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Government Enforcement Exposed - "The GEE"
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10 Jul 2014 New Administrative Law Judges at the SEC

  On June 30, 2014, Reuters reported that the SEC will be adding 2 new administrative law judges and three new lawyers to the administrative law staff — bringing the total number of judges to 5 and doubling the size of the clerk pool serving those judges. According to the Reuters article, the new judges were needed to “meet growing demand since the 2010 Dodd-Frank Wall Street reform law,” which gave the SEC new authority to impose civil penalties in traditional cease-and-desist administrative proceedings.  As far as that analysis goes, it makes sense — but is that really what is going on? There are at least two alternative motives: (i) the SEC is seeking a friendlier forum for certain insider-trading cases, as its record has…

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03 Jul 2014 Your Cell Phone – Riley v. California & the Post-Digital Privacy Era

  On June 25, 2014, a unanimous Supreme Court decided the case of Riley v. California, and in doing so, thrust the legal world into the post-digital privacy era. The Court held that the police may not search for and seize the digital contents of an individual’s cell phone or personal electronic device, incident to an arrest, without first obtaining a search warrant authorizing them to do so. The Court did, notably, carve out a possible exception to the warrant requirement when an “emergency” or “exigent circumstances” exist. Situations where evidence is about to be destroyed or a bomb about to be set off, may present a sufficiently heightened set of circumstances allowing the warrant requirement to be waived. This holding provides law enforcement officials across the country with guidance on how to…

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30 Jun 2014 Six Things SEC Chair White Wants Directors to Know About How to Avoid Being on the Receiving End of an Enforcement Action

  After SEC Chair Mary Jo White announced last fall that the SEC’s enforcement program included a new focus “deficient gatekeepers,” such as directors,  and the SEC filed two separate cases against audit committee chairs in March (case 1 and case 2), directors of public companies could be forgiven for feeling as if they had targets on their backs.   Nevertheless, White told those attending the annual Stanford Directors’ College earlier this month that that focus and those recent cases “should not strike fear in the heart of a conscientious, diligent director.”  She then proceeded to outline what a director can do to qualify in the SEC’s eyes as one of those conscientious, diligent directors.   Make sure that the board and the CEO set the tone at…

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19 Jun 2014 IS THE SEC POISED TO BRING MORE ADMINISTRATIVE ENFORCEMENT ACTIONS IN WAKE OF INSIDER TRADING TRIAL COURT LOSSES?

  In recent remarks, SEC Enforcement Director Andrew Ceresney said the SEC may pursue more insider trading actions administratively. The statements came in the wake of several recent trial losses by the FCC in insider trading cases.   Insider trading administrative proceedings have been rare, but the 2010 Dodd-Frank Act enhanced the SEC’s administrative enforcement powers by allowing the SEC to obtain monetary penalties against individuals in administrative proceedings, making administrative actions against insider trading more attractive.   While Ceresney stressed that the trend towards more administrative enforcement proceedings was not in reaction to the SEC’s recent insider trading trial court losses, it signals a shift in venue that potentially could give the SEC procedural advantages, including expedited proceedings, discovery limitations and no option for…

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11 Jun 2014 REDUCING THE COST OF FCPA MONITORING

  FCPA settlements with the SEC and the DOJ increasingly require an offending company to allow an independent monitor to keep watch over internal compliance efforts for a specified period of time. Regulators admittedly see monitoring as a way to reduce recidivism of corporate crime and to protect the integrity of the market place. As many companies have come to learn though, this process can prove both intrusive and expensive. Indeed, at least one former DOJ official has acknowledged that fees for “runaway monitors” can exceed $50 million. There are, however, ways for companies to structure their monitoring relationships so as to minimize disruption and contain costs.   Negotiate a Cost-Effective Settlement Agreement   The settlement agreement is the guiding text for any effective monitorship….

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06 Jun 2014 BELATED VINDICATION FOR THE SEC’S (PRIOR) SETTLEMENT POLICY

In late 2011, Judge Jed Rakoff sent shockwaves through the securities enforcement bar and the SEC when he refused to approve the Commission’s settlement with Citigroup Global Markets in a settled action arising from Citigroup’s packaging and sale of residential mortgage backed securities in the early days of the financial meltdown. In a scathing decision, Judge Rakoff called the SEC’s settlement with Citigroup “worse than mindless” and “inherently dangerous” because the consent agreement included the SEC’s then-typical “no admit, no deny” provision, allowing Citigroup to pay about $285 million in disgorgement and penalties, without actually admitting it did anything wrong.  Wednesday, in a much-anticipated and long-delayed decision, the Second Circuit reversed Judge Rakoff.   When Judge Rakoff issued his decision, he was troubled by several…

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06 Jun 2014 Canadian Corruption of Foreign Officials Act Update: Three Takeaways from the Cryptometics Case

The Royal Canadian Mounted Police (the RCMP) recently announced charges against Robert Barra, Dario Bernini and Shailesh Govindra, three individuals connected with Cryptometrics Canada (Cryptometrics), a subsidiary of U.S.-based Cryptometrics Corporation (Cryptometrics USA), for violations of Section 3.1 of the Canadian Corruption of Foreign Officials Act (the CFPOA).  These charges relate to a failed scheme to bribe Indian officials to secure the award of a $100 million contract for facial recognition software, and come in the wake of the conviction and sentencing of Nazir Karigar, a Canadian citizen and former agent for Cryptometrics, for his involvement in the scheme.   The charges are significant for U.S. companies – particularly those doing business in Canada – for three reasons.   First, the charges were brought against…

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04 Jun 2014 “Gatekeepers” Beware: A New Tool of the SEC

  In a recent speech at Compliance Week 2014, the premier conference for corporate compliance officers and government regulators, Securities and Exchange Commissioner Kara M. Stein expressed disappointment in the lack of scrutiny and infrequency of enforcement cases brought against what she called the “gatekeepers” – i.e. compliance officers, accountants, auditors and—yes—attorneys.   In Stein’s opinion, failures by those tasked with maintaining and promoting corporate compliance have led to tragic financial losses that have harmed innocent individuals and threatened confidence in the markets. Stein targeted attorneys, stating they in particular are rarely prosecuted even though they are deeply entrenched in almost every decision and transaction a company makes. Stein argued that attorneys who facilitate fraud or provide poor legal advice are typically protected from liability…

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30 May 2014 Federal Appellate Court Adopts Broad Definition of “Instrumentality” as used in the Foreign Corrupt Practices Act

  In a ground-breaking decision, the United States Court of Appeals for the Eleventh Circuit has defined “instrumentality” under the Foreign Corrupt Practices Act (FCPA). Until now no federal appellate court had weighed in on a definition of “instrumentality,” leaving individuals and entities only the government’s interpretation of the statute for guidance.  Not surprisingly, the government’s interpretation of what constitutes an “instrumentality” of the state for purposes of a bribe to one of its officials or employees included state-owned or state-controlled entities.[1]   The Eleventh Circuit’s decision in United States v. Esquenazi, No. 11-15331 (May 16, 2014), in large part adopted the government’s interpretation, defining an “instrumentality” as “an entity controlled by the government of a foreign country that performs a function the controlling government…

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28 May 2014 Dear Department of Justice: Welcome to the “Modern Age”

  On May 12, 2014, Deputy Attorney General James Cole issued a memo to federal prosecutors, as well as several investigative offices (the FBI, DEA, ATF and U.S. Marshals Service) entitled “Policy Concerning Electronic recording of Statements.” The issuance of the memo is somewhat worthy of note because it was done with no fanfare or announcement by the Department, at the time. It is more worthy of note because it reflects a dramatic change in a many decades-long policy of the Department not to electronically record in-custody interviews. Attorney General Holder has described the change as a “sweeping new policy” and the Department announced the “significant policy shift concerning electronic recording of statements” in a May 22, 2014, press release, after several published reports on the…

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