Remediation and Cooperation Pay Off in SEC Settlement

The SEC often encourages self-reporting, cooperation, and remediation in speeches and policy statements. In a settled enforcement action announced today, the Commission made clear just how valuable those efforts can be, allowing a company to settle accounting controls and disclosure violations with no financial penalty whatsoever.

According to the SEC’s announcement, from 2012 to early 2016, the former CEO and CFO of Provectus Biopharmaceuticals, Inc. obtained millions of dollars from the company by using insufficient or non-existent expense documentation, causing the company to materially understate their compensation in annual reports and proxy statements. While the SEC order directs Provectus to cease and desist from committing any further accounting controls and disclosure violations, it notably imposes no financial penalty on the company. The SEC’s order states that it took into consideration Provectus’ prompt remedial acts and cooperation with the Commission, including (i) the retention of independent counsel and a forensic accounting firm to conduct an internal investigation; (ii) the replacement of the CFO and CEO accused of wrongdoing; (iii) the decision to hold the former executives accountable through legal process; (iv) the creation of new finance positions; (v) the hiring new auditing and bookkeeping firms; and (vi) the revamping of  internal control measures related to expense reimbursement. The SEC also credits the company for voluntarily sharing the findings of its internal investigation with the Commission, saving the Enforcement staff both time and resources.

The Provectus settlement is a good reminder for companies that prompt, thorough, and independent inquiry into potential wrongdoing, swift remedial action, and transparency with the Commission can substantially mitigate their SEC enforcement exposure in the end.

Corporate “C” Plea Not Good Enough

Judge rejects corporate C pleaA recent decision discusses a corporate “C” plea not being good enough for a federal judge. The case involves a pharmaceutical company trying to negotiate a specific sentence with prosecutors. The judge’s analysis follows below after a short background about a C plea.

Types of Guilty Pleas

Federal Criminal Rule 11(c)(1) governs plea agreement procedure. It includes a limitation: “The court must not participate in these discussions.” The subsection describes three types of guilty pleas. Subsection (A) covers the common plea agreement in which the government dismisses charges as part of the agreement. Under subsection (B), the government agrees to recommend, or not oppose, the defendant’s request for a particular sentence. The C plea is named after its subsection, 11(c)(1)(C). A C plea agreement establishes that “a specific sentence or sentencing range is the appropriate disposition of the case.” A crucial difference is that the C plea operates only “once the court accepts the plea agreement.” In other words, the court has specific power to reject a C plea.

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The SEC Changes Course on its Defense of ALJs

For the past few years, the SEC has been battling challenges to the constitutionality of its administrative proceedings. Today, in a drastic shift in position, the SEC issued an order ratifying its prior appointment of its five sitting Administrative Law Judges (“ALJs”) to remedy what the SEC now seemingly concedes was an unconstitutional hiring process. Doing so, the SEC announced, will “put to rest any claim that administrative proceedings pending before, or presided over by, Commission administrative law judges violate the Appointments Clause.”

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SCOTUS to decide: Who is a Protected “Whistleblower” Under Dodd-Frank?

This week, the Supreme Court heard oral arguments in Digital Realty Trust v. Sommers, a case that will decide whether employees who report suspected securities law violations internally can bring anti-retaliation claims against their employers under the 2010 Dodd-Frank Act, even if they never report their concerns to the Securities and Exchange Commission.

The Dodd-Frank Act broadened whistleblower incentives and protections afforded by the 2002 Sarbanes-Oxley Act. In addition to authorizing bounty payments to whistleblowers whose tips lead to successful enforcement actions, Dodd-Frank allows an employee who reports suspected wrongdoing to sue their employer in federal court (rather than first file a complaint with the Department of Labor) if they believe the employer retaliated against them for doing so. At issue in Digital Realty Trust v. Sommers is whether this anti-retaliation protection covers individuals who only report internally, notwithstanding the fact that Dodd-Frank defines the term “whistleblower” to mean an “individual who provides information . . . to the Commission.”

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Canada Outlaws Facilitation Payments

Canadian flag waving with Parliament BuildingsFacilitation payments are no longer exempt under Canada’s Corruption of Foreign Public Officials Act.  On October 30, 2017, Global Affairs Canada, which manages diplomatic relations and promotes international trade, announced the end of the exemption.  This change was initiated in 2013 but delayed to give companies time to adjust their policies and procedures.  Effective October 31, 2017, even small facilitation payments that transpire, in whole or in part, in Canadian territories are illegal.  Facilitation payments made elsewhere involving a Canadian citizen, a Canadian permanent resident, or a Canadian entity are also prohibited.

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SEC Staying the Course on FCPA Enforcement

In remarks at NYU’s Program on Corporate Compliance and Enforcement, Steven Peikin, the new Co-Director of the SEC’s Enforcement Division, voiced a question that has been on the minds of many anticorruption practitioners and compliance professionals: Will the SEC continue to be committed to robust FCPA enforcement?”   “My answer to that question is simple,” Peikin said. “Yes.”

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Government Fraud Settlements Are Getting More Personal

Paying money in fraud settlement

Government fraud settlements are getting more personal. Which means the Yates memorandum is having its intended effect. Issued in 2015, the memo requires that government attorneys focus more on individual liability when resolving fraud investigations. For example, that year only 6 settlements imposed personal liability on physicians settling complaints filed under the False Claims Act. According to an analysis by Eric Topor of Bloomberg BNA (subscription required), the number of personal settlements paid by doctors has more than tripled. This year the number is up to 26; and the year is not over yet.

Personal settlements will continue. A recent post reports that Deputy Attorney General Rosenstein will review the policies created by the Yates memo when incorporating it into the United States Attorney’s Manual. Rosenstein indicated, however, that he intends to keep up pressure on individuals.

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Rosenstein Pledges Reduced Regulation, Encourages Self-Reporting

Rod Rosenstein

U.S. Deputy Attorney General Rod Rosenstein pledged an enforcement environment in which businesses can thrive. In keynote remarks at the U.S. Chamber Institute for Legal Reform, he emphasized the Department of Justice’s (DOJ) commitment to “avoiding unnecessary interference in law-abiding enterprises.” Rosenstein also promoted the benefits of corporate compliance and self-reporting.

Although allegedly offering “no breaking news” about DOJ policies, Rosenstein’s vision provides insight into DOJ’s enforcement and compliance expectations. At a minimum his comments shed light on how DOJ will implement existing policies differently while he is second in charge at DOJ. These changes may dramatically impact resolution of future investigations.

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Targeting Failure to Repay As a False Claim

Hand holding pile of cash.

Contractors and providers may face false claims damages when they fail to return overpayments even though no fraud is involved. A recent civil settlement demonstrates that the government is targeting failure to repay, and it can be as costly as fraudulent billing.

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The SEC Announces Another Seven-Figure Whistleblower Award

The Securities and Exchange Commission (SEC) last week announced a payout of more than $1 million to a whistleblower who provided information that resulted in a successful SEC enforcement action against a “registered entity” (e.g., a broker-dealer) that “impacted retail customers.” The SEC announced the award, while keeping the details of the enforcement action, the whistleblower, and the total penalty under wraps, in a redaction-filled Order Determining Whistleblower Award Claim.

Since the inception of its whistleblower program in 2011, the SEC has awarded more than $162 million to nearly 50 individuals. The SEC’s largest award to date was over $30 million in September 2014, and the average payout has been more than $3 million. According to the SEC, whistleblower tips have led to successful enforcements actions resulting in over $1 billion in monetary sanctions.

The SEC’s whistleblower program was created by the Dodd-Frank Act in 2011 to encourage those with information about securities law violations to report to the SEC. The Act established the SEC’s Office of the Whistleblower and put in place processes for fielding and investigating tips. If a whistleblower provides “high-quality original information” that leads to an enforcement action where monetary sanctions exceed $1 million, the SEC will issue a bounty equal to 10 to 30 percent of the sanctions. The program has proven highly successful at encouraging those with potentially helpful information to go to the SEC: In fiscal year 2016 alone, the Office of the Whistleblower received 4,218 tips, approximately 12 per day.

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