SEC Flexes Its Own Muscle

The SEC is not a shrinking violet.  When it comes to FCPA enforcement, some focus more on the Justice Department – and given its criminal enforcement mission that is understandable.  But the SEC has a strong enforcement role to play, and in the last year or so, it has been flexing its enforcement muscle.  It is an important trend and one that is expected to increase.

 The SEC is bringing cases now against companies and individuals where the Justice Department declines to bring a case.  It is obvious that the SEC’s increase in FCPA enforcement reflects its lower burden of proof – a civil burden of preponderance of evidence.   As a theoretical matter, the SEC should be able to bring more cases than the Justice Department which has to meet a criminal burden of proof.

The SEC’s typical mode of operation is to file civil charges with a contemporaneous settlement.  Last year, however, they filed ten unsettled FCPA cases.  The new FCPA Unit at the SEC is definitely more aggressive and looking to make its own mark.

At first glance, some may say that the SEC is padding its numbers since seven of the ten cases involved Siemens officials for bribery in Argentina.  None of the defendants is in the United States and it is unlikely that the cases will ever reach the courtroom.  The Siemens case is only a small part of the SEC’s new enforcement effort.

Last year, the SEC brought cases against three individual officers from Magyar Telekom’s former CEO, Director of Central Strategic Organization, and Director of Business Development.  This year, the SEC brought cases against three officers from Noble Energy, one of whom settled at the time of filing.  The two remaining officers are still fighting the SEC in court.

The SEC also has aggressively pursued FCPA enforcement actions in situations where companies failed to conduct due diligence and integrate acquired companies into compliance programs.  Although these cases were settled at the time of filing, the SEC secured favorable settlements in six separate cases under successor liability. 

The SEC’s new enforcement attitude is reflected in non-FCPA enforcement areas as well.  It has targeted gatekeepers for enforcement actions, including internal auditors and in-house counsel.  This same approach may be used in FCPA cases and it is a trend that should be closely watched.

The SEC touts its new FCPA enforcement unit.  It also has begun to use its cooperation initiative to advance its enforcement program.  While the FCPA paparazzi flooded the Internet with client alerts about the new cooperation program, in reality, the program is of little consequence.  No defense lawyer will allow his or client to speak to the SEC unless the Justice Department provides adequate protections against criminal liability.  The Justice Department still drives that train and the SEC, as an institution, will be in the back seat. 

And, of course, I have not even mentioned the SEC’s whistleblower program.  While some have yawned in the face of the whistleblower program, I think they may regret advising clients to respond to the risk of whistleblowers.  Every company should have a whistleblower complaint triage program; the size of the program will depend on the size of the company.

 As the False Claims Act relator system has demonstrated — if you offer money to whistleblowers, attorneys are sure to follow, and the combination of money, whistleblowers and attorneys will inevitably lead to an increase in enforcement.  Early data on the whistleblower program has underscored the risk, and it is likely to grow.  At the same time, the Justice Department will secure access to these cooperating whistleblowers and will use access to these individuals for developing cooperating sources and witnesses who can assist in undercover operations.

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2 Responses

  1. August 7, 2012

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