Part VIII: How Corporate Officials Can Get A Good Night’s Sleep Despite Current SEC Enforcement Trends

This is the eighth and concluding segment in a series discussing new trends in SEC enforcement which impact corporate directors and officers and steps that can be taken to avoid future liability.


In the future, the efforts of enforcement officials will be aided by two groups of whistleblowers. First, the new SEC whistleblower rules offer significant bounties ranging from 10% to 30% of certain amounts obtained by the SEC in a successful enforcement action. Under the SEC’s controversial whistleblower rules, the person is not required to report the information first to the company. At the same time the whistleblower is protected under Section 922 of the Dodd-Frank Act. This means that the company may well have no opportunity to remedy a situation before an SEC investigation begins.

Presently, it is difficult to evaluate the potential for liability from this program. It is instructive however that the SEC has established a special office to handle the information developed from under the Dodd-Frank Sections. While it may be some time before the program can be fully evaluated, reportedly the new whistleblower office is receiving tips and information at a rapid rate and is being overwhelmed.

Second, an emerging trend in “cooperation credit” in FCPA cases is creating the new corporate whistleblower. Business organizations ensnared in FCPA inquires are now developing evidence against others in an effort to mitigate their own liability. Panalpina Worldwide Transport (Holdings) Ltd., Siemens A.G. and Johnson & Johnson, Inc. have become corporate whistleblowers.

This trend may be particularly troublesome for business organizations and their executives. Business partners and associates and even those in the same industry can be expected to have significant information regarding those with whom they deal and in their line of business. In view of this trend and the new SEC Dodd-Frank rules many business organizations may well find themselves in a sea of those who are pointing the finger at some perceived wrong doing which drops the company and its executives into the uncertain turmoil of an SEC or DOJ law enforcement investigation.


Current trends in key areas of SEC enforcement, coupled with the rise of parallel proceedings and the increasing tendency to criminalize actions threaten potential criminal and civil liability for business organizations and their executives. There is little doubt that enforcement officials are aggressively targeting corporate officials and their organizations. New approaches are being combined with additional theories to expand liability. These efforts are aided by a growing legion of whistleblowers may come from inside the company, business associates, competitors and others.

Avoiding these trends and getting that good night’s sleep begins with identifying and understanding them. Understanding the approach of enforcement officials is critical. This permits preparation of compliance procedures based on what enforcement officials are doing today.

Unfortunately focusing on today is not sufficient. Compliance procedures cannot be adjusted every time there is a new case, speech or comment from an enforcement official. The critical point is to focus on tomorrow. This means on the direction of the trends and those themes being developed today to be out in front tomorrow. The theme to the SEC’s actions against independent directors is vigilance, a point the agency will continue to fortify by expanding its reach while easing the burden of proof. The point of the insider trading employee cases is that learning information on the job or perhaps even through someone’s job that is not available to others and then trading can lead to liability. Many may debate the validity of this approach but that is of little import for the company and its employees who are mired in a long running, time consuming and expensive insider trading investigation. The central point to aggressive FCPA enforcement is a level playing field where goods and services compete on the merits, not through envelopes of cash or gifts.

Overall these cases are designed to bring a new ethics to the market place – hardly something new since it is the predicate for securities statutes that arose out of the great depression. Bringing this approach to the company is key to being prepared for tomorrow. It begins with a core culture driven from the top of ethics and compliance built on straight forward and practical procedures. It does not require purchasing the most expensive system or every bell and whistle. It does require a focus from the top driven through the organization and a consistency in application by employees. That culture positions the organization and its executives and employees ahead of the curve. That type of culture gives executives a good night’s sleep today and tomorrow.

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