Key Takeaways from SEC/DOJ Enforcement Panel
Tuesday, May 24, 2016

Last week, representatives of the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) participated in Sandpiper Partners LLC’s Annual SEC/DOJ Enforcement 2016 Panel at the Metropolitan Club. Participants included: Stephanie Avakian (Deputy Director, Division of Enforcement, SEC), Nicole Friedlander (Deputy Chief, Complex Frauds and Cybercrime Unit, U.S. Attorney’s Office, Southern District of New York), and Telemachus Kasulis (Deputy Chief, Securities and Commodities Task Force, U.S. Attorney’s Office, Southern District of New York).

Some interesting observations raised by the panelists include:

  • SEC enforcement remains robust. Avakian noted that last year the SEC’s Enforcement Division commenced 807 different actions, and total disgorgement penalties recovered exceeded $4 billion. In terms of litigation efforts, the Enforcement Division was engaged in 27 trials, with a record of 25-2. In addition, the SEC prevailed in every case it brought before a federal court.

  • The number of whistleblowers continues to grow. The SEC is receiving a growing number of complaints under the Dodd-Frank Whistleblower Program. According to the SEC’s data, it received 3,923 total tips in fiscal year 2015, a 30% increase from 2012 (the first year of the Whistleblower Program). Avakian credited the Whistleblower Program with influencing the timing of self-reporting by encouraging individuals to report suspected wrongdoing to the SEC sooner than might otherwise be the case.

  • Cybercriminals are after more than just money. Cyber criminals are becoming increasingly sophisticated. In early cybercrime cases, hackers were “noisy” and went after money – commonly draining bank accounts in an easily detectable fashion. Now, however, hackers often act under a “veil of silence.” It can be months before their presence in a computer or security system is even detected. Further, they are after more than just money. Hackers are increasingly stealing company data and private information to use later for insider-trading purposes and other complex financial schemes.

  • Virtual currencies are a major DOJ priority. Friedlander explained that the Securities and Commodities Task Force is attempting to regulate criminal activities involving payment systems and virtual currencies. The Task Force is paying particular attention to “ransomware,” which cyber criminals utilize to lock a computer system and make it unusable until a ransom is paid.

  • Insider-trading enforcement will not slow down post-Newman. Despite the Second Circuit’s more stringent standard for tippee liability under United States v. Newman, Kasulis stated that he did not think the DOJ would slow down insider-trading enforcement. For more on the Second Circuit Newmanstandard, see our post here.

  • New Yates Memo cooperation credit rules do not represent a major change from DOJ’s prior practice. The Yates Memo provides that for corporations to receive any cooperation credit in DOJ settlement negotiations, they must provide DOJ with all relevant facts relating to the individuals responsible for the misconduct. Panelists observed that this requirement of full cooperation does not amount to a drastic change from prior DOJ policy. Similarly, the Yates Memo’s prohibition of partial credit for partial cooperation does not represent a major departure from prior practice, as the DOJ rarely gave such credit before the issuance of the Yates Memo. Further, panelists stressed that while cooperation credit is now officially “all or nothing,” the DOJ simply wants to see a corporation’s best efforts in terms of cooperation. For more on the Yates Memo, see our post here.

  • DOJ will respect a corporation’s attorney-client privilege. Panelists emphasized that although corporations are not required to waive the attorney-client privilege to receive cooperation credit under the Yates Memo, corporations must fully disclose all of the relevant facts. The government therefore takes the position that facts conveyed during attorney-client conversations are not privileged. Avakian and Friedlander recommended that counsel discuss privilege issues with the government as early as possible in an investigation to resolve any concerns.

 

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