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Government Enforcement Exposed - "The GEE"
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05 Nov 2015 “Hide No Harm Act Of 2015” Targets Employers, Directors and Officers

The 114th Congress has now taken up the policy recently announced by the Department of Justice (DOJ) through the Yates Memo. The Hide No Harm Act (S.2140) would impose criminal penalties upon corporate officers who fail to advise an appropriate federal agency of “serious danger associated with a product, service or business practice.” Corporate officers who fail to notify an appropriate agency of the federal government regarding any serious danger associated with a covered product, service or business practice within twenty-four hours of the individual receiving notice of such dangers could be punished by a fine and imprisonment for up to five (5) years. A fine imposed upon an individual for violating the Act “may not be paid, directly or indirectly, out of the assets…

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27 Oct 2015 Update from the Coscia Trial

Yesterday, the United States began its prosecution of Michael Coscia of Panther Energy Trading LLC for allegedly engaging in “the crime of spoofing,” as prosecutors framed it. We have blogged about this case before (here and here) and discussed it in the media in the following outlets: Bloomberg News, Wall Street Journal Law Blog, Crain’s Chicago Business and the Chicago Tribune.   In his opening statement, Assistant United States Attorney Renato Mariotti tried to make high frequency trading rudimentary, understandable, and impactful for the jurors. He used very basic analogies and explanations, in order to build a simple case. According to Mariotti, Coscia manipulated markets by using two trading programs—“Flash Trader” and “Quote Trader”—to make it appear there was more supply or demand in the…

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08 Oct 2015 Regulation S-P Violation: Are You Prepared For A Cyber-Security Breach?

On Sept. 22, 2015, the Securities and Exchange Commission (SEC) announced the first violation by a registered investment advisor of the so-called Safeguards Rule (Regulation S-P) pertaining to the protection of personally identifiable information from cyber-attack.  This is the first instance of the SEC enforcing Regulation S-P against an investment advisor.   The Regulation, broadly speaking, requires broker-dealers, investment advisers and other financial firms to protect confidential customer information from unauthorized release to unaffiliated third parties. Included in Regulation S-P is the “Safeguard Rule” (Rule 30(a)), which requires financial institutions to, among other things, adopt written policies and procedures reasonably designed to protect customer information against cyber-attacks.  This raises the question:  Are you prepared for a cyber-attack (and the attendant liability)?   In its findings,…

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05 Oct 2015 REST IN PEACE, NEWMAN – SO WILL THE GOVERNMENT LAY DOWN IN SALMAN?

This morning, the U.S. Supreme Court finally put to an end to the government’s efforts to reverse the Second Circuit’s decision in United States v. Newman. As this blog predicted it might (August 11, 2015), the Supreme Court denied the government’s petition for writ of certiorari. As a result, the Second Circuit’s decision vacating the convictions of Newman and Chiasson stands. As is the court’s custom, it did not explain its decision.   As a result, if the government was not being hyperbolic in its petition for certiorari, the Second Circuit – home to most of the insider trading prosecutions in the country – has raised the bar for insider trading prosecutions higher than any other circuit in the country, created a standard that conflicts…

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28 Sep 2015 INSIDER TRADING AND ADMINISTRATIVE COURTS – MORE ON TWO HOT TOPICS THAT HAVE NOW CONVERGED

Since this blog began in January 2014, several topics have garnered substantial ink. These include: (1) the SEC’s apparent growing preference for litigating contested cases on their home turf, administratively, rather than in federal court. (June 19, 2014, July 10, 2014, May 26, 2015, May 22, 2015); and (2) the difficulties the government (both the SEC and DOJ) have encountered bringing insider trading cases and, in particular, the continuing saga of United States v. Newman, in which the DOJ’s petition for writ of certiorari is now pending before the United States Supreme Court. Both these issues continue to generate news, and they even converged recently.   SEC’s Administrative Law Courts   On the administrative court front, the SEC has been criticized repeatedly about the potential…

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11 Sep 2015 JUSTICE DEPARTMENT POLICY CHANGE TARGETS CORPORATE EXECUTIVES

In a memo dated Sept. 9, 2015, the Justice Department announced that it will take the fight against corporate wrongdoing directly into the boardrooms and offices of businesses. Long stung by criticism that it has coddled corporate executives, the department’s new policies evidence a change in direction, one aimed squarely at individuals involved in corporate fraud and misconduct.   The memo, authored by Deputy Attorney General Sally Yates, applies this “new” guidance to both criminal and civil matters. In doing so, the department focuses on the notion that “one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.” In making this policy adjustment, the memo identifies four principal goals: (1) deterring future illegal activity;…

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12 Aug 2015 What the DOJ Expects of ‘Effective’ Compliance Programs

If you have been keeping up with current U.S. Department of Justice (DOJ) antitrust investigations, you have no doubt noticed the hefty criminal fines that have been paid by violators of U.S. antitrust laws. In recent years, the United States government has literally collected billions of dollars in criminal fines. In light of the staggering fines, one important factor that antitrust practitioners should consider is the DOJ’s evaluation of a company’s compliance and ethics program. In theory, a company that pleads guilty to antitrust violations may be afforded a reduction in its culpability score if it can demonstrate that there was a compliance and ethics program in place at the time of the violation, and that the program was “effective” as defined by the U.S….

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11 Aug 2015 WHY NEWMAN MIGHT NOT BE HEADED TO THE SUPREME COURT

In the latest chapter of the United States v. Newman insider trading case, the Solicitor General recently filed its petition for writ of certiorari, asking the United States Supreme Court to hear the case. While the court is unlikely to decide on the government’s petition until the end of the year, the government’s petition may have actually diminished the chances that the Supreme Court will take the case.   As we have discussed previously, April 29, 2014; Dec. 23, 2014; and March 9, 2015, the Second Circuit held last year that an insider trading conviction requires that: (1) an insider tipper act for a “personal benefit” of financial consideration, or something at least akin to monetary gain; and (2) the remote tippee know that the…

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03 Aug 2015 Partial Victory for Blagojevich: Seventh Circuit Concludes Criminal Statutes Do Not Prohibit “Logrolling”

In mid-July, the Seventh Circuit reversed five of former Illinois Governor Rod Blagojevich’s 18 felony convictions. The court’s ruling may not be of much help to Blagojevich – the court noted that his sentence remains below guidelines – but it does have significant implications for public officials who face federal prosecution for “logrolling,” or trading one public act for another.   In 2008, Blagojevich infamously sought to benefit from his power to appoint a successor to Barack Obama’s soon-to-be vacated Senate seat. The Seventh Circuit focused on the government’s claim that Blagojevich offered to appoint Obama advisor Valerie Jarrett to the Senate in return for, alternatively, a Cabinet appointment or help obtaining a private-sector job.   The court found a critical difference between these two…

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15 Jul 2015 NINTH CIRCUIT SLAPS BACK REMOTE TIPPEE’S NEWMAN DEFENSE

Last week, the Ninth Circuit, with opinion by Southern District of New York Judge Jed S. Rakoff, questioned how far remote tippee insider-trading defendants can stretch the Second Circuit’s Newman decision.   In United States v. Salman, the defendant appealed his conviction for conspiracy and insider trading, urging the court to find the evidence against him was insufficient under the Newman standard. The conviction arose from Salman’s trading on insider information through family connections. Salman’s future brother-in-law, Maher Kara, worked in a leading global bank’s healthcare investment banking group and shared insider information with his brother, Michael, who became Salman’s close friend and in turn shared that insider information with Salman. Michael urged Salman to “mirror-image” his trading, and Salman traded through a brokerage account…

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