SEC Imposes $25 Million Penalty for FCPA Violations at 2008 Summer Olympics

On May 20, the SEC announced that it had instituted and settled administrative proceedings against a global resources company to resolve alleged FCPA violations during the 2008 Summer Olympics. According to the SEC’s administrative order, the company invited over 175 government officials and employees of state-owned enterprises, many from countries in Africa and Asia with a “well-known history of corruption,” to attend the Games at its expense. Those who accepted were provided with “hospitality packages” that included event tickets, luxury hotel accommodations, meals and, in many cases, business class airfare. Even though the company was aware that providing high-end hospitality packages to government officials created a heightened risk of violating anti-corruption laws, its internal controls were “insufficient” because there was no independent legal or compliance review of the invited guests or enhanced training of employees regarding the corruption risks. Read more…

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SEC Publishes Cybersecurity Guidance for Registered Investment Companies and Advisers

On April 30, the SEC’s Division of Investment Management issued IM Guidance Update No. 2015-02 which highlights measures that investment companies and advisers may wish to consider in addressing cybersecurity risks. The guidance urges firms to adopt a three-pronged approach including, among other things: Conducting a periodic assessment of (1) the nature, sensitivity and location of information that the firm collects, processes and/or stores, and the technology systems it uses; (2) internal and external cybersecurity threats to and vulnerabilities of the firm’s information and technology systems; (3) security controls and processes currently in place; (4) the impact should the information or technology systems become compromised; and (5) the effectiveness of the governance structure for the management of cybersecurity risk. Second, creating a strategy designed to prevent, detect, and respond to cybersecurity threats, and third, implementing the strategy through written policies and procedures. The Division’s guidance also warned investment companies and advisers about third-party vendor agreements that could potentially lead to unauthorized access of investors’ information.

 

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SEC Votes to Propose Executive Compensation Rules

On April 29, the SEC voted 3-2 to propose rules that would implement Dodd Frank’s pay-versus-performance provision by requiring companies to disclose the relationship between their financial performance and executive compensation. According to SEC Chair Mary Jo White, the proposed rules “would better inform shareholders and give them a new metric for assessing a company’s executive compensation relative to its financial performance.” All executive officers currently submitting their financials in the summary compensation table must abide by the proposed rules’ disclosure requirements. The rules would require that all reporting companies, except smaller companies, disclose the relevant compensation information for the last five fiscal years; smaller reporting companies will only be required to disclose the information for the past three fiscal years. Foreign private issuers, registered investment companies, and emerging growth companies will be exempt from the relevant Dodd-Frank statutory requirement. The comment period for the proposed rules will be open for 60 days after publication in the Federal Register.

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SEC Announces Whistleblower Award to Compliance Officer, Over $1 Million Dollars

On April 22, the SEC announced an award of more than $1 million to a compliance officer for providing the agency with information on the company’s misconduct. The Dodd-Frank Act whistleblower regime is designed to encourage employees to submit evidence of securities fraud. When sanctions of a successful enforcement action exceed $1 million, the program allows for up to 30 percent of the money collected to be provided to the whistleblower. Since the program began in 2011, 16 whistleblowers have received upwards of $50 million from an investor protection fund, which was established by Congress and is financed through the monetary sanctions the SEC receives from securities law violators.

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SEC Announces Key Departures

This week, the SEC announced two key senior management departures. On April 7, the securities regulator announced that Andrew Bowden, its current director of the Office of Compliance Inspections and Examinations (OCIE), will leave the agency at the end of April to return to the private sector. Since joining the SEC in 2011, Bowden has served as OCIE’s National Associate for the Investment Adviser/Investment Company examination program, Deputy Director of OCIE, and Director of OCIE. The SEC separately announced that Gregg Berman, Associate Director of the Office of Analytics and Research within the Division of Trading and Markets, will depart the agency later this month.

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SEC Adopts Rule Giving Access to Capital for Smaller Companies

On March 25, the SEC adopted final rules to amend Regulation A, a current exemption from registration for smaller companies issuing securities.  The new rules, which allow smaller companies to offer and sell up to $50 million of securities within a twelve-month period – subject to certain eligibility, disclosure, and reporting requirements – expand Regulation A into two tiers for offering securities. Tier 1 allows eligible issuers to sell up to $20 million of securities without registration so long as security-holders who are affiliates of such issuers sell no more than $6 million in securities, whereas Tier 2 permits such issuers to sell up to $50 million of securities yet caps affiliate sales at $15 million. Moreover, Tier 2 offerings are subject to further supplementary disclosure and reporting requirements (e.g., requiring eligible issuers to provide audited financial statements and file annual and semiannual current event reports), and allow eligible issuers to preempt state registration and qualification requirements for securities sold to “qualified purchasers,” as such term is defined in the rules. The new rules will be effective 60 days after publication in the Federal Register.

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Federal and State Agencies Announce $714 Million FX Settlement

On March 19, four federal and state agencies –DOJ, the Department of Labor (DOL), the SEC, and New York Attorney General – entered into a proposed $714 million settlement agreement against a large bank to resolve allegations of fraudulent conduct involving the pricing and misleading representation of a specific foreign exchange product. According to the settlement, for over a decade the bank misled clients about the pricing they received on the bank’s automatic platform used to execute trades on the clients’ behalf. The bank quoted clients prices that were at or near the least favorable interbank rate, purchased the most favorable interbank rate for themselves, and sold the highest prices to clients, profiting from the difference. Under the proposed settlement, the bank will pay (i) a $167.5 million civil penalty to the DOJ to resolve allegations brought under federal statutes including FIRREA and the False Claims Act; (ii) $167.5 million to the State of New York to resolve claims brought under the Martin Act; (iii) $14 million to the DOL for ERISA claims, (iv) $30 million to the SEC to resolve violations of the Investment Company Act, and (v) $335 million to settle private class action suits filed by customers. The bank also agreed to end its employment relationship with senior executives involved in the conduct.

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SEC Settles with Global Manufacturer over FCPA Violations

On February 24, the SEC announced charges against a global manufacturer for alleged violations of the FCPA involving bribes paid by its African subsidiaries in order to make sales in Kenya and Angola. Over the course of a four-year period, the manufacturer allegedly failed to detect more than $3.2 million in bribes paid in cash to employees of private companies, government-owned entities, and other local authorities, including police or city council officials. According to the SEC Order, the manufacturer maintained “inadequate FCPA compliance controls,” allowing improper payments to be recorded as legitimate business expenses, which violated the books, records, and internal control provisions of the Securities Exchange Act of 1934. Under the terms of the settlement, the manufacturer will pay over $16 million to settle the SEC’s allegations and report its FCPA remediation efforts to the SEC for three years.

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SEC Chair Reveals Rulemaking Initiatives for 2015

On February 20, SEC Chair Mary Jo White delivered remarks regarding the agency’s 2014 accomplishments, including transformative rulemakings and enforcement, and its 2015 objectives. With respect to rulemaking, White outlined three specific areas that the SEC intends to enhance in 2015: (i) reforming market structure; (ii) risk monitoring of the asset manager industry; and (iii) raising capital for smaller companies. She stated the SEC is reviewing the current market structure and operations of the U.S. equity markets and working to “enhance the transparency of alternative trading system operations, expand investor understanding of broker routing decisions, address the regulatory status of active proprietary traders, and mitigate market stability concerns through a targeted anti-disruptive trading rule.” White described the SEC’s current asset management industry as “increasingly complex,” and noted that the SEC is reviewing three sets of recommendations to address this complexity and is paying “particular attention to the activities of asset managers.” Finally, White stated that the SEC will focus on implementing Regulation A+ and crowdfunding, both mandates of the JOBS Act, to assist smaller issuers with raising capital.

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SEC Proposes Hedging Disclosure Rule

On February 9, the SEC issued a proposed rule implementing Section 955 of the Dodd-Frank Act. The rule would require directors, officers, and other employees of public companies to disclose in proxy and information statements whether they use derivatives and other financial instruments to offset or “hedge” against the decline in equity securities granted by the company as compensation, or held, directly or indirectly, by employees or directors. The proposed rule would apply to equity securities of a public company, its parent, subsidiary, or any subsidiary of any parent of the company that is registered with the SEC under Section 12 of the Exchange Act.  Public comments will be accepted for 60 days following publication in the Federal Register.

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SEC Names New Chief Counsel in Trading and Markets

On February 11, the SEC named Heather Seidel as Chief Counsel of the Division of Trading and Markets, effective immediately. Seidel will oversee the Office of Chief Counsel, which provides legal and policy advice to the Commission, issues interpretations on matters arising under the Securities Exchange Act of 1934, and manages the division’s enforcement liaison functions. She previously served as an Associate Director within the division’s Office of Market Supervision.

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SEC Publishes Industry Alert on Cybersecurity

On February 3, the SEC released a set of publications – a Risk Alert and an Investor Bulletin – assessing the level of cybersecurity at broker-dealers and advisory firms and highlighting best practices that allow investors to help protect their online accounts. The Risk Alert contains observations based on examinations of more than 100 broker-dealers and investment advisers. The examinations focused on how the firms (i) identify cybersecurity risks; (ii) establish cybersecurity policies, procedures, and oversight processes; (iii) protect their networks and information; (iv) identify and address risks associated with remote access to client information, funds transfer requests, and third-party vendors; and (v) detect unauthorized activity.

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FinCrimes Webinar Series Recap: Individual Liability – FinCrimes Professionals in the Spotlight

BuckleySandler hosted a webinar, Individual Liability: Financial Crimes Professionals in the Spotlight, on January 22, 2015 as part of its ongoing FinCrimes Webinar Series. Panelists included Polly Greenberg, Chief, Major Economic Crimes Bureau at the New York County District Attorney’s Office, Richard Small, Senior Vice President for Enterprise-Wide AML, Anti-Corruption and International Regulatory Compliance at American Express, and Michael Zeldin, Special Counsel at BuckleySandler. The following is a summary of the guided conversation moderated by Jamie Parkinson, Partner at BuckleySandler, and key take-aways you can implement in your company.

Best Practice Tips and Take-Aways:

  • Be completely transparent with senior management and your board of directors when escalating issues and concerns. Document your requests for program enhancements and management responses.
  • Assure yourself that your team is up to the task at hand, adequately resourced and knows that they can escalate anything that concerns them to compliance and/or senior management/the Board.
  • When considering the quality of your compliance program, be sure that your program is tested internally by your compliance function, tested again by your organization’s internal audit team, and in addition is examined every few years by external counsel/consultant.
  • If confronted with management unwillingness to commit adequate headcount and resources necessary to the compliance program, serious consideration has to be given to resigning and/or reporting these deficiencies.

Read more…

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FinCEN Fines NY-Based Securities Broker-Dealer for Anti-Money Laundering Shortfalls

On January 27, FinCEN fined a New York securities broker-dealer firm $20 million for violating the BSA. According to the press release, the firm failed to (i) establish an adequate anti-money laundering program; (ii) conduct proper due diligence on a foreign correspondent account; and (iii) comply with Section 311 of the USA Patriot Act. These failures resulted in customers engaging in suspicious trading, including prohibited third-party activity and illegal penny stock trading, without it being detected or reported. The firm must pay $10 million of the $20 million penalty to the US Department of the Treasury. The remaining $10 million will be paid to the SEC to settle a parallel enforcement action.

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SEC Schedules Proxy Voting Roundtable

On January 27, the SEC announced that it will host a roundtable to discuss ways to improve the proxy voting process, focusing most specifically on universal proxy ballots and retail participation in the proxy process. Divided into two panels, the roundtable will focus on (i) “the state of contested director elections and whether changes should be made to the federal proxy rules to facilitate the use of universal proxy ballots by management and proxy contestants;” and (ii) “strategies for advancing retail shareholder participation in the proxy process.” The roundtable is scheduled to take place on February 19 in Washington, D.C.

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