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Compliance Hot Spots: Whistleblower Tips Surge at SEC | No Slack As U.S. Regulations Slide | DOJ Recommends CVS-Aetna Monitor

Whistleblower tips are surging at the SEC, and we've got two veterans to weigh in about what's happening and what's next. Plus: a new survey shows that while Trump's pushing a deregulatory agenda, big companies aren't necessarily seeing much slack. Scroll down to see who the DOJ's recommending for compliance oversight in the CVS-Aetna tie-up, which is expected to wrap post-Thanksgiving. Hope everyone has a great holiday break and that dinner conversations avoid those tricky compliance questions that divide families—or at least corporate executives and maybe some legal departments.

Thanks for reading—and please do send feedback. I appreciate hearing from you about what’s on your plate—observations, trends, new clients. I’m at cbarber@alm.com and 202-828-0315, or follow me on Twitter @cryanbarber





From the SEC, ‘Told You So’ About Tipsters





As companies pushed to scale back the Securities and Exchange Commission’s broad view of whistleblower protections, the chief of the agency’s office that oversees rewards for tipsters had a message for corporate America: “Be careful what you wish for.”

Jane Norberg, the head of the SEC’s whistleblower program since 2016, predicted that companies would rue the day they challenged the commission’s view that the Dodd-Frank Act’s protections against retaliation extend not only to those who contact the commission but also employee who only flag misconduct internally. A successful challenge to the SEC’s interpretation, Norberg said, would have the “ironic” effect of driving more tipsters into the arms of the regulatory agency.

The Supreme Court went on to give companies that victory, ruling earlier this year that whistleblowers need to contact the SEC to qualify for Dodd-Frank’s stronger safeguards. Nine months after that decision, in Digital Realty v. Somers, the SEC’s whistleblower office stopped just short of saying, “Told you so.”

In its report for the fiscal year that ended Sept. 30, the SEC said it received a record-setting 5,282 whistleblower tips—a marked increase from the previous year. “Additionally, there was an increase in tips received in the months following the Supreme Court ruling in the Digital Realty case, which may have been attributable, in part, to the ruling,” the SEC said.

But how much credit does the Digital Realty case really deserve?

“They think it’s related to Digital Realty. I’ve always been a little skeptical of that, meaning that I don’t think there are a whole lot of people sitting there thinking to themselves, ‘I want to be protected as a whistleblower under Dodd-Frank, not Sarbanes Oxley, so I’m going to the SEC,’” Jason Schwartz, a Gibson, Dunn & Crutcher partner, told me Tuesday.

"Maybe the SEC’s right, but for a different reason,” Schwartz said. “It could be as simple as a whistleblower sitting at a computer, seeing a headline in a newspaper that says whistleblowers are not protected unless they go to the SEC. The whistleblower is not going to analyze the decision but reads a headline and says, ‘I get protection if I go to the SEC.’"

The number of whistleblower submissions increased 18 percent—to nearly 5,300 in fiscal year 2018 from about 4,500 the previous year—the highest annual increase since fiscal 2012, the program’s first full year.

Jordan Thomas, a Labaton Sucharow partner who represented the highest-paid whistleblower in the history of the SEC’s program, told me the Digital Realty decision deserved partial credit for the uptick. But a “far greater factor,” he said, was the increased awareness of the program created by high bounties.

“There’s still room for people to know about the program. I expect that you’re going to see a leveling off of tip volume at some point in the next five years, when you have close to saturation of awareness,” he said. “But we’re not there yet.”





Compliance Headlines: And the Surveys Say...





>> The Trump administration might be reducing regulatory burdens, but global companies aren’t necessarily sensing new slack. In recent survey of 365 in-house legal professionals, most from U.S.-based companies, two-thirds of respondents said regulators have grown more interventionist in the past year. Gerry Pecht, the lead of litigation at Norton Rose Fulbright, told Corporate Counsel that “many jurisdictions have tightened up on regulations.”

>> An in-house whistleblower helped draw a road map of MoneyGram’s compliance failures cited by the government, my colleague Sue Reisinger reports at Corporate Counsel. “MoneyGram got good at pretending they were fixing things, when in fact they were not,” the whistleblower, Dallas-area attorney Juan Lozada-Leoni, told Corporate Counsel. “There was no quality assurance, nobody checking anyone’s work.” MoneyGram, a money services business, agreed to forfeit $125 million to resolve claims that continued weaknesses in the company’s compliance programs violated the terms of a previous settlement with the Justice Department and Federal Trade Commission.

>> "Boards of directors at banks aren’t engaged enough with concerns about compliance with rules against money laundering and sanctions breaches despite a torrent of scandals and some record-breaking penalties, according to a survey by consulting firm AlixPartners," The Wall Street Journal reports.

>> House Democrats, newly empowered by this month’s midterm elections, are vowing an aggressive defense of the Consumer Financial Protection Bureau against efforts to rein in the agency’s power. That defense "would be a battle with this administration, and it would be a test of wills," said Rep. Lacy Clay of Missouri, a top Democrat on the House Financial Services Committee, told Politico. "I'm ready to fight that battle.”

>> “President Donald Trump’s famously opaque business will face a bracing new reality next year when House Democrats hit it with a flurry of subpoenas for the first time,” Bloomberg reports. The added scrutiny is expected to spill over to companies that have done business with Trump, namely Deutsche Bank, which is among the president’s biggest creditors. Deutsche Bank says it is committed to cooperating with “authorized investigations”





Who Got the Work





>> Julie Myers Wood, chief executive of Guidepost Solutions, was recommended Tuesday by the U.S. Justice Department to be the monitoring trustee overseeing compliance issues tied to CVS Health Corp.'s $69 billion acquisition of Aetna Inc. "Wood is well-qualified to oversee this divestiture and to monitor defendants’ compliance with the proposed final judgment," DOJ lawyers said in a court filing in Washington. Reuters reported the companies expect the transaction to close after Thanksgiving.

>> The Securities and Exchange Commission fined two companies $250,000 for conducting initial coin offerings without registering their tokens as securities. The settlement made the two companies, Airfox and Paragon Coin Inc., the first companies to be fined solely over a so-called ICO. “We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities,” said Stephanie Avakian, do-Director of the SEC’s enforcement division. “These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.” Airfox was represented by Skadden, Arps, Slate, Meagher & Flom partner Michael Hines, and Paragon was advised by Charles Clark, a partner at Schulte Roth & Zabel.

> Arent Fox LLP counsel Abram Pafford advised Giga Entertainment Media as the company reached a settlement with the SEC resolving fraud claims. According to the SEC, Giga bought more than a half million downloads from outside marketing firms to boost the profile of the company’s app on the Apple Store. But the company misled its shareholders into believing that traditional marketing, such as billboard and radio advertisements, drove the app’s meteoric rise. When the number of downloads began to plummet, the company’s officers and directors lied and told shareholders that downloads continued to grow at a high rate, according to the SEC.







Notable Moves & New Hires





>> Latham & Watkins hired data privacy expert Robert Blamires to help the firm’s clients grapple with heightened data security regulations. “Qualified in the U.S., England and Wales, and Ireland, Blamires said he is particularly sought after by U.S. technology companies for advice on cross-border data privacy compliance issues, including the European Union’s General Data Protection Regulation, U.S. privacy laws, and global data breach notification standards,” my colleague Xiumei Dong writes at The Recorder. Blamires, a former counsel at White & Case, spent some of his time at the firm on detail to the legal departments of Twitter and Facebook.

>> "Four former senior attorneys with the Financial Industry Regulatory Authority Department of Enforcement joined King & Spalding’s Government Matters practice group in its New York office, the firm announced Monday. Mirella deRose, Russell Johnston, Richard Margolies, and Michael Watling are among the more than 70 attorneys that the global firm has hired this year to join its office in the Big Apple," Bloomberg Law reports. Read the firm's announcement here.

>> King & Wood Mallesons hired Aaron Wolfson, a former prosecutor specializing in U.S. sanctions laws, on the heels of the Trump administration’s move restoring sanctions against Iran. “Wolfson's appointment reflects our firm’s consistent growth and continued investment in broadening the range of our U.S. practices, in line with the growing potential of the U.S. market,” said Jack Wang, managing partner of the firm’s New York office.

>> Kurt Gottschall, a longtime Securities and Exchange Commission attorney, was named Monday as the next director of the agency’s Denver regional office. Gottschall joined the SEC as an enforcement attorney based in Denver and steadily rose the ranks, becoming associate regional director for enforcement in 2016. “Kurt has served the Denver office with great distinction,” said Steven Peikin, co-director of the SEC’s enforcement division. “He is known for being a strong and effective leader who has a keen mind and sound judgment, and we are fortunate to have him lead the SEC’s Denver-based enforcement team.”



Have a great Thanksgiving holiday, and thanks for reading. I'm thankful for your feedback. I’m at cbarber@alm.com and 202-828-0315, or follow me on Twitter @cryanbarber