Compliance Bricks and Mortar – Page 23

Compliance Bricks and Mortar for May 23

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

SEC Enforcement Director: What Empowered Compliance Looks Like by Jaclyn Jaeger in Compliance Week

“Companies that have done well in avoiding significant regulatory issues typically have prioritized legal and compliance issues and developed a strong culture of compliance across their business lines,” said Ceresney. “I’ve found you can predict a lot about the likelihood of an enforcement action by asking a few simple questions about the role of the company’s legal and compliance requirements:

Are legal and compliance personnel included in critical meetings?
Are their views sought and followed?
Do legal and compliance officers report to the CEO, and have significant visibility to the board?
Are legal and compliance departments viewed as important partners in the business, and not simply as support functions, or a cost center?

SEC officials seek clarity on compliance officers’ liability by Sarah N. Lynch

At separate conferences, Securities and Exchange Commission members Kara Stein and Daniel Gallagher called for the agency to provide more clarity, noting many officers fear they will become the subject of an enforcement action.

Financial Literacy by Alex Tabarrok in Marginal Revolution

Only about a third of Americans answer all three questions correctly (and that figure is inflated somewhat due to guessing). The Germans and Swiss do significantly better (~50% all 3 correct) on very similar questions but many other countries do much worse. In New Zealand only 24% answer all 3 questions correctly and in Russia it’s less than 5%.

Second Circuit Reverses SEC Market Timing Verdict by Thomas O. Gorman in SEC Actions

The Second Circuit reversed a jury verdict in favor of the SEC in a market timing case, concluding that there was no evidence to support it. Specifically, the Court found that the “SEC ultimately succumbs to its strategic choice at trial to pursue a theory of scienter or nothing. Its entire jury presentation was premised on the idea that [Defendant] O’Meally violated Section 17(a) through intentional conduct. The SEC’s summation relied solely on intent and recklessness; theories rejected by the jury. And as to negligence, the SEC never introduced testimony or any other evidence on the appropriate standard of care against which a jury could measure O’Meally’s conduct.” This was “fatal” to its case. SEC v. O’Meally, No.. 13-213 (2nd Cir. Decided May 19, 2014).

What Kills You and Your Investments by Barry Ritholtz in Bloomberg View

You don’t understand risk.

I don’t mean you, in your professional capacity. I mean you, the human being whose brain is desperately trying to keep you alive. An endless procession of mortal threats are trying to end your particular genomic variation, forcing your brain to respond first and think later.
…

Let’s look at some of the world’s top predators as an example of risk in the modern world.

…

Image is from GatesNotes: The Deadliest Animal in the World

Compliance Bricks and Mortar for May 9

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

Image of Brick production in Songea, Tanzania is by Egbert

SEC Says Dodd-Frank’s Statute of Limitations Doesn’t Apply to It by Ernest Badway in Securities Compliance Sentinel

According to the SEC, the Dodd-Frank Act does not require the SEC to bring an enforcement action within 180 days of issuing a Wells Notice. See http://www.sec.gov/litigation/opinions/2014/ia-3829.pdf.

Although the Dodd-Frank Act amended the Securities and Exchange Act of 1934 Section 4E(a)(1) to require the SEC to bring the action within 180 days, the SEC said it was not applicable since Congress never said what the consequences if it failed to do so. The SEC claims to be relying upon precedent from other admiminstrative agencies.

Money Laundering 101 by Kortney Nordrum in SCCE’s Compliance and Ethics Blog

AML (Anti-Money Laundering) and BSA (Bank Secrecy Act) laws are absolutely my favorite regulations. No other regulation can provide the feeling of accomplishment when money-laundering violations are found and reported. The same goes for anti-terrorist funding reports. You feel you made a difference that is valued by law enforcement and government. However, no matter what your business line is, money laundering can influence your bottom line. That said, here is a brief overview on how and what should happen when detecting and deterring money-laundering.

Hitting the Ground Running – Your First 100 Days as a New CCO by Tom Fox

In the March-April issue of the Red Flag Group’s Compliance Insider magazine, the issue of what you can do to help yourself to succeed in a new role was explored in an article entitled “The First 90 Days in Compliance”. The article uses the book The First 90 Days by author Michael Watkins as a starting point to provide “systematic methods you can employ to both lessen the likelihood of failure and reach the break-even point faster.”

CFPB Seeks to Overhaul Rules for Bank Privacy Notices by Joe Mont in Compliance Week

The Consumer Financial Protection Bureau has proposed a rule that would streamline the requirements for privacy notices issued by financial institutions, allowing them to be posted online instead of the current practice of delivering them individually to customers.

Compliance Bricks and Mortar for May 2

IMG_1553[1]

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

Kara Stein Takes On Mary Jo White in the Corporate Crime Reporter

In a 3 to 2 decision last week, Mary Jo White joined the SEC majority and overturned the automatic disqualification of the Royal Bank of Scotland from eligibility as a Well-Known Seasoned Issuer (WKSI)…
And out of left field comes a new SEC commissioner, one Kara Stein, to take on White and the SEC majority.

CCOs On the Hook: FinCEN Seeking Fine Against Moneygram CCO by Michael Volkov in Corruption, Crime & Compliance

Chief Compliance Officers should take notice – the Treasury Department’s Financial Crimes Enforcement Network is proposing to fine Moneygram’s Chief Compliance Officer for Moneygram’s failure to police transactions for illicit activity. The CCO faces a potential fine of up to $5 million.

SEC Enters into First Non-Prosecution Agreement with an Individual by David Smyth in Cady Bar the Door

One of the main questions I get from potential insider trading defendants is some variation of Well, what are we looking at here? That is, if the SEC is able to prove its case, what could the consequences be? Unfortunately, the answer is usually that it depends on a lot of things.

Stock Promoter Charged with Fraud in Florida Real Estate Venture by Mark Astaria in the Securities Law Blog

The SEC’s complaint filed in U.S. District Court in the Southern District of Florida alleges that Robert J. Vitale defrauded investors in a Florida real estate venture, sold unregistered securities, and acted as an unregistered broker-dealer. Vitale and his firm Realty Acquisitions & Trust Inc. raised at least $8.7 million from investors, including many senior citizens. Vitale allegedly told investors their funds were “100% protected” when they were not, and he claimed to be a financial expert with a business degree from Notre Dame when he never attended college after graduating from Notre Dame High School in West Haven, Conn.

What Yoda Knows by Mary Abraham in Above and Beyond KM

“The fear of loss is a path to the Dark Side.” This insight of Yoda’s can be read as a warning about many of our information management (or, more properly, information mismanagement) practices. The fear of loss of critical data or documents can lead to over-zealous security measures that hobble the reasonable flow of information inside and outside an organization. It also can lead to information hoarding by individuals or the desperate creation by KM personnel of ad hoc databases and document collections.

Compliance Bricks and Mortar for April 18

bricks curvy

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

Quantity does not equal quality: Expanding ‘disclosure events’ on BrokerCheck a bad idea: Brokerage industry is only one in which professionals as deemed guilty until proven innocent by S. Lawrence Polk in Investment News

Under the current version of Form U4, brokers and their firms are required to disclose any written customer complaint, no matter how frivolous, as long as it somehow relates to a sales practice issue, even if the broker is not named in the complaint. The broker that is the subject of the complaint has it reported on his or her CRD and can remove the disclosure only by going through an expensive and time consuming expungement action, in which the broker bears the burden of proving the complaint is false.

In other words, the broker is deemed guilty until he or she proves his or her innocence. No other profession has a reporting system where the mere filing of a complaint, even if it is later withdrawn, remains part of the public record for years afterward.

Massachusetts Regulators Allege TelexFREE Is $1 Billion Ponzi Scheme by Jordan D. Maglich in Ponzitracker

Massachusetts securities regulators have initiated civil proceedings accusing a Massachusetts and Nevada company of operating a massive pyramid andPonzi scheme targeting Brazilian-Americans that, through the promises of guaranteed annual returns exceeding 200%, raised more than $90 million from Massachusetts residents alone and nearly $1 billion worldwide. TelexFREE, Inc., a Massachusetts corporation, and TelexFREE, LLC, a Nevada limited liability company (collectively, “TelexFREE”), were accused of violations of the Massachusetts Uniform Securities Act by engaging in the fraudulent offering and sale of unregistered securities. The Massachusetts Enforcement Section of the Massachusetts Securities Division is seeking, in relevant part, a permanent cease-and-desist order, an accounting, restitution to victims, and disgorgement of profits and ill-gotten gains.

Was the Conflict Minerals Ruling a “Win” for SEC Rulemaking? by Dave Lynn in CorporateCounsel.net

With this outcome, the rule writers at the SEC are no doubt breathing a sigh of relief, as they still have a relatively full plate of Dodd-Frank Act and JOBS Act mandated rulemakings that continue to percolate. After a string of high profile losses in this Court and the U.S. District Court for the District of Columbia, this outcome is probably the best that the SEC and the Staff could have hoped for and may serve to pave the way for moving forward with the rest of the rulemaking agenda.

The High Cost of Procrastination by Dan Ariely

This is what procrastination is all about. When we think about our life in general we see the benefits of getting our work done on time, saving for retirement, eating better and other good habits. Yet when we face the decision about right now, we get tempted and too often follow our immediate desires and not what it is good for us in the long-term.

Compliance Bricks and Mortar for April 11

Charles Ponzi’s former home up for sale by Erin Ailworth

For the first time, the butter-colored stucco house with the slate roof and second-story balustrades, is going on the broader real estate market, available to anyone willing to take a run at the $3.3 million asking price. All previous sales have been private.

One of the biggest selling points, of course, is Ponzi’s one-time ownership — although he occupied the property for only about six weeks in 1920 before he was arrested on charges of mail fraud. The home has only changed hands three times since Ponzi bought the house from the previous owner, paying him initially with one of his company’s worthless securities.

Introducing Cybersecurity Docket!

Cybersecurity Docket, the “Global Cybersecurity and Incident Response Report,” seeks to be the most comprehensive and timely source of news and commentary on the exploding fields of cybersecurity, data breach and incident response. Continuously updated throughout the day, Cybersecurity Docket delivers important news and developments as they occur – not days or weeks later. Lawyers, executives, compliance officers, consultants, regulators and other professionals throughout the cybersecurity industry rely on Cybersecurity Docket as their “one-stop” way to quickly and easily stay informed.

Answering the questions high-frequency trading raises by Brian Schreiner in Investment News

There has been a media firestorm over high-frequency trading since Michael Lewis appeared on “60 Minutes” on March 30 to discuss his new book Flash Boys. But HFT is nothing new. It has been around since at least 1999 when stock exchanges became fully electronic. HFT is a complex and nuanced issue, which requires more than a cursory overview to gain an informed opinion.

Trust Hero: Brad Katsuyama, on CBS 60 Minutes by Charles H. Green in Trust Matters

Of course, it is anything but crazy. As Michael Lewis says, “When someone walks in the door who is actually trustworthy, he has enormous power. And this is about trying to restore trust to the financial markets.”

Exactly. As anyone who’s been reading this blog for years knows, trust sells. Trust scales. Trust creates value. Trust is an enormous competitive advantage.

Do Compliance Professionals Have to Be Lawyers? by Michael Volkov in Corruption, Crime & Compliance

As compliance professionals enjoy the rise of their profession, lawyers are sensing a decline in importance. I am hearing from compliance professionals a new and disturbing trend – companies are requiring compliance professionals to be trained attorneys.

Compliance Bricks and Mortar for April 4

bricks 15

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

Small Banks Look to Sell as Rules Bite by Michael Rappaport in the Wall Street Journal

In a period when low interest rates are squeezing small banks, the costs of adhering to new regulations are taking a toll. Executives from at least a half-dozen small banks that have agreed to be acquired in recent months said the increasing regulatory burden was a factor in their decisions.

Just How Binding Are SEC Statements In An Adopting Release? by Keith Paul Bishop in California Corporate and Securities Law

The really important question is what is the legal effect, if any, of preambles to rules? One might argue that since a preamble is not subject to notice and comment, it is not legally binding under the Administrative Procedure Act (5 U.S.C. § 551 et seq.). However, the Ninth Circuit Court of Appeals held earlier this week that an administrative law judge could consider the regulatory preamble. Peabody Coal Co. v. Dir., Office of Workers’ Comp. Programs, 2014 U.S. App. LEXIS 5996 (9th Cir. Apr. 1, 2014).

Paul Ryan’s Plan for the SEC: Slash & Burn by Broc Romanek in TheCorporateCounsel.net

Not sure why Rep. Paul Ryan chose the SEC as an example of a federal agency with “duplication, hidden subsidies, and large bureaucracies” in his budget plan released yesterday, but he did. This is the 4th year in a row that Ryan has proposed a plan – but the first time he has focused on the SEC specifically. Remember that the SEC is not only deficit neutral and doesn’t count against the new-fangled Congressional budget caps, but is an independent agency that brings in more money to the US Treasury than it costs. Ryan’s proposal doesn’t specify exactly how much he would cut from the SEC (rather there are budget cuts for a group of agencies as a whole on pages 38-39).

Michael Lewis’s flawed new book by Felix Salmon

I’m halfway through the new Michael Lewis book – the one that has been turned into not only a breathless 60 Minutes segment but also a long excerpt in the New York Times Magazine. Like all Michael Lewis books, it’s written with great clarity and fluency: you’re not going to have any trouble turning the pages. And, like all Michael Lewis books, it’s at heart a narrative about a person — in this case, Brad Katsuyama, the founder of a small new stock exchange called IEX.

Dear Virginia: Do better by Jessica Tillipman in The FCPA Blog

Last summer, I wrote a series for the FCPA Blog about Virginia’s “Shamefully Inadequate Ethics Laws” (see here, here and here). I was not alone in criticizing what has been deemed one of the least effective ethics regimes in the country.

Compliance Bricks and Mortar for March 28

Picnic_House_brick_wall

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

Encouraging Communication of Employee Concerns by Michael Volkov in Corruption, Crime & Compliance

One of the hardest issues for compliance professionals is encouraging employees to raise concerns about ethics and compliance issues. It has become even more difficult when the government establishes whistleblower programs offering financial rewards for employees to tell the government about the problems. Employee surveys provide important and interesting information. A recent survey by CEB (here) found that only five percent of employee concerns are reported on a company’s hotline system.

Insights From LRN’s 2013 Ethics & Compliance Leadership Survey Report

“Program effectiveness” is a term ethics and compliance (E&C) professionals frequently use as they strive to understand whether or not their companies’ investment and effort are paying off. Those who manage E&C programs generally collect and report whatever is immediately measurable, such as number of helpline calls or code violations, and while this information is helpful, it doesn’t tell us which programs are particularly effective or what those programs have in common. Every year, LRN conducts a survey of our client partners across the globe to get a pulse of which ethics and compliance tools work and which don’t work as well – and why.

If You Invested Less Than $925,000 With Bernard Madoff, You’re Now Even by Jordan D. Maglich in Ponzitracker

In an announcement from the court-appointed trustee overseeing recovery for victims of Bernard Madoff’s massive Ponzi scheme, a proposed fourth distribution of approximately $350 million will resolve all claims from victims with an allowed claim of $925,000 or less. The trustee, Irving Picard, sought court approval to make a total distribution of approximately $349 million, which will bring the total amount distributed to Madoff victims at nearly $6 billion to date. With an average payment of approximately $323,000, the proposed distribution will also fully satisfy nearly 52% of the 2,189 accounts for which a claim was submitted.

The Destruction of Arthur Andersen and the Use of DPAs in FCPA Enforcement by Tom Fox in the FCPA Compliance and Ethics Blog

The debate over the efficiencies of Deferred Prosecution Agreements (DPAs) continued this week with additional criticism of their use. I have argued that DPAs are in a corporation’s interest because they can bring certainty to the conclusion of an enforcement action and allow it to make remedial changes and move forward. However yesterday I came across an article by Larry Katzen, a former partner at Arthur Andersen and author of “And You Thought Accountants were Boring – My Life Inside Arthur Andersen.” Katzen’s piece is entitled “A Business World Massacre – What Can Happen  When Government Needs a Scapegoat” and it details the destruction of the firm after it’s guilty verdict surrounding the Enron scandal.

Compliance Bricks and Mortar for March 21

Gare_de_Genval_Sgraffite_floral

Welcome to Spring.

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

Two Thoughts about Dewey LeBoeuf and Parallel Proceedings by David Smyth in Cady Bar the Door

In a devastating New York Times story over the weekend, James Stewart zeroed in on that last sentence. Client relations manager? Who? Apparently it wasn’t obvious to “longtime Dewey insiders”who Zachary Warren even is.

Warren graduated from Stanford in 2006, and applied to be a Dewey paralegal. “Instead, he was offered a $40,000-a-year job helping partners collect client debts.

NEWSFLASH: Common sense prevails again! Prosecutors give credit for compliance programs in Norway too. in the Bribery Act .com

Today Barry spoke at the Oslo Compliance Forumorganized by Wiersholm, Norway’s largest law firm which itself has a history of advising and representing clients on anti-corruption compliance and investigations. I spoke at length to Jan Fougner, Marit Berger Rosland and Georg Engebretsen – they know what they’re talking about and have been involved in some big cases – so if you have a problem in Norway, call them. I would in a heartbeat.

SEC Discourages Incentivizing Whistleblowers to Keep Complaints In-House by Christopher M. Varano in Fox Rothschild’s Securities Compliance Sentinel

What’s good for the goose is apparently not so good for the gander, as the SEC warns in-house attorneys against whistleblower contracts.

The Cost of Compliance by Michael Volkov in Corruption, Crime & Compliance

The title for this posting is a little ambiguous. What is the “cost” of compliance? Is it the cost of implementing an “effective” compliance program? Or is the “cost” to the company of an “ineffective” compliance program. Let’s just say it is both.

Compliance Bricks and Mortar for Pi Day

Exploratorium physicist Larry Shaw began celebrating March 14 as pi day for the mathematical constant π, the ratio of a circle’s circumference to its diameter.

Behind the Myth of Insider Trading by SEC Employees by Bruce Carton in Compliance Week

The authors also point to six specific cases in which “SEC employees appear to front-run the announcement that a firm is subject to costly SEC penalties (associated with the enforcement action).” The authors conclude that “at least some of these SEC employee trading profits are information based, as they tend to divest in the run-up to SEC enforcement actions …” From that bold conclusion came the breathless media headlines mentioned before.

Do the assertions, assumptions, and conclusions in this study even make sense? I say no—let me count the ways: …

The SEC Will Take “Your” Money, Thanks by David Smyth in Cady Bar the Door

So let’s say you work for a hedge fund or some other financial institution that engages in proprietary trading , and you’re inclined to do some insider trading on your employer’s behalf. You make your trades, but you’re a company man and the profits go to the fund, not your own pocket. And let’s also say you get caught and the SEC sues you for the illicit trading. Not a very fun thought so far, right? It gets worse. Because if the SEC wins its case, it can force you to disgorge your fund’s profits.

The Ides of March and Evaluation of Compliance Risk by Tom Fox in the FCPA Compliance and Ethics Blog

One of the more interesting questions in any anti-corruption compliance regime is to what extent your policies and procedures might apply in your dealings with customers. Clearly customers are third parties and in the sales chain but most compliance programs do not focus their efforts on customers. However, some businesses only want to engage with reputable and ethical counter-parties so some companies do put such an analysis into their compliance decision calculus.

However, companies in the US, UK and other countries who do not consider the corruption risk with a customer may need to rethink their position after the recent announcements made by Citigroup Inc. regarding its Mexico operations.

The Disturbing Economics Of Automobile Dealerships in Weakonomics

Tesla, the maker of the car you see above, is in a bit of a pickle with the state of New Jersey. The automaker is an industry innovator; not just for the fact that it makes beautiful electric cars, but because they also want to sell those cars directly to their customers. In the United States this idea is not only rare, it’s largely illegal. For the past few years Tesla has been battling with lawmakers and trade-groups state by state for the right to sell cars directly to their customers. The opponents in this case are the car dealers, who want to force Tesla use dealer networks to distribute and sell their cars.

Non-Technologists Agree: It’s the Technology by Andrew McAfee

Two papers came out last year that examined important issues around jobs and wages. Both are in top journals. Both were written by first-rate researchers, none of whom specialize in studying the impact of technology. And both came to the same conclusion: that digital technologies were largely responsible for the phenomena they examined.

Another Modest Proposal – Risk Factors by Keith Paul Bishop in California Corporate & Securities Law blog

Here’s my solution. The Securities and Exchange Commission should create a list of standard risk factors and issuers should be required to incorporate by reference all applicable risk factors into their filings. They would only be permitted to disclose risks that aren’t on the list. Thus, the SEC would create a standard risk factors such as “competition”, “dependence on key personnel”, and “natural disaster”.

Planning: are you running a baseball game or a soccer match? by Jack Vinson in Knowledge Jolt with Jack

When planning a project, are you more interested in the dates every activity happens, or are you more interested in how all the activities are connected together? Which focus will guarantee success?

The answer depends a little on what kind of work you are planning. Event-based planning focuses on the sequence of activities needed to complete the project. Time-based planning focuses on the time available and attempts to get as much done as possible, according to the clock.

Compliance Bricks and Mortar for March 7

bricks 7

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

Machiavelli for Chief Compliance Officers by Tom Fox in the FCPA Compliance and Ethics Blog

Lesson No. 1 – Heed Selected Advice from Selected Advisors

While in medieval Florence, the Prince ruled as the supreme monarch, he still needed advisors. Today, we are called subject matter experts (SMEs).

Two dubious ethical achievements by Jeffrey Kaplan in the Conflict of Interest Blog

First, a lengthy New York Times piece two days ago offered a “comprehensive examination” of the dealings of David Sampson, chairman of the Port Authority of New York and New Jersey and also a partner in the Wolff & Sampson law firm, with NJ Governor Chris Christie and his administration, both inside the Port Authority and out, and detailed ”the extent to which their ambitions and successes became intertwined.” The story concludes: “Mr. Samson and his law firm benefited financially. Mr. Christie benefited politically. And each enhanced the other’s stature as their relationship deepened in ways that were not apparent at the time.”

The SEC Has Never Prevailed In An FCPA Enforcement Action When Put To Its Ultimate Burden Of Proof by the FCPA Professor

This recent Wall Street Journal article highlighted how the SEC’s win rate at trials has slipped. According to the article:

“[The SEC has] won 55% of its trials since October [2013], a sharp drop after three consecutive years when it prevailed more than 75% of the time.”

There has never been an SEC Foreign Corrupt Practices Act trial, but the above percentages are downright stellar when one considers that the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.

A Closer Look at Warren Buffet’s Letter to Berkshire Shareholders by Kevin LaCroix in the D&O Diary

Notwithstanding these results, it would be a mistake just to focus on the company’s relative performance during a single 12-month reporting period. Obviously, it is inherent in the nature of annual reports that the company in question will be considered in an annual snapshot perspective. But if Berkshire is only considered on this annual reporting period basis, a much more meaningful message might be overlooked. Simply put, Berkshire Hathaway is an astonishing company, and it is becoming even more so all the time.