International Enforcement: A Key Trend for Companies to Monitor
An increasing trend in SEC and DOJ securities enforcement is international investigations and cases. The international component of these matters adds to the difficulty and complexity for regulators and defense lawyers. In the coming months, the trend toward international enforcement will clearly continue and thus should be carefully monitored by issuers with international operations.
Consider, for example, the announcement by the SEC yesterday of a new international arrangement. In the announcement, the SEC detailed terms for increased cooperation and collaboration with the Securities and Exchange Board of India (“SEBI”). One of the key provisions of this agreement is to improve cooperation and the exchange of information in cross-board securities enforcement matters. The Commission’s Press Release is available here.
This, of course, is not the first international agreement to aid enforcement. In the late 1980’s, the SEC began using information-sharing MOUs to aid enforcement. Those agreements were followed by a multilateral MOU developed by the International Organization of Securities Commissions (of which SEC Chairman Cox will become chairman next year) which now includes more than 40 national regulators. While the focus of the agreements goes beyond policing the capital markets, enforcement remains the key. As SEC Chairman Cox noted recently: “Enforcement will, of course, remain the bread and butter of international securities regulatory cooperation, because the seas of global finance are even more shark-infested than anyone’s relatively placid safe harbors at home. Increasingly, not jut two or three but a half dozen or more countries can be involved in a securities fraud. Many of our international cases start out as messy as a CSI crime scene. But as Gil Grissom might say, ‘It’s our job to know stuff.’ And each of us knows that we can’t get the job done without the other’s help.” Speech by SEC Chairman Cox: Keynote Address to the Columbia Law and Business Schools.
Many of the SEC’s current high profile insider trading cases are international in scope and depend on the cooperation of regulators around the globe. The TXU Option case for example (discussed here) and one of its criminal counterparts, U.S. v. Naseem (discussed here) are but two examples of these cases which are international in scope. Many of these cases were brought quickly in part as a result of international cooperation among regulators. The SEC and DOJ may, in the future, depend on similar cooperation to move these cases forward. At the same time, lawyers representing the issuers and persons involved in these matters will face difficult challenges in gathering the necessary evidence to defend their clients.
A similar trend is evident in DOJ cases. Consider for example, the renewed emphasis on FCPA enforcement. DOJ reported that, last year, it entered into thirty four corporate pre-trail agreements to resolve corporate criminal investigations. This is up from twenty the prior year. Eleven of the cases last year involved FPCA charges while only three involved such charges the prior year. See Corporate Deferred, Non Prosecution Agreements Up 70 Percent in 2007, 21 Corporate Crime Reporter 2, January 7, 2008. These numbers reflect, not only an increase in the number of corporate criminal cases resolved with non prosecution agreements, but also a significant increase in criminal FPCA cases. When considered with trends in SEC civil enforcement, it is clear that securities enforcement is increasingly global in nature. This suggests that companies should carefully review their compliance programs not only at home, but abroad.