Investigations and White Collar Defense

White Collar Enforcement Omnibus Edition—Cyber Crimes, Sanctions and Spoofing, Oh My!

Why it matters: Since our last newsletter, a lot has been going on in white collar enforcement… so much so that we decided to devote an entire newsletter to it. It was a month of superlatives. The DOJ and the SEC announced significant resolutions of corporate enforcement actions, including the "largest criminal fine ever imposed in an FCPA case" and hundreds of millions of dollars in criminal penalties imposed for U.S. sanctions violations. Three individuals were charged for orchestrating a "massive" cyber hack of U.S. financial institutions, brokerage firms and major news publications, causing the "largest theft of customer data from a U.S. financial institution in history." And a high frequency trader was convicted of "spoofing" in the "first federal prosecution of its kind." In addition, high-ranking officials from the DOJ and the SEC were out in force giving speeches and pronouncements about everything from corporate individual accountability to FCPA compliance to cyber security. We cover it all here.

Detailed discussion: Read on for an overview of recent white collar enforcement matters and pronouncements of note in the areas covered below:

1. Foreign Corrupt Practices Act (FCPA):

Say Hello to My Little Friends "Mr. Geneva" and "Mr. Paris"—Alstom to pay $772 million to resolve FCPA charges: In what the DOJ called the "largest criminal fine ever imposed in an FCPA Case," on November 13, 2015 the DOJ announced that District of Connecticut judge Janet Bond Arterton had sentenced French power and transportation company Alstom S.A. (Alstom) to pay a fine of almost $772.3 million to resolve criminal charges related to a long-running corruption scheme pursuant to which the company and its subsidiaries paid at least $75 million in secret bribes to government officials in Saudi Arabia, Egypt, the Bahamas and Taiwan, among other countries, netting $300 million in profits. The sentencing comes less than a year after Alstom's guilty plea on December 22, 2014 to falsifying its books and records and failing to implement adequate internal controls in violation of the Foreign Corrupt Practices Act (FCPA). Also sentenced on November 13 was Alstom's Swiss subsidiary Alstom Network Schweiz AG (formerly Alstom Prom AG) (Alstom Swiss) pursuant to the plea agreement it entered into on December 22, 2014 in connection with charges that it had conspired to violate the anti-bribery provisions of the FCPA.

The court documents reveal a widespread corruption scheme committed by Alstom and its subsidiaries Alstom Swiss, Alstom Power Inc. and Alstom Grid, Inc. (formerly Alstom T&D Inc.), the latter two of which are U.S. subsidiaries that entered into deferred prosecution agreements with the government on December 22, 2014 in connection with the matter in addition to the bribery, Alstom and its subsidiaries attempted to conceal the scheme by hiring "consultants" identified in internal Alstom documents by their code names of "Mr. Geneva," Mr. Paris," "London," "Quiet Man" and "Old Friend," whose claimed purpose was to provide consulting services on behalf of the Alstom companies but who in reality were admitted to have "served as conduits for corrupt payments to government officials."

The DOJ described the fine imposed on Alstom as "the largest criminal fine ever imposed in an FCPA case" and said that it reflected a number of factors, including (1) Alstom's failure to voluntarily disclose the misconduct; (2) Alstom's refusal to fully cooperate with the DOJ's investigation for several years; (3) the breadth of Alstom's misconduct, "which spanned many years, occurred in countries around the globe and in several business lines, and involved sophisticated schemes to bribe high-level government officials"; (4) Alstom's lack of an effective compliance and ethics program; and (5) Alstom's prior criminal misconduct. The DOJ noted that Alstom began to cooperate more fully with the government after the DOJ publicly charged four Alstom senior executives in connection with the corruption scheme, all of whom entered guilty pleas except for Alstom's former senior vice president for the Asian region, Lawrence Hoskins, who is currently awaiting trial set to commence in April 2016 in the District of Connecticut (we discussed the Hoskins case in our September 2015 newsletter under "Judge Limits FCPA 'Accomplice Liability' in Hoskins"). Also caught up in the far-reaching web of Alstom's criminal activity were two additional non-Alstom individuals (a high-ranking member of the Indonesian parliament who is serving a three-year prison term in Indonesia for accepting bribes from Alstom; and the general manager of an agent for the state-owned Egyptian Electricity Holding Company who pleaded guilty in December 2014 in the District of Maryland of, among other things, accepting kickbacks from Alstom and was sentenced in March 2015 to serve 42 months in prison and forfeit approximately $5.2 million in illegal proceeds) as well as Alstom's partner in the aforementioned Indonesian projects, Marubeni Corporation, which pleaded guilty in March 2014 to violating and conspiring to violate the FCPA and was sentenced in May 2014 to pay a criminal fine of $88 million.

See here to read the DOJ press release entitled "Alstom Sentenced to Pay $772 Million Criminal Fine to Resolve Foreign Bribery Charges."

Beware of sales reps bearing gifts—Bristol-Myers Squibb settles FCPA civil charges in connection with bribes by sales reps in China: On October 5, 2015, the SEC announced that New York-based pharmaceutical company Bristol-Myers Squibb (BMS) agreed to pay a civil penalty of $2.75 million and return $11.4 million of profits in connection with cash payments and other gifts provided by sales representatives of its majority-owned Chinese joint venture BMS China to health care providers of state-owned and -controlled hospitals in exchange for prescription sales. The SEC had charged BMS with violating the civil books and records/internal control provisions of the FCPA because BMS China had inaccurately recorded the bribes as legitimate business expenses in its books, which were then consolidated into BMS's financial statements. In addition to the civil penalty, BMS also agreed to report to the SEC for two years on the status of its remediation and implementation of an FCPA anti-corruption compliance program. BMS announced in a corporate filing on October 27, 2015 that the DOJ formally informed the company that it had closed its FCPA inquiry into the matter.

The findings in the SEC's order (which were neither admitted to nor denied by BMS) show that, between 2009-2014, BMS China sales representatives sought to generate and increase prescription sales by providing Chinese health care providers at the state-owned or -controlled hospitals with bribes such as cash, jewelry, meals, travel, entertainment and sponsorships. The SEC found that BMS (1) failed to effectively respond to red flags about the bribes, (2) failed to investigate the claims of terminated employees that BMS China used faked invoices, receipts and purchase orders to cover the bribes, and (3) lacked effective internal controls in that it was slow to remediate gaps in those controls meant to monitor interactions with health care providers.

See here to read the SEC's 10/5/15 press release entitled "SEC Charges Bristol-Myers Squibb with FCPA Violations."

DOJ and SEC pronouncements re FCPA enforcement strategy: On November 17, 2015, Assistant Attorney General Leslie R. Caldwell and SEC Director of Enforcement Andrew Ceresney both spoke at the American Conference Institute's 32nd Annual International Conference on the FCPA. Their speeches contained similar themes (e.g., importance of voluntary self-disclosure and cooperation) and provided an overview of the DOJ's and SEC's efforts to date in connection with their respective FCPA enforcement programs. Our take on both of these speeches: with some exceptions, they are largely reiterations of previously stated DOJ and SEC positions. Some highlights and takeaways:

  • From Caldwell's speech: Caldwell's two main points were that (i) the DOJ is beefing up its manpower in the FCPA enforcement area. In 2015, the DOJ added three new "fully operational" squads to the FBI's International Corruption Unit that are focusing on FCPA matters. The DOJ also intends to hire 10 new prosecutors to the Fraud Section's FCPA Unit, "increasing its size by 50 percent." The Fraud Section also recently hired an experienced compliance counsel to help assess the strength of corporate compliance programs; and (ii) to get "maximum mitigation credit" from the DOJ in an FCPA case, a company must "(1) voluntary self-disclose, (2) fully cooperate and (3) timely and appropriately remediate." As part of "voluntary self-disclosure," the DOJ expects the company to proactively turn over information discovered in internal investigations about the individuals involved in the wrongdoing (which she said was "in line" with the DOJ's focus on individual accountability for corporate wrongdoing recently reiterated in the September 9, 2015 "Yates Memo," discussed in more detail below).
  • From Ceresney's speech: Ceresney stressed the importance of corporate self-reporting and cooperation in SEC FCPA investigations and said that these factors, along with self-policing and remediation, will be taken into account by the SEC when determining how much "cooperation" credit to give a company when making charging and penalty determinations. In this regard, Ceresney announced a new policy that, going forward, "a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case" (emphasis added).

For more on this topic, read (1) the DOJ's 11/17/15 press release entitled "Assistant Attorney General Leslie R. Caldwell Delivers Remarks at American Conference Institute's 32nd Annual International Conference of Foreign Corrupt Practices Act" and (2) the SEC's 11/17/15 press release containing the text of Ceresney's speech entitled "ACI's 32nd FCPA Conference Keynote Address."

2. Cyber crimes:

"Hacking as a business model"—three individuals charged for massive cyber hack attack: On November 10, 2015, Attorney General Loretta E. Lynch and the U.S. Attorney for the Southern District of New York Preet Bharara announced the unsealing of a superseding indictment charging three individuals with "orchestrating massive computer hacking crimes against U.S. financial institutions, brokerage firms, and financial news publishers, including "the largest theft of customer data from a U.S. financial institution in history" (defined in the press release as the "U.S. Sector Hack Attack"). The defendants were also charged with orchestrating cyber attacks on nonfinancial sector companies in furtherance of major criminal schemes such as the operation of unlawful Internet casinos and online payment processors as well as an illegal U.S.-based Bitcoin exchange. The defendants were alleged to have earned "hundreds of millions of dollars" in illicit proceeds from these schemes, at least $100 million of which was concealed in Swiss bank accounts. While one defendant remained at large at the time of the press release, two others were arrested in Israel in July 2015 under an indictment for U.S. securities fraud and are being held in custody by Israeli police pending extradition for those charges and the additional charges unsealed on November 10.

In addition to orchestrating cyber attacks in connection with their unlawful internet casinos, online payment processors and Bitcoin exchange, the press release details the government's allegations that from 2012 through mid-2015 the defendants orchestrated the U.S. Financial Sector Hack in furtherance of securities market manipulation and other criminal activities. Under this scheme, the defendants are alleged to have stolen the personal information of over 100 million customers of the victimized financial institutions, including the personal data for 80 million customers from one financial institution alone. Starting in 2011, the defendants are alleged to have orchestrated multimillion dollar stock manipulation "pump and dump" schemes to manipulate the price and trading volume of dozens of publicly traded "penny stocks" so that they and their co-conspirators could sell their holdings in those stocks at artificially inflated prices. The defendants allegedly perpetrated these "pump and dump" schemes using false and misleading unsolicited communications aimed at potential investors, including via email addresses, mailing addresses and phone numbers stolen as part of the U.S. Financial Sector Hack. The defendants are alleged to have operated their criminal activities and laundered the illicit proceeds through at least 75 shell companies and bank and brokerage accounts using aliases and fraudulent passports from the U.S. and 16 other countries.

In the press release, U.S. Attorney Bharara cautioned that we have entered a "brave new world" of sophisticated hacking for profit, where cyber criminals are no longer seeking a quick payout but rather see "hacking as a business model" to support a "diversified criminal conglomerate."

See here to read the 11/10/15 press release issued by the U.S. Attorney's Office for the Southern District of New York entitled "Attorney General And Manhattan U.S. Attorney Announce Charges Stemming From Massive Network Intrusions At U.S. Financial Institutions, U.S. Brokerage Firms, A Major News Publication, And Other Companies."

No joke: first federal prosecution and conviction for "spoofing": In what it described as the "first federal prosecution of its kind," on November 3, 2015 the U.S. Attorney's Office for the Northern District of Illinois announced that high-frequency trader Michael Coscia (Coscia) had been convicted of disrupting commodity futures prices in a $1.4 million computer trading fraud scheme. According to the press release, Coscia used two specially designed computer algorithms to commit the crime of "spoofing," where "buy" or "sell" trading orders for futures contracts are placed in a high-frequency trading setting with the intent to cancel them milliseconds later before execution. The government argued that evidence presented at trial showed that during a three-month period in 2011, Coscia earned $1.4 million in illegal profits by spoofing through Chicago-based CME Group and London-Based ICE Futures Europe in the markets of various commodities, including gold, soybean meal and oil, high-grade copper, and in Euro FX and Pound FX currency futures. Coscia was convicted by the jury of all six counts of spoofing, each of which carries a $1 million fine and a maximum of 10 years in prison (Coscia was also convicted of six counts of commodities fraud). Coscia's sentencing is scheduled for March 2016.

See here to read the 11/3/15 press release issued by the U.S. Attorney for the Northern District of Illinois entitled "High-Frequency Trader Convicted of Disrupting Commodity Futures Market in First Federal Prosecution of "Spoofing."

DOJ and SEC pronouncements re cyber crime and compliance: Assistant Attorney General Caldwell and SEC Chair Mary Jo White recently spoke at separate venues on October 16, 2015 about the government's increased emphasis on cybersecurity given the growing prevalence of cyber crimes. Assistant Attorney General Caldwell spoke at the"Cybersecurity + Law Enforcement: The Cutting Edge" symposium about current cybersecurity issues facing law enforcement, specifically addressing (1) the "front line" work being done by federal agents and prosecutors to combat cybercrime; (2) suggested ways in which laws can be improved to counter cyber threats consistent with civil liberties; and (3) the DOJ's recent efforts investigating, prosecuting and promoting cybersecurity. SEC Chair White spoke at the Managed Fund Association 2015 Outlook Conference, where, among other things, she addressed the operational risk of cyber attacks and the importance of firms adopting "robust, state-of-the-art" cybersecurity compliance programs. White stated that the SEC will hold firms accountable for failing to put adequate cybersecurity compliance plans in place, pointing to the September 2015 settled enforcement action against investment adviser R.T. Jones Capital Equities Management, Inc. (discussed in our October 2015 newsletter under "Once More into the Breach—SEC Charges Investment Adviser with Failing to Adopt Prober Cybersecurity Measures in Advance of Major Security Breach").

For more on this topic, read (1) the DOJ's 10/16/15 press release entitled "Assistant Attorney General Leslie R. Caldwell Delivers Remarks at 'Cybersecurity + Law Enforcement: The Cutting Edge 'Symposium' and (2) the SEC's 10/16/15 press release entitled "Keynote Address at the Managed Fund Association: 'Five Years On: Regulation of Private Fund Advisers After Dodd-Frank.'

3. U.S. Sanctions violations:

Credit Agricole Corporate and Investment Bank to pay $787.3 million for admitted U.S. sanctions violations: On October 20, 2015, the DOJ announced that Paris-based Credit Agricole Corporate and Investment Bank (CACIB) admitted to U.S. sanctions violations under the International Emergency Economic Powers Act and the Trading With the Enemy Act and agreed to pay an aggregate of $787.3 million in criminal and civil financial penalties to U.S. enforcement agencies and regulators. The DOJ stated that CACIB entered into DPAs with both the U.S. Attorney's Office for the District of Columbia and the New York County District Attorney's Office pursuant to which it will forfeit a combined amount of $312 million. The remainder of the $787.3 million will be paid pursuant to settlement agreements concurrently entered into with the Treasury Department's Office of Foreign Assets Control (OFAC), the Federal Reserve System, and the New York State Department of Financial Services (NYDFS), under which CACIB agreed to various undertakings—such as the retention of a compliance consultant for 12 months under the NYDFS agreement—in addition to paying the monetary penalties. In its DPA with the New York County District Attorney's Office, CACIB also admitted to violations of New York state law for falsifying the records of New York financial institutions.

The admitted facts set forth in the documents provide that, between August 2003 and September 2008 CACIB's subsidiaries in Geneva "knowingly and willfully" moved approximately $312 million through the U.S. financial system on behalf of sanctioned entities in Sudan—constituting the "bulk" of the unlawful transactions—and to a lesser extent Burma, Iran and Cuba. CACIB's subsidiaries accomplished this by concealing the fact that they were using banks designated by OFAC as "Specially Designated Nationals (SDNs)" that were sanctioned from transacting business in the U.S., thereby depriving the government, CACIB's New York branch and other financial institutions the ability to detect and block the sanctioned payments. CACIB specifically admitted with respect to Sudan that (1) its employees were aware of the U.S. sanctions against Sudan and that the sanctions applied to payments the bank sent to the U.S., (2) its employees permitted 11 Sudanese banks (six of which were SDNs) to maintain U.S. dollar accounts with CACIB and relied on non-transparent payment messages known as "cover payments" to mask the unlawful payments to the U.S., and (3) compliance personnel at CACIB's subsidiaries in Geneva were aware of the U.S. sanctions against Sudan but nonetheless authorized payments to the U.S. on behalf of the bank's Sudanese customers.

See here to read the DOJ's 10/20/15 press release entitled "Credit Agricole Corporate and Investment Bank Admits to Sanctions Violations, Agrees to Forfeit $312 million."

Deutsche Bank to pay $258 million, install an independent monitor and terminate employees in connection with U.S. sanctions violations under New York banking law: On November 4, 2015, the New York State Department of Financial Services (NYDFS) announced that Frankfurt-based Deutsche Bank AG (Deutsche Bank) agreed to enter into a consent order under which it will pay $258 million ($200 million of which is to be paid to the NYDFS with the remaining $58 million going to the Federal Reserve) and install an independent monitor for violations of New York banking law in connection with transactions on behalf of countries and entities subject to U.S. sanctions, including Iran, Libya, Syria, Burma and Sudan. In addition, Deutsche Bank agreed to terminate six senior employees who were found to be "centrally involved" in the misconduct and ban three other employees from working with the bank's U.S. operations.

Briefly, the facts set forth in the consent order show that from 1999 through 2006, employees at Deutsche Bank knowingly used non-transparent methods—conducted via more than 27,000 U.S. dollar clearing transactions—to move almost $10.7 billion through the U.S. financial system on behalf of Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions, many of which were on OFAC's SDN list. The facts show that the nontransparent methods used by Deutsche Bank's employees to circumvent the sanctions controls included cover payments and wire stripping (i.e., altering the information included in the payment message), and that the employees knew such handling processes were necessary in order to evade the sanctions-related controls of Deutsche Bank's New York branch. The facts also show that when the employees of Deutsche Bank's New York branch did from time to time raise objections to the bank's relationship with U.S.-sanctioned parties, their European counterparts "redoubled their efforts" to hide the transactions from the U.S. employees.

See here to read the NYDFS's 11/4/15 press release entitled "NYDFS Announces Deutsche Bank to Pay $258 Million, Install Independent Monitor, Terminate Employees for Transactions on Behalf of Iran, Syria, Sudan, Other Sanctioned Entities."

4. Deputy Attorney General Sally Quillian Yates expands on her eponymous memo and the DOJ's implementation of its policy to hold individual corporate wrongdoers accountable: On November 16, 2015, Deputy Attorney General Sally Quillian Yates spoke at the American Banking Association and American Bar Association Money Laundering Enforcement Conference about the steps the DOJ is taking to implement the DOJ's policy regarding holding individual corporate wrongdoers accountable outlined in her September 9, 2015 "Yates Memo" (we covered the Yates Memo in our September 21, 2015 newsletter under "DOJ Announces Six Specific Steps to Hold Individual 'Corporate Wrongdoers' Accountable"). Yates announced that revisions had been made to the U.S. Attorney's Manual (USAM) to provide government prosecutors with guidance in implementing the policy, and focused a large portion of her remarks on modifications to the chapter entitled "Principles of Federal Prosecution of Business Organizations" (a.k.a. "Filip Factors"). Yates said that the revisions to this chapter "emphasize the primacy in any corporate case of holding individual wrongdoers accountable and list a variety of steps that prosecutors are expected to take to maximize the opportunity to achieve that goal." One important component of these revisions is the emphasis placed on corporate cooperation ("the policy shift that has attracted the most attention"). Yates said that the revisions underscore that "if a company wants credit for cooperating—any credit at all—it must provide all nonprivileged information about individual wrongdoing." Yates emphasized that this is "nothing new," having been a part of the Filip Factors and the DOJ's focus for years, but that now providing such information is a "threshold hurdle that must be crossed before we'll consider any cooperation credit." Yates stressed that companies are only expected to conduct investigations that are tailored to the "scope of the wrongdoing" and "make their best effort to determine the facts with the goal of identifying the individuals involved." Companies are not expected to waive the attorney-client privilege in order to be seen as cooperating, although Yates distinguished between facts which she deemed not privileged, and legal advice. Furthermore, Yates said the revisions to this chapter underscore that early reporting by a company is key, even if all of the facts are not yet in, and that "prompt voluntary disclosure by a company will be treated as an independent factor weighing in the company's favor." Yates concluded, "[u]nderstand that we're not asking companies to pin a scarlet letter on their employees or provide us with prosecutable cases against them in order to get the benefits of cooperation. Cooperation does not require a company to characterize anyone as 'culpable.' Cooperation does require that a company provide us with all facts about all the individuals involved."

See here to read the DOJ's 11/16/15 press release entitled "Deputy Attorney General Sally Quillian Yates Delivers Remarks at American Banking Association and American Bar Association Money Laundering Enforcement Conference."

In brief—other recent enforcement matters of note:

False Claims Act (FCA) roundup:

  • DOJ reaches FCA resolution with 457 hospitals: On October 30, 2015, the DOJ announced that 457 hospitals agreed to pay an aggregate of over $250 million to resolve FCA allegations relating to cardiac devices that were implanted in Medicare patients in violation of Medicare coverage requirements. The resolution involved 70 settlements with the hospitals in 43 states. Most of the cases arose from suits filed under the FCA qui tam provisions. For more, see the DOJ's 10/30/15 press release entitled "Nearly 500 Hospitals Pay United States More Than $250 Million to Resolve False Claims Act Allegations Related to Implantation of Cardiac Devices."
  • Warner Chilcott guilty plea: On October 29, 2015, the DOJ announced that Warner Chilcott U.S. Sales LLC, a subsidiary of pharmaceutical manufacturer Warner Chilcott PLC (Warner Chilcott), pleaded guilty in the District of Massachusetts to a felony health care fraud scheme and agreed to pay $125 million to settle criminal liability and FCA charges. The plea agreement was part of a global settlement of criminal and civil charges surrounding the company's illegal marketing of seven drugs, including the payment of kickbacks to doctors to prescribe the drugs. The company's former president was concurrently indicted and several other executives were charged and/or have entered guilty pleas. For more, see the DOJ's 10/29/15 press release entitled "Warner Chilcott Agrees to Plead Guilty to Felony Health Care Fraud Scheme and Pay $125 Million to Resolve Criminal Liability and False Claims Act Allegations."
  • DOJ intervened in three FCA lawsuits against SavaSeniorCare: On October 29, 2015, the DOJ announced that it had intervened in three lawsuits brought against SavaSeniorCare, described as one of the largest skilled nursing chains in the U.S. with approximately 200 skilled nursing facilities in 23 states, alleging that it provided and billed for medically unnecessary therapy in violation of the FCA. The three lawsuits had been brought under the FCA qui tam whistleblower. For more, see the DOJ's 10/29/15 press release entitled "Government Intervenes in Lawsuits Alleging That Skilled Nursing Chain SavaSeniorCare Provided Medically Unnecessary Therapy."
  • PharMerica Corp. settled kickback allegations: The DOJ announced on October 7, 2015 that Louisville, Kentucky-based PharMerica Corp., described as the second-largest nursing home pharmacy in the U.S., agreed to pay $9.25 million to settle allegations that it had solicited and received kickbacks (disguised as rebates, educational grants and other financial aid) from pharmaceutical manufacturer Abbott Laboratories in exchange for the promotion of prescription drug Depakote for nursing home patients. In May 2012, Abbott Laboratories had paid $1.5 billion to settle civil and criminal liability under the FCA for the widespread payment of kickbacks involving Depakote to numerous nursing home pharmacies, including PharMerica. The announced settlement resolved PharMerica's role in the kickback scheme. For more, see the DOJ's 10/7/15 press release entitled "Nation's Second-Largest Nursing Home Pharmacy to Pay $9.25 Million to Settle Kickback Allegations."
  • DOJ settled FCA action against estate and trust of deceased owner of bank: The DOJ announced on October 16, 2015 that the estate and trust for the late Layton P. Stuart, former owner and president of Arkansas-based One Financial Corporation and its subsidiary One Bank & Trust, N.A., agreed to pay $4 million to settle allegations that Stuart and One Financial violated the FCA by making false statements about the financial condition of One Financial and One Bank to induce the Department of Treasury to invest TARP funds in One Financial. The facts show that Stuart diverted millions of dollars of the TARP funds for his personal use, including buying luxury vehicles for his wife and children. One Bank, which is now under new management and which the DOJ described as "another victim of Stuart's frauds," will receive an additional $6.9 million as part of the settlement. For more, see the DOJ's 10/16/15 press release entitled "United States Settles False Claims Act Action against Estate and Trusts of Layton P. Stuart for $4 Million."

Eye on the SEC:

  • Individuals charged in "pump and dump" scheme involving Marley Coffee: On November 17, 2015, the SEC announced charges against several "alleged perpetrators" of a $78 million "pump and dump" scheme involving the stock of Jammin' Java, a company that operates as Marley Coffee and uses trademarks of late reggae artist Bob Marley to sell coffee products. The SEC alleged that Jammin' Java's former CEO orchestrated the scheme with three others who live abroad and operate entities offshore. The former CEO allegedly utilized a reverse merger to secretly gain control of millions of Jammin' Java shares, which he then spread to the offshore entities controlled by the other three individuals charged. The SEC alleges that the shares were then "dumped" by the defendants on the public after the stock price soared following fraudulent promotional campaigns. For more, see the SEC's 11/17/15 press release entitled "SEC Charges Pump-and-Dump in Marley Coffee Stock."
  • Fenway Partners and executives settle SEC charges that they failed to disclose conflicts of interest: On November 3, 2015, the SEC announced that private equity firm Fenway Partners and four of its executives agreed to settle charges that they failed to disclose conflicts of interest to a fund client and investors in connection with the use of more than $20 million from fund and portfolio company assets to pay firm employees and an affiliated entity. As part of the settlement, the firm and three of the executives charged agreed to jointly pay disgorgement of almost $8 million. In addition, the firm and all four of the executives charged agreed to pay penalties totaling just over $1.5 million. Together with pre-judgment interest, the SEC announced that the aggregate amount of $10.2 million will be placed into a fund for harmed investors. For more, see the SEC's 11/3/15 press release entitled "SEC Charges Private Equity Firm and Four Executives With Failing to Disclose Conflicts of Interest."
  • Wolverine affiliates charged with failing to maintain policies to prevent misuse of material nonpublic information: On October 8, 2015, the SEC announced that Chicago-based broker/dealer Wolverine Trading LLC and investment adviser Wolverine Asset Management agreed to together pay more that $1 million (consisting of a penalty of $375,000 each plus disgorgement by Wolverine Asset Management of $364,000 plus prejudgment interest) to settle charges that for two months in 2012 they failed to maintain and enforce policies and procedures to prevent the misuse of material nonpublic information concerning the exchange-traded note TVIX. For more, see the SEC's 10/8/15 press release entitled "Wolverine Affiliates Charged With Failing to Maintain Policies to Prevent Misuse of Material Nonpublic Information."
  • SEC whistleblower program: On November 4, 2015, the SEC announced an award of $325,000 under its whistleblower program for a "hesitant" former investment firm employee. The SEC's Office of the Whistleblower (OOTW) said in the press release that the whistleblower award "could have been higher" but the whistleblower waited until after leaving the firm to blow the whistle and that his hesitation thus limited the amount of his award. The OOTW further stated that, since its inception in 2011, the SEC's whistleblower program has paid more than $54 million to 22 whistleblowers "who provided the SEC with unique and useful information that contributed to a successful enforcement action." The OOTW released its 2015 annual report on November 16, 2015 in which it disclosed, among other things, that it received more than 3,900 whistleblower tips in fiscal year 2015, up 30% since 2012. The OOTW attributed this increase to implementing the rule under Dodd-Frank that awards whistleblowers 10%-30% of securities violations awards over $1 million. For more, see (1) SEC's 11/4/15 press release entitled "SEC Announces Whistleblower Award of More Than $325,000" and (2) SEC's "2015 Annual Report to Congress on the Dodd-Frank Whistleblower Program" issued on 11/16/15.

Talks about town—Compliance Edition: (1) On November 4, 2015, SEC Director of Enforcement Ceresney gave the keynote speech at the 2015 National Society of Compliance Professionals National Conference where he spoke about how the SEC approaches enforcement actions involving compliance personnel, emphasizing that the SEC is not "out to get" compliance officers (for more, see the SEC's 11/4/15 release entitled "2015 National Society of Compliance Professionals, National Conference: Keynote Address"); (2) On November 2, 2015, Assistant Attorney General Caldwell spoke at the Securities Industry and Financial Markets Association Compliance and Legal Society New York Regional Seminar where she made clear that the hiring by the DOJ of a compliance counsel does not mean that the DOJ will be recognizing a "compliance defense" and outlined the factors that the DOJ compliance counsel will look to when assessing the strength of a company's compliance program (for more, see the DOJ's 11/2/15 release entitled "Assistant Attorney General Leslie R. Caldwell Speaks at SIFMA Compliance and Legal Society New York Regional Seminar"); and (3) On October 14, 2015, SEC Chief of Staff Andrew J. Donohue spoke at the NRS 30th Annual Fall Investment Adviser and Broker-Dealer Compliance Conference where he discussed the importance of compliance programs and indicated that the SEC will continue to bring enforcement actions against compliance officers for lax corporate compliance (for more, see the SEC's 10/14/15 release entitled "Remarks at NRS 30th Annual Fall Investment Adviser and Broker-Dealer Compliance Conference").

back to top



pursuant to New York DR 2-101(f)

© 2023 Manatt, Phelps & Phillips, LLP.

All rights reserved