Compliance Hot Spots: 'The Court Is Deeply Troubled by This Issue' | Feds Want James Cole DQ'd | OFAC & Sanctions Compliance
A Manhattan federal trial judge's observations about "outsourced" corporate investigations has rocketed around the white-collar bar: What to know. Plus: a roundup of headlines, Who Got the Work and our weekly snapshot of lateral moves and new hires. Thanks for reading!
May 14, 2019 at 09:00 PM
11 minute read
Good evening from Washington—and welcome to Compliance Hot Spots, our roundup and analysis of regulatory and enforcement trends. Tips, feedback and general thoughts on your practices always appreciated. I'm your host, C. Ryan Barber. Reach me at [email protected] and 202-828-0315, or follow me on Twitter @cryanbarber.
'Broad Implications for Internal Investigations'
In 2010, as federal regulators probed possible manipulation of a key lending benchmark, Deutsche Bank turned to the law firm Paul, Weiss, Rifkind, Wharton & Garrison to conduct an internal investigation.
But was investigation truly internal, with Paul Weiss and in-house counsel calling the shots? Or was the government pulling the strings behind the scenes? This month, a federal judge in Manhattan found the government's role too close for comfort.
In a 49-page opinion, Chief Judge Colleen McMahon said the U.S. Justice Department and the U.S. Commodity Futures Trading Commission had effectively “outsourced” its investigation to the law firm, giving “marching orders” in periodic meetings meant to update the government on the internal probe's findings.
“Did the government conduct a substantive parallel investigation to the 'internal' investigation at Deutsche Bank, or did it simply give direction to Deutsche Bank/Paul Weiss, take the results of their labor (which appears to have been fully disclosed to government lawyers), and save itself the trouble of doing its own work? On the record presently before it, the court would have to conclude the latter,” McMahon (at left) wrote.
“In short,” she added, “while the record before the court is incomplete (at the government's choice), everything I have read suggests that the United States outsourced its investigation to Deutsche Bank and its lawyers.” McMahon said at one point early on in her ruling: “The court is deeply troubled by this issue.”
The opinion ricocheted around the white-collar defense bar.
A team from Cleary Gottlieb Steen & Hamilton described the ruling as an “important decision delineating the boundaries between conducting a proper internal investigation and acting as an arm of government.” On the New York University School of Law's “Compliance and Enforcement” blog, lawyers from Richards Kibbe & Orbesaid the decision “has broad implications for internal investigations and corporate cooperation.”
“Judge McMahon's decision is not going to end internal investigations or corporate cooperation with the government by any means. But I do think it's very likely to impact how the government behaves in the context of corporate investigations. The risks that arrive from this court decision are essentially all risks to the government,” said Milbank partner James Cavoli.
The government, he said, “may now be less likely to wait to conduct interviews pending an internal investigation. It's more likely to be active at an earlier stage.”
For the government, McMahon's opinion was a brushback. And yet it was also a victory, coming as McMahon upheld the conviction of former Deutsche Bank trader Gavin Black on conspiracy and wire fraud charges. Black, pointing to the government's role in Deutsche Bank's internal investigation, had argued that his Fifth Amendment rights were violated when he submitted to being interviewed by the bank's outside lawyers under the threat of termination.
While concerned with the government's extensive role, McMahon ultimately upheld the guilty verdict because his compelled statements were not used to obtain the conviction.
Who Got the Work
>> Greenberg Traurig's Arturo Jessel, an advisor in the firm's international trade practice, will advise and counsel Mexico's secretariat of economy, according to new papers filed under the Foreign Agents Registration Act at the U.S. Justice Department. The registration said the advocacy will focus “on the passage and implementation of the US-Mexico-Canadian Free Trade Agreement.”
>> Mayer Brown partner Michele Odorizzi argued for Spectrum Brands Inc. in the U.S. Court of Appeals for the Seventh Circuit, which last week upheld the U.S. government's consumer-product claims against the company. Gerard Sinzdak of the Justice Department's civil division appellate staff argued for the government. The trial court had concluded Spectrum violated the Consumer Product Safety Act when a subsidiary did not timely report “a potentially hazardous defect in its Black & Decker SpaceMaker coffeemaker despite years' worth of consumer complaints about the product,” the appeals panel said.
>> Sidley Austin partner Robert Conlan represented Information, a California-based software developer, as the company reached a $21.57 settlement resolving allegations it knowingly provided false information that caused the federal government to be overbilled. The settlement was negotiated by prosecutors in the U.S. attorney's office in Washington, along with a whistleblower, William Sullivan, who originally sued Informatica under the False Claims Act in 2015. Sullivan was represented by Christopher Mead of the Washington firm London & Mead.
Compliance Reading: James Cole in Focus; OFAC Sanctions; SEC Scolded
>> Prosecutors Reveal Why They Want Sidley's James Cole Disqualified in Huawei Case. Federal prosecutors on Friday said Sidley Austin partner James Cole, a former deputy U.S. attorney general, should be barred from representing the Chinese telecom giant Huawei Technologies because of his role in an unspecified investigation during his tenure in the Obama administration. Cole intends to challenge the government's move to disqualify him. Cole was ordered on Monday to respond by June 13 to the government's motion to disqualify him. [Law.com]
>> OFAC Leans in on Sanctions Compliance: A Renewed Focus on Enforcement. Lawyers from Kirkland & Ellis, including Mario Mancuso, who leads the firm's international trade and national security practice, examine new guidance from the Treasury Department's Office of Foreign Assets Control, or OFAC. A new framework “formally puts companies on notice of OFAC's expectations with respect to an effective economic sanctions compliance program.” [New York Law Journal] Read more here from Cleary Gottlieb Steen & Hamilton: “The framework also sets out prescriptive compliance commitments OFAC will seek in future enforcement actions, largely codifying commitments seen in recent settlements.” And Kirkland & Ellis has an advisory here.
>> Companies Brace for New Round of US-China Trade Tensions. “Trade negotiations between the U.S. and China have devolved over the past few days with both sides announcing more aggressive retaliatory tariffs, much to the dismay of global businesses, according to international trade lawyers. 'It's really spooked clients,' said Mario Mancuso, a former official for the Committee on Foreign Investment in the United States who now leads Kirkland & Ellis' international trade and national security practice in Washington.” [Corporate Counsel]
>> Chinese Woman's Secret Arrest Hints at Wider Sanctions Probe. “The prosecution of [Liu] Yang is the third known instance of the U.S. going after Chinese technology companies or their employees for trading with Iran and other countries blacklisted by the U.S. on terrorism, national security or human rights grounds. Besides Huawei, ZTE Corp. was forced to pay $1.2 billion to U.S. authorities to settle allegations that it violated U.S. laws restricting sales to Iran and North Korea. [Bloomberg]
>> Former Top Financial Regulators Warn Against Move to Ease Oversight of Firms. “Two former Treasury secretaries joined two former Federal Reserve leaders on Monday to warn that the Trump administration's efforts to relax oversight of certain financial firms could seriously threaten the stability of America's financial system.” [NYT]
>> Compliance Expert Hui Chen Says New US Guidance Now Includes All Criminal Divisions. “The most significant change to the U.S. Department of Justice's new corporate compliance guidance is that it now applies to the entire criminal division and not just the fraud section, according to Hui Chen (at left), the compliance attorney who authored the original guide two years ago for the section.” [Corporate Counsel]
>> Company Execs Could Face Individual Fines for Privacy Mishaps, FTC Commissioner Tells Congress. FTC commissioner Rohit Chopra said that fines—even seemingly massive ones—have a smaller effect on big companies. He said the FTC does have the authority to penalize individuals for their companies' privacy law violations and that it's something the agency is “looking into.” [Corporate Counsel]
>> Judge Scolds SEC Over Lawsuit Targeting Volkswagen. “A federal judge sharply questioned why securities regulators took so long to sue Volkswagen AG VOW3 -0.78% over its bond offerings, years after other government agencies resolved litigation over the auto maker's diesel-cheating scandal. U.S. District Judge Charles Breyer on Friday suggested the Securities and Exchange Commission's March 2019 lawsuit makes it look like a 'carrion hawk that simply descends when everything is all over and sees what it can get from the defendant.'” [WSJ]
>> Exxon Shareholders Want Action on Climate Change. The SEC Calls It Micromanagement. “Big investment firms are again using their vast stock holdings to pressure corporate executives over everything from boardroom diversity and political activity to food waste and plans to reduce greenhouse-gas emissions. But the Securities and Exchange Commission, which has widened its definition of shareholder 'micromanaging,' has sided with company management and has issued guidance effectively keeping a wide array of shareholder resolutions off annual-meeting ballots.” Louis Goldberg of Davis Polk & Wardwell, a lawyer for ExxonMobil, said in an SEC filing that the company “has 'actively engaged' with investors representing about 30 percent of its shares on environmental, social and governance issues.” [The Washington Post]
Notable Moves & Announcements
>> Jonathan Drimmer has joined Paul Hastings as a partner, arriving from Barrick Gold Corp., one of the world's largest gold mining companies, my colleague Ryan Lovelace reports. Drimmer said he was attracted to Paul Hastings by the firm's entrepreneurial spirit and its leading anticorruption team. Drimmer will work in Paul Hastings' investigations and white-collar defense practice from Washington. Before becoming chief compliance officer and deputy general counsel at Barrick Gold, Drimmer was partner at Steptoe & Johnson.
>> Josephine Morse has joined the U.S. House general counsel's office from the liberal advocacy group Democracy Forward, where she had been senior counsel. Morse earlier served as senior special counsel and counselor to the general counsel for U.S. Securities and Exchange Commission, and she previously was a counsel at Wilmer Cutler Pickering Hale and Dorr.
>> U.S. Attorney General William Barr has elevated a top aide, Claire Murray, to a key role overseeing the Justice Department's expansive portfolio of civil cases, including litigation defending Trump administration policies. Murray left Kirkland & Ellis in 2017 as a partner to join the Trump administration.
>> Kara Gordon, a former longtime Dow Chemical in-house counsel, has been named chief compliance officer at oilfield services company Baker Hughes. Gordon joined the Houston-based GE subsidiary as CCO and associate general counsel. She reports to Baker Hughes's chief legal officer Will Marsh.
>> Wells Fargo acting CEO Allen Parker has created a new working group at aimed at taking on the scandal-plagued bank's regulatory and compliance challenges, my colleague Sue Reisinger reports. Parker named Derek Flowers, a 21-year bank veteran who is currently its chief credit and market risk officer, to head the new “strategic execution and operations group.” The American Banker has more here.
>> David Callaway has joined Goodwin as a white-collar partner in the firm's Silicon Valley office. Callaway formerly was chief of the criminal division and head of the white-collar team at the U.S. Attorney's Office for the Northern District of California.
>> Brian Johnson, a leading official at the Consumer Financial Protection Bureau since 2017, was named Monday as the agency's deputy director. Johnson arrived at the bureau under the Trump-appointed acting director, Mick Mulvaney, after serving as an aide to former U.S. Rep. Jeb Hensarling. “Brian's extensive experience on consumer and financial policy will continue to serve the Bureau in its focus on preventing consumer harm and using all of the tools Congress gave us to protect consumers,” the agency's director, Kathy Kraninger, said in a prepared statement.
>> Midsize law firm Wiggin and Dana has added David Laufman, former U.S. Justice Department official who oversaw investigations in 2016 involving both Hillary Clinton's use of a private email server and Russian election interference. Laufman is co-chair of the firm's national security practice group.
>> Former U.S. Congressman Jeffrey Denham, a Republican who represented two Northern California districts over four terms between 2011 and January this year, has joined K&L Gates as a government affairs counselor in Washington, my colleague Ryan Lovelace reports.
>> Amanda Cottrell has joined Sheppard, Mullin, Richter & Hampton's business trial practice group as a partner in Dallas. Cottrell joins from Stanton LLP. She earlier spent nine years practicing commercial and energy litigation at Locke Lord.
>> Scott Pearson has joined Manatt, Phelps & Phillips as a financial services partner in Los Angeles. Pearson joins from Ballard Spahr.
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Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
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