers, bankers, mortgage lenders and Wall Street executives who helped cause the global economy to crater. But prosecutions have been rare. The exceptions have been obscure or relatively junior industry players against whom it was easy to build cases but who did not bear primary responsibility for the crisis.

One reason: Prosecutors were under pressure to move quickly and to not lose trials. They preferred to take the safest, simplest routes to win convictions, and to then move on to new cases.

That is what happened with Mr. Baker, who became a top target. The government labeled him a fugitive, made him the subject of an international manhunt and, eventually, extradited him from Germany, where he had been living with his wife. [More…]