Category: Compliance Bricks and Mortar

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

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The Troika Laundromat
The Organized Crime and Corruption Reporting Project

Laundromats are complex systems for moving money that allow corrupt politicians, organized crime figures, and wealthy business people to secretly invest their ill-gotten millions, launder money, evade taxes, and fulfill other goals.
OCCRP has previously exposed three such schemes: The Proxy Platform, the Russian Laundromat, and the Azerbaijani Laundromat.
Now, OCCRP and its reporting partners reveal a unique new Laundromat, created by a prestigious financial institution. This time, the work shows not only its beneficiaries but also exposes its mastermind and operator — Troika Dialog, once Russia’s largest private investment bank.

https://www.occrp.org/en/troikalaundromat/

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Will Congress Expand the Insider Trading Prohibition?
by Peter J. Henning
DealBook

A common complaint about insider trading law is that there is no statute that expressly sets forth the requirements to prove insider trading. That can make it difficult to determine whether a violation has occurred.
The House Financial Services Committee is seeking to remedy that. It recently passed a bill that would — for the first time — set forth what is required to prove insider trading.

https://www.nytimes.com/2019/05/24/business/dealbook/insider-trading-act.html

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DC Circuit Opinion Reaffirms Fiduciary and Disclosure Obligations of Advisers While Rejecting SEC Finding of “Willful” Violations
By Joshua M. Newville, Samuel J. Waldon, Anthony Drenzek and Ariella Muller

The DC Circuit recently released an opinion addressing the SEC’s administrative findings against registered investment adviser The Robare Group (TRG) for failure to disclose alleged conflicts of interest. Although the court affirmed the SEC’s finding of a violation of Section 206(2) of the Advisers Act, it held that Commission could not find willful violations under Section 207 based on the same negligent conduct.

https://www.privateequitylitigation.com/2019/05/dc-circuit-opinion-reaffirms-fiduciary-and-disclosure-obligations-of-advisers-while-rejecting-sec-finding-of-willful-violations/

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Crypto Assets and Insider Trading Law’s Domain
by Andrew Verstein 
Harvard Law School Forum on Corporate Governance and Financial Regulation

Insider trading doctrine clearly applies to most familiar crypto assets and their traders. The legal requisites for insider trading regulation—jurisdiction, material non-public information, breach of duty—are frequently conjoined. The most obvious examples of this concern misappropriation by employeesof crypto asset trading venues about the venue’s plans to support a crypto asset; allegations of this sort of insider trading have already ended up in federal court. But there are many more examples, such as misappropriation by government officials and members of mining pools. Ultimately the question is not whether insider trading law applies to crypto assets; it is whether we want it to.

https://corpgov.law.harvard.edu/2019/05/29/crypto-assets-and-insider-trading-laws-domain/

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Interesting Action From OFAC
by Matt Kelly
Radical Compliance

Compliance officers might want to take a close look at the wrist-slap that State Street Corp. received from the Office of Foreign Assets Control on Tuesday, for violations of sanctions against Iran. It’s a small but telling example of how a robust compliance program brings benefits, OFAC or otherwise.
OFAC did cite State Street for violating Iran sanctions, because the bank acted as custodian for a customer’s retirement plan and processed $11,365 worth of pension payments to the customer, a U.S. citizen, while he was residing in Iran in the mid-2010s.

http://www.radicalcompliance.com/2019/05/28/interesting-action-from-ofac/

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These are some of the compliance related stories that caught my attention this week.

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The Looming SEC IEO Fintech Smackdown
by John Reed Stark

Not to be confused with initial coin offerings (or “ICOs”), an IEO is a crypto-financing model offered and administrated via a cryptocurrency trading platform on behalf of a company (typically some form of start-up) that seeks to raise funds with its newly issued cryptocurrency digital tokens. Each IEO negotiates its unique terms, deals, and conditions with the various cryptocurrency trading platforms.

https://www.linkedin.com/pulse/looming-sec-ieo-fintech-smackdown-john-reed-stark/

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Some Securities Fraudsters Escape Paying SEC Fines
by Dave Michaels
Wall Street Journal

The Securities and Exchange Commission over the five fiscal years that ended in September 2018 took in 55% of the $20 billion in enforcement fines set through settlements of court judgments according to agency statistics. During the prior five years, from 2009 through 2013, the SEC collected on 60% of the $14.6 billion.

https://www.wsj.com/articles/some-securities-fraudsters-escape-paying-sec-fines-11558344601?shareToken=stcd26267268cf44699be99d966e93fc32

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Ethics Bots and Other Ways to Move Your Code of Business Conduct Beyond Puffery
by Michael Blanding
Working Knowledge

When health insurer Cigna Corp. appeared in front of a judge for allegedly misleading shareholders on Medicare regulations this spring, plaintiffs thought they had a strong case. After all, Cigna had published its own document titled “Code of Ethics and Principles of Conduct” that specifically required employees to uphold all regulations and “act with integrity in all that we do.”
When the panel of three judges took a look at the argument, however, they threw it out of court as irrelevant. “We think the statements in Cigna’s Code of Ethics are a textbook example of ‘puffery,’” the judges wrote. “They are too general to cause a reasonable investor to rely upon them.”

https://hbswk.hbs.edu/item/ethics-bots-and-other-ways-to-move-your-code-of-business-conduct-beyond-puffery?cid=wk-rss

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Three Compliance Lessons from Preet Bahara
by Tom Fox
FCPA Compliance & Ethics

Preet Bharara gave the morning keynote at the second day of Compliance Week 2019. It was interesting because rather than a speech he did so with a one-hour Q&A format with Allen & Overy partner Gene Ingoglia facilitating the session through the role of the questioner. The questions were built around Bharara’s recently released book Doing Justice: A Prosecutor’s Thoughts on Crime, Punishment, and the Rule of Law.

http://fcpacompliancereport.com/2019/05/three-compliance-lessons-preet-bharara/

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Recruiting and Retaining Compliance Staff is Key Risk for Banks, Regulator Says
by Kristin Broughton
Wall Street Journal

Criminals laundering money through the financial system have long been one of the top risks facing the banking industry. Building a solid defense against such intrusions is becoming another, a U.S. financial regulator said Monday.
U.S. banks are having a hard time recruiting and retaining compliance professionals, particularly those who specialize in financial crimes, the Office of the Comptroller of the Currency said in a semiannual report on the risks facing lenders.

https://www.wsj.com/articles/recruiting-and-retaining-compliance-staff-is-key-risk-for-banks-regulator-says-11558395878?shareToken=sta0ad1cfbeeec4a5594014a9356f51c3f

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Please support my Pan Mass Challenge ride to fight cancer. On the first weekend in August, I’ll be riding across Massachusetts to raise money for cancer research. I could use your support: https://profile.pmc.org/DC0176

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

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Reasonableness Pants
Commissioner Hester M. Peirce

A strong enforcement program requires us—to draw from the admonition a judge recently gave to us in a matter before her—to “put on [our] reasonableness pants.” The SEC ought always to wear reasonableness pants, and I would like to talk today about what those reasonableness pants look like on a regulator.

https://www.sec.gov/news/speech/speech-peirce-050819

Rise of the No Men
The Economist

But pity not finance’s in-house policemen, for they have had a golden decade since the crisis. While swathes of banking have laboured under cutbacks and stiff capital requirements, their headcount and clout have grown. Banks fined for aiding corruption, money-laundering and sanctions-busting have beefed up their compliance, risk, legal and internal-audit teams. Compliance officers will never be the rock stars of finance, but they have moved from drums to rhythm guitar. And though some banks hint at having reached “Peak Compliance”, staffing and investment are likely to remain well above pre-crisis levels.

https://www.economist.com/finance-and-economics/2019/05/02/the-past-decade-has-brought-a-compliance-boom-in-banking

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Wells Fargo creates new unit focused on regulatory compliance
Imani Moise
Reuters

The new unit, whose creation was reported earlier on Wednesday by the Financial Times, will be charged with working through the more than a dozen regulatory consent orders the bank is operating under – agreements between regulators and the bank that it will work to satisfy certain requirements. It will also implement new business and risk-management processes.

https://www.reuters.com/article/us-wells-fargo-risk/wells-fargo-creates-new-unit-focused-on-regulatory-compliance-idUSKCN1SE2U5

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How We Howey
by Hester M. Peirce, U.S. Securities and Exchange Commission
Harvard Law School Forum on Corporate Governance and Financial Regulation

While Howey has four factors to consider, the framework lists 38 separate considerations, many of which include several sub-points. A seasoned securities lawyer might be able to infer which of these considerations will likely be controlling and might therefore be able to provide the appropriate weight to each. Whether the framework gives anything new to the seasoned securities lawyer used to operating in the facts and circumstances world of Howey is an open question. I worry that non-lawyers and lawyers not steeped in securities law and its attendant lore will not know what to make of the guidance. Pages worth of factors, many of which seemingly apply to all decentralized networks, might contribute to the feeling that navigating the securities laws in this area is perilous business. Rather than sorting through the factors or hiring an expensive lawyer to do so, a wary company may reasonably decide to forgo certain opportunities or to pursue them in a more crypto-friendly jurisdiction overseas.

https://corpgov.law.harvard.edu/2019/05/13/how-we-howey/

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Oh Come On, CFTC…
By Matt Kelly
Radical Compliance

Well this takes the whistleblowing cake: the Commodities & Futures Trading Commission is promoting its whistleblower program at a cryptocurrency conference in New York this week, complete with a booth in the hallway and free CFTC whistles handed out to attendees.

http://www.radicalcompliance.com/2019/05/14/oh-good-lord-cftc/

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Five Good Reads for Compliance Professionals
by Kitty Holt
SCCE’s Compliance & Ethics Blog

• The Lucifer Effect: Understanding How Good People Turn Evil by Philip Zimbardo….
• Dying Out Here Is Not An Option by John Connelly….
• The Forger’s Spell: A True Story of Vermeer, Nazis, and the Greatest Art Hoax of the Twentieth Century by Edward Dolnick….
• Whistleblower by Amy Block Joy…
• Why We Sleep: Unlocking the Power of Sleep and Dreams, by Matthew Walker, PhD. …

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

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Who to Sue When a Robot Loses Your Fortune
By Thomas Beardsworth and Nishant Kumar
Bloomberg Business

The timeline leading up to the legal battle was drawn from filings to the commercial court in London where the trial is scheduled to begin next April. It all started over lunch at a Dubai restaurant on March 19, 2017. It was the first time 45-year-old Li, met Costa, the 49-year-old Italian who’s often known by peers in the industry as “Captain Magic.” During their meal, Costa described a robot hedge fund his company London-based Tyndaris Investments would soon offer to manage money entirely using AI, or artificial intelligence.

https://www.bloomberg.com/news/articles/2019-05-06/who-to-sue-when-a-robot-loses-your-fortune

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U.S. v. Connolly: “Outsourcing” a Government Investigation — And How to Avoid It
by David B. Massey, James Q. Walker, Lee S. Richards III, Shari A. Brandt, Audrey L. Ingram, Daniel C. Zinman, Arthur Greenspan, and Rachel S. Mechanic
NYU Law’s Compliance & Enforcement

On May 2, in a widely-watched case, the U.S. District Court for the Southern District of New York found that the government “outsourced” a criminal LIBOR investigation to Deutsche Bank and its outside counsel, and thereby violated defendant Gavin Black’s Fifth Amendment rights when outside counsel interviewed the defendant under threat of termination from his employment.  United States v. Connolly, 16 Cr. 370 (CM), Memorandum Decision and Order Denying Defendant Gavin Black’s Motion for Kastigar Relief, ECF Document 432, slip op. at 19, 29 (May 2, 2019).  But because the DOJ did not use the defendant’s compelled statements at trial and the investigation was not otherwise tainted, the Court found no Kastigar violation and held that, even if there was, any error was harmless.  Connolly, slip op. at 40-41, 43-44.  

https://wp.nyu.edu/compliance_enforcement/2019/05/07/u-s-v-connolly-outsourcing-a-government-investigation-and-how-to-avoid-it/

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CBS Beefs Up Ethics & Compliance
By Matt Kelly
Radical Compliance

Most notably, CBS will place “human resources production partners” on set at all of its programs, so actors and other staff will have someone they can approach with any complaints. That seems directly related to Michael Weatherly, star of CBS’ hit show Bull. He was accused in December of harassing co-star Eliza Dushku, and then squeezing her off the show in 2016 when Dushku complained about his behavior to CBS executives.

CBS also said it has hired a new chief ethics and compliance officer, Hazel Mayers. Mayers started the job in March, after working since 2015 as general counsel at Simon & Schuster — but Mayers also previously worked at CBS for 12 years before that, as assistant general counsel and chief compliance officer.

http://www.radicalcompliance.com/2019/05/07/cbs-beefs-ethics-compliance/

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The Ruthless, Secretive, and Sometimes Seedy World of Hedge Fund Private Investigators
by Michelle Celarier
Institutional Investor

Work for activist hedge funds is a particularly revealing task, according to Barakett. “I’m never surprised by what we find,” he says, mentioning a public company executive who had a “wife and kids in one city, and another wife and kids in another city in another — nonadjacent — state.” Another married CEO of a public company “had his gay lover on the payroll and was also living in a condo owned by the company,” Barakett says.

https://www.institutionalinvestor.com/article/b1f6yg8n93jyfh/The-Ruthless-Secretive-and-Sometimes-Seedy-World-of-Hedge-Fund-Private-Investigators

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What characteristics do the World’s Most Ethical Companies have in common?
By Aarti Maharaj
The FCPA Blog

Some of the findings include:
Diversity at the highest levels: Among the 128 companies from Ethisphere’s 2019 awards list, women hold 28.1 percent of the director positions (a four percent increase over last year). That compares with 21.1 percent overall on the large cap index.
Disseminating information about disciplinary actions: Amazingly, one out of every ten employees surveyed by Ethisphere indicated that they either disagree or strongly disagree that the rules and associated disciplinary actions for unethical behavior or misconduct are the same for every employee. That said, nearly one-third (32 percent) of honorees do communicate publicly about how such concerns were reported, the types of concerns reported, and the substantiation rates of corresponding investigations. This figure represents a noticeable increase over 2018, when less than a quarter of 2018 honorees communicated such information publicly.
Supporting middle management: An employee’s immediate manager is the most commonly used resource for not only asking questions but also reporting observed instances of misconduct, so supporting middle management with tools to ease the intake and tracking process is important to the World’s Most Ethical Companies. The majority (84 percent) of 2019 honorees use a tracking tool or case management system that tracks all reports and related investigations, regardless of how the report was originally made.

http://www.fcpablog.com/blog/2019/4/24/what-characteristics-do-the-worlds-most-ethical-companies-ha.html

I’m in Chicago today at the SCCE Regional Compliance & Ethics Conference. I’m speaking in the morning on compliance and corporate governance.

If you’re also attending, grab me for a cup of coffee.

Meanwhile, here are some of the compliance-related stories that recently caught my attention.

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Whistleblower Challenges SEC Over Delay on Award Decision
by Kristin Broughton
Risk & Compliance Journal in WSJ.com

Between 2014 and 2017, the SEC took an average of more than two years to decide if a whistleblower deserved a reward, according to an analysis by The Wall Street Journal. That is more than twice as long as in 2012 and 2013, the early years of the whistleblower program.
The decision-making process has taken longer as the agency has sorted through a flood of requests for awards and tips on potential corporate wrongdoing. The SEC last year received 5,282 whistleblower tips, an increase of 18% from a year earlier, and nearly twice the number received in 2012, the first full year after the program took effect, according to an SEC report to Congress.

https://www.wsj.com/articles/whistleblower-challenges-sec-over-delay-on-award-decision-11556668694

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New Compliance Evaluation Guidelines
By Matt Kelly
Radical Compliance

In fact, that was my biggest impression when comparing the 2017 and 2019 guidelines; that the new guidelines are more comprehensive, so they can be used by people less familiar with corporate compliance. Whether that’s comforting news for corporate compliance officers sitting across the negotiating table, or exasperating news, I’m not sure.

Recall that when the Justice Department first developed their evaluation guidelines in 2016 and 2017, the department had a compliance counsel: Hui Chen. She was a seasoned veteran in corporate compliance, and the thinking at the time was that Chen (or subsequent compliance counsels) would help prosecutors evaluate the compliance programs of companies under investigation.

Benczkowski eliminated that compliance counsel role.

http://www.radicalcompliance.com/2019/04/30/new-compliance-evaluation-guidelines/

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Insider Trading and Disclosure: The Case of Cyberattacks
By Eli Amir, Shai Levi and Tsafrir Livne
The CLS Blue Sky Blog

When a cyberattack with material negative consequences occurs, security regulations require companies to disclose information on the event to the public, as in other incidents with material negative effects. Executives can opportunistically sell shares (or avoid buying shares or granting stock options) before disclosing information on cyberattacks to the public. However, they are unlikely to trade on private information that the firm intends to disclose. Disclosure of the negative information will expose and label preceding sales as insider trading, and executives will not sell shares if they wish to avoid the legal ramifications of insider trading. In some cases, however, firms withhold information and do not disclose the cyberattack to investors; and if the firm chooses to withhold information on the cyberattack, insiders’ sales of shares are less likely to be identified as insider trading.

We predict that the likelihood of insider trading is higher for firms that withhold the information than for firms that voluntarily disclose it. 

http://clsbluesky.law.columbia.edu/2019/04/25/insider-trading-and-disclosure-the-case-of-cyberattacks/

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Teaching Compliance Part I of III
by Veronica Root Martinez
NYU Law’s Compliance & Enforcement

I decided to tackle teaching the course in a manner that I hoped would allow students to think through the different roles they might play within compliance efforts, followed by a few classes dedicated to specific compliance areas in an attempt to allow students to better understand how their role might look in practice.  To do so, I draw on enforcement, compliance, behavioural ethics, and professional responsibility materials.  Each class session has one dedicated case study to help students understand the concept being presented.

https://wp.nyu.edu/compliance_enforcement/2019/04/16/teaching-compliance-part-i-of-iii/

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New SEC/Musk settlement spells out which Tesla tweets require preapproval
by Anne Sherry, J.D.
Jim Hamilton’s World of Securities Regulation

Musk’s response to the contempt proceedings argued that the “500k” tweet could not reasonably be considered material. Settlement 2.0 attempts to clear up any ambiguity by substituting a more specific list of topics for 1.0’s materiality standard. Pointedly, the list includes “potential or proposed mergers, acquisitions, dispositions, tender offers, or joint ventures” and “production numbers or sales or delivery numbers” that are new or deviate from previously published guidance.

https://jimhamiltonblog.blogspot.com/2019/04/new-secmusk-settlement-spells-out-which.html

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

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Companies Need to Pay More Attention to Everyday Unethical Behavior
by Yuval Feldman
Harvard Business Review

Numerous studies have documented the prevalence of practices such as stealing office supplies, inflating business expenditures reports, and engaging in behaviors that raise conflicts of interest. While these may sound negligible, these violations reduce trust over time and alter prevailing business and legal norms. Their aggregated effect can be quite harmful.

Behavioral ethics research suggests that this type of misconduct occurs not because people are unethical or deliberately choose to act unethically, but because they fail to understand that their behavior is indeed unethical and can have harmful consequences. Studies show that employees have a “blind spot” that prevents them from seeing the ethical and legal meaning of their own behavior.

https://hbr.org/2019/03/companies-need-to-pay-more-attention-to-everyday-unethical-behavior

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Insider Guessing Can Still Land You in Jail
by Caitlin M. Poe
The National Law Review

But what does it mean to learn secret company information?  Usually, this issue is also straightforward enough.  The insider has received testing results for a product, or has worked on an upcoming merger, or has seen the earnings report in advance of release.  But what if the insider hasn’t been told something, but instead makes an educated deduction that turns out to be right?  Is insider guessing illegal?

https://www.natlawreview.com/article/insider-guessing-can-still-land-you-jail

Andreessen Horowitz Is Blowing Up The Venture Capital Model (Again)
Alex Konrad
Forbes

Why? Well, venture capitalists have long traded a lack of Wall Street-style oversight for the promise that they invest mainly in new shares of private companies. It was a tradeoff firms gladly made—until the age of crypto, a type of high-risk investment the SEC says requires more oversight. So be it, says Andreessen Horowitz. By renouncing its venture capital status, it’ll be able to go deeper on riskier bets: If the firm wants to put $1 billion into cryptocurrency or tokens, or buy unlimited shares in public companies or from other investors, it can. And in doing so, the thinking goes, it’ll again make other firms feel like they have one hand tied behind their back. 

https://www.forbes.com/sites/alexkonrad/2019/04/02/andreessen-horowitz-is-blowing-up-the-venture-capital-model-again/#4163d0b27d9f

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Prof. Coffee Testifies on Insider Trading Legislation Before the House Financial Services Subcommitee on Investor Protection
By John C. Coffee, Jr.
The CLS Blue Sky Blog

I have been asked to comment on several proposed bills, all of which I basically support, but I will focus my limited time today primarily on Congressman Himes’ Discussion Draft of an “Insider Trading Prohibition Act.” I want to commend Congressman Himes for having supervised the drafting of a very careful, balanced and sophisticated bill that should serve as a model for a long overdue effort to codify the law of insider trading. To date, the law of insider trading has been solely the product of judicial law-making, and courts have been confined by the words set forth in Section 10(b) of the Securities Exchange Act of 1934. In effect, insider trading is the best example of a common law crime that survives today.

http://clsbluesky.law.columbia.edu/2019/04/03/putting-investors-first-reviewing-proposals-to-hold-executives-accountable/

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SEC Nominee Emerges
by Matt Kelly
Radical Compliance

[Allison] Lee previously worked at the SEC from 2005 to 2018, including a stint as counsel for former Democratic commissioner Kara Stein, who stepped down from the SEC in December. So essentially, Lee would replace her former boss. If confirmed, Lee would serve until 2022.

http://www.radicalcompliance.com/2019/04/03/sec-nominee-finally-emerges/

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Leave it to Trump to show us how not to hire a CCO
By Joe Mont
Compliance Week

According to a report this week in the Wall Street Journal, George Sorial, who worked for The Trump Organization since 2007 and served as chief compliance counsel, is stepping down from that post. The stated reason: He wanted extra time to promote a new book he co-authored. 

https://www.complianceweek.com/news/opinion/leave-it-to-trump-to-show-us-how-not-to-hire-a-cco

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

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Conflicts of interest for “the little people”
by Jeff Kaplan
Conflicts of Interest Blog

The conclusion of the Mueller investigation does little to resolve the much broader set of concerns regarding President Trump’s conflicts of interest. These are too numerous to be chronicled on this site, but are being tracked on a weekly basis by the Sunlight Foundation, which even offers a searchable data base of Trump COIs. Additionally, a study recently conducted by USA Today showed that by failing to divest his various investments before taking office, Trump has created more than 1400 COIs.

http://conflictofinterestblog.com/2019/03/conflicts-of-interest-for-the-little-people.html

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$50M SEC Whistleblower Award
by Matt Kelly
Radical Compliance

In other words, if you want that SEC payday — you have bring high-quality information, and bring it quickly. That’s what Claimant 2 did, Claimant 4 did not, and Claimant 1 kinda sorta did but not quite quickly enough. Rest assured, the whistleblower bar will be making that point to your employees in prompt fashion, too. Compliance officers should respond accordingly.

http://www.radicalcompliance.com/2019/03/26/50m-sec-whistleblower-award/

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Deciphering Americans’ Views on Cryptocurrencies
by Sean Hundtofte, Michael Lee, Antoine Martin, and Reed Orchinik
Liberty Street Economics

Individuals who owned cryptocurrency or were interested in buying it were particularly likely to perceive cryptocurrency as being similar to gold (41 percent) and stocks or bonds (39 percent). This suggests that such individuals may think of cryptocurrencies as an investment vehicle. In addition, 37 percent of respondents within this group likened cryptocurrency to traditional money. If we think of traditional money as a means of payment, then this distribution of views is consistent with the idea that cryptocurrencies are currently perceived less as a payments mechanism than as an investment, even if they can play both roles. 

https://libertystreeteconomics.newyorkfed.org/2019/03/deciphering-americans-views-on-cryptocurrencies.html

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Assessing Why Compliance Programs Fail
by Veronica Root Martinez
The CLS Blue Sky Blog

In an article recently published in the Indiana Law Journal, I argue that institutions can improve their assessments of compliance failures—and thereby their future compliance efforts—by changing the way they think about such programs in the first place. I explain that the compliance process consists of four, distinct stages: prevention, detection, investigation, and remediation.  I argue that more root-cause analyses will occur if firms ask at what stage or stages within the compliance program a failure or failures occurred. By conducting this sort of analysis when compliance failures occur, firms may be better equipped to address and prevent similar, future misconduct.

http://clsbluesky.law.columbia.edu/2019/03/26/assessing-why-compliance-programs-fail/

The Compliance Process: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3151893

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SEC Employees to Get More Co-Workers, But Smaller Raises
by Benjamin Bain
Bloomberg

The Wall Street regulator will add 100 people this year after lifting a hiring freeze, Clayton said in an email to staff this week. In the same message, he said current employees would be getting pay increases averaging 2.4 percent, acknowledging that the boost might disappoint some workers because it’s less of a jump than they’ve gotten in recent years.

https://www.bloomberg.com/news/articles/2019-03-21/sec-pay-raise-plan-gets-cold-shoulder-from-agency-union-leaders

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Insider Trading and Executive Overreach
By Kevin R. Douglas
The CLS Blue Sky Blog

The recent controversy over President Donald Trump’s use of his emergency authority to fund a wall on the U.S. southern border has awakened many Americans to the problem of executive overreach. Yet, what few may appreciate is that executive overreach can cause trouble in contexts far beyond immigration or border security. For example, consider U.S. securities regulation. Executive overreach was a major factor in creating confusion in the current U.S. laws against insider trading, and some reformers propose using new executive actions to correct the problem.

http://clsbluesky.law.columbia.edu/2019/03/22/insider-trading-and-executive-overreach/

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Lorenzo: A Win for the SEC and All Plaintiffs
by T. Gorman
SECActions

Finally, the Court’s determination may also be a victory for the class action bar. While private litigants cannot bring fraud claims based on an aiding and abetting theory, they can now pursue even “bit” players in a securities fraud by wedging the conduct into the expansive contours of the statutes. Lorenzo is the ode to expanding securities fraud liability.

http://www.secactions.com/lorenzo-a-win-for-the-sec-and-all-plaintiffs/

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Supreme Court: Even One Who Did Not “Make” a False Statement May Still be Subject to Scheme Liability
By Kevin LaCroix
The D&O Diary

The relationship the court drew between “making” and “dissemination” a false statement is interesting, particularly in the current age when so much information is shared electronically, often as an attachment or a link. The court’s conclusion that someone can be liable for disseminating a false statement even without having “made” it could potentially have some interesting implications in the current electronic age when so much information is “forwarded” in electronic communications.

https://www.dandodiary.com/2019/03/articles/securities-laws/supreme-court-even-one-who-did-not-make-a-false-statement-may-still-be-subject-to-scheme-liability/

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

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The Federal Courts Are Running An Online Scam by Seamus Hughes in Politico

But I’m here to tell you that PACER—Public Access to Court Electronic Records—is a judicially approved scam. The very name is misleading: Limiting the public’s access by charging hefty fees, it has been a scam since it was launched and, barring significant structural changes, will be a scam forever.

The U.S. federal court system rakes in about $145 million annually to grant access to records that, by all rights, belong to the public. For such an exorbitant price—it can cost hundreds of dollars a year to keep up with an ongoing criminal case—you might think the courts would at least make it easy to access basic documents. But you’d be wrong.

https://www.politico.com/magazine/story/2019/03/20/pacer-court-records-225821

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Cyber Breach Disclosures: A Mess by Matt Kelly in Radical Compliance

Craving more information about how companies are disclosing cybersecurity breaches? Audit Analytics has a new report examining what publicly traded firms have been reporting in SEC filings — and you won’t get much guidance there, because those disclosures vary so widely.

http://www.radicalcompliance.com/2019/03/20/cyber-breach-disclosures-total-mess/

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The Weakness in Two-Factor Authentication—Your Lost Phone Policy by Avi Gesser, John R. Kapp, and Michelle Adler in NYU Law’s Compliance & Enforcement

Hackers always look for the weak link, and they have learned to get around MFA by exploiting gaps in companies’ lost phone protocols.  They do this by calling the IT help desk, saying they are employees who have lost their phone, so they can’t use the MFA app to login, and they have some emergency that requires them to get immediate access to the network.

https://wp.nyu.edu/compliance_enforcement/2019/03/18/the-weakness-in-two-factor-authentication-your-lost-phone-policy/

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SEC Ends 2018 Signaling Its Approach to Regulating the Cryptocurrency Markets from Latham & Watkins

These orders — one against a token exchange, two against token issuers, and two against promoters — clarify the SEC’s approach for:

-Determining whether token transactions constitute unregistered securities offerings or unregistered broker-dealer or exchange activity

– Resolving unregistered token offerings

The Commission’s recent actions also signal the potential next frontier for SEC enforcement as the new year begins.

https://www.lw.com/thoughtLeadership/lw–sec-signals-its-approach-to-regulating-the-cryptocurrency-markets

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The SEC, Compliance, Tone at the Top and Volkswagen by T. Gorman in SEC Actions

VW did have compliance systems. During his rise through the ranks the CEO was at one point in charge of Quality Assurance as well as head of Technical Development. Even after becoming CEO he continued to focus on the technical details of the vehicles as illustrated by photos in the complaint. Yet the scheme launched and continued. The failure of compliance here traces directly to the top. Under the circumstances here the “tone at the top” appears to have focused on something other than compliance.

http://www.secactions.com/the-sec-compliance-tone-at-the-top-and-volkswagen/

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LIBOR, Again (Sorry!) by Rick Jones in Crunched Credit

A couple things are, at this point, clear. The Secured Overnight Financing Rate (SOFR) is a lock for the new and improved LIBOR. We are going to have a wide range of complex, often subjective triggers prompting the switch out of LIBOR, and regrettably, we are going to have a waterfall of prospective alternate SOFR rates to choose from when we switch. It’s pretty clear that when 2022 rolls around, we’re not going to have a single trigger or a single, easily understood, alternative rate. What we need is broadly agreed, clear, bright lined rules as to the date on which we switch rate and clear bright lined rules on what the index will be. We’re not getting it.

https://www.crunchedcredit.com/2019/03/articles/libor/libor-again-sorry

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

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The Fall of the Alamo: Analogy for Compliance Officers by Tom Fox in FCPA Compliance & Ethics

[March 6] is the anniversary of the most historic day of many in the history of the great state of Texas, the date of the fall of the Alamo. While March 2, Texas Independence Day, when Texas declared its independence from Mexico and April 21, San Jacinto Day, when Texas won its independence from Mexico, probably both have more long-lasting significance, if it is one word that Texas is known for around the world, it is the Alamo. The Alamo was a crumbling Catholic mission in San Antonio where 189 men, held out for 13 days from the Mexican Army of General Santa Anna, which numbered approximately 1,800. But on this date in 1836, Santa Anna unleashed his forces, which over-ran the mission and killed all the fighting men. Those who did not die in the attack were executed and all the deceased bodies were unceremoniously burned. Proving he was not without chivalry, Santa Anna spared the lives of the Alamo’s women, children and their slaves. But for Texans across the globe, this is our day.

http://fcpacompliancereport.com/2019/03/19018/

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SEC Investigations 101: The Wells Notice (Part 1) by  Dan Portnov
in Grand Jury Target

The process by which the Enforcement staff notifies you of impending proceedings against you – either in federal court or its in-house administrative process – begins with the Wells Notice.
The Wells Notice is named after the chair of 1972 SEC special committee that gave the following recommendation to the Commission:
Except where the nature of the case precludes, a prospective defendant or respondent should be notified of the substance of the staff’s charges and probable recommendations in advance of the submission of the staff memorandum to the Commission recommending the commencement of an enforcement action and be accorded an opportunity to submit a written statement to the staff to be forwarded to the Commission together with the staff memorandum.

https://grandjurytarget.com/2019/03/01/sec-investigations-101-the-wells-notice-part-1/

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$2 Mill Fine for Weak Compliance by Matt Kelly in Radical Compliance

FINRA today hit broker-dealer firm Cantor Fitzgerald with a $2 million fine for sloppy compliance practices that lasted at least five years, in an enforcement action sure to warm a compliance officer’s heart.
The offenses related to naked short selling, where an investor first borrows stock to sell at a high price, then buys it back at a lower price to return to the original owner — except the investor doesn’t first obtain the borrowed stock before selling it. (That’s the “naked” part.)

http://www.radicalcompliance.com/2019/03/05/2-mill-fine-weak-compliance/

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McKenna On Buffett, Berkshire Hathaway, and Kraft Heinz in re: The Auditors

Has Warren Buffett run out of long-run?
The stars aligned and Warren Buffett issued an annual shareholder letter that was forced to include an embarrassing charge for significant losses on Berkshire Hathaway’s investment in Kraft Heinz.
Buffett’s letter was a rant against GAAP, and a 180 degree turn from his typical long-term focus.

http://retheauditors.com/2019/03/03/mckenna-on-buffett-berkshire-hathaway-and-kraft-heinz/

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Is willful blindness an affliction that can be cured? by Martin Kenney in The FCPA Blog

SNC-Lavalin senior managers were allegedly aware of the shenanigans afoot in their company, with some individuals operating offshore companies as a means to “facilitate” certain payments and launder funds. Indeed, if some of the allegations are true, including an historical plot to smuggle Colonel Gadhafi’s son to a safe place in order to avoid capture, then we have the makings of a Hollywood blockbuster here.

http://www.fcpablog.com/blog/2019/3/1/is-willful-blindness-an-affliction-that-can-be-cured.html

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

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CCOs Facing Retaliation by Matt Kelly in Radical Compliance

So how should a compliance or audit professional handle retaliation? When should you take your concerns to regulators, or contemplate a lawsuit against your employer? To explore those questions I spoke with Jason Zuckerman, a lawyer in Washington who represents whistleblowers in retaliation cases. You can hear the full podcast at the top of this post. Meanwhile, here are my impressions.

http://www.radicalcompliance.com/2019/02/27/podcast-ccos-facing-retaliation/

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Training Compliance Officers by Justin Muscolino, Head of Compliance Training, GRC Solutions in SCCE’s The Compliance & Ethics Blog

Think about it. Could a training program for compliance officers shift the culture of compliance? Yes, it could. By delivering a consistent message and approach you can change the culture. What are the benefits of creating a Compliance Officer program? …

http://complianceandethics.org/training-compliance-officers/

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Robert Kraft, The NFL and Compliance by Tom Fox in FCPA Compliance & Ethics

There are lessons from the compliance practitioner from this Kraft saga. While most would say that the charges against Kraft are of a personal nature and not a business nature, this line is becoming increasing blurred. The Jeff Bezos divorce announcement, as much as the alleged extortion claim, put a spotlight not so much on his private life but rather how much his private life could impact Amazon.com. Does character matter? Of course it does and if the background of someone who will become your CEO has indicia that their actions might negatively impact on your organization, even if it is of a personal nature, then it has to be considered.

http://fcpacompliancereport.com/2019/02/robert-kraft-nfl-compliance/

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Company Settles Unregistered ICO Charges After Self-Reporting to SEC

According to the SEC’s order, Gladius conducted an ICO in late 2017, after the Commission had warned in its DAO Report of Investigation that ICOs can be securities offerings.  Gladius, a Washington, DC-based company, raised approximately $12.7 million in digital assets to finance its plan to develop a network for renting spare computer bandwidth to defend against cyberattacks and enhance delivery speed.  Gladius did not register its ICO under the federal securities laws, and the ICO did not qualify for an exemption from registration requirements. 

https://www.sec.gov/news/press-release/2019-15

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Protecting Attorney-Client Privilege and Respecting Fifth Amendment Rights While Cooperating with the Government by John F. Savarese and Carol Miller in NYU Law’s Compliance & Enforcement

In 2018, two cases illustrated the potential hazards that can arise when companies’ efforts to cooperate with the government later provide a basis for individuals questioned during internal investigations to claim that their Fifth Amendment rights against self-incrimination were compromised.  While these cases, which we summarize below, have the greatest impact in connection with the representation of individuals in such investigations, companies responding to white collar inquiries need to keep these new developments in mind, particularly in conducting internal investigations and working in a cooperative mode with the government.  Companies and their counsel must be mindful of these issues both to insure that individual employee rights are protected and to protect as much as possible the confidentiality and integrity of the company’s review.

https://wp.nyu.edu/compliance_enforcement/2019/02/20/protecting-attorney-client-privilege-and-respecting-fifth-amendment-rights-while-cooperating-with-the-government/

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The Top Ten Regulatory and Litigation Risks for Private Funds in 2019 in Proskauer’s The Capital Commitment

An increasingly sophisticated and active OCIE division, innovative market disruptors, a maturing credit cycle, and a philosophical change in how the private fund industry views and utilizes litigation are likely to lead to increased regulatory scrutiny and litigation risk for advisers (and their funds) in 2019.  With that backdrop, we are pleased to present our Top Ten Regulatory and Litigation Risks for Private Funds in 2019.

https://www.privateequitylitigation.com/2019/02/the-top-ten-regulatory-and-litigation-risks-for-private-funds-in-2019/

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How I Learned to Stop Worrying and Learned to Love Form ADV by Hardin Compliance Consulting LLC

After last year’s material amendments to the Form ADV, investment advisers can breathe a sigh of relief; the SEC made no changes to the form this year.  That said, completing the Form ADV remains a major data-gathering project with important regulatory implications.  So, take a few deep cleansing breaths and read our tips for completing your annual update.

https://www.jdsupra.com/legalnews/how-i-learned-to-stop-worrying-and-76134/