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Friday Roundup

By on December 14, 2018 in CHS, Colin Steven, Enforcement Agency Policy, FCPA Sentences, Neither Admit or Deny
Roundup

No jail time for Stevens, scrutiny alert, neither admit nor deny airball, Jorgensen to depart Walmart, scrutiny alert and ripple. It’s all here in the Friday roundup.

No Jail Time for Steven

Further to the randomness of FCPA sentences (see here for the prior post), former Embraer executive Colin Steven (who plead guilty to causing $1.5 million in bribe payments to be made by Embraer to a Saudi Official in connection with a $93 million sale as well as receiving approximately $130,000 in kickbacks) was recently sentenced to no jail time. (See here for coverage).

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Judge Rakoff Offers A Few Final Zingers

By on August 6, 2014 in Enforcement Agency Policy, Neither Admit or Deny, SEC

If you have not noticed by now, I admire Judge Jed Rakoff (S.D.N.Y.).

Although outside the Foreign Corrupt Practices Act context, FCPA Professor has covered from day one (see here and here) Judge Rakoff’s concerns about SEC settlement policy as expressed in SEC v. Citigroup.  As highlighted in this post, the Second Circuit recently rebuked Judge Rakoff for his refusal to sign off on the settlement and concluded that the SEC does not need to establish “the truth” of the allegations against a settling party as a condition for approving consent decrees because, in the words of the Court, “trials are primarily about truth” whereas “consent decrees are primarily about pragmatism.”

On remand and obligated to assess the SEC v. Citigroup settlement through the narrow prism the Second Circuit adopted, Judge Rakoff had little choice but to approve of the settlement.  However, in doing so in his opinion yesterday, Judge Rakoff offered a few final zingers as he wrote:

“Nonetheless, this Court fears that, as a result of the Court of Appeal’s decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever. But it would be a dereliction of duty for this Court to seek to evade the dictates of the Court of Appeals. That Court has now fixed the menu, leaving this Court with nothing but sour grapes.”

In the prior post highlighting the Second Circuit’s decision, I noted that the most troubling aspect of the decision is the statement that if the “S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.”  As highlighted in my article “A Foreign Corrupt Practices Act Narrative,” in the FCPA context this is largely the path the SEC has chosen.  As noted,  in 2013 50% of SEC corporate FCPA enforcement actions were not subjected to one ounce of judicial scrutiny either because the actions were resolved via a non-prosecution agreement or administrative cease and desist orders.

On this issue, Judge Rakoff states in a footnote as follows.

“[T]he Court of Appeals invites the SEC to avoid even the extremely modest review it leaves to the district court by proceeding on a solely administrative basis. (“Finally, we note that to the extent that the S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.” ). One might wonder: from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”

As to this last point, see also this recent Wall Street Journal opinion piece by Russell Ryan ((King & Spalding and previously an Assistant Director of the SEC Enforcement Division).

“[A]  surge in administrative [SEC] prosecutions should alarm anyone who values jury trials, due process and the constitutional separation of powers. The SEC often prefers to avoid judicial oversight and exploit the convenience of punishing alleged lawbreakers by administrative means, but doing so is unconstitutional. And if courts allow the SEC to get away with it, other executive-branch agencies are sure to follow. […]  On its website, the SEC accurately describes itself as “first and foremost” a law-enforcement agency. As such, the agency should play no role in deciding guilt and meting out punishment against the people it prosecutes. Those roles should be reserved for juries and life-tenured judges appointed under Article III of the Constitution. Today’s model of penal SEC law enforcement is categorically unsuited for rushed and truncated administrative hearings in which the agency and its own employees serve as prosecutor, judge and punisher. Such administrative prosecution has no place in a constitutional system based on checks and balances, separation of powers and due process.”

*****

I also tipped my hat to Judge Rakoff in this November 2013 post for his speech “Why Have No High Level Executives Been Prosecuted in Connection with the Financial Crisis?” As highlighted in the post, Judge Rakoff hit on many of the same general issues (outside the FCPA context) I discussed in my 2010 Senate FCPA testimony – namely the general lack of individual enforcement actions in connection with most corporate FCPA enforcement actions and how this dynamic (far from the “but nobody was charged” claim)  could best be explained by the quality and legitimacy of the corporate enforcement action in the first place given the prevalent use of non-prosecution and deferred prosecution agreements to resolve corporate FCPA enforcement actions.  As highlighted in the post, in answering his own question, Judge Rakoff offered that “one possibility … is that no fraud was committed.  This possibility should not be discounted.”

“Friday” Roundup

By on July 3, 2014 in China, FCPA Statistics, James Ruehlen, Mark Jackson, Neither Admit or Deny, Serious Fraud Office, U.K. Bribery Act

On the brink of trial, statistics of note, the over-hyped U.K. Bribery Act turns 3, say what?, and for the reading stack.  It’s all here in a special Thursday edition of the Friday roundup.

On The Brink of Trial

This February 2012 post highlighting the SEC’s enforcement action against Mark Jackson and James Ruehlen (a former and current executive of Noble Corp. respectively) asked – “will the SEC be put to its burden of proof.”  Among other things, the post noted that the SEC has never prevailed in an FCPA enforcement action when put to its burden of proof.

With the passage of time, the SEC’s case against the defendants was consistently trimmed as the SEC attempted to meet its burden (see this post as well as here).  Among other things, a portion of the SEC’s claims were dismissed or abandoned on statute of limitations grounds and the trial court judge ruled, in an issue of first impression, that the SEC has the burden of negating the FCPA’s facilitation payments exception.

On the brink of the SEC’s first-ever FCPA trial (trial was scheduled to begin next week), the parties have agreed to settle.

Without admitting or denying the SEC’s allegations, Jackson consented to a final judgment permanently restraining and enjoining him from violating the FCPA’s books and records provisions.  Jackson was represented by, among others, David Krakoff (Buckley Sandler).  In a release, Krakoff stated:

“We are very pleased with today’s settlement.  It resolves allegations that have hung over Mr. Jackson for many years without any admission of liability, without any payment of money and without any restriction on Mr. Jackson’s future employment opportunities.  Mr. Jackson can now move forward with his life and career.”

Without admitting or denying the SEC’s allegations, Ruehlen consented to a final judgment permanently restraining and enjoining him from aiding and abetting FCPA books and records violations.  Ruehlen was represented by, among others, Joseph Warin and Nicola Hanna (Gibson Dunn).  In a release, Warin stated:

“We are very pleased with yesterday’s settlement.  Mr. Ruehlen is an exemplary and dedicated employee who first brought the allegations to light and fully cooperated with the SEC’s investigation.  While we were looking forward to presenting our case to a jury, the settlement of one record-keeping claim – without any admission of liability or wrongdoing, monetary penalty, or restriction on Mr. Ruehlen’s employment – satisfactorily ends the matter and allows Jim to focus his energies on his work for Noble.”

In neither consent is Jackson or Ruehlen required to pay any civil fine.

Score this one as you see fit, but my take is that this case represents yet another SEC failure in an FCPA enforcement action when put to its burden of proof.  As the Second Circuit recently recognized, SEC neither admit nor deny settlements are not about the truth, but pragmatism.

Statistics of Note

EY recently released its 13th annual Global Fraud survey (the results were based on interviews with more than 2,700 executives across 59 countries).  Statistics of note include the following.

“Despite the aggressive enforcement environment, our research suggests that the percentage of companies that have anti-bribery/anticorruption (ABAC) policies has increased by only 1% over the past two years, and a persistent minority has yet to take even the basic steps toward an effective compliance program.  One in five businesses still does not have an ABAC policy.  Less than 50% of respondents have attended ABAC training.  There has been a reduction in the level of reporting on compliance issues to boards.”

“The survey results show that executives in different roles have a differing view of the level of risk.  27% of chief compliance officers (CCOs) believe bribery and corrupt practices happen widely in their country versus 38% of all respondents — so they appear to have a more optimistic view than their colleagues.  18% of sales and marketing executives believe it is common practice to use bribery to win contracts in their sector versus 12% of all respondents — so they appear to have a more pessimistic view than their colleagues.”

“Additionally, the survey results suggest that compliance efforts may not always be targeting the right risks in the most effective way.  Less than a third of businesses are always or very frequently conducting anti-corruption due diligence as part of their mergers and acquisitions process.  45% of organizations are not mitigating risks by introducing a whistleblower hotline.  ABAC training is less likely to occur in jurisdictions where there is a higher perceived risk of bribery. Sales and marketing executives are the least likely of all our respondents to be included in risk assessments — despite being exposed to and aware of significant risks.  ABAC training, for example, is more likely to be attended by executives in mature markets, where corruption is perceived to be lower, than in higher-risk emerging markets. Of the survey population, 58% of respondents in developed markets had received ABAC training, compared with just 40% in emerging markets.”

Consistent with the observation in this recent post, these survey results again ought to prompt questions whether the current approach to enforcement – as well as enforcement policy – are effective.

Bribery Act Turns 3

The U.K. Bribery Act, a massively over-hyped law when it was being proposed and went live, has turned three.  On the day it went live, I offered the following two cents.

“As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.”

Indeed, there has yet to be an “FCPA-like” Bribery Act enforcement action.  This troubles Transparency International – see here.

Say What?

Speaking of the Bribery Act, this is from “The Lawyer” regarding corruption allegations at FIFA and the ability of the U.K. Serious Fraud Office to bring an enforcement action against FIFA sponsors.

“Section 7 [of the U.K. Bribery Act] is entitled “Failure of commercial organisations to prevent bribery”. Its reach is as global as the World Cup. The fact that Fifa is a Zurich-based NGO does not mean it’s offside. Similarly for the sponsors so long as some aspect of their business is carried out in the UK. A single sale of an Adidas football boot via a Visa credit card is sufficient for David Green [Director of the SFO] to apply to the courts for search warrants in order to unleash dawn raids on their UK HQs.”

Regarding the italicized portion … say what?

For the Reading Stack

See here for the always informative Debevoise & Plimpton FCPA Update.  Regarding the Second Circuit’s recent decision in SEC v. Citigroup, the Update states:

“For companies subject to the SEC’s authority to enforce the FCPA, the Second Circuit’s decision in the Citi matter provides some comfort that a corporate resolution requiring judicial approval, once achieved, should be subject to appropriate deference when it comes before a district court for review. At the same time, however, the decision also reinforces the understanding that resolutions achieved by settlement, even if approved by a court, do not constitute legal precedent.”

An interesting read here from the BBC regarding “contemporary business culture” in China.

“Chinese workplaces are just as political as those anywhere else in the world, some would argue more so because the value placed on outward harmony in Chinese culture drives the rivalry underground. […]  The politics in a multinational’s China operation can be especially insidious when there’s a thin layer of western management attempting to operate according to principles which have limited purchase in the Chinese business culture beneath.”

Aboard the “bribery express” – from Eurasianet.

****

A Happy Independence Day to U.S. readers and a good weekend to all.

Second Circuit Concludes That SEC Settlements Are Not About The Truth, But Pragmatism

By on June 5, 2014 in Enforcement Agency Policy, Neither Admit or Deny, SEC

Although outside the Foreign Corrupt Practices Act context, these pages have covered from day one (see here and here) Judge Rakoff’s concerns about SEC settlement policy as expressed in SEC v. Citigroup.  As noted in this December 2011 post, Judge Rakoff refused to sign off on the settlement and in pertinent part stated:

“Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint.  But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.”

Judge Rakoff called the SEC’s long-standing resolution policy ”hallowed by history, but not by reason” and stated that the policy “deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.”  Judge Rakoff’s stated that the “SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”

Yesterday, the Second Circuit concluded (see here for the decision) that the SEC does not need to establish “the truth” of the allegations against a settling party as a condition for approving consent decrees because, in the words of the Court, “trials are primarily about truth” whereas “consent decrees are primarily about pragmatism.”  The Second Circuit’s rebuke of Judge Rakoff was hardly a surprise given the same court’s March 2012 procedural decision in the same case (see here for the prior post) in which it stated – as to SEC settlement policy – that “it is not … the proper function of federal courts to dictate policy to executive administrative agencies.”

In pertinent part, the Second Circuit concluded that “there is no basis in the law for the district court to require an admission of liability as a condition for approving a settlement between the parties. The decision to require an admission of liability before entering into a consent decree rests squarely with the S.E.C.”

Under the heading “scope of deference” the opinion states in pertinent part as follows (internal citations omitted).

“We turn, then, to the far thornier question of what deference the district court owes an agency seeking a consent decree. Our Court recognizes a “strong federal policy favoring the approval and enforcement of consent decrees.” “To be sure, when the district judge is presented with a proposed consent judgment, he is not merely a ‘rubber stamp.’”

The district court here found it was “required, even after giving substantial deference to the views of the administrative agency, to be satisfied that it is not being used as a tool to enforce an agreement that is unfair, unreasonable, inadequate, or in contravention of the public interest.” Other district courts in our Circuit view “[t]he role of the Court in reviewing and approving proposed consent judgments in S.E.C. enforcement actions [as] ’restricted to assessing whether the settlement is fair, reasonable and adequate within the limitations Congress has imposed on the S.E.C.to recover investor losses.’”

The “fair, reasonable, adequate and in the public interest” standard invoked by the district court finds its origins in a variety of cases. Our Court previously held, in the context of assessing a plan for distributing the proceeds of a proposed disgorgement order, that “once the district court satisfies itself that the distribution of proceeds in a proposed S.E.C. disgorgement plan is fair and reasonable, its review is at an end.” The Ninth Circuit— in circumstances similar to those presented here, a proposed consent decree aimed at settling an S.E.C. enforcement action—noted that “[u]nless a consent decree is unfair, inadequate, or unreasonable, it ought to be approved.”

Today we clarify that the proper standard for reviewing a proposed consent judgment involving an enforcement agency requires that the district court determine whether the proposed consent decree is fair and reasonable, with  the additional requirement that the “public interest would not be disserved,” in the event that the consent decree includes injunctive relief. Absent a substantial basis in the record for concluding that the proposed consent decree does not meet these requirements, the district court is required to enter the order.

We omit “adequacy” from the standard. Scrutinizing a proposed consent decree for “adequacy” appears borrowed from the review applied to class action settlements, and strikes us as particularly inapt in the context of a proposed S.E.C. consent decree.

The adequacy requirement makes perfect sense in the context of a class action settlement—a class action settlement typically precludes future claims, and a court is rightly concerned that the settlement achieved be adequate. By the same token, a consent decree does not pose the same concerns regarding adequacy—if there are potential plaintiffs with a private right of action, those plaintiffs are free to bring their own actions. If there is no private right of action, then the S.E.C. is the entity charged with representing the victims, and is politically liable if it fails to adequately perform its duties.

A court evaluating a proposed S.E.C. consent decree for fairness and reasonableness should, at a minimum, assess (1) the basic legality of the decree, (2) whether the terms of the decree, including its enforcement mechanism, are clear; (3) whether the consent decree reflects a resolution of the actual claims in the complaint; and (4) whether the consent decree is tainted by improper collusion or corruption of some kind.  Consent decrees vary, and depending on the decree a district court may need to make additional inquiry to ensure that the consent decree is fair and reasonable. The primary focus of the inquiry, however, should be on ensuring the consent decree is procedurally proper, using objective measures similar to the factors set out above, taking care not to infringe on the S.E.C.’s discretionary authority to settle on a particular set of terms.

It is an abuse of discretion to require, as the district court did here, that the S.E.C. establish the “truth” of the allegations against a settling party as a condition for approving the consent decrees. Trials are primarily about the truth. Consent decrees are primarily about pragmatism. “[C]onsent decrees are normally compromises in which the parties give up something they might have won in litigation and waive their rights to litigation.”

Thus, a consent decree “must be construed as . . . written, and not as it might have been written had the plaintiff established his factual claims and legal theories in litigation.” Consent decrees provide parties with a means to manage risk. “The numerous factors that affect a litigant’s decision whether to compromise a case or litigate it to the end include the value of the particular proposed compromise, the perceived likelihood of obtaining a still better settlement, the prospects of coming out better, or worse, after a full trial, and the resources that would need to be expended in the attempt.“  These assessments are uniquely for the litigants to make. It is not within the district court’s purview to demand “cold, hard, solid facts, established either by admissions or by trials,” as to the truth of the allegations in the complaint as a condition for approving a consent decree.

As part of its review, the district court will necessarily establish that a factual basis exists for the proposed decree. In many cases, setting out the colorable claims, supported by factual averments by the S.E.C., neither admitted nor denied by the wrongdoer, will suffice to allow the district court to conduct its  review. Other cases may require more of a showing, for example, if the district court’s initial review of the record raises a suspicion that the consent decree was entered into as a result of improper collusion between the S.E.C. and the settling party. We need not, and do not, delineate the precise contours of the factual basis required to obtain approval for each consent decree that may pass before the court. It is enough to state that the district court here, with the benefit of copious submissions by the parties, likely had a sufficient record before it on which to determine if the proposed decree was fair and reasonable.

[…]

The job of determining whether the proposed S.E.C. consent decree best serves the public interest, however, rests squarely with the S.E.C., and its decision merits significant deference.  [F]ederal judges—who have no constituency—have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: “Our Constitution vests such responsibilities in the public branches.”

[…]

To the extent the district court withheld approval of the consent decree on the ground that it believed the S.E.C. failed to bring the proper charges against Citigroup, that constituted an abuse of discretion.  […] The exclusive right to choose which charges to levy against a defendant rests with the S.E.C.

[…]

Finally, we note that to the extent that the S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead. The S.E.C. can also order the disgorgement of profits.  Admittedly, these remedies may not  be on par with the relief afforded by a so‐ordered consent decree and federal  court injunctions. But if the S.E.C. prefers to call upon the power of the courts in ordering a consent decree and issuing an injunction, then the S.E.C. must be willing to assure the court that the settlement proposed is fair and reasonable. “Consent decrees are a hybrid in the sense that they are at once both contracts and orders; they are construed largely as contracts, but are enforced as orders.”  For the courts to simply accept a proposed S.E.C. consent decree without any review would be a dereliction of the court’s duty to ensure the orders it enters are proper.”

*****

Judge Rakoff may have lost this case, but I agree with this New York Times article “that he had already secured a victory of sorts, having set in motion a series of events that swayed public opinion and influenced the S.E.C.’s broader enforcement agenda.”  For instance, the SEC’s revision to its long-standing neither admit nor deny settlement policy (see here) is largely attributable to Judge Rakoff.

For additional analysis of the Second Circuit’s decision, see here from Professor Peter Henning writing at the NY Times Dealbook, here from Professor Eric Gerding writing at the Conglomerate.

*****

In Gabelli v. SEC (see here for the prior post) a unanimous Supreme Court recognized that the SEC is a different type of plaintiff. Thus, the most troubling aspect of the Second Circuit’s opinion is the statement that if the “S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.”

As highlighted in my article “A Foreign Corrupt Practices Act Narrative,” in the FCPA context this is largely the path the SEC has chosen.  As noted,  in 2013 50% of SEC corporate FCPA enforcement actions were not subjected to one ounce of judicial scrutiny either because the actions were resolved via a non-prosecution agreement or administrative cease and desist orders.

In The Words Of Mary Jo White

By on September 30, 2013 in Enforcement Agency Policy, Enforcement Agency Speeches, Neither Admit or Deny, SEC

SEC Chair Mary Jo White delivered a speech last week titled “Deploying the Full Enforcement Arsenal” before the Council of Institutional Investors.

The focus of White’s speech was on how the SEC is “deploying [its] full enforcement arsenal for the benefit of investors.”

While there was one reference to the Foreign Corrupt Practices Act in White’s speech, her speech was general in nature and touched upon the following issues (all of which are relevant to FCPA enforcement):  SEC enforcement principles, how the SEC should be aggressive and creative when employing its enforcement tools, the importance of deterrence, corporate penalty issues, the SEC’s neither admit nor deny settlement policy and recent revisions to this policy, and the importance of individual enforcement actions.

After highlighting excerpts from White’s speech, this post discusses two issues where White’s rhetoric and the reality of the SEC’s FCPA enforcement program most diverge.

“Enforcement Principles

Another key priority for me, as you would expect, is our enforcement program – building on past successes and making it as strong and effective as it can be.  A robust enforcement program is critical to fulfilling the SEC’s mission to instill confidence in those who invest in our markets and to make our markets fair and honest.

[…]

In many ways, the most visible face of the SEC is what we do to enforce the law.  After all, most Americans do not see how well our experts examine a financial firm, review a regulatory filing, or conduct economic analysis on a complex rule.

But they do pay attention when we bring a major enforcement action against a major financial institution, when we charge a hedge fund executive with insider trading, when we freeze a suspected Ponzi schemer’s assets, or when we charge a CEO with fraud.

As many here know, I spent a good part of my professional life in the enforcement arena.  I have focused much of my career not only on pursuing wrongdoers, but also on deterring wrongdoing.

When I arrived at the SEC, I came with a very high opinion of the enforcement division, having seen and admired their work up close – both as the U.S. Attorney when we worked side-by-side doing securities fraud cases,  and from the other side of the table as a private lawyer.

Any objective and informed observer agrees that the SEC has an exceptional enforcement record.  Its performance in the aftermath of the financial crisis was particularly impressive.  Since 2008, the enforcement division has brought crisis-related actions against more than 160 entities and individuals, including many CEOs and other senior executives, barred dozens of fraudsters and returned billions of dollars to harmed investors.  And they did it while also bringing literally thousands of other non-crisis-related cases at the same time – despite limits on resources and legal restrictions on the amount of penalties that the SEC can seek and recover.

As we continue to build on this impressive record, we will be guided by some overarching principles.

Be Aggressive and Creative

First, we must be aggressive and creative in the way we use the enforcement tools at our disposal.

That means we should neither shrink from bringing the tough cases, nor fail to bring smaller ones.  When we detect wrongdoing, we should consider all the legal avenues to pursue it.  If we do not have the evidence to bring a case charging intentional wrongdoing, then bring the negligence case that does not require intent.

And when we resolve cases, we need to be certain our settlements have teeth, and send a strong message of deterrence.  That is why in each case, I have encouraged our enforcement teams to think hard about whether the remedies they are seeking would sufficiently redress the wrongdoing and cause would-be future offenders to think twice.

We obviously cannot put offenders in jail like a U.S. Attorney can.  And in many cases, the law limits the penalties the SEC may obtain to amounts that both we and the public think are too low.  Under current law, we cannot assess a penalty based on investor losses, but are limited instead to the usually much lower figure based on the ill-gotten gains of a defendant.

That is why I support, as did my immediate predecessors, legislation introduced in Congress that would allow us to seek penalties based on either three times the ill-gotten gains or the amount of investor losses – whichever is greater.  Among other things, the proposed legislation also would authorize us to seek additional penalties if the wrongdoer is a recidivist – a repeat offender who has been undeterred by prior enforcement actions.  These would be very powerful, additional tools.

In the meantime, we must make aggressive use of our existing penalty authority, recognizing that meaningful monetary penalties – whether against companies or individuals – play a very important role in a strong enforcement program.  They make companies and the industry sit up and take notice of what our expectations are and how vigorously we will pursue wrongdoing.

Some years ago – in 2006 – the Commission issued a press release in the context of two settled cases setting forth the thinking of the five Commissioners at the time about the relevant factors to consider in deciding whether corporate penalties should be imposed and to what degree.  Today, we have an entirely new Commission.

I have been asked what I consider the import today of this release to our consideration of corporate penalties.  As an initial matter, it is important to remember that the release was not then, and is not now, binding policy for the Commission or the staff.

While it is not a binding policy, the 2006 press release in my view sets forth a useful, non-exclusive list of factors that may guide a Commissioner’s consideration of corporate penalties, such as the egregiousness of the misconduct, how widespread it was, and whether the company cooperated and had a strong compliance program.  The enforcement staff still references these factors as well as other inputs when analyzing and proposing their own recommendations to the Commission.

Ultimately, however, each Commissioner has the discretion, within the limits of the Commission’s statutory authority, to reach his or her own judgment on whether a corporate penalty is appropriate and how high it should be.

The bottom line for me is that corporate penalties will be considered in all appropriate cases.  Whether, in fact, to seek a corporate penalty and the appropriate amount are decisions that must be based on a consideration of all the facts and circumstances of each case and the objectives of a strong enforcement program.

Strong penalties are just a starting point.  When we sue a company for wrongdoing, we should consider whether to require the company to adopt measures that make the wrong less likely to occur again.

This is something we already do, in some cases.  For example, when we settle with a firm in a foreign corrupt practices case, we often require it to put in place better training and reporting programs.  Such forward-looking measures can also be useful in other kinds of cases.  When we enter into a settlement with a company involving systems control failures, for example, we should consider mandating new policies and procedures and other controls, and require that a compliance consultant test these controls.

Expect to see more such mandatory undertakings in future cases so that we are not just punishing past wrongs, but also acting to prevent future wrongs.

Demand Accountability

Another principle of an effective enforcement program is the recognition that there are some cases where monetary penalties and compliance enhancements are not enough.  An added measure of public accountability is necessary, and in those cases we should demand it.

Until recently, the SEC – like most other federal agencies and regulators with civil enforcement powers – settled virtually all of its cases on a no-admit-no deny basis.  Generally, a party would pay a hefty penalty and agree to an injunction against future misconduct, but neither admit nor deny the wrongdoing asserted by the SEC in a court complaint or set forth as findings in an order instituting administrative proceedings.

In most cases, that protocol makes very good sense.  It makes sense because the SEC can get relief within the range of what we could reasonably expect to achieve after winning at trial.  By settling, the agency is able to eliminate all litigation risk, resolve the case, return money to victims more quickly, and preserve our enforcement resources to redeploy to do other investigations – ordinarily, a significant win-win.   But sometimes more may be required for a resolution to be, and to be viewed as, a sufficient punishment and strong deterrent message.

In 2012, the SEC changed the no-admit-no-deny language as it applied to settlements with parties that have pled guilty in a related criminal action.  In these cases, we now explicitly reference these admissions in the SEC settlement.  It was a first step towards greater accountability, and a good one.

But when I started at the SEC, I re-examined our approach and concluded that there are certain other cases not involving any parallel criminal case where there is a special need for public accountability and acceptance of responsibility.

As you might expect, much of my thinking on this issue was shaped by the time I spent in the criminal arena, where courts cannot accept a guilty plea without the defendant first admitting to the unlawful conduct.  Anyone who has witnessed a guilty plea understands the power of such admissions – it creates an unambiguous record of the conduct and demonstrates unequivocally the defendant’s responsibility for his or her acts.

But what about resolutions that do not require a guilty plea?

In 1994, when I was a U.S. Attorney, I entered into the first-ever deferred prosecution agreement (DPA) with a company – a tool the Department of Justice frequently uses today.  Essentially, a DPA is an agreement that the government will file a criminal charge, but defer its prosecution for a period of time during which the party must demonstrate good behavior and satisfy the other terms of the agreement.  These terms can include very significant payments of money, enhanced compliance requirements, and sometimes an outside monitor.

Back in 1994, there was no template for those agreements.  Nothing required an admission or confession of wrongdoing.  But I decided in that particular case that a public admission of wrongdoing was required for the resolution to have sufficient teeth and public accountability. So considering this history, it should not be surprising that I would follow that same approach in my new role as Chair of the SEC.

Since laying out this new approach, the most frequent question we get is about the types of cases where admissions might be appropriate.

Candidates potentially requiring admissions include:

  • Cases where a large number of investors have been harmed or the conduct was otherwise egregious.
  • Cases where the conduct posed a significant risk to the market or investors.
  • Cases where admissions would aid investors deciding whether to deal with a particular party in the future.
  • Cases where reciting unambiguous facts would send an important message to the market about a particular case.

To reiterate, no-admit-no-deny settlements are a very important tool in our enforcement arsenal that we will continue to use when we believe it is in public interest to do so.  In other cases, we will be requiring admissions.  These decisions are for us to make within our discretion, not decisions for a court to make.

Pursue Individuals

Another core principle of any strong enforcement program is to pursue responsible individuals wherever possible.  That is something our enforcement division has always done and will continue to do.  Companies, after all, act through their people.  And when we can identify those people, settling only with the company may not be sufficient.  Redress for wrongdoing must never be seen as “a cost of doing business” made good by cutting a corporate check.

Individuals tempted to commit wrongdoing must understand that they risk it all if they do not play by the rules.  When people fear for their own reputations, careers or pocketbooks, they tend to stay in line.

Of course, there will be cases in which it is not possible to charge an individual.  But I have made it clear that the staff should look hard to see whether a case against individuals can be brought.  I want to be sure we are looking first at the individual conduct and working out to the entity, rather than starting with the entity as a whole and working in.  It is a subtle shift, but one that could bring more individuals into enforcement cases.

When we do bring charges against individuals, we also need to consider all the possible remedies to prevent future wrongs.  One of the most potent tools the SEC has is a court order imposing a bar on an individual – a bar from, for example, working in the securities industry or serving on the board of a public company.  Such an order not only punishes past actions, but also can reduce the likelihood that the defendant can defraud and victimize the public again.

[…]

Win at Trial

Finally, a strong enforcement regime is only effective if we have the ability to back it up in court.

So, we need to maintain and enhance our ability to win at trial.  For us to be a truly potent regulatory force, we need to remain constantly focused on trial readiness.

Indeed, because of our increased demands for admissions, we recognize that we may see more financial firms that say: “We’ll see you in court.”  But that will not deter us.  The SEC has a well-established record of winning when we go to trial – our recent win in the Tourre case is just the latest example.  We must continue to sustain this successful record and ensure that we have sufficient resources available to litigate cases.

Significant and consistent trial wins also gives us the credibility we need to achieve strong and meaningful settlements, in every area that we will be pursuing in the coming years.  

Conclusion

Going forward, I know you will be watching to see what we produce, as you should.  A strong enforcement program provides greater protection for all investors participating in our markets.  We should be judged by the quality of the cases we bring, by the aggressive and innovative techniques we use to pursue wrongdoers, by the tough sanctions and meaningful remedies we impose, and where appropriate by the acknowledgements of wrongdoing that we require.

Throughout my tenure as SEC Chair, I will continuously look for ways to make our enforcement program stronger.

The more successful we are at being – and being perceived as – the tough cop that everyone rightfully expects, the more confidence in the markets investors will have, the more level the playing field will be and the more wrongdoing that will be deterred.”

*****

There are two issues where White’s rhetoric and the reality of the SEC’s FCPA enforcement program most diverge.

First, White stated “any objective and informed observer agrees that the SEC has an exceptional enforcement record” and that “the SEC has a well-established record of winning when we go to trial.”

Not true in the FCPA context where the SEC has an overall losing record in FCPA enforcement actions when put to its ultimate burden of proof.  As noted in this prior post, the SEC lost the Eric Mattson and James Harris individual enforcement actions at the motion to dismiss stage and as noted in this prior post, the SEC lost the Herbert Steffen individual enforcement action at the motion to dismiss stage.  As noted in this prior post, in the Mark Jackson and James Ruehlen individual enforcement actions the court granted, without prejudice, the SEC’s claims that sought monetary damages and upon repleading the SEC’s ongoing case is a shell of its former self.  In the ongoing enforcement action against Elek Straub and other former executives of Magyar Telekom, the court denied the defendants’ motion to dismiss (see here for the prior post).

Second, White stated “another core principle of any strong enforcement program is to pursue responsible individuals wherever possible.  That is something our enforcement division has always done and will continue to do.”

As noted in this prior post, between 2008-2012, 79% of SEC corporate FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees.  This figure is likely to climb when re-calculated to include 2013 SEC FCPA enforcement actions.  Thus far this year there have been 4 SEC corporate FCPA enforcement actions and none of the actions have (at least yet) resulted in any SEC charges against company employees.

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