On October 9, 2019, the President issued two executive orders that require agencies to formally provide official guidance before enforcing any new jurisdiction or legal standards. In other words, agencies
Continue Reading New Executive Orders Aim to Eliminate Unfair Surprise in Civil Enforcement Actions by Formalizing Guidance Documents

First things first, I’m sorry about the title; I couldn’t resist. The longer, alternate title would have been “Rest In Peace – the Past Performance Information Retrieval System Sleeps with the Fishes.” But that doesn’t have the same kind of obscure, punchy, epitaph-type quality that I’m aiming for. So instead, I give you get a garbled mess of an acronym to remind us that the Past Performance Information Retrieval System (“PPIRS”) – the system once used by the U.S. Government to house the final performance assessments for government contractors – is no more. As far as epitaphs go, I think that most of us would agree that “R.I.P.” is just about what an acronym deserves.
Continue Reading R.I.P. PPIRS

Earlier this month, the U.S. Department of Justice (“DOJ”) and the U.S. Department of the Treasury’s Office of Foreign Asset Controls (“OFAC”) both issued guidance regarding their expectations for corporate compliance programs. Both documents are geared towards establishing more rigid frameworks for assessing compliance programs. A common theme among both pieces of guidance appears to be the identification and allocation of responsibility to individuals, especially management. Additionally, the fact that the agencies released their guidance within days of each other could be read as a clear signal from federal authorities that they are serious about increasing their focus on individual accountability for corporate wrongdoing.
Continue Reading Feds Focus on Individuals in Evaluating Corporate Compliance Programs

In 2012, the Penn State Lions went 8-4 on the field, passing 3,283 yards, rushing 740 yards, and scoring 349 points. This credible performance earned it a respectable 38th ranking out of the 124 schools in the NCAA’s Division I Football Bowl Subdivision. But few will remember Penn State’s athletic performance in 2012. What people will remember instead is that 2012 was the year the University’s Special Investigative Counsel issued its report into the actions of Penn State Coach Gerald Sandusky.
Continue Reading From the Big Easy to the Big Ten, And Beyond: What the Process of Reforming the New Orleans Police Department Can Teach Colleges and Universities

On January 25, 2018, Associate Attorney General Rachel Brand issued a memorandum (the “Brand Memo”) limiting the use of agency guidance documents in affirmative civil enforcement cases. The memorandum builds on Attorney General Jeff Sessions’ November 16, 2017 memorandum prohibiting DOJ from promulgating guidance documents that create rights or obligations that are binding on regulated parties. When DOJ issues a guidance document with voluntary standards, it must also contain a statement that noncompliance is not subject to future DOJ enforcement actions. The Brand Memo makes clear that this principle also applies to other agencies’ guidance documents. In other words, agency guidance, in and of itself, cannot create new binding legal requirements.
Continue Reading “Brand Memo” Prohibits US DOJ From Converting Agency Guidance Into Binding Legal Obligations In Civil Enforcement Actions

Earlier this month, FINRA announced changes to its Sanction Guidelines through Notice to Members 17-13. FINRA’s Sanction Guidelines are used by FINRA disciplinary hearing panels to decide what, if any, sanctions to impose in those enforcement actions in which a rule violation is found. FINRA enforcement staff and members of the defense bar utilize the guidelines in settlement negotiations.
Continue Reading FINRA Updates Its Sanction Guidelines

The SEC has launched a dedicated team to oversee FINRA, according to remarks by Marc Wyatt, Director of the SEC’s Office of Compliance Inspections and Examinations (“OCIE”). Congress has vested the SEC with the power to supervise FINRA, including the authority to inspect and examine. The new unit, named FINRA and Securities Industry Oversight (“FISIO”), is headed by Kevin Goodman, head of the SEC’s broker-dealer exam program. On Oct. 17, 2016, Wyatt spoke at the National Society of Compliance Professionals 2016 National Conference in Washington, D.C., where he made the announcement. According to Wyatt, the new FISIO team includes “roughly 40 people” throughout the country, and consolidates the SEC’s oversight of FINRA “into a single group.” The FISIO team will oversee FINRA to ensure “that it’s fulfilling its mandate in terms of evaluating its member broker-dealers.” On a separate panel at the event, Goodman noted that before FISIO, the SEC examined FINRA through “programmatic” exams focused on a particular FINRA operation (e.g., exams, enforcement, dispute resolution programs) and “oversight” exams that assessed “the quality of the individual examinations” that FINRA conducts on broker-dealers. According to Goodman, FISIO will “combin[e] those two functions into one,” which he described as “not only powerful but efficient as well.”
Continue Reading Watching the Detectives: The SEC Launches a Dedicated FINRA Oversight Unit

The Securities and Exchange Commission’s (“SEC”) recent $1 million settlement with Morgan Stanley Smith Barney LLC (“MSSB”) marked a turning point in the agency’s focus on cybersecurity issues, an area that the agency has proclaimed a top enforcement priority in recent years.  The MSSB settlement addressed various cybersecurity deficiencies that led to the misappropriation of sensitive data for approximately 730,000 customer accounts.
Continue Reading SEC Steps Up Cybersecurity Enforcement with $1 Million Fine Against Morgan Stanley

On February 11, 2016, the Financial Industry Regulatory Authority (“FINRA”) filed a proposed rule with the Securities and Exchange Commission (“SEC”) that would require individuals who “design, develop or significantly modify algorithmic trading strategies” (or “ATS”) as well as individuals responsible for the “day-to-day supervision or direction of the development process,” to pass a qualification exam and register with FINRA as securities traders. During the comment period, FINRA clarified that the rule would not apply to every person who touches or is otherwise involved in the design of a trading system, but that it would be up to each firm to determine who is primarily responsible for the design of the ATS system.  The rule defines ATS as “any program that generates and routes (or sends for routing) orders (and order-related messages, such as cancellations) in securities on an automated basis” and identifies eight typical programs that it would consider an ATS.  (FINRA Reg. Notice 15-06.)  The rule was prompted by FINRA’s concern that programmers be properly educated in securities regulations in order to avoid inaccurate orders, inadequate risk management controls, and other problematic conduct. Commentators criticized the proposal as having a “potential chilling effect” by “discouraging well-qualified developers from participating in the design, development or modification of algorithmic trading strategies, and even from affiliating with FINRA member firms.”
Continue Reading REGULATORS, QUANT UP! New Rules from FINRA, SEC and CFTC Target Automated Algorithmic Trading