The announcement of the Credit Suisse guilty plea on May 19, 2014 marks the first time in more than a decade that a large financial institution has been convicted of a financial crime in the United States. For this reason alone, some will herald it a watershed moment in the history of corporate criminal liability. But the government’s well-publicized efforts to mitigate the collateral consequences resulting from the plea will likely limit the plea’s practical significance for companies that find themselves in the unenviable position of negotiating a resolution of criminal allegations with the government. This post will explore the potential implications of the Credit Suisse guilty plea for corporate criminal liability.
Posts Tagged ‘Christopher Garcia’
On July 2, 2013, the United States Securities and Exchange Commission (the SEC) announced two new initiatives aimed at preventing and detecting improper or fraudulent financial reporting.  We previously noted that one of these initiatives, a computer-based tool called the Accounting Quality Model (AQM, or “Robocop”),  is designed to enable real-time analytical review of financial reports filed with the SEC in order to help identify questionable accounting practices.
To be blunt, this year’s “SEC Speaks” conference in Washington, D.C., sponsored by the Practicing Law Institute, was perhaps most remarkable for what did not happen: Mary Jo White, who is widely expected to be easily confirmed as Chairman of the Commission, did not attend. This was, of course, proper and to be expected, but it nevertheless cast a shadow over the proceedings, since none of the speakers could speak definitively to Ms. White’s and her new team’s regulatory and enforcement priorities. Indeed, given that three of the four SEC division directors who spoke—including the director of the Enforcement Division—are acting directors who may be replaced, it was not surprising that none set out bold or groundbreaking initiatives. Instead, with some important exceptions, this year’s conference largely updated issues that had been covered in 2012.
This is not to say that the conference failed to provide useful information. All four of the sitting commissioners emphasized different issues. Elisse Walter, the current Chairman, emphasized the SEC’s role in developing fair and transparent markets and promoting entrepreneurship, capital growth, and job-building. Luis Aguilar discussed signs of “weakness and instability” in the market’s infrastructure and recommended that the SEC regulate and address these technological issues by, among other things, developing a “kill switch” for each exchange. Troy Paredes (who is expected to leave the Commission this summer) argued that “too much disclosure may actually obscure useful information and result in worse decision-making by investors,” and called for a “top-to-bottom review” of the current disclosure regime. Finally, Daniel Gallagher emphasized the importance of maintaining the SEC’s independence, and strongly questioned whether new legislative mandates (particularly those contained in the Dodd-Frank legislation) and the Financial Stability Oversight Council compromised that independence and minimized the SEC’s effectiveness. Whether the initiatives proposed by Commissioners Aguilar and Paredes come to fruition under Ms. White’s leadership remains to be seen.
In 2002, Arthur Andersen LLP collapsed in the wake of an obstruction of justice conviction. Since then, conventional wisdom has been that the U.S. Department of Justice (DOJ) resists filing criminal charges against large business entities because of fears of another similar failure. Indeed, the DOJ has consistently acknowledged that it considers such risks, and the U.S. Attorneys’ Manual expressly identifies “collateral consequences” as a factor that should be weighed in making charging decisions. In the wake of the Great Recession, however, the DOJ has been faced with competing pressures, especially with respect to financial institutions. On the one hand, the Lehman Brothers bankruptcy, among other bank failures and near-failures, suggested vulnerability on the part of some financial institutions and illustrated the potentially grave consequences that the collapse of a financial institution can have on the broader economy. The DOJ clearly does not want to cause a financial institution to fail. On the other hand, there is a pervasive public sentiment that large financial institutions were responsible for the economic collapse from which the country is only now emerging. Particularly in recent months, the DOJ has been criticized for its decision not to bring criminal charges against any major financial entity.
This month marked an important milestone in the development of securities law at its newest frontier: social media. For the first time, the Enforcement Division of the U.S. Securities and Exchange Commission (“SEC”) issued a Wells Notice based on a social media communication. This Wells Notice, which notified Netflix, Inc. and its CEO of the Enforcement Division’s intent to recommend an enforcement case to the Commission, demonstrates the potential for liability arising from disclosures by corporate officers through social media. Although the SEC itself uses social media to disclose important information, the agency has yet to offer formal guidance concerning the use of social media to communicate with the investing public. For this reason, the outcome of the SEC’s investigation into Netflix and its CEO’s social media usage will prove instructive to issuers, directors, corporate officers, investors, and members of the securities and white collar bars.