Welcome to Compliance Hot Spots, our briefing on compliance, enforcement and government affairs. We’ve got new observations from the SEC’s whistleblower chief on the state of play for corporate tipsters, and Jay Clayton offers thoughts on corporate culture. Scroll down for Lisa Rickard’s observations on GC challenges, and to see who got the work in some of the big new cases.
As always, thanks for reading, and thanks especially for the feedback. I appreciate all the tips, ideas and hearing what’s on your plate. I’m at firstname.lastname@example.org and 202-828-0315, or follow me on Twitter @cryanbarber.
SEC Whistleblower Chief Cautions Tipsters About ‘Rolling the Dice’
Once upon a time, as the U.S. Securities and Exchange Commission built up its program for awarding whistleblowers and doled out millions of dollars, the agency took pains to promote internal reporting and urge would-be tipsters to first raise concerns to their employers.
That was then. In February, the U.S. Supreme Court unanimously ruled that whistleblowers need to contact the SEC to benefit from the Dodd-Frank Act’s stronger protections against retaliation, slapping down the agency’s view that employees could receive those protections even if they only reported internally. Within the whistleblower bar, the decision raised the question of how the SEC would change its messaging.
The answer came Tuesday. In some of her first remarks on the decision, the head of the SEC’s whistleblower office said that whistleblowers would be “rolling the dice” if they decide not to contact the agency early on.
“I think that the ruling is very clear: Whistleblowers who want to preserve their rights under the Dodd-Frank anti-retaliation provisions must report to the commission. Full stop. And we need to get those reports before the retaliation occurs,” said Jane Norberg (above), who has led the SEC’s whistleblower office since 2016. “In my opinion, whistleblowers will be rolling the dice not to report to the commission either at the same time or before reporting internally if they want the more robust protections under the Dodd-Frank statute.”
Not worried yet? Just wait: Norberg said there is already evidence that whistleblowers are responding to the Supreme Court’s decision in Digital Realty Trust v. Somers.
“We actually did have an interesting uptick in whistleblower tips in February, March and April, after this Digital Realty decision came out. And while I can’t conclusively say that it was directly because of Digital Realty, we did see a jump in those months right after Digital Realty. And we did have whistleblowers also say in some of those tips, ‘I’m filing this because of Digital Realty.’ So I thought that was interesting to see that uptick around that time.”
The reality: Whistleblowers, Norberg said, “absolutely” need to consider the Supreme Court’s ruling when deciding when to report their information to the SEC. And companies, she said, need to “work even harder to gain the trust of employees to get those internal reports.”
Who Got the Work
>> Two Reed Smith appellate partners—James Martin and Colin Wrabley—are joining trial partners Eric Dubelier and Katherine Seikaly in representing the Russian company Concord Management and Consulting in a case Special Counsel Robert Mueller III filed in Washington’s federal district court.
>> Jeff Kalinowski, a Bryan Cave Leighton Paisner partner in St. Louis, represented Wells Fargo & Co. in a new SEC settlement over alleged misconduct in the sale of certain financial products called market-linked investments, or MLIs. The SEC alleged the products were intended to be held to maturity but that Wells Fargo encouraged trades, thereby earning fees. The bank did not admit liability. Wells Fargo agreed to return $930,377 of ill-gotten gains plus $178,064 of interest and to pay a $4 million penalty. The SEC’s Jeffrey Shank supervised the investigation, which was conducted by Emily Rothblatt, Michael Wells, and Ana Petrovic.
>> The New York Department of Financial Services fined Deutsche Bank $205 million as part of a consent order that alleged violations of state banking laws in its foreign exchange trading business. The order was signed by Deutsche Bank general counsel Florian Drinhausen; Dr. Mathias Otto, co-general counsel, Germany; New York branch general counsel Steven Reich; and Joseph Salama, managing director, legal. Kirkland & Ellis also represented the bank before regulators in the foreign exchange trading matter, according to a source familiar with the matter. The Financial Times has more here.
>> Latham & Watkins is representing the Institute for Justice in a new FOIA lawsuit in Washington against the IRS and U.S. Justice Department. Latham partner Andrew Prins in Washington and associate Ryan Baasch in New York, representing the Institute for Justice, are suing for information “to review both agencies’ policies and reviews of matters pertaining to civil asset forfeiture and federal structuring laws.”
If you missed it: the Supreme Court said this week that it would take a case—brought by the Institute for Justice—looking at asset forfeiture. The institute’s Wesley Hottot is counsel of record for the petitioner. Bert Rein of Wiley Rein represents the U.S. Chamber of Commerce as an amicus, and Sidley Austin‘s Jeffrey Green filed a brief for the National Association of Criminal Defense Lawyers.
>> A Sidley Austin team, including former U.S. Rep. Rick Boucher and partner Michael Borden, recently signed on to lobbying for Hikvision, an electronics manufacturer that has come under scrutiny for its ties to the Chinese government and a cybersecurity vulnerability discovered with its security cameras. The firm’s work for Hikvision has centered on “prohibitions on certain video surveillance equipment in the National Defense Authorization Act,” according to a lobbying disclosure. Hikvision had previously been represented by Wilmer Hale’s Reginald Brown, who registered to lobby in connection with the work.
Compliance Corner: SEC’s Jay Clayton on Corporate Culture | Lisa Rickard on Challenges for GCs
Lisa Rickard (above), president of the U.S. Chamber of Commerce affiliate Institute for Legal Reform, recently sat down with my colleague Sue Reisinger about the challenges facing general counsel.
On significant challenges: “The face of litigation is changing. Third-party litigation funding is a growing, global phenomenon, starting in Australia, then spreading to Europe and now it’s here. It’s not regulated anywhere, although Australia is reviewing whether to license third-party funders. We and 29 other groups are pursuing a rules change in the U.S. that would require disclosure to the court and the opposing party of any third-party financing.”
Here are some other headlines and stories that caught my attention…
>> “Culture is collective,” SEC Chairman Jay Clayton said in recent remarks. “While there is great importance in setting a positive ‘tone at the top,’ an organization’s culture is, in large part, defined by the countless daily actions of its people. Culture is not just what is said by management to the workforce, but what is done, [and by] what actions are taken, day in and day out, throughout the organization, with colleagues, customers, suppliers, and regulators.” Read Clayton’s full remarks here. Compliance Week has more.
>> “The case of the missing 4.” At Clayton’s SEC, officials are investigating the notable absence of the number “4” in quarterly reports—a possible sign that companies are improperly rounding up their earnings per share to the next highest cent. The Wall Street Journal reports that the SEC’s enforcement office has sent queries to at least 10 companies.
>> The corporate cost of cooperating just went up, the New York Times reports. The U.S. Supreme Court this term says companies can’t recoup the cost of internal investigations from employees who violated the law. More from Peter Henning‘s white-collar watch column: “In an era when there are often multiple civil investigations along with potential criminal prosecutions for corporate misconduct, a company hoping to be viewed as cooperative may need to consider how much it is willing to pay to show how accommodating it truly is to the government’s interests.”
>> The next frontier of regulatory? Facial recognition. From WSJ: “While he says Amazon will fight government investigators who try to obtain personal information from devices made by his company, Amazon is marketing face-recognition technology to private businesses and law-enforcement agencies alike, for uses that many believe are a threat to privacy.”
Speaking of Amazon: the Journal takes a dive into how the company built out one of the largest lobbying forces in Washington. Amazon, according to the report, spent more than $13 million last year “on an army of nearly 100 lobbyists at more than a dozen lobbying firms.”
>> Major banks are sharing more investigative information than ever before—alarming privacy advocates. They are worrying “banks may be stretching their authority to share sensitive customer data, unnecessarily exposing personal information, leading to the possibility of individuals or companies being penalized over the mere suspicion of wrongdoing,” according to the Wall Street Journal.
>> It’s not just government agency officials. Members of Congress must also begin reporting their holdings in digital currencies, and also reveal any cryptocurrency sales or purchases that exceed $1,000 within 45 days of the transaction, according to a recent House Ethics Committee memo. (Bloomberg has the story here.) The guidance came out the same day the Office of Government Ethics issued an advisory telling executive branch officials that they need to disclose holdings in Bitcoin and other any other digital currencies as part of the financial disclosure process. So far, we’ve identified two officials who’ve sold off Bitcoin: Treasury Department general counsel Brett McIntosh and Jesse Liu, the U.S. attorney for the District of Columbia.
Latest Promotions & New Hires
>> Kathryn “Katie” Haun, a former federal prosecutor, has joined venture capital fund Andreesen Horowitz as its first female general partner. Haun’s move came as the firm announced a $300 million fund, its first, to focus on cryptocurrency companies and protocols.
>> Scott Fischer, formerly the highest-ranking insurance regulatory official for New York state, has joined Morgan, Lewis & Bockius as a partner in its finance team.
>> Anna M. Harrington is leaving the Federal Reserve to join Barclays in a new position as U.S. head of bank regulatory policy, Politico reports. Harrington formerly was a senior supervisory financial analyst in the special projects unit.
>> Mark Prater, formerly the Senate Finance Committee’s top tax lawyer, has left Capitol Hill for PriceWaterhouseCoopers. “The new role thrusts Prater into a position to help PwC clients with business decisions as they grapple with the new tax law enacted at the end of last year,” Politico reports.
Got a new hire or promotion? Shoot me a note at email@example.com. That’s all for this week—and thanks for the feedback and tips.