As the U.S. Supreme Court commenced a new term last week, one issue of substantial interest to many readers of this blog is whether the Court will address the constitutionality of the Securities & Exchange Commission’s use of administrative law judges (“ALJs”) to adjudicate enforcement proceedings. The issue, which we have covered extensively in past posts, essentially comes down to whether SEC ALJs are Officers subject to the Constitution’s Appointments Clause, or whether they are merely employees, who do not require appointment by the President or a Presidential appointee. The SEC currently selects ALJs through an internal administrative process, pursuant to 5 USC 3105.
Advocates on both sides of a clear circuit split have already filed petitions for writ of certiorari. Most recently, on September 29, 2017, the U.S. Department of Justice Solicitor General’s office filed a certiorari petition on behalf of the SEC asking the Court to review the Tenth Circuit’s December 2016 holding in Bandimere v. SEC. That holding, which was denied en banc review by the Tenth Circuit in May, found that SEC ALJs were “inferior Officers” and thus are subject to the Appointments Clause. After the Tenth’s Circuit ruling in Bandimere, the SEC stayed all administrative ALJ proceedings that could be appealed to the Tenth Circuit pending resolution of the issue by the Supreme Court or further order of the Commission.
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 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.”
According to a report in the Wall Street Journal, the acting Chairman of the Securities and Exchange Commission has centralized authority to issue formal orders of investigation – a critical authority that triggers the ability of SEC staff attorneys to issue subpoenas. The move, which was not publicized by the SEC, would curb existing powers of the Commission’s enforcement staff.
Since 2009, the power to issue formal orders of investigation had been “sub-delegated” to about 20 senior attorneys within the SEC’s Enforcement Division. However, according to the Journal report, acting SEC Chairman Michael Piwowar ordered the authority to be centralized exclusively with the Director of Enforcement. READ MORE