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N.Y. Attorney General's Office, SEC and FINRA Assess Penalties, Fines Against Securities Firm Over Dark Pool Access Disclosures
On December 16, N.Y. Attorney General Eric Schneiderman announced a $37 million settlement against a major securities firm following its joint investigation with the Securities and Exchange Commission (SEC) into allegedly false statements and omissions made by the firm in connection with the marketing of its electronic order routing services, known as its “Dark Pool Ranking Model.” As explained by Attorney General Schneiderman, “Electronic order routing systems that route investor orders to various markets, including dark pools, are a part of modern equities trading, and companies that promote their routing capabilities must do so truthfully.” As part of the agreement, the firm admitted that it misled investors and violated New York State and federal securities laws; its conduct was also censured by both regulators.
That same day, FINRA announced its decision to fine the same firm $3.25 million for failing to disclose accurate information to all clients about services and features of its alternative trading system (ATS). In Form ATS filings with the SEC, the firm represented that all ATS users would have “identical access” to the system’s services and features. However, FINRA found that some ATS users, including high-frequency traders, were provided with more information than others and received services not available to others. The firm settled without admitting or denying the charges.
Israeli Multinational Pharmaceutical Company Settles FCPA Violations with SEC and DOJ for $519 Million
On December 22, an Israeli multinational pharmaceutical company announced an agreement with the SEC and DOJ to resolve FCPA violations stemming from conduct in Ukraine, Mexico, and Russia, with a $519 million settlement and a deferred prosecution agreement. The company will pay more than $236 million in disgorgement and interest to the SEC, the second largest FCPA-related corporate disgorgement to date. As part of its agreement with the DOJ, the company will pay a $283 million criminal fine and enter into a three-year deferred prosecution agreement under the supervision of an independent compliance monitor.
Prior Scorecard coverage of the company's investigation can be found here.
Brazilian Construction Company and Petrochemical Company Reach $3.5 Billion Global FCPA Settlement
On December 21, a Brazilian construction company and its petrochemical affiliate, reached a $3.5 billion combined global settlement with U.S., Brazilian, and Swiss authorities to resolve FCPA allegations, in which both companies agreed to plead guilty in the U.S. to conspiracy to violate the FCPA. The DOJ alleged that the companies operated an extremely broad and profitable global bribery scheme, including creating an internal bribery department to systematically pay hundreds of millions of dollars to corrupt government officials around the world from 2001 to 2016. The companies attempted to conceal the bribes by disguising the source and disbursement of bribe payments by passing funds through a series of shell companies and by using off-shore bank accounts. While the scheme in large part involved bribes paid to a Brazilian multinational company and Brazilian officials, it also included government officials in numerous other South and Central American countries, and in Africa.
The construction company agreed to an overall criminal fine of $4.5 billion, but based on its representation of its ability to pay, may end up paying only $2.6 billion. Ten percent of the criminal fine was earmarked for the U.S., with the remainder to Brazil (80%) and Switzerland (10%). The DOJ faulted the construction company for failing to voluntarily disclose the conduct, but granted full cooperation credit based on Odebrecht’s actions once it started to deal with the government. As part of its own related resolution, the petrochemical company agreed to pay over $632 million in criminal fines, with the vast majority ($443 million) going to Brazil, and 15%, or $94.8 million, to each of the DOJ and Switzerland. The petrochemical company also agreed to disgorge $325 million, with $65 million going to the SEC and the rest to Brazil. The DOJ noted the petrochemical company’s failure to voluntarily disclose the conduct, and granted only partial cooperation credit due to the petrochemical company’s failure to turn over any evidence from its internal investigation until seven months after it first talked to the DOJ. Both the construction company and the petrochemical company agreed to engage independent compliance monitors for at least three years
The resolution is, by far, the largest FCPA resolution ever, with the bulk of the money going to Brazil in apparent recognition of the heavy lifting done by Brazilian prosecutors.
Prior Scorecard coverage of the ongoing Brazilian multinational company investigations can be found here.
Gabonese National Pleads Guilty to Bribing Government Officials in Africa in Connection with Global Management Firm Mining Operations
On December 9, 2016, the son of a former Prime Minister of Gabon pleaded guilty to conspiring to make corrupt payments to government officials in Africa in violation of the FCPA. The Gabonese national worked as a consultant for a joint venture between the company and an entity incorporated in the Turks and Caicos. The DOJ charged him with conspiring to pay approximately $3 million in bribes to high-level government officials in Niger, as well as providing them with luxury cars, in order to obtain uranium mining concessions. Similarly, the DOJ also charged him with bribing a high-ranking government official in Chad with luxury foreign travel for the official and his wife in order to obtain a uranium mining concession there. In addition, the DOJ charged him with bribing government officials in Guinea with cash, the use of private jets, and a luxury car in order to obtain confidential government information.
The guilty plea comes on the heels of the company’s $412 million settlement with the DOJ and SEC to resolve related criminal and civil charges of violating the FCPA in connection with the bribery of high-level government officials across Africa. The settlement represented the fourth largest FCPA financial penalty at the time. The company’s CEO and former CFO have also previously settled related civil allegations. Prior Scorecard coverage of the company’s settlement with the DOJ and SEC may be found here.
GAO Report Evaluates "Permanent Funding Authorities"
On December 9, the GAO released a report detailing the results of its audit of “permanent funding authorities”—a term it defines as “entities with authority to collect and obligate funds without further congressional action.” The report, entitled Permanent Funding Authorities: Some Selected Entities Should Review Financial Management, Oversight, and Transparency Policies: (i) describes the different types of authorities for entities funded by fines and penalties and for regulatory entities; (ii) assesses the policies and procedures related to agencies’ and other entities’ management of their permanent funding authorities; and (iii) makes recommendations to ensure efficient use of resources.
In conducting its audit, the GAO examined five case studies that illustrate the variation in permanent funding authorities: the Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS); the CFPB; the DOJ’s Crime Victims Fund (CVF); the Gulf Coast Restoration Trust Fund (Trust Fund); and the Public Company Accounting Oversight Board (PCAOB), overseen by the SEC. Based on its review, the GAO recommended that in order to “ensure efficient resource use,” APHIS, the CFPB, and the SEC—in its oversight of PCAOB—should review reserve targets. To facilitate oversight, the SEC should establish time frames for PCAOB’s annual report. According to the report, the Department of Agriculture, CFPB, PCAOB, and SEC agreed with GAO’s recommendations.
Division of Corporation Finance Director Keith Higgins to Leave SEC; Shelley Parratt to Become Acting Director
In a December 6 press release, the SEC announced that Keith F. Higgins, Director of the SEC’s Division of Corporation Finance, plans to leave the SEC in early January. Since joining the SEC in 2013, Mr. Higgins led the Division’s implementation of significant rulemaking and other responsibilities under the Dodd-Frank Act, Jumpstart Our Business Startups Act (JOBS Act), and Fixing America’s Surface Transportation Act (FAST Act). Upon Mr. Higgins’ departure, Shelley Parratt, Deputy Director for the Division of Corporation Finance, will become the acting Director. Ms. Parratt has served previously as acting Director. Ms. Parratt has served as Deputy Director of the Division since 2003, and has been responsible for assisting in strategic planning and developing Division policies and procedures and overseeing the disclosure review program. Ms. Parratt came to the SEC’s Division of Corporation Finance in 1986. She received her M.B.A. from Syracuse University and her B.A. from St. Lawrence University.
New Allegations Surface Regarding Israel-Based Pharmaceuticals Company
Just weeks after announcing that it set aside approximately $520 million for a potential settlement of FCPA matters being investigated by the SEC and DOJ, Reuters reports that a spokeswoman for an Israeli pharmaceutical company has confirmed that they are investigating new potential bribes to state healthcare workers in Romania. Reuters claims to have reviewed emails sent in the past year by an anonymous tipster to the company’s CEO and audit committee that detail bribes paid to healthcare providers in exchange for recommending the company’s drugs. Romania was not among the countries the company identified as being part of the settlement discussions with the SEC and DOJ in its recent SEC filing, although the company has said it is conducting a worldwide investigation of its business practices.
Prior Scorecard coverage of the company’s investigation can be found here.
Wesley R. Bricker to Replace James Schnurr as SEC Chief Accountant
On November 22, the SEC announced that Wesley R. Bricker will become its Chief Accountant, succeeding James Schnurr who will be retiring this year. Mr. Bricker served under his predecessor as Deputy Chief Accountant since 2015 and has been Interim Chief Accountant since July of this year. As Chief Accountant, Mr. Bricker will be the principal advisor to the Commission on accounting and auditing matters and lead the Commission’s Office of the Chief Accountant. He also will be responsible for assisting the Commission with discharging its oversight of the Financial Accounting Standards Board and the Public Company Accounting Oversight Board.
SEC Hosts First Financial Technology (FinTech) Forum
On November 14, the SEC hosted its first Fintech Public Forum at its Washington, DC headquarters to discuss FinTech and to evaluate how the current regulatory environment can most effectively address innovation in the financial services industry. The event was divided into four panels, which covered the following topic areas: (i) the impact of recent innovation in investment advisory services; (ii) the impact of recent innovation on trading, settlement, and clearance activities; (iii) the impact of recent innovation in capital formation; and (iv) investor protection in the FinTech era. The forum was open to the public and is also available on the SEC’s website.
SEC Chair Mary Jo White opened the forum with introductory remarks. After explaining that “Fintech innovations have the potential to transform key parts of the securities industry,” Chair White highlighted several developments that are particularly important to the SEC, including: (i) automated investing advice; (ii) distributed ledger technology; and (iii) online marketplace lenders and crowdfunding portals. In describing the SEC’s role with respect to such innovations, Chair White noted that the Commission “must ensure new developments are not rushed to market or implemented in a way that facilitates a risk of fraud or harm to investors.” Ms. White explained that she had “directed the creation of a Fintech working group at the SEC earlier this year . . . to evaluate the emerging technologies,” and tasked the group to provide “specific, tailored recommendations . . . about what the SEC should do to provide clarity on existing regulatory requirements and help foster responsible innovation.” Chair White also clarified that the SEC was at an early stage in its outreach to investors, innovators and other stakeholders in new technologies, with the forum being an important part of SEC’s outreach.
SEC Commissioner Michael Piwowar, who championed the idea of the Commission hosting a Fintech public forum, also spoke to attendees. “I believe the commission should take the lead regulatory role in the Fintech space,” Piwowar said in prepared remarks. “Many of the firms pursuing Fintech are already SEC registrants, and others are providing services that are squarely within the commission’s oversight, such as investment advice and trading and settlement functionalities.” Piwowar emphasized the need for clarity in the sector, but added that the SEC is “uniquely situated to determine whether and how Fintech currently fits, and ultimately should fit, within a financial regulatory structure.”
SEC Chair Mary Jo White Stepping Down
After nearly four years as the head of the SEC, Chair Mary Jo White announced on November 14 that she intends to leave the position at the end of the Obama Administration. During her tenure, Chair White implemented the Commission’s first-ever policy to require admissions of wrongdoing in certain cases where heightened accountability and acceptance of responsibility is appropriate. To date, the Commission has required admissions from more than 70 defendants, including 44 entities and 29 individuals. Chair White’s departure affords President-elect Donald Trump the opportunity to name Chair White’s successor, subject to the Senate’s consent.