At the recent 2023 Garrett Securities Law Institute Conference SEC panelists, including Erik Gerding, Director of the Division of Corporation Finance, reinforced how important it is for companies to assess emerging risks for materiality—particularly those risks stemming from Environmental, Social and Governance (ESG) issues and cybersecurity issues—and to ensure that those risks are appropriately disclosed to investors.

The SEC panelists further cautioned that disclosures related to emerging risks should not be generic disclosures based on industry-wide trends or risks, but instead should focus on the particular ESG or cybersecurity risk faced by the disclosing company. The SEC reiterated that disclosures regarding emerging risks must be specific enough for investors to appreciate the risks that the company is actually facing.

Continue Reading Disclosing Emerging Risks Top of Mind for the SEC

The Supreme Court of the United States has agreed to review an apparent circuit split over how long after a criminal conviction the United States can forfeit a criminal defendant’s property. In McIntosh v. United States the Court will review whether a district court may enter a criminal forfeiture order long after criminal proceedings have ended. How the Court resolves this issue will be important to future forfeiture cases, including those involving cryptocurrencies—an asset that over the last decade has been increasingly in the crosshairs of the government’s forfeiture powers.

Continue Reading Supreme Court to Decide the Limits of the Government’s Forfeiture Power

On November 1, 2023, significant amendments to the Federal Sentencing Guidelines went into effect after Congress took no action to veto the proposed amendments, which were adopted by the U.S. Sentencing Commission earlier this spring.  This marks the first time in five years that the Guidelines have been amended, in part due to the Commission having a lack of quorum from 2019 through 2022.

The newly effective amendments enact, among other things, a new Chapter Four guideline, which provides for a decrease of two offense levels for “zero-point offenders” (that is, defendants with no prior criminal history) and whose instant offense did not involve certain enumerated criteria.  In practical terms, this could mean months less of prison time, and tens of thousands of dollars less in fines, for zero-point offenders.  The amendment also could have a particularly meaningful impact on white collar criminal defendants who, in many cases, have no prior criminal history.

Continue Reading 2023 Amendments to Federal Sentencing Guidelines Now in Effect

The U.S. Department of Education (the “DOE”) recently concluded that the Newark, New Jersey public school district violated Title IX of the Education Amendments of 1972 (“Title IX”) by failing to implement proper policies and respond to reports of student-to-student and employee-to-student sexual harassment.

On August 28, 2023, the DOE and the school district entered into a Resolution Agreement in which the district committed to take certain steps to resolve the compliance issues identified by the DOE. In a Letter accompanying the Resolution, the DOE described nine violations of Title IX and its implementing regulations. While the Letter is not a formal statement of DOE policy, it provides some insights into the DOE’s analysis and review methodology that may help schools and other entities subject to Title IX better comply with the law and prepare for a potential DOE investigation.

Continue Reading DOE Resolution Requires Newark School District to Implement Robust Measures to Comply with Title IX

On April 28, 2023, a federal court in Connecticut dismissed the United States Department of Justice (“DOJ”) Antitrust Division’s latest—and largest—criminal anti-poach case brought to trial. After a 15-day jury trial in United States v. Patel—but before the jury could deliberate—U.S. District Judge Victor A. Bolden granted the defendants’ joint motion for acquittal, finding that based on the evidence presented by the prosecutors, no reasonable juror could convict the six accused aerospace and staffing company executives of engaging in criminally anti-competitive behavior.

The acquittal marks the latest trial defeat for the DOJ, which began in 2020 to prosecute similar no-poach and wage-fixing deals under Section 1 of the Sherman Act but has yet to secure a jury conviction on these charges.

The Antitrust Division charged the Patel defendants in December 2021 with engaging in a long-running conspiracy to suppress competition and prevent labor costs from rising by agreeing not to recruit away from one another engineers and other skilled laborers working on aerospace projects. The defendants initially moved to dismiss the indictment, but the court denied that motion on the ground that the DOJ successfully alleged a per se conspiracy to restrict hiring and to allocate (or divide) labor markets to minimize competition—a theory of automatic liability typically reserved for the most obvious anti-competitive conduct. The case then proceeded to a jury trial in March 2023. After the government rested, the district court found that, even assuming defendants had agreed to restrict hiring, the prosecution had failed to establish per se anti-competitive conduct. Specifically, the evidence revealed that “the alleged agreement itself had so many exceptions that it could not be said to meaningfully allocate the labor market” and that “hiring among the relevant companies was commonplace” notwithstanding the agreement. Accordingly, the court granted the executives’ motion for acquittal before the case reached the jury.

Continue Reading Antitrust Division Dealt Another Setback in No-Poach Prosecutions

The U.S. Supreme Court has recognized “the reality that criminal justice today is for the most part a system of pleas, not a system of trials.” This is as true for defendants facing charges of robbery and extortion as for those charged with tax evasion, embezzlement, or securities fraud. Indeed, research has previously shown that nearly 97% of all federal convictions are secured through plea agreements—not jury verdicts.

Against this context, it is noteworthy that the Court recently declined to resolve a lingering circuit split involving the right of defendants to have their counsel seek such plea agreements. Specifically, the Court was asked to consider whether a defense attorney’s failure to pursue a plea agreement on behalf of a client could constitute ineffective assistance of counsel. The Sixth Amendment affords criminal defendants the right “to have the assistance of counsel” for their defense, which the Supreme Court has interpreted to mean effective counsel.

In Davis v. United States, Justices Ketanji Brown Jackson and Sonya Sotomayor took the rare step of issuing a written dissent of the Court’s denial of certiorari. Both justices are former criminal law attorneys—Justice Jackson was once an assistant public defender in Washington, D.C., and Justice Sotomayor was an assistant district attorney in Manhattan. As a result of the Court’s denial of certiorari, the ongoing circuit split means that an attorney’s failure to pursue a plea agreement may constitute ineffective assistance of counsel in violation of the defendant’s Constitutional rights, but only in certain states.

Continue Reading Supreme Court Declines to Resolve Circuit Split Regarding Ineffective Assistance of Counsel

The U.S. Securities and Exchange Commission’s focus on cybersecurity continues in its most recent effort to modernize financial privacy rules and emphasize transparency between SEC-regulated entities who suffer from a cyber breach and the individuals impacted by the breach. The SEC’s latest proposals focus on registrants including broker-dealers, investment advisors, and investment companies, and seek to impose cyberbreach disclosure requirements similar to those the SEC previously proposed for public companies.

On March 15, 2023, the SEC proposed amendments to current data privacy rules that would require covered firms to adopt written policies and procedures for incident response programs. Under the proposed amendments, such policies and procedures must address unauthorized access to or use of customer information, including procedures for providing timely notification to individuals affected by an incident involving sensitive customer information with details about the incident and information designed to help affected individuals respond appropriately. The proposed changes would come through amendments to rules under Regulation S-P.

Regulation S-P currently requires covered registrants to notify customers about how they use their financial information, but it does not require them to notify customers about breaches. The proposed amendments would also ensure that breaches are properly identified, and that sensitive customer data is monitored to determine whether it was accessed.

In announcing the proposed amendments, Chairman Gensler explained that investors would benefit from a financial privacy rule “more modern than the AOL era.”

Continue Reading Highlighting Enforcement Focus on Cybersecurity, SEC Proposes New Disclosure & Incident Response Rules

On March 2, 2023, U.S. Department of Justice Deputy Attorney General (DAG) Lisa Monaco once again delivered groundbreaking remarks at the American Bar Association National Institute on White Collar Crime, this time heralding a new era of corporate enforcement aimed at addressing U.S. national security priorities.  Last spring, as U.S. sanctions against Russia rolled out, DAG Monaco described sanctions as “the new FCPA (Foreign Corrupt Practices Act”)” in terms of DOJ priorities, sending shockwaves through the world of corporate compliance.  Since then, DOJ has borne that promise out largely through an aggressive campaign, championed by Task Force KleptoCapture, as we have previously written about, resulting in a large number of criminal cases targeting individual defendants. 

In this most recent announcement, DAG Monaco set a new tone: announcing that enforcement of national security-related violations—most notably sanctions evasion and export control violations—against corporations would be among the top priorities of the DOJ.  Later in the day, Matthew Axelrod, Assistant Secretary for Export Enforcement within the Department of Commerce, Bureau of Industry and Security (BIS), drove home that point, emphasizing that companies should no longer view export control and sanctions violations as “technical violations,” but would be well advised to view them as enterprise risks given the prioritization these issues are receiving within the various government enforcement agencies, including the DOJ.  Further highlighting this new landscape, the Department of Treasury Office of Foreign Assets Control (OFAC) spoke at the ABA White Collar Conference for the first-time ever on March 2 and the DOJ, BIS and OFAC issued their first-of-its kind joint compliance guidance the same day, relating to third party-intermediary risks. 

It was a day filled with sea-changing announcements for sanctions and export control enforcement, but the takeaway was simple: Sanctions and export controls really are the new FCPA in terms of corporate enforcement priorities and related compliance expectations.  The Money Laundering and Asset Recovery Section (MLARS) has already begun conducting sanctions- and export-related investigations.

Continue Reading DOJ to Prioritize Enforcement of Sanctions and Export Control Violations Against Corporations

On December 16, 2022, U.S. Attorney General Merrick Garland issued a memorandum (the Garland memo) to all federal prosecutors, reflecting a significant new policy regarding charging, pleas, and sentencing in federal criminal cases. The Garland memo replaces prior U.S. Department of Justice (DOJ) policy and applies to all federal criminal prosecutions initiated on or after January 17, 2023.

Under the new DOJ policy, federal prosecutors making charging decisions must consider whether the consequences of those charges for sentencing would yield a result that “is proportional to the seriousness of the defendant’s conduct, and . . . achieves such purposes of the criminal law as punishment, protection of the public, specific and general deterrence, and rehabilitation.”  The new policy makes clear that the goal of any prosecution is a sanction that is “sufficient, but not greater than necessary” to satisfy these considerations.  The Garland memo further provides that prosecutors should not file charges, or threaten to do so, simply to exert leverage to induce a plea.

The Garland memo reflects a continued departure from the prior administration’s policy, which provided that federal prosecutors “should charge and pursue the most serious, readily provable offense.”  The prior policy was revoked in January 2021 by then-acting U.S. Attorney General Monty Wilkinson.

The Garland memo, in short, appears to be embracing a policy of prosecutorial lenity, and could prove to be a useful tool going forward for the defense bar in plea negotiations and at sentencing.

Continue Reading Garland Memo, Emphasizing Prosecutorial Lenity, Reflects Significant DOJ Policy Shift

The Supreme Court of the United States will decide an issue impacting charging decisions in criminal cases involving technology and where those cases are tried. Specifically, the Supreme Court will decide whether criminal defendants may be retried after they are convicted in the wrong “venue,” i.e., the location where the trial took place. This constitutional venue requirement—and the Supreme Court’s ultimate decision on the remedy for violating it—will influence future cases involving technology, where defendants, victims, servers, and resources used to commit the crime are often in different states or even nations.

In the case at issue, the defendant allegedly hacked into a company’s website, obtained certain trade secrets, and offered to sell those trade secrets through various posts on social media. As with many crimes involving technology today, numerous locations were involved: the defendant remained entirely within the Southern District of Alabama, the victim-company was in the Northern District of Florida, and the victim-company’s hacked servers were in the Middle District of Florida. But where to conduct the trial? Based on the location of the victim-company’s headquarters, the government decided (incorrectly) to indict the defendant in the Northern District of Florida, on three counts: violation of the Computer Fraud and Abuse Act, theft of trade secrets, and extortion. At the end of trial, the jury convicted the defendant of the latter two counts.

On appeal, the U.S. Court of Appeals for the Eleventh Circuit held that for the trade-secrets conviction “venue was not proper in the Northern District of Florida because [the defendant] never committed any essential conduct in that location.” To remedy this violation, the court had two options: (1) vacate the conviction, allowing the defendant to be retried in a (supposedly) proper forum, or (2) acquit the defendant of his conviction in the improper forum, which would bar his retrial in another forum under the U.S. Constitution’s Double Jeopardy Clause that prohibits giving “the government . . . a second chance at prosecution.” The 11th Circuit chose the first option, endorsing a remedy that effectively allows the government, when it chooses the wrong venue, to retry a defendant in  the correct venue.

Continue Reading Venue Misstep Shows Complexity of Prosecuting Cybercrime: Supreme Court to Weigh In