Whether arising as a result of a restatement of previously issued financial statements or a notice from outside auditors under Section 10A of the Securities...
Jonathan R. Tuttle
Ranked as a leading firm for Corporate Investigations – Europe-Wide.
Debevoise is a class act from start to finish. They are available for their clients at all times and the speed of response is phenomenal.
The group works to an extremely high level of expertise. We have used many members of the team in several countries, and there isn’t a weak link in the chain.
Recognized as a Band 1 firm for White Collar Crime & Government Investigations by Chambers USA, 2016
Recognized as a leading firm in White Collar Litigation by Benchmark Litigation, 2016
Whether arising as a result of a restatement of previously issued financial statements or a notice from outside auditors under Section 10A of the Securities Exchange Act, allegations of potential accounting violations pose unique and significant risks to public companies and their outside auditors. Debevoise lawyers understand the particular legal and business challenges that come with advising public companies, audit committees, officers, directors and public accounting firms in investigating or responding to allegations of potential accounting fraud. Partners in this group are recognized for their ability to effectively handle investigations involving complex accounting issues and to manage the regulatory and business concerns that arise in connection with both internal investigations and investigations by the SEC, DOJ, PCAOB or other enforcement agencies.
Debevoise’s Accounting and Financial Reporting Enforcement Round-Up is a periodic publication summarizing key developments at the U.S. Securities and Exchange Commission related to accounting and financial reporting enforcement matters. Read more below for a selection of recent insights on this topic.
SEC Enforcement Action Puts Spotlight on Segment Reporting
The SEC staff continues to focus on segment reporting in comment letters and recently brought an enforcement action against a company due to the company’s alleged failure to properly identify its reportable segments in its SEC periodic reports. Issuers, particularly those about to begin preparing their annual report on Form 10-K, should review their segment reporting analysis and documentation to confirm that they comply with the applicable accounting standards. Read more. >
Failure to Comply with Internal Corporate Processes and Policies May Violate Exchange Act Accounting Provisions
In a novel application of the books and records and internal controls provisions of the Securities Exchange Act of 1934, on December 2, 2016, the Securities and Exchange Commission issued a Cease and Desist Order against United Continental as a result of the approval of a new route by the then CEO outside normal internal processes and policies. Given the historic lack of clarity surrounding these accounting provisions added by the Foreign Corrupt Practice Act, the SEC’s settlement with United suggests the SEC may seek to expand the use of these provisions in circumstances where it believes there has been improper corporate behavior but does not have another clear statutory violation. Read more. >
The Outlook for Financial Regulatory Reform Under President Trump
Many expect Donald Trump’s inauguration as U.S. president and Republican majorities in both houses of the U.S. Congress will result in a revised financial regulatory framework. Preliminary indications from the Trump transition team have signaled substantial changes may be in the offing, although the exact contours of these changes remain unclear. In this Client Update, we review the potential financial regulatory changes that may take place in the legislative, regulatory and international areas. We focus on issues relevant for the banking industry, capital markets and Securities and Exchange Commission (“SEC”) enforcement. Read more. >
SEC Brings First Stand-Alone Anti-Retaliation Enforcement Action Under Dodd Frank
Last week, the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) announced its second whistleblower retaliation case since the enactment of Dodd-Frank’s anti-retaliation provisions in 2011. The In the Matter of International Game Technology1 case is also the first enforcement action to allege retaliation based on whistleblower activity that did not lead to a settlement of a substantive violation of the securities laws. The case is a stark reminder of the importance of implementing robust anti-retaliation policies that are consistently applied to alleged whistleblowers, even in those cases where the claims raised by the whistleblowers turn out to have not been well-founded. Read more. >
SEC Complaint Serves as Reminder to Carefully Consider Disclosure Obligations Relating to Government Investigations
Registrants, particularly those involved in highly regulated industries, frequently must determine whether and when a government investigation and related pending or threatened litigation must be disclosed in its periodic reports filed with the Securities and Exchange Commission ("SEC"). On September 9, 2016, the SEC filed a complaint against a company and its general counsel that should serve as a reminder for any registrant subject to a government investigation to ensure that it has robust procedures in place to review disclosure requirements in connection with government investigations in light of the facts uncovered by any internal investigation and the course of settlement discussions with the government. Read more. >
Fried v. Stiefel: Insiders Do Not Have an Absolute Duty of Disclosure
In Fried v. Stiefel Labs Inc.,94 the Eleventh Circuit held that the district court properly rejected the plaintiff ’s proposed addition to a jury instruction instructing the jury that in the context of an “omissions case” under Rule 10b-5(b) under the Exchange Act a corporate insider has an absolute duty to disclose all material information prior to trading in the corporation’s stock. Read more. >
Insider Trading & Disclosure Update - Vol. 3, Issue 1 (p. 15-16)
Tongue v. Sanofi: Second Circuit Issues Its First Published Opinion Applying Supreme Court’s Omnicare Decision
In the Tongue v. Sanofi decision, a panel of the Second Circuit applied a context specific analysis to affirm the dismissal of claims under Sections 11 and 12 of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Exchange Act, holding that Omnicare does not impose a blanket requirement to disclose every fact that may undermine statements of opinion regarding company projections. Read more. >
Insider Trading & Disclosure Update - Vol. 3, Issue 1 (p. 6-9)
Who Is the “Reasonable Investor”? Flannery and Litvak
Two recent cases address whether materiality should be determined on a subjective, rather than objective, basis while underscoring evidentiary burdens in proving materiality. Read more. >
Insider Trading & Disclosure Update - Vol. 3, Issue 1 (p. 10-14)
Environmental and Climate Change Disclosure Under the Securities Laws: A Multijurisdictional Survey
With help from lawyers affiliated with the International Bar Association, a Debevoise team recently developed and conducted a survey of disclosure requirements with regard to environmental and climate change issues under the securities laws of participating jurisdictions. Lawyers representing 25 countries ultimately participated. Read more. >
Disclosure Considerations for the 2016 Annual Reporting Season
For many U.S. public companies, the beginning of a new year means the beginning of a busy season preparing annual reports and proxy statements. In addition to gathering and processing the information necessary to meet mandated disclosure requirements, companies are under increasing pressure from regulators, shareholders and other constituents to enhance disclosure and communication on myriad topics, including company strategy, board composition, auditor oversight, and executive compensation. In recent years, focus on “say-on-pay” and related compensation disclosures, corporate governance and shareholder engagement, among other issues, have put a spotlight on proxy statement disclosures. However, a company’s annual report on Form 10-K, which is frequently filed several weeks or months before the proxy statement, remains an important tool for communication with shareholders and the public regarding key business, financial and strategic issues. Read more. >
Recent Decisions Create Further Uncertainty on Question of Whether Internal Reporting Triggers Dodd-Frank Whistleblower Anti-Retaliation Protection
There is uncertainty under the law on an important question relating to the anti-retaliation provision of the Dodd-Frank Act. Specifically, the courts have disagreed about whether a purported whistleblower must report wrongdoing to the U.S. Securities and Exchange Commission (“SEC”) in order to be protected, or, instead, whether internal reporting within a company or reporting to a different regulator is sufficient. As we noted in a previous Client Update, the Second Circuit held in September that the Dodd-Frank anti-retaliation provision protects whistleblowers who complain only to their employers, while the Fifth Circuit, and a minority of district courts to have considered this issue, have held that the anti-retaliation provision of Dodd-Frank is limited to those who provide information to the SEC and does not extend to protect those who report internally or to another regulator or law enforcement agency. Read more. >
New PCAOB Rules Require Disclosure of Certain Audit Participants
On December 15, 2015, the Public Company Accounting Oversight Board (the "PCAOB") adopted new rules requiring disclosure of the name of the engagement partner for each public company audit and information about other accounting firms that participated in the audit on new PCAOB Form AP, Auditor Reporting of Certain Audit Participants ("Form AP"). The adoption of the new rules represents a Solomonic compromise marking the end of a long and contentious rulemaking process. The new rules are intended to provide enhanced transparency and accountability for audits of the financial statements of public companies. The rules must be approved by the Securities and Exchange Commission (the "SEC"). Read more. >
Supreme Court's Omnicare Decision Clarifies when Statements of Opinion Are Actionable Under Section 11 of the Securities Act
On March 24, 2015, the U.S. Supreme Court resolved a circuit split holding that a statement of opinion in a registration statement does not constitute an untrue statement of fact that gives rise to liability under Section 11 of the Securities Act of 1933 simply because it ultimately proves to be incorrect. Instead, a statement of opinion may give rise to liability only if the issuer (i) does not genuinely believe the opinion or (ii) omits a material fact regarding the issuer's basis for the opinion that renders it misleading to a reasonable person. The Omnicare decision clarified a key issue in securities litigation and has already had an observable effect on fraud-based securities litigation. Read more. >
Insider Trading & Disclosure Update - Vol. 2, Issue 2 (p. 8)
Notable Cases & Enforcement Actions: Recent SEC Actions Highlight Scrutiny of Individuals
A series of recent enforcement actions by the SEC underscore the agency's willingness to hold executives and directors, as well as outside professionals, accountable for securities fraud and disclosure violations. These SEC enforcement actions highlight the need for directors and senior management to maintain a sharp focus on their conduct by the SEC. Senior managers and directors should also be cognizant that the DOJ in its recently announced "Yates Memorandum" articulated a renewed focus on holding individuals accountable for criminal wrongdoing by directing prosecutors to focus on individual conduct when pursuing cases. Read more. >
Insider Trading & Disclosure Update - Vol. 2, Issue 2 (p. 25)
SEC Settles Action Concerning Adequacy of Policies to Prevent Dissemination of Material Nonpublic Information
On November 24, 2015, the Securities and Exchange Commission (the "SEC") announced a settled action against Marwood Group Research LLC ("Marwood"), a political intelligence firm, for its failure in 2010 to adopt adequate policies that would prevent the dissemination to Marwood's clients of potential material, nonpublic information ("MNPI") obtained from government employees. Marwood admitted to violations of Section 15(g) of the Securities Exchange Act and Section 204A of the Investment Advisers Act and agreed to pay a $375,000 penalty. The settled action underscores the SEC's continued focus on insider trading and should serve to remind financial firms to be vigilant in ensuring that their compliance policies and procedures are both adequately robust and carefully monitored. Read more. >
SEC Enforcement Actions Getting Up Close and Personal
Set against criticism that it has not acted aggressively enough against executives and other senior company personnel for their roles in corporate misconduct, on September 8 and 9 the Securities and Exchange Commission (SEC) announced a series of enforcement actions against four chief executive officers, four chief financial officers, an audit committee chair, and one outside auditor (BDO USA LLC) and five of its partners arising out of securities law violations by four different corporations (MusclePharm Corporation, Bankrate, Inc., KIT Digital, Inc. and General Employment Enterprises, Inc.). Each of the actions involved financial reporting and disclosure violations. Read more. >