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  • SEC enforcement director gives remarks on FCPA compliance

    Financial Crimes

    On October 3, 2018, Steven Peiken, Co-Director of the SEC’s Division of Enforcement, offered remarks at a white collar crime conference in New York City, discussing a range of issues related to FCPA compliance and enforcement. For example, likely responding to increasing criticism about the relatively few enforcement cases that have been brought by the SEC in recent years, Peiken addressed questions regarding the Enforcement Division’s effectiveness and efficiency metrics, noting that the Division is moving away from quantitative measurements of success to more qualitative metrics, such as whether retail investors are adequately protected and whether the agency is “keeping pace with technological change.”

    In addition, Peiken addressed the impact of the Supreme Court’s decision in Kokesh v. SEC, which held that disgorgement awards are punitive in nature and subject to a five year statute of limitations under 28 U.S.C. § 2462. Peiken stated: “The impact of Kokesh has been felt across our enforcement program. A few months ago, we calculated that Kokesh led us to forego seeking approximately $800 million in potential disgorgement in filed and settled cases. That number continues to rise.”

    Peikin concluded his remarks by noting that the Enforcement Division cannot continue to rely upon quantitative metrics to determine success, such as the size of awards and penalties. Instead, the Division must adopt “a nuanced and qualitative evaluation of our overall impact on achieving our investor and market integrity protection mission.” These remarks suggest that the rate of new actions and investigations filed by SEC’s Enforcement Division may not keep pace with recent years, and that the Division may instead be relying on impact cases or those that satisfy the more qualitative metrics Peikin described, when measuring success going forward.

    Financial Crimes SEC FCPA

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  • SEC settles FCPA accounting violations with medical device company

    Financial Crimes

    On September 28, the SEC announced a settlement with a Michigan-based medical device company to resolve the SEC’s charges of books and records and internal controls violations. According to the order, the company agreed to pay a $7.8 million penalty and accepted the imposition of an independent compliance consultant to resolve allegations that the company’s Indian subsidiary failed to maintain accurate books and records, and that the company’s internal controls were inadequate to identify possible improper payments related to the sale of its products in India, China, and Kuwait.

    This is the second enforcement action the SEC has brought against the company in recent years. In a prior action in October 2013, the company paid over $13.2 million in penalties, disgorgement, and interest to settle charges of FCPA violations for bribing doctors, health care professionals, and other government-employed officials in Argentina, Greece, Mexico, Poland, and Romania.

    Financial Crimes SEC

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  • SEC penalizes investment company $1 million for cyber security failings

    Privacy, Cyber Risk & Data Security

    On September 26, the SEC announced a settlement with an Iowa-based broker-dealer and investment advisement company, which agreed to pay $1 million to resolve allegations that the company violated the Safeguards Rule and the Identity Theft Red Flags Rule arising out of the company’s failure to protect confidential customer information from intrusion. This is the SEC’s first enforcement action charging violations under the Rule. According to the order, intruders were able to access the company’s system by impersonating company contractors, calling the company’s support line, and requesting their passwords be reset. The intruders gained access to the company’s system that contained personally identifiable information for approximately 5,600 customers and obtained unauthorized access to account documents for three customers. The SEC identified weaknesses in the company’s cybersecurity procedures, including failure to terminate the intruders’ access even after the intrusion was flagged and failure to apply its procedures to the systems used by its independent contractors. The order takes into account remedial acts undertaken by the company, including blocking malicious IP addresses and issuing breach notices to affected customers, and requires the company to pay a $1 million penalty and retain an independent consultant to evaluate its compliance with the Safeguards Rule and the Identity Theft Red Flags Rule. The company did not admit nor deny the SEC’s findings.

    Privacy/Cyber Risk & Data Security SEC Enforcement Settlement

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  • SEC settles FCPA charges with former CEO of Chilean mining company

    Financial Crimes

    On September 25, 2018, the SEC announced a settlement of FCPA charges against the former CEO of a Chilean-based chemical and mining company for $125,000. According to the SEC, over the course of seven years, the company’s then-CEO “caused the company to make nearly $15 million in improper payments to Chilean political figures and others connected to them.” The former CEO agreed to the settlement without admitting the findings in the SEC’s order. According to the SEC’s order, the former CEO signed false certifications related to financial reporting in the United States.

    Last year, the company agreed to pay $30 million to settle parallel DOJ and SEC charges against the company. That settlement demonstrated the jurisdictional reach of U.S. government enforcement of the FCPA – while the company is a Chilean company with no U.S. operations, it is registered with the SEC as a foreign private issuer.

    Financial Crimes SEC FCPA

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  • Brazilian oil company settles FCPA violations for $853 million to U.S. and Brazil

    Financial Crimes

    On September 27, 2018, the DOJ announced that a Brazilian state-owned oil company had entered into a Non-Prosecution Agreement with the DOJ, as well as settlement agreements with the SEC and Brazilian authorities, and agreed to pay a total $853.2 million in penalties to all jurisdictions. Under the terms of the settlement, DOJ and SEC will each receive 10 percent of the penalty amount, with Brazilian authorities receiving the remaining 80 percent.

    As part of the settlement, the company admitted that its Executive Board members “were involved in facilitating and directing millions of dollars in corrupt payments to politicians and political parties in Brazil,” while directors were “involved in facilitating bribes that a major contractor of the company was paying to Brazilian politicians.” The conduct included bribes related to several refineries, as well as shipyard and drillship contracts, as well as payments to “stop a parliamentary inquiry into the company's contracts.”

    The company's penalty reflects a 25 percent discount off the low end of the applicable U.S. Sentencing Guidelines due to its cooperation and remediation. While the company did not voluntary disclose its conduct, it cooperated with authorities by disclosing the findings of its internal investigation, providing document discovery, and facilitating the interview of foreign witnesses. It also took remedial measures by replacing its Board of Directors and Executive Board, as well as implementing reforms in its policies and procedures.

    In addition to the criminal penalty, the SEC announced that the company agreed to an administrative order requiring it to pay almost $1 billion in disgorgement and prejudgment interest. However, the company received full credit for payments it already made to resolve a class action for $2.95 billion earlier this year. The net result is that the company will not have to pay any additional funds to the SEC in the separate disgorgement action.

    Prior ScoreCard coverage of the company and related investigations can be found here.

    Financial Crimes FCPA DOJ SEC

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  • SEC awards nearly $4 million to whistleblower living overseas

    Securities

    On September 24, the SEC announced a whistleblower award of almost $4 million to an individual residing in a foreign country. The SEC determined the individual voluntarily provided critical information and continued assistance, which helped the agency bring a successful enforcement action. The SEC now has awarded over $326 million to 59 individuals since 2012.

    Securities SEC Whistleblower

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  • D.C. Circuit remands SEC case to be heard by new ALJ

    Courts

    On September 19, the U.S. Court of Appeals for the D.C. Circuit remanded an SEC case against an investment adviser and his company for a new hearing before another Administrative Law Judge (ALJ) or before the Commission in accordance with the U.S. Supreme Court decision in Lucia v. SEC. As previously covered by InfoBytes, in June, the Supreme Court held that SEC ALJs are “inferior officers” subject to the Appointments Clause of the Constitution. After the decision in Lucia, the SEC moved to remand the case for a new hearing. In response, the investment adviser moved to have the SEC’s previous orders, including those imposing penalties, set aside in whole, arguing that remand is not authorized in this circumstance; citing to Lucia, the investment adviser argued the penalties resulted from an unconstitutional hearing and the language concerning remand for a new hearing in Lucia was dicta and carried no weight. The D.C. Circuit rejected this argument and denied the motion to set aside in part, citing D.C. Circuit precedent in stating “carefully considered language of the Supreme Court, even if technically dictum, generally must be treated as authoritative.”

    Courts Federal Issues ALJ U.S. Supreme Court D.C. Circuit Appellate SEC

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  • Agencies offer relief following Hurricane Florence

    Federal Issues

    On September 19, the SEC announced regulatory relief to publicly traded companies, investment companies, accountants, transfer agents, municipal advisors, and others impacted by Hurricane Florence. The SEC order conditionally exempts affected persons not able to meet a filing deadline due to the weather event and its aftermath from certain reporting and filing requirements of the federal securities laws, for the period from and including September 14 to October 26, with all reports, schedules or forms to be filed on or before October 29. Additionally, the SEC adopted interim final temporary rules that extend the filing deadlines for certain reports and forms that companies must file under Regulation Crowdfunding and Regulation A. 

    On September 18, the Department of Veterans Affairs issued Circular 26-18-18, requesting relief for homeowners impacted by Hurricane Florence. Among other things, the Circular encourages loan holders to (i) extend forbearance to borrowers in distress because of the storms; (ii) establish a 90-day moratorium from the date of the disaster on initiating new foreclosures on affected loans; and (iii) waive late charges on affected loans. The Circular is effective until October 1, 2019.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues SEC Department of Veterans Affairs Disaster Relief Mortgages Securities

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  • Class certification granted to hedge fund investors

    Financial Crimes

    On September 14, a New York federal district court granted class certification to a group of shareholder investors suing an American hedge fund management firm and two of its senior executives on the grounds that the investors were misled about a government investigation into the company’s activities in Africa. In finding that the proposed class met all the requirements for certification, the court certified a class of investors that held some of the more than 100 million outstanding shares between February 2012 and August 2014, the time period in which the firm allegedly violated the Securities Exchange Act. Plaintiffs claim that the firm told investors it was not under any pending judicial or administrative proceeding that might have a material impact on the firm, when in fact it was under DOJ and SEC investigation over allegations that its employees were bribing government officials in Africa. The allegations against the firm were made public in 2014 media reports detailing government scrutiny into its dealings in Africa.

    Click here for prior FCPA Scorecard’s coverage of this matter.

    Financial Crimes DOJ SEC Securities Exchange Act Bribery

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  • SEC awards whistleblower $1.5 million after reducing amount for reporting delay

    Securities

    On September 14, the Securities and Exchange Commission (Commission) announced a whistleblower award likely to yield the whistleblower more than $1.5 million for volunteering information that led to a successful enforcement action. In its order, the Commission notes that it “severely reduced the award here after considering the award criteria identified in Rule 21F-6 of the Exchange Act.” Specifically, the Commission alleges the whistleblower was culpable and “unreasonably delayed” reporting the information for over a year after the occurrence of the underlying facts, only doing so after learning a Commission investigation was ongoing and receiving a “significant and direct financial benefit.”

    The SEC’s whistleblower program has awarded approximately $322 million to 58 individuals since issuing its first award in 2012.

    Securities SEC Whistleblower Enforcement

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