Securities Enforcement and Regulation

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Securities Enforcement and Regulation Law Firm

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Securities regulators are raising the stakes in enforcement matters by investigating more situations, pursuing a broader variety of cases, and pressing for tougher sanctions. To meet growing client needs in this area, King & Spalding bolstered its extensive existing SEC enforcement and regulation practice during the first quarter of 2014 and is now a powerhouse in SEC enforcement matters. Our team of former SEC and DOJ officials, former federal and state prosecutors, and experienced SEC enforcement practitioners has handled many of the most challenging securities enforcement matters in recent decades. Often, our matters do not become known to the public because they are resolved without government action against our clients.

King & Spalding represents companies and individuals in all aspects of federal securities law enforcement. We appear regularly before the Securities and Exchange Commission, Commodity Futures Trading Commission, Department of Justice, Financial Industry Regulatory Authority, Public Company Accounting Oversight Board, the Financial Conduct Authority, and other federal, state, and international enforcement organizations. We track their priorities and train our teams accordingly.

We help our clients navigate government investigations and manage crises while minimizing unnecessary distractions on officers and employees, who have other work to do. We also conduct internal investigations and due diligence, and we help our clients strengthen their policies and procedures to minimize the risk of future violations.

As the preeminent securities regulator and enforcer in the United States, the SEC sets priorities that impact our clients. Since mid-2013, these priorities have increasingly focused on accounting, internal controls, and financial reporting at public companies; trading operations and transparency at SEC-regulated entities; and the conduct and supervision of individual board members, executive officers, and employees. King & Spalding is uniquely positioned with extensive experience in each of the priority areas highlighted by current SEC leadership as well as in each of the subject areas covered by the Enforcement Division’s Specialized Units:

Financial Reporting and Disclosure
Third-Party Professionals
Potential Non-Fraud Allegations
Individuals
FCPA and Anti-Corruption
Compliance in the Age of Whistleblowers
Structured and New Products
Insider Trading and Market Abuse
Asset Management
Municipal Securities and Pension Funds

Financial Reporting and Disclosure. The SEC recently formed a Financial Reporting and Audit (“FRAud”) Task Force within its Division of Enforcement. This new task force develops leads and incubates investigation ideas for the rest of the Division. With the FRAud Task Force’s support, and in coordination with other Divisions and Offices within the SEC, the Enforcement Division is poised to focus more closely on five areas: reserves, revenue recognition, auditor independence, audit committees, and foreign private issuers.

King & Spalding’s team has extensive experience in financial reporting and disclosure cases, both as former SEC staff members and as defense counsel. Examples of relevant representations of entities include the following:  

  • Bank in four related government investigations concerning Regulation FD, adequacy of periodic disclosures, and loan loss reserves for its residential mortgage portfolios.

  • Insurance company in a multi-year SEC investigation concerning the company’s accounting for earnings and expenses concerning loss mitigation insurance.

  • Financial services company in joint investigation by the SEC and Federal Reserve concerning its financial statements.

  • Pharmaceutical manufacturer in SEC and FDA investigations related to the company’s disclosures regarding drug approval and marketing.

  • Home health care company in SEC and DOL investigations arising out a front page Wall Street Journal article questioning Medicare reimbursement practices in the industry.

  • Audit committee of a foreign private issuer in responding to an auditor independence issue.

  • Several public companies in SEC, DOJ, IRS and DOL stock-option backdating investigations.

  • In addition to these entity representations, see also representations of individuals, below.

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Third-Party Professionals. The SEC continues to prioritize its scrutiny of so-called “Gatekeepers”—auditors, lawyers, and others—whose work for third parties potentially could prevent securities law violations. King & Spalding frequently represents audit firms and professionals in SEC and PCAOB enforcement matters, including at trial. We also have substantial experience representing law firms and lawyers. For example, in recent years, the team has represented:
  • Major accounting firm in multiple SEC investigations of the audit client’s disclosures pertaining to mortgage-backed securities issues.

  • Major accounting firm in a PCAOB inquiry concerning auditor independence.

  • Major accounting firms and individual auditors in SEC and PCAOB investigations of allegedly improper accounting by audit clients and allegedly insufficient audit procedures.

  • Major accounting firm in SEC investigation and bankruptcy proceedings arising from foreign liquidation proceedings involving a non-U.S. audit client.

  • Major accounting firm in an SEC investigation relating to auditing services to non-U.S. client.

  • Non-U.S. accounting firm in SEC and U.S. Attorney’s Office investigations concerning an audit client’s restatement.

  • Ten partners of a major accounting firm in connection with a DOJ criminal investigation and an SEC investigation.

  • Individual auditor in the first contested PCAOB proceeding.

  • National law firm in SEC and DOJ investigations of former clients and former attorneys.

  • Lawyer in an SEC disciplinary investigation concerning a state bar licensing issue.

  • Former SEC official in an SEC disciplinary investigation concerning revolving-door issues.

  • Lawyer in SEC and Offices of the U.S. Attorney (E.D.N.Y., D.N.J.) investigations concerning alleged fraudulent alternative private offerings and stock manipulations.

  • Several individual lawyers in separate SEC investigations of insider trading, stock option backdating, and other securities law issues.

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Potential Non-Fraud Allegations. Commissioners and Senior SEC staff have stressed the SEC’s determination to focus on non-fraud charges, including control failures, negligence-based offenses, inaccurate books and records, violations of prophylactic rules that have no intent requirement, and failure-to-supervise cases in investigations involving regulated entities. Sometimes non-fraud charges are a preferred path for resolving an investigation that included the potential for fraud allegations. Other times, no violation has occurred and no charges should be brought, even non-fraud charges. King & Spalding has extensive experience representing regulated entities and others in enforcement investigations regarding possible non-fraud violations, including:

  • Private equity firm in a DOL investigation concerning a Ponzi scheme investment in which the firm did not invest.

  • Broker-dealer in a FINRA investigation concerning Unit Investment Trust discounts.

  • Privately held technology company in an SEC investigation concerning secondary market trading in the company’s securities and related exemptions from SEC registration requirements.

  • Public-company CEO in one of the SEC’s first no-fault executive compensation “clawback” cases under Sarbanes-Oxley section 304.

  • Public-company CFO accused of negligence in failing to detect accounting mistake and in certifying adequacy of company internal controls pursuant to Sarbanes-Oxley section 302.

  • Portfolio managers concerning short selling in possible violation of Regulation M (Rule 105).

  • Portfolio managers for a PIPES fund in an SEC investigation concerning sales of unregistered securities.

  • Rating Agency employees in SEC investigation and state regulatory actions concerning failure to comply with company rating policies and internal controls in connection with CMBS ratings.

  • Electronic trading equities, options, and futures firm and the owner of the firm in a Philadelphia Stock Exchange enforcement action appealed to the SEC, in which the SEC dismissed PHLX’s charges.

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Individuals. SEC officials have consistently emphasized that the Enforcement Division will pursue charging individuals where it believes the evidence supports doing so. This emphasis has only increased in recent months. While the majority of our representations involve public companies, regulated entities, or audit firms, King & Spalding often represents officers, directors, auditors, lawyers, and others caught up in enforcement investigations or inquiries. Examples include:

  • Chief Financial Officer of a medical device distributor in internal and SEC investigations concerning revenue recognition issues resulting in a restatement.

  • General Counsel of a health care services company in an SEC investigation concerning revenue recognition and related disclosures.

  • Controller of a public company in connection with a financial fraud investigation by the SEC.

  • Senior Officer and Corporate Controller of a company in the defense industry in an SEC investigation concerning the adequacy of the institution’s loan loss reserves, related disclosures, and internal control issues.

  • Head of Internal Audit of a Fortune 500 company in connection with SEC and DOJ investigations into violations of the Foreign Corrupt Practices Act.

  • Senior officer and director of publicly traded satellite communications company in SEC investigation of disclosures concerning executive management issues.

  • In-house lawyer, an investment banker, and another officer of a major, publicly traded financial institution in an SEC investigation concerning proxy disclosures during a hostile takeover.

  • Investment banker in connection with an investigation concerning suitability of a CDO, in coordination with British counsel in a related FCA investigation and German counsel in a related bribery and embezzlement trial against others.

  • Investment banker and a sales manager in a major commercial and investment bank in connection with an SEC investigation concerning structuring and suitability of CDOs.

  • Individual in connection with investigations of foreign exchange (FX) trading.

  • Individual in connection with international investigations involving LIBOR rates.

  • Executives of global investment banks in connection with investigations of ISDAfix benchmarks.

  • Individual employees of a global investment bank in connection with DOJ and SEC investigations involving residential mortgage-backed securities.

  • Numerous individuals in DOJ and SEC investigations into alleged insider trading.

  • Numerous individual board members, executives, accountants, and lawyers in SEC investigations of stock option backdating issues.

  • Director of the U.K. subsidiary of a U.S. broker-dealer relating to SEC and DOJ investigations alleging fraudulent misstatement of fees.

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FCPA and Anti-Corruption. SEC commissioners and staff members alike have stressed the importance of continuing to enforce the Foreign Corrupt Practices Act and related anti-corruption statutes. King & Spalding is a leading firm in guiding companies and individuals through internal investigations and self-reporting processes relating to FCPA, the U.K. Bribery Act 2010, and other anti-corruption laws, as well as representing them in related enforcement investigations. Mindful that these investigations typically also involve criminal authorities, King & Spalding’s team for these matters includes more than a dozen former federal prosecutors, senior DOJ officials, and SEC officials. King & Spalding lawyers have represented clients in several of the largest anti-corruption matters in recent years, including:

  • One of the largest global medical device manufacturers in parallel DOJ and SEC investigations of FCPA issues.

  • Fortune 100 transportation company in conducting internal investigations of FCPA issues voluntarily disclosed to the DOJ and SEC.

  • Two different Fortune 250 energy companies in conducting internal investigations of FCPA issues.

  • International technology company in an internal investigation and SEC Division of Corporation Finance disclosure inquiry concerning trade activities with sanctioned countries and related federal securities law issues.

  • Three executives in the joint SEC and DOJ investigation of suspected FCPA violations by a leading Hungarian telecommunications company.

  • Former CEO and President of a defense contractor in SEC investigation of FCPA violations.

  • International corruption investigations spanning the United States, the European Union, Russia, and Asia, involving accounting discrepancies and allegations of fraud and bribery.

  • The CFO of a healthcare product manufacturer in an FCPA investigation.

  • Serving as primary outside FCPA counsel for several multinational companies, and assisting in all aspects of design and operation of companies’ FCPA compliance programs.

  • Advising companies in FCPA due diligence related to significant mergers, acquisitions, and divestitures.

  • See King & Spalding Wins Recognition as a Top FCPA Firm.

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Compliance in the Age of Whistleblowers. The best way to avoid charges in an enforcement investigation, of course, is to deter violations in the first place and, if a violation nevertheless occurs, to deal with it promptly and responsibly. The SEC has reported that it now receives thousands of tips and complaints regarding possible violations every year — 3,300 of which come from whistleblowers. Over time, these tips have involved more than 70 different countries. With the SEC now authorized to pay rewards to qualified whistleblowers who provide information leading to a successful enforcement action, and with other international enforcement authorities also imposing “whistleblower scheme” obligations, companies are incentivized all the more to implement and follow through with reasonable and effective policies and procedures. In addition to conducting internal investigations and representing clients in government inquiries, our team assists clients in proactively building out policies to deter future violations. King & Spalding is also one of the most experienced law firms in the world in dealing with whistleblower issues involving the False Claims Act and federal tax laws, among others, as well as when criminal authorities become involved.  During recent years, our representations in this area have included:

  • International reinsurance company in dealing with whistleblower allegations of accounting and antitrust violations in an employment contract dispute.

  • Public company in an internal investigation and subsequent self-report to the SEC  in connection with the discovery of improper conduct by a senior executive.

  • Internet data company audit committee in connection with an internal investigation concerning pre-IPO activities.

  • Audit committee members and the private equity firms that appointed them regarding corporate governance issues involving senior company officers in connection with the audit committee’s internal investigation of a Chinese foreign private issuer.

  • Individual employees of an investment adviser in an SEC investigation relating to collateralized debt obligations.

  • Investigation and risk management advice related to the U.K. Bribery Act 2010 to corporations both within the U.K. and abroad to avoid potential allegations of bribery and corruption within their organizations.

  • Conducting FCPA and anti-corruption investigations and due diligence for various public companies, financial services companies, and private equity firms.

  • Advice on the comparisons and contrasts between the U.K. Bribery Act 2010 and both the FCPA and other non-U.K. bribery legislation.

  • Investigations from whistleblower information delivered internally in a Financial Services client.

  • Internal investigation for international construction organization following allegations of bribery within the organization in various locations.

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Structured and New Products. In the wake of the financial crisis, the SEC’s Structured and New Products Specialized Unit significantly upgraded the SEC’s ability to investigate complex financial products. King & Spalding lawyers have substantial experience in effectively representing entities and individuals when the government raises questions about complex products. Our experience includes:

  • Global bank and financial services company in internal investigation and parallel investigations by SEC, Federal Reserve, NYAG, and multiple foreign regulators concerning valuation of credit derivatives.

  • Global investment bank in SEC and FINRA investigations involving a high-profile investment.

  • U.S. bank in connection with an inquiry by the Department of Justice concerning residential mortgage-backed securities.

  • U.S. investment bank in connection with an SEC investigation of cash flow modeling issues in a multi-billion dollar complex securitization transaction.

  • Regional investment bank in connection with an SEC investigation concerning valuation services performed on commercial real estate portfolios.

  • Banker and sales manager in connection with an SEC investigation concerning CDOs.

  • Trust company analyst in an SEC investigation concerning third party credit ratings for a mortgage-backed CDO transaction for which the company served as trustee.

  • Real estate company in connection with an SEC investigation regarding the company’s sales of tenants-in-common interests.

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Insider Trading and Market Abuse. Inquiries regarding potential insider trading, tipping, and market manipulation, particularly in the new social media environment, raise interesting and unique issues. The SEC’s specialized Market Abuse Unit has raised the stakes in this arena. King & Spalding lawyers are well-positioned to address these inquiries, with experience including the following recent representations:

  • Numerous public companies responding to SEC and FINRA inquiries into trading surrounding major corporate transactions and announcements.

  • Hedge fund in joint SEC and DOJ investigations of alleged insider trading by a former managing director.

  • Investment adviser and its analysts in connection with SEC investigation concerning independent contractor “expert network” reports.

  • Broker-dealer in connection with an SEC investigation and U.S. Attorney’s Office prosecutions of former employees regarding trading floor communications.

  • Two major broker-dealers in connection with SEC and FINRA investigations of research analyst conflicts of interest.

  • Large national law firm in connection with an SEC and DOJ investigation of suspected insider trading by one of the firm’s former lawyers.

  • Chief Financial Officer of a public company in connection with tipping allegations concerning analyst coverage.

  • Corporate officer concerning social media postings and potential market manipulation issues.

  • Corporate officer in connection with insider trading and tipping allegations concerning purported earnings information.

  • Relatives of corporate officer in connection with insider trading allegations regarding pending corporate transactions.

  • Corporate officer in connection with a potential friends-and-family tipping issue.

  • Real estate executive in connection with SEC investigation of trading before acquisition of publicly traded sporting goods company.

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Asset Management. The Asset Management Unit in the SEC’s Division of Enforcement has significantly increased the SEC’s effectiveness in policing the activities of registered and unregistered investment advisers, as well as hedge funds, private equity funds, and venture capital funds. King & Spalding’s experienced SEC enforcement team has extensive experience in this area, including:

  • Global investment bank in SEC and DOJ investigations involving a high-profile investment manager.

  • Investment Adviser in connection with investigations by the SEC, the Department of Justice, and multiple foreign regulators related to insider trading in Chinese stocks.

  • Investment adviser in connection with an SEC examination concerning valuation of securitized assets and debt.

  • Asset manager in connection with a pending SEC lawsuit against another party concerning residential mortgage-backed securities.

  • Investment adviser in connection with post-trial motions and appeal to D.C. Circuit.

  • Hedge fund in insider trading investigation.

  • Internal lawyer for a large mutual fund administrator regarding an SEC investigation regarding disclosure to mutual fund boards of 12b-1 fees.

  • Hedge fund executive in an SEC investigation of certain CDO transactions.

  • Global investment manager in relation to investigations and inquiries by the SEC, FCA, and other European and Asian regulators, following discovery of an error in the investment manager’s quantitative investment strategy models that impacted investment performance across its global client base.

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Municipal Securities and Pension Funds. In March 2014, the SEC announced a new cooperation initiative to encourage municipal issuers and underwriters to self-report violations to the SEC’s enforcement staff. This initiative will supplement the efforts of the Specialized Unit focusing on this area. King & Spalding has represented municipal entities, underwriters, and pension funds in numerous enforcement investigations, including:

  • Global investment bank in industry-wide municipal securities investigation conducted by numerous agencies, including the SEC and DOJ.

  • The State of New Jersey in the settlement of SEC charges that the state had fraudulently marketed $26 billion in municipal bonds to investors.

  • Large pension fund in connection with an internal investigation, SEC investigation, and DOL investigation concerning the fund’s process for selecting investment managers.

  • Hedge fund adviser in connection with an SEC investigation and a New Jersey Attorney General’s office investigation regarding “pay-to-play” practices in connection with investments by the New Jersey Treasury Department.

  • Hedge fund adviser in an investigation by the New York Attorney General’s Office regarding “pay-to-play” practices in connection with investments by New York’s pension fund.

  • Investment Adviser in investigation by SEC regarding “pay to play” practices in connection with CALPERS investments.

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Dixie L Johnson 
T: +1 202 626 8984 WASHINGTON, D.C.
Carmen Lawrence 
T: +1 212 556 2193 NEW YORK