New developments in Regulatory and White-Collar field

The marriage between white-collar defense and regulatory defense doesn’t seem to be ending anytime soon. It seems like more and more white-collar prosecutions originate from enforcement investigations, or actions brought through regulatory agencies – the most active among them is the Securities and Exchange Commission (SEC). For this reason, it is important to stay on top of this ever changing landscape, so here are a few of the more recent developments that deserve some attention:  

In mid-August, a judge in the SDNY issued an order preliminarily enjoining the SEC from proceeding in an administrative hearing based on her holding that the process of appointing the SEC’s administrative law judges was likely unconstitutional, and in violation of the Appointment Clause. You can read more about the ruling and other similar rulings in the White Collar Crime Professor Blog here. These kinds of rulings could be a game changer for defendants facing enforcement actions brought forth by the SEC.

There is also a ‘not-so-new’ weapon in the war to scrutinize and regulate Corporate America called the Foreign Corrupt Practices Act (FCPA) that seems to be getting more attention. Earlier this month BNY Mellon entered a civil settlement after an investigation conducted by the SEC and Department of Justice relating to their hiring of interns that didn’t meet their qualifications, and who were relatives of two officials of a Middle East sovereign wealth fund. This is an expansion of how the FCPA has traditionally been viewed and clearly now hiring practices will also be more scrutinized by the SEC. In response, The New York Times discussed how the Bribery Law is a New Tool to Scrutinize Wall Street.

It seems the Government is exploring creative ways to “work around” their burden to prove benefit in insider trading cases after the ruling in United States v. Newman. The New York Times highlighted this New Way of Charging Insider Trading Offenses. Federal prosecutors in Georgia charged a tippee under a securities fraud statute adopted by the Sarbanes-Oxley Act under 18 U.S.C. 1348. The Government successfully argued they did not have to prove benefit under the statute in response to the defendant’s motion to dismiss. The jury was never instructed about the requirement to establish benefit. Thankfully for the accused he was acquitted by a jury but that just means that this new approach has yet to be fully tested by a higher court and I suspect we will see it used again until then.

Finally, there was a recent ruling out of the District of Connecticut by U.S. District Court Judge Janet Bond Arterton that is significant to note. It was relating to a motion to dismiss filed in U.S. vs. Lawrence Hoskins, charging a former Alstom executive, who is a foreign national charged under the FCPA.  The court partially dismissed Count One, finding that “Based on the text and structure of the FCPA and the legislative history accompanying its enactment and its amendment, the Court concludes that Congress did not intend to impose accomplice liability on non-resident foreign nationals who were not subject to direct liability. Count One will not be dismissed in its entirety, however, because if the Government proceeds under the theory that Mr. Hoskins is an agent of a domestic concern and thus subject to direct liability under the FCPA, the Gebardiprinciple would not preclude his criminal liability for conspiring to violate the FCPA. The Government may not argue, however, that Defendant could be liable for conspiracy even if he is not proved to be an agent of a domestic concern.”  Read more about this ruling in FCPA Professor Blog here.