Enforcement

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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

On August 21, 2018, the Commodity Futures Trading Commission (the “CFTC”) unanimously approved final amendments (the “Amendments”) to its regulations governing chief compliance officer (“CCO”) duties and annual compliance report requirements for swap dealers, major swap participants and futures commission merchants (together, “Registrants”) (the “CCO Rule”).

The Amendments seek to streamline and clarify the CCO…

On August 2, 2018, the U.S. Commodity Futures Trading Commission (the “CFTC”) announced multiple whistleblower awards totaling more than $45 million.[1]  Although this is only the seventh such aggregate award announced by the CFTC since the inception of its whistleblower program in October 2011,[2] it is the Commission’s highest to date, and comes weeks after the agency’s announcement of two such awards last month.  This recent activity, which follows a two-year hiatus during which the CFTC did not grant any whistleblower awards, may signal the Commission’s renewed focus on touting the success of its whistleblower program as well as the conclusion of a number of major CFTC investigations.[3]  It is also in keeping with the Commission’s aggressive pace of enforcement actions in recent months.[4]
Continue Reading CFTC Announces Highest Aggregate Whistleblower Award to Date, Totaling More Than $45 Million

On July 18, 2018, the U.S. Securities and Exchange Commission (the “SEC” or “Commission”) voted to approve a final rule (the “Final Rule”) amending Regulation Alternative Trading System (“Regulation ATS”) to require alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks (“NMS Stock ATSs”) to file with the SEC new Form ATS-N to begin operations or, for currently operating ATSs, to continue operations.  Form ATS-N will provide for enhanced disclosures regarding the ATS’s operations and relationship with its broker-dealer operator relative to current Form ATS and will be publicly available.  Importantly, unlike under the November 2015 proposal (the “Proposed Rule”), the SEC would automatically deem the Form ATS-N submissions to be effective after the review period, unless the Commission found it to be ineffective.
Continue Reading SEC Reforms Regulation ATS to Improve Trading Transparency

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

On July 11, 2018, the Securities and Exchange Commission’s (“Commission”) Office of Compliance Inspections and Examinations (“OCIE”) published a risk alert describing common deficiencies that OCIE staff observed in recent examinations regarding advisers’ compliance with their obligation under the Investment Advisers Act of 1940 (the “Advisers Act”) to seek “best execution” of client transactions.  This obligation is a specific component of advisers’ general fiduciary duties owed to clients and requires an adviser to execute transactions so that “the client’s total cost of proceeds in each transaction is the most favorable under the circumstances.”  Though what constitutes “best execution” lacks a uniform definition, the staff continues to maintain the well-settled principle that an analysis of whether a broker-dealer provides best execution should be qualitative based on the nature of the broker-dealer’s services, and that the lowest price does not necessarily equate to best execution.  The risk alert nonetheless clarifies and reiterates particular practices that the staff considers inconsistent with an adviser’s best execution obligation. 
Continue Reading OCIE Risk Alert Focuses on “Best Execution” and Investment Advisers

During the course of the last month, the Securities and Exchange Commission (“SEC”) brought two enforcement actions related to inadequate disclosure of perquisites.  In early July, the SEC issued an order finding that, from 2011 through 2015, an issuer failed to follow the SEC’s perquisite disclosure standard,[1] which resulted in a failure to disclose approximately $3 million in named executive officer perquisites.[2]   In addition to the imposition of a $1.75 million civil penalty, the SEC order mandated that the issuer retain an independent consultant (at its own expense) for a period of one year to conduct a review of its policies, procedures, controls and training related to the evaluation of whether payments and expense reimbursements should be disclosed as perquisites, and to adopt and implement all recommendations made by such consultant.
Continue Reading Recent SEC Enforcement Actions on Inadequate Perquisite Disclosure

Last month, the Supreme Court granted a writ of certiorari in Lorenzo v. SEC,[1] a case where Francis Lorenzo, a registered representative of a broker-dealer, allegedly emailed false and misleading statements to investors that were originally drafted by his boss.  After administrative and Commission findings of liability, a divided panel of the D.C. Circuit determined that, while Lorenzo was not the “maker” of the statements, he did use them to deceive investors, and thereby violated the so-called scheme liability provisions of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.  As described in the petitioner’s motion seeking certiorari, the case presents the question whether, under the Court’s 2011 Janus Capital Group, Inc. v. First Derivative Traders decision,[2] the scheme liability provisions of Rule 10b-5(a) and (c) may be used to find liability in connection with false or misleading statements by persons who are not themselves the maker of those statements and, thus, not liable under the false-and-misleading statements provision of Rule 10b-5(b).[3]  The answer to this question could have implications for the Securities and Exchange Commission’s (“SEC” or “Commission”) Enforcement Division as well as potentially significant implications for private securities litigants who principally rely on Section 10(b) to bring private causes of action sounding in fraud. 
Continue Reading Lorenzo v. SEC: Will the Supreme Court Further Curtail Rule 10b-5?