Welcome to Compliance Hot Spots, our briefing on compliance, enforcement and government affairs. The Securities and Exchange Commission wants to revamp its whistleblower program—there’s one proposal that has the program’s first director worried. Plus: What should compliance professionals take away from the Credit Suisse settlement with the SEC? And scroll down to dive into the financial disclosure of Manhattan’s top federal prosecutor.
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What’s Worrying the SEC’s Former Whistleblower Chief?
When the U.S. Securities and Exchange Commission came out last month with a plan to revamp its program for rewarding tipsters, whistleblower advocates questioned the proposal to give commissioners wider discretion to lower the highest bounties.
Why would the SEC send the message that it wants to lower awards even if the the proposed floor would be a still-hefty $30 million? But that wasn’t what most concerned Phillips & Cohen partner Sean McKessy, the first director of the SEC’s whistleblower program.
What’s most troubling to McKessy (at right) was a separate proposal—tucked at the end of the SEC’s release—concerning tips brought not by corporate insiders but by outsiders who come forward with independent analysis. (Think Harry Markopolos, the forensic accountant and fraud investigator who sniffed out Bernie Madoff’s Ponzi scheme, only to be ignored for years by the SEC.)
Along with the rule changes, the SEC proposed “interpretive guidance” clarifying that independent analysis must go “beyond what would be reasonably apparent to the commission from publicly available information” in order to be deemed worthy of a whistleblower award.
McKessy said the guidance would give the SEC great leeway to stiff tipsters who expose frauds through their own analyses. With the benefit of hindsight, the SEC could reason that it would have caught on to a fraud without the outsider’s help—an easy-to-envision scenario.
“These rules are going to be subject to a comment period, and this is going to be the one I’m going to focus on,” McKessy said. “This is the most dangerous in the long term for the program.” He added: “It’s injecting in the opportunity for human beings, well after the fact, to make subjective determinations that I dont think were intended by Congress.”
During McKessy’s tenure leading the whistleblower officer, the SEC awarded more than $700,000 to a company outsider whose detailed analysis helped the agency bring a successful enforcement action.
Announcing the award in January 2016, the SEC’s enforcement director at the time, Andrew Ceresney, said: “The voluntary submission of high-quality analysis by industry experts can be every bit as valuable as first-hand knowledge of wrongdoing by company insiders.”
Compliance Reading: Lessons from Credit Suisse | Geoffrey Berman’s Financial Disclosure
Credit Suisse turned to Cahill Gordon & Reindel partner Anirudh Bansal to resolve charges that it ginned up business in Asia by hiring people related or otherwise connected to Chinese government officials. The bank paid a $47 million penalty to the Justice Department and nearly $30 million in disgorgement and interest to the Securities and Exchange Commission, becoming the latest firm accused of violating anti-bribery laws in connection with a so-called “princeling” program.
The SEC said Credit Suisse has policies that prohibited hiring for the purpose of winning over foreign government officials, but “those policies were not meaningfully enforced.”
More reading from Corporate Counsel: Key Compliance Lesson From Credit Suisse: Actions Speak Louder Than Words. Here’s one takeaway:
“It is not enough to have a global statement on paper barring something,” said Julie Myers Wood, CEO of Guidepost Solutions, the investigations and compliance consulting firm. “General counsel have to think about how those policies will be carried out, and about training all the people who control functions to execute on the policies.”
>> Before becoming the top federal prosecutor in Manhattan, Geoffrey Berman was getting plenty of work at the law firm Greenberg Traurig, according to his financial disclosure. Berman, the court-designated U.S. attorney for the Southern District of New York, revealed earning $3.5 million in salary and bonus pay in 2017, along with a client roster headlined by Deutsche Bank. Also of note: Deutsche Bank is paying the legal fees of 16 current and former employees who are not identified in the disclosure because they are “subject to non-public investigations.” [New York Law Journal]
>> Days before a trial was set to begin in Indianapolis, a pair of former ITT Educational Services Inc. settled with the Securities and Exchange Commission over charges that they hid the defunct for-profit college operator’s true financial condition from investors. Morgan, Lewis & Bockius partner David Miller represented ITT’s former CEO, Kevin Modany, who agreed to pay a $200,000 penalty and to be barred for five years from serving as an officer or director at a public company. McDermott Will & Emerypartner Fredric Firestone represented the company’s former chief financial officer, Daniel Fitzpatrick, who will pay a $100,000 penalty and be subject to a similar five-year bar. Reuters has this story on the settlement.
>> Michigan State University turned to one of its own law professors to lead the school’s newly created Office of Ethics, Risk Management, and Compliance. Nicholas Wittner, who previously built the compliance program at Nissan North America, was named last week as the office’s interim director and the university’s chief compliance officer. Michigan State’s interim president said Wittner’s “deep background in legal, regulatory and policy compliance makes him the right person to set up our new office and develop the necessary reporting and training protocols.”
For more on Michigan State: Check out the piece my colleague Sue Reisinger wrote recently at Corporate Counsel on the various probes into Michigan State’s handling of the sexual abuse scandal.
New Hires & Promotions: Uber Gets Schools
>> Longtime U.S. Justice Department lawyer Scott Schools is joining Uber Technologies Inc. as chief compliance and ethics officer. Schools, who has been called “the most important unknown person in D.C”, stepped down last week for Main Justice, where he had been serving as associate deputy attorney general counsel.
>> Margaret Peterlin, a former top lawyer inside the U.S. State Department, joined AT&T as a senior vice president for global external and public affairs, Bloomberg reports. Peterlin reports to David McAtee, who took over external and legislative affairs after Robert Quinn retired amid scrutiny of the company’s engagement with Michael Cohen, the longtime personal lawyer to Donald Trump.
>> Pete MIchaels, former co-leader of Greenberg Traurig‘s financial regulatory practice, is joining Boston-based Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. “Greenberg is a very, very large firm, and you can have the best intentions but 2,000 lawyers in 38 offices is a lot of lawyers in a lot of offices,” Michaels told New York Law Journal.
>> Tatiana Martins, who led the Michael Cohen investigation as the chief of the public corruption unit at the Manhattan U.S. attorney’s office, returning to Davis, Polk & Wardwell as a partner in the firm’s white-collar defense practice. “It was the right time for me,” Martins told the New York Law Journal. “It was a great step that I wanted to take advantage of. I felt that I really had a wonderful and great experience at the U.S. attorney’s office, and it was time for a new chapter.” Martins, 41, previously worked as an associate at Davis Polk.
>> Former CFPB enforcement attorney Jonathan Urban has joined USAA’s in-house legal team, according to his LinkedIn page. Urban had worked at the CFPB since 2011, when the agency first opened its doors. In June, he withdrew from the CFPB’s case against Nationwide Biweekly Administration, which was accused in 2015 of misleading consumers about the benefits of its mortgage payoff program. The company went to the U.S. Court of Appeals for the Ninth Circuit to challenge a nearly $9 million judgment ordered against it in the San Francisco federal district court.