SEC administrative proceedings, a sorry state of affairs, voluntary disclosure calculus, nice payday but what was really accomplished, and for the reading stack. It’s all here in the Friday roundup.
SEC Administrative Proceedings
A focus on SEC administrative proceedings here at the Wall Street Journal.
“The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges …”
For discussion of this dynamic in the FCPA context, see my article “A Foreign Corrupt Practices Act Narrative” (pgs. 991-995).
“SEC administrative settlements, as well as SEC DPAs and NPAs, place the SEC in the role of regulator, prosecutor, judge and jury all at the same time and a notable feature from 2013 SEC FCPA corporate enforcement is that 4 (1 NPA and 3 administrative orders) of the 8 corporate enforcement actions (50%) were not subjected to one ounce of judicial scrutiny.”
In 2014, there have been three SEC corporate FCPA enforcement actions (Smith & Wesson, Alcoa, and HP). All have been resolved via the SEC’s administrative process.
Sorry State of Affairs
It really is a sorry state of affairs when former government enforcement attorneys go into private practice and then criticize the current enforcement climate that they helped create. For more on this dynamic in the FCPA context, see this prior post “A Former Enforcement Official Is Likely To Say (Or Has Already Said) The Same Thing.”
Albeit outside the FCPA Context, this ProPublica article, “In Turnabout, Former Regulators Assail Wall St. Watchdogs,” touches on the same general issue.
“Last week, I visited an alternate universe. The real world sees a pandemic of bank misconduct, but to the white-collar defense lawyers of Washington, the banks are the victims as they bow beneath the weight of regulators’ remarkably harsh punishments.
I was attending the Securities Enforcement Forum, a gathering of top regulators and white-collar defense worthies. The marquee section was a panel that included Andrew Ceresney, the current enforcement director of the SEC, and five of his predecessors. Four of those former S.E.C. officials represent corporations at prominent white-collar law firms. [...] The conference turned into a free-for-all of high-powered and influential white-collar defense lawyers hammering regulators on how unfair they have been to their clients, some of America’s largest financial companies.
This is how power and influence work in Washington. Former top officials, whose portraits mount the walls, weigh in on matters of enforcement. Now working for the private sector, they assail the regulatory “overreach.” Sincerely held or self-serving, these views carry weight in Washington’s clubby legal milieu.
Former regulators are the mouthpieces. And given what they say in public, one can only imagine what is happening behind closed doors.”
Voluntary Disclosure Calculus
At the Corporate Crime Reporter, Laurence Urgenson (Mayer Brown) talks about, among other topics, voluntary disclosure.
“Voluntary disclosure is still an important option in dealing with FCPA risk,” Urgenson said. “It used to be the default position — people had a predisposition toward it. It’s moved from the default position to one taken only after a clear-eyed case by case analysis of the benefits and the costs.” “That’s because the benefits and costs of voluntary disclosure have shifted. Part of that is the result of globalization. Part of it has to do with the increased penalties.” “It used to be that the Department of Justice and the SEC could provide companies with one stop shopping. If you volunteered to the Department and SEC, and you settled the matter, you had finality.” “That was a big benefit of the voluntary disclosure process. Now, because in part of the high penalties and globalization, the Department and SEC resolution can be the first stop in a long journey, which includes dealing with law enforcement authorities around the world, dealing with NGOs such as the World Bank which has an enforcement process, and navigating the risks of civil litigation.” “Once the Department of Justice resorted to the alternative fine provisions, which greatly increases the potential fines and once the SEC began to use the disgorgement remedy, FCPA settlements became much more costly, so much so that they could affect the stock price and provoke civil actions.” “You really have to sit down with the client and look at the list of pluses and minuses to voluntary disclosure. You have to go through with the client the long list of things that follow from voluntary disclosure.”
Nice Payday But What Was Really Accomplished?
As highlighted in this Law360 article:
“Alcoa Inc. shareholders on Monday asked a Pennsylvania federal judge to approve a settlement between shareholders and the board over allegations that the company paid hundreds of millions of dollars in illegal bribes to government officials in Bahrain. The proposed agreement states that aluminum producer Alcoa “has adopted or will adopt” compliance reforms that include the creation of a chief ethics and compliance officer, an officer-level position that oversees the ethics and compliance program, enhancements to the program that include the development of an anti-corruption policy, and implementation of Alcoa’s due diligence and contracting procedure for intermediaries.
The proposed settlement also provides that there be a reorganization of Alcoa’s regional and local counsel reporting structure, enhanced mandatory annual Foreign Corrupt Practices Act and employee anti-corruption training, improvements to its business expense policies, and enhancements to its compliance policies for evaluating the effectiveness of preventing corruption.
In addition, the company has agreed to pay $3.75 million to the plaintiffs’ counsel.
Alcoa admits no wrongdoing or liability under the terms of the proposed agreement.”
The issue is the same as highlighted in this prior post – nice payday, plaintiffs’ lawyer,s but what was really accomplished?
In connection with the January 2014 FCPA enforcement action against Alcoa World Alumina, Alcoa basically agreed to the same thing it agreed to do in the above settlement. (See here at Exhibit 4).
A review of my book, “The Foreign Corrupt Practices Act in a New Era” published at International Policy Digest by John Giraudo (of the Aspen Institute and formerly a chief compliance officer). It begins:
“If you care about the rule of law, The Foreign Corrupt Practices Act in the New Era by Mike Koehler, is one of the most important books you can read—to learn how it is being eroded. Professor Koehler’s book … is a must read for people who care about law reform. It is a story of how a good law, the US Foreign Corrupt Practices Act, a criminal law that prevents companies from bribing foreign government officials has been misapplied in recent enforcement actions by the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC).”
Miller & Chevalier’s FCPA Autumn Review 2014 is here.
A good weekend to all.