Tag: Compliance & ethics

SEC Interpretation of “Whistleblower” Definition

Nicholas S. Goldin is a partner at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher publication by Mr. Goldin, Peter H. BresnanYafit Cohn, and Mark J. Stein.

On August 4, 2015, the Securities and Exchange Commission (“SEC”) issued an interpretive release to clarify its reading of the whistleblower rules it promulgated in 2011 under Section 21F of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The release expressed the SEC’s view that the employment retaliation protection accorded by the Dodd-Frank Act and codified in Section 21F is available to individuals who report the suspected securities law violation internally, rather than to the SEC. [1]


Asset Managers: AML ready?

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Jeff Lavine, Adam Gilbert, and Armen Meyer. The complete publication, including footnotes and appendix, is available here.

On August 25th, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed anti-money laundering requirements for US investment advisers. The proposal requires advisers that are registered with the Securities and Exchange Commission (SEC) to establish anti-money laundering (AML) programs, to report suspicious activities related to money laundering and terrorist financing, and to comply with other sections of the Bank Secrecy Act (BSA).

If finalized as proposed, the impact of these new requirements will vary. Advisers owned by bank holding companies (BHCs) are already subject to similar requirements that are applicable to their BHC parents and enforced by the Federal Reserve. These advisers will nevertheless likely experience an increase in regulatory oversight, as the proposal now allows the SEC to enforce AML requirements.


U.S. Enforcement Policy and Foreign Corporations

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, David GruensteinRalph M. LeveneDavid B. Anders, and Lauren M. Kofke.

We recently reported on a new U.S. Department of Justice policy which expanded expectations for corporate cooperation in white collar investigations. While the initial wave of attention given to the DOJ pronouncement focused on U.S. companies, this new policy is also important for all companies with operations in the U.S. or whose activities otherwise bring them within the long arm of U.S. enforcement jurisdiction. Underscoring the relevance of these new policies to non-U.S. companies, Deputy Attorney General Yates noted in her remarks announcing the new policy that among “the challenges we face in pursuing financial fraud cases against individuals” is the fact that “since virtually all of these corporations operate worldwide, restrictive foreign data privacy laws and a limited ability to compel the testimony of witnesses abroad make it even more challenging to obtain the necessary evidence to bring individuals to justice.”


Individual Accountability for Corporate Wrongdoing

Daniel P. Chung is of counsel in the Washington, D.C. office of Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn publication authored by Mr. Chung, F. Joseph Warin, Charles J. Stevens, and Debra Wong Yang.

On September 9, 2015, the Department of Justice (“DOJ”) issued a new policy memorandum, signed by Deputy Attorney General Sally Yates, regarding the prosecution of individuals in corporate fraud cases—”Individual Accountability for Corporate Wrongdoing” (“the Yates Memorandum”).

The Yates Memorandum has been heralded as a sign of a new resolve at DOJ, and follows a series of public statements made by DOJ officials indicating that they intend to adopt a more severe posture towards “flesh-and-blood” corporate criminals, not just corporate entities. Furthermore, the Yates Memorandum formalizes six guidelines that are intended “to strengthen [DOJ’s] pursuit of corporate wrongdoing.”

Though much of the Yates Memorandum is not entirely novel, corporations and their executives should take close note of DOJ’s increasing and public focus on individual prosecutions. Additionally, both corporations and DOJ should take note of how the Yates Memorandum may carry a number of consequences—intended and unintended—with respect to cooperation with DOJ investigations.


Title VII and Security-Based Swaps

Robert W. Reeder III and Dennis C. Sullivan are partners at Sullivan & Cromwell LLP. This post is based on a Sullivan and Cromwell publication. The complete publication is available for download here.

In the first half of 2015, the Securities and Exchange Commission (the “SEC”) finalized or proposed a number of rules relating to security-based swaps (“SBSs”). These include final and proposed rules on the reporting and public dissemination of security-based swaps, proposed rules on security-based swap transactions arranged, negotiated or executed by U.S.-based personnel of a non-U.S. person and final rules on the registration of security-based swap data repositories (“SDRs”). This post provides an overview of these regulatory developments.


Circuit Split on Dodd-Frank Act Whistleblower Provision

Aaron M. Katz and Eva Ciko Carman are partners at Ropes & Gray LLP. This post is based on a Ropes & Gray Alert.

On Thursday, September 10, 2015, the United States Court of Appeals for the Second Circuit issued its highly anticipated decision in Berman v. Neo@Ogilvy LLC. The plaintiff-appellant, Daniel Berman, had been the finance director of Neo@Ogilvy. Mr. Berman’s lawsuit alleged that Neo@Ogilvy had unlawfully terminated him because he had reported internally, to senior company officers, supposed violations of GAAP and other accounting irregularities. The question of law presented was whether the Dodd-Frank Act’s whistleblower anti-retaliation provision offers protection to an employee who, like Mr. Berman, is fired after he reports possible financial misconduct internally but before he makes a report to the SEC. The district court had answered that question in the negative and dismissed Mr. Berman’s wrongful termination lawsuit. On appeal, the SEC, participating as amicus curiae, argued that the Dodd-Frank Act’s statutory language is ambiguous and that the SEC’s agency regulation answering that question in the affirmative, Exchange Act Rule 21F-2, is a reasonable interpretation of the statute. The Second Circuit agreed with the SEC, thereby creating a circuit split on the issue and raising the possibility that the Supreme Court will soon weigh in.


DOJ Adopts New Requirements for Corporations Seeking Credit for Cooperation

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Mr. Savarese, Ralph M. LeveneWayne M. CarlinJonathan M. Moses, and David B. Anders.

In an important development for corporations responding to federal investigations, the Department of Justice announced on September 10, 2015 revisions to its Principles of Federal Prosecution of Business Organization (“Principles”). The new policies, set out in a memorandum authored by Deputy Attorney General Sally Yates and sent to federal prosecutors across the nation, instruct prosecutors to focus their efforts to secure evidence against individuals responsible for corporate wrongdoing. The memorandum (accessible here) specifically encourages increased attention by DOJ attorneys on considering cases against individual wrongdoers, and also establishes additional guidelines that federal prosecutors and civil enforcement attorneys must follow in conducting and resolving corporate investigations.


Reg SCI: Ready for Opening Bell?

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, and Armen Meyer. The complete publication, including footnotes, is available here.

Less than three months remain before the November 3rd, 2015 go-live date of Regulation Systems Compliance and Integrity (“Reg SCI”). While some impacted entities have made great progress toward compliance since the rule was finalized last December, many still have a great deal to do.

Reg SCI is a wide-reaching new regulatory regime aimed at improving the SEC’s oversight of the US securities market and the market’s operational stability. The rule applies to about 35 entities that make up the core of the market’s technological infrastructure (“SCI entities”).

Perhaps the most pressing activity for SCI entities is preparing for the completion of their first annual review by December 31st of this year. This annual review must be performed by the entity’s “objective personnel”—i.e., people who were not involved in the development, testing, or implementation of the relevant systems (or involved in the Reg SCI compliance program itself). Many SCI entities are working to assemble teams of such personnel to carry out the review, which will include detailing the state of the entity’s compliance and identifying needed remediation.


D.C. Circuit Rules Against Conflict Minerals Disclosure Requirement

The Honorable Mario Mancuso is a corporate partner and of the International Trade and Investment Practice at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Mancuso, Michael T. Gershberg, and Jocelyn Ryan.

On August 18, 2015, a divided three-judge panel of the U.S. Court of Appeals for the D.C. Circuit confirmed its earlier ruling striking down part of the Securities and Exchange Commission’s (“SEC”) Conflict Minerals Rule (the “Rule”) as unconstitutional. Nat’l Ass’n. of Mfrs. v. SEC, No. 13-5252 (D.C. Cir. Aug. 18, 2015). The court again held that requiring issuers to describe their products as “not been found to be ‘DRC conflict free’” in reports filed with the SEC and posted on issuers’ websites violates the First Amendment.

The Decision

The ruling dealt only with the requirement in the Rule that issuers characterize their products using the label “not been found to be ‘DRC conflict free,’” and the court held that this requirement amounts to compelled speech in violation of the First Amendment’s right to freedom of speech. The decision is a narrow one and leaves unaffected the remaining disclosures required under the Rule, such as disclosure of facilities used by the issuer, country of origin of the issuer’s products and the efforts undertaken by the issuer to obtain such information.


D.C. Circuit Court Upholds Conflict Minerals Decision

Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

In the ongoing challenge to the SEC’s conflict minerals rule, the D.C. Circuit Court of Appeals, in a 2-1 decision, issued an opinion on August 18 upholding its April 2014 finding that a key aspect of the rule violates constitutional free-speech guarantees, a decision we discussed in this client newsflash.

Last year, the SEC asked the D.C. Circuit to rehear the case in light of the outcome of an unrelated First Amendment lawsuit, American Meat Institute v. United States Department of Agriculture, which addressed the proper standard of review for compelled commercial speech. Stating that it saw no reason to change its analysis in light of the American Meat decision, the court affirmed that it would adhere to its original judgment that portions of the Dodd-Frank Act, under which the rule was promulgated, and the SEC’s final rule, “violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be ‘DRC conflict free.’’”


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