On November 22, 2019, the U.S. Department of Justice (“DOJ”) announced that it had entered into a three-year deferred prosecution agreement (“DPA”) with a Korean engineering company (“SHI”) to settle allegations of Foreign Corrupt Practices Act (“FCPA”) violations in Brazil.  Brazilian prosecutors entered a simultaneous resolution with the company, thus providing another example of U.S. and foreign prosecutors working together and coordinating on these types of cross-border prosecutions.
 

On October 8, 2019, the Department of Justice (“DOJ”) issued a memorandum (“Memorandum”) providing guidance on how the DOJ’s prosecutors will handle inability-to-pay claims from companies, intending to provide companies—and prosecutors—with a better understanding of how to evaluate and address these claims.  Memorandum to All Criminal Division Personnel from Brian A. Benczkowski regarding Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty (Oct. 8, 2019).  Assistant Attorney General Brian A. Benczkowski announced the Memorandum, stating that it does not provide any new methodology, but rather merely “puts a lot more meat on the bones” of how these claims are analyzed.  Assistant Attorney General Brian A. Benczkowski Delivers Remarks at the Global Investigations Review Live New York (Oct. 8, 2019).

 

On September 16, 2019, an indictment was unsealed revealing that the Department of Justice (“DOJ”) has charged three traders at a global banking and financial services company with conspiracy to engage in a pattern of racketeering activity under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and other federal crimes, by allegedly engaging in a scheme to manipulate prices for precious metals futures contracts over an eight-year period.  Indictment, Case No. 19-cr-669 (N.D. Ill. Aug. 22, 2019).  The same day, the Commodity Futures Trading Commission (“CFTC”) brought a parallel civil suit against two of the traders.  See Complaint, Case No. 19-cv-6163 (N.D. Ill. Sept. 16, 2019).  According to the DOJ and the CFTC, the traders engaged in the unlawful practice of “spoofing” by placing orders to buy or sell futures contracts with the intent to cancel the orders before execution and influence the prices of those futures contracts.  While the DOJ and CFTC have brought a number of spoofing charges in recent years, it is unclear why the DOJ saw fit to bring this set of charges under RICO—an aggressive move that the DOJ may use to try to paint with a broader brush in introducing evidence at trial. 

On July 22, 2019, the United States Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) announced that they had resolved allegations of Foreign Corrupt Practice Act (“FCPA”) violations against Microsoft Corporation and one of its wholly owned subsidiaries, Microsoft Magyarország Számítástechnikai Szolgáltató és Kereskedelmi Kft. (“MS Hungary” and, together with Microsoft Corporation, “Microsoft”).  As part of the settlement, Microsoft agreed to pay a total of approximately $25 million to the DOJ and the United States Securities and Exchange Commission (“SEC”), and MS Hungary entered into a three-year non-prosecution agreement (“NPA”).  See Non-Prosecution Agreement, Microsoft Magyarország Számítástechnikai Szolgáltató és Kereskedelmi Kft. (July 22, 2019); DOJ Press Release, Hungary Subsidiary of Microsoft Corporation Agrees to Pay $8.7 Million in Criminal Penalties to Resolve Foreign Bribery Case (July 22, 2019); In the Matter of Microsoft Corporation, Exchange Act Release No. 86421 (July 22, 2019).

On June 25, 2019, the Department of Justice (“DOJ”) announced that it had entered into a three-year deferred prosecution agreement (“DPA”) with TechnipFMC PLC to settle allegations of Foreign Corrupt Practices Act (“FCPA”) violations in Brazil and Iraq, while requiring TechnipFMC’s U.S. subsidiary, Technip USA, to enter a guilty plea.  United States v. TechnipFMC plc, 19 Cr. 278 (E.D.N.Y. June 25, 2019); United States v. Technip USA, Inc., 19 Cr. 279 (E.D.N.Y. June 25, 2019).  The resolution is yet another example of U.S. prosecutors cooperating with foreign prosecutors, as Brazilian prosecutors entered into a simultaneous resolution with the company.

On April 30, 2019, the United States Department of Justice, Criminal Division (“DOJ”), released an updated version of its guidance on “Evaluation of Corporate Compliance Programs” (“Compliance Program Guidance”).  This replaces the first version of this guidance, which was issued in February 2017 by the Fraud Section of the DOJ.  In keeping with the prior version, the latest updates still contain a list of general questions for prosecutors to ask when assessing a company’s ethics and compliance program, rather than a formal rubric or checklist for compliance.  The newly released version, however, goes further by providing more detail and concrete explanations for what prosecutors expect effective compliance programs to entail.  U.S. Department of Justice, Criminal Division, Evaluation of Corporate Compliance Programs (Apr. 30, 2019).
 

On March 29, 2019, the U.S. Department of Justice (“DOJ”) and U.S. Securities and Exchange Commission (“SEC”) announced that they had reached resolution with a German-based major worldwide provider of medical equipment and services (the “Company”), in connection with alleged bribery payments and books and records violations in more than fifteen different countries.  See In the Matter of Fresenius Medical Care AG & Co. KGaA, Admin. Proc. No. 3-19126 (Mar. 29, 2019); Press Release, SEC Charges Medical Device Company with FCPA Violations, No. 2019-48 (Mar. 29, 2019).  In aggregate, the Company agreed to pay in excess of $231 million in disgorgement and penalties, and also agreed to the imposition of a compliance monitor for two years.  And as part of a non-prosecution agreement with the DOJ, the Company admitted responsibility for willfully violating the Foreign Corrupt Practices Act (“FCPA”) and agreed that the facts described by the DOJ were true and accurate.  See Non-Prosecution Agreement, Fresenius Medical Care AG & Co. KGaA (Feb. 25, 2019); Press Release, Fresenius Medical Care Agrees to Pay $231 Million in Criminal Penalties and Disgorgement to Resolve Foreign Corrupt Practices Act Charges (Mar. 29, 2019).

On March 6, 2019, the head of the U.S. Commodity Futures Trading Commission’s (“CFTC’s”) Enforcement Division, James McDonald, announced a new policy related to the benefits of self-reporting foreign corrupt practices-related violations of the Commodity Exchange Act by market participants who are not registered with the agency.  McDonald announced that, absent aggravating circumstances, the enforcement division will recommend a deal without civil financial penalties for companies and individuals who self-report misconduct, cooperate with the agency, and reform the bad behavior at issue (including payment of disgorgement and restitution).

On March 6, 2019, the Securities and Exchange Commission (“SEC”) announced that it was settling allegations that Russian telecommunications company Mobile Telesystems Pjsc (“MTS”) violated anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in order to increase its business in Uzbekistan.  Without admitting or denying the SEC’s allegations, MTS agreed to pay a civil penalty of $100 million to the SEC and retain an independent compliance monitor for at least three years.  Mobile Telesystems PJSC, Exchange Act Release No. 85261 (Mar. 6, 2019).  The same day, the Department of Justice (“DOJ”) announced it had entered into a deferred prosecution agreement (“DPA”) with MTS pursuant to the Department’s FCPA Corporate Enforcement Policy and a plea agreement with MTS’s subsidiary, Kolorit Dizayn Ink LLC (“Kolorit”), for one count of conspiracy to violate the anti-bribery and books and records provisions of the FCPA.  Deferred Prosecution Agreement, United States v. Mobile TeleSystems PJSC (S.D.N.Y. 2019); Plea Agreement, United States v. KOLORIT DIZAYN INK Limited Liability Company (SDNY 2019).  Pursuant to the DPA, MTS agreed to a fine and restitution of $850 million.  The DOJ has agreed to credit MTS’s $100 million civil penalty to the SEC towards this amount.

On March 4, 2019, the U.S. District Court for the Northern District of California acquitted a former sell-side foreign exchange trader on all counts brought against him arising from his alleged misuse of confidential client information in connection with a large foreign currency exchange trade.  After the completion the government’s case, the trader moved for acquittal as a matter of law.  The Court ruled that, viewing the evidence in the light most favorable to the government, the jury could not reasonably find the defendant guilty beyond a reasonable doubt and granted the motion.  The essence of the Court’s decision was that the government had not established that the defendant, who was engaged in arm’s-length transaction with a customer, owed the customer the duties the government’s case assumed.  USA v. Bogucki, No. 18-00021, slip op. at 12 (N.D. Cal. Mar. 4, 2019).  As discussed further below, the Court’s treatment of the concept of a sell-side trader “pre-positioning” (often referred to as “pre-hedging”) ahead of a customer’s trade is notable.  The line between front-running/misuse of confidential information and appropriate pre-hedging, while always inherently case and situation specific, has been at the forefront of multiple criminal and civil regulatory investigations and cases in recent years.

On February 15, 2019, the Securities and Exchange Commission (“SEC”) announced a settlement with a New Jersey-based technology company (the “Company”) over allegations that the Company violated the anti-bribery, books-and-records, and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”).  In the Matter of Cognizant Technology Solutions Corporation, Admin Proc. No 3-19000 (Feb. 15, 2019).  Without admitting or denying the allegations, the Company agreed to pay disgorgement and prejudgment interest of approximately $19 million and a civil monetary penalty of $6 million to the SEC to resolve the agency’s claims.  The same day, the Department of Justice (“DOJ”) issued a letter announcing that it had declined to prosecute the Company pursuant to the Department’s FCPA Corporate Enforcement Policy.  Finally, the DOJ announced that the Company’s former president and chief legal officer were indicted on criminal charges relating to their alleged involvement, and the SEC filed a civil complaint against the same two executives, in United States District Court for the District of New Jersey.

On January 7, 2019, the United States Court of Appeals for the Second Circuit affirmed — for the second time — the insider trading conviction of Rajat Gupta. Gupta v. United States, No. 15-2707 (2d Cir. Jan. 7, 2019). In a collateral attack to his conviction, Gupta argued that the jury instructions in his case were infirm given the Circuit’s decision in United States v. Newman (since abrogated). There, the Circuit held that to the extent a personal benefit may be inferred through a personal relationship between a tipper and tippee, there must be a “meaningfully close personal relationship.”¹ The Second Circuit denied Gupta’s appeal on two grounds — that his failure to preserve his objection to the jury instructions was not excused, and that the instructions did not prejudice Gupta.

On December 4, 2018, the United States Court of Appeals for the Second Circuit affirmed the insider trading conviction, judgment, and order of forfeiture of professional sports gambler Billy Walters, while simultaneously vacating and remanding the $8.89 million restitution order that had been entered against him in light of the Supreme Court’s decision in Lagos v. United States, 138 S. Ct. 1684 (2018).  U.S. v. Walters, et al., No. 17-2373 (2d Cir. Dec. 4, 2018).

On November 5, 2018, the Second Circuit Court of Appeals in a split decision vacated the insider trading conviction of a former Wall Street analyst and remanded the case back to the district court for a new trial. United States v. Stewart, 2018 U.S. App. LEXIS 31207 (2d Cir. Nov. 5, 2018). The analyst was charged with nine counts, including one count of conspiracy to commit securities fraud and tender offer fraud, one count of conspiracy to commit wire fraud, one count of tender offer fraud, and six counts of securities fraud. The trial took place in the U.S. District Court for the Southern District of New York from July 27, 2016, to August 9, 2016, and the analyst was convicted of all nine counts on August 17, 2016. On appeal, the Second Circuit held that the district court erred by excluding key impeachment evidence the defense had sought to introduce.

On August 27, 2018, a three-judge panel of the Second Circuit limited the extraterritorial application of the Foreign Corrupt Practices Act (“FCPA”), holding the statute does not apply to foreign nationals who commit crimes outside the U.S. and who lack sufficient ties to U.S. entities.  U.S. v. Hoskins, No. 16-1010 (2d Cir. Aug. 24, 2018).   The panel largely upheld a decision by the United States District Court for the District of Connecticut, which concluded that the government could not evade the statute’s requirement that a foreign person had to act “while in the United States” by charging a retired British executive of a French multinational company with conspiring with persons in the United States to violate the FCPA.  The Court noted, however, that the government could still proceed on an alternative theory that the foreign person acted as an agent of those U.S. persons.

On July 31, 2018, the High Court of Justice of England and Wales, Queen’s Bench Division, rejected the United States (“U.S.”) government’s request to extradite a former FX trader and the former head of a bank’s foreign exchange (“forex”) cash trading for Europe, reversing a lower court ruling that had granted the request.  Scott v. Government of the United States of America [2018] EWHC 2021 (Admin).  The U.S. Department of Justice (“DOJ”) sought to extradite the trader to face ten counts of wire fraud and one count of conspiracy in the U.S. District Court for the Eastern District of New York for alleged forex-rigging.  The High Court found that extradition was not in the interest of justice, because most of the harm from the alleged crimes was felt in the United Kingdom (“UK”) and because of the trader’s strong connection with the UK. 

On July 30, 2018, federal prosecutors moved to dismiss the sole remaining charge of securities fraud against former bond trader Jesse Litvak, ending a five-year criminal case during which Litvak was twice convicted after trials on securities fraud charges and both convictions were later overturned on appeal.  Although the government’s decision means there will not be a third trial, the government emphasized in its motion to dismiss the charges that the United States Court of Appeals for the Second Circuit had not accepted Litvak’s argument that the case was legally invalid.  See Government’s Motion to Dismiss Count Four, United States v. Litvak, No. 3:13-cr-00019 (D. Conn. July 30, 2018). 
 

​On May 3, 2018, a three-judge panel on the Second Circuit Court of Appeals (“Second Circuit”) vacated former bond trader Jesse Litvak’s conviction on one count of securities fraud, holding that the district court erred in admitting testimony from a counterparty concerning that counterparty’s mistaken understanding of Litvak’s role in the sale of residential mortgage-backed securities (“RMBS”) to it.  United States v. Litvak, No. 17-1464-cr (2d. Cir. May 3, 2018).  Litvak appealed his 2017 jury trial conviction on one count of securities fraud, arguing that his misstatements to the counterparty—which concerned the price at which Litvak had purchased the RMBS he subsequently sold to the counterparty—were immaterial to a reasonable investor.  Further, Litvak contended that the district court erred in admitting portions of testimony from the counterparty’s trader, who erroneously believed that Litvak was acting as the counterparty’s agent in the sale of the RMBS, rather than acting as principal.  While the Second Circuit held that a reasonable jury could have found that Litvak’s misstatements were material, it ruled that the district court materially erred in admitting testimony that suggested Litvak owed a fiduciary duty to his counterparty, and that the error was not harmless.  Accordingly, the panel vacated the conviction and remanded the case, yet again, to the district court. 

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On April 25, 2018, a jury in the United States District Court for the District of Connecticut acquitted a former trader at a major global banking and financial services company (the “Trader”) of conspiracy to commit commodities fraud.  United States v. Flotron, 3:17-cr-00220, Jury Verdict Form (D. Conn. April 25, 2018).  The U.S. Department of Justice (“DOJ”) also alleged that the Trader committed commodities fraud under 18 U.S.C. §§ 2 and 1348, and spoofing under 7 U.S.C. § 6c(a)(5)(C), but those charges were dismissed before trial on grounds of improper venue.  This trial was the first of its kind for criminal spoofing charges.  A civil case against the Trader, filed by the U.S. Commodity Futures Trading Commission (“CFTC”), remains pending.  See United States v. Flotron, 3:18-cv-00158, Complaint (D. Conn. Jan. 26, 2018).

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On April 2, 2018, the U.S. Department of Justice (“DOJ”) and Securities Exchange Commission (“SEC”) announced criminal and civil charges against two startup co-founders for allegedly defrauding and conspiring to defraud investors through the offer and sale of unregistered securities in an initial coin offering (“ICO”).  In separate complaints filed in federal court in the United States District Court for the Southern District of New York, both the DOJ and the SEC alleged that the company’s co-founders orchestrated an elaborate marketing campaign to solicit over $25 million in investments for their digital technology company, Centra Tech.  Complaint, SEC v. Sharma et al., No. 1:18-cv-02909 (S.D.N.Y. Apr. 2, 2018); Complaint, U.S. v. Sharma et al., 18-MAG-2695.  The two men each face four criminal charges of commission and conspiracy to commit securities and wire fraud, as well as permanent injunctions and civil penalties for violating various anti-fraud and registration provisions of the Securities Act of 1933 and Securities Exchange Act of 1934.
 

On February 7, 2018, Dutch bank Rabobank’s U.S. subsidiary pleaded guilty to conspiring to impair, impede, and obstruct a review by the Office of the Comptroller of the Currency (“OCC”) of the bank’s anti-money laundering (“AML”) program, agreeing to forfeit more than $368 million as a result.  See United States v. Rabobank, National Association, 18-cr-0614, Plea Agreement (Feb. 7, 2018); DOJ Press Release, Rababank NA Pleads Guilty, Agrees to Pay Over $360 Million, No. 18-148 (Feb. 7, 2018).

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​On January 29, 2018, the U.S. Department of Justice (“DOJ”) and U.S. Commodity Futures Trading Commission (“CFTC”) announced settlements with three international financial institutions to resolve claims that traders at those institutions placed false bids to manipulate the precious metals markets, a process referred to as “spoofing.”  Separately, the DOJ filed criminal charges, and the CFTC filed civil complaints, against seven individual traders alleged to have engaged in spoofing, and the owner of a software company alleged to have built a program that was designed to enable the practice. 

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On January 22, 2018, the SEC announced civil charges against six certified public accountants for their role in an alleged scheme to misappropriate confidential information from the Public Company Accounting Oversight Board (“PCAOB”) relating to the PCAOB’s planned inspections of an accounting firm, so that the firm could use the confidential information to help it avoid poor inspections.  Press Release 2018-6, SEC, Six Accountants Charged with Using Leaked Confidential PCAOB Data (Jan. 22, 2018).  On the same day, the United States Attorney’s Office for the Southern District of New York (“USAO”) announced the unsealing of an indictment charging five of the six defendants in the SEC action with conspiracy and wire fraud for their participation in the alleged scheme.  Press Release, DOJ, Five Former KPMG Executives and PCAOB Employees Charged in Manhattan Federal Court (Jan. 23, 2018).  The sixth SEC defendant had previously pleaded guilty (and had agreed to settle the SEC’s claims) and is cooperating with the government’s investigation.

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On January 18, 2018, HSBC Holdings Plc (“HSBC”) entered into a deferred prosecution agreement with the Department of Justice, Criminal Division, Fraud Section (“DOJ”) pursuant to which it will pay $101.5 million in criminal penalties and disgorgement to resolve two counts of wire fraud under 18 U.S.C. § 1343.  Deferred Prosecution Agreement, United States v. HSBC Holdings Plc, No. 1:18-cr-00030 (E.D.N.Y. 2018), ECF No. 3-2.  The charges arose out of two transactions in 2011 where HSBC foreign exchange (“FX”) traders allegedly engaged in “front-running,” or trading ahead of a client’s trade, to manipulate the price of currency. 

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​On October 23, 2017, following a four-week trial in the United States District Court for the Eastern District of New York, Mark Johnson, the former head of a foreign exchange (“forex”) trading desk for a major financial institution, was convicted of eight counts of wire fraud under 18 U.S.C. §1343 and one count of conspiracy under 18 U.S.C. §1349 for manipulating the price of foreign currency for his employer’s profit at the expense of his client. U.S. v. Johnson, No. 1:16-cr-00457 (E.D.N.Y. filed July 19, 2016).  This was the first individual conviction to arise out of the government’s multi-year investigation into the forex market.

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On October 10, 2017, the Commodity Futures Trading Commission (“CFTC”) filed and settled charges against Arab Global Commodities DMCC (“AGC”), a proprietary trading firm headquartered in Dubai.  Specifically, the CFTC found that one of AGC’s traders had engaged in a market manipulation practice known as spoofing in violation of Section 4c(a)(5)(C) of the Commodity Exchange Act (“CEA”), and that AGC had failed to “implement adequate policies and procedures to monitor” its employees’ trades for potential spoofing.  In the Matter of Arab Global Commodities DMCC, CFTC No. 18-01, 2017 WL 4511098 (Oct., 10, 2017) (“Order”). AGC consented to the Order and agreed to pay a penalty of $300,000 plus post-judgment interest, without admitting or denying the Order’s findings.

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On July 19, 2017, the United States Court of Appeals for the Second Circuit overturned the convictions of Anthony Allen and Anthony Conti, former traders at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (“Rabobank”) who played roles in Rabobank’s London Interbank Offered Rate (“LIBOR”) submission process.  United States v. Allen, et al., No. 16-939.  The Second Circuit held that each defendant’s Fifth Amendment right against self-incrimination had been violated because the indictments and convictions were obtained in part based on their own testimony, which had been obtained involuntarily (though lawfully) when they were compelled to testify in a separate investigation conducted by the financial regulator in the United Kingdom.  Id. at 80.  Even though the government did not use Allen’s and Conti’s compelled testimony directly against them, either in the grand jury testimony or at trial, one of the government’s key witnesses had seen their compelled testimony; and the Second Circuit concluded that the government could not demonstrate, under Kastigar v. United States, 406 U.S. 441 (1972), that his testimony was not tainted or that the use of his testimony was harmless.  The Second Circuit’s decision in Allen will create numerous and wide-ranging potential pitfalls for U.S. prosecutors, who increasingly find themselves investigating potential crimes across borders and in conjunction with foreign criminal and regulatory authorities, many of whom allow for compulsory witness statements.

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​On June 30, 2017, the Department of Justice (“DOJ”) announced that it had declined to bring charges against and was closing its investigation into CDM Smith Inc. (“CDM”), a Boston-based engineering and construction group, for alleged FCPA offenses in India in light of CDM’s cooperation and agreement to disgorge the more than $4 million in profits that the DOJ asserted had been made from illegal conduct.  Letter from Nicola J. Mrazek, Senior Litigation Counsel, U.S. Dep’t of Justice, Criminal Div., Fraud Section to Nathaniel B. Edmonds, Paul Hastings LLP (counsel to CDM), dated June 21, 2017.  CDM had self-reported to the DOJ that certain employees in India had paid $1.2 million in bribes to officials at the National Highways Authority of India (“NHAI”) to win contracts for highway construction and design work and a water project.  The declination with disgorgement was the seventh declination and the fourth declination with disgorgement reached as part of the government’s FCPA Pilot Program, which it unveiled in 2016 to encourage companies to self-report overseas corruption schemes.  Shearman & Sterling LLP, Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act (July 5, 2017).

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On Thursday, June 15, 2017, a Connecticut federal jury delivered a mostly defendant-friendly verdict in the criminal trial of three residential mortgage-backed securities (“RMBS”) traders charged with conspiracy, securities fraud, and wire fraud.  United States v. Shapiro et al., 3:15-cr-00155, Verdict Form (D. Conn. June 15, 2017).  This case is one of a slew of recent actions brought by the DOJ and SEC as part of a federal crackdown on allegedly deceptive bond trading practices, on which this newsletter has previously reported.

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On May 15, 2017, the Securities and Exchange Commission sued two commercial mortgage backed securities (“CMBS”) traders for securities fraud allegedly committed while buying and selling CMBS on behalf of a large broker-dealer during the course of their employment at the firm.  SEC v. Chan, S.D.N.Y, 1:17-cv-3605; SEC v Im, S.D.N.Y, 1:17-cv-3613.  These are the latest in a slew of recent lawsuits that have been brought by the SEC and DOJ as part of a federal crackdown on allegedly deceptive bond trading practices, but the DOJ is notably absent from this latest case.  

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On April 26, 2017, Judge Janet C. Hall of the United States District Court for the District of Connecticut sentenced Jesse Litvak, a former bond trader, to two years’ imprisonment, a $2 million fine, and three years’ probation after he was convicted in January 2017 of one count of securities fraud.  United States v. Litvak, D. Conn., 3:13-Cr-19, Sentencing Minutes (Apr. 26, 2017).  This sentence is the latest chapter in a multi-year saga for Jesse Litvak.  (See Shearman & Sterling LLP, Bond Trader Acquitted Of All But One Securities Fraud Charges In Retrial, Need-to-Know Litigation Weekly, January 1, 2017).

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On March 1, 2017, Judge P. Kevin Castel of the United States District Court for the Southern District of New York denied professional gambler William “Billy” Walters’ motion to dismiss his indictment on charges of insider trading.  Walters’ motion came after the U.S. Attorney’s Office for the Southern District of New York (“USAO”) disclosed that one of the lead case agents from the Federal Bureau of Investigation (“FBI”) had leaked sensitive information to the press during the course of the investigation.  Walters claimed that those leaks were part of a calculated effort to prejudice his case by jumpstarting a dormant investigation and that they were part of a broader pattern of outrageous government conduct by the USAO and the FBI playing “fast and loose” with obligations of grand jury secrecy in an effort to prejudice defendants.  While being highly critical of the FBI agent who leaked the information in question, Judge Castel nevertheless ruled that Walters could not demonstrate substantial prejudice, or that the government’s conduct reached a “demonstrable level of outrageousness” that warranted dismissal of the indictment.  Accordingly, Walters must now face trial.  United States v. Walters, No. 16-cr-00338-PKC, slip op. at 18 (S.D.N.Y. Mar. 1, 2017).

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On January 27, 2017, a federal jury in New Haven, Connecticut found former bond trader Jesse Litvak not guilty on all but one of ten charged securities fraud counts.  United States v. Litvak, D. Conn., 3:13-Cr-19, Jury Verdict (Jan. 27, 2017).  This case was a re-trial, after a jury’s earlier verdict—finding Litvak guilty of all counts—was reversed and vacated.  United States v. Litvak, 30 F. Supp. 3d 143 (D. Conn. 2014), rev’d in part, vacated in part, 808 F.3d 160 (2d Cir. 2015).  As discussed below, the verdict was a sound defeat for the Government’s particular theory of fraud in the retail bond markets, which the defense vigorously challenged at both trials.

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On December 29, 2016, the Department of Justice (“DOJ”) announced that it had reached final resolutions with banks that have met the requirements of the Department’s Swiss Bank Program (the “Program”).  Announced in August 2013, the Program provided a path for Swiss banks to resolve potential criminal liabilities in the United States and to participate in the Department’s ongoing investigations of tax evasion by U.S. taxpayers.  Press Release, DOJ, Justice Department Reaches Final Resolutions Under Swiss Bank Program, Dec. 29, 2016 (“DOJ Press Release”). 

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On December 21, 2016, Odebrecht S.A. (“Odebrecht”), a global construction conglomerate based in Brazil, and its affiliate Braskem S.A. (“Braskem”), a Brazilian petrochemical company, pleaded guilty to conspiring to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”).  The resolution of the actions shattered records for corruption settlements, as the companies agreed to pay a combined total penalty of $3.5 billion to resolve bribery charges in the United States, Brazil, and Switzerland arising out of schemes to pay hundreds of millions of dollars in bribes to government officials around the world, including Petrobras, the Brazilian state-owned oil company.  Plea Agreement, United States v. Odebrecht S.A., No. 1:16-cr-643 (E.D.N.Y. Dec. 21, 2016); Plea Agreement, United States v. Braskem S.A., No. 16-cr-644 (E.D.N.Y. Dec. 21, 2016).  

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On December 22, 2016, Teva Pharmaceutical Industries Limited (“Teva”) settled parallel civil and criminal actions brought by the United States Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”).  Press Release, DOJ, Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges, Dec. 22, 2016.  The DOJ and SEC alleged that Teva violated the Foreign Corrupt Practices Act (“FCPA”) and reaped $214 million in profits by making illicit payments to government officials in Russia, Ukraine, and Mexico to increase its market share, receive regulatory and formulary approvals, and obtain favorable drug purchase and prescription decisions.  Complaint, SEC v. Teva Pharmaceutical Indus. Ltd., No. 1:16-cv-25298 (S.D.N.Y. Dec. 22, 2016), ECF No. 1.  Under the terms of the settlement, which was the fourth largest FCPA settlement ever, Teva agreed to pay a $283 million criminal fine to the DOJ and $236 million in disgorgement and prejudgment interest to the SEC, for a total of $519 million.  Teva also entered into a three-year deferred prosecution agreement with the DOJ that requires the company to retain an independent monitor, and Teva’s Russian subsidiary, Teva LLC, entered a guilty plea to a one-count criminal information. 

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On December 12, 2016, the Supreme Court of the United States unanimously affirmed the conviction of Lawrence Shaw under Section 1 of the Bank Fraud Act of 1984, 18 U.S.C. § 1344(1), holding that a defendant can be guilty of bank fraud even where the defendant intends only to defraud a bank’s customer, and not the bank itself.  Shaw v. United States, No. 15-5991, 580 U.S. __ (Dec. 12, 2016).  While the holding was an entirely unsurprising result, it reaffirmed that the bank fraud statute (like the mail and wire fraud statutes) is interpreted broadly — a position also supported by the Ninth Circuit’s previous decision in Shaw’s case.  United States v. Shaw, 781 F.3d 1130 (9th Cir. 2015), cert. granted, 136 S. Ct. 1711, 194 L. Ed. 2d 809 (2016), and vacated, No. 15-5991, 2016 WL 7182235 (U.S. Dec. 12, 2016).

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On August 15, 2016, the United States Court of Appeals for the Second Circuit reversed the district court’s judgment of acquittal for Kristofor Lange on venue grounds.  See U.S. v. Lange, No. 14-2442-cr, slip op. at 2 (2d Cir. Aug. 15, 2016).  Lange had been convicted of securities fraud and conspiracy to commit wire fraud after a jury trial.  The Court held that venue was in fact proper in the Eastern District of New York because individuals targeted by Lange’s scheme had received phone calls in the district and because it was foreseeable to Lange that calls would be made to individuals located there.  

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On August 10, 2016, the Securities and Exchange Commission (“SEC”) instituted a settled administrative proceeding against a building products distributor.  The allegations focused on the distributor’s use of severance agreements that required outgoing employees to forego their ability to recover monetary rewards under various whistleblower statutes.  In the Matter of BlueLinx Holdings, Inc., Admin. Proc. File no. 3-17371 (Aug. 10, 2016).  Six days later, the SEC instituted another settled administrative proceeding that raised similar allegations regarding the use of such severance agreements; this time, involving a health insurance provider.  In the Matter of Health Net, Inc., Admin. Proc. File No. 3-17396 (Aug. 16, 2016).  The details of both settlements are set forth below:

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On July 11, 2016, the Securities and Exchange Commission (“SEC”) announced that Johnson Controls, Inc. (“Johnson Controls”), a Wisconsin-headquartered global provider of automatic temperature control systems, had agreed to pay $14.3 million to settle alleged violations of the Foreign Corrupt Practices Act (“FCPA”).  In the Matter of Johnson Controls, Inc., Admin. Proc. No. 3-17337 (July 11, 2016) (order instituting proceedings).  Although Johnson Controls reportedly self-disclosed the violations, cooperated extensively with the SEC and Department of Justice (DOJ), identified individuals associated with the misconduct, and engaged in robust remediation, the company nevertheless was required to pay a civil money penalty in addition to disgorging the profits it reaped as a result of the scheme.  The DOJ agreed to issue a declination, but the SEC took a harder line.

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On June 27, 2016, the Supreme Court unanimously overturned the 2014 conviction of former Virginia Governor Robert McDonnell.  McDonnell v. United States, No. 15-474, 2016 WL 3461561 (June 27, 2016).  A jury had convicted McDonnell on charges related to accepting things of value in exchange for performing “official acts,” but the Court defined “official act” narrowly and required that such an act “involve a formal exercise of governmental power.”  Since the district court’s jury instruction appeared to define an official act more broadly, the Court held that the jury may have convicted McDonnell without finding that he had committed an official act, and vacated McDonnell’s conviction. 

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We are now halfway into 2016. After a few relatively slow years, it appears that 2016 may reflect a return to more active FCPA enforcement as, in the last six months, the two U.S. enforcement agencies, the DOJ and the SEC, have collectively brought as many cases as they did in the entire year of 2015 and more than in the two preceding years. What is interesting, however, is that, although some of the cases involved household corporate names, the penalties were relatively low—with the exception of the VimpelCom case— and the patterns of corruption, albeit with some exceptions, fairly mundane. More controversial have been some of the policy changes announced by the DOJ, placing a premium on voluntary disclosure and cooperation, including overtly and mandatorily “throwing employees under the bus” in exchange for allegedly deeper discounts on penalties and other forms of leniency. 

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On June 13, 2016, United States District Judge Susan D. Wigenton denied the defense’s motions to dismiss charges arising out of the so-called “Bridgegate” scandal.  United States v. Baroni, No. 15-cr-193, slip op. at 1 (D.N.J. June 13, 2016).  

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On June 7, 2016, for only the second time in SEC history, the Commission announced non-prosecution agreements in a settlement of FCPA enforcement actions. As a result of the settlements, Akamai Technologies (Akamai) and Nortek Inc. (Nortek) will forfeit ill-gotten gains connected to bribes paid to Chinese officials by foreign subsidiaries. As a part of the settlements, Akamai will pay $652,452 in disgorgement plus $19,433 in interest and Nortek will pay $291,403 in disgorgement plus $30,655 in interest. Neither company, however, will pay monetary penalties because of the cooperation extended to the Commission in connection with the settlements.

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When a Second Circuit panel in December 2014 reversed the convictions of two portfolio managers in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), many believed that the decision, which held that to be liable for insider trading a tippee must know that a tipper made a gift of inside information or disclosed it in exchange for a personal benefit, would make it more difficult to convict “remote tippees,” or tippees multiple steps removed from the source of the tip, of insider trading.  Criminal and civil actions brought last week against former Dean Foods CEO Thomas Davis and gambler William Walters, which included a civil claim against golfer Phil Mickelson as a “relief defendant,” suggest that the DOJ and SEC are reluctant to charge a remote tippee absent concrete evidence that the tippee knew the circumstances of the tip, but that the SEC may be pursuing a new enforcement strategy that nevertheless aims to force remote tippees to disgorge their profits. 

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On May 6, 2016, Appellant Bassam Salman filed his opening brief with the Supreme Court in Salman v. United States, a closely-watched appeal of an insider trading conviction that has the potential to resolve ongoing ambiguity in insider trading law, especially prevalent since the Second Circuit’s December 2014 decision in United States v. Newman, 773 F.3d 438, over when a remote tippee can be convicted of insider trading. 

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On May 10, Deputy Attorney General Sally Yates spoke out in defense of the so-called “Yates Memo,” a policy statement she issued in September 2015 that announced new policies intended to enhance the Department of Justice’s (“DOJ”) ability to identify and prosecute culpable individuals at all levels in corporate cases. In remarks at the New York City Bar Association White Collar Crime Conference, Yates defended these policies, which largely direct civil and criminal government attorneys to focus on collecting evidence in corporate cases that will lead to the prosecution of individuals, against what she described as predictions of many legal commentators that the policies will cause a “cascading cavalcade of terribles.”

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On May 4, in United States v. Tagliaferri, No. 15-536, ---F.3d---, 2016 WL 2342677 (2d Cir. May 4, 2016), a Second Circuit panel affirmed the conviction of an investment advisor for violating Section 206 of the Investment Advisers Act of 1940, holding that Section 206 requires proof only that an adviser intended to deceive a client, and not necessarily that the adviser intended to harm the client.  Much like the Second Circuit did earlier this year in United States v. Litvak, 808 F.3d 160 (2d Cir. 2015), the Court focused on the nature of the defendant’s deception and not its outcome.  In so holding, the panel clarified that prosecutors have a relatively low bar for obtaining convictions under Section 206.

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