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  • Comments At SEC Speaks Conference Suggest Heightened Bar For Cooperation Credit, Return Of Admissions Policy, And Increased Autonomy For Front-Line SEC Enforcement Staff

    On October 13, 2021, SEC Enforcement Director Gurbir Grewal and Deputy Enforcement Director Sanjay Wadhwa appeared at the Practicing Law Institute’s “The SEC Speaks” conference, an annual conference where Commission leaders provide updates on current initiatives and priorities of the Commission for the coming year.  Director Grewal and Deputy Director Wadhwa’s remarks signaled some potentially significant policy changes, particularly in terms of how they will measure corporate compliance programs and cooperation levels, when the SEC will allow settling defendants to “neither admit nor deny” the allegations brought by the SEC, and the overall autonomy granted to the front-line enforcement staff.   While the impact of any such policy change is uncertain, and will need to be assessed over time, it is an unmistakable shift in tone from the prior administration.
  • Department Of Justice Announces Enhanced Efforts Towards White-Collar Crime Enforcement And Creation Of National Cryptocurrency Enforcement Team

    In back-to-back speeches last week, senior Department of Justice (“DOJ”) officials emphasized that the Department would devote additional resources and attention to white-collar enforcement actions, with a specific focus on enforcement in the cryptocurrency space.  These initiatives, which contemplate additional corporate enforcement actions, reflect a break from the prior administration’s criminal enforcement priorities, which tended to focus on immigration and violent crime offenses.
  • CFTC Fines Crypto Exchange That Offered Margin Trading For Failing To Register As FCM, Prompting Calls For Further Rulemaking From One Commissioner

    On September 28, 2021, the Commodity Futures Trading Commission (CFTC) entered an order that imposed a $1.25 million fine on Payward Ventures Inc., which does business as digital asset exchange Kraken, for allegedly failing to register as a futures commission merchant (FCM) and for offering certain margin trading services in violation of Sections 4(a) and 4d of the Commodity Exchange Act (CEA).  Although the decision did not purport to break new legal ground, one CFTC Commissioner, Dawn Stump, noted that the decision “is informed by” the CFTC’s Final Interpretive Guidance on retail commodity transactions involving certain digital assets issued in 2020, and issued a concurring statement calling upon the CFTC to issue rulemaking to clarify and codify that guidance, which is increasingly important in the cryptocurrency space.
  • SEC Vacates $1.6 Million In FINRA Fines Against Broker-Dealer And Officers

    On September 17, 2021, the Securities and Exchange Commission (“SEC”) vacated $1.6 million in fines and penalties that the Financial Industry Regulatory Authority (“FINRA”) had previously levied against Scottsdale Capital Advisors Corp. (“Firm”) and three of its officers (“Applicants,” collectively).  In 2015, FINRA alleged that the Firm failed to maintain appropriate internal controls and executed sales of unregistered microcap securities for its foreign financial institution customers.  The next year, following a disciplinary hearing, FINRA imposed a $1.5 million fine on the Firm, a lifetime bar on one of the Firm’s officers, and a $50,000 fine and a two-year suspension on the two remaining Firm officers.  In reviewing FINRA’s findings on appeal by the Applicants, the SEC overturned the sanctions after determining that FINRA’s National Adjudicatory Council (“NAC”) applied incorrect legal standards, failed to adequately explain the basis of its conclusions, and conflated applicable regulations in its case against the Firm.
  • SEC Brings Insider Trading Charges Based On Novel Theory

    On August 17, 2021, the Securities and Exchange Commission (“SEC”) charged a former executive of California-based biopharmaceutical company Medivation Inc. with violating § 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 for allegedly relying upon inside information he obtained through the course of his employment at Medivation to purchase stock of a different company, Incyte Corp., a practice that some academics have dubbed “shadow trading.”  According to the SEC’s complaint—filed in the United States District Court for the Northern District of California—Matthew Panuwat, the then-head of business development at Medivation, purchased short-term, out-of-the money stock options in Incyte Corp., a biopharmaceutical company similar to Medivation, immediately after learning that Medivation would soon announce its upcoming acquisition by Pfizer.  The SEC claims that Panuwat knew that investment bankers engaged by Medivation had cited Incyte as a comparable company in their valuation analysis and that the announcement of Medivation’s sale to Pfizer would likely cause Incyte’s stock price to increase.  This is one of the SEC’s first enforcement actions based on this novel theory, and Panuwat may be expected to vigorously contest not only the facts but the legal underpinnings of the SEC’s complaint.
  • SEC Settles “First-Of-Its-Kind” Action Over “Decentralized Finance” Technology, Alleging Fraud And Unregistered Sales Of Securities

    On August 6, 2021, the U.S. Securities and Exchange Commission (“SEC”) announced that it reached a $13 million settlement in a cease-and-desist proceeding against Blockchain Credit Partners (“the Company”) and its two owners.  The Company marketed itself as a “decentralized finance” (“DeFi”) technology company that sold two kinds of digital assets: (1) “mTokens,” which were sold as accruing 6.2% interest, and (2) DMM Governance (“DMG”) tokens designed to give holders certain voting rights, a share of excess profits, and the ability to profit from DMG resales in the secondary market.  In its cease-and-desist order (the “Order”), the SEC concluded that both mTokens and DMG tokens were securities because they were offered and sold as investment contracts, claimed that the Respondents violated Section 5(a) and 5(c) of the Securities Act for selling these securities without registering them, and further claimed that the Respondents made certain material misstatements and omissions in connection with the sale of the securities in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder.
  • Cryptocurrency Derivatives Exchange Reaches $100 Million Settlement With CFTC, FinCEN

    On August 10, 2021, BitMEX, an offshore cryptocurrency derivatives exchange (the “Exchange”), agreed to a $100 million settlement with the U.S. Commodity Futures Trading Commission (the “CFTC”) and the Financial Crimes Enforcement Network (“FinCEN”), resolving claims that the Exchange operated illegally in the U.S. and failed to comply with anti-money laundering (“AML”) laws and regulations.
  • DOJ And SEC File Securities Fraud Charges Against Founder Of Company Acquired By A SPAC

    On July 29, 2021, the Department of Justice (“DOJ”) announced the unsealing of a criminal indictment against Trevor Milton, the founder, former CEO, and former Chairman of Nikola Corporation, a company that went public in March 2020 through a merger with a special purpose acquisition company (“SPAC”), for allegedly knowingly misleading investors about the company’s ability to build electric and hydrogen-powered vehicles and other green technology.  The SEC filed a parallel civil action against Milton based on the same facts.
  • Financial Institution Settles SEC Claims Related To Allegedly Unsuitable Investments In Complex Exchange-Traded Product

    On Monday, July 19, 2021, the SEC announced that it had settled an action involving an alleged failure to prevent what the SEC contended were unsuitable investments by the respondent’s clients in a volatility-linked exchange-traded product (ETP).  As part of the settlement, the respondent agreed to pay a civil penalty of $8 million and disgorgement and prejudgment interest of $112,274.
  • SEC Announces Settled Enforcement Action In Connection With SPAC Business Combination

    On July 13, 2021, the SEC announced its settlement with Stable Road Acquisition Corp. (“Stable Road”), a special-purpose acquisition company (“SPAC”); its CEO; its sponsor; and its proposed merger target, Momentus Inc. (“Momentus”), an early-stage space technology company.  The resolution was based on alleged violations of the federal securities laws stemming from material misstatements and omissions related to Momentus’s space technology and national security concerns surrounding Momentus’s former CEO.  The SEC has brought charges against and is litigating against Momentus’s former CEO, who was not a party to the settlement.
  • FINRA Orders Record $70 Million Financial Penalty For Systemic Supervisory Failures

    On June 30, 2021, the Financial Industry Regulatory Authority (FINRA) ordered Robinhood Financial LLC (“Robinhood”) to pay a $57 million fine, the highest financial penalty ever ordered in FINRA history, for supervisory failures.  Robinhood will also pay an additional $12.6 million of restitution to users.  In announcing the severe penalty, FINRA attributed it to the “widespread and significant harm suffered by … millions of customers” as a result of Robinhood’s various “systemic supervisory failures.”  Without admitting to the allegations, Robinhood consented to FINRA’s findings and stated that it has “invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams.”
  • Supreme Court Resolves Circuit Split On Meaning Of “Exceeding Authorized Access” In The Computer Fraud And Abuse Act

    On June 3, 2021, the United States Supreme Court’s decision in Van Buren v. U.S. clarified a controversial provision in the Computer Fraud and Abuse Act (the “CFAA”), which imposes civil and criminal liability on anyone who “intentionally accesses a computer without authorization or exceeds authorized access,” and thereby obtains computer information.  18 U. S. C. §1030(a)(2).  The Court held that “an individual ‘exceeds authorized access’ when he accesses a computer with authorization but then obtains information located in particular areas of the computer—such as files, folders, or databases—that are off limits to him” and rejected the prosecution’s broader reading of the CFAA.  In doing so, the Court resolved a circuit split.
  • UK Court Orders Aerospace Corporation Subsidiary To Pay £30 Million In Saudi Corruption Case

    On April 28, 2021, an Airbus subsidiary was ordered to pay more than £30 million ($41 million) after pleading guilty to one count of corruption for bribing senior Saudi Arabian officials between 2008 and 2010 in relation to a defense contract between the UK and Saudi Arabia for communications and electronic warfare equipment.  Last year, Airbus entered into one of the largest corporate resolutions in history with the UK Serious Fraud Office (“SFO”), the French Parquet National Financier (“PNF”), and the US Department of Justice (“DOJ”), settling allegations of bribery and corruption for a total payment of €3.598 billion plus interest and costs.  See Airbus Agrees Record-Breaking €3.6 Billion Settlement To Avoid Prosecution.  This year’s resolution, while far smaller, is yet another reminder that, even with the increasing global coordination among enforcement agencies, individual agencies will often resist resolving all open issues at a given moment.
  • Supreme Court Rolls Back FTC’s Ability To Obtain Restitution And Disgorgement

    ​On April 22, 2021, the Supreme Court held in AMG Capital Management, LLC v. FTC that the Federal Trade Commission (“FTC”) is not authorized to seek monetary relief, such as restitution or disgorgement, in enforcement actions brought directly in federal court without first initiating an administrative proceeding.  The Court’s significant decision overturned the Ninth Circuit’s ruling below and resolved a circuit split in favor of the minority position adopted by the Third and Seventh Circuits.  While the FTC retains the ability to seek such monetary penalties through other avenues, the Court’s decision deprives the FTC of an enforcement tool on which it has heavily relied.  
  • SEC Announces Second-Largest Whistleblower Award In Program’s History

    On April 15, 2021, the Securities and Exchange Commission (“SEC”) announced a joint award of just over $50 million to a pair of whistleblowers, which represents the second-largest award in the whistleblower program’s history.  The SEC’s press release noted that the two recipients reported on “violations that involved highly complex transactions [that] would have been difficult to detect” without the information they provided.  This $50 million award continues a record-setting pace for the whistleblower program.  The SEC has now awarded over a quarter of a billion dollars to whistleblowers in the first seven months of fiscal year 2021 (“FY2021”) alone, which kicked off with an award of $114 million in October 2020—the largest in the program’s history.
  • SEC Commissioner Calls For Revisiting Approach To Corporate Penalties

    On March 9, 2021, Caroline Crenshaw, a Commissioner of the Securities and Exchange Commission (“SEC”) asserted, in a speech before the Council of Institutional Investors, that the SEC has focused excessively on the indirect impact on innocent shareholders at the time of penalty when assessing corporate penalties.  Instead, she called for the SEC to revisit its approach and give less weight to innocent shareholder impact as a mitigant against large corporate penalties.
  • SEC’s Whistleblowing Statistics Continue To Set Records Through Pandemic

    Following the Securities and Exchange Commission (“SEC”) September 2020 amendments to the rules governing its whistleblower program, which we previously discussed in this newsletter, the SEC is on track to shatter its previous records of awards paid out to whistleblowers.  Halfway into its fiscal year (“FY2021”), which started in October 2020, the SEC has already awarded nearly $200 million to whistleblowers, surpassing last year’s record of $175 million paid out to whistleblowers.  And the awards have been sizable:  At the start of FY2021, the SEC issued a record $114 million dollar award; and so far this month, the SEC has already issued two multi-million dollar awards.  If this pace continues, the SEC will be on pace to award in one year the same total amount that it had awarded over the previous nine years, since the inception of the whistleblower program, combined.  In terms of the number of awards paid out, the SEC is also likely to have a banner year:  it has paid out 31 awards so far in FY2021, compared to 39 awards paid out last year.
  • SEC Announces New Enforcement Task Force On Climate And ESG

    On March 4, 2021, the Securities and Exchange Commission announced the creation of a Climate and ESG Task Force in the Division of Enforcement.  SEC Press Release 2021-42 (March 4, 2021).  The task force, led by Kelly L. Gibson, the Acting Deputy Director of Enforcement, and comprising 22 members, will aim to “develop initiatives to proactively identify ESG-related misconduct.”  Id.  The task force’s initial focus will be the identification of material gaps and misstatements in issuers’ disclosure of climate risks, and “will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”  Id.  It is not clear why the SEC concluded that this specific subject matter merits its own task force, and it is worth noting that recent investigations of climate disclosures by other regulators have faced significant challenges.
  • SEC’s 2021 Examination Priorities Reveal Few Surprises

    On March 3, 2021, the Securities and Exchange Commission’s Division of Examinations announced its examination priorities for this year.  Each year, the SEC publishes its list of examination priorities to identify areas that it believes present potential risks to investors and the integrity of the U.S. capital markets, and this year’s list is largely as expected.  It reflects an intent to focus on conflicts of interest and questions of whether investment advisors are fulfilling their fiduciary duties, information security and business continuity (something that took on particular importance in the last year as firms were forced to adapt to the pandemic), and various other perennial topics of interest.  The only “new” priority is one that dovetails with other recent announcements from the Commission—an addition of “enhancing its focus on climate and ESG-related risks by examining proxy voting policies and practices to ensure voting aligns with investors’ best interests and expectations, as well as firms’ business continuity plans in light of intensifying physical risks associated with climate change.”
  • SEC Reverses Position On Accepting Settlement Offers Contingent On Waivers, Creating Once Again Risk That Defendants Will Be Forced To Make Settlement Decisions With Significant Uncertainty

    On February 11, 2021, the Acting Chair of the Securities and Exchange Commission (“SEC”), Allison Herren Lee, announced that the Division of Enforcement will no longer recommend to the SEC a settlement offer that is conditioned on granting a waiver.  While Acting Chair Lee described this as a return to the SEC’s “long-standing practice” of separately considering settlement negotiations and waiver requests, Allison Herren Lee, Acting Chair, SEC, Statement of Acting Chair Allison Herren Lee on Contingent Settlement Offers (Feb. 11, 2021), the decision is in fact a significant and surprising one that was opposed by two Commissioners and could have broad ramifications for the industry.  It signals, in no uncertain terms, that the SEC is looking to be extremely aggressive in enforcement, will almost certainly be far more stingy in granting waivers in future matters, and is prepared to deal with the consequences.  What remains to be seen is how the industry will respond, as the advanced assurance of waivers from the SEC is often not just a factor in a defendant’s decision to settle—for some defendants it is a critical gating item without which no settlement is possible.
  • SEC Reauthorizes Senior Enforcement Officials To Issue Formal Investigation Orders

    On February 9, 2021, Acting Chair of the Securities and Exchange Commission (“SEC”), Allison Herren Lee, announced that she had authorized senior officers in the SEC’s Enforcement Division to approve the issuance of Formal Orders of Investigation without prior approval from the SEC’s commissioners.  While significantly less surprising and less consequential than her announcement from the same week regarding conditional settlement offers, this reinstatement of delegated authority reflects another instance of swinging the pendulum back in favor of more aggressive enforcement.
  • DOJ And SEC Charge Biotech Consultant With Insider Trading, But SEC Passes On Seeking Disgorgement

    On February 5, 2021, the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) charged Mark Ahn, a consultant to a biotech company, with insider trading based on confidential information that he allegedly learned regarding a proposed acquisition of Dimension Therapeutics, Inc. (“Dimension”).  In parallel civil and criminal actions, the DOJ and SEC allege that Ahn executed trades prior to the public announcement of Dimension’s acquisition, based on material non-public information (“MNPI”) that he obtained through his role as a consultant.  Ahn is facing criminal charges of two counts of securities fraud under 18 USC § 1348 and forfeiture pursuant to 18 USC § 981(a)(1)(C) and 28 USC § 2461(c), along with civil charges of violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and a permanent injunction, civil monetary penalties, and an officer-and-director bar.  Notably, while the DOJ is seeking forfeiture, the SEC is not seeking disgorgement.
  • United Kingdom Supreme Court Limits The Serious Fraud Office’s Extra-Territorial Reach

    On February 5, 2021, the U.K. Supreme Court unanimously ruled that the Serious Fraud Office (the “SFO”), the U.K.’s top anti-fraud agency, lacks authority to compel a foreign company to produce documents to the regulator that are held outside of the U.K.  While this ruling on its face suggests the SFO’s power to investigate foreign entities has been stymied, the decision may not have much effect in practice in light of the other cross-border tools that remain available to the SFO, including the mutual legal assistance (“MLA”) process.
  • SEC Invites Comment On Possible SEC Staff Participation In Undercover Fraud-Detection Program

    On January 7, 2021, the Securities & Exchange Commission (“SEC”) issued an unusual statement inviting comments on a proposal to create a fraud-detection program that had previously been considered internally.  Under the contemplated program, initially conceived in 2011, members of a new unit within the SEC, called the Fraud Surveillance Team (“FST”), would pose as prospective investors and contact individuals suspected of engaging in criminal violations of securities laws in an undercover capacity.
  • FTC Secures Large Restitution Award In Shadow Of Pending AMG Capital

    On January 21, 2021, the Federal Trade Commission (“FTC”) announced that a federal district court in Maryland entered final orders granting the FTC a $120.2 million restitution award against the operators of a large offshore real estate project alleged to have deceived American consumers, which follows an earlier memorandum opinion issued on August 28, 2020. 
  • Supreme Court Vacates And Remands Blaszczak Insider Trading Decision, Providing Opportunity For Further Clarity By Second Circuit


    On January 11, 2021, the Supreme Court vacated the Second Circuit’s decision in United States v. Blaszczak, 947 F.3d 19 (2d Cir. 2019), remanding the case to the Second Circuit for consideration in light of the Court’s decision in Kelly v. United States, 140 S. Ct. 1565 (2020).  In Kelly, the Supreme Court overturned the convictions of two New Jersey public officials in the Bridgegate scandal, holding that while the conduct at issue may have constituted an abuse of power, it did not amount to a violation of either the federal wire fraud statute or a violation of the federal program fraud statute because the object of the scheme was the implementation of a regulatory object, rather than to obtain money or property.  This may lead the Second Circuit to reverse or at least modify its December 2019 decision affirming convictions in Blaszczak, a decision that caused concern over its potentially significant expansion of insider trading liability.
  • National Defense Authorization Act Passed Over President Trump’s Veto Expands SEC’s Disgorgement Authority And Reforms Anti-Money Laundering Laws

    On January 1, 2021, the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) was approved by Congress, over the objections of President Trump who vetoed the bill a week before.  In addition to authorizing appropriations for defense related activities, the NDAA brings two significant changes relevant to regulatory enforcement.  First, the NDAA amends the Securities Exchange Act of 1934 (the “Exchange Act”), providing the U.S. Securities and Exchange Commission (“SEC”) with explicit statutory authority to seek disgorgement for civil actions and expanding the statute of limitation for securing this relief.  Second, the NDAA includes the Corporate Transparency Act (“CTA”), which significantly expands the beneficial ownership disclosure requirements for U.S. entities.
  • Broker-Dealer Settles SEC Claims Alleging Violations Of The Duty Of Best Execution And Related Misstatements

    On December 17, 2020, the Securities and Exchange Commission (“SEC”) announced the filing of settled administrative proceedings against a significant retail broker-dealer (the “Company”) for alleged violations of the duty of best execution and related misstatements.  According to the SEC, the Company “fail[ed] to satisfy its duty to seek the best reasonably available terms to execute customer orders” and simultaneously made “repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them” in lieu of routing such orders to other trading firms that may have resulted in improved customer executions.  SEC Press Release 2020-321 (Dec. 17, 2020).  Without admitting or denying the allegations, the Company has agreed to settle the claims by agreeing to pay a $65 million civil penalty, as well as agreeing to hire an independent compliance consultant who will be required to review the Company’s policies and procedures relating to customer communications, payment for order flow, and best execution of customer orders, and to report to the SEC on the Company’s compliance.
  • Public Company Settles with SEC Over Misleading COVID-19-Related Disclosures

    On December 4, The Cheesecake Factory Incorporated (“the Company”) agreed to settle claims brought by the Securities and Exchange Commission (the “Commission”) that the Company had made materially misleading disclosures about the impact of the COVID-19 pandemic on its business operations and financial condition.  Without admitting to the SEC’s findings, the Company agreed to cease and desist from any future Exchange Act violations and to pay a $125,000 civil money penalty for alleged material misstatements to investors in violation of Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20, which require current and accurate financial disclosures.  This represents the first enforcement action brought by the Commission against a public company for misleading investors about the financial impacts of the pandemic.
  • Energy Company Agrees To Pay Over $150 Million To DOJ, CFTC, And Foreign Regulator To Resolve Coordinated FCPA Allegations

    On December 3, 2020, the U.S. Department of Justice (“DOJ”) announced that a Texas-based subsidiary of the Swiss energy trading company (“the Company”) had entered into a deferred prosecution agreement (“DPA”) pursuant to which it agreed to pay $135 million to resolve allegations that it conspired to violate the Foreign Corrupt Practices Act (“FCPA”) and to end a parallel investigation in Brazil.  The Company also agreed to pay more than $28 million to the Commodity Futures Trading Commission (“CFTC”) for related matters, in the first coordinated resolution between the DOJ and the CFTC in an FCPA matter. 
  • Motion To Dismiss Filed In Eastern District Of New York Case Could Provide Opportunity For Clarity On Scope Of FCPA’s “Internal Accounting Controls” Provisions

    On November 20, 2020, lawyers for a former investment banker, indicted in the United States District Court for the Eastern District of New York for his alleged role in the 1MDB matter, filed a Motion to Dismiss (“MTD”) the indictment against him, which includes charges of conspiracy to launder money and conspiracy to violate the U.S. Foreign Corrupt Practices Act (“FCPA”).  Motion to Dismiss the Indictment and Other Relief, U.S. v. Ng Chong Hwa a.k.a. Roger Ng, 1:18-cr-00538-MKB (Nov. 20, 2020).  While the MTD raises a number of issues—including whether EDNY is a proper venue given that the only allegations relate to wires that were transmitted through the EDNY, and whether the banker was an “employee” or “agent” of an “issuer” for purposes of the FCPA—the most interesting argument may be one that squarely challenges the scope of the FCPA’s internal accounting controls provisions.  The question of whether the FCPA’s internal accounting controls provisions can be stretched to cover more traditional risk and compliance controls has long been debated, and even spurred a rare dissent from two SEC Commissioners last month, so a decision on the MTD could provide a much-needed opportunity for clarity.
  • Beverage Company Agrees To Pay $19.6 Million And Enter DPA To Resolve FCPA Charges With The DOJ, In Follow-Up To SEC Action That Had Starkly Different Tone

    On October 27, 2020, the U.S. Department of Justice (“DOJ”) announced that a Chicago-based company that produces and sells distilled beverages (the “Company”), agreed to pay a monetary penalty of approximately $19.6 million to resolve the DOJ’s investigation into alleged violations of the U.S. Foreign Corrupt Practices Act (“FCPA”).  As part of its resolution with the DOJ, the Company also entered into a three-year deferred prosecution agreement (“DPA”).  The DOJ settlement targets the same underlying conduct that was subject to a separate settlement with the U.S. Securities and Exchange Commission (“SEC”) in 2018, where the Company agreed to pay $8 million, including a civil penalty of $2 million; but the DOJ took a different view of certain facts and refused to credit the $2 million civil penalty paid by the Company to the SEC because, according to the DOJ, the Company “did not seek to coordinate a parallel resolution” with the DOJ.
  • SEC Amends Its Whistleblower Award Program Rules

    On September 23, 2020, the Securities and Exchange Commission (“SEC”) announced that it voted to amend the rules governing its whistleblower award program.  According to the SEC, the amendments are intended to provide eligible whistleblowers with greater insight into the program as well as to improve efficiencies in reviewing and processing awards.  The SEC’s Office of the Whistleblower also issued staff guidance for determining award amounts for eligible whistleblowers.
  • DOJ Issues FCPA Opinion Procedure Approving Legitimate Payments To Government Instrumentalities

    On August 14, 2020, the U.S. Department of Justice (“DOJ”) released its first Foreign Corrupt Practices Act (“FCPA”) Opinion (the “August 14 Opinion”) in six years, in response to a request from a multinational company headquartered in the U.S. (the “Requestor”).  The Requestor sought to clarify whether contemplated payments to a majority government-owned foreign investment bank would result in an FCPA enforcement action against it.  The DOJ found that the facts and circumstances as presented by the Requestor evidenced a payment to a foreign government instrumentality, and not a “foreign official,” and were in any event supported by a proper business justification; therefore, such payment would not violate the anti-bribery provisions of the FCPA.
  • CFTC, SEC, And FINRA Settle AML-Related Charges With Broker-Dealer

    On August 10, 2020, the Commodity Futures Trading Commission (“CFTC”), Securities and Exchange Commission (“SEC”), and Financial Industry Regulatory Authority, Inc. (“FINRA”) settled charges with a broker-dealer and registered futures merchant for allegations that the broker-dealer failed to flag suspicious activity and fulfill anti-money laundering requirements.  Across three separate settlements, and without admitting any wrongdoing, the broker-dealer agreed to pay $15 million in fines to FINRA, over $12 million to the CFTC, and $11.5 million to the SEC, for a total penalty of nearly $38 million.
  • Pennsylvania Manufacturing Company To Pay $824,314 To OFAC After Self-Appointing Two Monitors

    On July 28, 2020, a Pennsylvania-based cookware coating manufacturer (the “Company”) agreed to pay a $824,314 penalty to the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) to settle claims that it violated OFAC’s Iranian Transactions and Sanctions Regulations (“ITSR”).  Executive Order 13628, signed in October 2012, prohibited any U.S.-owned or U.S.-controlled foreign entity from knowingly engaging in any transaction, directly or indirectly, with Iran or any person subject to Iran’s jurisdiction, ITSR at § 560.215, and the claims at issue here identified the risk in indirect transactions.  According to OFAC, the penalty amount was substantially reduced by virtue of voluntary remedial actions undertaken by the Company following the identification of the issue.
  • Global Healthcare Company To Enter DPA, Pay $345 Million To DOJ And SEC, To Resolve FCPA Claims

    On June 25, 2020, Novartis AG, a global healthcare company headquartered in Switzerland, and two of its subsidiaries (one current and one former) agreed to pay a total of $345 million in disgorgement and fines to the U.S. Department of Justice and Securities and Exchange Commission to settle claims that they had violated the Foreign Corrupt Practices Act (FCPA).  15 U.S.C. §§ 78dd-1.  Specifically, the DOJ entered into deferred prosecution agreements with a current Novartis subsidiary operating in Greece and a former Novartis subsidiary based in Singapore and overseeing operations in Vietnam, which agreed to collectively pay more than $233 million in criminal fines.  And the parent company agreed to pay the SEC $112 million in disgorgement and pre-judgment interest. 
  • Second Circuit Upholds Jury Conviction Of Two Officials In FIFA For Honest Services Fraud, Rejecting Extraterritoriality Challenge

    On June 22, 2020, the Second Circuit Court of Appeals upheld the jury conviction of two former officials of the Federation Internationale de Football Association (FIFA) —the international sports organization based in Zurich, Switzerland—for committing multiple counts of conspiracy to commit honest services wire fraud.  United States v. Napout, Case No. 18-2750, (2d Cir. 2020).  Defendants, two Paraguayan employees of a Paraguayan company, were convicted by a jury in the United States District Court for the Eastern District of New York for their involvement in an alleged scheme to sell broadcasting and marketing rights to FIFA games in exchange for kickbacks transmitted through U.S. bank accounts and wires.  And on appeal, the Second Circuit held that the government permissibly applied the honest services wire fraud statute, 18 U.S.C. § 1346, rejecting defendants’ claim that it was an impermissible extraterritorial overreach.
  • Supreme Court In Liu Upholds SEC Ability To Seek Equitable Disgorgement Of Net Profits For Return To Victims, But Indicates Limits On Broader Disgorgement Theories

    On June 22, 2020, in an 8-1 decision authored by Justice Sotomayor, the United States Supreme Court upheld the ability of the Securities and Exchange Commission to seek disgorgement in civil actions brought in district court as a form of “equitable relief ” under 15 U. S. C. §78u(d), at least to the extent the disgorgement is of a defendant’s “net profits” and the disgorged funds are returned to defendant’s victims.  Liu v. SEC, No. 18–1501, __ S.Ct. __ (June 22, 2020).  Though it was generally expected that the Supreme Court would uphold the SEC’s ability to seek disgorgement in some form, the precise contours of any such decision have been much anticipated since the Supreme Court held in Kokesh v. SEC, 581 U. S. ___ (2017), that at least certain forms of disgorgement sought by the SEC enforcement action impose a “penalty” for purposes of calculating the appropriate statute of limitations under 28 U. S. C. §2462, calling into question whether it could be considered “equitable relief.”  The Liu decision is ostensibly a win for the SEC, in that it upheld the SEC’s ability to obtain disgorgement.  But by focusing on ensuring that a given disgorgement order constitutes “equitable relief,” the Supreme Court has placed important limits on the manner in which the SEC may obtain disgorgement that could have significant impacts on the way the SEC pursues enforcement actions.
  • DOJ Revises Guidance On Evaluation Of Corporate Compliance Programs

    On June 1, 2020, the U.S. Department of Justice released a revision of its guidance on the Evaluation of Corporate Compliance Programs.  Evaluation of Corporate Compliance Programs, U.S. Department of Justice, Criminal Division (June 2020) (the “Compliance Program Guidance”).  The Compliance Program Guidance provides companies with general principles and factors to consider when designing, implementing, and updating their compliance policies and procedures.  It also provides a useful basis for companies seeking to avoid or mitigate prosecution pursuant to the DOJ’s “Principles of Federal Prosecution of Business Organizations” and the U.S. Sentencing Guidelines, both of which require DOJ prosecutors to consider a company’s compliance program as a factor in their decisions to instigate a case and in terms of punishment.  While the revisions to the Compliance Program Guidance generally represent incremental changes, there are sufficient updates that companies may still want to take this opportunity to reevaluate existing compliance programs to ensure that they are keeping step with evolving best practices.
  • CFTC Announces Updated Guidance On Civil Monetary Penalties

    On May 20, 2020, the Commodity Futures Trading Commission (“CFTC”) announced that the Division of Enforcement had issued new guidance regarding the factors that it would consider when making recommendations to the CFTC on the amounts of civil monetary penalties in CFTC enforcement actions.  The binding guidance, which has been incorporated into the CFTC Enforcement Manual, states that the Division of Enforcement staff will be guided by the overarching consideration of ensuring that any proposed penalty achieves the dual goals of specific and general deterrence.  And it provides a three-pronged approach to evaluate the appropriate penalty to recommend to the CFTC:  (1) the “gravity of the violation;” (2) “mitigating and aggravating circumstances;” and (3) “other considerations.”  While not likely to result in any significant shift in CFTC penalty amounts, having written public guidance should make it easier for defense counsel to engage in transparent and productive negotiations with Enforcement Division staff as to how various cases should be viewed. 
  • Supreme Court Overturns Third Circuit, Throws Out Bridgegate Convictions

    On May 7, 2020, the U.S. Supreme Court unanimously overturned a ruling from the United States Court of Appeals for the Third Circuit that upheld the convictions of two former New Jersey officials who were part of the 2013 “Bridgegate” scandal to realign lanes to the George Washington Bridge (“GWB”).  Kelly v. United States, No. 18-1059, 588 U.S. __, 2020 WL 2200833 (2020).  Writing for a unanimous court, Justice Kagan wrote that while the conduct at issue may have constituted an abuse of power, it did not amount to a violation of either the federal wire fraud statute or a violation of the federal program fraud statute because the object of the scheme was the implementation of a regulatory object, rather than to obtain money or property.
  • Industrial Bank Settles AML Charges With U.S. And New York State Authorities

    On April 20, 2020, Industrial Bank of Korea (the “Bank”) and its New York branch (“NY Branch”) reached settlements with the U.S. Attorney’s Office for the Southern District of New York (“USAO”) and the New York State Department of Financial Services (“NYDFS”), agreeing to pay a combined $86 million to resolve investigations into its anti-money laundering compliance program, which the USAO and NYDFS claimed led to the bank processing over $1 billion worth of transactions in violation of U.S. sanctions against Iran.  Specifically, the Bank entered into a deferred prosecution agreement (“DPA”) with the USAO, agreeing to pay $51 million to settle charges that it willfully failed to maintain an adequate anti-money laundering program at its New York Branch in violation of the Bank Secrecy Act (“BSA”).  And both the Bank and the New York Branch entered into a consent order (“Consent Order” and, together with the DPA, the “settlement agreements”) with the NYDFS, agreeing to pay a $35 million fine for violating New York state law.
  • Co-Directors Of SEC’s Division Of Enforcement Issue Statement On Market Integrity In Wake Of COVID-19 Emergency

    On March 23, 2020, Stephanie Avakian and Steven Peikin, co-directors of the Securities & Exchange Commission’s (“SEC”) Division of Enforcement, issued a statement reminding public companies, officers, and directors of their responsibilities related to material, non-public information in connection to the COVID-19 public health emergency.
  • United States Supreme Court Hears Oral Arguments In Liu v. SEC to Determine Whether the SEC Can Seek Disgorgement in Judicial Proceedings

    On March 3, 2020, the Supreme Court heard oral arguments in Liu v. SEC, No. 18-1501, once again taking up the question of whether the Securities and Exchange Commission (“SEC”) may seek disgorgement as equitable relief in a civil enforcement action for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.  While it is always difficult to predict the outcome of a given case from oral argument, the questioning suggested that the Justices are likely to preserve some form of the SEC’s ability to seek disgorgement, albeit in perhaps a narrowed form more closely aligned to its underpinnings as an equitable remedy.
  • SEC Reaches $8.8 Million Settlement With Pharmaceutical Company To Resolve Allegations Of FCPA Violations

    On February 28, 2020, the U.S. Securities and Exchange Commission (“SEC”) announced a settled administrative proceeding with an Ohio-based pharmaceutical company, Cardinal Health, Inc. (“Cardinal”) over alleged violations of the Foreign Corrupt Practices Act (the “FCPA”).  The settlement relates to alleged improper payments made by employees at its former Chinese subsidiary (“Cardinal China”) to government-employed healthcare professionals and employees at state-owned entities.
  • Judge Grants Post-Trial Acquittal On FCPA Counts

    On February 26, 2020, a federal judge in Connecticut granted, in part, defendant Lawrence Hoskins’s post-trial motion for acquittal on seven counts relating to violations of the Foreign Corrupt Practices Act.  United States v. Hoskins, No. 3:12cr238(JBA) (D. Conn.).  The acquittal is the latest development in the seven-year case of Mr. Hoskins, a closely watched FCPA prosecution that raises significant questions regarding the extraterritorial reach of FCPA enforcement.  Hoskins, a former vice president of French conglomerate Alstom SA, was convicted in November 2019 on charges that he helped to organize a scheme to bribe Indonesian officials in connection with a contract to build a power plant in Indonesia (the “Tarahan Project”).  Based on the evidence adduced at trial, District Court Judge Janet Bond Arterton found that a reasonable jury could not conclude beyond a reasonable doubt that Hoskins was an “agent” of Alstom’s Connecticut subsidiary, Alstom Power Inc. (“API”).  Accordingly, he could not be convicted of FCPA violations. 
  • Overview Of Cases Of Particular Interest Currently Pending Before The Supreme Court Of The United State

    Looking ahead, we preview cases currently pending before the Supreme Court—which have already been accepted for review by the Court—that may be of particular interest to readers of the Need-to-Know Litigation Weekly.  These cases pertain to various topics in Securities, Enforcement, and, as to one, arbitration.
  • DOJ Offers Non-Prosecution Agreements And No-Fines For Self-Reporting Export Control And Sanctions Violations
    In a development that could significantly affect how companies deal with possible export control and sanctions violations, the Department of Justice (“DOJ”) recently revised its policy regarding voluntary disclosure of trade violations.  The new policy from DOJ’s National Security Division (“NSD”), entitled “Export Control and Sanctions Enforcement Policy for Business Organizations” (“NSD Policy”), took effect December 13, 2019.  The NSD Policy supersedes the Division’s previous “Guidance Regarding Voluntary Self-Disclosures, Cooperation, and Remediation in Export Control and Sanctions Investigations Involving Business Organizations” (“2016 Policy”), implemented October 2, 2016.  The NSD Policy contains three major changes to the 2016 Policy.
  • Second Circuit Reverses $18.5 Million Restitution Order For Lack Of Proximate Cause

    On December 3, 2019, the Second Circuit affirmed the convictions of two defendants for wire fraud and conspiracy to commit wire and bank fraud, but reversed the District of Connecticut’s order that defendants pay $18.5 million in restitution to the U.S. Department of Agriculture (“USDA”).  United States v. Calderon, No. 17-1956, 2019 WL 6482379 (2d Cir. Dec. 3, 2019). 
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