Tag: Corporate crime


Holding Corporate Officers and Directors Accountable for Failures of Corporate Governance

The following post comes to us from Greg M. Zipes, a trial attorney with the United States Department of Justice. This post is based on his article Ties that Bind: Codes of Conduct that Require Automatic Reductions to the Pay of Directors, Officers, and Their Advisors for Failures of Corporate Governance that was recently published in the Journal of Business and Securities Law. All comments are in Mr. Zipes’ individual capacity and do not reflect the views of the Department of Justice.

The following post comes to us from Greg M. Zipes, a trial attorney with the United States Department of Justice. This post is based on his article Ties that Bind: Codes of Conduct that Require Automatic Reductions to the Pay of Directors, Officers, and Their Advisors for Failures of Corporate Governance that was recently published in the Journal of Business and Securities Law. All comments are in Mr. Zipes’ individual capacity and do not reflect the views of the Department of Justice.

Executives and directors at large corporations rarely face personal liability for failures of oversight that lead to large penalties or losses to their companies. As outlined in my recent article, the American consumer can help provide a solution to this lack of accountability.

I propose that corporate executives and directors sign binding codes of conduct requiring them to uphold specific standards within their corporations. They would agree to specific, transparent reductions in compensation if they fail to live up to these standards. This proposal does not rely on the altruism of these corporate heads to sign. Rather, it assumes that those consumers, dismayed by corporate excesses, will direct at least a portion of their business towards those companies with executives who are willing to put their compensation on the line.

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White Collar and Regulatory Enforcement: What To Expect In 2015

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.

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.

Yet again, the past year has witnessed a staggering array of massive financial settlements in regulatory and white collar matters. Prominent examples, among many others, include Toyota, which was fined $1.2 billion in connection with resolving an investigation into safety defects; BNP, which pleaded guilty and paid $8.9 billion to resolve criminal and civil investigations into U.S. OFAC and other sanctions violations; Credit Suisse, which also pleaded guilty and paid $2.6 billion to resolve a long-running cross-border criminal tax investigation; and the global multi-agency settlements with six financial institutions for a total of $4.3 billion in fines, penalties and disgorgement in regard to allegations concerning attempted manipulation of foreign exchange benchmark rates. The government also continued to generate headlines with settlements arising out of the financial crisis, including settlements with numerous financial institutions totalling more than $24 billion. We have no reason to expect that this trend will change in 2015.

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2014 Year-End Update on Corporate Deferred Prosecution and Non-Prosecution Agreements

Joseph Warin is partner and chair of the litigation department at the Washington D.C. office of Gibson, Dunn & Crutcher. The following post is based on a Gibson Dunn client alert; the full publication, including footnotes and appendix, is available here.

Joseph Warin is partner and chair of the litigation department at the Washington D.C. office of Gibson, Dunn & Crutcher. The following post is based on a Gibson Dunn client alert; the full publication, including footnotes and appendix, is available here.

The U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) continue to deploy DPAs and NPAs aggressively. This past year left no doubt that such resolutions are a vital part of the federal corporate law enforcement arsenal, affording the U.S. government an avenue both to punish and reform corporations accused of wrongdoing. In early December, for example, U.S. Assistant Attorney General for DOJ’s Criminal Division, Leslie Caldwell, highlighted the importance of negotiated resolutions that allowed DOJ to “impose reforms, impose compliance controls, and impose all sorts of behavioral change.” She concluded: “In the United States system at least [settlement] is a more powerful tool than actually going to trial.” DOJ and the SEC have used negotiated resolutions, including DPAs and NPAs, to require companies to implement an effective compliance program. In 2014 we witnessed a number of notable developments in negotiated resolutions that demonstrate that the traditional hallmarks of DPAs and NPAs, including post-settlement compliance and reporting obligations, are here to stay.

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“Need to Know” White Collar Enforcement Trends for Directors

The following post comes to us from Michael W. Peregrine, partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine; the views expressed therein do not necessarily reflect the views of McDermott Will & Emery LLP or its clients.

The following post comes to us from Michael W. Peregrine, partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine; the views expressed therein do not necessarily reflect the views of McDermott Will & Emery LLP or its clients.

The ability of corporate directors to exercise effective judgment and oversight will be aided by an awareness of emerging white collar enforcement trends of the federal government.

These trends are primarily reflected in a notable series of significant speeches and other public comments made this fall by representatives of the Department of Justice. These include speeches made by senior officials of DOJ’s Criminal and Antitrust Divisions, as well as Attorney General Holder. Collectively, these trends may help to inform boards with respect to transactional planning, risk evaluation and compliance oversight, among other critical matters.

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Second Circuit Overturns Insider Trading Convictions

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, Wayne M. Carlin, and David B. Anders.

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, Wayne M. Carlin, and David B. Anders.

Earlier today [Wednesday, December 10, 2014], the Second Circuit Court of Appeals issued an important decision overturning the insider trading convictions of two portfolio managers while clarifying what the government must prove to establish so-called “tippee liability.” United States v. Newman, et al., Nos. 13-1837-cr, 13-1917-cr (2d Cir. Dec. 10, 2014). The Court’s decision leaves undisturbed the well-established principles that a corporate insider is criminally liable when the government proves he breached fiduciary duties owed to the company’s shareholders by trading while in possession of material, non-public information, and that such a corporate insider can also be held liable if he discloses confidential corporate information to an outsider in exchange for a “personal benefit.”

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Justice Deferred is Justice Denied

The following post comes to us from Peter R. Reilly of Texas A&M School of Law.

The following post comes to us from Peter R. Reilly of Texas A&M School of Law.

According to the U.S. Department of Justice (“DOJ”), deferred prosecution agreements are said to occupy an “important middle ground” between declining to prosecute on the one hand, and trials or guilty pleas on the other. A top DOJ official has declared that, over the last decade, the agreements have become a “mainstay” of white collar criminal law enforcement; a prominent criminal law professor calls their increased use part of the “biggest change in corporate law enforcement policy in the last ten years.”

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The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance

The following post comes to us from Wulf A. Kaal and Timothy Lacine of University of St. Thomas School of Law.

The following post comes to us from Wulf A. Kaal and Timothy Lacine of University of St. Thomas School of Law.

The increasing use of Non- and Deferred Prosecution Agreements (N/DPAs) has enabled federal prosecutors to incrementally expand their traditional role, exemplifying a shift in prosecutorial culture from an ex-post focus on punishment to an ex-ante emphasis on compliance. N/DPAs are contractual arrangements between the government and corporate entities that allow the government to impose sanctions against the respective entity and set up institutional changes in exchange for the government’s agreement to forego further investigation and corporate criminal indictment. N/DPAs enable corporations to resolve allegations of corporate criminal conduct, strengthen corporate compliance mechanisms to prevent corporate wrongdoing in the future, and mitigate the risks that collateral consequences of a conviction can bring for companies, their shareholders, employees, and the economy.

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Peer Effects and Corporate Corruption

The following post comes to us from Christopher Parsons of the Finance Area at the University of California, San Diego; Johan Sulaeman of the Department of Finance at Southern Methodist University; and Sheridan Titman, Professor of Finance at the University of Texas at Austin.

The following post comes to us from Christopher Parsons of the Finance Area at the University of California, San Diego; Johan Sulaeman of the Department of Finance at Southern Methodist University; and Sheridan Titman, Professor of Finance at the University of Texas at Austin.

Traditional models of crime frame the choice to engage in misbehavior like any other economic decision involving cost and benefit tradeoffs. Though somewhat successful when taken to the data, perhaps the theory’s largest embarrassment is its failure to account for the enormous variation in crime rates observed across both time and space. Indeed, as Glaeser, Sacerdote, and Scheinkman (1996) argue, regional variation in demographics, enforcement, and other observables are simply not large enough to explain why, for example, two seemingly identical neighborhoods in the same city have such drastically different crime rates. The answer they propose is simple: social interactions induce positive correlations in the tendency to break rules.

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2014 Mid-Year Update on Corporate Non-Prosecution and Deferred Prosecution Agreements

Joseph Warin is partner and chair of the litigation department at the Washington D.C. office of Gibson, Dunn & Crutcher. The following post and is based on a Gibson Dunn client alert; the full publication, including footnotes and appendix, is available here.

Joseph Warin is partner and chair of the litigation department at the Washington D.C. office of Gibson, Dunn & Crutcher. The following post and is based on a Gibson Dunn client alert; the full publication, including footnotes and appendix, is available here.

As the debate continues over whether and how to punish companies for unlawful conduct, U.S. federal prosecutors continue to rely significantly on Non-Prosecution Agreements (“NPAs”) and Deferred Prosecution Agreements (“DPAs”) (collectively, “agreements”). Such agreements have emerged as a flexible alternative to prosecutorial declination, on the one hand, and trials or guilty pleas, on the other. Companies and prosecutors alike rely on NPAs and DPAs to resolve allegations of corporate misconduct while mitigating the collateral consequences that guilty pleas or verdicts can inflict on companies, employees, communities, or the economy. NPAs and DPAs allow prosecutors, without obtaining a criminal conviction, to ensure that corporate wrongdoers receive punishment, including often eye-popping financial penalties, deep reforms to corporate culture through compliance requirements, and independent monitoring or self-reporting arrangements. Although the trend has been robust for more than a decade, Attorney General Eric Holder’s statements in connection with recent prosecutions of financial institutions underscore the dynamic environment in which NPAs and DPAs have evolved.

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Corporate Scandals and Household Stock Market Participation

The following post comes to us from Mariassunta Giannetti, Professor of Finance at the Stockholm School of Economics, and Tracy Yue Wang of the Department of Finance at the University of Minnesota.

The following post comes to us from Mariassunta Giannetti, Professor of Finance at the Stockholm School of Economics, and Tracy Yue Wang of the Department of Finance at the University of Minnesota.

Corporate scandals have large negative effects on the value of the firms that are discovered having committed fraud (Karpoff, Lee, and Martin, 2008; Dyck, Morse, and Zingales, 2013). Besides inflicting direct losses to shareholders, corporate fraud may also have indirect effects on households’ willingness to participate in the stock market, which may generate even larger losses by increasing the cost of capital for other firms. Evidence of the externalities generated by corporate fraud, however, is quite limited.

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