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Federal Securities Law Blog

Information on federal securities laws, news and developments

FCPA to increasingly target individuals

Posted in Foreign Corrupt Practices Act

The head of the Department of Justice (DOJ) Criminal Division warned Friday that Foreign Criminal Practices Act (FCPA) prosecutions will increasingly target individuals wrongdoers, rather than corporations. Assistant Attorney General Leslie Caldwell, speaking at the American Conference Institute’s National Conference on the Foreign Criminal Practices Act, outlined a two-prong approach to attack foreign corruption:

  1. Bring those who pay bribes to justice “no matter how rich and powerful they are,” and;
  2. Attack corruption at its source by prosecuting and seizing the assets of corrupt foreign officials.

Caldwell warned that DOJ efforts will focus on “bribes of consequence” — payments that fundamentally undermine confidence in markets and governments. Focusing on these types of cases allows the DOJ to show corporate executives that if they participate in a scheme to improperly influence a foreign official, they will “personally risk the very prospect of going to prison.” Continue Reading

“The Bandits’ Club” gets its due

Posted in Antitrust

Our colleagues at Antitrust Law Source posted an interesting update about probable charges alleging that traders at approximately a dozen global banks – including Deutsche Bank, JPMorgan Chase, Barclays, and USB – fixed the foreign exchange market, or “forex,” market. The U.S. Department of Justice may bring charges by the end of the year. Read the complete article on Antitrust Law Source.

Supreme Court refuses to review FCPA challenge

Posted in Criminal Charges in Securities Cases, Foreign Corrupt Practices Act, Supreme Court

The U.S. Supreme Court on Monday refused to review the first Foreign Corrupt Practices Act (FCPA) case appealed to the highest Court. The appeal sought to limit the scope of the FCPA by narrowing the law’s definition of the term “foreign official.”

Joel Esquenazi and Carlos Rodriguez, former executives of Terra Telecommunications Corp., had challenged their convictions under the FCPA and had asked the Supreme Court to clarify who counted as a foreign official under the law. The Eleventh Circuit had affirmed the conviction and the ruling that defined the term instrumentality as “any entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”

Continue Reading

Whistleblowers wanted; Holder seeks increased compensation for financial crime informants

Posted in Corporate Governance, Whistleblower Issues

In the first major public comment about white collar crime in more than a year, the Department of Justice (DOJ) called for an increase in compensation for whistleblowers under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Senior DOJ officials, in three separate speeches, appealed to whistleblowers to come forward with information about crimes and suggested that compensation levels were too low to entice executives in the financial industry to report wrongdoing.

Attorney General Eric Holder, while speaking at New York University, suggested that Congress increase awards in cases involving banks and financial institutions. Under current law, FIRREA caps whistleblower awards at $1.6 million. Holder noted that under the False Claims Act (FCA), tipsters who provide information to law enforcement concerning wrongdoing can receive compensation at a level of 25 percent to 30 percent of the recovery received by the government.

Holder cited that in an industry that included a collective bonus pool of $26 billion and a median executive pay of $15 million, a “paltry” windfall of $1.6 million is “unlikely to induce an employee to risk his or her lucrative career in the financial sector.” Holder suggested that increased awards could improve the DOJ’s ability to gather evidence of wrongdoing “while complex financial crimes are still in progress — making it easier to complete investigations and to stop misconduct before it becomes so widespread that it foments into the next crisis.” Continue Reading

Sixth Circuit case specifies additional language required in indemnification survival clauses in M&A agreements

Posted in Executive Officer Matters, General Business News, Shareholder News

A recent Sixth Circuit case, interpreting Ohio law, found that a merger agreement stating that the representations and warranties “shall survive…the Closing until… the second anniversary date of the Closing…,” without more, was not sufficient to modify the statute of limitations for breach of contract claims related to the merger agreement. Fortunately, this issue can be remedied in merger agreements with the addition of a provision expressly limiting when “actions,” “demands” or “claims” may be brought.

This article describes the Sixth Circuit case in greater detail and provides a sample contract provision that M&A parties can add to their M&A agreements to ensure that courts will respect the parties’ intent to modify the statute of limitations in the survival clause of the agreement.

Background of the Sixth Circuit case

Escue v. Sequent, Inc., 2014 FED App. 0412N (6th Cir. 2014), involved the acquisition of Better Business Solutions of Alabama, Inc. (“Better Business”) by Sequent, Inc. pursuant to a stock for stock merger that closed Jan. 1, 2007. On Dec. 18, 2008, the plaintiff, the sole shareholder of Better Business, sent a letter to the defendant corporation stating that he intended to sue the defendant corporation for breaching its representations and warranties. However, the lawsuit was not filed until September 2009. Continue Reading

Late Form 4s aren’t just embarrassing anymore

Posted in Corporate Governance, SEC Enforcement Cases, SEC News

Yesterday, the SEC announced penalties totaling approximately $2.6 million against directors, officers, beneficial owners and issuers for failure to promptly report information about holdings and transactions in company stock.

The primary enforcement weapon for these types of failures historically has been public shaming: Rule 405 of Regulation S-K requires issuers to identify insiders who failed to file Section 16 reports on time during the previous year. But, apparently, based on yesterday’s announcement, the SEC also will levy fines against issuers and individual insiders for chronic filing failures.

Settled fines for individuals ranged from approximately $25,000 to $100,000. Six publicly-traded companies settled claims that they contributed to the filing delinquencies of their insiders and paid fines ranging from $75,000 to $150,000.

U.S. Commerce Department acknowledges that conflict minerals are too hard to track

Posted in Dodd-Frank Act, SEC News

According to a Wall Street Journal article reported by Emily Chasen, Senior Editor at The Wall Street Journal‘s CFO Journal, on Sept. 5, 2014, the U.S. Commerce Department acknowledged “it cannot determine which refiners and smelters around the world are financially fueling violence in the war-torn Congo region.”

The WSJ article noted that companies including Intel Corp. and Apple have spent a substantial amount of time and millions of dollars “investigating their supply chains to figure out which components might contain gold, tin, tungsten and tantalum from mining operations blamed for funding armed militia groups in the Democratic Republic of the Congo.” According to Tom Quaadman, vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, “[a]t the end of the day, the conflict minerals rule creates the worst outcome — it has not helped lessen the conflicts in the Congo and creates economic harm in the U.S.”

The SEC final rules on conflict minerals, adopted Aug. 22, 2012, pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, require companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo or an adjoining country. See SEC Adopts Final Rules for Disclosing Use of Conflict Minerals (posted Aug. 24, 2012). Additionally, the conflict mineral rules have been the subject of much litigation during the past two years, which has provided no clarity to companies as to their compliance obligations.

Editor’s note: Though the basis for the conflict mineral rules is a worthy and noble exercise, the execution has been costly and time-consuming for U.S. companies with very little benefit. If the U.S. Commerce Department cannot track the source of these minerals, how can companies be expected to do the same to comply with the disclosure rules? The SEC needs to step back and reassess the cost-benefit of the conflict mineral disclosure obligations.

Porter Wright launches Antitrust Law Source

Posted in Antitrust, Porter Wright News

We wanted to take a moment to announce our newest endeavor, Antitrust Law Source. Antitrust Law Source is a new site designed for visitors to quickly and easily learn about developments in this growing arena. The site will focus primarily on news and legal updates related to antitrust in a podcasting format. The podcasts will feature a variety of insights, educational offerings, discussions and interviews with thought leaders across a variety of industries.

The site is prepared by members of our firm’s Antitrust Practice Group and will feature news and information on a range of areas, including:

  • Agriculture
  • Civil litigation
  • Compliance programs/audits
  • Consumer protection
  • Criminal and civil government enforcement
  • Distribution, pricing and promotional allowance programs
  • Healthcare
  • Intellectual property/Technology
  • International issues
  • Legislative matters
  • Mergers, acquisitions and joint ventures
  • Privacy and data security

We encourage you to share your thoughts with us.

Merging? Making an acquisition? Be careful out there.

Posted in Antitrust, Corporate Governance

Almost 40 years ago, Congress passed the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The HSR Act provided a mechanism pursuant to which parties to an acquisition of assets or voting securities would be required, if certain thresholds were met, to file a notification form with the antitrust enforcement agencies — the Federal Trade Commission (the FTC”) and the Department of Justice, Antitrust Division (the DOJ) — and observe a waiting period before they consummated the transaction. The HSR Act empowered the FTC to promulgate rules and regulations governing the circumstances under which the parties would be required to submit an HSR Act filing.

The HSR Act rules and regulations are extensive and extremely complex; therefore, it is prudent for investors — both companies and individual — to have compliance procedures in place to ensure compliance with the HSR Act. Every so often, the FTC reminds us of this fact when it brings an enforcement action to penalize those who do not abide by their rules and regulations. That happened last week with an action, and consent decree, filed against Berkshire Hathaway. Continue Reading

SEC adopts money market fund reform

Posted in SEC News

On July 23, 2014, the Securities and Exchange Commission announced that it adopted amendments to the rules governing money market mutual funds. Read a copy of the final rules.

These amendments complete some long-awaited steps to make structural and operational reforms to address risks of investor runs in money market funds to address investor runs out of funds as occurred during the 2008 financial crisis. Specifically, the new rules require institutional prime money market funds to value the funds on a floating net asset value rather than a fixed $1 share price. Additionally, the rules allow money market funds boards to impose liquidity fees and redemption gates during periods of financial stress.

The final rules provide a two-year transition period to enable both funds and investors time to fully adjust their systems, operations and investing practices.