Indeed, Trials Are Important … And Telling As Well
Three cheers for SEC Chair Mary Jo White’s recent speech titled “The Importance of Trials to the Law and Public Accountability.”
Under the heading, “why trials are important,” White stated that “simply put, [trials] put our system of justice […] on display for all to see.” She stated as follows.
“The public airing of facts, literally in open court, creates accountability for both defendants and the government. How we resolve disputes and how we decide the guilt or innocence of an accused are the true measure of our democracy. Thomas Jefferson once said that he considered ‘trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution.'”
In the speech, White agreed that trials are the “‘crown jewel’ of our system of justice” and she focused on two “of the more important roles that trials play in our administration of justice: how they foster development of the law, and perhaps even more importantly how they create public accountability for both defendants and the government through the public airing of charges and evidence.”
As to the former, White stated that “trials allow for more thoughtful and nuanced interpretations of the law in a way that settlements and summary judgments cannot.”
As to the later, White agreed with the following statement. “The death of trials would … remove a source of disciplined information about matters of public significance. … It would mean the end of an irreplaceable public forum and would mean that more of the legal order would proceed behind closed doors. And it would deprive us, as American citizens, of an important source of knowledge about ourselves and key issues of public concern.”
White talked about the “near-sacred nature of the courtroom,” how “litigants are required to meet their burden of proof, and where there is up-close-and-personal accountability for whatever the trial is about,” how trials are where “victims and witnesses have the chance to tell their stories and where the public can hear the facts set forth in open court,” and how trials provide a place for “public closure on hotly disputed facts and legal issues.”
As White stated, “by the end of the trial, the full scope of the misconduct is laid before the fact-finder to decide guilt or innocence, liability or no liability.”
As to criminal trials, White, a former DOJ prosecutor, stated that the “scarcity of criminal trials means that the public does not often enough have this kind of public airing and adjudication that trials uniquely provide.”
Although White’s speech was general in nature, the topics addressed are relevant to Foreign Corrupt Practices Act enforcement and I completely agree with White, trials are indeed important.
In “The Facade of FCPA Enforcement,” under the heading “why the facade of FCPA enforcement matters,” I observed.
“As a matter of general jurisprudence, it is troubling when any area of law largely develops outside of the judicial process. The judicial process facilitates the thoughtful presentation of opposing views, mitigating facts and circumstances, and potential defenses in an adversarial proceeding culminating in an impartial decision-maker weighing the facts and applying the law in rendering a decision in a transparent manner. These fundamental hallmarks are largely missing in FCPA enforcement. Rather, the enforcement agencies, occupying positions of advocate, judge, and rule-maker, induce settlement through the “carrots” and “sticks” they possess even though many of the enforcement theories leading to these resolutions are untested and dubious, and in some case in direct conflict with the FCPA’s statutory provisions. The end result is resolution vehicles that do not facilitate the thoughtful presentation of opposing views, mitigating facts and circumstances, potential defenses, or testing of legal theories. Yet, these resolution vehicles largely define the FCPA. When the parameters of any law develop through such an opaque process, public confidence in that law, as well as the rule of law, suffers.”
The irony of course is that – notwithstanding White’s sensible statements – the SEC has never been put to its burden of proof in a corporate FCPA enforcement. The reasons are largely due to SEC enforcement policies that pre-date White’s tenure at the SEC, but policies that she continues to champion – namely the SEC’s neither admit nor deny settlement policy (notwithstanding its recent tweak) and the SEC’s more recent use of non-prosecution and deferred prosecution agreements.
As to the later, when the SEC announced its intention to use NPAs and DPAs, I called the development (see here for the prior post) a blow to those who prefer government law enforcement agencies to enforce a law in an open, transparent matter and in the context of an adversary proceeding … in other words the very same things White championed in her recent speech.
The further irony of course from White’s recent speech is that when the SEC has been put to its burden of proof in individual FCPA enforcement actions, the SEC has an overall losing record. (See this prior post detailing the instances).
The importance of trials and the issues addressed in White’s speech are of course also relevant to the DOJ’s overall losing record when put to its burden of proof in FCPA enforcement actions. (See here for “What Percentage of DOJ FCPA Losses Is Acceptable?”). And of course White’s comments about “behind closed doors” and how trials “allow for more thoughtful and nuanced interpretations of the law in a way that settlements” cannot is even more important to the DOJ’s enforcement of the FCPA given its prevalent use of NPAs and DPAs.
As I’ve offered a number of times in the FCPA context, success in enforcing a law, whether in the corporate context or individual context, is best measured by instances in which an enforcement agency is actually put to its burden of proof in an adversarial proceeding.
Thanks to White’s recent speech, we have been reminded of that.
*****
Much like this prior post in which a high-ranking SEC official acknowledged the underlying logic supporting a compliance defense, White did the same thing in this October speech before a broker-dealer compliance audience. In pertinent part, White stated:
“Your work is extremely important to us as well as to investors because you are positioned to prevent infractions from happening in the first place, rather than coming to our attention only after harm has been done.” […] “[W]e rely on you. We rely on you because as much as we strive to be everywhere we can be, our resources are limited and always stretched.”
Elsewhere, White stated that a question the SEC often asks is whether compliance professionals are “empowered by your firms to do what you need to do?” […] “We want to encourage companies to give you the recognition that you deserve, the resources that you need and the authority that your role demands, so you can succeed and, as a result, our markets are safe and can succeed.” […] “[W]e seek to promote the role of compliance and ensure that the firms recognize and acknowledge the importance we place on your role.”
For why these statements acknowledge the underlying logic supporting a compliance defense, see “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”
The 100th Edition Of The Friday Roundup
Scrutiny alerts and updates, a first, blunt, and quotable. It’s all here in this – the 100th edition – of the Friday roundup.
[I hope the Friday roundup is a value added end to your work week. The Friday roundup alone represents several hours of work by highlighting recent FCPA and related news and developments not otherwise covered Monday – Thursday on FCPA Professor. Ask yourself: do you get your FCPA from FCPA Professor? If the answer is yes, you can help support this free website here]
Scrutiny Alerts and Updates
Wal-Mart
During its third quarter earnings call yesterday, Wal-Mart disclosed $69 million in “FCPA and compliance related expenses” in the quarter. According to the company “approximately $43.0 million of these expenses represented costs incurred for the ongoing inquiries and investigations and approximately $26.0 million is related to our global compliance program and organizational enhancements.”
Doing the math, $69 million in the third quarter is approximately $1.06 million per working day. As noted here, the figure for Q2 was approximately $1.26 million per working day and as noted here the figure for Q1 was approximately $1.16 million per working day. For more on Wal-Mart’s pre-enforcement action professional fees and expenses, see this prior post.
For the fourth quarter, Wal-Mart estimated $75 – $80 million in expenses related to FCPA matters.
JPMorgan
The NY Times returns (here) to the JPMorgan story it first reported in August (see here for the prior post). The article states:
“To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm [Fullmark Consultants] run by a 32-year-old executive named Lily Chang. Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank. But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions.
[…]
Now, United States authorities are scrutinizing JPMorgan’s ties to Ms. Wen, whose alias was government approved, as part of a wider bribery investigation into whether the bank swapped contracts and jobs for business deals with state-owned Chinese companies, according to the documents and interviews. The bank, which is cooperating with the inquiries and conducting its own internal review, has not been accused of any wrongdoing. The investigation began with an examination of the bank’s decision to hire the daughter of a Chinese railway official and the son of a former banking regulator who is now the chairman of a state-controlled financial conglomerate.
[…]
Executives at JPMorgan’s headquarters in New York did not appear to be involved in retaining Fullmark, a decision that seemed to have fallen to executives in Hong Kong. And the documents reviewed by The Times do not identify a concrete link between the bank’s decision to hire children of Chinese officials and its ability to secure coveted business deals, a connection that authorities would probably need to demonstrate that the bank violated anti-bribery laws.”
Park-Ohio Holdings Corp.
The diversified manufacturing services and products holding company (here) disclosed as follows in a recent quarterly filing:
“In August 2013, the Company received a subpoena from the staff of the SEC in connection with the staff’s investigation of a third party. At that time, the Company also learned that the Department of Justice (DOJ) is conducting a criminal investigation of the third party. In connection with responding to the staff’s subpoena, the Company disclosed to the staff of the SEC that, in November 2007, the third party participated in a payment on behalf of the Company to a foreign tax official that implicates the Foreign Corrupt Practices Act (FCPA). The Board of Directors of the Company has formed a special committee to review the Company’s transactions with the third party and to make any recommendations to the Board of Directors with respect thereto. The Company intends to cooperate fully with the SEC and the DOJ in connection with their investigations of the third party and with the SEC in light of the Company’s disclosure. The Company is unable to predict the outcome or impact of the special committee’s investigation or the length, scope or results of the SEC’s review or the impact, if any, on its results of operations.”
Wynn Resorts
This previous Friday roundup highlighted the company’s disclosure that the SEC has ended its investigation of the company concerning a $135 million donation to the University of Macau. In this recent filing, Wynn states as follows concerning a related DOJ investigation.
“[The DOJ] has been conducting a criminal investigation into Wynn Resorts’ donation to the University of Macau […]. Wynn Resorts has not received any target letter or subpoena in connection with such an investigation. Wynn Resorts intends to cooperate fully with the government in response to any inquiry related to the donation to the University of Macau.”
SEC’s First Individual DPA
When the SEC announced in January 2010 (see here for the prior post) a series of measures, including non-prosecution and deferred prosecution agreements, “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions,” I called the development a blow to those who prefer government law enforcement agencies to enforce a law in an open, transparent matter and in the context of an adversary proceeding. Not that there was much judicial scrutiny of SEC enforcement prior to January 2010 (largely on account of the SEC’s then neither admit nor deny settlement policy), but the new measures, I noted, would lead to even less judicial scrutiny.
Earlier this week, the SEC announced “a [five year] deferred prosecution agreement with a former hedge fund administrator who helped the agency take action against a hedge fund manager who stole investor assets.” According to the SEC, the DPA – outside the context of the FCPA – is the SEC’s “first with an individual” and the SEC’s release further states:
“Deferred prosecution agreements (DPAs) encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation. In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.”
Obviously the above statement is an opinion statement, not a factual statement.
As highlighted in this prior post, the FCPA Guidance indicated that the DOJ has in the past used non-public non-prosecution against individuals in the FCPA context. Despite claims by the DOJ that its FCPA enforcement program is transparent, my attempts to learn more about these secret FCPA NPA’s with individuals was unsuccessful.
Blunt
DOJ FCPA enforcement attorneys have publicly stated that among the many ways they learn of conduct which could implicate the FCPA is by reading the newspaper.
If so, this recent article in the Miami Herald may generate some interest. In the article concerning the satellite telephone business in Cuba, a “Miami Man” states that “he installs each system in Cuba for $3,500 to $4,200 — cash paid in South Florida, with part of the mark up going to bribes on the island. The costs are usually paid by U.S. relatives of the recipients.”
Quotable
From a recent poll regarding corruption in Africa: “corruption is a national sport every day at the direction of customs officials” (see here).
An extensive interview with U.K. Serious Fraud Director David Green (“DG”) in Fraud Magazine (“FM”) in which he discusses: corporate criminal liability, facilitation payments, Bribery Act Inc., voluntary disclosure and DPAs. Relevant excerpts include:
FM: What current changes, if any, to the legal system and or legislation would make the SFO more efficient?
DG: To our effectiveness and our reach, I would very much like the test for corporate criminal liability to be looked at again. As you know, in this country, it is extremely difficult to convict a company of an offence because the prosecution has to show that the controlling minds of the company — somebody at the board level — were complicit in the criminality you are trying to prove. I think that bar is too high, and is a very unrealistic test — not least because I think anyone will agree that if you’re looking into allegations of corporate misconduct spookily the e-mail trail tends to dry up at a fairly junior level. Where it can be shown that the company had really profited from the criminality of its employees then I think there is a sound case for expanding the ambit of section 7 of the U.K. Bribery Act. Section 7 creates the corporate offence of ‘failing to prevent bribery or corruption by an agent or employee’ with a statutory defence that they took all reasonable precautions. Now why can’t that be extended to cover fraud and offences of dishonesty so the offence would be failing to prevent fraud or offenses of dishonesty by members of your staff? It seems to me absolutely right that a corporation should have criminal liability for that when it has profited from it. Why should a company which has, in the way I’ve explained, been complicit in criminality just throw a few people over the side and sail bravely on? Why shouldn’t it have its ears clipped and marked as a company that has had dishonest employees and benefitted from it? Another argument is: Well you’d just be punishing a company for negligence. I would say it would be a pretty high degree of negligence when a company acts in that way and benefits from the dishonesty of its employees.
FM: Doesn’t the Bribery Act prejudice British business in that is a bit too harsh in relation to facilitation payments and hospitality payments?
DG: First of all, I don’t buy this argument that complying with the law is going to hold business back. Secondly, facilitation payments have always been illegal. However, it is a question of the public interest as to whether or not they are prosecuted. What would be a common facilitation payment? A 20-pound note and a bottle of whisky to some [maritime] pilot to take your ship from somewhere to somewhere else in a single payment; the SFO wouldn’t be interested in that. [Maritime pilots will guide ships into ports for hire.] But if it was a course of conduct over a number of years, then, of course, that becomes not just a very small insignificant little bribe but actually a regular payment over time to ensure that you get that business.
FM: What do you say about those medium to small companies who have ignored the preventative measures required by the Bribery Act?
DG: Well, it’s always difficult, isn’t it? On the one hand, I am very conscious that since the enactment of the act there has grown up a Bribery Act industry in London populated by a lot of American and British lawyers, accountants and so-called experts. I even came across a firm the other day that actually offers certificates to companies saying that they are compliant, and I suppose if the company were to land in court they would try to produce this certificate to say, “We can’t be prosecuted because we’ve got a certificate.” The effect of this is that these so-called experts have scared the pants off of medium and small enterprises. It is really a question of getting some sensible, reasonably priced legal advice to discern their risk areas and put in place basic safeguards. But the idea that the Serious Fraud Office is going after a ticket to Wimbledon or a bottle of Champagne is, and always has been, utter nonsense. If, on the other hand, we saw a situation in which the entire board and their spouses of a major corporation were put up in London for a week and then given tickets for the men’s finals at Wimbledon with a couple of banquets before, during and afterwards, then that would be very worrying. Throw in first-class airfare and that would become extremely worrying. But the key to all this in relation to bribery investigations and whether or not we are interested in them has to do with value and importance but also timing, the motive and the effect of it — was it done at a time when some enormously important decision was going down with a view to influencing it? This is fairly common sense; we use a reasonable approach.
FM: Will companies that self-report escape criminal proceedings?
DG: My predecessor had guidance on self-reporting, in which though it did not say it in so many words, was a very clear implication that if you self-reported as a company you would not be prosecuted, and there would be a civil disposal of what you had done. I disagree with that absolutely and fundamentally as a matter of principle because no prosecutor can ever give guarantees in advance. We have no idea what set of facts are going to come in through the door next. So, we have returned to the old guidance, which has always been there; we will apply the Code for the Crown Prosecutors. In other words, in each situation we would see if there’s enough evidence to prosecute. If there is, we consider if it’s in the public interest to prosecute this company. Now if a company were to come in and say, “Look, we have discovered this misconduct. We have conducted a full investigation; here are the results. We are willing for you to investigate it as you wish. We’ve gotten rid of all the people involved in this, we will hand over any illegal profits obtained as a result of this crime.” In such circumstances, one does struggle to think how it would be in the public interest to prosecute such a company. But it is a question of principle here. If you start — and I feel very strongly about this — if you start blurring the boundaries between what people involved in the criminal justice system do then it’s a dangerous path to follow. Prosecutors shouldn’t be doing deals or making offers in advance and defenders shouldn’t be too familiar with prosecutors. We need to stay where we are and within our own divisions. That’s my view.
FM: Could the deferred prosecution arrangement (DPA) be seen as a type of deal?
DG: Well, I think if you looked at the American model of DPAs you might think it could be described as a deal. We’ve adapted it for use in this country to have judicial involvement and scrutiny from the very beginning. The reason for that is to preserve the principle we have in this country, which they don’t have in the States, that sentencing is a matter for the judge. It’s not a matter for some cozy deal between prosecutor and defence. If we believe a case is appropriate for a DPA we would go before a judge and say, “Judge, these are the charges which we would be minded to bring against these people. However, we think for these reasons it’s an appropriate case for a DPA. Do you agree?” Now if the judge says, “No, I don’t I think this is a suitable case for a DPA,” we’ll carry on prosecuting. So, it is a transparent process. Ultimately, if a DPA did go ahead there would be a statement of facts read in court. Nothing would be hushed up. You can’t really go wrong if you’re transparent. Things go wrong in the criminal justice system if anything appears to be opaque. You lose public confidence and you lose the confidence of the people involved.
Professor Ellen Podgor states, in pertinent part, in this New York Times opinion piece:
“If we intend to punish people, shouldn’t we reasonably expect that they knew their actions were crimes? […] The accumulation of laws and rules has made it harder to assure that individuals who are punished understood that they were breaking the law. When the law is clear, and an individual deliberately transgresses the law, punishment serves an important purpose. Attributing criminality to business-related activities is not always so easy. The line between criminal activities and acceptable business judgments can be fuzzy. The conduct may not have a long biblical history of being offensive, and there may be no posted signs. […] In the corporate or financial world, multiple individuals may have a finger in a business decision — and some may be unaware that one has breached the law. Add to this ambiguity in both the law and the corporate world that business-related decisions are often made by individuals who find themselves placed in a forest of regulations and criminal statutes with varying interpretations that even legal scholars can’t agree upon. Overcriminalization presents unique issues in the white collar and business arena. There are thousands of criminal statutes scattered throughout the federal code, and there are thousands of regulations with accompanying criminal penalties. The prosecutor’s toolbox also includes overly broad statutes like RICO, mail fraud, wire fraud and offenses like making false statements. The bottom line is that the government’s power to indict has few restrictions, and overcriminalization provides federal prosecutors with super powers that they can easily abuse. Congress’s continuous and haphazard adding of criminal statutes and regulations is making it more difficult to assure that individuals who are punished truly understand that they are breaking the law.”
*****
A good weekend to all.
SEC Enforcement Official Acknowledges The Underlying Logic Supporting A Compliance Defense
There is an underlying logic to a Foreign Corrupt Practices Act compliance defense.
In “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I argued, among other things, that a compliance defense will better incentivize corporate compliance and reduce improper conduct. Compliance is a cost center within business organizations and expenditure of finite resources on FCPA compliance is an investment best sold if it can reduce legal exposure, not merely lessen the impact of legal exposure.
In a recent speech before the Society of Corporate Compliance and Ethics, Stephen Cohen (SEC Associate Director of Enforcement) rightly acknowledged the underlying logic supporting a compliance defense.
In his speech, Cohen “fully appreciated” that the compliance professionals in the room “are on the front lines in the battle to persuade companies to invest” in compliance programs. (emphasis added). Elsewhere, Cohen stated: “So, as you go back to your companies to advocate for more resources and stature, tell your management that they will get much more credit from regulators by demonstrating that misconduct is an outlier in a highly ethical and compliance-driven culture rather than a remedial step after investors suffered losses.” (emphasis added).
As highlighted in “Revisiting an FCPA Compliance Defense,” at present, the incentives organizations have to adopt FCPA compliance policies and procedures are solely to lessen the impact of legal exposure. These present incentives thus represent “baby carrots,” when what is needed to better incentivize more robust FCPA compliance are real “carrots.” An FCPA compliance defense is a real “carrot” that will better incentivize compliance across the business landscape. Organizations with existing FCPA compliance policies and procedures will be incentivized to make existing programs better. Likewise, organizations currently without stand-alone FCPA policies and procedures—and statistics indicate there are many—will be incentivized to spend finite resources to implement FCPA compliance policies and procedures.
In short, an FCPA compliance defense will best allow compliance professionals in the FCPA context to – in the words of Cohen – win “the battle to persuade companies to invest” in compliance programs and to “advocate for more resources and stature.”
A few other issues from Cohen’s recent speech.
It contains a curious reference to the Ralph Lauren enforcement action. As to the general topic that “isolated conduct combined with good compliance and internal controls make it less likely that [the SEC] will bring an action at all,” Cohen stated that a “great example for compliance professionals is the recent non-prosecution agreement with Ralph Lauren.”
This is a curious reference given that the DOJ (as highlighted in this prior post) specifically stated that “[Ralph Lauren – RLC] did not have an anti-corruption program and did not provide any anti-corruption training or oversight with respect to [the relevant subsidiary].” Likewise, the SEC specifically stated that “RLC’s policies, procedures and training related to anticorruption and the Foreign Corrupt Practices Act (“FCPA”) compliance in place at that time of the misconduct warranted further strengthening to ensure effective compliance with the related laws.”
Yes, both the SEC and DOJ did commend RLC on its compliance remediation, but this goes to the following point Cohen made in his speech. He stated.
“I am surprised how infrequently companies try to persuade us at the front end of an investigation that they have a robust compliance culture and record of ethical conduct. Invariably, the discussion about a company’s compliance program takes place during settlement negotiations in the context of the substantial remediation that the company has undertaken since violations occurred.”
Aside from the above issues, Cohen’s speech did contain a useful section titled “Warning Signs” of value – in the FCPA context and otherwise – to the compliance practitioner. This section, stated in full, as follows.
“Warning Signs
Where we find fraud, there are often early warning signs that may have suggested a corporate compliance culture that is not meeting appropriate standards.
Pushing the envelope.
Risk-taking in the area of legal and ethical obligations invariably leads to bad outcomes. Any company or person prepared to come close to the line when it comes to legal and ethical standards is already on dangerous ground.
Tolerating close-to-the-line behavior sends a terrible message throughout an organization that pushing the envelope is acceptable.
Technical Compliance.
Be on the lookout for people who are overly technical in their approach to issues of ethics and professional responsibility. Pay particular attention to those who may disparage or diminish the importance of respect for the law and protecting the organization from reputational harm.
Be Skeptical.
Be skeptical of explanations that don’t add up regardless of who provides them. If someone explains something to you in a way that you don’t understand, don’t accept it.
In many ways, one of the important lessons of the financial crisis is that highly sophisticated models that can explain away risk but defy common sense shouldn’t be trusted. We often see people come in and testify that they failed to follow up on their hunches until after it was too late.
Lack of Empowerment.
Another warning sign is an organization that limits the access of legal and compliance personnel to senior leadership of the company.
These leaders need to hear candidly and regularly from those on the front lines of compliance efforts. Compliance professionals are not hallway monitors. Companies that empower these professionals to act as trusted advisors are more likely to stay out of harm’s way.”
Friday Roundup
Scrutiny alert, potential fallout, act like a cop be treated like a cop, and for the reading stack. It’s all here in the Friday Roundup.
Scrutiny Alert
Leighton Holdings Limited (an Australia-based holding company with ADRs registered in the U.S.) has been the focus of much recent media attention concerning business conduct in Iraq, Indonesia, Malaysia, as well as other Asian and Middle Eastern countries (see here and here for instance). In response, the company issued statements here and here.
Potential Fallout?
As noted here, earlier this week South Korea criminally charged “100 people, including senior executives at state-run energy companies, on corruption charges.” According to the article, “parts suppliers are suspected of bribing officials to accept their products with faked certification.” Among the companies mentioned is Korea Hydro and Nuclear Power Co. This company, along with other alleged state-owned or state-controlled energy companies, was mentioned in the 2009 Foreign Corrupt Practices Act enforcement action against Control Components Inc.
Time will tell if the South Korea charges might implicate various part suppliers subject to the FCPA.
Cop-Like
In this recent speech, SEC Chair Mary Jo White stated:
“The SEC is, in very important part, a law enforcement agency, and should be seen by investors to be ‘their cop.’ And, the SEC must continue to be the tough cop because in many cases, particularly when there is no criminal violation, it is the only agency that can play that role.”
White’s comment reminded me of this excellent guest post by Russell Ryan (King & Spalding and previously an Assistant Director of the SEC Enforcement Division) in which he notes, among other things, that “if the SEC’s enforcement role is more like that of a criminal prosecutor than a private plaintiff, why shouldn’t the SEC be held to some of the same procedural and evidentiary burdens of a prosecutor rather than benefitting from the more relaxed standards accorded to private plaintiffs?”
Reading Stack
An interesting Q&A with Andreas Pohlmann (Chief Compliance Officer at SNC-Lavalin Group Inc) including the following spot-on statement.
“[W]e need one global compliance program. That means that what we are doing at the time being is not establishing a Canadian compliance program, or a North American compliance program, but we are establishing a global compliance program for all of our associates all over the world, and that’s the challenge. To get out a compliance program in Montreal at the headquarters of SNC-Lavalin is still easy. It becomes challenging when we go to the more difficult regions of this world, like Latin and South America, Africa, Eastern Europe and Southeast Asia. We have to get to the hearts and minds of our people and have them live up to our worldwide standards; otherwise, the compliance program would not be credible.”
*****
A good weekend to all.
Hits And Misses From SEC Chair Mary Jo White’s Recent Speech
Last week, SEC Chair Mary Jo White delivered a speech titled “The Importance of Independence” at Fordham Law School.
White’s speech was spot-on in terms of her discomfort of Congress and others seeking to effectuate social policy or political change through use of the SEC’s powers of mandatory disclosure. White stated:
“When disclosure gets to be too much or strays from its core purpose, it can lead to ‘information overload’ – a phenomenon in which ever increasing amounts of disclosure make it difficult for investors to focus on the information that is material and most relevant to their decision-making as investors in our financial markets. To safeguard the benefits of this ‘signature mandate,’ the SEC needs to maintain the ability to exercise its own independent judgment and expertise when deciding whether and how best to impose new disclosure requirements. For, it is the SEC that is best able to shape disclosure rules consistent with the federal securities laws and its core mission. But from time to time, the SEC is directed by Congress or asked by interest groups to issue rules requiring disclosure that does not fit within our core mission.”
[As an aside, although not mentioned in White’s speech, this is exactly what happened with the SEC in terms of the FCPA. As detailed in the “Story of the Foreign Corrupt Practices Act,” the SEC wanted no part in enforcing the FCPA’s anti-bribery provisions as it viewed such enforcement beyond its core mission. However, Congressional leaders – most notably Senator William Proxmire – insisted largely because in the post-Watergate environment the DOJ was not viewed as sufficiently independent.]
Speaking of the Dodd-Frank Act, White stated:
“But other mandates [in Dodd-Frank], which invoke the Commission’s mandatory disclosure powers, seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions. That is not to say that the goals of such mandates are not laudable. Indeed, most are. […] But, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.”
(See here for the prior post – days after Congress passed Dodd-Frank in 2010 – noting that Section 1504 of Dodd-Frank “Disclosure of Payments by Resource Extraction Issuers” did not represent sound policy for the same reasons White identified above).
The final portion of White’s speech concerned “Judicial Involvement.” She stated as follows.
“I should not conclude this talk about the importance of independence without mentioning our third branch of government – the judiciary. When I urge the courts to defer to the SEC’s independence and expertise, I am really only making the point that separation of powers requires each of us to respect and stay in our respective lanes.
[…]
We recognize that, under the law, a court can review a settlement. But a court that reviews a settlement that a law enforcement agency like ours enters with a defendant has a more limited task. It is unlike a court’s wide-ranging inquiry into the merits of a class-action settlement, for example. A court reviewing a consent judgment in one of our cases has a narrower focus – making sure that the settlement is not ambiguous and that it does not affirmatively harm third parties or impose an undue burden on the court’s own resources.”
By requesting the judiciary to stay in its “respective lane,” White misses the point – sticking with the traffic analogy – that the SEC is driving a different car in an enforcement action compared to its typical regulator car. As the Supreme Court recently unanimously recognized in the Gabelli decision (see here for the prior post), “in a civil penalty action, the [SEC] is not only a different kind of plaintiff, it seeks a different kind of relief.”
As noted in this prior guest post, Gabelli is “an encouraging sign that the justices may be ready, willing, and able to take on other troubling issues that arise as federal law enforcement agencies continue to blur the lines between traditional criminal prosecution and increasingly punitive “civil” prosecution.”
*****
In another speech last week, this article quotes White as follows.
“I realized just how much leverage the SEC has,” Ms. White said, speaking at the Women, Influence & Power in Law summit in Washington. Many public companies would sooner acquiesce to a demand for an admission than engage in a long-running dispute with the agency, she suggested. “You don’t want to be at war with your main regulator,” she added, saying the policy shift takes advantage of “perhaps more leverage than the SEC realized that it has.”
Spot-on and given that the SEC has acknowledged in litigation that an SEC settlement “do[es] not necessarily reflect the triumph of one party’s position over the other” (see “The Facade of FCPA Enforcement” for a more extensive discussion), White’s comments are hardly surprising.
Yet they do highlight why it is not wise policy to link whistleblower awards to SEC settlements (see here for the prior post) or suggest that SEC FCPA settlement money ought to be paid out to alleged “victims” (see here for the prior post).