Emtrain Blog

SEC and DOJ Enforcement Trends for 2015

Posted by Timothy Crudo

May 7, 2015

Corporate Governance Enforcement Trends for 2015
The DOJ and SEC are changing the way they enforce white collar crime. Until recently, the focus was on large corporations with significant infractions, but times have changd. The Feds have broadened their corporate focus to include individuals, mid-sized businesses, and smaller infractions. Keep reading to learn about these new corporate crime enforcement trends and how to stay off the government’s radar.

Increased Accountability for Corporate Gatekeepers
“I am strongly interested in seeking greater individual accountability for gatekeepers…”
-- SEC Commissioner Kara Stein

Remember when complicated Wall Street financial products helped throw our economy into a tailspin? Congress and the public are still angry about a perceived lack of accountability for those events, and the DOJ and SEC have extended their reach in response. This reach looks to hold individuals, especially corporate gatekeepers (e.g., outside directors, high level executives, mid-level managers, lawyers, and finance auditors), accountable for the actions of the company.  

Enforcement Focus Areas
As for SEC and DOJ enforcement trends, the government has its radar set on FCPA violations, books & records violations, corporate fraud, insider trading, revenue recognition, and reporting and disclosure issues. Take a look at just a few SEC and DOJ enforcement actions from the last few months:

• Smith and Wesson ran afoul of the FCPA by giving free handguns to the Pakistani police prior to a $100K contract;
• A Silicon Valley software CEO was charged with charging personal expenses to the corporation;
• Several law firm personnel violated insider trading laws; and
• A Silicon Valley software company CEO had to return his $2.5 million annual bonus because his company mischaracterized profit margins for an ongoing project

SEC’s Secret Weapons: Big Data and Whistleblowers
Crime enforcement technology has come a long way in the last few years. With the help of various federal initiatives, the SEC is in better shape than ever to identify and pursue wrongdoing.

Center for Risk and Quantitative Analytics. The Center was created to develop a method for monitoring signs of possible wrongdoing with the help of big data analytics.

Whistleblower Program. Under this program, the SEC can award 10-30% of its recoveries of $1M or more where a whistleblower provides original information that leads to the successful enforcement action. Compliance and audit professionals may be eligible if they first report issues internally and the company fails to respond after 120 days.

In a little over three years under the Whistleblower Program, the SEC has awarded a total of nearly $50 million to approximately 17 whistleblowers, including one award of $30 million in September of 2014 and a $1 million bounty to a compliance officer in April 2015. So if you think your own people won’t turn you in, millions of dollars say otherwise.  

How to Stay off the Government’s Radar
Now that you know that the government is cracking down, here are four ways to help your company avoid ending up in the government’s crosshairs:

1. Have a strong compliance culture and structure. The tone at the top, middle, and bottom should be loud, consistent, and unremitting: We play by the rules and won’t tolerate employees who don’t. Giving compliance personnel the necessary respect and resources – including direct access to independent corporate govenors – makes the message loud and clear to both employees and regulators.

2. Get an Outside Audit. It’s important to have an outsider audit your company to ensure neutral and objective analysis. The expert should examine your business activities, including analyzing what you do and where and with whom you do it, and provide you a report of your biggest compliance risks and how best to minimize those risks. Just like you get a check-up every year, regularly re-evaluate your risks to make sure that you are staying on top of things as your business grows and changes. Proactively evaluating your risk (and modifying your compliance program as necessary) will allow you to to use this audit preemptively if you ever need to show the government that you’re doing your due diligence.

3. Build a Strong Compliance Program. Once you have identified your biggest risks, build a strong compliance program tailored to those risks.

Do you operate internationally and use third party agents? Train sales, marketing, finance and third parties on FCPA / anti-bribery issues in a way that uses their own language and culture effectively.

Are you a public tech company? Train management and finance personnel on fraudulent disclosures and misuse of corporate property.

Make the training accessible and convenient and allow people to ask questions anonymously so they feel comfortable. Along with the training, you need a clear and easy reporting and response procedure so that employees don’t feel the need to use the Whistleblower Program.

4. Remediate Internally. As soon as you see or hear about a compliance problem, take swift and effective action to resolve the issue quickly. Send a loud and clear signal to the workforce and the public that the company does not condone that type of conduct and that these were isolated events. Rewarding employees for good compliance conduct is also a good idea. The government will be less likely to make an example of you if you have strong compliance messaging in place.

The government’s current priorities in corporate crime enforcement make you and your company more vulnerable than ever. But with a robust compliance program and an awareness of corporate governance enforcement risks, your company has a better chance of staying off the SEC and DOJ’s radar. To learn more about corporate governance risks for 2015, register for your free Corporate Governance Risks for 2015 webinar.


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tim-crudo Timothy Crudo             

An expert in corporate governance and white collar criminal matters, Tim regularly advises corporate boards and executives on topics such as: insider trading, securities violations, accounting fraud, and other corporate crimes. As a former Chief of the Securities Fraud Section of the U.S. Attorney’s Office in San Francisco, Tim was the lead prosecutor in a number of high-profile criminal trials of senior corporate executives in Silicon Valley. Currently, he is a partner at Coblentz Patch Duffy & Bass, where he heads up the firm’s White Collar Defense and Government Enforcement Practice Group. As a trial lawyer, he focuses on investigations and cases brought by criminal prosecutors, government regulators, and shareholders in white collar, securities, and corporate governance matters as well as internal corporate investigations..

Topics: Business Compliance, Insider Trading, Corporate Governance