Category: Compliance Bricks and Mortar

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

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The SEC Cancels Another Open Meeting: What Gives?
Broc Romanek
TheCorporateCounsel.net

The SEC has cancelled tomorrow’s open Commission meeting about proposing changes to its whistleblower office. I think this is the third cancelled open meeting in as many months. Does it matter? Not really. Is it worth blogging about? Probably not. Did I blog about it anyway? Yes.
Here’s a few thoughts:

https://www.thecorporatecounsel.net/blog/2019/10/the-sec-cancels-another-open-meeting-what-gives.html

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Broken Windows: Remarks before the 51st Annual Institute on Securities Regulation
by Commissioner Hester M. Peirce

How can we make our enforcement program even better than it is? Over the past nearly two years, I have thought a lot about this question as I read the enforcement recommendations sent to my office and talk with our enforcement staff. The SEC’s enforcement program effectively serves American investors and the capital markets that underpin the broader economy. There is, however, always room for improvement. Therefore, in my remaining time with you this morning, I will suggest several avenues for improvement. Some of these themes are familiar, but they are ones that merit being raised with you. I welcome feedback on these suggestions from this room full of seasoned lawyers.

https://www.sec.gov/news/speech/peirce-broken-windows-51st-annual-institute-securities-regulation

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The 10 Most Significant Changes in the Proposed Adviser Advertising Rule
Cipperman Compliance Services

The 10 Most Significant Changes in the Proposed Adviser Advertising Rule
1. Expanded Definition of “Advertisement”. The proposed rule applies to “any communication, disseminated by any means.”  This definition includes all digital and social media communications.

…

https://cipperman.com/2019/11/08/the-friday-list-the-10-most-significant-changes-in-the-proposed-adviser-advertising-rule/

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Study: Second-Hand Reports More Reliable
by Matt Kelly
Radical Compliance

Some news that’s both useful to corporate compliance officers and totally relevant to our political drama in Washington: fresh research shows that whistleblower reports based on second-hand information tend to be more reliable than those from first-hand reporters. 
Moreover, second-hand reports are more likely to be about accounting or business integrity issues; and the more second-hand reports a company gets, the fewer lawsuits and smaller regulatory settlements it’s likely to pay out in future years. 

http://www.radicalcompliance.com/2019/11/01/study-second-hand-reports-more-reliable/

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These are some of the compliance-related stories that I read recently while getting ready for Halloween.

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It’s the Great Pumpkin: Lessons in Process Validation Through Monitoring
by Tom Fox
FCPA Compliance & Ethics

The compliance lesson from Linus’ adventure; it is process validation. Unlike Santa Claus, who we have been repeatedly told “Yes, Virginia there is a Santa Claus”; there has been no process validation for the Great Pumpkin. Linus faints when he thinks he sees the Great Pumpkin rising from his pumpkin patch; unfortunately it is only Snoopy. In the compliance world, process validation comes through oversight. Two of the seven compliance elements in the 1992 US Sentencing Guidelines call for companies to monitor, audit and respond quickly to allegations of misconduct. 

http://fcpacompliancereport.com/2019/10/its-the-great-pumpkin-lessons-in-process-validation-through-monitoring/

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Enforcement Co-Director Peikin touts self-reporting, creative remedies at Securities Docket conference
by Amanda Maine, J.D.
Jim Hamilton’s World of Securities Regulation

Regarding self-reporting in general, former SEC Enforcement Director William McLucas, now at Wilmer Hale, said that the lack of guidance about self-reporting from the SEC can result in tough discussions with clients because there are no guarantees for self-reporting in contrast to the detailed guidelines from the Department of Justice. George S. Canellos, formerly of the SEC’s Enforcement Division and currently at Milbank, agreed, stating that without formal guidelines for cooperation credit, the SEC is “all over the map.”

https://jimhamiltonblog.blogspot.com/2019/10/enforcement-co-director-peikin-touts.html

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Compliance Job Interview Questions and Answers
by Corporate Compliance Insights

At CCI, we know what questions reveal a candidate’s qualifications, and we know what answers a hiring authority is looking for. If you’re hiring a compliance officer, you need to ask these questions.  If you’re interviewing for a compliance position, you need to be prepared to answer them.

https://www.corporatecomplianceinsights.com/compliance-job-interview-questions-and-answers/

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Corporate Oversight and Disobedience
by Elizabeth Pollman

Over a decade has passed since landmark Delaware corporate law decisions on oversight responsibility, and only a small handful of cases have survived a motion to dismiss. Scholars have puzzled over what it means to have the potential for corporate accountability lodged within the duty of good faith, but almost never brought to fruition in terms of trial liability. …

Under current Delaware case law, courts have allowed Caremark claims to proceed where evidence exists to infer that the board utterly failed to implement a compliance monitoring system or that the directors engaged in disobedience by knowingly managing legal risk or flouting, violating, or ignoring the law.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3474337

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Is the SEC up to its $84-trillion RIA challenge?
by Tobias Salinger
Financial Planning

Agency officials have said as much: The SEC’s latest annual performance review cites the notable rise in the share of RIAs receiving exams but also two missed goals around enforcement. This month, the agency’s inspector general took it to task over those findings.
The average time it takes the SEC to start an enforcement action after opening an investigation is two years and one month. Only 49% of the time was the agency able to file cases within two years of starting its investigation. The figures came nowhere near the SEC’s own targets.

https://www.financial-planning.com/news/sec-enforcement-cases-of-rias-take-two-years-ig-says

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

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The Cost to Retail Investors and Public Markets of “Harmonizing” Securities Offering Exemptions
By Erik F. Gerding
The CLS Blue Sky Blog

Investing in private securities would pose considerable additional risks for retail investors, relative to investing in public securities, and existing research suggests that these additional risks would not be sufficiently offset by higher expected returns.  In fact, if retail investors are given more direct access to the private markets, they are likely to earn lower risk-adjusted returns overall than they do in the public markets, for several reasons: …

http://clsbluesky.law.columbia.edu/2019/10/01/the-cost-to-retail-investors-and-public-markets-of-harmonizing-securities-offering-exemptions/

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ANALYSIS: Lack of Removal Power Could Threaten SEC ALJ Regime
by Peter Rasmussen
Bloomberg Law

Are the job security provisions enjoyed by SEC administrative law judges unconstitutional? The Supreme Court majority kicked that question down the line in its 2018 Lucia v. SEC decision. The Fifth Circuit may just have picked it up, as a three-judge panel enjoined an administrative rehearing of a pre-Lucia accounting violations case against Michelle Cochran. It is too early in the process to read too much into a preliminary injunction, but the Fifth Circuit’s action does indicate that Lucia has not yet been laid to rest.

https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-lack-of-removal-power-could-threaten-sec-alj-regime

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Some Places Are Much More Unequal than Others
by Jaison R. Abel and Richard Deitz
Liberty Street Economics

Economic inequality in the United States is much more pronounced in some parts of the country than others. In this post, we examine the geography of wage inequality, drawing on our recent Economic Policy Review article. We find that the most unequal places tend to be large urban areas with strong economies where wage growth has been particularly strong for those at the top of the wage distribution. The least unequal places, on the other hand, tend to have relatively sluggish economies that deliver slower wage growth for high, middle, and lower wage earners alike. Many of the least unequal places are concentrated in the Rust Belt. These differences in the degree of wage inequality are tied to powerful economic forces arising from technological change and globalization, which have pushed up wages strongly for high-skilled workers in locations that have become the most unequal. Yet those same forces have kept wage growth compressed within a fairly narrow range for workers in places that are the least unequal.

https://libertystreeteconomics.newyorkfed.org/2019/10/some-places-are-much-more-unequal-than-others.html

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Attorney General Barr Speaks at SEC’s Criminal Coordination Conference

I’ll begin with our coordination to punish wrongdoers and to protect investors. As I have mentioned, the white-collar crime, financial fraud, and corruption cases that our agencies handle are some of the most complex and difficult cases to uncover, investigate, and prosecute. Together, however, through information sharing and open dialogue, we are able to overcome those challenges.

http://clsbluesky.law.columbia.edu/2019/10/07/attorney-general-barr-speaks-at-secs-criminal-coordination-conference/

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Compliance and Careers Amid Corporate Upheaval
by Matt Kelly
Radical Compliance

This week I was in Denver attending the Converge 2019 conference hosted by Convercent, and as one might expect, lots of the sessions there focused on how to apply technology to compliance programs. 
For my money, however, the most interesting session explored something quite different: how compliance officers can navigate their careers amid upheaval at your company — a merger, breakup, restructuring, or some other ordeal that leaves everyone on edge. Including you.

http://www.radicalcompliance.com/2019/10/04/compliance-careers-amid-corporate-upheaval/

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A new (and more transparent) way to calculate SEC whistleblower awards
by Amanda M. Rose
The FCPA Blog

How should SEC whistleblower awards be calculated? In a working paper, I address this timely question.

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My analysis suggests that the controversial proposed amendments are warranted, but incomplete. For reasons that I explain, a hybrid percentage-dollar approach that ties a whistleblower award to the value of the punishment imposed on the wrongdoer, while also taking into account the costs a whistleblower anticipated incurring by coming forward, makes sound policy sense.

…

A full copy of my paper can be downloaded here.

https://www.fcpablog.com/blog/2019/10/9/a-new-and-more-transparent-way-to-calculate-sec-whistleblowe.html

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

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Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat

The SEC’s mission is to: (1) protect investors; (2) maintain fair, orderly, and efficient markets; and (3) facilitate capital formation. The SEC oversees over 27,000 market participants, including investment advisers, mutual funds and exchange traded funds, broker-dealers, national securities exchanges, credit rating agencies, clearing agencies, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), and the Financial Accounting Standards Board (FASB). The SEC also oversees over $97 trillion in securities trading annually and reviews the disclosures of approximately 4,400 exchange-listed public companies with an approximate aggregate market capitalization of $34 trillion.

• Background Memo from House Staff
• The Honorable Jay Clayton Testimony
• The Honorable Robert J. Jackson Jr Testimony
• The Honorable Hester M. Peirce Testimony
• The Honorable Elad L. Roisman Testimony
• The Honorable Allison Herren Lee Testimony
• Video of the Hearing
  

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Inside Airbnb, Employees Eager for Big Payouts Pushed It to Go Public
by Erin Griffith
New York Times

On behalf of more than a dozen employees, they pleaded to be able to sell their Airbnb stock options. Because Airbnb is privately held, its shares cannot be easily traded or cashed in. So the employees also asked that the company go public, a move that would let them freely sell their shares, said five people who saw or were briefed on the document and were not authorized to speak publicly.

https://www.nytimes.com/2019/09/20/technology/airbnb-employees-ipo-payouts.html#click=https://t.co/ymuwKpmf4l

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Ten reasons why compliance fails
by Andrew Hayward and Tony Osborn
The FCPA Blog

This is despite the increasing ethical demands stakeholders are making of business, the exposing power of social media, the proliferating requirements of compliance laws and regulations, and the burgeoning numbers of policies, procedures and compliance officers which have been put in place in response.
So what’s going on? Why isn’t compliance working? Here are ten reasons why it can fail:

https://www.fcpablog.com/blog/2019/9/20/ten-reasons-why-compliance-fails.html

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In the Decade Since Madoff, Ponzi Schemers Try New Tactics
by Angela Wang
New York Times

The S.E.C. brought 50 percent more Ponzi prosecutions in the decade after Mr. Madoff’s arrest than in the 10 years before, according to a New York Times analysis of the agency’s enforcement announcements.
Whether the increase is the result of enhanced enforcement or a proliferation of scammers, records show that Ponzi victims lost $31 billion in the decade beginning 2009, more than three times the amount lost in non-Madoff schemes in the previous decade. (The figures are not adjusted for inflation.)

https://www.nytimes.com/2019/09/22/business/ponzi-scheme-bernie-madoff.html

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Veil-Piercing Risks for Private Equity Managers Highlighted in Recent Court Decision
By Joshua M. Newville and Alexandra V. Bargoot 

A recent case in a North Dakota district court is a reminder to private equity funds and managers that, under certain conditions, they may be held responsible for actions of a fund’s portfolio companies.  Courts allow plaintiffs to pierce the corporate veil as a check against improper abuse of the corporate form.  When one corporate entity is under such extensive control by another that the first is merely an alter ego of the second, a court may permit a plaintiff to reach through the corporate structure to gain recovery.  This is particularly true if the first entity is undercapitalized.

https://www.privateequitylitigation.com/2019/09/veil-piercing-in-private-equity-risks-for-funds-and-managers/

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Minimum Wage Impacts along the New York-Pennsylvania Border
by Jason Bram, Fatih Karahan, and Brendan Moore
Liberty Street Economics

While New York began raising its minimum wage from $7.25 per hour in 2014, neighboring Pennsylvania has left its minimum wage unchanged at the federal floor. Minimum-wage variation between contiguous states has allowed researchers to evaluate the respective impacts on employment and average earnings. In this post, we gauge the effect of New York’s recent minimum-wage hikes by comparing low-wage sectors in counties along the New York-Pennsylvania border.

https://libertystreeteconomics.newyorkfed.org/2019/09/minimum-wage-impacts-along-the-new-york-pennsylvania-border.html

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

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How to Ace Compliance Interviews: Advice for the Next Generation of Compliance Officers
by Mary Shirley
Corporate Compliance Insights

Your hard work tailoring applications to the job and company has paid off and you’ve been invited to interview. Congratulations on being shortlisted! How do you increase your chances of clinching an offer? Here are share some tips for how to maximize this opportunity to shine and avoid common issues experienced in the interview process that may detract from your talents.

https://www.corporatecomplianceinsights.com/advise-compliance-interviews/

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The Problem of Algorithmic Corporate Misconduct
by Mihailis E. Diamantis
NYU Law’s Compliance & Enforcement

Technology will soon force broad changes in how we conceive of corporate liability.  The law’s doctrines for evaluating corporate misconduct date from a time when human beings ran corporations.  Today, breakthroughs in artificial intelligence and big data allow automated systems to make many business decisions like which loans to approve,[1] how high to set prices,[2] and when to trade stock. [3]  As corporate operations become increasingly automated, algorithms will come to replace employees as the leading cause of corporate harm.  The law is not equipped for this development.  Rooted in an antiquated paradigm, the law presently identifies corporate misconduct with employee misconduct.  If it continues to do so, the inevitable march of technological progress will increasingly immunize corporations from most civil and criminal liability.

https://wp.nyu.edu/compliance_enforcement/2019/09/16/the-problem-of-algorithmic-corporate-misconduct/

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Accounting Firms, Private Funds, and Auditor Independence Rules
by David E. Wohl
Harvard Law School Forum on Corporate Governance and Financial Regulation

The SEC recently charged a large public accounting firm (Accounting Firm) with violations of its auditor independence rules (Independence Rules) in connection with more than 100 audit reports involving at least 15 audit clients, including several private funds. [1] According to the SEC’s order, the Accounting Firm represented that it was “independent” in audit reports issued on the clients’ financial statements. However, the SEC found that the Accounting Firm or its affiliates provided prohibited non-audit services to affiliates of those audit clients (including to portfolio companies of the private funds), which violated the Independence Rules. The prohibited non-audit services included corporate secretarial services, payment facilitation, payroll outsourcing, loaned staff, financial information system design or implementation, bookkeeping, internal audit outsourcing and investment adviser services. The SEC also found that certain of the Accounting Firm’s independence controls were inadequate, resulting in its failure to identify and avoid these prohibited non-audit services.

https://corpgov.law.harvard.edu/2019/09/18/accounting-firms-private-funds-and-auditor-independence-rules/

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Financial planners join battle over SEC’s Regulation BI
by Mark S. Nelson, J.D.
Jim Hamilton’s World of Securities Regulation

XYPN’s complaint, filed in the federal court in the Southern District of New York, tells a remarkably similar story to the complaint by eight state attorneys general filed days earlier. Both complaints lament that the distinctions between investment advisers and broker-dealers have become increasingly blurred and that Regulation BI does little to clarify those differences. Both complaints note that a majority of the Commission, in adopting Regulation BI, disregarded the recommendation of SEC staff who conducted the Dodd-Frank Act-mandated study that the Commission impose a uniform fiduciary duty without regard to the financial interests of a broker-dealer. 

https://jimhamiltonblog.blogspot.com/2019/09/financial-planners-join-battle-over.html

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I want to thank the many readers of Compliance Building who donated to my Pan Mass Challenge ride that raised money to fight cancer.

This weekend I’m entered in another charity bike ride. This 100-mile ride in Saratoga Springs is to raise money for the Juvenile Diabetes Research Fund. My teenage son was hospitalized and diagnosed with Juvenile (Type 1) Diabetes last year. This auto-immune disease makes him insulin dependent. JDRF was incredibly helpful in getting him, and my family adjusted to treating this disease. JDRF is also instrumental in funding research to treat and someday, hopefully, to find a cure. If you are interested in donating to this cause, you can do so here: http://www2.jdrf.org/goto/dougcornelius

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

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Seven States Sue SEC on Concern Broker Rule Is Weak
by Dave Michaels
Wall Street Journal

The lawsuit, filed in Manhattan federal court by the states’ Democratic attorneys general, illustrates how a rule intended to protect mom-and-pop investors has become a political lightning rod for the Securities and Exchange Commission. The states and consumer advocates generally insist the rule is too weak to help clients, while the SEC says it improves investor protections while preserving the broker-dealer industry’s business model.

https://www.wsj.com/articles/seven-states-sue-sec-on-concern-broker-rule-is-weak-11568085859?shareToken=stcedbf5af4b864c7cb3da065fd94f41b4

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How Kim Kardashian Helped Get Ex-Billionaire Raj Rajaratnam Out Of Jail
by Lisette Voytko

About two years before the end of his 11-year prison sentence for insider trading, ex-billionaire hedge fund manager Raj Rajaratnam was quietly released to house arrest, thanks to a new federal law that Kim Kardashian had lobbied President Trump to sign.

https://www.forbes.com/sites/lisettevoytko/2019/09/10/how-kim-kardashian-helped-get-ex-billionaire-raj-rajaratnam-out-of-jail/#66fc79b77a5f

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The Current State of the Compliance and Internal Audit Partnership
by Matt Stankiewicz
SCCE’s

Compliance officers and internal auditors are natural partners and allies in the compliance governance landscape.  As the compliance profession and influence grew, compliance officers often leaned on internal auditors for help in assessing risks, uncovering financial misconduct, and assessing compliance functions and controls.  Recently, however, I have noticed some changes in their relationship, suggesting that they both are maturing and gaining independence from each other.

http://complianceandethics.org/the-current-state-of-the-compliance-and-internal-audit-partnership/

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SEC Chairman Talks Main Street Investors, Foreign Corruption, and Market Issues at the New York Economic Club

My remarks will proceed in three parts.  First, an overview of some of our recent initiatives.  Second, some observations on our efforts to combat offshore corruption, including the undesirable effects of a continuing lack of global coordination and commitment in this area.  And third, a discussion of some of the current market issues we are monitoring.  In addition, because this is the “Economic” Club, and more because I enjoy acknowledging the insights the field of Economics has provided us, I will mention some of the economic tenets and related luminaries we reference from time to time.  For example, when we discuss issues of leverage and capital structure more generally, I will turn to our Chief Economist, S.P. Kothari, and say something like “Miller Modigliani.”  Generally, S.P. smiles back.  I know better than to ask if he’s just humoring me.   

https://www.sec.gov/news/speech/speech-clayton-2019-09-09

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The Whistleblower Whisperer
by Jacob Goldstein
NPR’s Planet Money

Jordan Thomas is one of the top whistleblower lawyers in the country. When people on Wall Street see some kind of financial wrongdoing and want to report it, they can work with him to bring evidence to the SEC anonymously. Tips his clients have brought to the SEC have led to huge cases against some of the biggest banks in the world.

https://www.npr.org/2019/05/29/728001911/episode-916-the-whistleblower-whisperer

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Study Law to Advance Compliance Career?
by Matt Kelly
Radical Compliance

The other day I was speaking with a compliance professional who had taken a few years to pursue other ventures, and is now looking to get back into the field. She’s been having some frustrations with her job search, and asked: Is there a new trend of companies demanding a law degree for compliance work? Would it be wise for her to return to law school for a non-JD program if she wants to resume her career? 

http://www.radicalcompliance.com/2019/09/05/study-law-advance-compliance-career/

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

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The Houston Texans and (How Not To Do) Long Term Compliance Strategy
Tom Fox
FCPA Compliance & Ethics

Yet as idiotic as the giveaway of Clowney was, it was only the opening move. Later that day, the Texas traded not one No. 1 pick, not two No. 1 picks but two No. 1s and one No. 2 for two players from Miami. The first was Laremy Tunsil, a starting left tackle (i.e. the blind side), a backup receiver, and a fourth and sixth round pick. According to Albert Breer, writing in Sports Illustrated’s MMQB, “barring more big trades, Houston will go through three draft cycles in four years (2018, ’20, ’21) without picks in the first two rounds.”

http://fcpacompliancereport.com/2019/09/houston-texans-not-long-term-compliance-strategy/

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Compliance is a Team Sport
by Mike Fabrizius
SCCE’s The Compliance & Ethics Blog

Team sports provide us with many organizational analogies, and none better than football. The successful elements of the defensive dimension of football provide some strong parallels to healthcare compliance. In both cases the goal is to improve the chances of success by preventing costly mistakes that can damage the team’s record and standing.

http://complianceandethics.org/compliance-is-a-team-sport-2/

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Killing LIBOR: A Victory for Irrational Rectitude
by Rick Jones
Crunched Credit

The US economy is about to pay the butcher’s bill for a massive disruption of worldwide financial markets resulting from the elimination of the London Interbank Offered Rate, or LIBOR.  And, we are doing this on purpose.  It seems the denizens of the heights of our international financial fabric felt they had to do this in light of the discovery that a handful of bankers had unlawfully colluded to cause LIBOR to be mispriced for their personal advantage.  As Captain Renault said, “I’m shocked, shocked!”  This was so bad that we had to blow up the LIBOR index upon which trillions of dollars of financial assets are based?  While bankers behaving badly is a problem, why are we punishing markets because our banking regulatory cadres failed to prevent bad behavior?  At best, this is a monument to irrational rectitude.

https://www.crunchedcredit.com/2019/08/articles/libor/killing-libor-a-victory-for-irrational-rectitude/

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Verifying Accredited Investors in a Rule 506(c) Offering
by Taylor Wilkins
Strictly Business

Generally, Rule 506(c) provides an exemption from registering an offering of securities when the company issuing securities (usually called an “issuer”) only sells securities to accredited investors (previously defined here) and the issuer takes reasonable steps to ensure that each purchaser is an accredited investor. The benefit of Rule 506(c) compared to Rule 506(b), is that, under Rule 506(c), an issuer may generally solicit potential investors, which allows issuers to engage in a variety of public solicitations, such as internet postings, presentations at conferences, or other forms of advertisement. Under a Rule 506(b) offering, engaging in any such activity could result in a loss in the ability of the issuer to rely on the exemption.

https://www.strictlybusinesslawblog.com/2019/08/27/verifying-accredited-investors-in-a-rule-506c-offering/

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20% of Big 4-audited IPOs report weaknesses in financial-reporting controls
by Francine McKenna
Marketwatch

A MarketWatch analysis of SEC filing data provided by research firm Audit Analytics shows 100 IPO filings in 2019 year-to-date by companies that use a Big 4 audit firm — Deloitte, Ernst & Young, PricewaterhouseCoopers or KPMG. MarketWatch’s analysis of S-1 disclosures for those companies found 20 that have voluntarily disclosed serious issues with internal controls over accounting, financial reporting and the systems.

https://www.marketwatch.com/story/20-of-big-4-audited-ipos-report-weaknesses-in-financial-reporting-controls-2019-09-04

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

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Woodstock 50th and Succession Planning in Compliance
by Tom Fox
FCPA Compliance & Ethics

The Woodstock music festival informs today’s topic of succession planning from the compliance perspective and is another area where compliance can play a key role. A.G. Lafley and Noel M. Tichy, in a 2011 Harvard Business Review (HBR)article,“The Art and Science of Finding the Right CEO”, discussed the issue of succession planning at Procter & Gamble (P&G). Many of the concepts and issues that Lafley discusses within the context of succession planning in general are applicable to the concern of compliance within this area.

http://fcpacompliancereport.com/2019/08/woodstock-50th-succession-planning-compliance/

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Do Fiduciary Duties Matter?
By A. Joseph Warburton
The CLS Blue Sky Blog

I analyze fiduciary duties in a unique setting – the British mutual fund industry – where trusts and corporations exist within the same industry.  Prior to 1997, all British mutual funds had to be organized legally as trusts, and fund managers were subjected to a strict (trust) fiduciary standard.  In 1997, this regulatory restriction was changed.  Funds were permitted to organize as either trusts or corporations, and fund managers were subjected to the applicable fiduciary standard.  (In contrast, the U.S. applies a uniform fiduciary standard under the Investment Company Act of 1940 regardless of the fund’s organizational form).  Hence, the British fund industry offers a unique laboratory for empirical study of fiduciary standards.

http://clsbluesky.law.columbia.edu/2019/08/13/do-fiduciary-duties-matter/

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Other Lessons in Verwaltung Case
By Matt Kelly
Radical Compliance

Don’t get me wrong; I’m all for any enforcement action that underlines the importance of heeding a compliance officer’s advice. But the misconduct in question happened 10 years ago, in a foreign country with a deep culture of bank secrecy. One can’t be too surprised that Verwaltung executives behaved the way they did at that time. 

That, to my thinking, is the better point to ponder here. Verwaltung is about the maturity of a corporate compliance function. Compliance officers can use the facts here to diagram an immature compliance function, and gain a better understanding of how mature your own organization’s approach to compliance truly is. 

http://www.radicalcompliance.com/2019/08/12/other-lessons-verwaltung-case/

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SEC Stops Recidivist’s Fraud Before Investors Are Harmed

On August 13, 2019, the Securities and Exchange Commission (“SEC”) charged Antonio M. Bravata, of Ferndale, Michigan, a recidivist securities law violator and convicted felon, with securities fraud conducted while serving a sentence for an earlier investment fraud. Bravata was previously charged by the SEC, and later by criminal authorities, for his participation in a $50 million securities fraud conducted through BBC Equities, LLC. In 2013, Bravata was found guilty in a jury trial, sentenced to 5 years of incarceration, and ordered to pay restitution. In the SEC case, Bravata was found liable for securities fraud, enjoined from future violations, and ordered to pay disgorgement and penalties. [my emphasis]

https://www.sec.gov/litigation/litreleases/2019/lr24559.htm

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

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Board Members Should Take Note — Delaware Supreme Court Issues Important Decision on Caremark Compliance Standard
by Michael Volkov
Corruption, Crime & Compliance

The Delaware Supreme Court returned to this issue in a recent case – Marchand v. Barnhill et al, HERE, a case involving Blue Bell Creameries  and a listeria outbreak.  The facts, while compelling, involve a serious health and safety issue but nonetheless has significant implications for overall ethics and compliance functions. 
In 2015, Blue Bell, a large ice cream manufacturer, experienced a listeria outbreak, which caused the death of three individuals.  Blue Bell had to recall its products and shut down production.  Shortly after that, Blue Bell suffered a “liquidity crisis,” and the company was forced to secure financing that caused a fall in its stock price.  A stockholder brought a derivative suit alleging that the directors breached their fiduciary duty of loyalty under Caremark.  The trial court granted defendants’ motion to dismiss finding that plaintiffs did not plead any facts to support the claim that the board “utterly failed to adopt or implement any reporting and compliance systems.”

https://blog.volkovlaw.com/2019/08/board-members-should-take-note-delaware-supreme-court-issues-important-decision-on-caremark-compliance-standard/

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Diversified Portfolios Do Not Reduce Competition
by Barbara Novick, BlackRock, Inc.
Harvard Law School Forum on Corporate Governance and Financial Regulation

Theories about the incentives of company executives due to common owners fail to consider the metrics by which the performance of executives is measured and the composition of pay packages, which is primarily in company stock. For example, according to their 2018 annual proxy filing, American Airlines’ CEO has had 100% of his direct compensation paid in the form of equity since 2015. Further, airline executives’ performance is measured by metrics such as pre-tax income, margin improvement, and stock price—all measures driven by own-company performance. 

https://corpgov.law.harvard.edu/2019/08/07/diversified-portfolios-do-not-reduce-competition/

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Corzine Hedge Fund Firm Granted SEC Registration With Limits
by Limes Weiss
Bloomberg

The SEC order includes “trading parameters” that bar JDC-JSC from engaging in proprietary trading and require it to have a “reasonable basis” to expect that, under normal conditions, each of its funds could be “orderly liquidated” within five trading days. That could restrict Corzine to trading in only the most liquid of markets, such as those for currencies and large-cap stocks, said David Tawil, co-founder of Maglan Capital, a New York-based hedge fund.

https://www.bloomberg.com/news/articles/2019-08-06/corzine-s-hedge-fund-firm-granted-sec-registration-with-limits?

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Final Volcker Rule Regulation Eases Hedge Fund and Private Equity Fund Restrictions
by Deborah J. Enea and Elizabeth R. Glowacki

The final rule also eased the Volcker Rule’s restrictions on affiliations between investment advisers and hedge funds or private equity funds. Investment advisers can have the same name or a variation of the same name as the hedge funds and private equity funds that they sponsor and in which they invest, subject to the following conditions: …

https://www.pepperlaw.com/publications/final-volcker-rule-regulation-eases-hedge-fund-and-private-equity-fund-restrictions-2019-08-01/

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Chief compliance officer liability and the opioid epidemic
by Jaclyn Jaeger
Compliance Week

In a period of three months, two chief compliance officers have been charged for their individual roles in the opioid epidemic—a clear indication the Department of Justice continues to expand the scope of prosecutions to those who fail in their compliance responsibilities.

https://www.complianceweek.com/regulatory-enforcement/chief-compliance-officer-liability-and-the-opioid-epidemic/27512.article#.XUhsorrCtdg.twitter

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