Month: April 2015

Who Wants to be a Millionaire? Compliance Officer Whistles His Way to a Million Dollar Pay Day

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Whistle

Last week the SEC announced an award of between $1.4 to $1.6 million to a whistleblower who provided information that assisted the SEC in an enforcement action. The enforcement action against the whistleblower’s company resulting in monetary sanctions exceeding $1 million.  This marks the second award to a whistleblower with an internal audit or compliance function at a company.  The first was back in August 2014, when the SEC awarded a whistleblower in internal auditing/compliance with over $300,000.  Here, as with the prior award, the officer had a reasonable basis for believing that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors.  In both cases, responsible management was made aware of the potential harm that could occur, yet failed to take steps to prevent it.

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Delaware Chancery Awards Investors $171 Million

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On April 20, 2015, the Delaware Court of Chancery issued a decision awarding $171 million in damages to the common unitholders of a limited partnership against its general partner in connection with a “dropdown” transaction.  The decision is the latest in a series of decisions by the Chancery Court concerning the conduct of directors and advisers in conflict of interest and/or sale of the company transactions.  See also In re Rural/Metro Corp. S’holders Litig., No. 6350-VCL (Del. Ch. Oct. 10, 2014); Chen v. Howard-Anderson, No. 5878-VCL (Del Ch. April 8, 2014); In re Orchard Enter., Inc. S’holder Litig., No. 7840-VCL (Del. Ch. Feb. 28, 2014).  The decision yet again highlights areas that should be of concern to boards and their advisers in such transactions.

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Remote Tippees Beware: Even if the DOJ Can’t Reach You After Newman, The SEC Can

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The fall-out from the Second Circuit’s decision in U.S. v. Newman continued last week in SEC v. Payton, when Southern District of New York Judge Jed S. Rakoff denied a motion to dismiss an SEC civil enforcement action against two former brokers, Daryl Payton and Benjamin Durant, one of whom (Payton) had just had his criminal plea for the same conduct reversed in light of Newman.  Although the United States may be unable to make criminal charges stick against some alleged insider traders under a standard of “willfulness,” Judge Rakoff found that the SEC had sufficiently alleged that related conduct of the two brokers at the end of the tip line was “reckless,” satisfying the SEC’s lower civil standard.

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In re Polycom and the SEC’s Continued Focus on Internal Controls

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People at a Table

Over the past year, the SEC and other regulatory agencies have initiated an increasing number of investigations into companies based on allegations of inadequate internal controls and/or a system for reporting those controls. For more on internal controls and a discussion of recent regulatory activity in this area, see Jason M. Halper & Jonathan E. Lopez, et al., Assessing the Increased Regulatory Focus on Public Company Internal Control and Reporting, Bloomberg BNA: Securities Regulation & Law Report, Oct. 6, 2014.

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Is Your Confidentiality Agreement a Ticking Time Bomb? SEC’s First Action Over Dodd-Frank Whistleblower Protections Targets Company’s Internal Investigations

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For the first time in the nearly five years since Dodd-Frank went into effect, the SEC last week took action against a company over concerns that the company was preventing its employees from potentially blowing the whistle on illegal activity.  The action is significant because the SEC was targeting seemingly innocuous language in a confidentiality agreement and there were no allegations that the company, KBR, Inc., was otherwise breaking the law.

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