Corporate Civil Liability

On September 27, 2018, in remarks delivered at the 5th Annual Global Investigations Review New York Live Event, Deputy Assistant Attorney General Matthew S. Miner reported on the accomplishments of the Department of Justice (“DOJ”) over the course of the last twelve months.  Importantly, he also discussed recent changes to the DOJ’s policies on prosecution of business organizations and how those changes have been implemented.[1]  Miner highlighted the DOJ’s efforts to incentivize and provide guidance to companies to self-report, cooperate and remediate corporate misconduct while underscoring the importance of robust compliance programs to detect and prevent wrongdoing and to obtain full credit in resolving investigations by the DOJ. Continue Reading DOJ Remarks Highlight Changes to White Collar Policy

On September 14, 2018, a federal judge in the Southern District of New York certified as a class action a securities fraud suit against hedge fund Och-Ziff Capital Management Group LLC (“Och-Ziff”) and two of its executives.[1]  Shortly after the decision certifying the class, the parties informed the court that they had reached an agreement in principle to settle the case, which had gone forward on the basis of allegations that Och-Ziff had failed to make adequate disclosures related to its knowledge of the investigation. Continue Reading Certification of Securities Class Action Against Och-Ziff Relating to FCPA Violations Highlights Potential Collateral Consequences of FCPA Investigations

On September 4, 2018, the Securities and Exchange Commission (“SEC”) announced a $25.2 million settlement with French pharmaceutical company Sanofi (“Sanofi” or the “Company”) for violating the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with a scheme to bribe foreign officials to increase sales of Sanofi products.[2]  The Sanofi settlement encompasses conduct by three Sanofi subsidiaries organized in Kazakhstan, Lebanon and the United Arab Emirates (“UAE”).  The Sanofi settlement follows a recent enforcement action by U.S. authorities against another French company—Société Générale—for FCPA violations.[3]  In announcing the Sanofi resolution, the SEC signaled its intention to focus further on bribery risk in the pharmaceutical industry. Continue Reading Sanofi Settles FCPA Charges With SEC for $25.2 Million

On August 27, 2018, the Securities and Exchange Commission (“SEC”) announced a $34.5 million settlement with investment management firm Legg Mason, Inc. (“Legg Mason” or the “Company”) for violating the internal controls provision of the Foreign Corrupt Practices Act (“FCPA”) in connection with a scheme to bribe Libyan government officials to secure investments from Libyan state-owned financial institutions.[1]  The SEC settlement follows a June 2018 non-prosecution agreement between Legg Mason and the U.S. Department of Justice (“DOJ”) regarding the same conduct.[2]  Under the non-prosecution agreement, Legg Mason agreed to pay $64.2 million.  The Legg Mason settlements reflect the increased focus of U.S. authorities on coordinating with other authorities in imposing penalties on a company, including not “piling on,” and the continued enforcement of the FCPA, while highlighting the potential risks under the FCPA of not having proper controls in place for assessing use of third party intermediaries.

Continue Reading Legg Mason Settles FCPA Charge with SEC for $34.5 Million

In a February post, we discussed in detail recent changes to the U.S. tax rules governing the deductibility of settlement payments and court-ordered damages payments.  The IRS has now released some limited guidance on this new law (IRS Notice 2018-23), and this post addresses what is in this guidance (the “Notice”).

To recap, under the new law: a settlement or court-ordered payment made to (or at the direction of) a government in relation to the violation of any law (or the investigation or inquiry by such government into the potential violation of any law) is not deductible for U.S. tax purposes unless the payment constitutes “restitution (or remediation of property) ” or “a payment for the purpose of coming into compliance with a law”.

Continue Reading IRS Issues Guidance on Deductibility of Settlement Payments Under New Law

On Wednesday, the Supreme Court resolved a question that had created significant uncertainty concerning the scope of the anti-retaliation protections provided by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

In Digital Realty Trust, Inc. v. Somers, the U.S. Supreme Court unanimously rejected the expansive interpretation of Dodd-Frank’s anti-retaliatory protections established by relevant Securities and Exchange Commission (“SEC”) regulations and previously accepted by the Second and Ninth Circuits. In so doing, the Court held that employees who report potential securities law violations internally but not to the SEC fall outside the definition of a “whistleblower” under Dodd-Frank and accordingly do not benefit from its anti-retaliation protections. Instead, the Court held that the plain text and purpose of Dodd-Frank make clear that its anti-retaliatory protections – and not just Dodd-Frank’s whistleblower bounty incentives – apply only to whistleblowers who report securities law violations to the SEC.

The decision provides an additional incentive for whistleblowers to report to the SEC, and limits some remedies that might otherwise be available to whistleblowers who face retaliation. However, the decision should not generally cause companies to change their whistleblower policies and practices.

Please click here to read the full alert memorandum.

Investigations into potential violations of U.S. and non-U.S. securities laws are often resolved by a settlement requiring the business to make one or more large settlement payments.  We have seen settlements paid to the DOJ, the SEC, other U.S. and non-U.S. regulators, and private plaintiffs.  An important question is whether the payment will be deductible for tax purposes.  Since 1969, the U.S. tax law has denied a deduction for “any fine or similar penalty paid to a government for the violation of any law.”[i]  This limitation was significantly changed by the U.S. tax reform law enacted in December of 2017 (known as the Tax Cuts & Jobs Act or “TCJA”).  These changes, which had been proposed in Congress over 30 times since 2003 but not enacted until now, respond in part to disputes the IRS has had with taxpayers in the past.  Continue Reading Settlement Payments Under the New Tax Reform Law