The CFTC filed a record number of enforcement actions in 2019 against market participants, the majority of which involved commodities fraud, market manipulation, and spoofing.  As a result of these actions, the CFTC reports that it obtained over $1.3 billion in monetary sanctions and disgorgement in 2019—a 39% increase over the prior fiscal year.  And at this year’s ABA Derivatives & Futures Law Committee Winter Meeting, regulators from the CFTC and ICE warned market participants to expect these enforcement trends in spoofing and market manipulation to continue into 2020.

CFTC Seeks Parallel Enforcement with Market Regulators, but Coordinated Resolutions Scarce

 The CFTC’s Chief Counsel of the Division of Enforcement, Gretchen Lowe, commented that protecting market integrity continues to be a top priority at the CFTC.  She noted that Enforcement is particularly focused on spoofing and market manipulation, as well as matters involving regulatory infractions, such as registrants’ reporting obligations, failure to supervise, business conduct standards, and adequacy of remediation efforts.

Lowe also signaled that Enforcement will continue to pursue “parallel cooperative enforcement efforts” with both domestic and foreign market regulators—including SROs and criminal enforcement authorities in the spoofing context.  ICE Futures U.S. Enforcement Counsel, Frances Mendieta reinforced that the lines of communication are “very open” between ICE and the CFTC, and that the regulators may share information with each other over the course of an investigation.

However, despite such extensive interplay between the regulators, coordinated or “global” resolutions appear to be the exception, rather than the rule.  Both Lowe and Mendieta suggested that the sequential nature of the regulators’ respective investigations can make it difficult to coordinate settlements.  Consequently, while regulators seem keen to build on each other’s investigations, the resolutions often occur months, or sometimes years apart, which can leave market participants in protracted cycle of enforcement involving the exact same conduct. Continue Reading CFTC, Market Regulators Forecast Aggressive Enforcement Trends, High Bar for Cooperation

The U.S. Commodity Futures Trading Commission’s (CFTC) Director of the Division of Swap Dealer & Intermediary Oversight (DSIO), alongside fellow panelist and National Futures Association’s (NFA) General Counsel, fielded wide-ranging questions from co-panelists and audience members alike in a discussion focused on Intermediaries & Advisors at the ABA’s Derivatives & Futures Law Committee Winter Meeting in Naples, Florida (January 23-25, 2020).  Chief among the topics addressed were views regarding DSIO and NFA’s evolving approach to swap dealer oversight, particularly on the heels of DSIO’s recently issued guidance on the Chief Compliance Officer Annual Report for futures commission merchants, swap dealers, and major swap participants. Continue Reading DSIO and NFA Share Views on Evolving Swap Dealer Oversight

In a recent decision showing how courts evaluate insider trading in the marital context, the First Circuit Court of Appeals affirmed a Massachusetts real estate investor’s conviction on insider trading securities fraud and related conspiracy offenses arising from his role in passing information he learned from his corporate insider wife to two of his friends.  The government’s theory of the case was that defendant Amit Kanodia violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 when he misappropriated material, nonpublic information obtained from his wife to whom he owed “a duty of trust and confidence that prohibit[ed] [him] from secretly using such information for [his] personal advantage.”  On appeal, Kanodia argued that there was insufficient evidence to show that a legal duty of trust and confidence arose between him and his wife because their marital relationship did not involve a history, pattern, or practice of sharing confidences.  The First Circuit, however, found that the government presented ample evidence for a jury to conclude that Kanodia and his wife shared confidences in the history of their marriage and also in their business and advisory relationships.   Continue Reading First Circuit Considers a Spouse’s “Duty of Trust” to a Corporate Insider

The U.S. Court of the Appeals for the Ninth Circuit recently held that criminal defendants who gain unlawful proceeds from certain offenses must pay back those proceeds—even when they no longer possess them.  More specifically, the government may obtain “personal money judgments” that can be satisfied through the defendants’ untainted (and currently unidentified or even future) assets.

This ruling—reaffirming prior case law recently called into question—will impact defendants in cases involving economic crimes and forfeiture. Continue Reading Crime Doesn’t Pay, But Defendants Still Left with the Bill

The German Federal Ministry of Justice and Consumer Protection recently presented draft legislation to Parliament that could pose a marked shift in how corporate crimes are sanctioned in Germany.  If enacted, this draft legislation, titled the Corporate Sanctions Act (“CSA”), would permit the criminal prosecution and conviction of a corporate entity in circumstances where the entity’s directors or officers committed corporate crimes, and where the entity failed to take reasonable precautions to prevent employees or agents from engaging in criminal wrongdoing.  Companies based or doing business in Germany will be subject to the law. Continue Reading Germany Proposes New Corporate Sanctions Act with Global Reach

The DOJ has raised the stakes in criminal spoofing enforcement, unveiling sweeping charges against three traders who allegedly conspired to manipulate the precious metals market.  While the DOJ’s involvement in spoofing enforcement—an area previously dominated by civil regulators and SROs—has become more commonplace, the DOJ is using a new tactic in this latest enforcement action.  In addition to the usual spoofing and other financial crime offenses, the indictment charges the traders with a racketeering conspiracy.  The DOJ’s reliance on RICO increases the possible penalties for spoofing, while also potentially making the government’s case simpler to prove.

A Potential New Era of Spoofing Enforcement

After obtaining mixed results in its previous spoofing trials, the DOJ appears to be retooling its approach.  Indeed, the indictment against these precious metals traders marks the first time the DOJ has alleged RICO violations against traders accused of spoofing electronic derivatives markets. Thus, while the alleged spoofing conduct may be familiar, the charges brought are significantly different and more serious than before.  And so are the potential penalties.  In addition to hefty incarceration sentences, RICO provides for the government to seek forfeiture of all proceeds derived from the racketeering activity. Continue Reading DOJ Brings Novel RICO Charges Against Alleged Spoofers

The DOJ is increasingly using a “data focused approach” to identify economic crime and corporate misconduct, according to a DOJ official.  In remarks to the 6th Annual Government Enforcement Institute, Deputy Assistant Attorney General Matthew S. Miner recently shared that using data analytics to identify fraud improves efficiency, expedites case development, and makes program enforcement “more targeted.”

While Miner indicated that data analytics are being utilized across the DOJ’s white collar enforcement efforts, he pointed to the healthcare industry and financial sector as two such targets of the DOJ’s data-driven enforcement approach.  The DOJ has already successfully used Medicare claims data to identify fraud.  That success is attributed, in part, to the DOJ’s healthcare data analytics team which analyzes the Centers for Medicare and Medicaid Services’ payment database for health care fraud activity and trends.  The financial sector—specifically the commodities and securities arena—represents an expanding “area of focus” for the DOJ’s data-driven enforcement.  Miner indicated that the DOJ uses trading data to identify indicators or anomalies that are suggestive of market manipulation and other fraudulent activity. Continue Reading DOJ Leveraging Data Analytics To Detect Fraud

The Supreme Court’s 2016 decision in United States v. McDonnell raised questions about the constitutionality of expansive interpretations of federal bribery statutes.  However, the bribery statute at issue in McDonnell—quid pro quo corruption defined at 18 U.S.C. § 201(a)(2)—is not the only bribery statute in federal prosecutors’ toolbox.  Since McDonnell was decided, federal prosecutors have increasingly relied on 18 U.S.C. § 666 to pursue bribery charges that might otherwise be precluded by McDonnell’s holding. Continue Reading Second Circuit Affirms Broad Reading of Sec. 666 Bribery

Last month, the UK Serious Fraud Office (“SFO”) published non-binding, internal guidance expanding on its view of corporate cooperation in prosecutions. The guidance marks a notable departure from the SFO’s past reluctance to clarify its expectations for corporations seeking cooperation credit, while still making it clear that no outcome will be “guaranteed,” even for companies that have provided “full, robust” cooperation.  Rather, cooperation is just “one of many factors” that the SFO will consider when making a charging decision. Continue Reading UK Regulator Sets High Bar for Corporate Cooperators

One of the many challenges companies face when assessing their Foreign Corrupt Practices Act (“FCPA”) liability is determining whether a potential business partner constitutes a “foreign government official” under the FCPA.  From a definitional perspective, the FCPA is far from a model of clarity on this point.  See 15 U.S.C. § 78dd-2(h)(2)(A).

By way of example, consider the compliance sandbars companies must circumnavigate to determine whether (and when) providing something of value to “traditional authorities” (including First Nations, Métis and Inuit peoples) could impose FCPA liability.  This question often arises when U.S.-based companies are asked to make donations to American Indian tribes with whom they interact, or to do favors for individual members of a tribe.  For instance, a tribal elder may ask that a company doing business with the tribe employ a certain tribal member, or provide an internship to the chief’s son, etc.  Under such circumstances, companies might find themselves evaluating the contemplated transaction through the amorphic lens of the FCPA.

Understanding the Definitional Challenge

Going back to basics, the FCPA’s anti-bribery provisions define a “foreign official” as:

[A]ny officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization. 15 U.S.C. § 78dd-2(h)(2)(A).

Do American Indian tribes fit under this definition?  While there is little guidance on this analysis outside the United States (see this helpful article by my colleagues on that issue), there is even less in the context of  American Indian tribes, even though they possess much-discussed “sovereign status” in the United States.  This is both surprising and concerning. Continue Reading American Indian Tribes and “Foreign Officials” Under the FCPA