FCPA Compliance and Ethics Blog

March 6, 2015

GHBER and Local Ethics and Compliance Organizations

GHBERLogoDoes your locality have an ethics and compliance group that provides a level playing field for companies and organizations to discuss problems and share best practices? If you do not, it may be something that you wish to consider. Here in Houston, through foresight and perseverance, we have such an organization. It is known locally as GHBER, which stands for the Greater Houston Business and Ethics Roundtable. It is a voluntary professional organization dedicated to promoting ethical business practices and serving as a forum for the exchange of information and strategies regarding implementation, administration and compliance of ethical business conduct programs. GHBER was founded in 1996 at the University of Houston’s C. T. Bauer College of Business, with the leadership of Dr. Bette Ann Stead and was designed to provide a level playing field for companies and organizations around ethics and compliance, to discuss problems and share best practices in the profession.

GHBER is unique as it is the premier ethics and compliance organization in Houston. It facilitates a wide range of compliance practitioners, from health care to energy to tech and beyond. GHBER is made up of lawyers, compliance practitioners, auditors, CPA-types and all other manner of professionals who work in our profession. Some of the different types of activities that the group involves itself in are the following:

  • Roundtable Discussions among members of sponsoring organizations to facilitate discussions by any member of the community who has an interest in maintaining ethical business structures.
  • Service to its members and to the community in the Greater Houston area.
  • Recognition of organizations, of any size, who are making a demonstrable effort to promote ethical business practices.
  • Education of the public and for individuals and officers responsible for administering their organization’s ethics and compliance programs and to promote the study of business ethics in colleges and universities.
  • Chapter Formation for an ethical support network and implementation of programs at the local level.
  • Commitment to uphold and promote ethical business structures and values. Memberships within this organization will be open to organizations and individuals who have made a demonstrable effort to implement business ethics practices, and/or who have a strong desire to implement a business ethics policy.

Of all the goals and achievements of GHBER the one that I find to be the most significant, as the son of a college professor, is its educational goal. In 2005 GHBER initiated a scholarship program to recognize students in area MBA programs who, in the opinion of each student’s school, demonstrate ethical leadership. The scholarship is the GHBER Bette Stead Scholarship in honor of Dr. Stead and the contribution she made in the formation and initial development of GHBER. By the 10th Anniversary, GHBER had provided $10,000 in scholarships. Scholarship winners attend GHBER meetings and this process is helping to develop a new generation of compliance practitioners who will grow up as compliance professionals and not simply lawyers moving over from the corporate legal department or other corporate function.

Right up there with its educational function GHBER puts on quarterly speaker programs for its members. These quarterly programs are open to the public and enable GHBER to promote ethical business practices and serve as a forum for the exchange of information and strategies for developing strong compliance programs.

GHBER has had some very interesting and excellent speakers over the years. Two of my favorites were Scott Lane, founder of the Red Flag Group, and Andrew Weissmann, who recently returned to the Department of Justice (DOJ). Weissmann talked about his days as the head of the Enron Task Force prosecuting miscreants to Houston’s greatest corporate scandal.

This year’s initial speaker demonstrated the breadth of the organization. In February the group hosted Chris Olsen, Vice President (VP) of Football Administration for the Texans, who talked about the compliance issues facing the business of football. In April, we are very pleased to host Kathleen Edmond, of Robins Kaplan LLP and former Chief Ethics Officer at Best Buy, who continues to lead and share best practices. She will discuss building successful collaboration between compliance, risk and Audit. In September, Mark Lowes, VP Litigation for KBR, who will discuss lessons learned regarding the Barko Qui Tam vs. Halliburton case. He will explore such questions as the issue of when are investigations considered privileged? In November the great Stephen Martin will discuss how to conduct an effective compliance risk assessment.

Each year in July GHBER holds a Members Only best practice all day session that provides the compliance practitioner, general counsel (GC), procurement and ethics and compliance professionals’ insight into a timely topic. This year the group will be treated to a discussion of the Layne Christensen Foreign Corrupt Practices Act (FCPA) investigation, which concluded with the company receiving a declination from the DOJ. The presentation will be led by Layne Christensen GC, Steven F. Crooke, and outside attorney Russ Berland, of Stinson Leonard Street, LLP. There will also be a presentation by Christopher Sindik and Robert Leffel, from The Red Flag Group, who will guide you on the best practices required when publishing a Supplier Code of Conduct.     

Yet what is the very best thing about all of the above? It may well be the cost, which is only $100 for an individual membership. Even a corporate membership is still a very reasonable $500. While the SCCE is the leading organization for the compliance practitioner on a national or international basis, there is room in every city for a local ethics and compliance organization. It can be an excellent resource for compliance practitioners in a wide variety of industries. If you are in Houston I would urge you to check out the next GHBER meeting in April. Kathleen Edmond is one of the most respected compliance practitioners around and it would give you the opportunity to meet many of the local top ethics and compliance folks. If you do not have the good fortune to live in Houston or another city that has such an organization, I would urge you to consider founding such an organization.

For more information on GHBER you can visit its website by clicking here. If you want to correspond with the Group’s President (and one of my favorite people) contact Amy Lilly at amy.lilly@CenterpointEnergy.com.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

November 5, 2014

A Royal Fan Responds: Russ Berland on the SEC Financial Report for FY 2014

Russ Berland

Ed. Note-today we have a guest post from KC Royals fan and Stinson Leonard Street partner Russ Berland. 

As a Kansas City Royals fan, I would like to use this opportunity to congratulate the Royals on a great season and say to them, “Ya done good.”  Despite losing an extremely close seventh World Series game to a very able and talented San Francisco Giants team, which included a pitcher whose name and face will one day be memorialized in Cooperstown, this year has been a banner, or should I say, a pennant year for the boys in blue.

The SEC likewise would like to take a moment to be congratulated on their banner year in their annual enforcement preview of their Agency Financial Report.  So here goes … The SEC wants us to know that they are using creative means to find misconduct on their own and go after it, to hold people and corporations accountable,  and to pay and protect whistleblowers.  On October 16, the SEC put out its official preview of its upcoming Agency Financial Report for FY 2014.  The SEC’s fiscal year ends September 30, so this spans every enforcement action the SEC has taken since October 1, 2013.  The report has four major themes:

  1. The SEC is enforcing the law against people, not just companies. It takes people to commit misconduct on behalf of companies so those same people should be held accountable.  And if the SEC is counting on you to watch over companies and transactions you better take it seriously.  The SEC does and they will hold you accountable.  The preview made this point in showcasing its major enforcement actions against Fifth Third Bancorp and its former CFO, Diamond Foods Inc. and its former CEO and CFO, World Capital Market and its founder, and many, many others.  The most poignant example was the enforcement action against the Chairman of the Audit Committee of AgFeed Industries, Inc.  The SEC alleges that Ivan Gothner, the chairman of AgFeed’s audit committee received information that AgFeed’s Chinese operations were conducting accounting fraud and instead of taking a fellow director’s advice to “hire professional investigators guided by outside legal counsel,” he directed internal resources to assess the situation.  When that resulted in late and inadequate information, the SEC charged him “with violating or aiding and abetting violations of the anti-fraud, reporting, books and records, and internal controls provisions of the federal securities laws” and ” with making false statements to AgFeed’s outside auditors.”  Andrew Ceresney, Director of the SEC’s Division of Enforcement, called this “a cautionary tale of what happens when an audit committee chair fails to perform his gatekeeper function in the face of massive red flags.”
  2. Corporations must admit their actions. Last year, the SEC Chairman, Mary Jo White, announced that more companies must admit their wrongdoing in settlements.  The SEC’s Admissions Policy states that the companies may be required to admit their wrongdoing when there is “(1) misconduct that harmed large numbers of investors, or placed investors or the market at risk of potentially serious harm, (2) egregious intentional misconduct, or (3) when the defendant engaged in unlawful obstruction of the commission’s investigative processes.”  Now, the Preview adds two more categories to those required to make admissions: “[4] where an admission can send a particularly important message to the markets, or [5] where the wrongdoer poses a particular future threat to investors or the markets.”  For example, in the settlement with ConvergEx for misrepresenting its commissions to brokerage customers, ConvergEx was required to admit the facts stated by the SEC and admit that it had violated Securities Laws.  In one interesting twist, Wells Fargo Advisors LLC was forced to admit its wrongdoing when one of its brokers traded on non-public information about the sale of Burger King to a private equity firm. The “wrongdoing” that Wells Fargo Advisors admitted encompassed inadequate policies, inadequate coordination among internal groups tasked with policing insider trading and the compliance officer who should have spotted the insider trading missing it. This is an interesting view of what constitutes “egregious intentional misconduct.” The message seems to be that in order to settle a matter with the SEC without admitting or denying facts or legal conclusions, the defendant will need to prove they do not fit in one of the five listed categories.  It’s possible that the SEC forced Wells Fargo Advisors to admit it’s wrongdoing because it delayed production of relevant documents or because one of the documents that they turned over had been altered by the compliance officer herself.  Or perhaps they are sending “a particularly important message” to compliance officers that they need to be vigilant in doing their jobs.
  3. Whistleblowing Pays.  In FY2014, the SEC paid $35 million to 9 whistleblowers.  One of them received $30 million by him or herself.   Because the SEC rules protect the identity of whistleblowers, we don’t know who got paid.  But the SEC whistleblowing process has multiple stages, which include bringing original information or an original analysis of existing information to the SEC, having the SEC pursue that information leading to a prosecution, and successfully prosecuting or settling that matter with a recovery of over $1 million.  This takes  a long time from beginning to end.  Dodd Frank was passed in 2010.  The first REAL money ($14 million) was paid last year.  And now someone is getting $30 million.  The pipeline took a while to fill, but it is reaching a full state and we can probably expect to see a lot more whistleblower payments in the next few years.
  4. If you don’t come to us, we’ll find you. The SEC is using more and more data analytics on financial and trading activity to find wrongdoers.   According to the SEC, ” innovative use of data and analytical tools contributed to a very strong year for enforcement marked by cases that spanned the securities industry.”   Right now, they are telling us that they are using those techniques to look at filing deficiencies, hedge fund returns, and insider trading.  But we can anticipate they are looking at more than just those categories and we should expect to see more and more use of these techniques over broader areas in the coming years.  And, the SEC is telling us that they are also currently implementing and developing “next generation tools” to review market and other data for suspicious activity.

So, this Preview of the FY2014 Agency Financial Report suggests that the SEC should not be seen as sitting back and waiting for cases to come to them.  And when companies and people violate Securities Laws, the SEC will work hard to make sure that they each take accountability, either personally through fines and penalties or corporately, through admissions.   Like the Royals, the SEC would like us to know that they have had a banner year.

Berland can be reached at russ.berland@stinsonleonard.com. He was lead investigative counsel for Layne Christensen in its recently concluded FCPA enforcement action by the SEC. In my podcast, the FCPA Compliance and Ethics Report, Episode 104, I interview Berland on how the company was able to receive a declination from the DOJ. The Episode will post Thursday, Nov. 7.

December 5, 2011

SEC Issues First Whistleblower Report—Results Are Mixed

Filed under: FCPA,Russ Berland,SEC,Whistleblower — tfoxlaw @ 1:31 am
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BerlandR_web.jpgEd. Note-today we have a guest post from Russ Berland, who gives a report on the SEC’s first whistleblower report. 

Those within the compliance and regulatory arena have eagerly awaited the SEC’s first whistleblower report. The report, issued last week, offers mixed results for the program and foreshadows the future utilization and effectiveness of the program. The most significant facts in the report are that no money has yet been paid to whistleblowers under the Dodd-Frank Act and in seven weeks, the SEC fielded 334 submissions from whistleblowers.

In February 2011, the SEC created the Office of the Whistleblower. The creation of the Office was precipitated by the Dodd-Frank Act, specifically Section 924(d) of the Act. The Proposed Rules for Implementing the Whistleblower Provisions specified under Regulation 21F became effective on August 12, 2011. In general terms, the whistleblower provisions allow whistleblowers to collect up to 30 percent of levied fines for bringing tips or evidence of fraud or other irregularities to the attention of the SEC.

The report provides only seven weeks of data because the rules became effective on August 12, 2011, and the SEC’s fiscal year ends on September 30. Highlights of the report include:

  • Since the program’s inception, the Office has received 334 tips and fielded 900 calls from consumers;
  • The most common complaint categories were market manipulation (16.2 percent), corporate disclosures and financial statements (15.3 percent), and offering fraud (15.6 percent);
  • Some of the tips came from outside the United States; and
  • While the SEC has already posted 191 matters that meet the requirements to be eligible under the program, because of timing requirements no whistleblower awards were paid under the program in fiscal year 2011. That likely will change in 2012.

A copy of the complete report is available here.

Russ Berland is Of Counsel at the law firm of Stinson Morrison Hecker LLP and can be reached at via phone at 816.691.3180 and via email at rberland@stinson.com. 

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IT’S NOT TOO LATE TO SEE THE BRIBERY ACT GUYS

On December 7, myself, Mike Volkov and the Bribery Act guys, Richard Kovalevsky QC and Barry Vitou will be making their only US appearance this year. Mike and I will review some of the more significant enforcement matters of 2011 and discussion lessons which may be drawn from them. Richard and Barry will discuss the Bribery Act. Best of all the event is free and CLE will be provided. Event details and registration are found at http://events.r20.constantcontact.com/register/event?llr=myqi4pcab&oeidk=a07e55t5re06e78f1e3. I hope you can make it!

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. 

October 18, 2011

Who Ya Gonna Call?

Filed under: Dodd-Frank,Russ Berland,SEC,Whistle-Blower — tfoxlaw @ 1:06 am
Tags: ,

BerlandR_web.jpgEd. Note-today we have a guest post from our colleague Russ Berland.

The Dodd-Frank whistleblower law enables the SEC to pay out between 10 percent and 30 percent of any recovery from a violation of a securities law to a whistleblower.  Under Dodd-Frank, a whistleblower is an eligible person who provides original information or original analysis to the SEC about a violation of federal securities laws that leads to a successful enforcement action with monetary sanctions of at least $1,000,000.  As you can imagine, there are a lot of “magic words” in this definition that courts will be sorting out for a long time.  The law also provides substantial protections for whistleblowers, including reinstatement, double back wages, attorneys fees and litigation costs.  But it is still early in the common law life of the Dodd-Frank whistleblower law and rules.  The final regulations became effective on August 12, 2011, and we are just now beginning to see case law interpreting its requirements.

One of the first issues to surface is retaliation for whistleblowing.  What if a person clearly experiences retaliation, but may not fit the legal definition of a whistleblower?   Imagine this situation:

An employee of a company discovers that the CEO is embezzling funds from the company by paying money to a firm that is solely owned by the CEO.  This employee reports his findings to the company’s president, who in turn reports it to the company’s independent directors.  The independent directors hire a prestigious law firm to investigate the alleged embezzlement. The attorneys discover that the CEO was in fact embezzling money through his solely owned vendor.  Later, the CEO stages a coup to override the independent directors.  Instead of losing his own job, the CEO fires the employee and denies severance.

In this scenario, is the fired employee — who blew the whistle on his CEO and later experienced retaliation — a whistleblower under Dodd-Frank?   One court has said “No.”  Patrick Egan sued Tradingscreen, Inc. (10-cv-08202-LBS S.D.N.Y. Sept 12, 2011) and alleged this set of facts.  But when the U.S. Court for the Southern District of New York was presented with his complaint, they said that even if everything Egan said in his complaint was taken to be true, he still could not sue as a whistleblower under Dodd-Frank.

What had he done wrong?  What was his fatal flaw?  According to the Court, his mistake was that he had not reported his concerns directly to the SEC.  That was it.  Even if Egan had reported this to his management and the independent directors, believing that they would have to disclose it to the SEC, that was not enough.  Even if Egan had cooperated with the prestigious law firm in its investigation of the CEO, believing that they would have worked with the independent directors in reporting it to the SEC, that was not enough.  Even if the media became aware of the issues and through them, ultimately the SEC became aware of Egan’s concerns, that is not enough (but that’s another case –  Tides v. Boeing Co., 644 F.3d 809, 815 (9th Cir. 2011)).  Mr. Egan had to report directly to the SEC or hire a lawyer to go to them on his behalf.  When Egan could not say in his complaint that he had called the SEC, he was done: no lawsuit, no reinstatement, no double back wages, no litigation costs and no attorneys fees.

So the lesson here is simple.  If a whistleblower wants to be a “real” whistleblower under Dodd-Frank, they have to call somebody, specifically the SEC.  And in these Internet-friendly days, the SEC even has a website that Mr. Egan could use to easily file his whistleblower report with the SEC if he ever finds himself in this situation again.

Russ Berland is Of Counsel at the law firm of Stinson Morrison Hecker LLP and can be reached at via phone at 816.691.3180 and via email at rberland@stinson.com. 

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. 

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