Posts Tagged ‘SEC enforcement’

Perspectives on Strengthening Enforcement

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Wednesday April 2, 2014 at 9:02 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Annual Forum of the Australian Securities and Investments Commission (ASIC), available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Greg [Tanzer, ASIC Commissioner] suggested that I talk about my perspectives on international cooperation in the enforcement context, as well as what we at the SEC are doing to try to make our own enforcement program even more robust and responsive to the issues presented by interconnected and fast moving markets. I am happy to do that. But, before I do, I would like to share a couple of thoughts on the topic of your first session—“Enforcement—does the punishment fit the crime?”

Much of my professional background has been in enforcement and strong enforcement was one of my primary focuses when I became Chair of the SEC almost a year ago and it remains so. Vigorous enforcement of the securities laws in the United States, in Australia and around the world is obviously a critical component of our investor protection mission.

…continue reading: Perspectives on Strengthening Enforcement

SEC v. Contorinis: SEC gets Powerful New Tool—For Now

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 16, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Paul N. Monnin, partner in the Litigation and Regulatory practice at DLA Piper LLP, and is based on a DLA Piper publication by Mr. Monnin and Zachary LeVasseur.

The Second Circuit Court of Appeals has broadened the Securities and Exchange Commission’s power to seek civil disgorgement of profits from insider trading violations even where an individual did not personally profit from the illegal trades.

In its panel opinion in SEC v. Contorinis, decided on February 18, the Second Circuit upheld a trial court order requiring that Joseph Contorinis, the former managing director of the Jeffries Paragon Fund, disgorge more than US$7 million in unlawful profits obtained by the fund as a result of Contorinis’s trading on material nonpublic information. This is despite the fact that he did not trade with his own personal assets and his personal compensation from the trades amounted to only US$427,875.

…continue reading: SEC v. Contorinis: SEC gets Powerful New Tool—For Now

SEC Enforcement Year in Review

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday March 3, 2014 at 8:58 am
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Editor’s Note: The following post comes to us from Adam S. Hakki, partner and global head of the Litigation Group at Shearman & Sterling LLP, and is based on a Shearman & Sterling client publication. The complete publication, including footnotes, is available here.

Marked by leadership changes, high-profile trials, and shifting priorities, 2013 was a turning point for the Enforcement Division of the Securities and Exchange Commission (the “SEC” or the “Commission”). While the results of these management and programmatic changes will continue to play out over the next year and beyond, one notable early observation is that we expect an increasingly aggressive enforcement program.

…continue reading: SEC Enforcement Year in Review

SEC Institutes Administrative Proceedings Against KPMG For Auditor Independence Violations

Posted by Lee A. Meyerson, Simpson Thacher & Bartlett LLP, on Saturday March 1, 2014 at 9:00 am
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Editor’s Note: Lee A. Meyerson is a Partner who heads the M&A Group and Financial Institutions Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Avrohom J. Kess, Karen Hsu Kelley, and Yafit Cohn.

On January 24, 2014, the Securities and Exchange Commission (“SEC”) issued an order instituting settled administrative and cease-and-desist proceedings against KPMG LLP (“KPMG”) for violating auditor independence rules in its relationships with affiliates of three of its SEC-registered audit clients. [1] At the crux of the SEC’s order are its findings that:

  • KPMG provided prohibited non-audit services to affiliates of its audit clients;
  • KPMG hired a former employee of an affiliate of one of KPMG’s audit clients and subsequently loaned him back to the affiliate to do the same work he had done as an employee of the affiliate;
  • Certain KPMG employees owned stock in KPMG’s audit clients or affiliates of its audit clients; and
  • KPMG repeatedly represented in its audit reports that it was “independent.”

KPMG settled the charges for approximately $8.2 million.

…continue reading: SEC Institutes Administrative Proceedings Against KPMG For Auditor Independence Violations

SEC Investigations and Enforcement Related to Financial Reporting and Accounting

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday February 16, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Randall J. Fons, partner and co-chair of the Securities Litigation, Enforcement, and White-Collar Defense Group and the global FCPA and Anti-Corruption Task Force at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Fons.

“One of our goals is to see that the SEC’s enforcement program is—and is perceived to be—everywhere, pursuing all types of violations of our federal securities laws, big and small.”
— Mary Jo White, Chair of the SEC, October 9, 2013

“In the end, our view is that we will not know whether there has been an overall reduction in accounting fraud until we devote the resources to find out, which is what we are doing.”
— Andrew Ceresney, Co-Director of the SEC Division of Enforcement, September 19, 2013

“The SEC is ‘Bringin’ Sexy Back’ to Accounting Investigations”
New York Times, June 3, 2013

Much has changed since the collapse of Enron in 2001 and the ensuing avalanche of financial fraud cases brought by the SEC. For example, Sarbanes-Oxley raised auditing standards, imposed certification requirements on public company officers and required enhanced internal controls for public companies. The Public Company Accounting Oversight Board (PCAOB) was formed “to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit
reports.” [1] In pursuit of that goal, the PCAOB has conducted hundreds of audit firm inspections, adopted numerous auditing standards and brought dozens of enforcement actions against auditors for violating PCAOB rules and auditing standards.

…continue reading: SEC Investigations and Enforcement Related to Financial Reporting and Accounting

Executives’ ‘Off-the-Job’ Behavior, Corporate Culture, and Financial Reporting Risk

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday February 11, 2014 at 9:15 am
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Editor’s Note: The following post comes to us from Robert Davidson of the Accounting Area at Georgetown University, Aiyesha Dey of the Department of Accounting at the University of Minnesota, and Abbie Smith, Professor of Accounting at the University of Chicago.

In our paper, Executives’ ‘Off-the-Job’ Behavior, Corporate Culture, and Financial Reporting Risk, forthcoming in the Journal of Financial Economics, we examine how and why two aspects of top executives’ behavior outside the workplace, as measured by their legal infractions and ownership of luxury goods, are related to the likelihood of future misstated financial statements, including fraud and unintentional material reporting errors. We investigate two potential channels through which executives’ outside behavior is linked to the probability of future misstatements: (1) the executive’s propensity to misreport (hereafter “propensity channel”); and (2) changes in corporate culture (hereafter “culture channel”).

…continue reading: Executives’ ‘Off-the-Job’ Behavior, Corporate Culture, and Financial Reporting Risk

The SEC in 2014

Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the 41st Annual Securities Regulation Institute Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

For nearly 80 years, the Securities and Exchange Commission has been playing a vital role in the economic strength of our nation. Year after year, the agency has steadfastly sought to protect investors, make it possible for companies of all sizes to raise the funds needed to grow, and to ensure that our markets are operating fairly and efficiently.

That is our three-part mission.

But, while commitment to this mission has remained constant and strong over the years, the world in which we operate continuously changes, sometimes dramatically.

When the Commission’s formative statutes were drafted, no one was prepared for today’s market technology or the sheer speed at which trades are now executed. No one dreamed of the complex financial products that are traded today. And, not even science fiction writers would have bet that individuals would so soon communicate instantaneously in so many different ways.

…continue reading: The SEC in 2014

The Alcoa FCPA Settlement: Are We Entering Strict Liability Anti-Bribery Regime?

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday February 5, 2014 at 9:14 am
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Editor’s Note: The following post comes to us from Gregory M. Williams, partner focusing on complex commercial litigation and arbitration and the Foreign Corrupt Practices Act at Wiley Rein LLP, and is based on a Wiley Rein article by Mr. Williams, Ralph J. Caccia, and Richard W. Smith.

“This Order contains no findings that an officer, director or employee of Alcoa knowingly engaged in the bribe scheme.”

There are several notable aspects of aluminum producer Alcoa, Inc.’s (“Alcoa”) recent FCPA settlement. The $384 million in penalties, forfeitures and disgorgement qualify as the fifth largest FCPA case to date. Further, it is remarkable that such a large monetary sanction was imposed when the criminal charges brought by the U.K. Serious Fraud Office against the consultant central to the alleged bribery scheme were dismissed on the grounds that there was no “realistic prospect of conviction.” Perhaps most striking, however, is the theory of parent corporate liability that the settlement reflects. Although there is no allegation that an Alcoa official participated in, or knew of, the improper payments made by its subsidiaries, the government held the parent corporation liable for FCPA anti-bribery violations under purported “agency” principles. Alcoa serves as an important marker in what appears to be a steady progression toward a strict liability FCPA regime.

…continue reading: The Alcoa FCPA Settlement: Are We Entering Strict Liability Anti-Bribery Regime?

Ten Changes to Expect from the SEC’s New Enforcement Program

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday January 31, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Jon N. Eisenberg, partner in the Government Enforcement practice at K&L Gates LLP, and is based on a K&L Gates publication by Mr. Eisenberg.

Investors, borrowers, financial institutions, and the economy were not the only casualties of the financial crisis. Regulators were casualties too, and the SEC was one of the hardest hit. Two Harris Polls—one conducted in 2007 before the financial crisis and the other in 2009 after much of the damage had been done—tell the story. Between 2007 and 2009, favorable ratings of the SEC dropped from 71% to 29%, while the percentage of the public rating it fair or poor rose from 25% to 72%. “By a wide margin,” the Harris organization stated, “[this was] the biggest change in an agency’s ratings since these questions were first asked in 2000.” Indeed, the SEC’s 29% positive rating was a full 15 points worse than even the second-lowest rated agency in the survey. Congress attacked the Commission as well, as when Long Island Representative Gary Ackerman burst out in a hearing, “Whose job is it to protect the investors? Because I wanna tell them that they suck at it.” And the press was also merciless, as when reporter Charlie Gasparino urged, “the SEC should be disbanded.”

…continue reading: Ten Changes to Expect from the SEC’s New Enforcement Program

White Collar and Regulatory Enforcement Trends in 2014

Editor’s Note: John F. Savarese and Wayne M. Carlin are partners in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, Mr. Carlin, Ralph M. Levene, David Gruenstein, and David M. Murphy.

Last year, in our annual survey (discussed on the Forum here) of the white collar and regulatory enforcement landscape, we noted that the trend toward ever more aggressive prosecutions reflected a “gloomy picture” for large companies facing such investigations. Our assessment remains the same, as the pattern of imposing massive fines and extracting huge financial settlements from companies continued unabated in 2013. For example, on November 17, 2013, DOJ announced that it had reached a $13 billion settlement with JPMorgan to resolve claims arising out of the marketing and sale of residential mortgage-backed securities—the largest settlement with a single entity in American history. Johnson & Johnson agreed to pay more than $2.2 billion to resolve criminal and civil investigations into off-label drug marketing and the payment of kickbacks to doctors and pharmacists. Deutsche Bank agreed to pay $1.9 billion to settle claims by the Federal Housing Finance Agency that it made misleading disclosures about mortgage-backed securities sold to Fannie Mae and Freddie Mac. SAC Capital entered a guilty plea to insider trading charges and was subjected to a $1.8 billion financial penalty—the largest insider trading penalty in history. And in the fourth largest FCPA case ever, French oil company Total S.A. agreed to pay $398 million in penalties and disgorgement for bribing an Iranian official. Not to be outdone, the SEC announced that it had recovered a record $3.4 billion in monetary sanctions in the 2013 fiscal year.

…continue reading: White Collar and Regulatory Enforcement Trends in 2014

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