On May 7, 2019, the Department of Justice issued formal guidance to DOJ’s False Claims Act litigators on the circumstances in which DOJ will grant credit for cooperation during FCA investigations.

The guidance explains the factors that DOJ considers in determining whether to award cooperation credit in FCA investigations and the types of credit available.

Please click here to read the full alert memorandum.

On May 2, 2019, the United States District Court for the Southern District of New York issued an important decision delineating the boundaries between conducting a proper internal investigation and acting as an arm of the government.

For the government, the consequences of “outsourcing” an investigation to a company and its counsel could be exclusion of evidence collected as a result of that internal investigation, including statements made by a company employee in an interview, or even dismissal of an indictment.

In United States v. Connolly, Chief Judge Colleen McMahon held that the Department of Justice, Commodity Futures Trading Commission (“CFTC”), and other agencies had effectively outsourced their investigation of potential LIBOR manipulation at Deutsche Bank to the bank and its lawyers and that as a consequence the Fifth Amendment rights of the former Deutsche Bank trader who was on trial, Gavin Black, were likely compromised when he was compelled under threat of termination to submit to an interview by Deutsche Bank’s external counsel.  The conviction was ultimately sustained, but only because the compelled statements were not used to obtain a conviction.  The ruling has potentially broad implications for conducting internal investigations because of the significant obligations that attach to those deemed to be government agents, even beyond the important Fifth Amendment rights at issue in Connolly.

Please click here to read the full alert memorandum.

As discussed in our most recent blog post, on April 30, 2019, the Criminal Division of the U.S. Department of Justice (“DOJ” or “the Department”) announced updated guidance for the Criminal Division’s Evaluation of Corporate Compliance Programs (“the Guidance”).  The Guidance is relevant to the exercise of prosecutorial discretion in conducting an investigation of a corporation, determining whether to bring charges, negotiating plea or other agreements, applying sentencing guidelines and appointing monitors.[1]  The Guidance focuses on familiar factors: the adoption of a well-designed compliance program that addresses the greatest compliance risks to the company, the effective implementation of the company’s compliance policies and procedures, and the adequacy of the compliance program at the time of any misconduct and the response to that misconduct.  The Guidance makes clear that there is no one-size-fits-all compliance program and that primary responsibility for the compliance program will lie with senior and middle management and those in control functions. Continue Reading DOJ Guidance on Corporate Compliance Programs: A Checklist for Directors

On April 30, 2019, the Criminal Division of the U.S. Department of Justice announced updated guidance for the Criminal Division’s Evaluation of Corporate Compliance Programs (“the Guidance”) in charging and resolving criminal cases.  This memorandum highlights key updates and discusses the themes present across versions of the Guidance.  Overall, this newest version places greater emphasis on distilling “lessons learned” from misconduct, and on incorporating those lessons into the compliance program using objective metrics collected from monitoring and information gathering.  The Guidance also reinforces the Department’s review of third party management and the implementation of compliance tools in the M&A context.

Please click here to read the full alert memorandum.

In recent weeks two enforcement actions by the UK Financial Conduct Authority (“FCA”) against regulated firms have highlighted the regulator’s continued scrutiny of transaction reporting.  In the decisions, the FCA has reiterated the importance of complete, accurate and timely transaction reporting to assist in its objective of protecting and enhancing the integrity of the UK’s financial system.  The significant penalties imposed in each case, £27.6 million and £34.3 million respectively, demonstrate the serious consequences for firms that fail to meet their transaction reporting requirements.

Continue Reading FCA Continues Focus on Transaction Reporting Breaches

Legal and regulatory scrutiny regarding the use of non-disclosure agreements by companies to resolve allegations of sexual harassment and misconduct continues to increase in the wake of the #MeToo movement.  Such scrutiny featured prominently this month in two high-profile sexual harassment matters: the Wynn Resorts investigation and the various legal proceedings following the allegations against Harvey Weinstein.  Both in-house and outside counsel for companies with senior executives facing such allegations should take note of these developments, as they call into question whether the use of NDAs could in certain circumstances amount to investigatory obstruction or a violation of ethical obligations. Continue Reading New Scrutiny for NDAs in Sexual Harassment Matters

On April 3, 2019, Senator (and Democratic Presidential contender) Elizabeth Warren announced proposed legislation—dubbed the “Corporate Executive Accountability Act”—that would effect a dramatic change in white collar criminal law by permitting prosecution of corporate executives for negligent conduct.  Under traditional criminal law principles, defendants must typically have at least knowledge with respect to the conduct that constitutes the crime.  However, under Senator Warren’s proposed law, executives of large companies could be criminally prosecuted (and fined and/or jailed if convicted) if they are found to have acted negligently in failing to prevent criminal acts committed by the companies they supervise.  The bill is unlikely to be enacted, but it nonetheless represents a significant policy indication from a Presidential candidate. Continue Reading Senator Warren Proposes Bill to Hold Corporate Executives Criminally Accountable for Negligent Conduct

In the much-awaited Judgment No. 63, filed on March 21, 2019 and published on March 27, 2019 on Issue No. 13 of the Italian Official Gazette, the Italian Constitutional Court found that the principle of retroactive application of the most favorable law applies to the administrative penalties set forth under Legislative Decree No. 58 of February 24, 1998 against market abuse, thereby upholding the views expressed by the Milan Court of Appeals in its Order No. 87 of March 19, 2017.

In sum, the Court found that:

  • Administrative penalties against market abuse set forth under the Italian Securities Act have a “punitive nature;”
  • As such, these penalties must comply with the safeguards “that the Constitution and international human rights law,” including the European Convention for the Protection of Human Rights and Fundamental Freedoms (“ECHR”), “provide for criminal matters,” including the principle of retroactive application of the most favorable law;
  • More in general, the entire “body” of safeguards and principles applicable to “criminal matters” pursuant to the ECHR applies to administrative penalties having “a ‘punitive’ nature and purpose” according to the criteria set out by the European Court of Human Rights (“ECtHR”);
  • As a result, Art. 6(2) of Legislative Decree No. 72 of May 25, 2015 (“Decree”) violates the Constitution insofar as it bars the retroactive application of the amendments introduced by Art. 6(3) of the Decree (i.e., the inapplicability of the fivefold increase of penalties under Art. 39(3) of Law No. 262 of December 28, 2005) to administrative sanctions against market abuses under Articles 187-bis and 187-ter of the Italian Securities Act.

In addition to the critical topic specifically addressed by the Court, the Judgment is remarkable for the abovementioned, broadly-worded principles included in its reasoning, which suggest that the Italian Constitutional Court’s stance to the relationships between Supervisory Authorities and supervised subjects may become more libertarian in the future.

Please click here to read the full alert memorandum.

On March 25, 2019, partners Lev Dassin and Arthur Kohn participated in a webcast hosted by The Conference Board, entitled “Corporate Prosecutions: What Companies, Boards and Executives Need to Know.”  Daniel Gitner, a partner at Lankler Siffert & Wohl, also participated on the panel.

The panelists and moderator Doug Chia, executive director of The Conference Board, began by discussing corporate prosecutions generally, including the history of corporate prosecutions and how DOJ attitudes regarding corporate prosecutions have changed over time.  Dassin explained that the DOJ has more recently refocused its attention on prosecuting individuals engaged in corporate misconduct. Continue Reading Cleary Partners Participate in Panel Discussion on Corporate Prosecutions

On April 3, 2019, staff of the Securities and Exchange Commission released (1) a framework providing principles for analyzing whether a digital asset constitutes an investment contract, and thus a security, as defined in SEC v. W.J. Howey Co. and (2) a no-action letter permitting TurnKey Jet, Inc., without satisfying registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934, to offer and sell “tokenized” cards that are recorded on a permissioned blockchain and can be used for the limited purpose of purchasing air charter services.

The framework and no-action letter are a logical expansion of prior SEC statements and actions applying Howey to digital assets, but raises important interpretative issues for newly issued digital assets.

Please click here to read the full alert memorandum.