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

In United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018) the Second Circuit held that a non-resident foreign national cannot be criminally liable for aiding and abetting or conspiring to violate the FCPA unless the government can establish that such an individual acted as an agent of one of the categories of persons subject to liability as a principal.

Background

The DOJ charged Lawrence Hoskins, a British national and former Alstom UK executive based in Paris, with FCPA and money-laundering violations.  The government alleged that Hoskins had approved payments to consultants that were funneled to Indonesian officials to secure a $118 million infrastructure contract with a state-owned power company.  Hoskins was never physically present in the U.S., but he called and emailed alleged conspirators who themselves were present in the U.S., and Hoskins authorized payments from Alstom S.A. to the consultants, one of whom had a Maryland bank account.

Hoskins moved to dismiss charges alleging indirect FCPA violations—i.e., that he aided and abetted or conspired to violate the FCPA—arguing that he did not fall within the narrowly-circumscribed group of people for whom the FCPA prescribes liability: American companies, citizens, and their employees and agents, as well as foreign persons acting on American soil.  The lower court agreed with Hoskins and dismissed Count I of the indictment.  On appeal, the question for the Second Circuit was whether Hoskins could be charged as either a conspirator or an accomplice to the asserted FCPA violations, despite not falling within the categories of persons subject to liability as a principal.  The Second Circuit concluded that the statute’s text, combined with its legislative history and the presumption against extraterritoriality, compelled the conclusion that foreign nationals who act abroad and lack a direct connection to one of the categories of persons subject to principal FCPA liability cannot be liable as accomplices or conspirators.

Agency Liability Post-Hoskins

Hoskins creates some uncertainty regarding FCPA prosecutions of individuals or entities who could not be charged as principals. The decision creates a stronger jurisdictional defense for companies that are subject to DOJ or SEC actions solely based on their business association with a U.S. concern.  Under the Second Circuit opinion, it will take more than mere conspiracy or assistance to bring such entities within the scope of liability.

It is also likely that investigators will put more emphasis on developing evidence of agency relationships between principal violators and entities otherwise unreachable under Hoskins.  Indeed, the court in Hoskins held that the government could present agency evidence and pursue Hoskins as an agent of, for example, Alstom S.A.’s U.S.-based subsidiary.  Prosecutors may also attempt to broaden the traditional definitions of agency under the FCPA, particularly as agency theory becomes a critical link to reach now unreachable defendants.
Continue Reading Revisiting Agency Liability Under the FCPA Post-Hoskins

On December 5, 2017, the U.S. Securities and Exchange Commission (SEC) issued an order awarding more than $4.1 million to a whistleblower who voluntarily provided original information to the agency concerning a widespread, multi-year securities-law violation.  The  award was paid pursuant to the SEC’s Whistleblower Program under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  While the identities of whistleblowers are kept confidential in accordance with the Program’s rules, information released by the SEC indicates that the latest payout marks the tenth award made to a whistleblower outside the U.S.  A total of 50 whistleblowers have received monetary awards since the first bounty was awarded in 2012.
Continue Reading Foreign Whistleblowers Continue to Collect Lucrative Bounties under Dodd-Frank

For those watching in the trading world, the U.S. Supreme Court has confirmed that your friends can, indeed, pass on a gift of non-public information about a company that could leave you criminally liable for insider trading, even if they gain nothing concrete in return. This morning the Supreme Court released its unanimous opinion in

On May 23, 2016, the Second Circuit presented a significant setback to the Department of Justice (DOJ) by reversing a $1.27 billion penalty against Bank of America and Countrywide Loans.  As we’ve posted before, in October 2012, DOJ filed a civil suit against Bank of America and Countrywide based on mortgages sold to Fannie Mae and Freddie Mac.  The Government alleged that Countrywide had a program named “the Hustle” or “High-Speed Swim Lane,” which rewarded the speed of processing residential mortgage loans regardless of their quality.  This, according to the Government, resulted in thousands of fraudulent or defective loans that were subsequently sold to Government Sponsored Entities (GSEs) such as Fannie Mae and Freddie Mac.  Although Countrywide started the program in August 2007, the program continued after Bank of America purchased Countrywide in 2008.  
Continue Reading Second Circuit Reverses $1.27B Penalty Under FIRREA

Creating a circuit split that will likely be headed for resolution by the U.S. Supreme Court, the Second Circuit’s recent decision in Berman v. Neo@Ogilvy LLC expanded the Dodd-Frank Act’s anti-retaliation protections to include employees who were terminated by their companies after internally reporting to their employers concerns about potential violations of the federal securities laws.  The Fifth Circuit reached the opposite conclusion two years ago, in Asadi v. G.E. Energy (USA), L.L.C., holding that Dodd-Frank unambiguously defines “whistleblower” as someone who reports to the SEC.

Continue Reading Second Circuit: Dodd-Frank “Anti-Retaliation” Applies Even When Whistleblower-Employees Have Not Reported to the SEC

In an apparent circuit split that may well garner attention from the Supreme Court, a Ninth Circuit panel issued an opinion in United States v. Salman affirming that the requisite “personal benefit” for insider trading liability is established where an “insider makes a gift of confidential information to a trading relative or friend.”  In doing so, the Ninth Circuit rejected the Second Circuit’s narrower holding in United States v. Newman that a “personal benefit” may only be inferred from a personal relationship where the exchange of information “represents at least a potential gain of a pecuniary or similarly valuable nature.”  Notably, the Salman opinion owes its authorship to SDNY’s Judge Rakoff, who has previously questioned the Second Circuit’s decision in Newman, and now–when sitting by designation–adopts a view in tension with his home Circuit.

Continue Reading 9th Circuit Rejects Newman Holding on Insider Trading

Late last week, Judge Engelmayer in the Southern District of New York accepted a voluntary dismissal of a securities class action, but the dismissal was anything but routine. Instead, it was accompanied by a twenty-five page opinion & order which serves as an important warning to plaintiffs’ counsel in securities class action cases regarding the investigation process that often precedes securities class action complaints.

In In re Millennial Media, Inc. Securities Litigation, the plaintiffs alleged that executives of Millennial Media, Inc. engaged in securities fraud by releasing false and misleading information that artificially inflated the stock price. In an effort to satisfy the heightened pleading requirements under federal securities law, the complaint relied upon information and direct quotes from eleven “Confidential Witnesses” or “CWs.” However, the vast majority of these witnesses never spoke with plaintiffs’ counsel before the complaint was filed, though ten of the CWs had been interviewed by an investigator employed by plaintiffs’ counsel. After filing the complaint, plaintiffs’ counsel sent a copy of it to each CW, at which point one of them promptly requested that all attributions to him be removed. This request led to further inquiry from the Court as to the accuracy of the statements in the complaint, and revealed additional facts that the court found to be “unsettling.”
Continue Reading Judge Cautions Plaintiffs’ Counsel to Exercise Proper Diligence in Drafting Securities Class Action Complaints

In a ground-breaking decision, the Second Circuit dealt a substantial blow to federal prosecutors’ epic crackdown on insider trading by raising the bar for the government’s burden of proof in “remote tippee” cases that have plagued the financial industry in recent years.

The decision in United States v. Newman (available here) places significant restrictions on the ability of prosecutors to impose liability on so-called remote tippees, or individuals who trade on inside information, but have at least one layer between them and the corporate insider who initially disclosed the tip.  Such was the case in Newman, where the defendants—hedge fund managers who placed the allegedly infringing trades—were several layers removed from the corporate insiders who had first disclosed the material nonpublic information.  At the district court level, the government obtained convictions of the defendants based in part on jury instructions requiring the jury to find that (1) corporate insiders breached their fiduciary duties by disclosing material non-public information for their own benefit; and (2) that the defendants knew that confidential information had been disclosed in breach of this duty.  On appeal, the defendants asserted that the jury instructions were wrong, in that they should have required a finding that defendants also knew that a personal benefit had been obtained by the corporate insiders in exchange for releasing the confidential information.

On Wednesday, a unanimous Second Circuit panel agreed with the defendants, holding that to be guilty of insider trading, a remote tippee must not only have knowledge that a corporate insider breached his fiduciary duty not to disclose confidential information, but also have knowledge that the corporate insider did so in exchange for a personal benefit.  This decision resolves a previous ambiguity that the government had sought to capitalize on in Newman: whether the tipper’s derivation of a personal benefit is what actually creates the breach of duty.  The government argued that personal benefit is a separate element of the tipper’s insider trading offense, and thus it could establish that the tippee knew of the insider’s breach, without necessarily establishing that the tippee knew the insider did so in exchange for a personal benefit.


Continue Reading Second Circuit Narrows Scope of Remote Tippee Liability in Landmark Insider Trading Decision