CFTC Announces Largest-Ever Whistleblower Award – $30 Million

 

The Commodity Futures Trading Commission recently announced two awards to whistleblowers under its Whistleblower Program pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  These awards represent the Commission’s largest ever award and its first award to a foreign national.

In one case, a whistleblower is set to receive approximately $30 million for alerting the Commission to potential violations of the Commodity Exchange Act (“CEA”) and providing key original information about those violations that led to a successful enforcement.  In assessing the whistleblower’s claim to an award, the Commission noted that the individual was extensively involved in the investigation and provided ongoing, extensive, and timely assistance that helped to conserve Commission resources.  Noting the size of the award, Christopher Ehrman, Director of the CFTC’s Whistleblower Office, said “The award today is a commitment to reward those who provide quality information to the CFTC…We hope that this award will continue to facilitate the upward momentum and success of the CFTC’s Whistleblower Program by attracting those with knowledge of wrongdoing to come forward.”

In a separate case announced on the same day, a whistleblower will receive more than $70,000 for significantly contributing to an ongoing investigation and aiding the CFTC in securing a successful settlement.  This is the first CFTC award to a whistleblower living outside the United States.  In trumpeting the award, James McDonald, Director of the CFTC’s Division of Enforcement, stated:  “This award is significant because it signals to whistleblowers around the world that anyone with information about potential violations of the Commodity Exchange Act can participate in the CFTC’s Whistleblower Program.”  He further noted that the award, “serves as another example of the increasing significance of whistleblowers in our enforcement program, a trend I expect to continue going forward.”

As is standard in these cases, the CFTC withheld all specifics of the awards that could be used to identify the whistleblowers’ identities or the enforcement actions with which they were associated.  The CFTC also declined to state the percentage of sanctions represented by the awards – which, under the Dodd-Frank Act, may range from 10 to 30 percent of the amount recovered.  Notably, the Commission highlighted in its orders that award amounts may be based on collected sanctions ordered to be paid by the CFTC even if those sanctions are not collected by the CFTC directly.

The Dodd-Frank Act created similar programs providing monetary incentives for individuals to report legal violations to the CFTC and the Securities and Exchange Commission (“SEC”).  Eligible whistleblowers under the SEC Whistleblower Program are subject to the same general requirements as those established under the CFTC’s program, but the SEC’s Whistleblower Program has been much more active, issuing 55 awards to date totaling more than $266 million stemming from almost $1.5 billion in monetary sanctions ordered against wrongdoers based on actionable information received from whistleblowers.  Conversely, the CFTC has issued only six awards award, and the awards issued last week are the first in nearly two years.  In 2017, the CFTC amended its rules relating to whistleblowers, strengthening anti-retaliation protections and streamlining the award claims process.   The two newest awards were the first issued under these enhanced rules.

In light of the continued efforts of both the CFTC and the SEC to publicise monetary awards to whistleblowers, companies should ensure they have compliance programs in place to prevent and detect potential violations of the CEA and the securities laws, and to mitigate penalties that may result from inadvertent violations.  The Dodd-Frank Act prohibits retaliation against employees who provide regulators with information about possible violations, so companies also should ensure they have appropriate policies prohibiting whistleblower retaliation and providing a complaint procedure for any employee who believes he or she has suffered from retaliation.

See full article here

Conduct Issues forces Clarks CEO to Resign

Clarks chief executive Mike Shearwood has resigned following an investigation into “complaints of conduct contrary to the family owned company’s code of business ethics”.

Stella David, the company’s senior independent director, has been named as the interim chief executive officer, effective immediately.

In a statement today Clarks said that aspects of Shearwood’s “conduct, conversations and expressions” fell short of the behaviours expected of employees on a number of occasions. “In these circumstances the board has accepted Mr Shearwood’s resignation,” the group added.

See full article here

Corporate Governance – The Road to Revamp

A financial watchdog is starting to comb through more than 250 responses to its proposed overhaul of the UK’s best practice rules for listed companies.

Companies, investors and politicians have made submissions to the Financial Reporting Council, which is consulting on the first big revamp of the 25-year-old corporate governance code since 2014. Theresa May pledged action against corporate excess shortly before she became prime minister, although some of her most radical proposals have been ditched.

Against this backdrop, the FRC’s update to the corporate governance code, companies must comply with, or explain why they do not,  is nevertheless expected to unleash some significant changes when it takes effect in the summer.

 1. Board independence

One of the most contentious proposals outlined by the FRC in December was the introduction of a nine-year tenure limit for independent chairs and directors in the code, in an attempt to put an end to stale and insular boards.

This revision could prove embarrassing for the chairs of dozens of listed companies who have already served more than nine years on the board when their time as a non-executive director is taken into account.

Aviva, the insurer that has a big investment management arm, said it was happy for the FRC proposal to apply to non-executive directors, but not chairs.

The International Corporate Governance Network, a coalition of investors managing assets worth $26tn, said: “We are concerned that this more rigid definition of independence might be overly prescriptive and could result in unintended consequences, particularly if applied equally to the company’s chairman as to other non-executive directors.”

2. Executive pay

With investors increasing their focus on excessive executive pay, the FRC is proposing new provisions in the code on bonuses, in order to promote long-term decision making at companies.

The FRC says in normal circumstances, shares received as part of an executive bonus should be held for at least five years, a proposal welcomed by many big investors, including Norges Bank, which oversees Norway’s sovereign wealth fund.

Aviva said: “We believe that five years should be considered the minimum. We still consider there to often be a gap between the business and capex cycle and the periods in which management teams are evaluated and rewarded.”

The Pensions and Lifetime Savings Association, the UK trade body for 1,300 pension schemes with £1tn in assets, called for tougher rules, saying many of its members and the public believe executive pay is out of control.

3. Financial reporting

The collapse of Carillion has raised fresh concerns about the quality of companies’ financial reporting as well as the work done by their internal and external auditors, and the FRC has been urged to update the code to improve confidence in accounting.

The Chartered Institute of Internal Auditors said the new code should explicitly require “regular monitoring and reviewing of the independence and objectivity of internal audit”.

Old Mutual Global Investors, the UK asset manager, said some corporate viability statements, which provide an assessment of a company’s long-term solvency and liquidity, have recently proven to be “fatally flawed”.

It suggested that companies should be required to disclose what stress testing they undertook, and the results, when formulating these statements.

4. Diversity drive

Under the proposed revamp to the code, companies will be asked to disclose what action they have taken to increase ethnic and social diversity in their “executive pipeline”.

This revision has been backed by ShareAction, a charity campaigning for better practice by investors, although it called for the focus to extend beyond company managers tipped to reach the top.

The Investment Association, the UK trade body that represents 200 asset managers overseeing a combined £6.9tn, urged caution, saying that more work needed to be done on the best ways for companies to report on diversity.

Meanwhile, Rachel Reeves, Labour chair of the Commons business select committee, urged the FRC to require companies to explain how their remuneration policy “will address any gender pay gap in the company”.

5. Contribution to society

The FRC is proposing that companies should for the first time disclose how they “contribute to wider society”, alongside their efforts to promote the long-term success of their businesses and generate value for shareholders.

Richard Buxton, one of Britain’s best-known fund managers who runs Old Mutual Global Investors, has described this revision as “radical” and “terrific”. “This makes it clear that generating value for shareholders is not the sole raison d’être [for companies] but equal to contributing to wider society,” he said in December.

But many rival fund managers strongly disagree, including those represented by the Investment Association.

“We are concerned that the wording of the [proposed] code does not fully acknowledge shareholder primacy reflected in [the Companies Act], as it puts contributions to society on the same level as generating value for shareholders,” said the Investment Association.

See full article here

 

DOJ to Apply FCPA Corporate Enforcement Policy as “Nonbinding Guidance” to Other Crimes

DOJ’s Acting Head of the Criminal Division, John Cronan, announced publicly that the FCPA Corporate Enforcement Policy, which is now part of the U.S. Attorney’s Manual and is considered formal guidance for FCPA cases, would be used as “nonbinding guidance” in all criminal division cases.  This policy provides specific incentives for companies to voluntarily report wrongdoing to the DOJ.  As described by Deputy Attorney General Rod Rosenstein, “when a company satisfies the standards of voluntary self-disclosure, full cooperation, and timely and appropriate remediation, there will be a presumption that the Department will resolve the company’s case through a declination”.

In his remarks, Mr. Cronan touted the application of the Policy to the resolution of a manipulation of foreign currency options trading case against a large financial institution.  The financial institution voluntarily disclosed the misconduct to the DOJ, cooperated completely and remediated the issue.  As a result, the DOJ declined to prosecute, and the financial institution agreed to pay $12.9 million in restitution and disgorgement of profits.   It should be noted that the DOJ criminally charged an individual at the financial institution for the alleged misconduct.

Although this expansion of the FCPA Corporate Enforcement Policy may benefit some companies, there are certain drawbacks.  Most important is that the decision whether to decline is not guaranteed – it is a presumption only.  DOJ is the sole arbiter whether the company has (1) “timely” self-disclosed; (2) “fully cooperated” (including, for example, giving up individuals, “proactively” cooperating, preserving documents, de-conflicting witness interviews); and (3) timely and appropriately “remediated” (including, for example, disciplining employees, enhancing compliance program, and conducting a root cause analysis).

Moreover, the DOJ may decide that “aggravating circumstances” (such as involvement of executive management, excessive profits or pervasiveness of misconduct) exist, in which case a company would not be entitled to the presumption at all.

Finally, the Policy itself states:  “To qualify for the FCPA Corporate Enforcement Policy, the company is required to pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue.”  So, once a company has made a decision to voluntarily disclose to the government, there will be monetary penalties (in addition to the increased legal fees associated with dealing with government cooperation demands).

We issued an alert that discusses in detail the FCPA Corporate Enforcement Policy, which can be found here. The expansion to general crimes is generally a good thing for companies – they need to consider the potential benefits that attach to a voluntary disclosure.  The policy, however, does not always mitigate in favour of a voluntary disclosure.

See full article here

Asset managers step up gender diversity drive

 

Pimco, Fidelity International, Vanguard and two other asset managers have joined forces with the body for investment professionals to tackle the woeful underrepresentation of women in the UK’s fund industry.

The Gender Diversity Partner Programme, which also includes Royal London Asset Management and Allianz Global Investors, will meet for the first time this week under the leadership of CFA UK, the British arm of the global investment body.

Will Goodhart, chief executive of CFA UK, said many chief executives of asset managers had spoken out about the need to improve gender diversity over the past few years, but real changes had been slow in the industry.

“We feel like the case for diversity has been made. The commitment has been clear. But one of the things that is missing is a collaborative approach to look at how these commitments can be implemented across organisations,” he said.

Mr Goodhart said women account for only a fifth of CFA members, although he added that women made up about a third of the individuals taking the initial qualifications offered by the professional body, suggesting the membership could change over time.

Juliet Bullick, global head of consultant relations at Fidelity International and chair of the CFA UK gender diversity network, said the newly formed group would consider issues such as how to develop and retain existing female talent, how to attract more women to the industry and how to improve company cultures.

“The partner companies we are working with [have identified] that middle management is a key area to focus on. The tone from the top is set. The grassroots work fairly well. But it is a gap at the middle,” she said. “There is a huge amount of work yet to be done.”

See full article here

A Useful AI Primer: The Turing Lecture 2017

“AI” is currently the talk of the town (other than Brexit, May, Trump, …) especially in FinTech circles. Is AI artificial intelligence or augmented intelligence? Does it matter?

For a useful hour and a half dive into the world of AI from origins to current state and potential futures, the recent British Computer Society / Institute for Engineering and Technology Turing Lecture is a great primer – available on video from then IET website here.

Firms hit by global cyber attack

Here’s what experts say

Another major global cyber-attack yesterday hit organisations such as WPP, Maersk and Mondelez as well as the Ukrainian government.

Tom Fitzgerald, associate fund manager, EdenTree Investment Management, said:

Despite the development of a large and expanding market for cybersecurity technologies and services, the frequency and magnitude of cyberattacks against enterprise and government organisations continues to grow in volume and sophistication.

“These cyberattacks continue to impact organisations, despite the fact cybersecurity technology and services has been one of the fastest growing areas within technology over the last few years, increasing (in terms of revenues) at an average rate of 9.5 per cent  annually since 2010, according to Gartner. The overall IT infrastructure market has grown by just one per cent over the same period. This suggests the current security paradigm – encompassing security technology and services, as well as government and management-level oversight – is still yielding ineffective results.

 

One in five employees dare not ask about flexible working options

Despite their legal right to do so, over one in five UK private sector employees – equivalent to 5.5m nationally – are too afraid to discuss flexible working with their boss because they think they will say no, Aviva’s Working Lives report shows.

The findings come despite employees having the legal right to make a ‘statutory application’ to their employer to change their working pattern. Those aged 35-49 are the most likely to refrain from exercising this right despite the challenge some in this age group may face with juggling work and family life: nearly one in four shy away from starting a conversation for fear of rejection.

Despite the widespread fear of asking to change their work arrangements, of those employees who have specifically initiated a conversation, the vast majority have had their request accepted, as almost two in three private sector businesses say they already offer the opportunity for flexible working. Such findings suggest a potential disconnect between employees’ expectations of what their employers will allow, and the greater freedom that is actually available to them.

The fourth edition of Aviva’s Working Lives report – which examines the attitudes and experiences of employers and employees on issues affecting the present and future of the UK workplace, suggests there are clear business benefits to flexible working for both employers and employees.

See full article here

Dodd-Frank – Supreme Court to review Whistleblower Protections

On the last day of its current session, the Supreme Court announced it will consider whether the Dodd-Frank whistleblower protections extend to corporate insiders who blow the whistle on their employers by reporting the alleged misconduct internally only rather than to the Securities and Exchange Commission.

The Court will hear the appeal of Digital Realty Trust Inc. arising from an opinion of the 9th Circuit that held that the whistleblower protections of Dodd-Frank applied when the company allegedly fired its former executive for reporting alleged misconduct of his supervisor internally, but not to the SEC.

The case arises under the Dodd-Frank Whistleblower Program, implemented in 2011, that prohibits corporate employers from retaliating against whistleblowers who attempt to report violations of securities law. Under the Program, eligible whistleblowers may receive awards of between 10% and 30% of the sanctions collected in actions brought by the SEC and related actions brought by other authorities.

Since the program was created, more than $154 million has been awarded to 44 whistleblowers out of an investor protection fund established by Congress financed entirely through monetary sanctions paid to the SEC by securities law violators.

See full article here

FBI – IC3 Releases 2016 Internet Crime Report

The IC3 publishes the Internet Crime Report annually to increase public awareness of current trends in Internet crime. For this report, the IC3 has also created a separate state-by-state breakdown that allows users to select their state from a dropdown menu so they can review local trends in Internet crime. The top states for reported dollar amounts lost to Internet fraud in 2016 were California ($255 million), New York ($106 million), and Florida ($89 million).

Giving someone access to your computer is like giving out a key to your front door. A computer can have your bank account information, family photos, and other private documents and data—information that fraudsters would like to steal. That’s why tech support fraud has become a significant trend in online crime, according to the 2016 Internet Crime Report from the FBI’s Internet Crime Complaint Centre (IC3)

See full article here