On December 20, 2016, the Securities and Exchange Commission (“SEC”) filed a settled administrative proceeding against SandRidge Energy, Inc. (“SandRidge”) for allegedly using inappropriately restrictive language in employee separation agreements and for retaliating against a whistleblower, the fifth such claim the SEC brought in 2016.  SandRidge, without admitting or denying the SEC’s findings, agreed to pay a $1.4 million penalty, subject to the company’s ongoing bankruptcy proceedings, to resolve the SEC’s claims.  In the Matter of SandRidge Energy, Inc., Admin. Proc. File No. 3-17739 (Dec. 20, 2016).  

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On December 27, 2016, the United States Court of Appeals for the Tenth Circuit, in a two-to-one decision, created a split in the U.S. Courts of Appeals concerning the constitutionality of the appointments of SEC Administrative Law Judges (“ALJs”).  In granting a petition for review from an SEC opinion upholding the findings of an ALJ, the Tenth Circuit held that the SEC’s ALJs are inferior officers of the United States, and thus subject to the Appointments Clause in Article II of the U.S. Constitution, which requires that inferior officers be appointed directly by the President, a federal court, or a department head.  Bandimere v. SEC, — F.3d —, 2016 WL 7439007 (10th Cir. 2016).  The SEC conceded that the process for hiring its ALJs—through the SEC’s Office of Human Resources—did not satisfy the Appointments Clause.  The Tenth Circuit therefore set aside the SEC’s order, which had found David Bandimere, a Colorado businessman and investor accused of promoting Ponzi schemes, liable for, among other things, securities fraud under Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934.  The resulting conflict among Courts of Appeal may lead to Supreme Court consideration of the issue.

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On December 22, 2016, Teva Pharmaceutical Industries Limited (“Teva”) settled parallel civil and criminal actions brought by the United States Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”).  Press Release, DOJ, Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges, Dec. 22, 2016.  The DOJ and SEC alleged that Teva violated the Foreign Corrupt Practices Act (“FCPA”) and reaped $214 million in profits by making illicit payments to government officials in Russia, Ukraine, and Mexico to increase its market share, receive regulatory and formulary approvals, and obtain favorable drug purchase and prescription decisions.  Complaint, SEC v. Teva Pharmaceutical Indus. Ltd., No. 1:16-cv-25298 (S.D.N.Y. Dec. 22, 2016), ECF No. 1.  Under the terms of the settlement, which was the fourth largest FCPA settlement ever, Teva agreed to pay a $283 million criminal fine to the DOJ and $236 million in disgorgement and prejudgment interest to the SEC, for a total of $519 million.  Teva also entered into a three-year deferred prosecution agreement with the DOJ that requires the company to retain an independent monitor, and Teva’s Russian subsidiary, Teva LLC, entered a guilty plea to a one-count criminal information. 

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On December 6, the district court approved the SEC’s settlement with broker-dealer Stifel Nicolaus & Co. and one of its former executives, David Noack.  The settlement ended a long-running SEC investigation and lawsuit against the defendants, which alleged that they had induced several Wisconsin school districts to invest in complex financial instruments through a series of falsehoods and misrepresentations in violation of Section 10(b) of the Securities Exchange Act of 1934 and Section 17(a) of the Securities Act of 1933.  Under the terms of the settlement, Stifel and Noack agreed to pay penalties totaling $24.6 million, and were enjoined from violating Section 17(a)(2) and Section 17(a)(3) of the Securities Act of 1933.  

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On November 18, 2016, four days after announcing that she would step down at the end of the Obama administration, Securities and Exchange Commission (“SEC”) Chair Mary Jo White recapped changes in SEC enforcement during her tenure and recommended enhancing the Commission’s ability to combat white collar crime by creating new options for enforcement against senior executives and increasing the penalties that the Commission can assess.  SEC Chair Mary Jo White, “A New Model for SEC Enforcement,” Nov. 18, 2016, https://www.sec.gov/news/speech/chair-white-speech-new-york-university-111816.html. Although Chair White made no mention of the recent presidential election, it looms large.  Indeed, while there is a populist aspect to her calls for greater enforcement, her recommendations also stand in tension with the new administration’s stated goal of downscaling regulation. 

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On November 7, 2016, the Securities and Exchange Commission (“SEC”) instituted a settled administrative proceeding against PowerSecure International (“PowerSecure”) that alleged that the company violated the financial reporting, books and records, and internal control provisions of the federal securities laws by failing to accurately identify and disclose segment-level operating results from 2012 to 2014, as required by Generally Accepted Accounting Principles (“GAAP”).  PowerSecure, which neither admitted nor denied the SEC’s findings, agreed to pay a $470,000 civil monetary penalty to settle the SEC’s claims, which did not include any allegation of scienter or fraud.  In the Matter of PowerSecure, Int’l, Admin. Proc. No. 3-17670 (Nov. 7, 2016).

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On October 20, 2016, the Securities Exchange Commission (“SEC”) filed a settled civil injunctive action against FMC Technologies, Inc. (“FMC”) that alleged that the company and two of its executives had engaged in books and records violations in connection with an FMC subsidiary’s accruals for employee paid time off (“PTO”).  SEC, Company and Former Executives Paying Penalties for Accounting Violations, Rel. No. 2016-221 (Oct. 20, 2016).  To settle the SEC’s claims, which did not include allegations of fraud, FMC, its energy infrastructure segment controller, Jeffrey Favret (“Favret”), and one of its business unit controllers, Steven Croft (“Croft”), agreed to pay civil monetary penalties of $2.5 million, $30,000 and $10,000, respectively, without admitting or denying wrongdoing.  Favret and Croft each also agreed to be barred from practicing as accountants before the SEC for at least two years.  

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On October 25, 2016, New York Attorney General (“NYAG”) Eric Schneiderman announced settlements with daily fantasy sports providers DraftKings, Inc. (“DraftKings”) and FanDuel Inc. (“FanDuel”) that resolved claims that the companies had violated New York’s deceptive advertising laws by, among other things, failing to disclose the significant technological advantages enjoyed by more sophisticated players and overstating the likelihood of winning large cash prizes.  Settlement Agreement, In the Matter of DraftKings, Inc. (Oct. 25, 2016); Settlement Agreement, In the Matter of FanDuel Inc. (Oct. 25, 2016).  Under the terms of the settlements, DraftKings and FanDuel each agreed to pay $6 million in penalties and costs and reform their marketing efforts to align with a series of highly specific demands for disclosure by the NYAG.  

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On October 11, 2016, the Securities and Exchange Commission (“SEC” or “Commission”) announced its enforcement results for its 2016 fiscal year.  The SEC brought an all-time record 868 enforcement actions in FY 2016, the third consecutive year in which the SEC has set a new record for enforcement activity.  The 868 enforcement actions were an approximately 7.5 percent increase over 2015 and nearly 15 percent over 2014, and resulted in the Commission collecting over $4 billion in disgorgement and penalties in FY 2016.

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On October 11, 2016, Judge Brett Kavanaugh, writing for the United States Court of Appeals for the D.C. Circuit, vacated an administrative enforcement order brought by the Consumer Financial Protection Bureau (“CFPB”) against PHH Corp. (“PHH”) for violations of Section 8 of the Real Estate Settlement Procedures Act (“RESPA”).  PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir. Oct. 11, 2016).  The Court held, in relevant part, that the structure of the CFPB—an independent agency with power concentrated in a single director who is unaccountable to the President of the United States—represented an unconstitutional delegation of unchecked executive authority.  As a remedy, the Court held that the President must have the power to remove, direct, and supervise CFPB’s director, but otherwise permitted the CFPB to continue its work.  Accordingly, the immediate practical impact of the decision will be limited, but over the long term the CFPB may begin to answer more directly to the political leanings of the Executive Branch, rather than Congress.

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On September 30, 2016, Florida accountants Joseph D’Arelli and Mitchell Pruzansky, together with the firm D’Arelli Pruzansky P.A., agreed to pay a $50,000 civil penalty to settle the SEC’s investigation into alleged violations of auditor independence rules, which occurred when D’Arelli and Pruzansky each failed to rotate off certain audit engagements after five consecutive years.  The respondents neither admitted nor denied the SEC’s allegations, which were included in a settled cease and desist order that cited violations of Section 10A(j) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10A-2 thereunder.  In the Matter of D’Arelli Pruzansky, P.A., et al., File No. 3-17605 (Sept. 30, 2016).

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​On September 27, 2016, Weatherford International Ltd. (“Weatherford”), the world’s seventh-largest oilfield services company, agreed to pay $140 million to settle accounting and reporting fraud claims brought by the Securities Exchange Commission (“SEC”).  In the Matter of Weatherford International PLC, Admin. Proc. File No. 3-17582 (Sept. 27, 2016).  In a settled order instituting administrative proceedings, the SEC alleged that Weatherford used deceptive accounting practices to inflate its earnings by over $900 million between 2007 and 2012, and accused Weatherford’s former vice president of tax, James Hudgins, and former tax manager, Darryl Kitay, as bearing personal responsibility.  Neither Weatherford nor the two individuals acknowledged wrongdoing as part of the settlement.

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On Monday, September 19, the United States Securities and Exchange Commission (“SEC”) announced that public accounting firm Ernst & Young (“EY”) agreed to pay a total of $9.3 million to settle separate charges that two of the firm’s audit partners, Gregory Bednar and Pamela Hartford, violated auditor independence rules after overseeing allegedly independent audits while allegedly engaging in personal relationships with senior executives of the EY issuer clients that were being audited.
 
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On September 13, 2016, Pharol SGPS, S.A., formerly known as Portugal Telecom SGPS, S.A. (“Portugal Telecom”), agreed to pay a $1.25 million civil penalty to resolve the SEC’s investigation into its alleged accounting and controls failures.  In the Matter of Portugal Telecom, SGPS, S.A., File No. 3-17534 (Sept. 13, 2016).  The alleged accounting and control failures related to Portugal Telecom’s 2013 disclosure of its short-term investments in debt securities.  Portugal Telecom neither admitted nor denied the SEC’s allegations, which were made as a part of a settled cease and desist order alleging violations of Section 13 of the Exchange Act.  

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On August 23, 2016, four Apollo Global Management advisers, each organized as a Delaware limited partnership, agreed to pay a total of roughly $52.7 million (including $37.527 million in disgorgement and a $12.5 million civil penalty) to settle the SEC’s investigation of alleged breaches of fiduciary duty stemming from, among other things, a failure to disclose accelerated fees paid by Apollo funds’ portfolio companies and alleged misrepresentations about which entity would ultimately be allocated the interest that accrued on a loan.  SEC Press Release, Apollo Charged With Disclosure and Supervisory Failures, Rel. No. 2016-165 (Aug. 23, 2016).  The advisers neither admitted nor denied the SEC’s allegations, which were made as a part of a settled cease and desist order alleging violations of the Investment Advisers Act of 1940.  

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On Friday, August 5, 2016, the Securities and Exchange Commission (the “SEC” or “Commission”) issued an opinion barring John J. Aesoph and Darren M. Bennett (“Respondents”), both former CPAs for KPMG, from practicing or appearing before the SEC, with a right to apply for reinstatement in three and two years, respectively, on the grounds that they had negligently engaged in improper professional conduct within the meaning of SEC Rule 102(e).  In re John J Aesoph and Darren M. Bennett, Admin Proc. File No. 3-15168 (August 5, 2016),  In so doing, a divided Commission levied harsher sanctions than had been imposed by the Administrative Law Judge who presided over the matter or requested by the Division of Enforcement.

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On August 9, 2016, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit found the use of administrative law judges (“ALJs”) by the Securities and Exchange Commission (“SEC” or “Commission”) to be constitutionally sound, holding that the SEC’s use of ALJs does not violate the Appointments Clause of the U.S. Constitution because, rather than acting as officers of the United States, these ALJs, who lack the authority to issue final decisions, act as employees.  Raymond J. Lucia Cos. Inc. v. Securities and Exchange Commission, No. 15-1345 (D.C. Cir. Aug. 9, 2016).  With at least one similar case pending before the Tenth Circuit, and a number of contested actions still pending in front of the Commission itself, the Lucia decision has the potential to be an important precedent-setting decision.

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On July 25, 2016, the Securities and Exchange Commission (“SEC”) announced that on July 20, 2016, the Honorable Charles Pannell of the Northern District of Georgia entered a final judgment against Michael Sean Cain.  Pursuant to the judgment, Cain consented to a permanent injunction and to pay a civil penalty of $36,991.20, a sum that exceeds his own alleged insider trading profits by less than $350, despite allegations that persons to whom he provided the insider information earned profits that exceeded $380,000.  

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On Thursday, July 14, 2016, the Second Circuit effectively quashed a judicially authorized search warrant by which the U.S. Government had sought to obtain customer data that Microsoft stored overseas.  Microsoft Corp. v. United States, No. 14-2985, slip op. (2d Cir. July 14, 2016).  In doing so, the Second Circuit held that the Government cannot obtain a search warrant under the Stored Communications Act (SCA) to obtain electronic customer data located exclusively on foreign servers, even where a U.S. corporation has custody and control of that data.   

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On July 14, 2016, the Second Circuit released its decision in Microsoft Corp. v. United States, No. 14‐2985, slip op. (2d Cir. July 14, 2016). The Second Circuit rejected the Government’s efforts to require Microsoft to turn over emails held overseas in its data center in Dublin, Ireland pursuant to a judicially-authorized search warrant.

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On July 13, 2016, the SEC adopted amendments to the Rules of Practice that govern administrative proceedings to, among other things, expand discovery and extend the timelines for conducting administrative proceedings.  Press Release, SEC Adopts Amendments to Rules of Practice for Administrative Proceedings (July 13, 2016), www.sec.gov/news/pressrelease/2016-142.html.  The adopted amendments are little changed from those that were initially proposed in September 2015.  At the time, SEC Chair Mary Jo White defended the amendments as “provid[ing] parties with additional opportunities to conduct depositions and add[ing] flexibility to the timelines . . . while continuing to promote the fair and timely resolution of the proceedings.”

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On July 11, 2016, the Securities and Exchange Commission (“SEC”) announced that Johnson Controls, Inc. (“Johnson Controls”), a Wisconsin-headquartered global provider of automatic temperature control systems, had agreed to pay $14.3 million to settle alleged violations of the Foreign Corrupt Practices Act (“FCPA”).  In the Matter of Johnson Controls, Inc., Admin. Proc. No. 3-17337 (July 11, 2016) (order instituting proceedings).  Although Johnson Controls reportedly self-disclosed the violations, cooperated extensively with the SEC and Department of Justice (DOJ), identified individuals associated with the misconduct, and engaged in robust remediation, the company nevertheless was required to pay a civil money penalty in addition to disgorging the profits it reaped as a result of the scheme.  The DOJ agreed to issue a declination, but the SEC took a harder line.

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The Securities and Exchange Commission (SEC or Commission) brought over 400 enforcement actions in the first half of fiscal year (FY) 2016, and is on pace to surpass its record of 807 enforcement actions in a single fiscal year, set in FY 2015.

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On June 27, 2016, the United States Court of Appeals for the Second Circuit granted a motion to allow former ratings agency and private equity executives to jointly file a petition for rehearing of their appeals challenging the constitutional validity of SEC proceedings before administrative law judges.  Barbara Duka v. U.S. Securities and Exchange Commission, No. 15-2732, slip op. at *1 (2nd Cir. June 27, 2016); Tilton v. Securities and Exchange Commission, No. 15-2103.  In a two-sentence ruling, the Second Circuit granted the motion to permit the petitioners, Barbara Duka and Lynn Tilton, to proceed jointly in their attempts to overturn the Second Circuit’s holding that underlying SEC proceedings must conclude before the constitutionality of those proceedings may be challenged in federal court.  Duka and Tilton had filed separate lawsuits seeking to halt administrative proceedings brought against them by the SEC, claiming that SEC administrative law judges’ appointments and insulation from removal are unconstitutional.

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We are now halfway into 2016. After a few relatively slow years, it appears that 2016 may reflect a return to more active FCPA enforcement as, in the last six months, the two U.S. enforcement agencies, the DOJ and the SEC, have collectively brought as many cases as they did in the entire year of 2015 and more than in the two preceding years. What is interesting, however, is that, although some of the cases involved household corporate names, the penalties were relatively low—with the exception of the VimpelCom case— and the patterns of corruption, albeit with some exceptions, fairly mundane. More controversial have been some of the policy changes announced by the DOJ, placing a premium on voluntary disclosure and cooperation, including overtly and mandatorily “throwing employees under the bus” in exchange for allegedly deeper discounts on penalties and other forms of leniency. 

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The Securities and Exchange Commission (SEC or Commission) brought over 400 enforcement actions in the first half of fiscal year (FY) 2016, and is on pace to surpass its record of 807 enforcement actions in a single fiscal year, set in FY 2015.

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On June 6, 2016, and June 7, 2016, the SEC filed settled administrative proceedings against accounting and audit firms for allegedly deficient auditing procedures. These enforcement actions, along with recent press statements and general trends in SEC enforcement, reflect the SEC’s renewed focus on addressing accounting fraud.

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On June 7, 2016, for only the second time in SEC history, the Commission announced non-prosecution agreements in a settlement of FCPA enforcement actions. As a result of the settlements, Akamai Technologies (Akamai) and Nortek Inc. (Nortek) will forfeit ill-gotten gains connected to bribes paid to Chinese officials by foreign subsidiaries. As a part of the settlements, Akamai will pay $652,452 in disgorgement plus $19,433 in interest and Nortek will pay $291,403 in disgorgement plus $30,655 in interest. Neither company, however, will pay monetary penalties because of the cooperation extended to the Commission in connection with the settlements.

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Beginning with the creation of its Financial Reporting and Audit Task Force in July 2013, accounting fraud has been a renewed priority for the SEC.  SEC Announces Enforcement Initiatives to Combat Fin. Reporting and Microcap Fraud and Enhance Risk Analysis, Lit. Rel. No. 2013-121, July 2, 2013. The SEC has brought numerous accounting cases of late regarding earnings management and other alleged fraud; recent activity suggests that its next focus may be the use of non-GAAP measures.  

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On May 24, 2016, Bradley Bennett, the executive vice president of enforcement of the Financial Industry Regulatory Authority (“FINRA”), reportedly commented on FINRA’s future focus on individuals in anti-money laundering (“AML”) enforcement at a panel during FINRA’s 2016 Annual Conference.  Bennett’s speech came just days after FINRA announced a $17 million settlement of AML claims against Raymond James Financial Services Inc. and Raymond James & Associates Inc., which included a three month suspension and $25,000 fine for Raymond James compliance officer Linda L. Busby for her alleged failure to supervise and screen suspicious activity.  In his remarks, Bennett stressed that the decision to suspend the compliance officer will be a rare one, for example, in instances where compliance officers (1) knew they lacked sufficient resources to properly supervise their firms, but (2) failed to elevate the issue to management.  

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​The Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) includes a so-called Extender Statute prescribing the limitations period for actions brought by the Federal Deposit Insurance Corporation (“FDIC”) as conservator or receiver for a failed bank. The Housing and Economic Recovery Act of 2008 (“HERA”) includes a materially identical provision governing the limitations period for actions brought by the Federal Housing Finance Agency (“FHFA”) as conservator or receiver for government-sponsored entities within its regulatory purview, such as Fannie Mae and Freddie Mac. These Extender Statutes have been utilized by the FDIC and FHFA to pursue residential mortgage-backed securities (“RMBS”) claims that otherwise would have been barred by various statutes of repose, and in 2013, in FHFA v. UBS, the Second Circuit held that the FHFA Extender Statute displaced the 1 Securities Act’s three-year statute of repose.

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After experiencing criticism and receiving unfavorable judicial rulings in 2015, recent data suggests that the SEC may be bringing fewer contested actions as administrative proceedings. 

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On May 18, 2016, the Financial Industry Regulatory Authority (“FINRA”) announced that two Raymond James affiliates agreed to pay $17 million in fines for alleged failures of the firms’ anti-money laundering (“AML”) programs, in violation of FINRA Rule 3310, which requires FINRA members to maintain effective AML programs.  This case is especially noteworthy because affiliate Raymond James & Associates Inc.’s (“RJA”) AML Compliance Officer also agreed to a fine of $25,000 and a three-month suspension due to her alleged personal violations of FINRA Rule 3310.  These violations were based on her failure to establish written procedures, investigate red flag activity, or ensure that periodic reviews were conducted. Aruna Viswanatha, Raymond James to Pay $17 Million Fine for Anti-Money-Laundering Lapses, Wall St. J., May 18, 2016;  News Release, Fin. Indus. Regulatory Auth., FINRA Fines Raymond James $17 Million for Systemic Anti-Money Laundering Compliance Failures (May 18, 2016).

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On May 13, the Securities and Exchange Commission (“SEC”) announced a $3.5 million whistleblower award.   This award is significant because it represents the first time that the SEC rewarded a whistleblower for providing a tip that “bolstered”—rather than initiated—an investigation.  In its order approving the award, the Commission explained that the tip caused the SEC to focus on specific conduct of which it was already generally aware.  The order further noted that the tip “significantly contributed” to the success of the action by increasing the Enforcement staff’s leverage during settlement negotiations. 

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On May 12, 2016, Securities and Exchange Commission (“SEC”) Enforcement Director Andrew Ceresney gave the keynote address at the Securities Enforcement Forum West 2016 in San Francisco. Remarks at the Securities Enforcement Forum West 2016 (May 12, 2016).  In his remarks, Ceresney defended the need for enforcement activity in private equity, reviewed recent prominent actions, addressed common arguments made by subjects of investigations, and argued that recent enforcement activity in the private equity industry had led developments that protected investors. 

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On May 6, 2016, Appellant Bassam Salman filed his opening brief with the Supreme Court in Salman v. United States, a closely-watched appeal of an insider trading conviction that has the potential to resolve ongoing ambiguity in insider trading law, especially prevalent since the Second Circuit’s December 2014 decision in United States v. Newman, 773 F.3d 438, over when a remote tippee can be convicted of insider trading. 

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