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July 7, 2020 |
U.S. DOJ and SEC Issue First Comprehensive Update to FCPA Resource Guide Since 2012

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On Friday, July 3, 2020, the U.S. Department of Justice (“DOJ”) Criminal Division and U.S. Securities Exchange Commission (“SEC”) published the Second Edition of A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “FCPA Resource Guide,”), a consolidated manual setting forth the authorities’ guidance regarding the Foreign Corrupt Practices Act (“FCPA”) that has served as an essential resource for practitioners in understanding the government enforcers’ views on the statute and approaches to enforcing it.

The FCPA Resource Guide had not been substantively updated in the nearly eight years since it was originally published in November 2012 (an update containing mainly non-substantive changes was issued in August 2015). The Second Edition largely retains the core structure and content of the original FCPA Resource Guide, while including updates to reflect several important developments in governmental guidance, relevant case law, and enforcement activity since the original publication. In so doing, the Second Edition re-establishes the FCPA Resource Guide as an invaluable “one-stop shop” for companies and practitioners to understand the perspectives of both enforcers regarding a variety of FCPA-related topics.

The Second Edition reflects significant updates regarding a variety of legal issues under the FCPA. These include the definition of “foreign official,” the scope of the SEC’s disgorgement power, the scope of the term “agent” for assessing corporate liability, the statute of limitations applicable to violations of the accounting provisions, and the requirements for criminal violations of the books and records and internal controls provisions. The Second Edition likewise incorporates recent governmental guidance regarding the key components of an effective compliance program, the application of the FCPA in the context of M&A transactions, the selection of corporate monitors, and, notably, the FCPA Corporate Enforcement Policy.

Notable updates reflected in the Second Edition include the following:

  • Updated Guidance Regarding FCPA Internal Controls Provision: The Second Edition attempts to add texture to the sometimes ambiguous FCPA internal accounting controls provision, which requires companies to establish processes that provide “reasonable assurances” regarding the reliability of financial reporting and preparation of financial statements. Recognizing that the FCPA does not specify a particular set of controls, and that such mechanisms are not synonymous with a company’s FCPA compliance program, the Second Edition notes that “an effective compliance program contains a number of components that may overlap with a critical component of an issuer’s internal accounting controls.” The guidance adds that a company’s internal controls must take into account the “operational realities and risks attendant to the company’s business” such as the types of products and services offered, supply chain, work force, degree of regulation, extent of government interaction, and operations in high-risk jurisdictions. Although this is a welcome recognition that internal accounting controls and compliance regimes are not entirely coextensive, this language also seeks to ground some of the SEC’s enforcement actions by suggesting that operational risk is part of the internal accounting controls of a company when those words are absent from the statute. It therefore is unlikely that the SEC will alter its sometimes aggressive interpretation of the FCPA’s internal controls provision in bringing enforcement actions where companies have fallen short, in the SEC’s judgment, in building, for example, effective controls around third parties.
  • Additional Focus on Successor Liability in Mergers and Acquisitions: The Second Edition provides increased clarity into corporate successor liability under the FCPA, with a particular focus on the M&A context. The update recognizes that while pre-acquisition due diligence is encouraged, robust due diligence prior to a merger or acquisition may not always be feasible. In such circumstances, the Second Edition instructs that the timeliness and thoroughness of compliance integration efforts, appropriate due diligence, and voluntary disclosure of uncovered wrongdoing post-acquisition will be primary considerations for DOJ and SEC in considering whether to take action against a successor for violations identified at a predecessor company. Further, under the FCPA Corporate Enforcement Policy, incorporated into the Second Edition, an acquiring company that voluntarily discloses post-acquisition conduct by the acquired company and takes appropriate remediation steps may be eligible for a presumption of declination, even where aggravating circumstances exist as to the acquired party. The Second Edition further points out that enforcement actions against acquiring parties in such instances have been rare, and generally they have involved either egregious and sustained violations, or culpability on the part of a successor following an acquisition. The Second Edition notes that where a successor company identifies and remediates issues in a timely fashion, any enforcement action is more likely to target the predecessor company, particularly where the government’s investigation pre-dated the acquisition. Though the Second Edition provides additional interpretive guidance regarding the authorities’ approach to successor liability in M&A transactions, it retains the original FCPA Resource Guide’s direction regarding sound practices in this context in relation to pre-acquisition due diligence, the prompt application of anti-corruption policies and procedures to new acquisitions, the training of relevant stakeholders regarding the parent’s anti-corruption obligations and applicable policies, prompt anti-corruption audits of newly acquired businesses or entities, and the prompt and thorough disclosure of any corrupt payments identified through these due diligence and audit processes.
  • Expanded Guidance Regarding the Evaluation of Corporate Compliance Programs: The Second Edition builds on the prior edition’s guidance to companies regarding the hallmarks of effective anti-corruption compliance programs, conforming it to the updated regulatory expectations set forth in DOJ’s most recent update to its guidance regarding the “Evaluation of Corporate Compliance Programs,” issued in June 2020 (detailed in our recent client alert). The Second Edition more strongly signals the extent to which DOJ and the SEC will consider the effectiveness of corporate compliance and ethics programs both at the time of the misconduct and at the time of the resolution, which will impact the form of a resolution, its monetary value, and any required compliance undertakings. Among the more notable changes in this section is a sharpened focus on a company’s remediation efforts to apply “lessons learned” from compliance lapses, which the Second Edition characterizes as “the truest measure of an effective compliance program.”
  • Incorporation of Other Recent Guidance: As practitioners are well aware, U.S. enforcers (particularly DOJ) have issued a litany of new memoranda in the last several years on a variety of topics in an effort to provide greater clarity and transparency to companies regarding the enforcement authorities’ approaches to investigating and prosecuting corporate misconduct, including in the FCPA space. The Second Edition references these new guidance documents, including DOJ’s guidance for selecting monitors in Criminal Division matters (covered in our 2018 Year-End FCPA Update), “anti-piling on” policy regarding the coordinated resolution of enforcement actions involving multiple enforcement authorities (discussed in our 2018 Mid-Year FCPA Update), and the corporate compliance program guidance noted above. The FCPA Resource Guide now includes a section regarding DOJ’s FCPA Corporate Enforcement Policy, which was most recently updated in November 2019 (as discussed in our 2019 Year-End FCPA Update). The policy, which was established as a pilot program in April 2016 and codified in November 2017, and the principles of which have since been applied in Criminal Division matters outside of the FCPA setting, provides incentives to companies—up to a presumption of declination—that voluntarily self-report, fully cooperate with DOJ, and engage in prompt and thorough remediation. The Second Edition includes a series of examples in which companies received declinations under the Corporate Enforcement Policy.
  • Updated Case Studies and Hypotheticals: The Second Edition includes a number of updates to case studies and hypotheticals, which illuminate how DOJ and the SEC are likely to view particular fact patterns. In some instances, the Second Edition replaces older case studies with more recent examples; the Second Edition also includes new case studies to illustrate the types of gifts that might lead to enforcement action, such as a 2017 enforcement action involving a company allegedly paying for foreign officials to travel to sporting events and providing them with significant “spending money,” paying tuition for foreign officials’ children, and providing foreign officials with luxury vehicles. Other topics benefitting from new and/or updated case studies and hypotheticals include gifts or payments to third parties; payments to employees of agencies and instrumentalities of foreign governments; liability for the misconduct of third-party agents or intermediaries; the applicability of the “local law defense”; parent-company and post-acquisition liability; ineffective internal controls and compliance programs; and the assessment of FCPA penalties, among other subjects.
  • Refinements to Scope of Liability for Foreign “Agents” Following Hoskins: The Second Edition reflects the government’s view of the scope of FCPA liability for foreign individuals not directly covered by the FCPA’s anti-bribery provisions following the Second Circuit’s decision in United States v. Hoskins (discussed most recently in our 2019 Year-End FCPA Update). In that case, the Second Circuit held that foreign nationals are subject to the FCPA anti-bribery provisions if they are agents, employees, officers, directors, or shareholders of a U.S. issuer or domestic concern, or if they act in furtherance of a bribery scheme while in the territory of the United States. Though the Second Edition acknowledges Hoskins, it takes the position that this decision has not been applied outside the Second Circuit, characterizes this legal question as “unsettled,” and cites to a contradictory district court opinion which held, relying on a Seventh Circuit precedent, that defendants can be liable for conspiracy to violate, or for aiding and abetting in violations of, the FCPA even where they do not “belong to the class of individuals capable of committing a substantive FCPA violation.” Such a reluctance to accept the limits of Hoskins speaks volumes regarding the DOJ’s desire to expand the FCPA further than permitted by the Second Circuit. Notably, the updated guidance does not mention the subsequent history of the Hoskins case, in which the district court granted the defendant’s post-trial motion for a judgment of acquittal on seven FCPA-related counts based on DOJ’s inability to establish the defendant’s agency relationship with his employer’s U.S. subsidiary. Also absent from the Second Edition is language echoing the December 2019 comments from the former Assistant Attorney General for the Criminal Division, Brian Benczkowski, in which he suggested that, following the Second Circuit decision in Hoskins, DOJ “is not looking to stretch the bounds of agency principles beyond recognition, or even push the FCPA statute toward its outer edges,” but would use its discretion to apply theories of agency liability following a thorough evaluation of each case, based on “provable facts that align with agency principles.” The Second Edition likewise maintains the position that foreign companies and their agents can be liable in civil or administrative proceedings for aiding and abetting FCPA anti-bribery violations, and emphasizes that Hoskins is limited to the anti-bribery provisions, whereas the accounting provisions apply to “any person.” The Second Edition, therefore, suggests that the government will continue to construe Hoskins narrowly, in terms of both the breadth of its holding and its precedential effect outside of the Second Circuit.
  • Incorporation of Recent Case Law Regarding SEC Disgorgement Power: The Second Edition reflects two recent Supreme Court decisions narrowing the scope of the SEC’s ability to seek disgorgement as an equitable remedy, including in FCPA enforcement actions. The Second Edition includes references to the Court’s 2017 decision in Kokesh v. SEC, which held that disgorgement was a “penalty” subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462. The Second Edition also briefly references the Court’s recent decision in Liu v. SEC, which (as detailed in our recent client alert) upheld the SEC’s authority to seek disgorgement as an equitable remedy, but on the conditions that the disgorgement not exceed the defendant’s net profits and that it be awarded for the benefit of victims.
  • Updated Guidance Regarding the Definition of “Instrumentality”: The Second Edition incorporates the Eleventh Circuit’s seminal 2014 decision in United States v. Esquenazi, which analyzed the definition of “instrumentality” under the FCPA. The Second Edition approvingly cites the Esquenazi court’s definition of an instrumentality as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own,” and incorporates the factors identified in Esquenazi for assessing the “government control” and “government function” prongs of this definition. These factors offer refinements, but not major changes, to the guidance provided in prior versions of the FCPA Resource Guide.
  • Clarifications Regarding Application of FCPA Accounting Provisions: The Second Edition includes two key clarifications regarding the application of the books-and-records and internal controls provisions of the FCPA, which have grown in prominence in recent years, particularly in SEC matters, as a powerful tool to bring enforcement actions absent direct allegations of bribery. First, the Second Edition states the government’s view that in the absence of a statute of limitations in the FCPA itself, substantive violations of the anti-bribery provisions are subject to a five-year statute of limitations under 18 U.S.C. § 3282, whereas criminal violations of the FCPA accounting provisions are considered “securities fraud offenses” subject to the six-year statute of limitations provided for in 18 U.S.C. § 3301. Second, the Second Edition clarifies that criminal penalties for violations of the FCPA accounting provisions are imposed only where the defendant knowingly and willfully failed to maintain accurate books and records or implement an adequate system of internal accounting controls.

Although the Second Edition generally does not break new ground, this update helpfully incorporates key takeaways from recent governmental guidance, case law, and enforcement actions, keeping the FCPA Resource Guide current as a valuable resource for companies and practitioners alike. As with the original FCPA Resource Guide, the Second Edition includes the caveat that it is “non-binding, informal, and summary in nature,” and many of the concepts described in the document are nuanced and open to a range of interpretations. Companies navigating complex FCPA matters should therefore continue to rely on experienced counsel to understand how U.S. enforcement authorities interpret and enforce the FCPA in practice.


The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, Richard Grime, Patrick Stokes, Michael Diamant, Oleh Vretsona, Chris Sullivan, Alexander Moss, Brian Williamson, Will Cobb, and Ciara Davis.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices.  Please contact the Gibson Dunn attorney with whom you work, or any of the following:

Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com)

New York Zainab N. Ahmad (+1 212-351-2609, zahmad@gibsondunn.com) Matthew L. Biben (+1 212-351-6300, mbiben@gibsondunn.com) Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com)

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Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com)

San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com)

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Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com)

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June 26, 2020 |
Webcast: Bankruptcy and Financial Distress: Fiduciary Duty and Fraud Considerations for Private Equity Firms

Private Equity firms and other investors naturally are identifying opportunities and challenges that are arising in the highly disrupted post-COVID 19 markets. But those actions are subject to second guessing by other market participants, official creditors’ committees, lenders and regulators. In this hour-long discussion among Gibson Dunn’s Bankruptcy and White Collar Defense and Investigations Practice Group Co-Chairs, a leading economic research commentator from Cornerstone and Harvard Business School’s renowned Bankruptcy expert, we will identify and address credit and valuation risks, fiduciary duty obligations and potential civil and criminal bankruptcy fraud issues that may embroil even cautious investors who participate in the new market opportunities. View Slides (PDF)



PANELISTS: Joel M. Cohen, a trial lawyer and former federal prosecutor, is Co-Chair of Gibson Dunn’s White Collar Defense and Investigations Practice Group, and a member of its Securities Litigation, Class Actions and Antitrust & Competition Practice Groups. He has been lead or co-lead counsel in 24 civil and criminal trials in federal and state courts, and he is equally comfortable in leading confidential investigations, managing crises or advocating in court proceedings. Mr. Cohen's experience includes all aspects of FCPA/anticorruption issues, in addition to financial institution litigation and other international disputes and discovery. Stuart “Stu” Gilson is the Steven R. Fenster Professor of Business Administration at the Harvard Business School. Professor Gilson is an expert on corporate restructuring, business bankruptcy, credit analysis, business valuation, corporate financial analysis, and financial strategy. His research and teaching focus on strategies that companies use to revitalize their business, improve performance, and create value in a challenging business environment. Professor Gilson’s research has been cited by news media, including The Wall Street JournalThe New York TimesBusiness Week, and Bloomberg. Professor Gilson has served on the advisory boards of various organizations distressed debt investment funds. Professor Gilson has testified as an expert on a number of high profile bankruptcy matters. Robert A. Klyman is Co-Chair of Gibson Dunn’s Business Restructuring and Reorganization Practice Group. Mr. Klyman represents debtors, acquirers, lenders, ad hoc groups of bondholders and boards of directors in all phases of restructurings and workouts. His practice regularly includes advising PE Firms and boards of directors of portfolio companies with respect to navigating financial distress, and he has significant experience litigating claims for breach of fiduciary duty, equitable subordination, alter ego and related matters arising in chapter 11 cases, both at trial and on appeal. Mr. Klyman also represents (a) debtors in connection with traditional, prepackaged and “pre-negotiated” bankruptcies, (b) lenders and bondholders in complex workouts, (c) strategic and financial players who acquire debt or provide financing as a path to take control of companies in bankruptcy, and (d) buyers and sellers of assets through Section 363 of the Bankruptcy Code. Allie Schwartz is a principal at Cornerstone Research and the co-head of the firm’s bankruptcy practice, where she leads teams in supporting experts during the litigation process. She specializes in valuation of businesses, securities, and financial instruments in the context of bankruptcy, securities litigation, and regulatory disputes. Dr. Schwartz has worked with hedge funds, asset managers, private equity firms, FinTech firms, broker/dealers, and major financial institutions in addressing issues related to valuation and solvency, as well as allegations of insider trading, market manipulation, and disruptive trading. Emma Strong is a litigation associate in Gibson Dunn’s Palo Alto office. Her practice focuses on internal investigations, government investigations, and enforcement actions regarding business crimes and civil fraud. Ms. Strong also represents clients in high-stakes litigation involving fraud, breach of contract, and patent infringement claims.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Victoria Chan (Attorney Training Manager) at vchan@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

June 26, 2020 |
California Supreme Court Holds That District Attorneys May Seek Statewide Civil Penalties and Restitution Under Unfair Competition Law

Click for PDF On June 25, 2020, the California Supreme Court issued its second major Unfair Competition Law (“UCL”) opinion of the term, unanimously deciding in Abbott Laboratories v. Superior Court, No. S249895, ___Cal.5th___, that local prosecutors have the power to seek civil penalties for violations in California that occur outside their territorial jurisdiction. According to the Court, the UCL “grants broad civil enforcement authority to district attorneys … consistent with the statute’s purpose and history.” (Id. at [p. 16].) While the Court acknowledged that its ruling could create conflicts of interest and duplicative enforcement among competing district attorneys, the decision and a three-Justice concurrence outlined a path for the Legislature to mitigate these negative consequences.

I.   Procedural Background of Abbott Laboratories

As summarized in Gibson Dunn’s previous client alert, the UCL empowers the Attorney General as well as any district attorney, any county counsel, and certain city attorneys to file a civil enforcement action on behalf of the People of the State of California.  (See Bus. & Prof. Code §§ 17204, 17206.)  Local prosecutors have claimed authority under the UCL to bring civil actions for injunctive and monetary relief alleging unfair competition violations occurring throughout the State of California—including beyond their territorial jurisdiction. In this case, the Orange County District Attorney sued various brand and generic pharmaceutical manufacturers and distributors under the UCL, alleging an unlawful conspiracy to prevent other generic manufacturers from launching a generic drug that would compete with Niaspan, a prescription medication used to help maintain healthier levels of cholesterol. As a result of the allegedly unlawful conspiracy, the District Attorney asserted that California consumers paid more than they otherwise would have for generic Niaspan. The District Attorney sought civil penalties not only for alleged violations that occurred in Orange County, but also for violations that occurred anywhere throughout California. Defendants moved to strike the complaint’s claims for monetary relief for violations outside of Orange County; the Superior Court denied that motion. Defendants sought writ relief, and a divided Court of Appeal vacated the Superior Court’s decision and ordered the claim for statewide civil penalties stricken. Emphasizing that the California Constitution recognizes that the Attorney General is “the chief law officer of the State,” the Court of Appeal majority reasoned that the UCL’s grant of standing to local prosecutors “cannot reasonably or constitutionally be interpreted as conferring statewide authority or jurisdiction to recover such monetary remedies beyond the county the district attorney serves, or restricting the Attorney General’s constitutional power to obtain relief on behalf of the entire state.” (Abbott Labs, Inc. v. Sup. Ct (2018) 24 Cal. App. 5th 1, 24–25.) The Court of Appeal further noted that “the text of the UCL provides no basis to conclude the Legislature intended to grant local prosecutors extraterritorial jurisdiction to recover statewide monetary relief” and that if the Legislature had wished to confer upon local prosecutors the same remedial authority given to the Attorney General, the UCL would have explicitly vested local prosecutors with such authority. (Id. at pp. 27–28.) The Supreme Court granted the Orange County District Attorney’s petition for review.

II.   A Divide Emerges Among State and Local Prosecutors

The amicus briefs filed in the Supreme Court manifested a notable divide among state and local prosecutors. The California District Attorneys Association and California Attorney General each filed a brief in support of Defendants, arguing that local district attorneys lack the power to seek civil penalties for conduct occurring outside their territorial jurisdiction. The Attorney General argued that the Orange County District Attorney’s reading of the UCL would create conflict and competition among local prosecutors each acting to obtain a greater share of remedies for their localities. Such a construction, argued the Attorney General, would “undercut the constitutional authority of the Attorney General as the State’s chief law officer.” The Attorney General argued instead for a reading that would “encourag[e] cooperation” and permit California to “speak with one voice in consumer law matters.” The District Attorneys Association expressed concern in its brief to the Court about reduced public accountability of local prosecutors who obtain relief for consumers outside their jurisdiction. The Association argued that “[a] district attorney who could exercise binding authority to alter or extinguish the rights of consumers in other counties would be subject to no democratic safeguards if he or she misused that authority.” Meanwhile, a coalition of City Attorneys and County Counsels—who do not fall under the broad oversight of the Attorney General (as do district attorneys)—and the League of Cities filed an amicus brief in support of the Orange County District Attorney’s position and in favor of permitting local prosecutors to exercise statewide jurisdiction.

III.   California Supreme Court Holds First Teleconference Oral Argument After COVID-19 Shelter-In-Place Order

On Tuesday, March 26, 2020, oral argument was held before the California Supreme Court.   Notably, it was one of the first teleconference hearings after COVID-19-related safer-at-home orders were issued. The argument centered around two themes: how to interpret the UCL’s silence on the issue presented, and the practical import of the Court’s ruling. Generally, the teleconference format worked well. While there were a few instances of delayed questions causing some cross-talk and confusion, the Court managed the argument well. In a departure from traditional practice, at the conclusion of each advocate’s argument, the Chief Justice invited each of the Justices to ask any remaining questions any of them had. Ultimately, the argument foreshadowed the Court’s opinions: Justice Liu appeared most skeptical of the practical concerns raised by Defendants and amici, and ultimately authored the Court’s decision ruling in favor of the Orange County District Attorney.

IV.   The Supreme Court’s Opinion

Justice Liu authored the unanimous opinion of the Court. Justice Kruger filed a separate concurrence in which Chief Justice Cantil-Sakauye and Justice Corrigan joined to outline their view that the UCL should be amended to provide for a more robust notice provision. All seven Justices (including Justice Fujisaki of the First Appellate District, who sat pro tem in place of Justice Groban, who was recused) agreed that “[t]he UCL does not preclude a district attorney, in a properly pleaded case, from including allegations of violations occurring outside as well as within the borders of his or her county,” confirming their ability to seek “civil penalties for violations occurring outside of the district attorney’s county as well as restitution on behalf of Californians who do not reside in the county.” (Abbott Laboratories, supra, ___Cal.5th___[p. 1, 11].)

A.   Justice Liu’s Opinion for the Court Holds That the “Text and Purpose of the UCL” Supports District Attorneys Exercising Statewide Authority

Justice Liu, writing for the Court, reasoned that the UCL uses “broad language” in authorizing courts to impose civil penalties “for each violation” and to make orders to restore to “any person in interest any money.” (Id. at [p. 12].) Reviewing the provisions contemplating statewide injunctions (sections 17203 and 17207), and those empowering courts to impose civil penalties (section 17206), the Court emphasized that “[t]he statute contains no geographic limitation on the scope of relief that courts may order in an enforcement action brought by a district attorney.” (Id.) The Court first distinguished Safer v. Superior Court (1975) 15 Cal.3d 230, cited by Defendants for the proposition that civil litigation by district attorneys must be specifically authorized by the Legislature. Justice Liu noted that “the district attorney is expressly authorized to maintain a civil action for either injunctive relief or civil penalties for acts of unfair competition” under the UCL. (Abbott Laboratories, supra, ___Cal.5th___[p. 10].) Next, the Court emphasized that “Safer says nothing about the scope of remedies that may be sought,” and was thus inapposite to the question before the Court. (Id.) Turning to the “text and purpose of the UCL,” Justice Liu made three points. (Id. at [p. 11].)   First, as noted above, the statute’s broad language, coupled with the lack of any geographic limitation, suggest no legislative “concern about the geographic scope of relief sought in an enforcement action by a district attorney.”  (Id. at [p. 13].) Here, the Court assumed that district attorneys may seek statewide injunctive relief under the UCL (and Defendants conceded as much in their brief). While the issue of statewide injunctive relief was not squarely before the Court, this assumption nevertheless guided the Court’s decision. Second, the Court noted that section 17206(c), which allocates “one-half of civil penalties in a statewide action [brought by the Attorney General] to the county in which the judgment was entered indicates that the Legislature did not design the civil penalty scheme to ensure an allocation of civil penalties to counties in accordance with the number of violations in each county.” (Id.) Third, the fact that section 17207(b) distinguishes “‘any county in which the violation occurs’ and ‘any county . . . where the injunction was issued’” for purposes of civil penalties imposed for violating injunctions suggests that the “Legislature knows how to write language limiting the award of civil penalties to the county in which the violation occurs”; here though, the Legislature “did not enact any such limitation.” (Id. at [p. 13-14].) Taken together, the Court held that “the text of the UCL grants broad civil enforcement authority to district attorneys, and this broad grant of authority is consistent with the statute’s purpose and history.” (Id. at [p. 14].) Next, the Court rejected Defendants’ argument that the California Constitution limited district attorneys’ enforcement authority to their districts’ boundaries, “find[ing] nothing in those provisions that constrains the Legislature’s prerogative to structure UCL enforcement so that a district attorney has authority to seek civil penalties and restitution for violations outside of his or her county.” (Id. at [p. 18].) Finally, the Court addressed the Attorney General’s amicus brief and the practical concerns it raised about political accountability, degradation of the Attorney General’s primary role in consumer protection, and a loss of inter-office cooperation. While Justice Liu “[did] not take [these concerns] lightly,” conceding that the Court’s decision may incentivize a race to the courthouse, the Court was “unable to conclude that the Legislature necessarily believed this concern outweighs the incentive that the scheme provides for district attorneys to bring enforcement actions that might otherwise not be brought at all.” (Id. at [p. 20, 22].) Further, the Attorney General’s “authority to intervene or take over the case” from a district attorney mitigated, in the Court’s view, any concerns about coordinated enforcement of the UCL. (Id. at [p. 22].) Indeed, at oral argument Justice Liu noted that Defendants failed to identify a case in which local prosecutors “ran amok” with such authority. Justice Liu’s opinion noted that the “pros and cons” of the result of this decision “is a matter of policy for the Legislature to decide,” adding that voters could “plac[e] an initiative on the ballot to restrict this authority for local prosecutors if they believe it is not sound policy.” (Id. at [p. 25].) In conclusion, Justice Liu was careful to outline the limits of the Court’s holding, writing that the Court did not “address whether a district attorney could bring a UCL claim for conduct occurring entirely outside the bounds of his or her county”; in the case before the Court, the Orange County District Attorney had alleged violations of the UCL both within and outside of Orange County. (Id. at [p. 26].)

B.   Justice Kruger’s Concurrence Emphasizes the “Gap in the Statutory Scheme”

Justice Kruger agreed with the Court’s reading of the UCL’s text and purpose. However, she wrote a separate concurrence, in which the Chief Justice and Justice Corrigan joined, to point out the “gap in the statutory enforcement scheme” that should be filled by the Legislature. (Abbott Laboratories, supra, ___Cal.5th___[conc. opn. of Kruger, J.], at [p. 1].) Indeed, at oral argument Justice Kruger repeatedly asked about the sufficiency of the notice provided to the Attorney General. Noting that the “current statutory scheme contains no mechanism to ensure notice to the Attorney General for trial proceedings,” Justice Kruger wrote that the “Legislature may wish to fill this gap by requiring that district attorneys and other public prosecutors serve the Attorney General with a copy of any UCL complaint whose prayer for relief seeks monetary relief for violations occurring beyond the borders of their respective jurisdictions.” (Id. at [p. 3].) Justice Kruger voiced concern that “absent an effective mechanism for coordinating efforts, [this decision] will inevitably create some practical challenges,” including the possibility of “district attorneys . . . rac[ing] each other to the courthouse and . . . enter[ing] settlements that maximize their own counties’ recoveries, potentially at the expense of consumers elsewhere in the state.” (Id. at [p. 1-2].)

V.   Implications for Future Cases and Outstanding Questions

The Court’s opinion and Justice Kruger’s concurrence firmly place the ball in the Legislature’s court to address any potential policy implications of the Court’s decision. Time will tell whether voters or the Legislature act swiftly to write into the UCL a means for coordinating enforcement actions or pull back on the authority of district attorneys to seek statewide monetary relief. In the meantime, the Court’s reading of the UCL establishes a significant incentive for district attorneys to bring UCL actions, given the potential financial windfall of statewide civil penalties. As a result, defendants should be prepared for the possibility of multiple and overlapping cases, brought not only by district attorneys, but also by other prosecutors. Overlapping suits will in turn increase the need for companies to effectively coordinate their defense of government enforcement actions with any parallel matters. Defendants should look carefully at how government enforcement cases interact with arbitrations, consumer class actions, and suits brought under the Private Attorneys General Act, Lab. Code. § 2699 et seq., and develop a cohesive unified strategy. With overlapping issues, defendants may need to consider arguments for stays, preclusion and other remedies. In addition to the issues of the power of district attorneys to prosecute purely extraterritorial violations and to seek statewide injunctive relief, an additional question not squarely presented by this case remains unanswered: does the Court’s decision extend to city attorneys and county counsels, over whom the Attorney General does not exercise supervisory authority? Indeed, the Court emphasized the potential problems resulting from its decision were mitigated because the Attorney General “has direct supervision over the district attorneys,” and “retains authority to intervene or take over the case.” (Abbott Laboratories, supra, ___Cal.5th___[p. 18-19, 22].) Defendants may therefore wish to carefully scrutinize any future enforcement matters brought by city attorneys and county counsels seeking civil penalties on a statewide basis. Further, in pursuing any reform to the UCL, the Legislature may wish to consider the different relationship the Attorney General has with district attorneys compared to city attorneys and county counsels.
For more information, please feel free to contact the Gibson Dunn lawyer with whom you usually work or any of the following attorneys listed below. Theodore J. Boutrous, Jr. - Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Daniel M. Kolkey - San Francisco (+1 415-393-8420, dkolkey@gibsondunn.com) Julian W. Poon - Los Angeles (+1 213-229-7758, jpoon@gibsondunn.com) Winston Y. Chan - San Francisco (+1 415-393-8362, wchan@gibsondunn.com) Michael Holecek - Los Angeles (+1 213-229-7018, mholecek@gibsondunn.com) Victoria L. Weatherford - San Francisco (+1 415-393-8265, vweatherford@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 26, 2020 |
Best Lawyers in Germany 2021 Recognizes 19 Gibson Dunn Attorneys

Best Lawyers in Germany 2021 has recognized 19 Gibson Dunn attorneys as leading lawyers in their respective practice areas. Frankfurt attorneys recognized include: Alexander Klein – Banking and Finance Law; Jens-Olrik Murach – Competition/Antitrust Law, and Litigation; Dirk Oberbracht – Corporate Law, Mergers and Acquisitions Law, and Private Equity Law; Wilhelm Reinhardt – Corporate Law, and Mergers and Acquisitions Law; Sebastian Schoon – Banking and Finance Law; and Finn Zeidler – Arbitration and Mediation, Criminal Defense, and Litigation. Munich attorneys recognized include: Silke Beiter – Corporate Governance and Compliance Practice; Peter Decker – Banking & Finance, Private Equity Law, and Real Estate Law; Lutz Englisch – Corporate Governance and Compliance Practice, Corporate Law, Mergers and Acquisitions Law, and Private Equity Law; Ralf van Ermingen-Marbach – Criminal Tax Practice; Birgit Friedl – Restructuring and Insolvency Law; Ferdinand Fromholzer – Corporate Law, Mergers and Acquisitions Law, and Private Equity Law; Kai Gesing – Litigation; Markus Nauheim – Arbitration and Mediation, Corporate Law, Litigation, and Mergers and Acquisitions Law; Markus Rieder – Arbitration and Mediation, Corporate Governance and Compliance Practice, International Arbitration, and Litigation; Hans Martin Schmid – Real Estate Law; Benno Schwarz – Corporate Governance and Compliance Practice, Corporate Law, Criminal Defense, and Mergers and Acquisitions Law; Michael Walther – Competition/Antitrust Law; and Mark Zimmer – Corporate Governance and Compliance Practice, Criminal Defense, Labor and Employment, and Litigation. The list was published on June 26, 2020.

June 4, 2020 |
Webcast: Preparing For A Surge In Whistleblower Claims: From Developing A Compliance Plan To Best Practices When Investigating And Litigating Claims

The world has been turned upside down in recent months. The COVID-19 pandemic is causing unprecedented turmoil and economic dislocation, including millions of employees losing their jobs over a brief period of time. This instability and economic uncertainty, combined with a new patchwork of federal and state programs and laws, sets the stage for a deluge of misconduct allegations by current and former employees. In this regard, it will almost surely be similar to prior economic downturns which touched off enormous increases in whistleblower activity. In this one-hour program, Lee Dunst and Jessica Brown of Gibson Dunn, and Rob Biskup of Deloitte, will discuss the coming surge in whistleblower activity and how to properly address it. The panel will outline some of the challenges and opportunities facing companies with respect to whistleblowers; discuss factors that may drive whistleblower enforcement activities by state and federal regulators; offer practical advice on how companies can develop, update and implement compliance plans; and provide best practices for investigating and litigating whistleblower claims.

View Slides (PDF)

PANELISTS: Lee G. Dunst is a partner in the New York office of Gibson, Dunn & Crutcher and a member of the firm’s White Collar Defense and Investigations Practice Group. His practice covers a wide range of government investigations and white collar criminal and regulatory matters, including numerous whistleblower complaints, on behalf of numerous clients across the globe, including Fortune 500 companies, accounting firms, corporate executives, and special board committees. He has been recognized publicly for his successful work on behalf of his clients. Most recently, in March 2020, The Am Law Litigation Daily named Mr. Dunst as “Litigator of the Week” for obtaining a successful jury verdict on behalf of a Fortune 250 company. He also has been recognized in The Legal 500 US, with the publication describing Mr. Dunst as “knowledgeable and responsive,” and noting that he “provides a broad range of expertise and regularly advises clients accused of corporate fraud and alleged accounting irregularities.” Additionally, he has been named a “Litigation Star” and “Local Litigation Star” by Benchmark Litigation in its 2017-2020 editions. Jessica Brown is a partner in the Denver office of Gibson, Dunn & Crutcher and a member of the firm’s Labor and Employment, White Collar Defense and Investigations, and Class Actions Practice Groups. Ms. Brown has substantial experience conducting and managing workplace investigations and working with clients to address whistleblower complaints on a wide range of topics. She also represents clients in connection with government investigations, including white collar criminal investigations conducted by regulators in the U.S. and across the globe. In addition, Ms. Brown has defended nation-wide and state-wide class action lawsuits alleging, for example, gender discrimination under Title VII, failure to permit facility access under the Americans with Disabilities Act, and failure to compensate workers properly under the Fair Labor Standards Act. She is currently ranked by Chambers for Labor & Employment in Colorado in Band 1. Robert T. Biskup serves as Managing Director, Regulatory, Forensics & Compliance at Deloitte with over 25 years of experience in the corporate sector and private professional settings. Rob is a former global chief compliance officer at a Fortune 10 multinational corporation and is among Deloitte’s global leaders in the design and operation of effective corporate compliance programs. He also has deep international experience handling forensic accounting investigations on behalf of management and boards of directors, including matters involving financial statement fraud, accounting irregularities, asset misappropriation, fraud and corruption. Rob also has served as a federal monitor, and has extensive experience working with companies operating under government monitors and oversight in regulatory remediation situations, including the enhancement of business process, regulatory, financial and accounting controls.
MCLE CREDIT INFORMATION:  This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Victoria Chan (Attorney Training Manager) at vchan@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

June 3, 2020 |
DOJ Updates Guidance Regarding Its “Evaluation of Corporate Compliance Programs”

Click for PDF On Monday, June 1, 2020, the U.S. Department of Justice (“DOJ”) Criminal Division issued, without fanfare, updated guidance on the “Evaluation of Corporate Compliance Programs” (the “Compliance Program Update” or “Update”), which sets out considerations for DOJ prosecutors to take into account when assessing corporate compliance programs, making charging decisions, and negotiating resolutions. Previous iterations of the document (covered in our 2017 Mid-Year FCPA Update and May 3, 2019 Client Alert) have been a valuable resource for companies as they design, maintain, and evaluate their corporate compliance programs, and the Update provides welcome insight into how DOJ’s thinking is evolving, particularly with respect to risk assessments, monitoring, and resources. Assistant Attorney General Brian Benczkowski noted that the Update “reflects additions based on [DOJ’s] own experience and important feedback from the business and compliance communities.” The Compliance Program Update emphasizes DOJ’s commitment to a flexible approach when evaluating corporate compliance programs that takes individual companies’ circumstances into account within the framework of existing guidance. Specifically, the Update calls for “a reasonable, individualized determination in each case” (emphasis added) of the effectiveness of a company’s compliance program, including its “size, industry, geographic footprint, and regulatory landscape,” with a dual focus on the program in effect at the time of the underlying conduct and the program in effect at the time of resolution. The Update also reflects the ongoing evolution and increasing sophistication of DOJ’s compliance program expectations, with an emphasis on allocating adequate resources to the compliance function, an increased focus on using ongoing, data-driven monitoring of risks to guide the design and implementation of the compliance program, and the inclusion of more granular guidance regarding DOJ’s expectations. Building on DOJ’s previous guidance and consistent with the Justice Manual, which sets forth the principles guiding prosecution of companies, the Compliance Program Update instructs prosecutors to ask three “fundamental questions” when evaluating a corporate compliance program. Together, the questions seek to evaluate whether companies combine a thoughtfully designed program with the resources and culture necessary to create a program that works effectively in practice:

  1. “Is the corporation’s compliance program well designed?” (unchanged from previous guidance)
  2. “Is the program being applied earnestly and in good faith?” In other words, is the program adequately resourced and empowered to function effectively? (updated to include the words “adequately resourced and empowered to function,” placing a more explicit emphasis on companies’ demonstrated commitment to compliance)
  3. “Does the corporation’s compliance program work” in practice? (unchanged from previous guidance)
See JM 9-28.800. Under each of the questions noted above, and consistent with prior guidance, the Update provides 12 compliance topics related to the core elements of effective compliance programs: effective policies and procedures, training, reporting mechanisms and investigations, third-party due diligence, tone from the top, compliance independence and resources, incentives and disciplinary measures, and periodic testing and review. The Update clarifies that prosecutors will consider these topics “both at the time of the offense and at the time of the charging decision and resolution.”

KEY TAKEAWAYS OF THE COMPLIANCE PROGRAM UPDATE

Confirming our philosophy that there is no “one size fits all” approach to compliance and that an effective compliance program is tailored to a company’s unique characteristics and risks, the Compliance Program Update demonstrates an evolving understanding of how companies’ compliance programs operate and a willingness to engage with the specific circumstances that influence the design of a company’s compliance program. For example, the Update now instructs prosecutors to consider why a company has “chosen to set up the compliance program the way that it has, and why and how the company’s compliance program has evolved over time,” and to consider “the reasons for the structural choices the company has made.” Other revisions include:
  • Importance of Ongoing Risk Assessments: The Update asks prosecutors to consider whether risk assessments are based on “continuous access to operational data and information across functions” rather than a “snapshot” in time. The Compliance Program Update also now asks prosecutors to specifically consider how companies implement any learnings from their periodic reviews in policies, procedures, and controls, and increases the emphasis on lessons learned. For example, the Compliance Program Update asks prosecutors to consider whether the company tracks and incorporates any of these lessons into its periodic risk assessments. Moreover, the Update takes a broad view of “lessons learned,” suggesting that companies not only draw from their own experiences, but also learn from issues that have beset other companies operating in the same industry and/or geographic region. This approach is something many companies already do to remain familiar with relevant industry trends, enforcement actions, and good practices.
  • Importance of Adequate Resources and Accessibility: Not surprisingly, the Compliance Program Update continues to focus heavily on assessing whether compliance programs are adequately resourced and accessible to employees. For example, it instructs prosecutors to identify how companies publish their policies and procedures, track how their policies and procedures are accessed to determine which policies attract more attention than others, and ensure that employees have the tools needed to ensure compliance. This requirement reflects DOJ’s emphasis on ensuring that compliance program requirements are followed in practice. Notably, the Update also adds a new set of questions related to the compliance function’s “access to relevant sources of data to allow for timely and effective monitoring and/or testing.”
  • Testing the Design of the Program: The Update suggests additional ways companies can test the design of their compliance programs. For example, while recognizing that companies may choose to invest in targeted compliance training programs that equip employees with sufficient knowledge for identifying and raising compliance issues to appropriate company functions, the Compliance Program Update also asks whether there is a process for employees to ask questions arising from training sessions and whether the company has evaluated how training has impacted employee behavior or operations. When evaluating the effectiveness of confidential reporting structures, such as hotlines, companies also are expected to take measures to test whether employees are aware of the hotline and feel comfortable using it, as well as to track reports from start to finish.
  • Continued Focus on Third Parties: The Compliance Program Update reflects DOJ’s continued real-world focus on third-party risks and the corresponding expectation that companies carefully manage third parties “throughout the lifespan of the relationship,” and not just during the onboarding process. Although DOJ recognizes that “the need for, and degree of, appropriate due diligence may vary” based on different factors, the revisions make clear that DOJ expects companies to take a thoughtful approach to their third-party relationships and that simply conducting cookie-cutter due diligence at the outset of a relationship will be insufficient to meet DOJ’s expectations. Accordingly, the Update suggests, companies should document the business rationale for utilizing a third party; conduct appropriate due diligence based on the third party’s particular risk profile; incorporate relevant anti-corruption compliance provisions in third-party contracts; and “engage in risk management of third parties throughout the lifespan of the relationship,” with ongoing monitoring and training. Clearly, the overwhelming number of DOJ resolutions in which third party agents, intermediaries, and distributors are the conduit for corrupt payments inform this Update. Practically, companies should review third parties annually and obtain from them a certification of compliance.
  • M&A Due Diligence: The Update recognizes that pre-acquisition due diligence may not always be possible (and, if so, expects companies to be able to explain why it was not possible), but emphasizes that companies will be expected to justify their approach if they conduct less than typical pre-acquisition due diligence. The Compliance Program Update reiterates DOJ’s expectation that companies integrate newly acquired entities into their existing compliance program structures and internal controls in a timely and orderly fashion and particularly highlights the importance of post-acquisition audits.
The Update enhances the corporate understanding of DOJ’s evolving views on what good practices DOJ considers to be components of an effective corporate compliance program. For example, it reinforces the need for companies to “foster a culture of ethics and compliance with the law at all levels of the company” (emphasis added). This revised language continues a shift previously reported in our May 3, 2019 Client Alert, as DOJ broadens its compliance culture focus on the “tone at the top” to encompass the “tone at the middle,” and elsewhere. Although not a game-changer, the Update amplifies DOJ’s core themes: tailored, company-specific compliance programs enhanced by continuous inputs from the company’s real business experiences, which DOJ characterizes as “lessons learned.” In the future, it might be prudent for DOJ to address financial and accounting system structures and approaches, as money is the lifeblood of all corruption. As with prior guidance, companies can use the Update as a benchmark to evaluate their existing compliance programs. Companies also should expect to see complementary revisions in DOJ’s template for “Attachment C,” which is appended to DOJ’s corporate resolutions and sets forth DOJ’s minimum expectations for corporate compliance programs in that context. Finally, companies also should consider complementary guidance from other U.S. agencies and international organizations—particularly the resources linked at the end of the Update, which in many instances reflect growing consensus regarding governmental expectations for corporate compliance programs.

The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, Patrick Stokes, Michael Diamant, Laura Sturges, Chris Sullivan, Oleh Vretsona, Courtney Brown, Lora MacDonald, Caroline Ziser Smith and Patricia Herold.

Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these developments.  Please feel free to contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the firm’s White Collar Defense and Investigations practice group:

Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) Judith A. Lee (+1 202-887-3591, jalee@gibsondunn.com) David Debold (+1 202-955-8551, ddebold@gibsondunn.com) Michael S. Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stephanie Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day (+1 202-955-8220, kday@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Adam M. Smith (+1 202-887-3547, asmith@gibsondunn.com) Christopher W.H. Sullivan (+1 202-887-3625, csullivan@gibsondunn.com) Oleh Vretsona (+1 202-887-3779, ovretsona@gibsondunn.com) Courtney M. Brown (+1 202-955-8685, cmbrown@gibsondunn.com) Jason H. Smith (+1 202-887-3576, jsmith@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Pedro G. Soto (+1 202-955-8661, psoto@gibsondunn.com) Lora MacDonald (+1 202-887-3738, lmacdonald@gibsondunn.com) Caroline Ziser Smith (+1 202-887-3709, czisersmith@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (+1 212-351-2662, mkirsch@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Daniel P. Harris (+1 212-351-2632, dpharris@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Laura M. Sturges (+1 303-298-5929, lsturges@gibsondunn.com) Patricia Mercedes Herold (+1 303-298-5727, pherold@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8333, mwong@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charlie Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, ) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Paris Benoît Fleury (+33 1 56 43 13 00, bfleury@gibsondunn.com) Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Jean-Philippe Robé (+33 1 56 43 13 00, jrobe@gibsondunn.com) Munich Benno Schwarz (+49 89 189 33-110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33-180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33-130, mzimmer@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Oliver D. Welch (+852 2214 3716, owelch@gibsondunn.com) Singapore Brad Roach (+65 6507.3685, broach@gibsondunn.com) São Paulo Lisa A. Alfaro (+5511 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+5511 3521-7093, falmeida@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 20, 2020 |
Bankruptcy Fraud Prosecutions May Increase Post-Pandemic

New York partner Joel Cohen, Los Angeles partner Robert Klyman and Palo Alto associate Emma Strong are the authors of "Bankruptcy Fraud Prosecutions May Increase Post-Pandemic," [PDF] published by Law360 on May 19, 2020.

May 19, 2020 |
USA: Anti-Money Laundering 2020

New York partner Joel Cohen and Washington, D.C. of counsel Linda Noonan are the authors of “USA,” [PDF] Chapter 30 of Anti-Money Laundering 2020, 3rd Edition, published by International Comparative Legal Guides in May 2020.

May 19, 2020 |
The International Reach of the U.S. Money Laundering Statutes

Washington, D.C. partners M. Kendall Day and Stephanie Brooker are the authors of "The International Reach of the U.S. Money Laundering Statutes," [PDF] Chapter 1 of Anti-Money Laundering 2020, 3rd Edition, published by International Comparative Legal Guides in May 2020.

May 11, 2020 |
European Commission Launches Major AML Initiative

Click for PDF Overview On May 7, 2020, the European Commission (the “Commission”) announced an action plan of measures designed to pursue what will likely constitute a fundamental reshaping of how rules relating to anti-money laundering (“AML”) and counter-terrorist financing (“CTF”) are implemented, overseen and enforced in the EU (the “Action Plan”). The Action Plan was published alongside further clarification regarding the identification of high-risk third countries that have strategic deficiencies in their national AML and CTF regimes. This alert focuses on the rationale and key components of the Action Plan. Background In July 2019, the Commission published a “package” of AML communications, in which a number of weaknesses were identified in relation to the EU’s AML and CTF framework (the “Anti-Money Laundering Package”). In a report published amongst the suite of documents, the Commission pointed to a number of deficiencies evident from recent money laundering scandals in the banking sector. In particular, a key issue flagged in relation to the cases analysed in the report was that of cross-border payments and transfers, which present a challenge where there is insufficient harmonisation of national supervisory frameworks, standards and capabilities across the EU. This fragmentation results from several historic factors, including the EU’s use of Directives relating to money laundering rather than directly applicable Regulations (leaving decisions on implementation to Member States) and a measure of divergence inherent in the Member States’ various approaches to the regulation of businesses generally, and sectors of key AML risk in particular, such as the financial and gambling sectors. There has been long-standing criticism of the EU’s lack of co-ordinated action on AML, including from the European Banking Federation (the “EBF”), which has called the EU’s framework “ineffective” and in need of “critical review”.[1] Following the Anti-Money Laundering Package, the Commission was invited by the European Parliament and Council to investigate what steps could be taken to achieve “a more harmonised set of rules, better supervision, including at EU level, as well as improved coordination among Financial Intelligence Units”. The Action Plan is the Commission’s response to this challenge and is intended to be the first step on the path to creating a comprehensive framework to combat money laundering and terrorist financing across Europe. The Action Plan The Action Plan is structured on the basis of six “pillars”. The holistic aim of these is to (i) improve the overall fight against money laundering; and (ii) strengthen the EU’s global role in this sphere. Once implemented, it is hoped that this will result in greater harmonization of rules across the EU, with better supervision and improved co-ordination between the competent authorities of the various Member States. The Action Plan is described as aiming to “shut down any remaining loopholes and remove any weak links in the EU's rules”.[2] The Action Plan sets out the Commission’s intended actions over the next 12 months, including the proposal of a new harmonized set of rules in Q1 2021 (there are no changes to EU law at this point). A new EU level supervisory body will be proposed at around the same time. The six pillars are discussed below. Effective application of the rules The Commission has stated that it will, of course, continue to closely monitor the implementation of EU rules by Member States to ensure that the national rules are in line with the highest possible standards. In parallel, the Action Plan encourages the European Banking Authority (the “EBA”)[3] to make full use of its recently heightened role to tackle money laundering and terrorist financing. The EBA separately announced on May 7, 2020, in response to the publication of the Action Plan, that it stands ready to support the Commission’s considerations through the consultation (on which, please see “The Action Plan consultation” below), whilst using its powers to lead, coordinate and monitor the EU financial sector’s fight against money laundering and terrorist financing. Single EU rulebook As noted above, there is a degree of variation in the ways in which Member States currently apply the EU AML and CTF rules. Key areas of divergence identified include the list of entities subject to national rules, customer due diligence requirements, internal controls and reporting obligations. The Commission announced that a more harmonized set of rules will be proposed in Q1 2021. A Q&A, published with the Action Plan, does not express a definitive view on whether the Action Plan will lead to a new Regulation – the Commission instead indicates that this will be “subject to a thorough analysis to ensure that [it] reaches as high a level of harmonization as possible”. EU-level supervision Oversight of AML and CTF regimes is currently conducted at a national level, which leads to significant differences in the way that the rules are supervised. Therefore, in Q1 2021, the Commission will formally propose to establish a supervisor at the EU level. The Q&A provides that the role and scope of this EU-level supervision – as well as the supervisory body that should be tasked with carrying out this role – will be proposed following a thorough assessment of all options. This will also include consideration of feedback received in the open public consultation launched in connection with the Action Plan. Whilst criminal enforcement of AML offences introduced in response to EU legislation has historically been undertaken at a Member State level (where competence to do so lies), the Commission has said that it is also critical to build capacity at EU level to investigate and prosecute financial crime. It noted that Europol has stepped up its efforts in order to tackle economic and financial crime with the new European Economic and Financial Crimes Centre, which should become operational in the course of 2020. Amongst other things, this will concentrate all financial intelligence and economic crime capabilities in a single entity within Europol. Co-ordination and support mechanism for Member States' Financial Intelligence Units The Commission was keen to point out that Financial Intelligence Units in Member States play a critical role in identifying transactions and activities that could be linked to criminal activities. However, it noted in the Q&A that several Financial Intelligence Units have not complied with their obligation to exchange information with other Financial Intelligence Units. Additionally, some Financial Intelligence Units have not managed to engage in a meaningful dialogue by giving quality feedback to private entities, as required by AML legislation. The Action Plan lays the groundwork for the creation of an EU support and coordination mechanism for these Units. The Commission will formally propose to establish this mechanism to help further coordinate and support the work of these units in Q1 2021. Enforcing EU-level criminal law provisions and information exchange The Commission notes that judicial and police co-operation, on the basis of EU instruments and institutional arrangements, is essential to ensure the proper exchange of information. It also points to the role that the private sector can play in combating money laundering and terrorist financing, indicating that it will issue guidance on the role of public-private partnerships to clarify and enhance information sharing. The EU's global role The EU plays an important role on the world stage in shaping international standards in the fight against money laundering and terrorist financing and is actively involved in the Financial Action Task Force (“FATF”). The Commission is determined to step up its efforts so that the EU acts as a “single global actor in this area”. In particular, the Commission has stated that the EU will adjust its approach to third countries with strategic deficiencies in their AML and CTF regimes that pose significant threats to the “single market”. It specifically points to the new methodology issued alongside the Action Plan as giving the EU the right tools to do so. New methodology to identify high-risk third countries At the same time as it published the Action Plan, the Commission published a new methodology to identify high-risk third countries that have strategic deficiencies in their national AML and CTF regimes, which pose significant threats to the EU's financial system. The goal is to provide more clarity and transparency in the process of identifying these third countries. The key new elements concern: (i) the interaction between the EU and FATF listing process; (ii) enhanced engagement with third countries; and (iii) reinforced consultation of Member States experts. Updated list of high risk countries The Commission has a legal obligation to identify high-risk third countries with strategic deficiencies in their AML and CTF regimes. The Commission revised its list on May 7, 2020. It states that the new list is now “better aligned” with the lists published by the FATF. Countries added to the list are: the Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Panama and Zimbabwe. Countries which have been de-listed are: Bosnia-Herzegovina, Ethiopia, Guyana, Lao People's Democratic Republic, Sri Lanka and Tunisia. The Commission amended the list by means of a Delegated Regulation, which will now be submitted to the European Parliament and Council for approval within one month (with a possible one-month extension). The Regulation listing third countries – and therefore applying new protective measures – applies as of October 1, 2020. This is to ensure that all stakeholders have time to prepare appropriately. The de-listing of countries, however, will enter into effect 20 days after publication of the Delegated Regulation in the Official Journal. The UK position The transition period for the UK’s departure from the EU is currently set to end on December 31, 2020. There is a great deal of uncertainty surrounding what, if any, agreement will be made between the remaining EU Member States and the UK. A key question is whether the UK will choose to separately implement any changes brought about under the Action Plan, given that these will occur after the end of the Brexit transition period. Any arrangements reached with the remaining EU Member States will likely require the UK to maintain a degree of “equivalence” (broadly, retaining legal and regulatory frameworks substantially similar to those of the EU); in relation to AML and CTF, this is likely to align with the interests of British industry, and in particular its financial sector. The Action Plan consultation  The consultation on the Action Plan is open for comment until July 29, 2020. This is run via the Commission’s online portal. A number of key topics that may be of interest include (i) what regulatory provisions need to be harmonised (for example, whether record keeping should be covered); (ii) which body should exercise the EU supervisory powers (for example, the EBA or a new EU centralised agency); and (iii) what powers this EU supervisor should have. It is expected that the financial sector, and other sectors that stand to be significantly impacted, will participate actively in this consultation. Looking ahead The Action Plan is clearly ambitious and speaks to an obvious need. The initial industry-level response has been very positive – the EBF, for example, indicated that it is “greatly encouraged”.[4] As discussed above, there has been considerable discussion for some time about the significant issues posed by the varying implementation, supervision and enforcement of AML and CTF frameworks across the Member States of the EU. Key to the effectiveness of any new harmonized regime overseen at EU level will be the extent to which the EU supervisory body will be endowed with enforcement and investigative powers, including the power to commence or instruct competent authorities at national level to commence investigations, and the degree to which it will be able to foster information sharing and policy alignment across Member States, and with third countries. To date, Member States have maintained control over the creation of offences and criminal enforcement in relation to EU AML legislation. As a result, the law in this area has historically been something of a “patchwork quilt” across the EU, with each Member State adopting its own approach to implementation, through the filter of the peculiarities of its own criminal law, using the domestic criminal and regulatory authorities already in place. This presents a significant hurdle to efforts to secure EU-level harmonization of the law, supervision and enforcement in the field of AML/CTF. As such, if the Action Plan is to fulfil its ambitions, it will require innovation, creativity and flexibility from both the Commission and Member States. However, the prize for such efforts would be significantly enhanced coherence and efficiency in AML regulation across Europe, to the advantage of both European society and European business. _____________________    [1]   “Lifting the spell of dirty money – EBF blueprint for an effective EU framework to fight money laundering”, EBF, March 2020    [2]   European Commission press release, “Commission steps up fight against money laundering and terrorist financing”, May 7, 2020    [3]   From January 1, 2020, the EBA has had a clear legal duty to contribute to preventing the use of the financial system for the purposes of money laundering and terrorist financing and to lead, coordinate and monitor the AML/CFT efforts of all EU financial services providers and competent authorities.    [4]   Press release: “EBF supports new EU plans to fight money laundering”, European Banking Federation, May 7, 2020


Gibson, Dunn & Crutcher's lawyers are available to assist in addressing any questions you may have regarding these developments.  If you would like to discuss this alert in greater detail, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s White Collar Defence and Investigations or Financial Institutions practice groups, or the following authors:

Patrick Doris - London (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Michelle M. Kirschner - London (+44 (0)20 7071 4212, mkirschner@gibsondunn.com) Gregory A. Campbell - London (+44 (0)20 7071 4236, gcampbell@gibsondunn.com) Sacha Harber-Kelly - London (+44 (0)20 7071 4205, ) Penny Madden QC - London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Allan Neil - London (+44 (0)20 7071 4296, aneil@gibsondunn.com) Philip Rocher - London (+44 (0)20 7071 4202, procher@gibsondunn.com) Martin Coombes - London (+44 (0)20 7071 4258, mcoombes@gibsondunn.com) Chris Hickey - London (+44 (0)20 7071 4265, chickey@gibsondunn.com) Steve Melrose - London (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Finn Zeidler - Frankfurt (+49 69 247 411-530, fzeidler@gibsondunn.com) Stephanie Brooker - Washington, D.C. (+1 202-887-3502, sbrooker@gibsondunn.com) M. Kendall Day - Washington, D.C. (+1 202-955-8220, kday@gibsondunn.com) F. Joseph Warin - Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 5, 2020 |
Benchmark Litigation Asia-Pacific 2020 Names Three Partners Hong Kong Stars

The 2020 edition of Benchmark Litigation Asia-Pacific has recognized three partners as stars in their respective practice areas: Kelly Austin was recognized as a star in Hong Kong White Collar Crime, and Brian Gilchrist and Elaine Chen were both recognized as stars in the Hong Kong Commercial and Transactions category. The Firm was also ranked in Tier 2 in the Hong Kong White Collar Crime - International Firms category. The rankings were published on May 4, 2020. Kelly Austin’s practice focuses on government investigations, regulatory compliance and international disputes.  She has extensive expertise in government and corporate internal investigations, including those involving the Foreign Corrupt Practices Act and other anti-corruption laws, and anti-money laundering, securities, and trade control laws.  She also regularly guides companies on creating and implementing effective compliance programs. Brian Gilchrist practices dispute resolution, with a focus on commercial litigation involving matters concerning banking, insurance, tax, employment, contentious probate, directors’ duties and minority shareholders’ rights. He is also an experienced advisor on regulatory matters and has handled both domestic and multijurisdictional arbitrations. Elaine Chen represents companies and high-net-worth individuals in civil and commercial litigation and disputes, including a full range of banking, contractual, tort, companies, trust and tax matters. Elaine has particular experience in tax, contentious probate and estate administration, mental health, private wealth, and boardroom and shareholders disputes.

April 30, 2020 |
Criminal Bankruptcy Fraud: Will the COVID-19 Crisis Make It the New Prosecutorial Darling?

Click for PDF The COVID-19 crisis and the resulting disruption to business have adversely affected many corporate entities’ financial stability and outlook. Even rock-solid, liquid companies have been jolted into a new reality, and may be evaluating options for restructuring their business in accordance with Chapter 11 of the Bankruptcy Code. In rarer cases, a company may opt to liquidate under Chapter 7. In such circumstances, counsel, directors, and executives of these corporate entities are well-served to understand the statutes criminalizing fraudulent actions related to bankruptcy, and the attendant risk of costly government investigations, litigation expenses, fines, and jail time. Although there has not been extensive historical application of these statutes to corporate entities, prosecutors and investigators invariably follow the money in their pursuit of alleged fraud, and bankruptcy is thus a natural area of focus in a financial crisis. Prosecutors looking to bring charges befitting the economic environment may be enticed by the many options bankruptcy fraud statutes offer to pursue what they perceive as financial wrongdoing.

I.    Relevant Statutes

Bankruptcy fraud is most commonly prosecuted under Sections 152 and 157 of Title 18 of the United States Code.[1] Each imposes a maximum statutory sentence of five years. 18 U.S. Code § 152. Concealment of assets; false oaths and claims; bribery[2]: In nine subparts,[3] Section 152 broadly criminalizes various actions prior to[4] and during bankruptcy proceedings, including knowingly and fraudulently[5] concealing assets, making false statements, and withholding information from the bankruptcy trustee.[6] Paragraph 7 of Section 152 specifically covers transfers or concealment by an “agent or officer” of a corporation in or contemplating bankruptcy. 18 U.S. Code § 157. Bankruptcy fraud[7]: Section 157 criminalizes utilization of bankruptcy proceedings to further a broader fraudulent scheme.[8] 18 U.S. Code §§ 153 to 156[9]: Sections 153 through 156 criminalize other less commonly prosecuted offenses—including embezzlement of bankruptcy estate assets, agreements to fix fees or compensation, and knowing disregard of bankruptcy rules and procedures. 18 U.S. Code § 1519. Destruction, alteration, or falsification of records in Federal investigations and bankruptcy[10]: Section 1519 imposes higher penalties—up to twenty years’ imprisonment—for the destruction, alteration, or falsification of records to interfere with an investigation or bankruptcy proceeding. 18 U.S. Code § 3057. Bankruptcy investigations[11]: Section 3057 imposes mandatory reporting requirements on judges, receivers, and trustees who reasonably believe a legal violation has occurred, requiring that they report the possible violation to the U.S. Attorney’s office.

II.    Sentencing Guidelines

The penalties applicable to bankruptcy fraud convictions can be as severe as any financial crime. Section 2B1.1 of the United States Sentencing Guidelines is used to determine the base offense level for the majority of bankruptcy fraud crimes.[12] The base offense level is six for violations under Sections 152 and 157—where the maximum term of imprisonment is five years.[13] However, the base offense level can be adjusted depending on certain characteristics of the offense.[14] Substantial financial loss, or intended loss, has the most significant increase in offense levels, up to 30 levels (resulting in a range of 108 to 405 months incarceration when combined with the base level) for losses over $550,000,000.[15] The sentencing judge is also obligated to order restitution to any identifiable victim, most commonly creditors of the bankruptcy estate.[16] The amount of restitution will depend on the particular offense—for example, restitution for violations under Section 152(1) (relating to concealment of assets) may be measured by the value of the concealed assets.[17] The amount of restitution will always, however, be limited to the victims’ actual losses, not the intended losses relevant to sentencing.[18] A sentencing court is required to order full restitution “without consideration of the economic circumstances of the defendant.”[19]

III.    The U.S. Trustee Program (USTP)

The USTP—commonly referred to as the “watchdog” of the bankruptcy system—is a civil, litigating component of the U.S. Department of Justice, designed to protect “the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders—debtors, creditors, and the public.”[20] The USTP is headquartered in Washington, D.C. and has 92 field offices covering 21 regions.[21] The USTP has a statutory duty to refer matters to the U.S. Attorney for prosecution,[22] and has made over 2,000 such referrals annually since 2012.[23] Members of the public can submit reports of suspected bankruptcy fraud to the U.S. Department of Justice and USTP.[24] Of course, an increase in bankruptcy filings can be expected to correspond to a greater incidence of referred or reported suspicions of bankruptcy fraud.

IV.    Trends in Criminal Bankruptcy Fraud Prosecution

Historically, the bankruptcy fraud statutes have been applied primarily to prosecute individual bankruptcy filers, rather than corporate entities. Nonetheless, corporate officers and agents, including board members, could face liability under the statute. Indeed, an article recently published in a DOJ bulletin suggests prosecutors should add charges of bankruptcy fraud to other criminal charges where applicable to strengthen their case and bolster admissibility of persuasive evidence, such as testimony from sympathetic creditor victims and the defendants’ testimony under oath and detailed financial history submitted in connection with the bankruptcy proceedings.[25]   Misuse of bankruptcy proceedings by legal and other advisers to hide assets, as well as to defraud potential bankruptcy candidates, may well surface as an investigative focus in the aftermath of the COVID-19 financial crisis.[26] Regardless of whether bankruptcy fraud charges are filed, the existence of a bankruptcy can be the thin edge through which problematic activity is pursued. As investigators follow the flow of money, they may mine bankruptcy filings for evidence to strengthen existing cases or to bring new charges. This is particularly so with respect to Ponzi schemes, the extent of which often surface once bankruptcy filings occur.[27] Clients should also be cautioned that communications with and work product by attorneys may be discoverable if the court finds there is a “reasonable likelihood [the attorney] either knew or was willfully blind” to the facts forming the basis of a bankruptcy fraud allegation against the client. See in re Grand Jury Proceedings, G.S., F.S., 609 F.3d 909, 915 (8th Cir. 2010) (affirming that attorney work product and communications related to pre-bankruptcy asset transfer transactions were discoverable under the crime-fraud exception).

V.    Examples of Relevant Prosecutions and Settlements of Individuals

Often, charges brought against executives related to misconduct concerning a company nearing or in bankruptcy proceedings involve other charges, such as wire fraud, bank fraud, and conspiracy. For example, in May 2017, a former CEO of the electronics and appliance retailer Vann’s Inc. was convicted of 170 counts, including bankruptcy fraud, and sentenced to over five years in prison, including a $2.4 million criminal forfeiture verdict. The defendant, in conjunction with Vann’s former CFO, was accused of establishing two shell companies as part of a real estate leaseback scheme. The jury found the defendant had committed bankruptcy fraud by making a claim for $2.4 million against Vann’s estate on behalf of the shell companies after Vann’s declared bankruptcy in 2012.[28] Similarly, in 2016, the former President and CEO of PureChoice, Inc. was sentenced to 22 years in prison for 11 counts, including three for bankruptcy fraud, arising out of an investment fraud scheme. As the scheme unraveled and victims began demanding payment, the defendant filed for personal bankruptcy, and was ultimately charged with bankruptcy fraud for falsifying statements and concealing property in connection with the bankruptcy proceeding. The defendant also was ordered to pay over $22 million in restitution and $7.6 million in a forfeiture judgment.[29] In some cases of alleged embezzlement and concealment of bankruptcy assets, prosecutors have declined to include bankruptcy fraud as a charge altogether, instead relying on the broader counts of mail fraud, embezzlement, or money laundering.[30] Conversely, in other cases, bankruptcy is one of only one or two charges brought. For example, in 2018, the owner of a number of gas stations pled guilty to bankruptcy fraud and was sentenced to 45 months in prison for “scrambling” his finances and destroying records to defraud his creditors. In 2012, the Bankruptcy Court had denied the defendant’s request to discharge his debts because he had failed to retain business records that would enable the court to analyze his financial condition.[31] Also in 2018, a husband and wife who had previously served as partners in a business venture were each sentenced to 50 and 27 months prison time, respectively, for tax evasion and bankruptcy fraud.[32] The couple filed for bankruptcy after attempting to settle over $600,000 in taxes due with the IRS. However, at the same time, the couple caused their companies to pay substantial amounts of personal expenses, including vacation home rental payments and a country club membership. After a jury trial, the defendants were sentenced to jail time and ordered to pay $1.6 million in restitution to the IRS, and over $130,000 in a forfeiture money judgment.[33]

VI.    Risk of Securities Fraud Liability for Corporate Insiders During Financial Distress

Corporate insiders who trade company stock prior to the company filing for bankruptcy may face civil and criminal liability, as well as costs associated with defending against an SEC investigation. Indeed, the SEC has previously brought enforcement actions against insiders who traded securities before news of the company’s financial difficulties or insolvency became public.[34] In a recent press release, the SEC enforcement division acknowledged that due to the COVID-19 crisis, “a greater number of people may have access to material nonpublic information,” and admonished corporate insiders to be “mindful of their of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading.”[35] Multiple public officials have faced scrutiny and resulting reports to the DOJ and SEC regarding their trading of stock prior to disclosure of the extent and seriousness of the COVID-19 crisis.[36] Similar public scrutiny is likely to result if corporate insiders engage in significant or uncharacteristic securities transactions during this crisis. This risk is particularly heightened due to the SEC permitting delayed disclosure filing in light of disruptions to business caused by COVID-19—thereby extending the duration of time in which information can be kept non-public.[37]

VII.    Potential Liability for Collusive Bidding on Bankruptcy Assets

 Companies seeking to acquire assets of a bankrupt entity also should be aware of the risk of liability under the Sherman Antitrust Act, 15 U.S.C. §§ 1 et seq., if they engage with competitors regarding the purchase of assets from the bankruptcy estate.  Indeed, the Department of Justice has previously charged companies with violations of the Sherman Act for collusive bidding in a bankruptcy court auction.[38]  The criminal penalties for a Sherman Act violation are severe—up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison.[39] Separately, the bankruptcy trustee can bring claims for civil liability against the purchaser under the Sherman Act during the bankruptcy court proceedings, in addition to claims under Section 363(n) of the Bankruptcy Code.[40]  If a bankruptcy trustee fails to object to the sale during the bankruptcy proceedings, a later suit under the Sherman Act may be barred under res judicata, although a 363(n) claim will not.[41]

VIII.    Recommendations

While investigators and prosecutors have rarely pursued criminal bankruptcy fraud allegations against companies and executives, the opportunities to do so are significant. The lack of prosecution could be a consequence of prosecutors’ unfamiliarity with the criminal bankruptcy fraud statutes and investigating agents’ preference for the traditionally more titillating fraud statutes to encompass the same conduct. These preferences can change quickly, including if the Department of Justice or FBI focus on bankruptcy in the aftermath of the COVID-19 financial crisis. These risks should be kept in mind when evaluating options for restructuring. Further, disgruntled former employees, such as those who may be laid off or furloughed due to COVID-19, increase the likelihood of a financially distressed company being reported to the USTP. Even baseless reports—if investigated—could result in significant costs in reputational harm and defense expenses. In light of the risk of criminal penalties and associated costs, counsel and directors of companies facing financial difficulties should seek competent guidance to navigate these concerns prior to initiating bankruptcy proceedings. ______________________ [1] While the commencement of a bankruptcy case imposes an “automatic stay” against most legal and administrative actions that could have been brought pre-bankruptcy against a debtor, the Bankruptcy Code expressly exempts from that automatic stay governmental criminal actions and claims. See 11 U.S.C. §§ 362(a), 362(b)(1). [2] “A person who— (1) knowingly and fraudulently conceals from a custodian, trustee, marshal, or other officer of the court charged with the control or custody of property, or, in connection with a case under title 11, from creditors or the United States Trustee, any property belonging to the estate of a debtor; (2) knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11; (3) knowingly and fraudulently makes a false declaration, certificate, verification, or statement under penalty of perjury as permitted under section 1746 of title 28, in or in relation to any case under title 11; (4) knowingly and fraudulently presents any false claim for proof against the estate of a debtor, or uses any such claim in any case under title 11, in a personal capacity or as or through an agent, proxy, or attorney; (5) knowingly and fraudulently receives any material amount of property from a debtor after the filing of a case under title 11, with intent to defeat the provisions of title 11; (6) knowingly and fraudulently gives, offers, receives, or attempts to obtain any money or property, remuneration, compensation, reward, advantage, or promise thereof for acting or forbearing to act in any case under title 11; (7) in a personal capacity or as an agent or officer of any person or corporation, in contemplation of a case under title 11 by or against the person or any other person or corporation, or with intent to defeat the provisions of title 11, knowingly and fraudulently transfers or conceals any of his property or the property of such other person or corporation; (8) after the filing of a case under title 11 or in contemplation thereof, knowingly and fraudulently conceals, destroys, mutilates, falsifies, or makes a false entry in any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor; or (9) after the filing of a case under title 11, knowingly and fraudulently withholds from a custodian, trustee, marshal, or other officer of the court or a United States Trustee entitled to its possession, any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor, shall be fined under this title, imprisoned not more than 5 years, or both.” [3] The nine subparts can constitute multiple counts, provided they are not based on the same set of facts. See, e.g., United States v. Roberts, 783 F.2d 767, 769 (9th Cir. 1985); United States v. Ambrosiani, 610 F.2d 65, 70 (1st Cir. 1979), cert. denied, 445 U.S. 930 (1980). [4] Acts prior to, but in contemplation of, a bankruptcy filing are sufficient to support a violation. United States v. Martin, 408 F.2d 949, 954 (7th Cir. 1969) (affirming convictions under prior version of Section 152 based on defendants’ transfer of corporate assets prior to filing bankruptcy). [5] The term “fraudulently” means that the act was done with the intent to deceive. United States v. Diorio, 451 F.2d 21, 23 (2d Cir. 1971), cert. denied, 405 U.S. 955 (1972). [6] See also Stegeman v. United States, 425 F.2d 984, 986 (9th Cir. 1970) (“[Section 152] attempts to cover all the possible methods by which a bankrupt or any other person may attempt to defeat the Bankruptcy Act through an effort to keep assets from being equitably distributed among creditors.”) (quoting 2 Collier on Bankruptcy 1151 (14th ed. 1968)). [7] “A person who, having devised or intending to devise a scheme or artifice to defraud and for the purpose of executing or concealing such a scheme or artifice or attempting to do so— (1) files a petition under title 11, including a fraudulent involuntary petition under section 303 of such title; (2) files a document in a proceeding under title 11; or (3) makes a false or fraudulent representation, claim, or promise concerning or in relation to a proceeding under title 11, at any time before or after the filing of the petition, or in relation to a proceeding falsely asserted to be pending under such title, shall be fined under this title, imprisoned not more than 5 years, or both.” 18 U.S.C. § 157. [8] See United States v. Milwitt, 475 F.3d 1150, 1155 (9th Cir. 2007) (“[T]he focus of § 157 is a fraudulent scheme outside the bankruptcy which uses the bankruptcy as a means of executing or concealing the artifice.”). [9] “(a) Offense.—A person described in subsection (b) who knowingly and fraudulently appropriates to the person’s own use, embezzles, spends, or transfers any property or secretes or destroys any document belonging to the estate of a debtor shall be fined under this title, imprisoned not more than 5 years, or both. (b) Person to Whom Section Applies.— A person described in this subsection is one who has access to property or documents belonging to an estate by virtue of the person’s participation in the administration of the estate as a trustee, custodian, marshal, attorney, or other officer of the court or as an agent, employee, or other person engaged by such an officer to perform a service with respect to the estate.” 18 U.S.C. § 153 (“Embezzlement against estate”). “A person who, being a custodian, trustee, marshal, or other officer of the court— (1) knowingly purchases, directly or indirectly, any property of the estate of which the person is such an officer in a case under title 11; (2) knowingly refuses to permit a reasonable opportunity for the inspection by parties in interest of the documents and accounts relating to the affairs of estates in the person’s charge by parties when directed by the court to do so; or (3) knowingly refuses to permit a reasonable opportunity for the inspection by the United States Trustee of the documents and accounts relating to the affairs of an estate in the person’s charge, shall be fined under this title and shall forfeit the person’s office, which shall thereupon become vacant.” 18 U.S.C. § 154 (“Adverse interest and conduct of officers”). “Whoever, being a party in interest, whether as a debtor, creditor, receiver, trustee or representative of any of them, or attorney for any such party in interest, in any receivership or case under title 11 in any United States court or under its supervision, knowingly and fraudulently enters into any agreement, express or implied, with another such party in interest or attorney for another such party in interest, for the purpose of fixing the fees or other compensation to be paid to any party in interest or to any attorney for any party in interest for services rendered in connection therewith, from the assets of the estate, shall be fined under this title or imprisoned not more than one year, or both.” 18 U.S.C. § 155 (“Fee agreements in cases under title 11 and receiverships”). “Offense.—If a bankruptcy case or related proceeding is dismissed because of a knowing attempt by a bankruptcy petition preparer in any manner to disregard the requirements of title 11, United States Code, or the Federal Rules of Bankruptcy Procedure, the bankruptcy petition preparer shall be fined under this title, imprisoned not more than 1 year, or both.” 18 U.S.C. § 156(b) (“Knowing disregard of bankruptcy law or rule”). [10] “Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.” 18 U.S.C. § 1519. [11] “(a) Any judge, receiver, or trustee having reasonable grounds for believing that any violation under chapter 9 of this title or other laws of the United States relating to insolvent debtors, receiverships or reorganization plans has been committed, or that an investigation should be had in connection therewith, shall report to the appropriate United States attorney all the facts and circumstances of the case, the names of the witnesses and the offense or offenses believed to have been committed. Where one of such officers has made such report, the others need not do so. (b) The United States attorney thereupon shall inquire into the facts and report thereon to the judge, and if it appears probable that any such offense has been committed, shall without delay, present the matter to the grand jury, unless upon inquiry and examination he decides that the ends of public justice do not require investigation or prosecution, in which case he shall report the facts to the Attorney General for his direction.” 18 U.S.C. § 3057. [12] Section 2J1.2 provides a base offense level of fourteen for violations of Section 1519. U.S.S.G. § 2J1.2. [13] U.S.S.G. § 2B1.1(a)(2). [14] U.S.S.G. § 2B1.1(b); see also United States v. Messner, 107 F.3d 1448, 1457 (10th Cir. 1997) (holding bankruptcy fraud constitutes a violation of judicial process warranting the imposition of a two-level sentence enhancement under Section 2F1.1. of the Sentencing Guidelines). [15] U.S.S.G. § 2B1.1(b)(1); see also id. at Application Note 3 (“[L]oss is the greater of actual loss or intended loss.”); https://www.ussc.gov/guidelines/2018-guidelines-manual/annotated-2018-chapter-5. [16] 18 U.S.C. § 3663A(a)(1); see also U.S.S.G. § 5E1.1(a)(1). [17] United States v. Maturin, 488 F.3d 657, 661–63 (5th Cir. 2007) (restitution should be based on the value of the concealed assets covered by the count of conviction, but should not include the value of other concealed assets). [18] 18 U.S.C. §§ 3663A, 3664. A victim may receive more than its actual losses pursuant to a plea agreement. 18 U.S.C. § 3663(a)(3). [19] 18 U.S.C. § 3664(f)(1)(A). [20] https://www.justice.gov/ust; see also 28 U.S.C. § 586. [21] https://www.justice.gov/ust. [22] 28 U.S.C. § 586(a)(3)(F). [23] See https://www.justice.gov/ust/bankruptcy-data-statistics/reports-studies (FY 2019 data not yet available). [24] https://www.justice.gov/ust/report-suspected-bankruptcy-fraud. [25] Charles R. Walsh, Why is a Bankruptcy Charge Valuable to Any Investigation, United States Attorneys’ Bulletin (Mar. 2018), https://www.justice.gov/usao/page/file/1046201/download at 131. [26] See, e.g., Paul Kiel, How to Get Away With Bankruptcy Fraud, ProPublica (Dec. 22, 2017), https://www.propublica.org/article/how-to-get-away-with-bankruptcy-fraud (acknowledging a lack of resources available for bankruptcy-related prosecutions, but quoting DOJ as stating USTP activities and “collective efforts within the Justice Department and with the wider bankruptcy community may result not only in an increase in referrals and prosecutions, but also in greater deterrence of bankruptcy crimes at the outset”). [27] See, e.g., https://www.justice.gov/usao-sdny/file/762811/download, https://www.justice.gov/usao-sdny/file/762821/download (sentencing Bernie Madoff to 150 years in prison and imposing a money judgment of $170 billion in connection with his Ponzi scheme, following appointment of a trustee to oversee liquidation of his corporation Bernard L. Madoff Investment Securities LLC pursuant to the Securities Investor Protection Act of 1970); https://www.justice.gov/archive/usao/nys/pressreleases/July09/dreiermarcsentencingpr.pdf (sentencing attorney Marc Dreier to 20 years in prison and ordering over $1 billion in restitution and forfeiture after he pleaded guilty to fraud related to his operation of a Ponzi scheme and following the bankruptcy of Dreier’s firm, Dreier LLP). [28] https://www.justice.gov/usao-mt/pr/former-ceo-vann-s-inc-sentenced-5-years-prison-0. [29] https://www.justice.gov/usao-mn/pr/purechoice-founder-sentenced-22-years-prison-28-million-dollar-investment-fraud-scheme. [30] E.g., https://www.justice.gov/usao-mdla/pr/former-chief-financial-officer-restaurant-chain-indicted-wire-fraud-embezzlement. [31] https://www.justice.gov/usao-wdmi/pr/2018_0423_Vernier. [32] The husband was charged with three additional crimes. [33] https://www.justice.gov/usao-co/pr/stapleton-couple-sentenced-income-tax-evasion-and-bankruptcy-fraud. [34] See, e.g., https://www.sec.gov/news/press-release/2012-2012-198htm (charging former bank executive and his son with insider trading when the son bought and sold shares of the bank’s stock before and after information about the bank’s asset sale became public); https://www.sec.gov/news/digest/1993/dig102893.pdf at 3–4 (referencing charges brought against the chairman of the board of J. Baker, Inc. for selling 200,000 shares of stock prior to disclosure that the company planned to close a significant number of its retail outlets). [35] https://www.sec.gov/news/public-statement/statement-enforcement-co-directors-market-integrity. [36] E.g., https://www.commoncause.org/press-release/doj-sec-ethics-complaints-filed-against-senators-burr-feinstein-loeffler-inhofe-for-possible-insider-trading-stock-act-violations/. [37] https://www.sec.gov/rules/other/2020/34-88318.pdf. [38] https://www.justice.gov/archive/atr/public/press_releases/1993/211588.htm (bringing Sherman Act and bankruptcy fraud charges against a Spanish company for conspiring to rig bids for an aircraft at a bankruptcy auction); see also United States v. Seminole Fertilizer Corp., No. 97-1507-CIV-T-17E, 1997 WL 692953, at *6 (M.D. Fla. Sept. 19, 1997) (final judgment on Sherman Act charges related to its alleged agreement with another company to provide bid support to enable the defendant to defeat a rival bid during a bankruptcy auction). [39] 15 U.S.C. § 1. [40] See 11 U.S.C. § 363(n) (permitting the avoidance of a sale “if the sale price was controlled by an agreement among potential bidders,” along with the recovery of the difference in the value of the property and the price paid, along with costs, fees, and punitive damages); In re New York Trap Rock Corp., 160 B.R. 876, 881 (S.D.N.Y. 1993) (“§ 363(n) is in effect a supplementary antitrust law akin to § 1 of the Sherman Act (15 U.S.C. § 1) with its own separate jurisdictional groundwork and separate sanctions for violation).”), aff’d in part, vacated in part, 42 F.3d 747 (2d Cir. 1994). [41] See In re International Nutronics, Inc., 28 F.3d 965 (9th Cir. 1994), cert. denied, 513 U.S. 1016 (1994).
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s White Collar Defense and Investigations or Business Restructuring and Reorganization practice groups, or the following authors: Joel M. Cohen - New York (+1 212-351-2664, jcohen@gibsondunn.com) Mary Beth Maloney - New York (+1 212-351-2315, mmaloney@gibsondunn.com) Zainab N. Ahmad - New York (+1 212-351-2609, zahmad@gibsondunn.com) Robert A. Klyman - Los Angeles (+1 213-229-7562, rklyman@gibsondunn.com) Scott J. Greenberg - New York (+1 212-351-5298, sgreenberg@gibsondunn.com) Emma Strong - Palo Alto (+1 650-849-5338, estrong@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 29, 2020 |
Small Business Administration Publishes Additional Interim Final Rules and New Guidance Related to PPP Loan Eligibility and Accessibility

Click for PDF To Our Clients and Friends: In the last week, as the U.S. Small Business Administration (“SBA”) prepared for additional Paycheck Protection Program (the “Program” or “PPP”) funding and began accepting—for the second time—applications from participating lenders, the SBA issued a series of new guidance materials related to Program eligibility, fund accessibility, and loan amount calculations. With an additional $349 billion in funding to PPP under the Paycheck Protection Program and Health Care Enhancement Act (the “PPP and Health Care Enhancement Act”), the Program, established by the Coronavirus, Aid, Relief, and Economic Security (“CARES”) Act, is set to provide a total of $659 billion to help small businesses impacted by COVID-19 with funds to pay eight weeks of payroll and other eligible costs.  The PPP and Health Care Enhancement Act, which was enacted into law on April 24, 2020, and primarily designed to replenish funds for the Program, did not substantially change the overall structure of the Program.  The new law did, however, set aside $60 billion in funding for “community financial institutions” to serve underserved small businesses and nonprofit organizations[1] and directed the SBA to allow agricultural enterprises[2] to apply for Economic Injury Disaster Loans.  With the additional funds Congress provided in the PPP and Health Care Enhancement Act, the SBA started accepting PPP applications from lenders again on April 27, 2020. This client alert, the sixth in a series of alerts regarding the Program,[3] will address the SBA’s (1) Fourth Interim Rule (the “Fourth IFR”), which speaks to, among other topics, the eligibility (or ineligibility) of private equity firms, hedge funds, and the gaming industry to participate in the Program; (2) certification that a PPP loan is needed in order to support ongoing operations; (3) Fifth Interim Final Rule (the “Fifth IFR”), acknowledging a disparity in treatment under the maximum loan calculation under the CARES Act for seasonal employers and Sixth Interim Final Rule (the “Sixth IFR”) on disbursements; (4) guidance on how to calculate maximum loan amounts and related payroll documentation requirements; and (5) guidance on how to calculate the number of employees under employee-based size standards for eligibility. Thematically, much of the new guidance is cautionary in nature; warning public, private equity-held, and other businesses with access to liquidity that PPP loans are not for them.  Adding teeth to those warnings the Treasury Department also announced that all PPP loans of more than $2 million will be audited. The Fourth Interim Final Rule Under the Fourth IFR, hedge funds and private equity firms are explicitly prohibited from receiving a PPP loan because they are “primarily engaged in investment or speculation.”  This rule is consistent with prior restrictions on Section 7(a) loans identified in 13 CFR §120.110 and described in SBA’s Standard Operating Procedure (SOP) 50 10, which prohibited loans to “speculative businesses” for the “sole purpose of purchasing and holding an item until the market price increases” or “[e]ngaging in a risky business for the chance of an unusually large profit.”  Prior to the Fourth IFR “speculative” businesses included those “[d]ealing in stocks, bonds, commodity futures, and other financial instruments.”[4] The Fourth IFR acknowledges, however, that a portfolio company of a private equity fund may still be eligible for a PPP loan and concludes that “[t]he affiliation rules apply to private equity-owned businesses in the same manner as any other business subject to outside ownership or control.”  The acknowledgment comes with a cautionary note:  that borrowers should “carefully review” the PPP loan application certifications, including that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The Fourth IFR also contains the following additional clarifying provisions:

  • Government-Owned Hospitals. Hospitals otherwise eligible to receive a PPP loan are not determined ineligible because of ownership by state or local government if the hospital receives less than 50% of its funding from state or local government sources, exclusive of Medicaid.
  • Legal Gaming Activities. Businesses that receive legal gaming revenues are eligible for PPP loans.  In a shift from the SBA’s Third Interim Rule, the Fourth IFR states that 13 CFR 120.110(g) (providing that businesses deriving more than one-third of gross annual revenue from legal gambling activities are ineligible for SBA loans) is inapplicable to PPP loans.  Businesses that receive illegal gaming revenues remain ineligible.
  • Employee Stock Ownership Plans. Participation in an ESOP (as defined in 15 U.S.C. § 632(q)(6)) does not result in an affiliation between the business and the ESOP.
  • Bankruptcy Proceedings. An applicant is ineligible for PPP loans if it, or its owner, is the debtor in a bankruptcy proceeding at the time of the application or any time before the loan is disbursed.
Borrower Certification Safe Harbor In the SBA’s FAQ, the SBA reiterates that “all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application.”  Regardless of eligibility requirements, borrowers must certify in good faith that the PPP loan request is necessary even though the CARES Act suspended the ordinary requirement that borrowers must be unable to obtain credit elsewhere.  Specifically, the guidance states that borrowers need to consider “their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business,” when certifying that the PPP loan request is necessary to ongoing operations. The guidance concluded that it is “unlikely” a public company “with substantial market value and access to capital markets will be able to make the required certification in good faith, “ and cautioned that such companies should be prepared to demonstrate to the SBA, upon request, the basis for its certification.  In addition, yesterday, Secretary of the Treasury Steven Mnuchin said that the government will audit any PPP loans above $2 million. Notably, the Fourth IFR establishes a form of amnesty by allowing “borrowers [to] promptly repay PPP loan funds that the borrower obtained based on a misunderstanding or misapplication of the required certification standard.”  Under the Fourth IFR, any borrower that applied prior to April 23, 2020 and repays the loan in full by May 7, 2020 “will be deemed by SBA to have made the required certification in good faith.” The Fifth and Sixth Interim Final Rules On April 27, 2020, the SBA issued the Fifth Interim Final Rule (available here) to provide seasonal employers with an alternative method to calculate their maximum loan amount.  In doing so, the Fifth IFR stated that without the rule, “many summer seasonal businesses would be unable to obtain funding on terms commensurate with those available to winter and spring seasonal businesses.”  Under Section 1102 of the CARES Act, a seasonal employer may determine its maximum loan amount by reference to the employer’s average total monthly payments for payroll during “the 12-week period beginning February 15, 2019, or at the election of the eligible [borrower], March 1, 2019, and ending June 30, 2019.”  The Fifth IFR allows seasonal employers to calculate the maximum loan amount using any consecutive 12 week period between May 1, 2019 and September 15, 2019.  The Rule also clarifies that if a seasonal business was not fully operating or dormant as of February 15, 2020, it is still eligible to receive a PPP loan. The Sixth Interim Final Rule, posted on April 28, 2020 and available here, provides that lenders must make a one-time, full disbursement of the PPP loan within ten calendar days of loan approval (defined as when the loan is assigned an SBA loan number).  Loan approvals will be cancelled for any loans that are not disbursed because of a borrower’s failure to provide required loan documentation, including a promissory note, within 20 calendar days of loan approval.  The Sixth IFR provides for transition rules for those loans that have received an SBA loan number prior to the posting of the Sixth IFR but are not yet fully disbursed. Maximum Loan Calculation and Payroll Documentation Requirements In addition, on April 24, 2020, the SBA provided guidance (available here) to assist businesses in calculating their payroll costs for determining the maximum possible PPP loan amount.  Under the guidance, the SBA outlines the methodology potential borrowers should use to calculate the maximum amount they can borrow, as well as the documentation the borrower should provide to substantiate the loan amount.  A table summarizing the required documentation as articulated in the guidance is below. The SBA guidance reminds borrowers that, under most circumstances, “PPP loan forgiveness amounts will depend, in part, on the total amount spent during the eight-week period following the first disbursement of the PPP loan.” Records from a retirement administrator, or a health insurance company or third-party administrator for a self-insured plan can be used to demonstrate employers retirement and health insurance contributions.

Supporting Documentation Requirements

No. Eligible Borrower 2019 Documentation 2020 Documentation
1. Self-employed with no employees
  • IRS Form 1040 Schedule C.
  • IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record establishing you were self-employed in 2019.
Invoice, bank statement, or book of record establishing operation on February 15, 2020.
2. Self-employed with employees
  • IRS Form 1040 Schedule C.
  • IRS Form 941[1], or IRS Form W-2s, IRS Form W-3, or payroll processor reports, including quarterly and annual tax reports.
  • State quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements).
  • Documentation of any retirement or health insurance contributions.
Payroll statement or similar documentation from the pay period that covered February 15, 2020.
3. Self-employed farmers
  • IRS Form 1040 Schedule 1 and Schedule F.
4. Partnerships without employees
  • IRS Form 1065 (including K-1s).
Invoice, bank statement, or book of record establishing the partnership was in operation on February 15, 2020.
5. Partnerships with employees
  • IRS Form 1065 (including K-1s).
  • IRS Form 941, or IRS Form W-2s, IRS Form W-3, or payroll processor reports, including quarterly and annual tax reports.
  • State quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements).
  • Documentation of any retirement or health insurance contributions.
Payroll statement or similar documentation from the pay period that covered February 15, 2020.
6. S Corporations or C Corporations
  • IRS Form 941, or IRS Form W-2s, IRS Form W-3, or payroll processor reports, including quarterly and annual tax reports.
  •  State quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements)
  • Filed business tax return (IRS Form 1120 or IRS 1120-S) or other documentation of any retirement and health insurance contributions.
Payroll statement or similar documentation from the pay period that covered February 15, 2020.
7. Eligible Non-Profit Organizations
  • IRS Form 941, or IRS Form W-2s, IRS Form W-3, or payroll processor reports, including quarterly and annual tax reports.
  • State quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements)
  • IRS Form 990 or other documentation of any retirement and health insurance contributions
Payroll statement or similar documentation from the pay period that covered February 15, 2020.
Employee-Based Size Standards and Definitions In guidance issued on April 26, 2020 (available here), the SBA reiterated that under the 500-employee or other applicable employee-based threshold, the term “employee” under the CARES Act includes “individuals employed on a full-time, part-time, or other basis.”  Although this is consistent with the original text of the CARES Act, the guidance confirms that a part-time employee working 10 hours per week should be counted the same as a full-time employee for purposes of loan eligibility.  In contrast, the guidance acknowledges, to determine the extent of any reduction in the loan forgiveness amount in the event of a reduction in headcount, the CARES Act uses the standard of “full-time equivalent employees.” Although the CARES Act and related guidance issued to date do not define the term in the context of the Program, Title II of the CARES Act defines “full-time employee” by referencing the Internal Revenue Code, 26 U.S.C. § 4980H, which defines the term as “an employee who is employed on average at least 30 hours of service per week.”  In addition, the Internal Revenue Service defines “full-time equivalent employee” as “a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.”  Absent further guidance, these definitions may be instructive.
   [1]   A search tool for identifying all eligible lenders is available on the SBA website here.    [2]   Existing law defines “agricultural enterprises” to mean “small business concerns engaged in the production of food and fiber, ranching, raising of livestock, aquaculture, and all other farming and agricultural-related industries.”    [3]   For additional details about the PPP please refer to Gibson Dunn’s Frequently Asked Questions to Assist Small Businesses and Nonprofits in Navigating the COVID-19 Pandemic and prior Client Alerts about the Program: SBA “Paycheck Protection” Loan Program Under the CARES Act; Small Business Administration and Department of Treasury Publish Paycheck Protection Program Loan Application Form and Instructions to Help Businesses Keep Workforce Employed; Small Business Administration Issues Interim Final Rule and Final Application Form for Paycheck Protection Program; Small Business Administration Issues Interim Final Rule on Affiliation, Summary of Affiliation Tests, Lender Application Form and Agreement, and FAQs for Paycheck Protection Program, and Analysis of Small Business Administration Memorandum on Affiliation Rules and FAQs on Paycheck Protection Program.    [4]   See SBA’s Standard Operating Procedure (SOP) 50 10.    [5]   Very small businesses that file an annual IRS Form 944 instead of quarterly IRS Form 941 should provide IRS Form 944.
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors: Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) Roscoe Jones, Jr.* – Washington, D.C. (+1 202-887-3530, rjones@gibsondunn.com) Alisa Babitz – Washington, D.C. (+1 202-887-3720, ababitz@gibsondunn.com) Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com) Alexander Orr – Washington, D.C. (+1 202-887-3565, aorr@gibsondunn.com) William Lawrence – Washington, D.C. (+1 202-887-3654, wlawrence@gibsondunn.com) Samantha Ostrom – Washington, D.C. (+1 202-955-8249, sostrom@gibsondunn.com) * Not admitted to practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP. © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 28, 2020 |
Preparing For A Surge In Virus-Related Whistleblower Claims

New York partner Lee Dunst, Denver partner Jessica Brown and Los Angeles associate Daniel Weiss are the authors of "Preparing For A Surge In Virus-Related Whistleblower Claims," [PDF] published by Law360 on April 23, 2020.

April 24, 2020 |
WirtschaftsWoche Ranks Gibson Dunn as a 2020 Top Law Firm in White Collar

In its list of the most renowned law firms and lawyers in White Collar, German publication WirtschaftsWoche has recognized Gibson Dunn as a Top Law Firm 2020. The publication has also recognized Frankfurt partner Finn Zeidler as a Top Lawyer 2020 in White Collar. The list was published on April 24, 2020.

April 24, 2020 |
Gibson Dunn Earns 84 Top-Tier Rankings in Chambers USA 2020

In its 2020 edition, Chambers USA: America’s Leading Lawyers for Business awarded Gibson Dunn 84 first-tier rankings, of which 31 were firm practice group rankings and 53 were individual lawyer rankings. Overall, the firm earned 302 rankings – 84 firm practice group rankings and 218 individual lawyer rankings. Gibson Dunn earned top-tier rankings in the following practice group categories: National – Antitrust National – Antitrust: Cartel National – Appellate Law National – Corporate Crime & Investigations National – FCPA National – Outsourcing National – Product Liability: Consumer Class Actions National – Real Estate National – Retail: Corporate & Transactional National – Securities: Regulation CA – Antitrust CA – IT & Outsourcing CA – Litigation: Appellate CA – Litigation: General Commercial CA – Litigation: Securities CA – Litigation: White-Collar Crime & Government Investigations CA – Real Estate: Zoning/Land Use CA (Los Angeles & Surrounds) – Employee Benefits & Executive Compensation CA – Real Estate: Northern California CA – Real Estate: Southern California CO – Litigation: White-Collar Crime & Government Investigations CO – Natural Resources & Energy DC – Corporate/M&A & Private Equity DC – Labor & Employment DC – Litigation: General Commercial DC – Litigation: White-Collar Crime & Government Investigations NY – Litigation: General Commercial: The Elite NY – Real Estate: Mainly Corporate & Finance NY – Technology & Outsourcing TX – Antitrust This year, 156 Gibson Dunn attorneys were identified as leading lawyers in their respective practice areas, with some ranked in more than one category. The following lawyers achieved top-tier rankings:  D. Jarrett Arp, Michael Bopp, Theodore Boutrous, Jessica Brown, Jeffrey Chapman, Linda Curtis, Michael P. Darden, Patrick Dennis, Mark Director, Thomas Dupree, Scott Edelman, Miguel Estrada, Stephen Fackler, Sean Feller, Eric Feuerstein, Amy Forbes, Stephen Glover, Richard Grime, Peter Hanlon, Hillary Holmes, Daniel Kolkey, Brian Lane, Jonathan Layne, Ray Ludwiszewski, Karen Manos, Randy Mastro, Cromwell Montgomery, Stephen Nordahl, Theodore Olson, Richard Parker, William Peters, Tomer Pinkusiewicz, Jesse Sharf, Orin Snyder, George Stamas, Beau Stark, Charles Stevens, Daniel Swanson, Steven Talley, Helgi Walker, Robert Walters, F. Joseph Warin, Debra Wong Yang, and Meryl Young.

April 8, 2020 |
Fraud in the COVID-19 Age: Examining and Anticipating Changing Enforcement Activity

Click for PDF The COVID-19 pandemic is already reshaping federal and state regulatory enforcement actions in the United States and around the world.  Although it is too early to know the path or impact of future enforcement, experience gleaned from previous post-disaster enforcement activity and an analysis of enforcement activity to date brings into focus a few areas likely to prominently figure in regulator’s activity.  These changes will not be consistent.  As in the past, the political environment, enforcement resources, and ways in which fraud emerges from the crisis will differ across domestic and international borders. With this in mind, in this alert, the beginning of a series of on-going Gibson Dunn alerts, we provide an overview of early enforcement actions in the United States, the United Kingdom, the European Union, and Asia, as well as specific areas in which increased enforcement activity is likely in the future: namely, insider trading, state-level consumer protection, and False Claims Act enforcement. Gibson Dunn will continue to monitor enforcement actions and trends in the United States and abroad and provide updated analysis to assist our clients as they navigate the changing tides. COVID-19 Enforcement in the United States On March 20, 2020, the U.S. Department of Justice issued a press release announcing that Attorney General William Barr “directed all U.S. attorneys to prioritize the investigation and prosecution of Coronavirus-related fraud schemes.”[1]  According to the press release, Deputy Attorney General Jeffrey Rosen “further directed each U.S. Attorney to appoint a Coronavirus Fraud Coordinator to serve as the legal counsel for the federal judicial district on matters relating to the Coronavirus, direct the prosecution of Coronavirus-related crimes, and to conduct outreach and awareness.”[2]  Attorney General Barr also “urg[ed] the public to report suspected fraud schemes related to COVID-19.”[3] On March 22, 2020, the DOJ announced its first action in federal court to combat fraud related to COVID-19.  The DOJ sought, and received, a temporary restraining order in the United States District Court for the Western District of Texas against a website offering access to a (non-existent) Coronavirus vaccine kit from the World Trade Organization.[4] On March 24, 2020, the Department of Justice established the COVID-19 Hoarding and Price Gouging Task Force “to address COVID-19-related market manipulation, hoarding, and price gouging.”[5]  On April 2, 2020, the Department of Justice, in partnership with the Department of Health and Human Services, announced “the distribution of hoarded personal protective equipment (PPE), including approximately 192,000 N95 respirator masks,” discovered by the Federal Bureau of Investigations during an enforcement operation.[6] Similarly, the United States Securities and Exchange Commission (“SEC”) has announced that, in response to the Coronavirus pandemic, it remains focused on “continuity of Commission operations,” “monitoring market functions and system risks,” “providing prompt, targeted regulatory relief and guidance,” and “maintaining [its] enforcement and investor protection efforts.”[7]  Recently, the SEC announced trading suspensions in connection with false COVID-19 information, including the suspension of trading for a company that made statements “about having, and being able to obtain, large quantities of N95 masks,”[8] the suspension of trading for a company with “purported international marketing rights to an approved coronavirus treatment,”[9] the suspension of trading for a company in which third-party promoters disseminated information about “the viability of the company’s product to treat the coronavirus,”[10] and the suspension of trading of an OTC company amidst “concerns about investors confusing this issuer with a similarly-named NASDAQ-listed issuer . . . which has seen a rise in share price during the on-going COVID-19 pandemic.”[11] Further, the SEC’s Office of the Chief Accountant has identified areas of particular focus with respect to ensuring high-quality financial information reporting, including the importance of well-reasoned accounting judgment and estimates (such as, fair value and impairment considerations, revenue recognition, and going concern), audit issues (in particular auditor independence issues in partnership with the Public Company Accounting Oversight Board), the impact of international accounting and audit-related standards, and continued investor outreach.[12]  Notably, in the post-2008 financial crisis period, the SEC brought enforcement actions in connection with, among other things, concealed risks, misleading disclosures, false statements with respect to a company’s financial position, and the failure by auditors to appropriately scrutinize management estimates.[13]  For more information on potential SEC enforcement, please refer to Gibson Dunn’s recent alert “SEC Enforcement Focus on Fallout from COVID-19: Insights for Public Companies and Investment Advisers During a Crisis.”[14] Past may be prologue in connection with post-crisis federal enforcement—particularly with respect to oversight of emergency government stimulus funds.  On March 27, 2020, the President signed into law the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), a $2 trillion emergency stimulus package.[15]  During the 2008 financial crisis, Congress similarly established emergency government stimulus programs, including the Troubled Asset Relief Program (“TARP”) “to implement programs to stabilize the financial system.”[16]  Regulatory oversight was included in the legislation establishing TARP, specifically, the Office of the Special Investigator General for the Troubled Asset Relief Program (“SIGTARP”).  SIGTARP, which remains active today, “is a federal law enforcement agency and an independent audit watchdog that targets financial institution crime and other fraud, waste, and abuse related to TARP.”[17]  Notably, the CARES Act also establishes a Special Inspector General for Pandemic Recovery (“SIGPR”) to “conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments” made by the Department of Treasury pursuant to the CARES Act.[18]  On April 4, 2020, the President nominated Brian D. Miller as the Special Inspector General.[19]  Mr. Miller is currently a special assistant to the President and senior associate counsel in the Office of White House Counsel.[20]  In addition to SIGPR, the CARES Act established a Pandemic Response Accountability Committee and a Congressional Oversight Commission.[21] SIGTARP’s continued enforcement function over a decade after its enactment predicts that the even larger, suddenly-organized distribution of government funds through the CARES Act, and other legislative efforts that may follow it, will dominate much of the enforcement agenda for the next decade.  That so much of it involves funds loaned through federally-insured banks will provide the government with the benefit of a ten-year statute of limitations to proceed.[22]  For instance, we should expect that law enforcement will look to loan or other government funding applications as a regular component of financial fraud investigations involving domestic targets or subjects, scouring them for alleged misstatements. COVID-19 Enforcement in The United Kingdom In the UK, the Coronavirus Act 2020[23] and the Health Protection (Coronavirus) Regulations 2020[24] have mandated amongst other things a national “lockdown,” the closure of businesses except those deemed to be essential, and restrictions on traveling to work unless necessary.  The Coronavirus Act contains various offences for those that flout the rules, and limited related enforcement action has been taken by authorities. A number of agencies have reported a spike in scams, including in the financial services sector, and there were reports early on that some companies were exploiting the pandemic and engaging in price gouging.  Recently, a senior UK civil servant told Parliament that he expects to see organized crime targeting the Government’s multibillion-pound employee furlough scheme. The Crown Prosecution Service issued guidance to police forces and prosecutors directing them that “all COVID-19 related cases” must be fed into the criminal justice system “Immediately” (above “High Priority”), including, for example, assaults on emergency workers.[25] Competition and Consumer Law:  The Competition and Markets Authority (“CMA”) has established a COVID-19 Taskforce[26] and in March issued Guidance indicating that competitor coordination will be permitted (and no enforcement action will be taken) if it is undertaken solely to address market needs arising from the pandemic and lasts no longer than necessary,[27] and an open letter to drug makers and food and drink companies warning against capitalizing on COVID-19 by charging unjustifiably high prices for essential goods or by making misleading claims about their efficacy.[28]  The CMA publicly stated that it “will not tolerate unscrupulous businesses exploiting the crisis as a ‘cover’ for non-essential collusion.”[29]  This includes “exchanging [] information on future pricing or business strategies, where this is not necessary to meet the needs of the current situation.”[30] Financial Services Sector:  The Financial Conduct Authority, the UK’s financial services regulator and enforcement agency, has stated that during the COVID-19 pandemic, it is focusing its efforts on ensuring that consumers remain protected and that markets continue to function well.  The FCA made several announcements in response to COVID-19, including alerting consumers to pension scams.[31]  The FCA indicated that it will not change its enforcement policy and will continue to investigate and bring enforcement action.  It has warned publicly that it will not “tolerate conduct that seeks to exploit the situation and harms consumers.”[32] Firms must continue to monitor their compliance systems and adapt to new risks.  The FCA has recognized that increased numbers of people working from home will pose unique challenges and called on firms to continue to monitor their systems and controls, for example in relation to the recording of sales and other calls.  Anti-money laundering requirements (such as customer identification checks) must still be followed, although the FCA recognizes that firms may have to adapt their approach.  The FCA is likely to give firms some latitude, but firms must continue to monitor risks and look at alternative options if routine compliance controls cannot operate. Finally, the FCA wrote to companies during March imposing a two week moratorium to delay publication of preliminary results and thereby prevent investors relying on outdated market information.  In the same statement announcing the moratorium, the FCA reminded companies that the Market Abuse Regulation, the EU-wide law dealing with market abuse, market manipulation, and insider dealing, remains in force.[33] Criminal Enforcement Agencies:  The National Crime Agency and National Economic Crime Center have published several announcements, including a warning of organized crime groups exploiting the COVID-19 pandemic by using coronavirus-themed malicious apps, websites, and email phishing attacks in order to obtain personal and financial information;[34] and alerting the public to fraud and online scams including where individuals intend to purchase medical supplies online, such as face masks and COVID-19 testing kits, which never arrive or are fake.  We expect to see a spike in prosecutions of those who are engaged in COVID-19-related fraud and other scams.[35]  The NCA has not published any guidance regarding implications of the pandemic for the filing of Suspicious Activity Reports. The UK Serious Fraud Office has yet to make any announcements in response to COVID-19, but is continuing its investigative efforts where possible.  The lockdown measures will undoubtedly result in delays in SFO investigations (for example the agency may not be able to conduct interviews), but the extent of those delays will depend on the length of the lock down.  To date, at least one SFO trial has been adjourned and remains on hold until further notice, and there are likely to be significant delays to others as the Lord Chief Justice has ordered a halt to all new jury trials. Information Commissioner’s Office:  The ICO has issued guidance stating that it would not penalize companies that the ICO “know[s] need to prioritise other areas or adapt their usual approach during this extraordinary period.”[36]  For further details, please refer to the Gibson Dunn alert “Privacy and Cybersecurity Issues Related to COVID-19.”[37] International Trade:  The UK has prohibited the parallel export of certain critical medicines currently being tested for efficacy in treating COVID-19.  On March 20, 2020, over 80 additional medicines used to treat patients in intensive care units were banned from parallel export from the UK in order to seek to ensure uninterrupted supply to NHS hospitals treating coronavirus patients.  For further details, please refer to the Gibson Dunn alert “COVID-19 & International Trade – Nation-State Responses to a Global Pandemic.”[38] COVID-19 Enforcement in The European Union In the European Union, the primary authority to fight COVID-19 and its detrimental effects on health and security lies with each of the Member States.  As such, the rules and the measures adopted by Member States differ in detail among the Member States (and, for example in Federations like Germany, among different regions within a Member State). Most of the Member States have imposed severe measures, including travel restrictions, limitations to public life, and lockdowns as a response to the pandemic.  Most notably, some Member States have imposed curfews on their citizens to varying degrees of severity.  Failure to follow such measures—e.g. opening retail stores in spite of a prohibition or ignoring a curfew—may, depending on the Member State, constitute a regulatory or even a criminal offense.[39]  The longer these restrictions remain, the more likely it becomes that enforcement actions will play a bigger role in the near future. European security standards already are shifting focus as criminals try to benefit from the current state of affairs.  Following the COVID-19 outbreak, EU law enforcement agencies, such as Europol, have observed a rise in crime in the following areas:[40] Cybercrime, Fraud, Counterfeit and Substandard Goods, and Organized Property Crimes. Cybercrime:  Cybercrime appears to be on the rise because criminals are using the COVID-19 crisis to carry out social engineering attacks themed around the pandemic to distribute various malware packages.  As a greater number of employers institute work from home policies and allow external connections to their organizations’ systems, cybercriminals are expected to increase attacks on networks.  Most critically, there are signals that cybercriminals have already attacked critical infrastructure such as hospitals (which is believed to have already occurred in the Czech Republic).  Prior to the pandemic, in an effort to prepare for major cross-border cyberattacks, a EU Law Enforcement Emergency Response Protocol (“EU LE ERP”) was adopted in December 2018.  The EU LE ERP supports EU law enforcement authorities in providing immediate response to major cross-border cyber-attacks through rapid assessment, the secure and timely sharing of critical information, and effective coordination of the international aspects of their investigations.[41] Fraud:  Fraud linked to the current pandemic often preys on the fear of EU citizens.  In one recent case, for example, the transfer of €6.6 million by one company to another company in Singapore in order to purchase alcohol gels and FFP3/2 masks is under investigation because the goods were never received by the buyer.  Similarly, criminals are also reported to have adapted investment scams to solicit speculative investments in stocks related to COVID-19 with promises of substantial profits. As in the United States, we expect European investigations of fraud and subsidy fraud offenses will play a bigger role as the wave of applications to get access to state aid is now under way.  Various governments are keen on making support funds[42] for businesses available—“quickly and without red tape,” as governments like to emphasize—and the age-old dynamic of fraud following urgency is equally predictable in Europe.  As far as European funds are affected by such fraudulent acts (see, e.g., the new EU program for temporary Support to mitigate Unemployment Risks in an Emergency, also known as SURE[43]), EU agencies such as Europol and OLAF, the European Anti-Fraud Office, likely will get involved. Counterfeit and Substandard Goods:  The sale of counterfeit health care, sanitary/pharmaceutical products and personal healthcare equipment has become one of the main areas of criminal activity in the EU.  These schemes often leverage people’s fear of infection.  For example, the reported distribution of fake coronavirus home testing kits are particularly worrying from a public health perspective, because apart from being ineffective these kits may inflict bodily harm upon their users. Organized Property Crime:  Organized Property Crimes include the ‘nephew’ or ‘grandchild’ trick and the impersonation of representatives of public authorities.  Criminals have adapted their modi operandi  to the current situation.  The number of attempts involving these types of thefts and scams is likely to increase across the EU.  Multiple Member States have reported to Europol a similar modus operandi for theft.  The perpetrators gain access to private homes by impersonating medical staff providing information material or hygiene products or conducting a “corona test.”  The EU tries to handle the situation by working closely with all the Member States enforcement authorities on a 24/7 basis and informs the public about these scams regularly.[44] That these forms of illicit activity occur now is no surprise.  But the way European regulators redeploy resources will orient the direction companies and other market actors staff and pursue compliance initiatives and should be carefully followed. COVID-19 Enforcement in Asia Regulators in Asian countries, which have been combating COVID-19 since January, have ramped up enforcement efforts against market misconduct such as price gouging of medical supplies and false advertising. In China, the State Administration for Market Regulation and its local branches have launched a series of enforcement actions targeting sales of substandard face masks and price gouging of face masks as well as raw materials that are essential for producing medical supplies.  Regulators around the country have initiated approximately 14,800 investigations relating to pricing violations, half of which involved face masks.[45]  As some cities in China are resuming normal business activities, local regulators are adopting a more comprehensive approach in combating market misconduct.  The Shanghai Municipal Administration for Market Regulation, a key regulator for multinational companies that have operations in Shanghai, has announced an anti-unfair competition campaign that will last until the end of July of this year.[46]  The campaign focuses on, among other things, false advertising and commercial bribery in medical device procurement, medical services, and education services.  Notably, the Shanghai Municipal Administration for Market Regulation has called out potentially anti-competitive practices such as donating medical devices in exchange for the purchase of consumables.[47] Regulators in Korea, including the Korean National Police Agency, the National Tax Services, the Ministry of Food and Drug Safety, and the Fair Trade Commission, have formed a joint task force to crack down on unfair market practices such as price gouging.[48]  For example, the Korean National Tax Services has reportedly cracked down on 222 retailers and 41 mask manufacturers for hoarding and price gouging behavior.[49] To contain the spread of COVID-19, government agencies and private enterprises in China are collecting personal data for contact tracing.  Regulators have stepped up the protection of the personal information collected.  In February 2019, the Cyberspace Administration of China (“CAC”) issued a circular regarding the collection and use of personal information in connection with COVID-19.[50]  The CAC stressed in the circular that companies are only allowed to collect personal information from their employees as required by government entities for the purpose of containing COVID-19 or for purposes directly related to the performance of employment contracts, and should not use the personal information that they collected for any other purposes.[51]  In particular, companies and government agencies are prohibited from disclosing names and family addresses of COVID-19 patients unless consent is given.[52]  The Chinese government has already prosecuted several cases involving unauthorized disclosure of personal information of COVID-19 patients.[53]  For instance, a local branch of the Commission for Discipline Inspection of the Communist Party of China is investigating a deputy at Hunan Yiyang County Health Bureau for disseminating a case study involving a COVID-19 patient that contains protected personal information of the patient and the patient’s eleven relatives.[54] Enforcement Trends to Watch: Insider Trading There has been widespread coverage—and condemnation—of potential insider trading by at least four senators in the early weeks of the Coronavirus pandemic.  These senators allegedly received confidential briefings on how badly the U.S. economy might be hit by the pandemic, and thereafter sold substantial stock holdings before the recent Coronavirus-induced market drops, thus avoiding millions of dollars in losses.[55]  The U.S. Department of Justice is now investigating,[56] the U.S. Securities and Exchange Commission issued a blanket warning against trading on material non-public information related to the coronavirus,[57] and private lawsuits are beginning to be filed.[58] The last time allegations of pervasive congressional insider trading received this much attention, the federal government responded by passing the Stop Trading on Congressional Knowledge Act (the “STOCK Act”) in 2012.  Designed to prevent members of Congress and other government employees from using nonpublic information derived from their official positions for personal benefit or other purposes, the STOCK Act prohibits members and employees of Congress and others from using “nonpublic information derived from such person’s position . . . or gained from the performance of such person’s official responsibilities as a means for making a private profit.”[59]  However, certain portions of the STOCK Act that mandated greater transparency, reporting, and applicability were quietly rolled back in 2013.[60]  Recent events have highlighted that potential insider trading by government officials continues to be a problem, and the public is again lamenting the country’s apparent inability to effect meaningful reform—both in Washington, D.C., and with respect to insider trading generally.[61]  Indeed, some have suggested that it may be difficult to prosecute these senators for their alleged Coronavirus-related trading, given the many challenges built into our current insider trading jurisprudence.[62] This renewed focus on insider trading arising from information asymmetries in COVID-19 related fact patterns may provide the public pressure necessary to enact real change in our country’s current insider trading laws.  There are no laws specifically addressing insider trading in the U.S.  Rather, insider trading law arises from a series of increasingly complex federal court decisions interpreting the anti-fraud provisions of the Securities Exchange Act of 1934.  Over the years, there have been various initiatives to replace our current regime with explicit insider trading legislation—as other countries have done[63]—but they have all failed to gain traction to date.[64] It is unclear whether the current public outcry hardens into the motivation necessary to systematically and comprehensively address this issue once and for all.  When the dust of the current public health crisis settles, this may emerge as a top legislative issue—similar to the enactment of the Foreign Corrupt Practices Act (“FCPA”) in 1977 following concerns about widespread bribery of foreign officials by U.S. companies.[65] Enforcement Trends to Watch: Enhanced State-Level Consumer Protection State Attorneys General have announced their intentions to focus on fraud in connection with the pandemic—specifically identifying consumer protection and price gouging as areas already requiring enforcement.[66]  To date, state Attorneys General have, among other things, sought temporary restraining orders and permanent injunctions to stop the sale of alleged COVID-19 treatments,[67] issued subpoenas against third-party sellers concerning allegations of price gouging,[68] and sent cease and desist letters to individuals and entities marketing products as COVID-19 treatments.[69]  Numerous state Attorneys General have partnered with federal authorities to identify and prosecute COVID-19-related fraud.[70] In addition to new federal regulatory enforcement initiatives, we can expect that preexisting anti-fraud initiatives may swiftly ripen into expanded investigative authority.  The aforementioned progression of the FCPA in the aftermath of Watergate presages how enforcement initiatives facing uncertain enactment suddenly gather steam to implementation.  Two state initiatives—in New York and California—may soon prove this point.[71]  In response to perceived lax enforcement over the financial services industry at the federal level by the Consumer Financial Protection Bureau (“CFPB”), both New York and California have been pursuing significant expansions of the regulatory powers of state agencies. In New York, Governor Andrew Cuomo’s January 2020 proposed budget sought to expand the enforcement authority of the New York State Department of Financial Services (“DFS”), the state’s banking and insurance regulator.[72]  The proposed budget expanded the definition of “financial product or service” to include “the sale or provision to a consumer or small business of any security, investment advice, or money management device,” which could have turned the DFS into another state securities regulator (in addition to the New York State Attorney General)—with implications far beyond simply banks and insurance companies operating in New York.[73]  The pre-pandemic proposed budget further expanded the power of DFS to levy (increased) civil penalties by removing requirements to prove intentionality and by including oversight of unfair, deceptive, or abusive acts or practices.[74]  If passed, the DFS’ authority could have mirrored the authority of the state Attorney General under the Martin Act—the New York State law aggressively utilized by the state Attorney General to conduct investigations and bring civil and criminal actions for securities fraud.[75]  The enacted budget, signed by Governor Cuomo on April 3, 2020, however, removed the proposal from the final budget.[76]  New York’s effort to enhance its state financial services regulator have fallen to the wayside in response to the expected COVID-19 budget crunch.[77] In California, Governor Gavin Newsom’s proposed 2020-2021 budget, which must be voted on by June 15, 2020, expands and restructures the California Department of Business Oversight (“DBO”).  At present, the DBO oversees the operations of state-licensed financial institutions, such as banks, and licenses and regulates a variety of financial businesses, such as securities brokers and dealers.[78] The proposed budget includes the California Consumer Financial Protection Law which “seeks to cement California’s consumer protection leadership amidst a retreat on that front by federal agencies.”[79]  Under this proposal, the DBO would be rebranded as the Department of Financial Protection and Innovation.  Its budget would increase by $19.3 million over the course of 2-3 years, and its staffing would increase by 90 positions over the same period.[80] Explaining that “[t]he federal government’s rollback of the CFPB leaves Californians vulnerable to predatory businesses,” the California Consumer Financial Protection Law will expand the DBO’s authority to oversee and regulate unlicensed financial services providers not currently subject to regulatory oversight, including debt collectors, credit reporting agencies, and financial technology companies.[81] Initially, funding is proposed to be covered by available settlement proceeds, with future costs covered by fees generated from newly covered industries and increased fees on existing licenses.[82]  However, this proposal was issued prior to the Coronavirus pandemic, and the impact of the Coronavirus on the proposed budget, similar to New York’s recent experience, is unknown. But when the greatest urgency from the COVID-19 pandemic passes, either or both of these bold initiatives, or some variants of them, may find ready support in New York and California.  This is particularly so if they are viewed as holding promise not only to enhance enforcement, but to generate revenue derived from enforcement fines and penalties. Enforcement Trends to Watch: False Claims Act In a March 31, 2020 alert, Gibson Dunn detailed measures that companies can take now to decrease the risk that DOJ and/or qui tam whistleblowers will, down the line, successfully second-guess companies’ responses to the COVID-19 pandemic (through False Claims Act suits). Public crises prompt government spending (for example, the CARES Act), and such spending inevitably leads to post-crisis DOJ and/or whistleblower suits targeting corporations that directly received or indirectly benefited from public funds.  Given this historical precedent, turning square corners with the government, documenting communications with (and decisions by) government contractors, and responding thoroughly to internal whistleblower reports can meaningfully decrease False Claims Act exposure in the wake of the COVID-19 crisis. For more detailed information, please refer to the Gibson Dunn alert, “Implications of COVID-19 Crisis for False Claims Act Compliance.”[83] _________________________    [1]   Press Release, U.S. Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud (Mar. 20, 2020), available at www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud.    [2]   Id.    [3]   Id.  Attorney General Barr urged the public to report suspected fraud to the National Center for Disaster Fraud (“NCDF”).  The NCDF was established in 2005, in the wake of Hurricane Katrina, and is the national coordinating agency for man-made and natural disasters.  In the wake of Hurricane Katrina, federal prosecutors charged over 1,300 disaster fraud cases.  See National Center for Disaster Fraud, U.S. Dep’t of Justice, www.justice.gov/disaster-fraud (last visited Apr. 8, 2020).  It can be expected that federal prosecutors will be similarly aggressive in addressing Coronavirus-related fraud reported to the NCDF.    [4]   Press Release, U.S. Dep’t of Justice, Justice Department Files its First Enforcement Action Against COVID-19 Fraud (Mar. 22, 2020), available at www.justice.gov/opa/pr/justice-department-files-its-first-enforcement-action-against-covid-19-fraud.    [5]   Memorandum from the Attorney General, U.S. Dep’t of Justice, Department of Justice COVID-19 Hoarding and Price Gouging Task Force (Mar. 24, 2020), available at www.justice.gov/file/1262776/download.    [6]   Press Release, U.S. Dep’t of Justice, Department of Justice and Department of Health and Human Services Partner to Distribute More Than Half a Million Medical Supplies Confiscated from Price Gougers (Apr. 2, 2020), available at www.justice.gov/opa/pr/department-justice-and-department-health-and-human-services-partner-distribute-more-half.    [7]   SEC Coronavirus (COVID-19) Response, U.S. Secs. & Exch. Comm’n, www.sec.gov/sec-coronavirus-covid-19-response (last visited Apr. 8, 2020).    [8]   In the Matter of Praxsyn Corp., 2020 WL 1611114 (Mar. 25, 2020), available at www.sec.gov/litigation/suspensions/2020/34-88479-o.pdf.    [9]   Exchange Act Release No. 88265, 2020 WL 916766 (Feb. 24, 2020), available at www.sec.gov/litigation/suspensions/2020/34-88265.pdf.   [10]   Exchange Act Release No. 88142, 2020 WL 870115 (Feb. 7, 2020), available at www.sec.gov/litigation/suspensions/2020/34-88142.pdf.   [11]   Exchange Act Release No. 88477, 2020 WL 1610845 (Mar. 25, 2020), available at www.sec.gov/litigation/suspensions/2020/34-88477.pdf.   [12]   Public Statement, Sagar Teotia, Chief Accountant, Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19 (Apr. 3, 2020), available at www.sec.gov/news/public-statement/statement-teotia-financial-reporting-covid-19-2020-04-03.   [13]   SEC Enforcement Actions Addressing Misconduct that Led to or Arose from the Financial Crisis, U.S. Secs. & Exch. Comm’n (last modified July 15, 2019), www.sec.gov/spotlight/enf-actions-fc.shtml.   [14]   See SEC Enforcement Focus on Fallout from COVID-19: Insights for Public Companies and Investment Advisers During a Crisis, Gibson Dunn & Crutcher LLP (Mar. 26, 2020), available at www.gibsondunn.com/sec-enforcement-focus-on-fallout-from-covid-19-insights-for-public-companies-and-investment-advisers-during-a-crisis/#_edn1.   [15]   See Erica Werner et al., Trump signs $2 trillion coronavirus bill into law as companies and households brace for more economic pain, Wash. Post (Mar. 27, 2020), available at www.washingtonpost.com/us-policy/2020/03/27/congress-coronavirus-house-vote/.   [16]   About TARP, U.S. Dep’t of Treasury (last modified Nov. 20, 2019), www.treasury.gov/initiatives/financial-stability/about-tarp/Pages/default.aspx.   [17]   Office of the Special Inspector Gen. for the Trouble Asset Relief Program, www.sigtarp.gov (last visited Apr. 8, 2020).   [18]   CARES Act, H.R. 748 § 4018(c)(1) (2020).   [19]   Alex Leary, Trump Nominates White House Layer to Oversee Coronavirus Business Loans, Wall St. J. (Apr. 4, 2020), available at www.wsj.com/articles/trump-nominates-white-house-lawyer-to-oversee-coronavirus-business-loans-11585965870?ns=prod/accounts-wsj.   [20]   Id.   [21]   CARES Act, H.R. 748 §§ 4020, 15010 (2020). CARES Act §§ 4020, 15010.  It is of note that, in a signing statement, the President took issue with aspects of both the Pandemic Response Accountability Committee and SIGPR.  As to the Pandemic Response Accountability Committee, the President announced his intention to treat as hortatory, not mandatory, the requirement that the Chairperson of the Council of the Inspectors General on Integrity and Efficiency consult with members of Congress regarding the selection of the Executive Director and Deputy Executive Director of the Committee.  As to the SIGPR, the President took issue with the requirement that SIGPR report to Congress “without delay” any unreasonable refusal by a government agency to produce information requested by SIGPR.  The President stated that the administration would not treat this provision as permitting SIGPR to issue reports to Congress without presidential supervision.  See Statement by the President, The White House (Mar. 27, 2020), available at www.whitehouse.gov/briefings-statements/statement-by-the-president-38/.   [22]   See 18 U.S.C. § 3293 (2020) (“No person shall be prosecuted, tried, or punished for a violation of, or a conspiracy to violate . . . (2) section 1341 or 1343, if the offense affects a financial institution . . . unless the indictment is returned or the information is filed within 10 years after the commission of the offense.”).   [23]   Coronavirus Act 2020, c. 7 (Eng.), available at www.legislation.gov.uk/ukpga/2020/7/contents/enacted.   [24]   The Health Protection (Coronavirus) Regulations 2020, SI 2020/129, (Eng.), available at  www.legislation.gov.uk/uksi/2020/129/contents/made.   [25]   Interim CPS Charging Protocol – Covid-19 crisis response, CPS (Apr. 1, 2020), available at www.cps.gov.uk/sites/default/files/documents/legal_guidance/Interim-CPS-Charging-Protocol-Covid-19-crisis-response.pdf.   [26]   CMA COVID-19 taskforce, U.K. Ministry of Justice (Mar. 20, 2020), www.gov.uk/government/publications/covid-19-cma-taskforce/cma-covid-19-taskforce.   [27]   CMA approach to business cooperation in response to COVID-19, Competition and Mkts. Auth. 7 (Mar. 25, 2020), available at assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/875468/COVID-19_guidance_-.pdf.   [28]   An Open Letter to the Pharmaceutical and Food and Drink Industries, Competition and Mkts. Auth. (Mar. 20, 2020), available at assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/874240/COVID_19_Open_letter_to_pharmaceutical_and_food_and_drink_industries2.pdf.   [29]   CMA approach to business cooperation in response to COVID-19, Competition and Mkts. Auth. 6 (Mar. 25, 2020), available at assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/875468/COVID-19_guidance_-.pdf.   [30]   Id.   [31]   Covid-19: savers stay calm and don't rush financial decisions, Fin. Conduct Auth. (last modified Apr. 3, 2020), www.fca.org.uk/news/press-releases/covid-19-savers-stay-calm-dont-rush-financial-decisions.   [32]   FCA and PSR respond to the CMA’s guidance on business cooperation under competition law, Fin. Conduct Auth. (last modified Mar. 27, 2020), www.fca.org.uk/news/statements/fca-and-psr-respond-cmas-guidance-business-cooperation-under-competition-law.   [33]   FCA requests a delay to the forthcoming announcement of preliminary financial accounts, Fin. Conduct Auth. (last modified Mar. 22, 2020), www.fca.org.uk/news/statements/fca-requests-delay-forthcoming-announcement-preliminary-financial-accounts.   [34]   National Crime Agency warn that organised crime groups may try to exploit the coronavirus outbreak to target the UK, Nat’l Crime Agency (Mar. 22, 2020), www.nationalcrimeagency.gov.uk/news/national-crime-agency-warn-that-organised-crime-groups-may-try-to-exploit-the-coronavirus-outbreak-to-target-the-uk.   [35]   Beware fraud and scams during Covid-19 pandemic fraud, Nat’l Crime Agency (Mar. 26, 2020), www.nationalcrimeagency.gov.uk/news/fraud-scams-covid19.   [36]   Data protection and coronavirus: what you need to know, Info. Comm’rs Office, ico.org.uk/for-organisations/data-protection-and-coronavirus/ (last visited Apr. 8, 2020).   [37]   Privacy and Cybersecurity Issues Related to COVID-19, Gibson Dunn & Crutcher LLP (Mar. 20, 2020), available at www.gibsondunn.com/privacy-and-cybersecurity-issues-related-to-covid-19/.   [38]   COVID-19 & International Trade – Nation-State Responses to a Global Pandemic, Gibson Dunn & Crutcher LLP (Apr. 1, 2020), available at www.gibsondunn.com/covid-19-international-trade-nation-state-responses-to-a-global-pandemic/. [39]     For further details on the German Infectious Diseases Protection Act, see COVID-19: The German Infectious Diseases Protection Act – What Makes You Stay At Home, Gibson Dunn & Crutcher LLP (Mar. 20, 2020), available at www.gibsondunn.com/covid-19-german-infectious-diseases-protection-act-what-makes-you-stay-at-home/.   [40]   Press Release, Europol, How Criminals Profit from the Covid-19 Pandemic (Mar. 27, 2020), available at www.europol.europa.eu/newsroom/news/how-criminals-profit-covid-19-pandemic.   [41]   Pandemic Profiteering: How Criminals Exploit the Covid-19 Crisis, Europol (Mar. 27, 2020), available at www.europol.europa.eu/publications-documents/pandemic-profiteering-how-criminals-exploit-covid-19-crisis.   [42]   For more details see European and German Programs Counteracting Liquidity Shortfalls and Relaxations in German Insolvency Law, Gibson Dunn & Crutcher LLP (Mar. 25, 2020), available at www.gibsondunn.com/european-and-german-programs-counteracting-liquidity-shortfalls-and-relaxations-in-german-insolvency-law/.   [43]   Questions and Answers: Commission Proposes SURE, A New Temporary Instrument Worth up to €100 Billion to Help Protect Jobs and People in Work, European Comm’n (Apr. 2, 2020), available at ec.europa.eu/commission/presscorner/detail/en/qanda_20_572.   [44]   For updates see Staying Safe During Covid-19: What You Need to Know, Europol (last modified Apr. 1, 2020), www.europol.europa.eu/staying-safe-during-covid-19-what-you-need-to-know.   [45]   Li Ang, “Zero Tolerance” Towards Illegal Acts During COVID-19, Sina Finance (Mar. 26, 2020), available at finance.sina.com.cn/chanjing/cyxw/2020-03-26/doc-iimxyqwa3197497.shtml.   [46]   Notice by the Shanghai Municipal Administration for Market Regulation Regarding Further Enhancing Anti-Competition Enforcement Work (Feb. 25, 2020), available at scjgj.sh.gov.cn/shaic/html/govpub/2020-03-03-0000009a202002200011.html.   [47]   Id.   [48]   Han-na Park, Seoul Gets Tough on Profiteering on Masks, Sanitizers, The Korea Herald (Feb. 6, 2020), available at www.koreaherald.com/view.php?ud=20200206000709.   [49]   Yeon-joo Kim et al., S. Korea tightens mask exports to relieve local shortage, Pulse (Feb. 26, 2020), available at pulsenews.co.kr/view.php?year=2020&no=198103.   [50]   Notice Regarding Protecting Personal Information and Utilizing Big Data to Support the Combat Against COVID-19, Cyberspace Admin. of China (Feb. 9, 2020), www.cac.gov.cn/2020-02/09/c_1582791585580220.htm.   [51]   Id.   [52]   Id.   [53]   Xue Li, Dozens Prosecuted for Disclosing Private Information Regarding COVID-19 Patients, Tencent News (Feb. 24, 2020), available at xw.qq.com/cmsid/20200224A0Q39T00.   [54]   Mengyao Wang, A Health Bureau Deputy Being Investigated for Disclosing Personal Information of a COVID-19 Patient, Caixin (Jan. 30, 2020), available at china.caixin.com/2020-01-30/101509610.html.   [55]   See, e.g., Robert Faturechi and Derek Willis, Senator Dumped Up to $1.7 Million of Stock After Reassuring Public About Coronavirus Preparedness, ProPublica (Mar. 19, 2020), available at www.propublica.org/article/senator-dumped-up-to-1-7-million-of-stock-after-reassuring-public-about-coronavirus-preparedness; Richard Cowan et al., U.S. senators defend selling shares before coronavirus crash, Reuters (Mar. 20, 2020), available at www.reuters.com/article/us-health-coronavirus-usa-congress/reports-that-republican-u-s-senators-dumped-stock-before-coronavirus-market-crash-spark-calls-to-resign-idUSKBN2171AL.   [56]   See David Shortell et al., Exclusive: Justice Department reviews stock trades by lawmakers after coronavirus briefings, CNN (Mar. 30, 2020), available at www.cnn.com/2020/03/29/politics/justice-stock-trades-lawmakers-coronavirus/index.html.   [57]   Statement from Stephanie Avakian and Steven Peikin, Co-Directors of the SEC’s Division of Enforcement, Regarding Market Integrity U.S. Secs. & Exch. Comm’n (Mar. 23, 2020), available at www.sec.gov/news/public-statement/statement-enforcement-co-directors-market-integrity.   [58]   See, e.g., Complaint, Jacobson v. Burr, 1:20-cv-00799 (D.D.C. Mar. 23, 2020).   [59]   Stop Trading on Congressional Knowledge Act of 2012 § 3, 5 U.S.C. app. 1010 note prec. (2012).   [60]   See Tamara Keith, How Congress Quietly Overhauled Its Insider-Trading Law, NPR (Apr. 16, 2013), available at www.npr.org/sections/itsallpolitics/2013/04/16/177496734/how-congress-quietly-overhauled-its-insider-trading-law.   [61]   E.g., Matt Taibbi, After Richard Burr’s Coronavirus Scandal, Will the Government Finally Crack Down on Congressional Insider Trading?, Rolling Stone (Mar. 24, 2020), available at www.rollingstone.com/politics/politics-features/richard-burr-coronavirus-insider-trading-972101/ (“Members of congress trading against a pandemic is as low as it gets. On the long and winding history of elected officials eluding rules against political profiteering.”); John Crudele, Insider trading is business as usual for our politicians, N.Y. Post (Mar. 23, 2020), available at nypost.com/2020/03/23/insider-trading-is-business-as-usual-for-our-politicians/.   [62]   See, e.g., Eric M. Creizman, COVID-19 and Congressional Trading on Nonpublic Information, N.Y. Law J. (Mar. 26, 2020), available at www.law.com/newyorklawjournal/2020/03/26/covid-19-and-congressional-trading-on-nonpublic-information/; Al Barbarino, Probes Of Senators’ Trading May Reach Uncharted Waters, Law360 (Mar. 25, 2020), available at www.law360.com/whitecollar/articles/1257242/probes-of-senators-trading-may-reach-uncharted-waters.   [63]   See, e.g., Parliament and Council Regulation 596/2014 of April 14, 2014, On Market Abuse (Market Abuse Regulation) and Repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC and 2004/72/EC, 2014 O.J. (L 173) (EU); Act No. 108/2007 on Securities Transactions (Ice.).   [64]   For example, several bills were introduced in Congress in the wake of the Second Circuit’s decision in United States v. Newman, 773 F. 3d 438 (2d. Cir. 2014), but they ultimately went nowhere.  And more recently, the House passed the Insider Trading Prohibition Act in December 2019, but to date, this bill has not advanced in the Senate.  The Bharara Task Force on Insider Trading likewise issued a report in January 2020 calling on Congress to pass clear and concise insider trading legislation (providing a model statute that could form the basis for a new law with clear parameters), and other legal scholars and jurists have also advocated for change and put forth proposals that, to date, have failed to take hold.  See, e.g., Kenneth R. Davis, Insider Trading Flaw: Toward a Fraud-on-the-Market Theory and Beyond, 66 Am. U. L. Rev. 51 (2017); Carmen Germaine, Rakoff Urges Securities Bar to Write Insider Trading Law, Law360 (Mar. 1, 2017), available at www.law360.com/articles/897188/rakoff-urges-securities-bar-to-write-insider-trading-law.   [65]   See, e.g., A Resource Guide to the U.S. Foreign Corrupt Practices Act, U.S. Dep’t of Justice & U.S. Secs. & Exch. Comm’n (2012), available at www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf; Joe Palazzolo, From Watergate to Today, How FCPA Became So Feared, Wall St. J. (Oct. 2, 2012), available at www.wsj.com/articles/SB10000872396390444752504578024791676151154?ns=prod/accounts-wsj.   [66]   Attorney Generals Are Taking Action to Protect Consumers During Coronavirus Pandemic, Nat’l Attorneys Gen. Training and Research Inst., www.consumerresources.org/covid-19-consumer-updates (last visited Apr. 8, 2020).   [67]   Press Release, Eric Schmitt, Missouri Attorney General, AG Schmitt Files Suit Against Jim Bakker for Selling Fake “Coronavirus Cure” (Mar. 10. 2020), available at ago.mo.gov/home/news/2020/03/10/ag-schmitt-files-suit-against-jim-bakker-for-selling-fake-coronavirus-cure.   [68]   Press Release, Florida Office of the Attorney General, Attorney General Moody Issues More Than 40 Subpoenas Over Allegations of Price Gouging by Third-Party Sellers on Amazon (Mar. 24 2020), available at www.myfloridalegal.com/newsrel.nsf/newsreleases/9D854B0F3345DC9085258535006C3BEC?Open&.   [69]   Press Release, New York Attorney General, Attorney General James Order Alex Jones to Stop Selling Fake Coronavirus Treatments (Mar. 12, 2020), available at ag.ny.gov/press-release/2020/attorney-general-james-orders-alex-jones-stop-selling-fake-coronavirus-treatments.   [70]   See, e.g., Press Release, Oklahoma Attorney General, Attorney General Hunter, U.S. Attorney Downing Coordinate Efforts to Combat Coronavirus Fraud (Mar. 27, 2020), available at www.oag.ok.gov/attorney-general-hunter-us-attorney-downing-coordinate-efforts-to-combat-coronavirus-fraud; Press Release, United States Attorney for the District of Columbia Timothy J. Shea Announces Launch of Metropolitan Area COVID-19 Anti-Fraud Task Force, U.S. Attorney Carpenito, AG Grewal, Acting Comptroller Walsh, Announce Federal-State COVID-19 Fraud Task Force (Mar. 30, 2020), available at www.justice.gov/usao-nj/pr/us-attorney-carpenito-ag-grewal-acting-comptroller-walsh-announce-federal-state-covid-19; Press Release, U.S. Dep’t of Justice, United States Attorney for the District of Columbia Timothy J. Shea Announces Launch of Metropolitan Area COVID-19 Anti-Fraud Task Force (Apr. 2, 2020), available at www.justice.gov/usao-dc/pr/united-states-attorney-district-columbia-timothy-j-shea-announces-launch-metropolitan.   [71]   Corinne Ramey, New York, California Want More Power Over the Financial Sector, Wall St. J. (Mar. 16, 2020), available at www.wsj.com/articles/new-york-california-want-more-power-over-the-financial-sector-11584351002.   [72]   See FY 2021 New York State Executive Budget, Transportation, Economic Development and Environmental Conservation, Article VII Legislation, Part NN (Jan. 21, 2020), available at www.budget.ny.gov/pubs/archive/fy21/exec/artvii/ted-bill.pdf.   [73]   See id. at 288:25-26.   [74]   See id. at 292:19-24.   [75]   See 2019 Year-End Securities Litigation Update, Gibson Dunn & Crutcher LLP (Feb. 18, 2020), available at www.gibsondunn.com/2019-year-end-securities-litigation-update (discussing the Martin Act).   [76]   See S. B. S7508-B, 2019-2020 Leg. Sess., Part NN (N.Y. 2020); see also A.B. 9508-B, 2019-2020 Leg. Sess., Part NN (N.Y. 2020).   [77]   See Evan Weinberger, N.Y. Plan to Beef Up Financial Regulator Abandoned in Budget, Bloomberg Law (Apr. 2, 2020), available at news.bloomberglaw.com/banking-law/n-y-plan-to-beef-up-financial-regulator-abandoned-in-budget.   [78]   About, Cal. Dep’t of Bus. Oversight, dbo.ca.gov/about (last visited Apr. 8, 2020).   [79]   California Consumer Financial Protection Law, Cal. Dep’t of Bus. Oversight, dbo.ca.gov/California-consumer-financial-protection-law (last visited Apr. 8, 2020).   [80]   Governor’s Budget Summary 2020-21, 174 (Jan. 10, 2020), available at www.ebudget.ca.gov/2020-21/pdf/BudgetSummary/FullBudgetSummary.pdf.   [81]   Id. at 173-74.   [82]   Id.   [83]   Implications of COVID-19 Crisis for False Claims Act Compliance, Gibson, Dunn & Crutcher LLP (Mar. 31, 2020), available at www.gibsondunn.com/implications-of-covid-19-crisis-for-false-claims-act-compliance. _________________________ The following Gibson Dunn lawyers assisted in preparing this client alert: Joel M. Cohen, F. Joseph Warin, Charles J. Stevens, Debra Wong Yang, Mylan Denerstein, Kelly Austin, Zainab Ahmad, Stephanie Brooker, John Partridge, Benno Schwarz, Patrick Doris, Darcy Harris, Amanda Aycock, David Crowley-Buck, Steve Melrose, Ning Ning, Carla Baum, and Andreas Dürr. Gibson Dunn lawyers regularly counsel clients on the issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19.  Please feel free to contact the Gibson Dunn lawyer with whom you work, any member of the firm’s White Collar Defense and Investigations Group (F. Joseph Warin, Charles J. Stevens, and Joel M. Cohen, Co-Chairs), or any of the authors: New York Zainab Ahmad Joel M. Cohen Mylan Denerstein Washington, D.C. Stephanie L. Brooker F. Joseph Warin Los Angeles Debra Wong Yang San Francisco Charles J. Stevens Denver John D.W. Partridge London Patrick Doris Munich Benno Schwarz Hong Kong Kelly Austin © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 8, 2020 |
Gibson Dunn Recognized in Anti-Bribery & Anti-Corruption and Corporate Compliance by China Business Law Journal

Gibson Dunn was among the firms recognized by China Business Law Journal in the International Firm categories for Anti-Bribery & Anti-Corruption and Corporate Compliance for its annual 2020 awards. The awards were announced on April 8, 2020. Gibson Dunn’s White Collar Defense and Investigations Practice Group defends businesses, senior executives, public officials and other individuals in a wide range of investigations and prosecutions.  The group is composed of more than 100 lawyers practicing across our U.S. and international offices and draws on the expertise of more than 75 of its members with extensive government experience. The Securities Regulation and Corporate Governance Practice Group helps the largest U.S. public and private companies, financial institutions and U.S.-listed foreign private issuers navigate a broad range of matters.  The group integrates current best practices with practical analysis on a company-by-company basis, bringing our judgments to address complex situations that can pose regulatory issues and liability risks.  Our lawyers are active in developing and reviewing governance policies and tailoring key governance documents to each client’s specific needs.

March 25, 2020 |
11 Partners Recognized in Who’s Who Legal 2020 Investigations

Who’s Who Legal recognized 11 Gibson Dunn attorneys in the 2020 Investigations guide. Hong Kong Partner Kelly Austin and Washington, D.C. partners Richard Grime and Joseph Warin were named Global Elite Thought Leaders. Los Angeles partner Debra Wong Yang, New York partners Reed Brodsky and Alexander Southwell, and San Francisco partners Winston Chan and Charles Stevens were recommended in the guide. Washington, D.C. partners John Chesley, Daniel Chung and Michael Diamant were named Future Leaders. The guide was published March 13, 2020. The White Collar Defense and Investigations practice group includes numerous former U.S. federal and state prosecutors and officials, many of whom served at high levels within the U.S. Department of Justice, the Securities and Exchange Commission and other key investigative and prosecutorial arms of the government.