Global Regulatory Enforcement Law Blog : Global Regulatory Enforcement Lawyers & Attorneys: Reed Smith Law Firm: Government Contracts & Compliance

This post was written by Amy Greer.

Recently, I had the opportunity to moderate a panel hosted by the Pennsylvania Bar Institute on which Daniel M. Hawke, the Chief of the SEC’s new Market Abuse Unit and Regional Director of the SEC’s office in Philadelphia, participated. Dan and I worked together for several years, while I was at the SEC, where I served as Chief trial counsel for the Philadelphia Regional Office. It was a pleasure (and really quite a coup) that he, and Elaine Greenberg, who heads the Municipal Securities and Public Pensions Unit and is the Associate Regional Director for Enforcement of the Philadelphia Office and also a former colleague, agreed to come and speak about their new national positions and the current focus of the Agency. Dan and Elaine head two of the five new specialized subject matter units created at the Division of Enforcement, focusing a lot of attention on the SEC’s Philadelphia Office.

The Market Abuse Unit focuses on investigations involving large-scale market abuses such as organized insider trading networks as well as other market manipulation and trading violations. One can expect that future cases brought by the unit may be similar to the SEC v. Galleon insider trading case currently under way. During the discussion, Dan described the Market Abuse Unit as conducting trader-based investigations, instead of reviewing trading on a security-by-security basis. Much of the Unit’s initial detective work depends heavily on computers and the development and deployment of automated trading data analysis. Dan explained that focusing only on securities is too limited to effectively capture improper trading. By focusing on traders, the Market Abuse Unit can look for patterns and relationships across securities to proactively uncover market abuse and trading violations.

However, perhaps even a trader-based analysis is too narrow in light of the “flash crash” that occurred in the stock market on May 6, 2010. The Dow Jones Industrial Average fell nearly 1,000 points causing many companies to trade at unreasonably low levels before the market recovered that same day. While the causes of the “flash crash” still elude regulators, the SEC has taken a strong interest in uncovering the origins of the “flash crash” and preventing future anomalies.

During the discussion, Dan acknowledged that when the market crashed on May 6th, he realized the focus of his Unit was still too narrow. He explained that the Market Abuse Unit must focus on market structure as well. As Dan explained, the Market Abuse Unit will need to specialize on such topics as Regulation National Market System (“Reg NMS”), market fragmentation, un-displayed liquidity and dark pools, high frequency and algorithmic trading, direct market access providers, and related issues. Such specialization will allow the unit to analyze, for instance, a fragmented market with over 50 exchanges to uncover where improper conduct may be occurring.

So how will this new initiative at the SEC’s Market Abuse Unit affect traders and trading practices? At the very least, we can expect this new Unit’s proactive approach and desire to expand its focus will cultivate more knowledgeable and savvy attorneys within the SEC’s Enforcement Division. What’s more, the SEC will now be on the lookout for more advanced and harder to detect market abuse schemes, not just across traders but, between fractured and fragmented markets as well. With all of these changes, one thing is certain, Dan Hawke and his Market Abuse Unit intend to be just as creative and knowledgeable as the traders they investigate.

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Just the first half of 2010 has been a scary time in global regulatory enforcement, as we have seen new enforcement and compliance challenges for global companies, challenges based on laws or legal theories unheard of only a few years ago.  Italian prosecutors indicted, tried, and convicted in absentia, three internet search engine executives for violating the privacy of an individual in a video posted on the web. Greek prosecutors are retrying (having lost a first trial) two UK employees of travel agency Thomas Cook for homicide in connection with the death of two children who died in a fire at a hotel booked through Thomas Cook.  Moving away from the risks to individual managers, the amounts being paid by global companies to resolve enforcement challenges have become staggering, often in the billions, and not just in the United States anymore. 

Countries around the world are adding challenges in the form of new laws or the renewed enforcement of existing laws.  The United Kingdom has enacted new bribery legislation going far beyond the already-expensive and expansive U.S. Foreign Corrupt Practices Act.  The SEC and FSA are cooperating in investigations, and cartel investigations and dawn raids have hit a new high.  China is enforcing its growing body of anti-corruption and anti-competitive behavior laws against multinational companies to protect local industries.

Adding to the frustration, global acts of compliance can inadvertently result in global violations: merely implementing a global hotline requires compliance with yet another set of detailed, country-by-country governing regulations.  Information required to monitor and detect noncompliance can be collected in one country; but is a crime to collect in another.

In addition to the spread of hyper-aggressive and highly local law enforcement, global companies are being held accountable for the actions of, or their failure to prevent the actions of, vendors, consultants, independent marketing representatives, joint venturers, and subsidiary management.  The United States still leads the way with wide-ranging overseas regulatory enforcement regimes in bribery, exports, antitrust, and sanctioned countries, as well as interlocking regulatory sanctions that result in an offense in one area creating grounds for action in other areas.  An export violation may lead to criminal prosecution, potential debarment from federal and state contracts, and an SEC investigation.

Finally, the spread of technology has made avoiding ultimate detection almost impossible.  If a reported Mossad hit team cannot carry out its mission without being filmed, good luck to a rogue employee, business unit, or partner.  As a global defense contractor found out even a few years ago when a disgruntled employee posted a virtual self-deposition regarding a contract issue, YouTube awaits us all.

Most global companies are responding with global compliance offices, ethical culture initiatives from the top down, and metric-driven attention to ethical behavior.  But the pace of challenge and spread of risk will require them to continue to develop and evolve every day.

Reed Smith formed the Global Regulatory Enforcement Group to help companies respond to these global challenges.  The Global Regulatory Enforcement Law Blog will address the emerging challenges across a span of legal regimes, including antitrust and competition, data privacy, environmental law, exports, government contracts, government investigations, and securities, just to name a few.  We will address trends and events in enforcement and compliance, and will occasionally try to make sense of it all.
 
Jim Gallatin
+1 202 414 9274
jgallatin@reedsmith.com

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This post was written by Chris Cwalina, Mark Melodia and Amy Mushahwar.

With President Obama scheduled to sign the Dodd-Frank Wall Street Reform and Consumer Protection Act this week, the financial services industry faces a rapidly changing regulatory environment.  While a great deal of attention has been paid to the significant restructuring of the financial services regulatory regime, little focus has been placed on the proposed changes to the oversight of consumer privacy issues, data security and data stewardship. These issues may not only affect banks, but all types of businesses servicing the financial industry as well.

To view the entire alert, please click here.

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This post was written by Cynthia O'Donoghue and Nick Tyler.

On June 22, 2010, the influential Article 29 Working Party ("Working Party"), consisting of all the European Union's national data privacy regulators, adopted Opinion 2/2010 on online behavioural advertising (the "Opinion").

In what is being widely viewed as a significant challenge to the future of digital advertising, the Working Party has made it clear that national implementation of amended Directive 2002/58/EC (the "ePrivacy Directive") will require a complete overhaul of existing technology and practice, including currently available browsers and opt-out mechanisms, to achieve the level of informed consent from users that they say the law requires.

To view the entire alert please click here. For additional information please contact one of the authors.

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This post was written by Leigh Hansson and Michael Grant.

On July 1, 2010, President Barack Obama, preceded by Congressional voting signaling overwhelming support, signed into law the Comprehensive Iran Sanctions Accountability and Divestment Act ("Act"). The Act is an effort by the United States to hinder what appears to be Iran's intent to develop nuclear weapons. Action by the United States comes at a time when several countries are modifying their sanction policies in response to Iran's actions. In recent weeks, the United Nations, the European Union, and the United Kingdom, among others, have all enacted resolutions or sanctions directed at Iran. While many elements of the Act must be implemented by regulations, and are therefore unknown at this time, this article summarizes the major changes that are now known.

To view the entire alert, please click here.

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This post was written by Chris Rissetto, Larry Demase, and Bob Helland.

Summary

The oil spill in the Gulf of Mexico has increased the chances that Congress will send energy-related legislation to the President's desk before the midterm congressional elections in November. We note that last year the House of Representatives passed and sent to the Senate H.R. 2454, the American Clean Energy and Security Act of 2009, which sets goals for reducing emissions of greenhouse gases, including carbon dioxide, by a cap-and-trade system. The Senate has now gotten involved, with Majority Leader Reid (D-NV) soliciting proposals from Senate committees with jurisdiction on energy issues by the July 4 congressional recess. In addition, Republican and Democratic Senators recently met with the President to discuss compromise measures. Given the debate, and divisions, on climate change, it is not clear whether a cap-and-trade system for greenhouse gas emissions will ultimately be included in an energy bill that reaches the President's desk. However, if Congress fails to act in this area, it remains possible that the Environmental Protection Agency ("EPA") will step in and use its authority under the Clean Air Act (42 U.S.C. 7401) to create a cap-and-trade program. EPA has already taken several steps to regulate Green House Gases ("GHGs"). However, with climate legislation uncertain challenges to EPA's ability to regulate GHG's also mount. If Congress or EPA does not create a federal cap-and-trade program, a variety of existing state initiatives may fill the void.

The following Client Alert discusses the efforts to enact energy measures and where the fault lines lie in the ongoing debate. A thorough understanding of the actions both in Congress and the Obama Administration is required to understand the interplay of both legislation and regulations, and the opportunity that exists to address their impact within both the legislative and executive branches. Reed Smith's Public Policy & Infrastructure Practice, in collaboration with its Environmental Practice, has been monitoring energy and climate change deliberations throughout the 111th Congress, and is available to discuss how to develop an immediate lobbying strategy, as well as a longer-term effort that works with both Congress and the Obama Administration.

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