Last Thursday, Jay Clayton was officially sworn in as the new Chairman of the Securities and Exchange Commission. As the new Chairman takes office, here are a few things we’re keeping an eye on:
Will Chairman Clayton take a position on the recently introduced bipartisan bill that would increase civil monetary penalties in SEC enforcement actions? The “Stronger Enforcement of Civil Penalties Act of 2017” would significantly increase civil monetary penalties in enforcement actions to as much as $1 million per violation for individuals and $10 million per violation for entities, or three times the money gained in the violation or lost by the victims. The current maximum civil monetary penalties are $181,071 and $905,353 per violation for individuals and entities, respectively.
Will the new Chairman preserve the directive reportedly issued by former Acting Chairman Michael Piwowar to re-centralize authority to issue formal orders of investigation? In 2009, the SEC adopted a rule that delegated authority to issue formal orders initiating investigations to the Director of Enforcement, who then “sub-delegated” it to regional and associate directors and unit chiefs within the Enforcement Division. In February, Piwowar reportedly revoked the “sub-delegated” authority, ordering it re-centralized exclusively with the Director of Enforcement.
Will enforcement actions against public companies increase or decrease after hitting their highest level since 2009 last year? A recent report issued by the NYU Pollack Center for Law & Business and Cornerstone Research found that the 92 actions the SEC brought against public companies and their subsidiaries in 2016 is more than double the level of enforcement activity from just three years prior. READ MORE
This is the third in a series of posts where we will explore critical elements of a successful compliance program. In February, the Department of Justice’s Fraud Section offered a new perspective on what the government expects in an anti-corruption compliance program, in the form of a series of questions that companies should be prepared to answer about their program. The guidance offers companies a roadmap for building or assessing their compliance program. In this series, we will explore recent and past guidance on key compliance topics, as well as key takeaways for companies of all sizes.
Policies and Procedures are the cornerstone of a compliance program. While traditional sources of guidance, such as the DOJ and SEC FCPA Resource Guide and DPAs themselves, lay out the government’s fundamental expectations with regard to policies and procedures, the Fraud Section’s new guidance goes deeper, reflecting an approach that will assess not only the existence but also the design and integration of policies and procedures.
The most basic expectation with regard to policies and procedures is that companies will have a code of conduct prohibiting violations of the FCPA and the law’s foreign counterparts. Additionally, companies should have policies and procedures covering, among other things, gifts, travel & entertainment, expenses, political and charitable contributions, and payments to third parties. Finally, traditional sources of guidance make clear that companies should also have a set of finance and accounting internal controls reasonably designed to ensure the maintenance of fair and accurate books and records.
This is the second in a series of posts where we will explore critical elements of a successful compliance program. In February, the Department of Justice’s Fraud Section offered a new perspective on what the government expects in an anti-corruption compliance program, in the form of a series of questions that companies should be prepared to answer about their program. The guidance offers companies a roadmap for building or assessing their compliance program. In this series, we will explore recent and past guidance on key compliance topics, as well as key takeaways for companies of all sizes.
It would be a mistake for companies to dismiss the Fraud Section’s recent guidance, which one high-level DOJ official suggested may be used more broadly by DOJ’s Criminal Division, as business as usual. It is not just more of the same. The guidance does more than merely flesh-out existing direction; it operationalizes compliance. Consider two examples from the guidance’s “Autonomy and Resources” section:
- Empowerment – Have there been specific instances where compliance raised concerns or objections in the area in which the wrongdoing occurred? How has the company responded to such compliance concerns? Have there been specific transactions or deals that were stopped, modified, or more closely examined as a result of compliance concerns?
- Compliance Role – Was compliance involved in training and decisions relevant to the misconduct? Did the compliance or relevant control functions (e.g., Legal, Finance, or Audit) ever raise a concern in the area where the misconduct occurred?
This is the first in a series of posts where we will explore critical elements of a successful compliance program. In February, the Department of Justice’s Fraud Section offered a new perspective on what the government expects in an anti-corruption compliance program, in the form of a series of questions that companies should be prepared to answer about their program. The guidance offers companies a roadmap for building or assessing their compliance program. In this series, we will explore recent and past guidance on key compliance topics, as well as key takeaways for companies of all sizes.
A commitment from high-level management is typically the first compliance component discussed in government guidance and Deferred Prosecution Agreements. Commonly referred to as “Tone at the Top,” this critical concept has previously been described in vague, generic ways. See, for example, this excerpt from Attachment C of DOJ’s recent DPA with Embraer S.A., which is identical to language in many other agreements:
“The Company will ensure that its directors and senior management provide strong, explicit, and visible support and commitment to its corporate policy against violations of the anti-corruption laws and its compliance code.”
Without fanfare or forewarning, the US Department of Justice released new anti-corruption compliance guidance on February 8, 2017. The eight page document provides rare insight into the government’s evaluation of corporate compliance programs. Companies designing compliance programs, conducting internal investigations, or facing a bribery or books and records-related government inquiry can now look to the appropriately titled “Evaluation of Corporate Compliance Programs” for a hint at the types of questions they should be prepared to answer.
As emphasized in the Department of Justice and Security and Exchange Commission’s November 2012 FCPA Resource guide, DOJ’s recent guidance again reinforces that a compliance program should be individualized to a company’s risk profile, and so should the government’s evaluation of the program. The guidance is clearly not a checklist that applies to all. It does, however, provide more detail about the way a company should evaluate its own program. Companies can leverage the information to design more robust compliance programs and better respond to potential violations. READ MORE
On September 12, 2016, the SEC announced that it had reached a settlement with Jun Ping Zhang (“Ping”), a former executive of a Chinese subsidiary of Harris Corporation (“Harris”), regarding alleged violations of the Foreign Corrupt Practices Act (“FCPA”). The settlement was unusual, in that the SEC declined to also bring charges against Harris, an international communications and information technology company.
In a move that highlights both the increased focus on holding individuals accountable and the credit that can be earned through cooperation, the U.S. Securities and Exchange Commission (“SEC”) announced last week that, for the first time, it entered into a deferred prosecution agreement (“DPA”) with an individual allegedly involved in a Foreign Corrupt Practices Act (“FCPA”) case. On February 16, 2016, the SEC announced a DPA with Yu Kai Yuan, a former employee of software company PTC Inc.’s Chinese subsidiaries. The SEC agreed to defer civil FCPA charges against Yu for three years in recognition of his cooperation during the SEC’s investigation. PTC also reached a settlement with the SEC, in which the company agreed to disgorge $11.8 million. Prior to the Yu DPA, the SEC had entered into one DPA with an individual in November 2013, in a matter involving a hedge fund manager allegedly stealing investor assets. However, never before this time was a DPA with the SEC related to an FCPA case.
Internal investigations are an ever-present challenge for companies. They can involve virtually any topic and arise in myriad ways. Embezzlement, accounting improprieties, bribery, and financial statement adjustments can all lead to a closely scrutinized investigation, with likely triggers of whistleblower reports, news articles, litigation demands, or regulatory inquiries. The common denominator is that they present high pressure and/or high stakes. Consequently, it is imperative that matters not be made worse through a flawed internal investigation. In today’s post, we cover some of the essential topics to keep in mind when managing an internal investigation to ensure that the investigation itself does not cause or exacerbate harm to the company.
As we have previously discussed in prior posts, shareholder demands to inspect confidential corporate information are being made with increased frequency, and are forcing more and more companies to grapple with their legal obligations to respond. Earlier this month in Fuchs Family Trust v. Parker Drilling, the Delaware Court of Chancery issued further guidance, and explained why in certain cases, companies need not provide any information at all.
On February 24, 2015, the SEC announced that it had reached an agreement with Goodyear Tire & Rubber Co. (“Goodyear”) for Goodyear to disgorge more than $16 million to settle FCPA charges stemming from its Kenyan and Angolan subsidiaries. This settlement is notable because it focuses on bribery involving private companies as opposed to official corruption, which is typically prosecuted by the SEC. While the FCPA’s anti-bribery provisions apply only to improper payments to foreign officials, the SEC charged Goodyear with violations of the FCPA’s books and records provisions, which have no such requirement and instead require a company to keep records that “accurately and fairly reflect the transactions and dispositions of the assets of the issuer” and to “devise and maintain a system of internal accounting controls” sufficient to ensure the integrity of the company’s financial records. This use of the books and records provisions is important because it signals the SEC’s intent and ability to use the FCPA to bring broad, far-reaching enforcement cases that have the potential to ensnare any public company.