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American Multinational Food Company and British Multinational Confectionery Company Settle FCPA Charges with SEC for $13 Million Related to India Chocolate Factory
On January 6, the British company and the American multinational food company, agreed to pay $13 million to settle the SEC’s allegations related to an agent’s interactions with Indian officials regarding a chocolate factory in India. The charges relate to payments made by the British company’s India unit in 2010 to a local agent who provided consultation services and dealt with Indian governmental officials to obtain clearances and licenses to increase production at the British company’s Baddi plant. The SEC alleged, and both companies neither admitted nor denied, that the British company violated the books and records and internal controls provisions of the FCPA.
According to the SEC, the British company failed to perform appropriate due diligence on the agent and to monitor the agent’s actions, creating a risk that payments could be used for improper purposes. While the agent submitted invoices claiming that he prepared various license applications, the SEC claimed that these license applications were actually prepared by the British company’s other employees. The SEC noted in its decision that the American company had completed its own internal investigation that led to the British company ending its relationship with the agent and that the American company both cooperated with the SEC’s investigation and undertook “extensive remedial actions with respect to [the British company].”
FTC Hosts Its Second Annual PrivacyCon Event
On January 12, the FTC hosted its second annual “PrivacyCon”—a public forum promoted by the regulator in order to “expand collaboration among leaders from academia, research, consumer advocacy, and industry on the privacy and security implications of emerging technologies.” Throughout the day, speaker panels presented research and opened the floor to discussions addressing five major topic areas: (i) the Internet of Things (IoT) and big data; (ii) mobile privacy; (iii) consumer privacy expectations; (iv) online behavioral advertising; and (v) information security. Among other things, panelists discussed the possibility of using machine learning to automatically block or permit user tracking and information collection by applications and websites based on the user’s past practices. Many panelists also examined data “leakage” from devices and the possible privacy and security issues that are raised by such leakage.
A full version of the agenda, including links to abstracts of the research being presented, as well as a video recording of the event, is available online. Additional research not present but submitted without a request for confidential treatment is also available here.
Prudential Regulators Issue Guidance on New Accounting Standards Governing Credit Loss Allowances
On December 19, the Prudential Regulators have issued guidance in the form of a cover letter (OCC 2016-45; SR 16-19; FIL-79-2016) and FAQs to assist financial institutions and bank examiners interpret and apply new accounting standards applicable to estimated allowances for credit losses. Though applicable to all financial institutions, regardless of size, there are different effective dates for the new standard depending on the institutions status as a public entity and/or SEC filer. The above-referenced FAQs summarize key elements of the new accounting standard, such as effective dates, scope, and transition, while also highlighting the specific GAAP accounting provisions affected by the new standard, including: (i) purchased credit-deteriorated financial assets; (ii) held-to-maturity debt securities; (iii) available-for-sale debt securities; (iv) troubled debt restructuring; and (v) off-balance-sheet credit exposures. The guidance also outlines steps regulators have encourage financial institutions to take to prepare for the transition to the new accounting standard, including: (i) initial supervisory views on measurement methods, (ii) the use of vendors, (iii) scalability, (iv) data needs, and (v) allowance processes.
Obama Signs Into Law SEC Small Business Advocate Act
On December 16, President Obama signed into law H.R. 3784, the SEC Small Business Advocate Act of 2016. The legislation, which had broad bipartisan support in the House and Senate, establishes (within the SEC) an Office of the Advocate for Small Business Capital Formation and a Small Business Capital Formation Advisory Committee. Both the Office of the Advocate and the Advisory Committee will be tasked with the dual role of helping small businesses navigate the securities laws and advocate against the application of overly burdensome regulations to small businesses. The small-business advocate is modeled after the SEC’s office of the investor advocate, which was created under the Dodd-Frank Act as a voice for investors.
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.
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.
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.