Our mid-year report one year ago presented an exciting opportunity to discuss a time of great change at the SEC. A new Chair and a new Director of Enforcement had recently assumed the reins and begun making bold policy pronouncements. One year later, things have stabilized somewhat. The hot-button issues identified early in the new SEC administration—admissions for settling parties, a growing number of trials (and, for the agency, trial losses), and a renewed focus on public company accounting—remain the leading issues a year later, albeit with some interesting developments.
Posts Tagged ‘Securities enforcement’
The Sarbanes-Oxley Act of 2002 (“SOX”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) and the Consumer Financial Protection Act (“CFPA”) impose overlapping anti-retaliation provisions that generally prohibit retaliation against corporate “whistleblowers.” Recent headlines of whistleblower awards granted to individuals, especially under Dodd-Frank, underscore the fact that, even if a company’s economic exposure arising from the alleged violation of these provisions may be relatively circumscribed—generally limited to amounts based on the compensation of the employee who is allegedly retaliated against—the “real world” exposure, in the form of reputational and regulatory risk, can be significantly greater.
In the European Union insider trading has been regulated much more recently than in the United States, and it can be argued that, at least traditionally, it has been more aggressively and successfully enforced in the United States than in the European Union. Several different explanations have been offered for this difference in enforcement attitudes, focusing in particular on resources of regulators devoted to contrasting this practice, but also diverging cultural attitudes toward insiders. This situation has evolved, however, and the prohibition of insider trading has gained traction also in Europe. Few studies have focused on the substantive differences in the regulation of the phenomenon on the two sides of the Atlantic.
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.
Although US Securities and Exchange Commission (SEC) enforcement actions related to financial fraud and issuer disclosures have been on a decline since 2007, recent statements and actions suggest that the SEC is likely to re-focus its efforts on detecting, pursuing, and preventing accounting fraud.  Since her confirmation as Chair of the SEC, Mary Jo White has made it clear that her administration will focus on identifying and investigating accounting abuses at publicly-traded companies.  Among the recent initiatives announced by the SEC are the increased focus on the whistle blower program and the establishment of the Financial Reporting and Audit Task Force, the Microcap Fraud Task Force, and the Center for Risk and Quantitative Analytics. 
Following the publication of Michael Lewis’ new book, Flash Boys: A Wall Street Revolt (“Flash Boys”), plaintiffs’ lawyers and US government regulators have increasingly focused their attention on financial institutions participating in high-frequency trading (“HFT”). Less than three weeks after the release of Flash Boys, private plaintiffs’ lawyers filed a class action lawsuit against 27 financial services firms and 14 national securities exchanges (with additional defendants likely to be named later) alleging that the defendants’ HFT practices in the US equities markets violated the anti-fraud provisions of the federal securities laws. Plaintiffs’ lawyers filed a separate action against The CME Group, Inc. (“CME”) and The Board of Trade of the City of Chicago (“CBOT”) containing similar allegations in US derivatives markets.
Compliance is hot.
Pick up the New York Times or the Wall Street Journal and you are likely to find a story about yet another huge fine for regulatory infractions.
In early May, to take a recent example, BNB Paribas, the big French bank, admitted that the $1.1 billion it had set aside for infractions involving sanctions regimes would not be nearly enough to cover its expected liability.
A billion dollars is a big number, but it is hardly the largest penalty we have seen in recent years. It is dwarfed, for example, by the more than $13 billion JPMorgan Chase agreed to pay to various regulatory agencies for mortgage infractions.
Numbers like these command attention.
The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) was enacted following the accounting scandals of the early 2000s involving Enron, WorldCom and other public companies. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010 following the global credit crisis that began a few years earlier. Both statutes offer protections for employees who face retaliation for “blowing the whistle” on corporate misconduct, and Dodd-Frank also provides enhanced monetary incentives to the employees who do so. Given the SEC’s recent and often-stated commitment to strict enforcement of the securities laws, coupled with the fact that the SEC has received over 6,000 whistleblower complaints in the past two years (and has made six awards since inception of its whistleblower reward program in 2011), whistleblowing activity now is a fact of corporate life that is likely to become even more prevalent as awareness spreads of the Dodd-Frank whistleblower reward program.
The SEC’s success is conventionally measured by the number of enforcement actions it brings, the multimillion-dollar fines it secures, and the high-impact trials it wins. But the SEC does more than punish wrongdoing. Over the last twelve years, the SEC has quietly become an important source of compensation for defrauded investors. Since 2002, the SEC has distributed $14.33 billion  to defrauded investors via 236 distribution funds, usually called “fair funds” after the statute that authorizes them. 
I have been NASAA’s liaison since I was asked by NASAA to take on that role early in my tenure at the SEC, and it is truly a pleasure to continue our dialogue with my fifth appearance here at the 19(d) conference. This conference, as required by Section 19(d) of the Securities Act, is held jointly by the North American Securities Administrators Association (“NASAA”) and the U.S. Securities and Exchange Commission (“SEC” or “Commission”).
The annual “19(d) conference” is a great opportunity for representatives of the Commission and NASAA to share ideas and best practices on how best to carry out our shared mission of protecting investors. Cooperation between state and federal regulators is critical to investor protection and to maintaining the integrity of our financial markets, and that has never been more true than it is today.