As this blog has previously noted, the Coronavirus pandemic, like other crises before it, is likely to increase prosecutions for fraud, particularly under the Payment Protection Program (“PPP”) created by the federal government’s Coronavirus stimulus packages.  Two new prosecutions announced by the Department of Justice mark some of the first prosecutions under the PPP, and signal where and how the government will be looking for wrongdoing.
Continue Reading Prosecutions Related to Coronavirus Stimulus Begin

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

Section 14(e) of the Securities Exchange Act prohibits deceptive conduct when making a tender offer to shareholders.  Recently, in Emulex Corp. v. Varjabedian, the United States Supreme Court declined to resolve a split among the circuit courts about what a plaintiff alleging a violation of Section 14(e) must prove.  As a result, the Ninth Circuit is currently the only circuit allowing Section 14(e) claims based on negligent (as opposed to intentional) misrepresentations or omissions of material facts.  This development may result in an uptick in tender offer lawsuits in that jurisdiction.

The Emulex case stemmed from the company’s merger with Avago.  As part of that merger, Avago initiated a tender offer for Emulex’s outstanding shares.  In accordance with SEC rules, Emulex filed a public statement with the SEC in which it supported Avago’s tender offer and recommended that Emulex shareholders tender their shares.  Among other things, the statement observed that Emulex shareholders would receive a premium on their stock and described financial analyses that had been undertaken to reach this conclusion.  However, Emulex’s statement omitted reference to a portion of its financial analysis that concluded the takeover premium offered for Emulex’s outstanding shares was below average for mergers involving similar companies.  A putative class of shareholders brought suit, alleging that Emulex’s statement file with the SEC violated Section 14(e) of the Securities Exchange Act by failing to include the more lackluster price analysis.
Continue Reading Supreme Court Declines to Resolve Circuit Split Over Liability in Tender Offer Suits

Perhaps no part of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) has garnered as much attention as its whistleblower provisions, which pay corporate whistleblowers bounties under some circumstances, and prevent employers from retaliating against whistleblowing employees. Often times, the bounties paid to whistleblowers under Dodd-Frank warrant the most attention-grabbing headlines.  But Dodd-Frank’s

For many corporate executives in the food industry, the U.S. Department of Justice (DOJ’s) increasing focus on prosecuting “responsible corporate officers” under the criminal misdemeanor provision of the Food, Drug, and Cosmetic Act (FDCA) has warranted rapt attention, particularly in light of criminal investigations arising from nationwide contamination outbreaks at companies like ConAgra and Blue Bell Creameries.  Recent remarks by attorneys from the DOJ’s Consumer Protection Branch to industry audiences have underscored the government’s expectation that corporate food executives implement a “culture” of food-safety compliance in their companies, and provide timely, truthful responses to both formal and informal inquiries made by regulators at the Food & Drug Administration (FDA).

In December 2016, Principal Deputy Assistant Attorney General Benjamin Mizer addressed the Food and Drug Law Institute’s Enforcement, Litigation and Compliance Conference, reiterating the DOJ’s ability and determination to bring criminal charges in cases where companies sell contaminated products to consumers.  Separately, in remarks to the United Fresh Produce Association in September 2016, DOJ Assistant Director Jeffrey Steger provided a regulator’s viewpoint regarding several concrete ways that food companies can demonstrate their commitment to safety compliance.
Continue Reading DOJ Officials Offer Guidance for Food Company Execs Looking to Minimize Criminal Exposure

Shortly after the July 2010 adoption of the Dodd-Frank Act’s whistleblower program, disputes began arising over whether its anti-retaliation protections apply to employees who report misconduct internally to the company, but not externally to the SEC.  On August 4, 2015, the SEC issued new guidance through an interpretive rule, maintaining that the Act’s whistleblower protections are not limited only to those who choose to report externally to the SEC.
Continue Reading New SEC Guidance: Dodd-Frank Protects Internal Whistleblowers

Although not intended to be used as a broad discovery device, Federal Rule of Criminal Procedure 17(c) permits a party in a criminal case to issue a “17(c) subpoena” to order the production of documents in the possession of third parties.  The rule specifically provides that only the court may direct pre-trial production of materials compelled by a 17(c) subpoena—and only when the court is convinced that the subpoena is not issued as part of a “fishing expedition” for discovery. 

It is not uncommon, however, for parties to include language in 17(c) subpoenas that permit the recipient to comply through immediate pre-trial production–thereby circumventing the process of obtaining court approval for “early return.”  However, after a recent reprimand from the District Court for the District of Columbia, that practice may be coming to an end.Continue Reading Court Restricts Use of Rule 17(c) Subpoena for Gathering Pretrial Discovery

While the primary domestic anti-bribery statute, the FCPA, has been on the books for nearly four decades, the UK’s principal anti-bribery law, the UK Bribery Act, is merely an infant, having become effective in July 2011.  Recently, however, the UK Bribery Act took a step toward maturity as the UK’s Serious Fraud Office (“SFO”), the office with primary responsibility for enforcing the Bribery Act, obtained its first criminal convictions under the law.  While they do not signal any significant legal developments, these first Bribery Act convictions serve as a reminder for U.S. companies operating abroad that they must be cognizant not only of the FCPA, but also its UK counterpart.
Continue Reading UK Continues to Ramp Up Enforcement Under Bribery Act

As made clear in the DOJ and SEC’s joint Resource Guide to the Foreign Corrupt Practices Act (FCPA), U.S. prosecutors view foreign nationals as liable under the FCPA, regardless of whether they have taken any action in the United States, in cases where they aided and abetted, conspired or acted as an agent of an issuer or domestic concern.  However, the practical implications of enforcing the FCPA against individuals residing outside the U.S. raises a litany of questions about how, and when, foreign nationals can contest criminal allegations against them brought in U.S. courts.  A recent denial of certiorari from the U.S. Supreme Court in Kim v. USDC CD CA, et al., leaves muddled the question of whether a foreign national can challenge an indictment from abroad.
Continue Reading Ninth Circuit Limits Ability of Foreign Nationals to Challenge FCPA Charges from Abroad

Far surpassing letter writing and even phone calls, email has become the primary method by which attorneys communicate with their clients.  But in light of recent court decisions, email may soon go out of use in a place where clients need to communicate quickly and efficiently with their lawyers:  prison.  As is currently playing out in the Eastern District of New York, some criminal authorities are taking the position that there is no privilege governing emails between inmates and their attorneys sent over the Bureau of Prisons (“BOP”) TRULINCS email system, and that those authorities can therefore capture, read, and use those emails in litigation.
Continue Reading Federal Inmates Warned to Avoid Email When Contacting Attorneys