(Wavebreak Media LTD)
The New York City Bar Association’s third annual White Collar Crime Institute, held on May 19 at the bar’s Manhattan headquarters, brought in some big-name attorneys and former and current government officials to talk about the state of corporate crime and punishment. Among the biggest names were headliners Mary Jo White, chairwoman of the U.S. Securities and Exchange Commission, and James Comey, the director of the Federal Bureau of Investigation.
In speeches, White and Comey shared enforcement trends and objectives from their agencies, and even a bit of advice for companies and their counsel that want to stay out of trouble with the feds.
White went about trying to dispel a few notions about the SEC: that the commission does not charge individuals enough, and that it allows too many settlements with individuals in lieu of charges. “The simple fact is that the SEC charges individuals in most of our cases, which is as it should be,” she said. White reported that the SEC has charged individuals in 83 percent of its actions since the beginning of fiscal year 2011.
According to White, the agency is always looking for new ways to innovate in order to strengthen its ability to go after individual wrongdoers. One of the SEC’s favored methods White says is the use of Section 20b of the Securities Exchange Act, a “potentially very powerful tool” that allows the commission to impose primary liability on individuals who use other people to carry out unlawful acts. This statute helps the SEC target those who purposefully try and insulate themselves from culpability for defrauding investors by not communicating with investors directly.
In addition, White addressed what she called the “controversy de jour” related to criminal charges against corporations, explaining that for the SEC, there is no entity too large to charge. “Is any company or financial institution too big to indict criminally?” she said. “The answer is also no.” White named Consolidated Edison Inc., Drexel Burnham Lambert Inc. and the subsidiaries of both UBS AG and the Royal Bank of Scotland Group as examples.
White also shared some insights on nonmonetary enforcement approaches favored by the SEC. “One of the SEC’s most powerful nonmonetary remedies to protect the public from future harm is our ability to bar wrongdoers who work in the industry or appear before the SEC,” she said, adding that she is encouraging use of these remedies by the enforcement division where appropriate. She expressed enthusiasm about the use of corporate monitors or independent compliance consultants to help companies shape up and address the root causes of misconduct, and stressed that eliciting admissions of wrongdoing from companies will continue to be a tool used by the SEC as well.
In his speech, FBI director Comey explained that the investigative agency is continuing to focus on dual goals. “It is absolutely true that we in the FBI are determined to do everything we can to prevent a terrorist attack, while also doing everything we can to safeguard our economy, our financial systems and public confidence in the private sector,” he said.
The FBI, he explained, has been criticized in the past for “working our inbox,” prioritizing cases for which sources were most forthcoming, and failing to look around corners to catch emerging threats or cases that are perhaps more important but less obvious. Comey said this criticism is fair to some extent, but on both national security and criminal cases, the FBI has improved its abilities to prioritize. “We gather intelligence to help us understand and rank the threats we face,” he said. “And then we try to stare hard at the gaps—what don’t we know, and how we can we find that out? How can we get smarter about the threats so we can rank them responsibly?”
The agency is certainly finding plenty of white-collar investigations to pursue. Comey noted that the FBI is working on around 10,700 such cases now, and that there has been a roughly 65 percent increase in corporate fraud cases since 2008. The types of cases that Comey said the FBI is seeing frequently vary from mortgage fraud to money laundering using virtual currencies and anonymous prepaid credit cards, as well as health-care fraud on individual and enterprise levels. On the securities fraud front, the FBI is seeing a great deal of microcap market manipulation, investment and accounting fraud, and insider trading.
Comey had some advice for corporations: the deterrence effect brought on by FBI enforcement is significant, but company action is needed to prevent white-collar crime.
“I know from the work I’ve done in my career in violent crime and urban crime that you cannot arrest your way to a healthy urban neighborhood,” he said. “Similarly, I don’t believe we can deter our way to a healthy corporate and market culture.”
So what works? According to Comey, training programs and a formal code of conduct are necessary, but won’t get the job done by themselves. “The best definition of culture I’ve ever heard is this: the way things are really done around here no matter what they tell you at training,” he said. He emphasized the importance of an ethical and thoughtful board of directors that picks ethical and thoughtful leaders, cascading an ethical culture down through the ranks of the company and setting the right examples. It is also important, he added, to punish bad ethical behavior and celebrate good behavior. Even bringing in people from outside the company—like outside counsel—to take a look at the corporate culture can help keep companies out of trouble.