On Monday, following two reversals of convictions, the U.S. Attorney’s Office for the District of Connecticut moved to dismiss the sole securities fraud claim remaining against former Jefferies bond trader, Jesse Litvak, bringing an end to the 5 1/2-year long case against him.[1] During the case’s winding procedural path, the Government twice secured convictions against Litvak by jury trial—on the theory that Litvak’s alleged misstatements about his own costs and profit margins for residential mortgage-backed securities (“RMBS”) trades would have been material to the decision-making of a reasonable (and often sophisticated) investor-buyer. And twice the Second Circuit overturned the convictions on narrow and technical grounds. Notably, even while seeking to dismiss the remaining charge, the Government maintains in its filing that the Second Circuit’s decisions left undisturbed the soundness of its legal theories—namely that a broker-dealer’s misstatements relating to his own profits to sophisticated counterparties could satisfy the materiality requirement for securities fraud as a matter of law.[2] Thus, notwithstanding the additional hurdles presented by the Second Circuit’s decisions, the Government’s decision not to pursue yet another trial against Litvak does not signal a death knell for all similar charges in the future, particularly those that are currently pending and arose as part of the Government’s RMBS probe. But the somewhat torturous history of the Litvak case does highlight the difficulty for the Government in establishing the materiality of alleged misstatements made to sophisticated securities professionals who undertake their own analysis of trades. Indeed, in many of these RMBS cases, the Government faced an uphill battle from the start, evidenced by its inability to secure convictions in many of them.
Continue Reading Two Strikes and You’re Out: The Litvak Saga Comes to an End
Government Moves to Voluntarily Dismiss Remaining Charge Against Jesse Litvak, Foregoing a Third Trial
The long-running criminal case against Jesse Litvak seems to have come to an end, with the U.S. Attorney’s Office for the District of Connecticut filing a motion yesterday seeking voluntary dismissal of the sole remaining charge.[1] This action—which has resulted in the government twice obtaining a criminal conviction against Litvak, only to see both convictions overturned by the Second Circuit—raised somewhat novel questions of the materiality of information a broker-dealer provides about its own costs or profit margins to sophisticated counterparties. Notably, even while seeking dismissal, the Government again reiterated its view that the legal theory it pursued, and which the Second Circuit twice appeared to credit, remains sound and (presumably) actionable in future cases.[2]
Continue Reading Government Moves to Voluntarily Dismiss Remaining Charge Against Jesse Litvak, Foregoing a Third Trial
DOJ Remarks Provide Guidance on Addressing FCPA Risk in M&A Transactions
DOJ has expanded its efforts to give more concrete guidance to companies facing FCPA risk to M&A transactions and the question of successor liability. In a speech on July 25, 2018, at the American Conference Institute’s 9th Global Forum on Anti-Corruption Compliance in High Risk Markets, Deputy Assistant Attorney General Matthew S. Miner highlighted DOJ’s views on successor liability for FCPA violations by acquired companies.[1] Miner sought to clarify DOJ’s policy regarding the voluntary disclosure of misconduct by successor companies and to highlight the benefits of such disclosure as spelled out in the joint DOJ and SEC FCPA Resource Guide (the “Resource Guide”).[2] In general, as with other recent pronouncements and actions by DOJ, such as the FCPA Corporate Enforcement Policy,[3] Miner’s speech seemed intended to highlight ways in which firms can gain cooperation credit (up to and including a declination) in FCPA investigations.
Continue Reading DOJ Remarks Provide Guidance on Addressing FCPA Risk in M&A Transactions
California District Court Holds that FIRREA’s 10-Year Statute of Limitations Reaches Risks Caused to Financial Institutions by Their Own Employees
A federal district court in California has become the latest court to hold that the 10-year statute of limitations under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) for offenses “affecting a financial institution” extends to offenses committed by banks and their employees, not just offenses committed against them. The decision is the latest chapter in a long-running debate between the Government and financial institutions that has played out in a series of federal court decisions over the last three years regarding interpretation of FIRREA. While this is not the first decision to hold that the 10-year limitations period applies to offenses by financial institutions, it is the first outside of the Second Circuit.
Continue Reading California District Court Holds that FIRREA’s 10-Year Statute of Limitations Reaches Risks Caused to Financial Institutions by Their Own Employees
Recent Settlement Highlights Cooperation Parameters Under the Department of Justice’s FCPA Corporate Enforcement Policy
Yesterday the U.S. Department of Justice (“DOJ”) announced a non-prosecution agreement (“NPA”) with a Hong Kong-based subsidiary of Credit Suisse Group AG arising out of the so-called “princelings” scandals of recent years—the practice of hiring unqualified, but politically-connected, relatives of Chinese officials to garner business from state-owned firms.[1] Per Credit Suisse’s admissions, “bankers discussed and approved the hiring of close friends and family of Chinese officials in order to secure business,” resulting in $46 million “in profits from business mandates with Chinese” state-owned enterprises. As part of the resolution, Credit Suisse agreed to a $47 million criminal penalty, to continue to cooperate with DOJ, and to enhance its compliance program, including adopting additional controls around hiring. In addition, Credit Suisse agreed to pay nearly $25 million in disgorgement and $4.8 million in prejudgment interest to the Securities and Exchange Commission (“SEC”). In its press release, DOJ stated that it was giving Credit Suisse a 15 percent discount from the bottom end of the U.S. Sentencing Guidelines for its cooperation in the investigation, while also (as discussed more below) noting steps the firm did not take that worked to limit the amount of such cooperation credit. While this is hardly the first of the “princelings” cases, it does demonstrate DOJ’s continued commitment to the cooperation framework it laid out in its FCPA Corporate Enforcement Policy (“Enforcement Policy”) late last year.[2]
Continue Reading Recent Settlement Highlights Cooperation Parameters Under the Department of Justice’s FCPA Corporate Enforcement Policy
Deputy Attorney General Rosenstein Announces New Policy to Limit “Piling On” in Enforcement Actions
On May 9, Deputy Attorney General Rod J. Rosenstein provided remarks at the American Conference Institute’s 20th Anniversary New York Conference on the Foreign Corrupt Practices Act and announced a new policy designed to promote coordination and limit the imposition of multiple penalties on a company for the same conduct, which he referred to as
The European Commission Proposes new Rules to Strengthen Whistleblower Protection
On April 23rd, the European Commission adopted a proposal for a directive on the protection of whistleblowers reporting breaches of Union Law.[1]
The proposal sets out minimum standards of protection for whistleblowers against retaliation when they report breaches in specific policy areas. The proposal is premised on the view that the lack of a common, effective approach to whistleblower protection across Member States can impair the enforcement of European law.[2]
Continue Reading The European Commission Proposes new Rules to Strengthen Whistleblower Protection
Canada Proposes New Deferred Prosecution Agreement Program
On March 27, 2018, the Canadian Government announced the introduction of legislative amendments to bring deferred prosecution agreements (“DPA”) to Canada. The legislation, which would create the “Remediation Agreement Regime” (“RAR”), follows a global trend. In recent years, DPA regimes have been introduced in the U.K. and France, and considered in a variety of other common law jurisdictions including Singapore and Australia. Although broadly patterned on an approach pioneered in the United States, like the statutory enactments in other countries adopted more recently, the Canadian RAR regime is likely to be considerably more structured and involve much more substantive judicial supervision.
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Cleary Partners Participate in Panel Discussion on Board Oversight of Sexual Harassment
Earlier this month, partners Jennifer Kennedy Park and Kimberly Spoerri participated in a panel co-hosted by The Conference Board and Cleary Gottlieb to discuss the board’s oversight role in issues related to sexual harassment.
Moderator Doug Chia, executive director of The Conference Board, Jen and Kim discussed relevant legal regulations and frameworks and the risks of non-compliance, as well as the policies, procedures and best practices boards and senior management can employ to mitigate risks. They discussed the responsibility the board has in setting company culture through tone at the top, and how the failure by the board and senior management to be proactive in this area can affect compliance and oversight throughout a company. The discussion also included ways the board can tangibly address these issues.
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Shift in Policy on Guidance Documents Suggests Change in DOJ Attitude Towards FCA Enforcement
Within the past few months, the Department of Justice (the “DOJ”) has released a series of memos that indicate a shift in its policy related to the treatment of agency guidance documents. This memorandum seeks to explain this policy shift and analyze its potential impact in the area of False Claims Act (“FCA”) enforcement.
Continue Reading Shift in Policy on Guidance Documents Suggests Change in DOJ Attitude Towards FCA Enforcement