The U.S. Securities and Exchange Commission (SEC) is putting some muscle behind Regulation Best Interest (Reg BI). On June 16, 2022, nearly two years after Reg BI went into effect, the SEC filed its first federal lawsuit to enforce the rule against a broker-dealer and its registered representatives.

The SEC sued Western International Securities, Inc. (Western), a dually registered broker-dealer and investment advisor, along with five of its registered representatives, in the U.S. District Court for the Central District of California for allegedly violating Reg BI’s care obligation; the defendants allegedly recommended certain high-risk, speculative bonds to retail customers without themselves fully understanding the associated asset risks and without establishing how the investments served the customers’ best interests. The SEC also charged Western with violating its compliance obligation under Reg BI for allegedly failing to maintain adequate policies and procedures and other controls.

The fact that the SEC sued registered representatives — notwithstanding allegations that their firm had inadequate internal controls and policies —  is a strong statement that individuals must use their best judgment to make their own independent inquiries and determinations about the products they recommend to their clients. Registered representatives cannot hide behind their firm’s guidance and control failures to escape primary liability under Reg BI.Continue Reading SEC’s First Reg BI Lawsuit Takes Strong Position on Individual Liability

Recent briefing in SEC v. Team Resources, Inc., a long-running case challenging a U.S. Securities and Exchange Commission (“SEC”) disgorgement award, is a reminder of both the significance of the Supreme Court’s 2020 decision in Liu v. SEC and the open questions that remain regarding the SEC’s disgorgement remedy.
Continue Reading SEC v. Team Resources, Inc.: Exploring SEC Disgorgement Post-Liu

The CFTC Division of Enforcement (Division) of the U.S. Commodity Futures Trading Commission (CFTC) issued new guidance (Guidance) on May 20, 2020, that reflects the considerations of the Division when recommending civil monetary penalties (CMPs) to the CFTC in enforcement actions. The Guidance—which marks the first CMP guidance published by the Division since the CFTC

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, a D.C. federal judge ordered the Department of Justice to turn over the names of prospective monitors nominated to oversee the corporate compliance programs of fifteen companies found to be in violation of the Foreign Corrupt Practices Act (FCPA).  While recognizing that these individuals have “more than a de minimis privacy interest in their anonymity,” the court found that any such privacy interest was outweighed by the public’s interest in learning their identities.

In April 2015, journalist Dylan Tokar filed a FOIA request seeking records related to the review and selection of corporate compliance monitors in FCPA settlement agreements between DOJ and fifteen corporate defendants.  Tokar, a reporter for the trade publication Just Anti-Corruption, hoped these records would shed light on the monitor selection process, including whether DOJ had been abiding by the guidelines for monitor selection set forth in its 2008 Morford Memorandum.  The Memorandum, which establishes several principles to avoid potential and actual conflicts of interest and address concerns of cronyism, prescribes the consideration of “at least three qualified monitor candidates” whenever practicable.  Accordingly, Tokar requested the names of the three monitor candidates and their associated firms for fifteen cases.

More than eighteen months later, DOJ provided Tokar with a table purportedly responding to his request, but redacted the names of the monitor candidates who were nominated but not selected, as well as their affiliated firms in some cases.  DOJ asserted that these redactions were necessary and justified under FOIA Exemptions 6 and 7(C), which exempt from disclosure certain information that would constitute an “unwarranted invasion of personal privacy.”

After both parties cross-moved for summary judgment, the court concluded that the redactions were improper and ordered DOJ to release the candidates’ names.  It found that while DOJ had demonstrated sufficient privacy interests to warrant coverage under Exemptions 6 and 7(C)—as it was “plausible that these individuals would prefer to have their consideration and ultimate[] non-selection withheld from the public’s view”—these interests were outweighed by the public’s interest in disclosure.  The court agreed with Tokar that without disclosure of the candidates’ names, it would be “difficult (if not impossible) to know whether either the government or the corporate entity under investigation is taking advantage of the selection process in a manner that undermines the objectives of the DPA” and the principles delineated in the Morford Memorandum.
Continue Reading Monitoring the Monitors: DOJ Ordered to Disclose Info on Monitor Selections

The Washington Post reported last week that the DOJ is considering an internal policy that could give some companies a “free pass” if they voluntarily disclose violations of the FCPA, including information regarding culpable employees.  The proposed policy—which is under review and has not yet been adopted—strongly recommends that prosecutors decline to bring criminal charges against companies who self-report violations and cooperate in any resulting government investigations.  According to the Post, such declinations could be accompanied by a financial penalty amounting to a disgorgement of company profits.
Continue Reading New DOJ Guidance on Self-Disclosure in FCPA Cases?

Last month, Attorney General Eric Holder took an important first step towards reforming the DOJ’s federal Asset Forfeiture Program.  Under the program, state or local law enforcement authorities may ask federal agencies to take or “adopt” assets that have been seized under state law.  Federal agencies then sell the assets and return a significant portion of the proceeds to local law enforcement.  In some cases, these proceeds can account for up to 20% of the annual budget for certain police departments and sheriff’s offices across the country.


Continue Reading Holder Takes “First Step” in Comprehensive Review of Federal Asset Forfeiture Program

In its recent declination to review the Third Circuit’s decision in In Re: Grand Jury Subpoena, a case involving the contours of the crime-fraud exception to the attorney-client privilege, the U.S. Supreme Court leaves intact the Third Circuit’s conclusion that by merely informing a client of the applicable law, asking clarification questions, and advising against potentially illegal conduct, an attorney’s actions constituted advice in “furtherance of a crime or fraud” and vitiated the protections of the attorney-client privilege.
Continue Reading Supreme Court Remains Silent on Crime-Fraud Exception

With nearly 97% of all federal convictions in 2013 secured through plea agreements, the Department of Justice announced yesterday that it will no longer ask criminal defendants who plead guilty to waive their right to appeal on the basis of ineffective assistance of counsel (IAC).  In a memorandum to all federal prosecutors, Deputy Attorney General James Cole instructed prosecutors to curtail the use of IAC waivers in future plea agreements, and to decline enforcement of existing waivers in certain cases—such as when ineffective assistance resulted in prejudice, or the claims raise an issue best resolved by the court. 
Continue Reading Waving Goodbye to IAC Waivers

Last week, the Financial Crimes Enforcement Network (FinCEN) permanently barred former casino staffer George Que from working at financial institutions for willfully violating the reporting requirements of the Bank Secrecy Act (BSA).  Que, the former VIP Services Manager at the Tinian Dynasty Hotel & Casino in the Northern Mariana Islands, also agreed to pay a