Investigations and White Collar Defense

DOJ's New Guidance for Evaluating Corporate Compliance Programs

Why it matters: On February 8, 2017, the DOJ released, to little fanfare, a new guidance document entitled "Evaluation of Corporate Compliance Programs." The stated purpose of the new guidance is to give corporations "some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program." The DOJ said that the new guidance consists mainly of information pulled from a number of previously released government resources (e.g., the U.S. Attorney's Manual, the U.S. Sentencing Guidelines and the FCPA Resource Guide, to name a few), so the motivation behind it appears to be that corporations who are seeking not to be prosecuted pursuant to the internal DOJ guidance known as the "Filip" factors will have a list of questions they need to be prepared to answer before DOJ will consider offering a declination, deferred prosecution, or non-prosecution agreement.

Detailed discussion: On February 8, 2017, the Fraud Section of the DOJ's Criminal Division (Fraud Section) posted new guidance on the DOJ website entitled "Evaluation of Corporate Compliance Programs" (New Guidance). The Fraud Section's motivating factor in releasing the New Guidance appears to be one of transparency by accumulating into one document the "important topics and sample questions" typically raised by the Fraud Section in criminal investigations of a corporation's compliance program—which up until now could only be found in numerous previously-released and distinct government resources. Although titled "Evaluation of Corporate Compliance Programs," the questions go beyond compliance, focusing on the alleged criminal conduct as well.

Background—The Filip Factors

In the introductory paragraph of the New Guidance, the Fraud Section references the specific factors, commonly known as the "Filip Factors" (part of the "Principles of Federal Prosecution of Business Organizations" contained in the U.S. Attorney's Manual), that "prosecutors should consider in conducting an investigation of a corporate entity, determining whether to bring charges, and negotiating plea or other agreements." Relevant to the New Guidance, the Filip Factors include "'the existence and effectiveness of the corporation's pre-existing compliance program' and the corporation's remedial efforts 'to implement an effective corporate compliance program or to improve an existing one.'" The Fraud Section pointed out that, "[b]ecause a corporate compliance program must be evaluated in the specific context of a criminal investigation that triggers the application of the Filip Factors, the Fraud Section does not use any rigid formula to assess the effectiveness of corporate compliance programs" and must make an individualized determination on a case-by-case basis.

Why Do We Need the New Guidance?

The Fraud Section said that, even though an individual determination must be made in each case, "[t]here are … common questions that we may ask in making an individualized determination. This document provides some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program." The Guidance noted that many of the topics and questions are found in other federal and international publications and are brought together in this document for convenience.

The Fraud Section cautioned, however, that the "topics and questions below form neither a checklist nor a formula. In any particular case, the topics and questions set forth below may not all be relevant, and others may be more salient given the particular facts at issue."

The New Guidance—"Sample Topics and Questions" for Evaluating Corporate Compliance Programs

The New Guidance is divided into the following 11 "Sample Topics and Questions" the Fraud Section will consider in evaluating the robustness and efficiency of corporate compliance programs in criminal investigations:

Analysis and Remediation of Underlying Misconduct: This topic focuses on the underlying corporate misconduct at the heart of the government's investigation and the corporation's historical efforts to address it. Enumerated questions to be considered fall under the headings "Root Cause Analysis," "Prior indications" and "Remediation."

Senior and Middle Management: The analysis here focuses on executive and board oversight at the corporation vis Ă  vis compliance and is broken down into questions concerning "Conduct at the Top," "Shared Commitment" and "Oversight."

Autonomy and Resources: This section focuses on the corporate culture toward compliance and the importance it is given in terms of employee training and experience, etc. The line of inquiry here looks to "Compliance Role," Stature," and "Experience and Qualifications."

Policies and Procedures: This topic looks at the compliance program the corporation has in place, and the analysis is divided into two distinct parts. The first, "Design and Accessibility," focuses on questions relating to "Designing Compliance Policies and Procedures," "Applicable Policies and Procedures," "Gatekeepers" and "Accessibility." The second, "Operational Integration," investigates how the compliance policy is integrated into the policies and procedures of other departments of the corporation and is divided into questions concerning "Responsibility for Integration," "Controls," "Payment Systems," "Approval/Certification Process" and "Vendor Management."

Risk Assessment: The focus here is on risk assessment and management and the corporate systems and methodologies in place for detecting the type of misconduct being investigated. This line of inquiry looks to "Risk Management Process," "Information Gathering and Analysis" and "Manifested Risks."

Training and Communications: This topic goes deeper into the training given to employees and how the corporation communicates its expectations and positions regarding compliance, and is divided into questions concerning "Risk-Based Training," "Form/Content/Effectiveness of Training," "Communications about Misconduct" and "Availability of Guidance."

Confidential Reporting and Investigation: This line of inquiry focuses on how the corporation encourages employees to report incidences of misconduct (including assurances of confidentiality) and the mechanisms pursuant to which that information is collected and internally investigated. The questions here relate to "Effectiveness of the Reporting Mechanism," "Properly Scoped Investigation by Qualified Personnel" and "Response to Investigations."

Incentives and Disciplinary Measures: This topic focuses on how the corporation holds employees accountable for the misconduct and sets out questions relating to "Accountability," "Human Resources Process," "Consistent Application" and "Incentive System."

Continuous Improvement, Periodic Testing and Review: This topic looks to what the corporation does to ensure that its compliance program is continuously evolving to reflect present-day realities, with questions focused on methods for "Internal Audit," "Control Testing" and "Evolving Updates."

Third-Party Vendors: This section focuses on how the corporation deals with third-party management, with questions relating to "Risk-Based and Integrated Processes," "Appropriate Controls," "Management of Relationships" and "Real Actions and Consequences."

Mergers and Acquisitions (M&A): This line of inquiry focuses on the systems in place in the event the corporation acquires/merges with other companies and asks questions relating to "Due Diligence Process," "Integration in the M&A Process" and "Process Connecting Due Diligence to Implementation."

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SEC—Data Analytics Key to Unlocking Fraud Schemes

Why it matters: Data analytics, used by the SEC to find suspicious trading patterns, has in recent years become a formidable weapon in the SEC's arsenal to combat insider trading and other fraudulent trading schemes. Two recent SEC enforcement actions, where the SEC specifically credited the use of data analytics to "crack the case," bear this out.

Detailed discussion: In recent years, the SEC has increasingly used data analytics—performed by the little-known Analysis and Detection Center (ADC) of the SEC Enforcement Division's Market Abuse Unit (Market Abuse Unit)—to unmask insider trading and other fraudulent trading schemes by analyzing data to find suspicious trading patterns. According to a November 2016 article by Reuters (Nate Raymond reporting) that discussed the ADC (formed in 2010) in the context of insider trading cases, the ADC "culls through billions of rows of trading data going back 15 years to identify individuals who have made repeated, well-timed trades ahead of corporate news." Reporter Raymond explained that "[t]he SEC does not have a direct feed of the markets' trading data. Instead, it mines 10 billion rows of 'blue sheet' data of trades executed by brokerages that the agency gathered in various investigations." Raymond quoted former SEC Enforcement Director Andrew Ceresney, who called data analytics the "new frontier," as saying that the SEC has "tremendous amounts of data available to use, and we've been developing tools to take advantage of that."

According to Raymond, ADC analysts use "a home-grown program called Artemis to analyze patterns and relationships among multiple traders" as well as "software from privately-held Palantir Technologies, which identifies links between individuals and entities by connecting pieces of information from multiple data sources. In 2015, the agency awarded a $90 million, five-year contract to Palantir." Raymond quotes Joseph Sansone, Co-Chief of the Market Abuse Unit, as saying that "[t]he ability to see pattern of multiple trades over a matter of months or years gives us confidence to invest resources into investigations."

Raymond said that the SEC's use of data analytics "signals a shift in how the agency initiates insider trading probes, which more often are launched based on referrals from Wall Street's self-regulator Financial Industry Regulatory Authority, or an informant's tip." Raymond added that the SEC's "new strategy" of using data analytics is "starting to show results," with it being credited for the SEC being able to "launch nine insider trading cases, around 7 percent of cases the agency brought since 2014 against people who trade on confidential corporate information."

While Raymond's article focused on insider trading cases, the SEC uses data analysis to identify suspicious trading patterns in other fraud investigations as well. Two recent SEC enforcement actions are illustrative of this point. The first involves a high-profile insider trading case, while the other involves an elaborate investor fraud "cherry-picking scheme." In both cases, the SEC specifically credited the use of data analytics for "cracking the case."

Insider trading: On February 10, 2017, the SEC announced that it had used data analytics to unmask the Chinese national who "reaped massive profits" in excess of $29 million from an insider trading scheme in the weeks leading up to the April 2016 of the acquisition of DreamWorks Animation SKG Inc. (DreamWorks) by Comcast Corp. (Comcast). In addition, the SEC announced that it had obtained an emergency court order freezing five brokerage accounts holding the illegal profits.

The SEC alleged that, prior to the DreamWorks acquisition, Shaohua Yin (Yin), a partner at Hong Kong-based private equity firm Summitview Capital Management Ltd., "allegedly did not trade in DreamWorks stock through his own account but instead traded through five accounts from addresses in Beijing and Palo Alto and on a computer that also accessed Yin's email accounts." The SEC said that the five accounts through which Yin traded were held by Chinese nationals, including his elderly parents, and at one point prior to the acquisition had amassed more than $56 million of DreamWorks stock (the price for which rose 47.3% once the acquisition was announced).

Michele Wein Layne, Director of the SEC's Los Angeles Regional Office, credited the use of data analytics to unmask Yin, stating that, "[d]espite the defendant's alleged attempts to hide his control over these accounts, the SEC's data analytic investigative tools enabled us to determine who was behind the suspicious trading."

"Cherry-picking": On January 25, 2017, the SEC announced that it had uncovered a "cherry-picking" investor fraud scheme using data analytics. The SEC alleged that investment adviser Michael J. Breton and his Massachusetts-based firm, Strategic Capital Management, "agreed to be banned from the securities industry after the agency uncovered an illegal cherry-picking scheme through its data analysis used to detect suspicious trading patterns."

The SEC said that the Market Abuse Unit's analysis of six years of Breton's trading data showed that Breton defrauded 30 clients out of approximately $1.3 million during that period by placing trades through a master brokerage account "and then allocat[ing] profitable trades to himself while placing unprofitable trades into the client accounts."

Market Abuse Unit Co-Chief Sansone said that "[o]ur probing analytical work will continue to root out investment advisers who subject their clients to cherry-picking."

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Spotlight on the False Claims Act

Why it matters: This month, we cover a few of the recent False Claims Act (FCA) resolutions and actions involving the healthcare industry that caught our eye, including the DOJ's decision to intervene in part in a qui tam lawsuit brought against numerous Medicare Advantage healthcare insurers for overbilling Medicare in connection with risk adjustment data. Read on for a recap.

Detailed discussion: Below, we discuss some recent FCA actions and resolutions in the healthcare field that we found to be of interest:

DOJ intervention in qui tam lawsuit: On February 14, 2017, the DOJ filed a notice in the Central District of California of its decision to intervene in part in a qui tam lawsuit first filed under seal by the whistleblower relator in 2011 in New York federal court against UnitedHeath Group, Inc. (UnitedHealth), WellMed Medical Management (WellMed) and numerous other Medicare Advantage (MA) companies. The first amended complaint, which the DOJ ordered unsealed, alleged that since 2006 the named MA insurers had systematically overbilled Medicare by, among other things, submitting false certifications to the Centers for Medicare & Medicaid Services in connection with risk adjustment data in violation of the FCA. The DOJ intervened in the lawsuit only with respect to UnitedHeath and WellMed (declining to intervene with respect to the other named MA insurers) "[b]ased on their submission … of false or fraudulent claims for and false statements relating to Risk Adjustment payments under Parts C and D of the Medicare Program and with respect to their retention of overpayments arising from those false or fraudulent claims and false statements." The DOJ is due to file its complaint against UnitedHealth and WellMed within 90 days. The case is US ex rel. Poehling v. UnitedHealth Group et. al (Case No. 16- cv-08697 -MWF, C.D. Cal.).

Illegally imported chemotherapy drugs: On February 16, 2017, the U.S. Attorney's Office for the District of New Jersey announced that New Jersey doctor Kenneth D. Nahum, his self-named oncology practice (practice), and his wife (who managed the practice) agreed to pay $1.7 million to resolve FCA allegations that they "illegally imported and used unapproved chemotherapy drugs from foreign distributors and illegally billed Medicare." The DOJ said that, from April 1, 2010 to January 31, 2011, the defendants allegedly ordered chemotherapy drugs that had not been approved by the FDA for sale in the U.S. from a foreign distributor for use at their practice. The doctors at the practice allegedly injected the drugs into their patients, for which the practice then submitted claims to Medicare for reimbursement for the drugs and infusion services. According to the DOJ, "[s]ince Medicare will only reimburse for drugs that have been approved for use in the United States, the practice allegedly violated the federal False Claims Act." The defendants agreed to the settlement without admitting or denying liability. No qui tam whistleblower was mentioned.

Up-coding: On February 6, 2017, the DOJ announced that "major U.S. hospital service provider" TeamHealth Holdings (TeamHealth), successor-in-interest to IPC Healthcare Inc., f/k/a IPC The Hospitalists Inc. (IPC), agreed to pay $60 million to resolve allegations that IPC violated the FCA by "billing Medicare, Medicaid, the Defense Health Agency and the Federal Employees Health Benefits Program for higher and more expensive levels of medical service than were actually performed (a practice known as 'up-coding')." According the DOJ's allegations, which were neither admitted nor denied by IPC, IPC "knowingly and systematically" encouraged its hospital doctors to falsely bill for a higher level of service than actually provided. The DOJ said that "IPC's scheme to improperly maximize billings allegedly included corporate pressure on hospitalists with lower billing levels to 'catch up' to their peers." As part of the settlement and in addition to paying the $60 million, TeamHealth entered into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) covering the company's hospital medicine division which is "designed to increase TeamHealth's accountability and transparency so that the company will avoid or promptly detect future fraud and abuse." Qui tam whistleblower to receive award of $11.4 million.

More Tenet fallout: As a follow-up to our coverage of the DOJ's October 2016 resolution with Tenet Healthcare Corporation (Tenet) pursuant to which Tenet agreed to pay $513 million to resolve criminal charges and civil FCA claims (see our November 2016 newsletter under "Spotlight on the False Claims Act"), on February 1, 2017, the DOJ announced that former Tenet senior executive John Holland was indicted for his alleged role in the "over $400 million scheme to defraud" which "victimized the U.S. government, the Georgia and South Carolina Medicaid Programs, and prospective patients of Tenet hospitals." According to the indictment, while serving as a senior vice president of operations for Tenet's Southern States Region and as chief executive officer of North Fulton Medical Center Inc. (NFMC) from 2000 through 2013, Holland "engaged in a scheme to defraud the United States, and the Georgia and South Carolina Medicaid Programs, by causing the payment of bribes and kickbacks in return for the referral of patients" to NFMC and other Tenet hospitals located in Georgia and South Carolina. In addition, the indictment alleged that Holland "took affirmative steps to conceal the scheme including by circumventing internal accounting controls and falsifying Tenet's books, records and reports." The DOJ alleged that "these kickbacks and bribes helped Tenet bill the Georgia and South Carolina Medicaid Programs over $400 million, and Tenet obtained more than $149 million in Medicaid and Medicare funds based on the resulting patient referrals, the indictment alleges." The indictment also alleged that Holland made "false and fraudulent statements" to HHS-OIG in connection with Tenet's 2006 Corporate Integrity Agreement, including certifying that Tenet was in compliance with the terms of participation in the Medicare and Medicaid Programs and the terms of the CIA "when in fact he knew that Tenet was paying for illegal patient referrals."

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"Follow the Money"—Recent Notable AML Enforcement Actions

Why it matters: The government has been cracking down on financial institutions for falling short of the rigorous anti-money laundering (AML) requirements under the Bank Secrecy Act. This month, we discuss two recent enforcement actions that caught our eye involving AML failings in connection with a long-running international consumer wire fraud scheme and a "pump and dump" scheme. One take-away? AML compliance can be challenging, especially for those individuals at the financial institutions tasked with the job.

Detailed discussion: Following, we discuss a couple of recent notable AML enforcement actions conducted by the DOJ and the SEC.

Western Union: On January 19, 2017, the DOJ announced that Colorado-based The Western Union Company (Western Union), described as a "global money services business," agreed to forfeit $586 million and enter into agreements with the DOJ, the Federal Trade Commission (FTC) and various U.S. Attorney's Offices located in Pennsylvania, California and Florida. The DOJ said that, in its deferred prosecution agreement (DPA) with Western Union, the company admitted to "criminal violations including willfully failing to maintain an effective [AML] program and aiding and abetting wire fraud." In addition to forfeiting $586 million under the DPA, Western Union agreed to numerous "enhanced compliance obligations to prevent a repeat of the charged conduct."

According to Western Union's admissions and the statement of facts contained in the DPA with the DOJ, "between 2004 and 2012, Western Union violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme." The DOJ said that, as part of the scheme, "fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes or job opportunities. The fraudsters directed the victims to send money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds." According to the DOJ, the facts show that Western Union started receiving customer complaints (known as consumer fraud reports or CFRs) about this conduct as early as 2004 but "failed to take corrective action."

Moreover, the facts show that in 2004 Western Union's Corporate Security Department proposed "global guidelines for discipline and suspension of Western Union agents that processed a materially elevated number of fraud transactions," including "automatically suspending any agent that paid 15 CFRs within 120 days." The DOJ said that Western Union failed to implement these proposed guidelines, but had it done so "it could have prevented significant fraud losses to victims and would have resulted in corrective action against more than 2,000 agents worldwide between 2004 and 2012."

The DOJ pointed to numerous other BSA violations by Western Union over the eight year period, including (1) the acquisition of a significant "high fraud" agent "that Western Union knew prior to the acquisition had an ineffective AML program and had contracted with other agents that were facilitating significant levels of consumer fraud;" (2) failing to terminate or discipline agents who repeatedly violated the BSA and Western Union policy through structuring activity used to evade reporting requirements of transactions in excess of $10,000; and (3) failing to take effective measures to terminate the use by individuals of its money transfer system to send illegal gambling transactions from Florida to offshore sportsbooks.

The DOJ said that in a parallel investigation Western Union had agreed to settle with the FTC for the same conduct, which the FTC alleged violated the FTC Act. Under the FTC's order, Western Union agreed to a monetary judgment of $586 million and "to implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents." The FTC's order will be overseen by an independent compliance auditor for a period of three years.

Concurrently with the DOJ's announcement, FinCEN announced that, in conjunction with the DOJ/FTC investigations, it had assessed a civil penalty of $184 million (deemed satisfied by Western Union's forfeit to the DOJ of the $586 million) against Western Union Financial Services, Inc. (WUFSI) for "willfully violat[ing] the Bank Secrecy Act's [AML] requirements by failing to implement and maintain an effective, risk-based AML program and by failing to file timely suspicious activity reports (SARs)." In addition to the civil penalty, WUFSI entered into a consent agreement with FinCEN requiring it to take remedial measures including "increased scrutiny and periodic reporting regarding agent SAR reporting and disclosure of corrective actions taken against agents."

Again, to succinctly sum up the issue, FinCEN Acting Director El-Hindi said that its consent agreement with WUFSI "reflects [Western Union's] recognition of past shortcomings and the damage that can be done when there is a failure of a culture of compliance."

Windsor Street Capital (formerly Meyers Associates L.P.) and its former AML compliance officer: On January 25, 2017, the SEC announced that it had instituted administrative proceedings against New York-based brokerage firm Windsor Street Capital (formerly Meyers Associates L.P. (Meyers Associates)), as well as its former AML compliance officer John D. Telfer, for failing to file Suspicious Activity Reports (SARs) for $24.8 million in suspicious transactions. The suspicious transactions included "those occurring in accounts controlled by microcap stock financiers Raymond H. Barton and William G. Goode who were separately concurrently charged by the SEC with conducting a 'pump-and-dump' scheme" (without admitting wrongdoing, Barton and Goode agreed to settle with the SEC and pay over $8.7 million in disgorgement, interest and penalties).

Among other things, the SEC alleged that AML compliance officer Telfer and Meyers Associates "should have known about the suspicious circumstances behind many transactions occurring in customer accounts." With specific reference to the "pump and dump" scheme, the SEC said that "[c]ustomers like Barton and Goode allegedly deposited large blocks of penny stocks, liquidated them typically amid substantial promotional activity, and then transferred the proceeds away from the firm. … [T]he shares deposited by Barton and Goode could not be sold legally because no registration statement was in effect and no registration exemption was available." The SEC alleged that, "[r]ather than conduct a reasonable inquiry into the deposits," Telfer and Meyers Associates accepted registration exemption claims by Barton and Goode "at face value."

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Ponzi Schemers Promise Illusory "Hamilton" Tickets

Why it matters: On January 27, 2017, the SEC thwarted a Ponzi scheme where the defendants stand accused of taking an illegal "shot" at cashing in on the smash Broadway musical Hamilton and other high-demand shows by taking advantage of the inflated prices the desperate public would be willing to pay to score tickets to them.

Detailed discussion: On January 27, 2017, the SEC announced charges against two New York-based men, Joseph Meli and Matthew Harriton, for "running a Ponzi scheme with money raised from investors to fund businesses purportedly created to purchase and resell tickets to such high-demand shows as Adele concerts and the Broadway musical Hamilton." Specifically with respect to Hamilton, the SEC alleged that the men "went so far as to misrepresent that an agreement was in place with the producer of Hamilton to purchase 35,000 tickets to the musical. Investor money was supposedly paying part of that cost with the return on investment promised within eight months."

The SEC said that Meli and Harriton raised almost $81 million from 125 investors and 13 states by "misrepresent[ing] to investors that all of their money would be pooled to buy large blocks of tickets that would be resold at a profit to produce high returns for investors." Instead, the men allegedly used the "bulk" of investor funds to make "Ponzi payments to prior investors using money from new investors." In addition, the SEC alleged that Meli and Harriton diverted almost $2 million of investor funds for "personal expenses as jewelry purchases, private school and camp tuition, and casino payments."

The SEC filed a complaint in the Southern District of New York against Meli and Harriton, together with their four ticket-reselling businesses (Advance Entertainment, Advance Entertainment II, 875 Holdings, and 127 Holdings), seeking disgorgement plus interest and penalties. Meli's wife and another company were named as relief defendants. The SEC also said that the U.S. Attorney's Office for the SDNY had filed criminal charges against Meli in a parallel investigation.

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Eye on the Courts—Recent Decisions of Note

Why it matters: This month, we highlight a few recent court rulings we found to be of interest.

Detailed discussion:

Erhart v. BofI Holding, Inc.: On February 14, 2017, a Southern District of California judge ruled against the bank employer in the summary judgment stage of a whistleblower retaliation lawsuit, finding that the confidentiality provisions of an employment agreement (governed by California state law) are unenforceable as contrary to public policy to the extent that they run contrary to federal securities laws protecting whistleblowers who share confidential information with the SEC.

In re Search Warrant to Google: On February 3, 2017, a magistrate judge in the Eastern District of Pennsylvania ordered Google to comply with search warrants seeking customer emails stored outside of the U.S., finding that the transfer of emails stored on foreign servers to servers in the U.S. so as to enable FBI review did not qualify as an unlawful extraterritorial application of the Stored Communications Act (SCA) or an unlawful seizure under the Fourth Amendment. The judge's ruling was directly opposed to the July 2016 Second Circuit opinion in Microsoft v. United States (en banc review denied January 2017) that had reversed a district court ruling and held that Microsoft was not required to comply with a search warrant for customer emails stored on a server in Ireland because the SCA does not have extraterrestrial application and does not authorize U.S. courts to issue and enforce warrants for the seizure of emails stored exclusively on foreign servers.

Zayed (as court-appointed receiver for Oxford Global Partners, LLC et.al) v. Associated Bank, N.A.: On January 31, 2017, a District of Minnesota judge granted summary judgment in favor of Green Bay, Wisconsin-based Associated Bank, relieving it from a lawsuit that alleged that the bank knowingly aided a $194 million Ponzi scheme that defrauded nearly 700 investors nationwide. In throwing out the case against Associated Bank, the judge ruled that, in order to find the bank liable, Minnesota law requires evidence that the bank had "actual knowledge" of the fraud. After a review of the underlying factual record, the judge found that no "genuine issues of material fact" existed and that no reasonable jury would be able to reach the conclusion that the bank had "actual knowledge" of the fraud. The court-appointed receiver has filed an appeal to the Eighth Circuit.

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Keeping an Eye Out—Updates and Briefly Noted

1. Updates:

a. Focus on the Foreign Corrupt Practices Act (FCPA): Update to our ongoing monthly FCPA coverage.

i. On January 26, 2017, the DOJ announced that it had charged two former executives of hedge fund Och-Ziff Capital Management Group (Och-Ziff) with being the "driving forces behind a far-reaching bribery scheme" that violated the FCPA. We reported on the DOJ's resolution with Och-Ziff, its first FCPA resolution with a hedge fund, in our November 2016 newsletter under "FCPA Focus—SEC Edition."

ii. On January 19, 2017, the DOJ announced that Nevada-based gaming and resort company Las Vegas Sands Corp. agreed to pay a $6.96 million criminal penalty to resolve violations of the FCPA in connection with business transactions in the People's Republic of China and Macao.

b. SEC whistleblower program: Update to our ongoing reporting about the SEC's whistleblower program, most recently in our February 2017 newsletter under "Give a Little Whistle—SEC Whistleblower Program Update."

On January 23, 2017, the SEC announced that it had granted an award of over $7 million to be split among three whistleblowers as follows: "One whistleblower provided information that was a primary impetus for the start of the SEC's investigation. That whistleblower will receive more than $4 million. Two other whistleblowers jointly provided new information during the SEC's investigation that significantly contributed to the success of the SEC's enforcement action. Those two whistleblowers will split more than $3 million."

c. Car trouble: Update to the story in our February 2017 newsletter entitled "When Regulatory Failings Turn Criminal: Car Edition Redux."

On February 1, 2017, Volkswagen announced that it had agreed to pay an additional $1.2 billion to settle consumer and FTC civil claims in connection with the diesel emissions scandal.

2. Briefly noted: A couple of other enforcement actions bear note.

a. On January 23, 2017, the SEC announced that it had charged shipping conglomerate Overseas Shipholding Group (OSG) and its former chief financial officer Myles R. Itkin with "failing to recognize hundreds of millions in tax liabilities in its financial statements that had accumulated over nearly 12 years resulting from its controlled foreign subsidiary guaranteeing OSG's debt that had been borrowed under various credit financing agreements." The SEC said that, as a result, "OSG materially understated its income tax liabilities by approximately $512 million (17 percent) of its total liabilities." The SEC noted that OSG had filed for bankruptcy protection in November 2012 following the discovery of the tax liabilities.

b. On January 19, 2017, the DOJ announced that Costco Wholesale (Costco) agreed to pay $11.75 million to settle allegations that its pharmacies violated the Controlled Substances Act when they improperly filled prescriptions for controlled substances. The DOJ said that the settlement resolves allegations that "Costco pharmacies filled prescriptions that were incomplete, lacked valid Drug Enforcement Administration (DEA) numbers or were for substances beyond various doctors' scope of practice" and "failed to keep and maintain accurate records for controlled substances at its pharmacies and centralized fill locations."

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