On April 27, a civil FCPA litigation against three former executives of a Hungarian telecommunications company officially came to a close after more than five years of contentious litigation in the Southern District of New York when Judge Richard Sullivan approved the settlements of the last two defendants and entered judgment in the matter. The case alleged that three former executives of Magyar Telekom, Plc., a Hungarian telecommunications company, participated in a scheme between 2004 and 2006 to bribe public officials in Macedonia in order to secure favorable treatment for Magyar’s Macedonian subsidiary. All three defendants were foreign nationals working for an overseas company; the charged conduct took place exclusively on foreign soil; and the defendants continue to reside overseas. Continue Reading SEC, Hungarian Executives Settle 5-Year FCPA Suit that Generated Government-Friendly Rulings on Threshold Legal Issues
Several sources have reported that Acting SEC Chair Michael Piwowar recently issued a directive mandating that only the Acting Director of the Division of Enforcement can authorize the issuance of formal orders of investigation, the means by which the SEC authorizes its investigative staff to issue subpoenas. The change—which reportedly strips approximately 20 Enforcement Division senior officers of the power to authorize formal orders—was not announced publicly and is not reflected in the SEC’s Enforcement Manual.
The review of financial regulation under the new administration has its first victim. On February 3, the Senate passed a resolution under the Congressional Review Act that disapproves the SEC’s rule on resource extraction payments. The House of Representatives had already passed the resolution, so the SEC’s rule is no longer in effect.
The target of the joint resolution is a rule requiring each SEC reporting company engaged in commercial development of oil, natural gas or minerals to file annual disclosures on payments it makes to governments. The rule has already had a tortured history, which left it vulnerable to action under the Congressional Review Act (CRA). Continue Reading Congress Rolls Back SEC Resource Extraction Payments Rule
By the end of 2016, the world was facing a considerably greater level of global uncertainty than it had experienced in recent years. It is clear that while some old challenges will continue, new challenges will also be brought into the boardroom in 2017. The trends discussed in each of the sections below will increasingly be a focus of boards of directors and companies in the United States and across the globe, particularly as boards consider how best to assess and assist in mitigating associated risks. A strong understanding of the issues and challenges facing boards and companies over the next year and beyond will assist boards in addressing the issues and complexities that will undoubtedly arise in 2017.
- Global Issues in Taxation
- Privacy and Global Investigations
- Recent Developments in Cybersecurity
- Department of Justice Foreign Corrupt Practices Act Enforcement Initiatives
- Board Refreshment Disclosure
- Claim Extinguishment in M&A Litigation
- Environmental, Sustainability and Governance Activities and Disclosure
- Compensation Considerations
- The Change in Administration in the United States and Brexit and Political Uncertainty in the United Kingdom and Europe
On Tuesday, December 27, 2016, the United States Court of Appeals for the Tenth Circuit in Bandimere v. S.E.C., found that the Securities and Exchange Commission’s (“SEC”) use of administrative law judges (“ALJs”) violated the U.S. Constitution. While the court’s opinion relies on a somewhat arcane question of administrative law—whether the hiring of SEC ALJs violated the Appointments Clause—its decision to set aside an SEC order imposing sanctions for securities laws violations raises significant questions about future SEC claims brought before ALJs rather than in federal courts, as well as prior adjudications. With the D.C. Circuit currently considering whether to grant rehearing en banc on its recent holding that these same SEC proceedings were constitutional, the Tenth Circuit’s decision is sure to draw considerable scrutiny in the months ahead and may well give rise to Supreme Court review of the issue. Continue Reading Appellate Courts Split Over Constitutionality of SEC Administrative Proceedings
The Supreme Court’s unanimous decision this week in Salman v. United States, No. 15-268, 580 U.S. __ (Dec. 6, 2016), clarified what constitutes a “personal benefit” for purposes of insider trading liability. In its first merits ruling in an insider trading case in two decades, the Court affirmed the Ninth Circuit’s holding that the personal benefit requirement may be met when an inside tipper simply gifts confidential information to a trading relative or friend. In so holding, the Supreme Court significantly narrowed a key aspect of the Second Circuit’s landmark insider trading decision in United States v. Newman, which had required prosecutors to prove that the tipper received something “of a pecuniary or similarly valuable nature”—a more difficult standard to meet.
Before Newman was decided, the United States Attorney’s Office for the Southern District of New York had prioritized insider trading prosecutions, obtaining dozens of convictions and over a billion dollars in fines since 2009. After Newman, however, prosecutors were forced to dismiss several indictments, and some commentators wondered what the future held for insider trading prosecutions. The Supreme Court’s recent decision should reduce that uncertainty and may bring a renewed focus on insider trading investigations. Continue Reading Supreme Court Clarifies Insider Trading Liability for Confidential Tips
In recent years, when pursuing corporations and their officers for violations of the U.S. securities laws, the Securities and Exchange Commission (“SEC”) Division of Enforcement has increasingly brought its claims to the SEC’s in-house administrative law judges (ALJs) rather than the federal civil courts. In fact, last year, over 90% of the SEC’s actions against public companies were brought to the SEC’s ALJs—whereas five years ago, only 33% of those cases were brought as ALJ proceedings. The credit for this remarkable increase in ALJ proceedings belongs in large part to the 2010 Dodd–Frank Act, which expanded the ALJs’ jurisdiction and authorized new penalties that ALJs could impose, making it unnecessary for the SEC to bring many claims in civil courts.
A settlement on July 12, 2016 by the DOJ with ValueAct for violations of the HSR Act’s notification requirements and an interpretation of the Exchange Act’s beneficial ownership reporting rules posted by the SEC staff on July 14, 2016 combine to provide new guidance that will have an immediate impact on shareholder activism and engagement. Continue Reading New Guidance on the Impact of SEC Beneficial Ownership Reporting and HSR Act Notification Regimes on Shareholder Activism and Engagement
On May 17, 2016, the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) released new and updated Compliance and Disclosure Interpretations (“C&DIs”) on the use of non-GAAP financial measures (“NGFMs”). The release of the C&DIs follows a series of recent speeches by SEC Chair Mary Jo White, Chief Accountant James Schnurr and other staff that expressed concerns over prevalent and liberal use of NGFMs. The C&DIs signal a tightening of the SEC’s policy toward NGFMs and renewed SEC focus on their use. Continue Reading SEC Releases New Guidance on Non-GAAP Financial Measures
The practice of reporting non-GAAP earnings is back on the SEC’s radar, highlighted in recent speeches by SEC Chair Mary Jo White (see here) and SEC Chief Accountant James Schnurr (see here). A series of news articles focusing on the increasing number of companies that report non-GAAP earnings (often confusingly called “pro forma” earnings) and the widening gap between these companies’ reported GAAP and non-GAAP earnings have also shed negative light on using NGFMs (see, e.g., here (paywall), here, here (paywall) and here).
Continue Reading Non-GAAP: The Pendulum Swings Back