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January 13, 2019 |
Gibson Dunn Named a 2018 Law Firm of the Year

Gibson, Dunn & Crutcher LLP is pleased to announce its selection by Law360 as a Law Firm of the Year for 2018, featuring the four firms that received the most Practice Group of the Year awards in its profile, “The Firms That Dominated in 2018.” [PDF] Of the four, Gibson Dunn “led the pack with 11 winning practice areas” for “successfully securing wins in bet-the-company matters and closing high-profile, big-ticket deals for clients throughout 2018.” The awards were published on January 13, 2019. Law360 previously noted that Gibson Dunn “dominated the competition this year” for its Practice Groups of the Year, which were selected “with an eye toward landmark matters and general excellence.” Gibson Dunn is proud to have been honored in the following categories: Appellate [PDF]: Gibson Dunn’s Appellate and Constitutional Law Practice Group is one of the leading U.S. appellate practices, with broad experience in complex litigation at all levels of the state and federal court systems and an exceptionally strong and high-profile presence and record of success before the U.S. Supreme Court. Class Action: Our Class Actions Practice Group has an unrivaled record of success in the defense of high-stakes class action lawsuits across the United States. We have successfully litigated many of the most significant class actions in recent years, amassing an impressive win record in trial and appellate courts, including before the U. S. Supreme Court, that have changed the class action landscape nationwide. Competition: Gibson Dunn’s Antitrust and Competition Practice Group serves clients in a broad array of industries globally in every significant area of antitrust and competition law, including private antitrust litigation between large companies and class action treble damages litigation; government review of mergers and acquisitions; and cartel investigations, internationally across borders and jurisdictions. Cybersecurity & Privacy: Our Privacy, Cybersecurity and Consumer Protection Practice Group represents clients across a wide range of industries in matters involving complex and rapidly evolving laws, regulations, and industry best practices relating to privacy, cybersecurity, and consumer protection. Our team includes the largest number of former federal cyber-crimes prosecutors of any law firm. Employment: No firm has a more prominent position at the leading edge of labor and employment law than Gibson Dunn. With a Labor and Employment Practice Group that covers a complete range of matters, we are known for our unsurpassed ability to help the world’s preeminent companies tackle their most challenging labor and employment matters. Energy: Across the firm’s Energy and Infrastructure, Oil and Gas, and Energy, Regulation and Litigation Practice Groups, our global energy practitioners counsel on a complex range of issues and proceedings in the transactional, regulatory, enforcement, investigatory and litigation arenas, serving clients in all energy industry segments. Environmental: Gibson Dunn has represented clients in the environmental and mass tort area for more than 30 years, providing sophisticated counsel on the complete range of litigation matters as well as in connection with transactional concerns such as ongoing regulatory compliance, legislative activities and environmental due diligence. Real Estate: The breadth of sophisticated matters handled by our real estate lawyers worldwide includes acquisitions and sales; joint ventures; financing; land use and development; and construction. Gibson Dunn additionally has one of the leading hotel and hospitality practices globally. Securities: Our securities practice offers comprehensive client services including in the defense and handling of securities class action litigation, derivative litigation, M&A litigation, internal investigations, and investigations and enforcement actions by the SEC, DOJ and state attorneys general. Sports: Gibson Dunn’s global Sports Law Practice represents a wide range of clients in matters relating to professional and amateur sports, including individual teams, sports facilities, athletic associations, athletes, financial institutions, television networks, sponsors and municipalities. Transportation: Gibson Dunn’s experience with transportation-related entities is extensive and includes the automotive sector as well as all aspects of the airline and rail industries, freight, shipping, and maritime. We advise in a broad range of areas that include regulatory and compliance, customs and trade regulation, antitrust, litigation, corporate transactions, tax, real estate, environmental and insurance.

January 15, 2019 |
2018 Year-End Securities Enforcement Update

Click for PDF I.   Introduction: Themes and Developments A.   2018 In Review The Securities and Exchange Commission, like most federal agencies, ended 2018 with a whimper, not a bang. Most staffers were furloughed as part of the federal government shutdown, a note on the SEC homepage cautioning that until further notice only a limited number of personnel would be on hand to respond to emergency situations. The shutdown curtailed the Division of Enforcement’s ability to close out the year with a raft of last-minute filings, not to mention causing most SEC investigations to grind to a halt.  That said, between the December 27 shutdown and the date of this publication, the SEC did manage to institute two enforcement actions – a settlement with a car rental company for accounting errors occurring between 2012 and 2014[1]; and a settlement with a small accounting firm for failing to comply with the Custody Rule in connection with audits of an investment adviser conducted between 2012 and 2015.[2]  Given the age of the conduct, it is unclear the nature of the “emergency” requiring unpaid SEC staffers to come to work in the midst of the shutdown to release these two particular cases, though perhaps an impending statute of limitations was to blame. While the shutdown may have cut the Enforcement Division’s year short, it was more than compensated for by the flurry of actions filed as the agency’s September 30 fiscal year-end loomed.  Indeed, the SEC issued nearly a dozen press releases announcing enforcement actions on the last three days of the fiscal year, including several significant cases involving prominent public companies and financial institutions. The (fiscal) year-end rush appeared intended to blunt some of the criticism of the Enforcement Division’s productivity in the new administration.  After filing 446 new stand-alone enforcement actions in fiscal 2017, an over 18% drop from the 548 actions filed in 2016, the docket recovered somewhat in 2018, with the SEC filing 490 new actions.[3]  (The SEC’s tally of “stand-alone” enforcement actions excludes “follow-on” proceedings sanctioning individuals separately charged for violating the securities laws, and routine administrative proceedings to deregister the stock of companies with delinquent SEC filings.)  While still falling short of the final years under the prior SEC and Enforcement Division leadership, the current Division Directors were quick to note in their Annual Report that the 2015 and 2016 results were somewhat skewed by the SEC’s Municipalities Continuing Disclosure (MCDC) Initiative, under which municipal securities issuers and underwriters who self-reported disclosure violations to the Division received leniency.  The initiative produced nearly 150 enforcement actions; stripped of those matters, the 2018 results actually exceeded those of recent years. The Division Directors further explained that these results were achieved notwithstanding a hiring freeze in place at the SEC since the onset of the Trump administration, and the Division’s Annual Report included a plea for additional resources.  As stated in the Report, “While this achievement is a testament to the hardworking women and men of the Division, with more resources the SEC could focus more on individual accountability, as individuals are more likely to litigate and the ensuing litigation is resource intensive.”  The Directors also noted the challenges posed by the Supreme Court’s decision in Kokesh v. SEC, which confirmed a strict five-year statute of limitations on SEC demands for disgorgement[4], as well as the Court’s more recent decision in Lucia v. SEC, which held that the SEC’s method of appointing its administrative law judges violated the Appointments Clause of the U.S. Constitution and has necessitated the potential re-litigation of myriad administrative proceedings.[5] Thematically, the Enforcement Division (as well as SEC Chairman Clayton) repeatedly reiterated their focus on protecting “retail” or “Main Street” investors.  Indeed, the Division’s Annual Report invoked the word “retail” no fewer than twenty-six times.  (A close second was “cyber,” another Division priority, which appeared twenty-four times in the Report.)  The “retail” focus has led the SEC to highlight cases in which average investors appear to be victimized, particularly offering frauds, pump-and-dump-schemes, and misconduct by investment advisers and broker dealers directed at individual clients.  For fiscal 2018, according to the Annual Report, securities offering cases (which range from Ponzi schemes to various disclosure and registration violations in connection with securities offerings) comprised 25% of the year’s enforcement actions, the largest single category.  Cases against investment advisers and investment companies were just behind at 22% of the caseload; and while the SEC continues to bring cases involving private funds and institutional investors, the lion’s share of investment adviser cases fit within the SEC’s “retail” focus. Despite efforts in recent years for the Enforcement Division to renew its scrutiny of public company financial reporting and disclosure – which in the past had often been the top category of SEC enforcement actions, representing a quarter or more of the docket – such cases comprised only 16% of the SEC’s enforcement actions in 2018.  Rounding out the docket were cases involving broker-dealers (13%), insider trading (10%), and market manipulation (7%); FCPA cases and public finance abuse checked in at 3% of the enforcement filings apiece. B.   Whistleblowers The whistleblower bounty program enacted as part of Dodd-Frank continues to grow apace with each new year.  In its November 2018 annual report to Congress, the SEC’s Office of the Whistleblower reported that the program had once again netted a record number of tips.[6]  A total of 5,282 whistleblower complaints were received in fiscal 2018, up nearly 18% from 2017.  (The report noted that the Whistleblower Office appears to have its share of vexatious whistleblowers who submit an “unusually high” number of tips, which are excluded from the tally.) As with enforcement cases ultimately filed by the Enforcement Division in 2018, the largest single category for tips for 2018 was offering frauds, representing 20% of all complaints; tips concerning corporate disclosures and financials were a close second, representing 19% of the complaints. The SEC has also continued to announce large award payments to whistleblowers whose tips led to successful enforcement actions.  In September, the SEC announced that it had awarded $39 million to a single whistleblower, the second highest award in the history of the program; the same investigation also resulted in a $15 million payment to a second whistleblower.[7]  However, due to the whistleblower regulations’ confidentiality requirements, the nature of the enforcement action resulting in these awards is not reported. The SEC announced two additional whistleblower awards later that same month. First, the SEC reported a $1.5 million payment, while noting that “the award was reduced because the whistleblower did not promptly report the misconduct and benefitted financially during the delay.”[8]  And in a second case, the SEC awarded $4 million to an overseas whistleblower, touting the important service that even those outside the U.S. can provide to the SEC.[9]  The SEC further heralded the tipster’s continuing assistance throughout the course of the investigation. According to its most recent release, the SEC has now awarded over $326 million to 59 individuals under its whistleblower program. C.   Cybersecurity and Cryptocurrency As noted above, the SEC’s Enforcement Division remains acutely focused on all things “cyber.”  While this has manifested itself primarily, in recent months, on enforcement actions involving cryptocurrency and digital assets, the Division also had several noteworthy firsts in matters of cybersecurity in the latter half of the year. First, in September, the SEC brought its first enforcement action alleging violations of the Identity Theft Red Flags Rule.[10]  The SEC alleged that a broker-dealer lacked adequate safeguards to prevent intruders from resetting contractor passwords in order to gain access to personal information about certain customers.  Without admitting the allegations, the firm agreed to pay a $1 million penalty and to retain a consultant to evaluate its compliance with the Safeguards Rule and the Identity Theft Red Flags Rule. Then, in October, the Enforcement Division issued a report on its investigations of nine public companies which had been victimized by cyber fraud.[11]  According to the SEC, attackers had used fraudulent emails to pose as executives or vendors in order to dupe company personnel into sending about $100 million (in the aggregate) into bank accounts controlled by the perpetrators.  The SEC declined to charge the companies with wrongdoing, but cautioned companies that the internal controls provisions of the federal securities laws require them to ensure they have adequate policies and procedures to mitigate such incidents and safeguard shareholder assets.[12] But most of the high-tech action happened on the cryptocurrency front, with the Enforcement Division similarly touting a number of firsts.  Most of these actions related to registration-related conduct engaged in after the Commission’s 2017 DAO Report, in which the Commission concluded that digital assets may be securities under the federal securities laws. In September, the SEC settled an action against a so-called “ICO superstore” and its owners for acting as unregistered broker-dealers by operating a website that permitted visitors to purchase tokens in ICOs and engage in secondary trading.[13] This was the first case in which the SEC charged unregistered broker-dealers for selling digital assets.  Collectively, the company and owners paid nearly $475,000 in disgorgement, while the owners also paid $45,000 each in penalties and consented to industry and penny stock bars and an investment company prohibition with a right to reapply after three years. The same day, the SEC found for the first time that a hedge fund manager’s investments in digital assets constituted an investment company registration violation.[14]  According to the SEC, the fund falsely claimed to be regulated by and to have filed a registration statement with the SEC, and raised more than $3.6 million in four months.  It also engaged in an unregistered public offering and invested more than 40% of its assets in digital asset securities. The fund and its sole principal consented to pay a combined $200,000 penalty to settle the case. In November, the SEC settled an action against the founder of a digital token-trading platform, finding for the first time that such a platform operated as an unregistered national securities exchange.[15]  The platform in question matched buyers and sellers of digital assets, executed smart contracts, and updated a distributed ledger via the Ethereum blockchain, among other things. The founder consented to disgorge $300,000 and pay a $75,000 penalty.  The SEC noted that its investigation remains ongoing. Also in November, the SEC settled actions against two technology companies for failing to register their ICOs pursuant to federal securities laws.[16]  Both companies raised over $10 million worth of digital assets to fund their respective business ventures.  These were the first cases in which the SEC imposed civil penalties solely for ICO-related registration violations. The companies consented to return funds to investors, register their tokens as securities, file periodic reports with the SEC for at least one year, and pay $500,000 in total penalties. That same month, the SEC also for the first time brought actions against individuals for improperly promoting ICOs.  The SEC settled actions against two celebrities for their respective failures to disclose that they were being compensated for promoting upcoming ICOs on their social media accounts.[17]  The celebrities received approximately $350,000 in total for their promotions, all of which they were required to disgorge, along with $400,000 in total penalties. The celebrities also consented to a combined five-year ban on promoting any security. The second half of this year also saw the SEC crack down on ICOs claiming to be registered with the SEC.  In October, the SEC suspended trading of a company’s securities after the company issued two press releases falsely claiming to have partnered with an SEC-qualified custodian for use with cryptocurrency transactions and to be conducting an “officially registered” ICO.[18]  Also in October, the SEC obtained an emergency court order halting a planned ICO that falsely claimed to be SEC-approved.[19]  On October 11, a federal judge froze the assets of the defendants—the company and its founder.  Notably, in one of the few setbacks to the SEC’s aggressive enforcement program in the cryptocurrency space, the same judge subsequently denied the SEC’s motion for a preliminary injunction, finding that the Commission had failed to show that the digital asset offered in the ICO was a security subject to federal securities laws.[20]  Litigation remains ongoing. Finally, September saw the SEC file a litigated action against an international securities dealer and its CEO for soliciting investors to buy and sell securities-based swaps.[21]  The SEC filed the case after an undercover FBI agent allegedly purchased securities-based swaps on the company’s platform despite not meeting the required discretionary investment thresholds.  The SEC alleged that the company failed to register as a security-based swaps dealer and transacted the securities-based swaps outside of a registered national exchange. II.   Issuer and Auditor Cases A.   Accounting Fraud and Internal Controls In July, the SEC charged a drainage pipe manufacturer and its former CFO with reporting and accounting violations.[22]  According to the SEC, the company allegedly overstated its income before taxes from 2013-2015 as a result of insufficient internal accounting controls, improper accounting, and “unsupported journal entries directed or approved” by the former CFO.  Without admitting or denying the allegations, the company agreed to pay a $1 million penalty while the CFO agreed to pay a $100,000 penalty, reimburse the company approximately $175,000 in stock sale profits, and be barred from practicing as an accountant before the SEC. In early September, the SEC announced a settlement with a telecommunications expense management company and three members of the company’s senior management related to allegedly fraudulent accounting practices.[23]  According to the complaint, the company prematurely reported revenue for work that had not been performed or for transactions that did not actually produce revenue.  The SEC also alleged that the company’s former senior vice president of expense management operations falsified business records that were provided to auditors.  The company and three executives agreed to pay a combined penalty of $1.67 million to settle the allegations.  The litigated action against the senior VP of expense management operations remains pending. Later that month, the SEC charged a U.S.-based CFO of a public company in China with using his personal bank account to transfer over $400,000 in corporate funds from China to the U.S. to pay the company’s U.S. expenses.[24]  The SEC’s complaint alleged that he had previously engaged in the same practice for at least two other China-based public companies.  The SEC contended that the commingling of corporate and personal funds put the company’s assets at risk of misuse and loss, and that the CFO had failed to implement an adequate set of internal accounting controls.  The CFO agreed to settle the charges without admitting wrongdoing, agreeing to pay a $20,000 fine and to be barred from serving as a public company officer or director for five years. Also in September, the SEC initiated enforcement actions against a business services company, its former CFO, and the company’s former controller related to allegations of accounting fraud.[25]  The complaint alleged that the CFO manipulated the company’s books to hide the increasing expense of its workers’ compensation relative to revenue from its independent auditor.  When the company announced that it needed to restate its financial results to reflect the actual workers’ compensation expenses, the stock price fell by 32%.  Without admitting or denying the allegations, the company agreed to pay $1.5 million to settle the charges, and the controller, who allegedly approved some of the CFO’s accounting entries, agreed to pay $20,000 and be suspended from appearing before the SEC as an accountant for one year.  The case against the CFO is being litigated, and he has also been charged criminally by the United States Attorney’s Office for the Western District of Washington.  The company’s CEO, who was not charged with wrongdoing, agreed to pay the company back his $20,800 in cash bonuses received during the period of the alleged accounting violations. The following day, a pipeline construction company agreed to settle charges that it failed to implement adequate internal accounting controls, and failed to adequately evaluate its control deficiencies when assessing the effectiveness of its Internal Control over Financial Reporting (“ICFR”), after problems with its revenue recognition surfaced.[26]  According to the SEC, the company used contingent cost estimates to cover potential risks inherent in a project that could add unanticipated expenses to its total costs.  The company failed to implement adequate controls around its contingent cost estimates, despite recognizing that such estimates were critical for properly recognizing revenue.  Without admitting liability, the company agreed to pay a $200,000 civil penalty. Later in September, the SEC announced a settled action against a pharmaceutical company and its former CFO for allegedly understating the amount of inventory held by its wholesaler customers, which occurred as a result of the company flooding its distribution channel with products.[27]  According to the complaint, this created more short-term revenue at the expense of future sales.  Without admitting or denying the allegations, the company agreed to be enjoined from future violations and the former CFO agreed to pay approximately $1 million in penalties and disgorgement, be subject to an officer and director bar for five years, and to be barred from appearing before the SEC as an accountant with a right to apply for reinstatement after five years. In a November case involving the Kenyan subsidiary of a U.S.-based tobacco company, the SEC charged that managers at the subsidiary overrode existing internal controls and failed to report accounting errors to the parent company.[28]  As a result, the parent company filed materially misstated financial statements for more than four years, including errors to its inventory, accounts receivable, and retained earnings numbers.  The parent company agreed to settle the internal controls violations on a no admit/no deny basis.  The SEC imposed a cease-and-desist order, noting the company’s remedial actions already undertaken, including sharing the results of its internal investigation with the SEC, hiring new accounting control positions within the African region, and implementing new internal accounting control procedures and policies. In December, the SEC filed a complaint against a multinational agricultural company and its executive chairman, alleging that they concealed substantial losses by improperly accounting for the divestiture of its China-based operating company.[29]  According to the SEC, the company overstated the value of stock received in the transaction and assigned a value of nearly $60 million to worthless land use rights.  The company agreed to pay a $3 million penalty and to cooperate with the SEC in future investigations, without admitting or denying the allegations.  Additionally, the CEO agreed to pay $400,000 and accept a five year officer and director bar. The next day, the SEC brought charges against a natural food company stemming from alleged weaknesses in the company’s internal controls regarding end-of-quarter sales practices that helped the company meet its internal sales targets.[30]  According to the SEC, the company’s sales personnel regularly offered incentives to customers to move inventory near quarter-end, including the right to return products that expired or spoiled prior to ultimate purchase, cash incentives, substantial discounts, and extended payment terms.  The company had failed to implement adequate controls to both detect and document these practices.  According to the SEC’s press release, no monetary penalties were imposed based on the company’s self-reporting to the SEC and significant remediation efforts, which included significant organizational changes and changes to its revenue recognition policies. Also in December, the SEC also instituted settled proceedings against a publicly-traded issuer of subprime automobile loan securities related to allegations that the company failed to accurately calculate its credit loss allowance from certain impaired loans and failed to segregate those loans from its general loan assets.[31]  The SEC also alleged that flaws in the company’s internal controls led to its errors in calculating credit loss allowance and caused the company to restate its financial statements twice in a one-year period.  Without admitting or denying the allegations, the company agreed to pay a $1.5 million penalty. Finally, the SEC brought a settled proceedings against five separate companies for filing quarterly financial forms without having their financial statements reviewed in advance, which is a violation of Regulation S-X.[32]  The SEC announced the charges against all five companies in a single press release, and each company agreed to remedial action, including payment of penalties ranging from $25,000 to $75,000. B.   Misleading Disclosures Beyond the accounting-related cases discussed above, the SEC pursued an unusual number of cases based on misleading disclosures by public companies in the latter half of the year. Misleading Metrics Many of the disclosure cases instituted by the SEC involved the use of allegedly misleading metrics of interest to investors. In July, the SEC filed settled proceedings against an engineering and construction company related to allegations that it inflated a key performance metric and had various accounting control deficiencies.[33]  According to the SEC’s order, the company’s “work in backlog” metric, which measured the revenue the company expected to earn from future firm orders under existing contracts, improperly included at least $450 million from orders that the company had not received.  Additionally, the SEC alleged that the company’s deficient accounting controls caused it to make inaccurate estimates of the costs to complete seven contracts, leading the company to restate its earnings.  Without admitting wrongdoing, the company agreed to pay a $2.5 million penalty. In August, the SEC separately instituted proceedings against a cloud communications company and two of its executives as well as executives at two online marketing companies related to allegations that they provided misleading numbers to investors.  In the first order, the SEC alleged that the company projected first quarter 2015 revenue of $74 million based on improperly reclassified sales forecasts when the CFO was aware of red flags that undermined confidence in that figure.[34]  Just a week before the end of the quarter, the company announced revenue projects that were approximately $25 million lower, causing the stock price to fall 33%.  Without admitting wrongdoing, the company agreed to pay $1.9 million and the two executives agreed to pay penalties ranging from $30,000 to $40,000.  In the second complaint, the SEC alleged that the former CEO and CFO of two online marketing companies, which formed a parent-subsidiary relationship in 2016, knowingly provided inflated subscriber figures.[35]  These charges arose out of a settled enforcement action the SEC brought against the companies themselves in June, in which the parent company agreed to pay a $8 million penalty.  Without admitting or denying the allegations, the two executives agreed to pay $1.38 million and $34,000, respectively. In September, the SEC announced a settled action with a payment processing company and its CEO.[36]  According to the SEC’s allegations, the company materially overstated a key operating metric that caused research analysts to overrate the company’s stock and promoted it in  its filings with the SEC, even though both the company and CEO had reason to know that the metric was inaccurate.  Without admitting or denying the allegations, the company agreed to pay a penalty of $2.1 million while the former CEO agreed to pay $120,000. Finally, in a relatively novel action, the SEC settled charges against a seller of home and business security services for failing to afford equal or greater prominence to comparable GAAP earnings measures in two of its financial statements containing non-GAAP measures.[37]  While the SEC has highlighted concerns about the prominence of non-GAAP metrics previously, this appears to be the first case in which that issue alone has resulted in an enforcement action.  Without admitting or denying the allegations, the company agreed to pay $100,000 to settle the matter. Executive Perks The SEC also brought several cases involving executive perks.  In July, the SEC announced a settlement with a chemical company related to charges that the company allegedly failed to adequately disclose approximately $3 million in perquisites given to its CEO in its 2013-2016 proxy statements.[38]  The SEC alleged that the company failed to disclose personal benefits not widely available and not integrally and directly related to an executive’s job duties.  The company agreed to pay a $1.75 million penalty and hire an independent consultant to help implement new perquisite disclosure policies. Also in July, the SEC alleged that the CEO of an oil company hid approximately $10.5 million in personal loans from a company vendor and a prospective member of the board.[39]  Additionally, the SEC alleged that the CEO received undisclosed compensation and perks, and that the company failed to report more than $1 million in excess compensation in its disclosures.  Without admitting or denying the SEC’s allegations, the CEO agreed to pay a $180,000 penalty and be subject to a five year bar from serving as an officer or director of a public company.  The board member also agreed to pay a penalty. Other Disclosures In July, the SEC instituted settled proceedings against a publicly-traded real estate investment trust and four executives, alleging that they failed to adequately disclose certain cashflow issues and the status of real property within its portfolio.[40]  The parties agreed to settle the charges without admitting or denying the allegations. In September, the SEC instituted proceedings against an industrial waste water treatment company and two senior executives, alleging that they failed to disclose to investors certain contractual contingencies that had not occurred in a material contract with Nassau, New York.[41]  To settle the allegations, without admitting or denying the SEC’s findings, the company agreed to pay $133,000 in penalties, disgorgement, and pre-judgment interest and the two executives agreed to pay civil penalties of $60,000 and $35,000 respectively. Also in September, the SEC announced a settlement with SeaWorld Entertainment Inc. and its former CEO.[42]  The SEC’s complaint alleged that the company and its CEO failed to adequately disclose the damaging impact a critical documentary had on the company’s business.  Without admitting or denying the allegations, the company and former CEO agreed to pay $5 million in penalties and disgorgement.  A former vice president of communications also agreed to pay $100,000 in disgorgement and prejudgment interest, without admitting or denying the allegations. That same day, the SEC filed a settled action against a biopharmaceutical company, its CEO, and former CFO, related to allegations that the company failed to timely disclose questions about the efficacy of its flagship lung cancer drug.[43]  Without admitting or denying the SEC’s allegations, the company and the executives agreed to the payment of disgorgement and penalties. Later that month, the SEC filed a settled action against a large drugstore chain, its former CEO, and former CFO for failing to communicate the increased risk of missing operating income projections in the wake of a corporate merger.[44]  The SEC alleged that in 2012, one of the predecessor entities had reaffirmed earlier projections despite internal projections showing an increased risk of falling short.  Without admitting or denying the allegations, the company paid a $34.5 million penalty and the two executives each agreed to pay $160,000. And at the end of September, the SEC announced a settlement with Tesla, Inc. and its CEO arising out of the CEO’s tweets about plans to take the company private.[45]  The SEC alleged that the potential transaction was subject to numerous contingencies, and that the company lacked sufficient controls to review the CEOs tweets.  Without admitting or denying the allegations, the company and its CEO agreed to pay civil penalties; additionally, the CEO agreed to step down from the board and be replaced by an independent chairman, and the company agreed to install two new independent directors, implement controls to oversee the CEO’s tweets, and establish a new committee of independent directors. C.   Auditor Cases In September, the SEC instituted proceedings against an accounting firm for improper professional conduct and violations of the securities law during the course of an audit of an information technology company.[46]   According to the SEC’s complaint, the firm ignored a series of red flags concerning cash held by a related entity and provided an unqualified opinion.  The firm and two of its principals agreed to be barred from appearing before the SEC as accountants for five years, and to pay monetary penalties. In October, the SEC suspended three former accountants from a larger audit firm related to allegations that they violated auditing standards and engaged in unprofessional conduct during an audit of an insurance company.[47]  According to the SEC’s order, the audit team fell behind schedule during the audit, but the senior manager directed team members to sign off on “predated” workpapers to make it appear that the audit had been completed before the company’s annual report was filed with the SEC.  The SEC also concluded that the engagement partner and quality review partner failed to exercise due professional care that would have prevented these deficiencies in the audit.  Without admitting or denying the SEC’s findings, the three accountants agreed to be suspended from practicing before the SEC as accountants for periods ranging from one to five years, pending applications for reinstatement. In December, the SEC instituted proceedings against an audit firm, two of its partners, and two partners from a now-defunct auditing firm, relating to “significant failures” in their audit of a company that went bankrupt after the discovery of more than $100 million in federal tax liability.[48]  According to the SEC’s order, the firm identified pervasive risks of fraud in the company but failed to undertake additional steps to address the risk.  The SEC also alleged that the audit firm was not actually independent of the company due to an ongoing business relationship.  To settle the allegations, the firm agreed to  pay a penalty of $1.5 million, and hire an independent compliance consultant.  All four partners agreed to be suspended from practicing before the SEC for between one and three years, and to pay penalties ranging from $15,000 to $25,000. Finally, outside the public company audit context, the SEC charged an audit firm with failing to maintain its independence when conducting “Custody Rule” and broker-dealer audits.  The SEC alleged that the firm violated independence standards by both preparing and auditing client financial statements, accompanying notes, and accounting entries for more than 60 audits over five years.  Without admitting nor denying the allegations, the firm settled with the SEC, agreeing to pay a $300,000 penalty and to cease any engagements that fall within the purview of the SEC for one year.  If the firm later chooses to accept such engagements, it must retain an independent complaint consultant for a three-year period and comply with all of the consultant’s recommendations for auditor independence. D.   Private Company Cases Finally, the SEC brought a number of financial reporting and disclosure cases against private (or pre-public) companies, including the following: In September, the SEC instituted settled proceedings against a seller of drones, toys, and other consumer products and its CEO related to allegations that they provided inaccurate sales information to the company’s auditor, which caused its Form S-1 registration statement to overstate the company’s revenue by approximately 15%.[49]  Without admitting or denying the SEC’s allegations, the CEO agreed to pay a $10,000 penalty and the company agreed to withdraw its registration statement, which had never been declared effective. Also in September, the SEC instituted proceedings against a California-based medical aesthetics company and its former CEO.[50]  The SEC alleged that just days before the company was going to close a stock offering, the CEO learned that its Brazilian manufacturer’s certificate to sell products in the European Union had been suspended, but concealed it from the company’s General Counsel and underwriters.  After the offering closed and the suspension subsequently became public, the stock price fell by 52% and the CEO continued to misrepresent his knowledge.  The SEC settled with the company, recognizing the company’s self-reporting to the SEC and extensive cooperation.  The SEC is litigating against the CEO. In November, the SEC instituted proceedings against an entertainment media company and five of its former officers and directors.[51]  According to the complaint, the company purchased downloads for its mobile app from outside marketing firms in order to boost its download ranking in the Apple App Store.  The company allegedly misrepresented to its shareholders why its app had risen in the download rankings, and continued to allegedly lie to shareholders about the growth of its downloads even after it stopped paying for downloads and its rankings plummeted.  The parties agreed to settle the charges without admitting or denying the allegations; the individuals agreed to pay penalties of varying amounts, three agreed to a permanent officer and director bar, and one agreed to a five-year bar. III.   Investment Advisers and Funds A.   Fees and Expenses In November, a California-based investment adviser settled allegations that it overcharged clients by failing to apply “breakpoint” discounts as provided in its fee schedule.[52]  According to the SEC, the adviser’s fee schedule entailed “breakpoints” which would decrease advisory fees as the amount of client assets under management increased.  For approximately eight years, however, the advisory fee discounts were applied haphazardly, resulting in overcharges to certain client accounts.  Without admitting the allegations, the adviser agreed to pay a penalty of $50,000.  The SEC recognized that, during the investigation, the adviser undertook remedial efforts, including reimbursements to clients of overcharged fees and modifications to its policies. In December, a formerly SEC-registered fund manager settled allegations that it misallocated expenses (such as rent, overhead, and compensation) to its business development company clients as well as failed to review valuation models that caused a client to overvalue its portfolio companies.[53]  The adviser agreed to pay approximately $2.3 million disgorgement and prejudgment interest, as well as a civil money penalty of approximately $1.6 million. Also in December, the SEC filed a settled administrative proceeding against a Milwaukee-based investment adviser and its owner/chairman in connection with alleged undisclosed fees.[54]  According to the SEC, the adviser added a sum to client transactions, which it called a “Service Charge.”  Part of this “Service Charge” would go towards paying a third-party broker, while the remainder went to the adviser.  The SEC alleges that the adviser did not disclose these payments to clients.  Without admitting or denying the allegations, the investment adviser and its owner agreed to pay approximately $470,000 in disgorgement and prejudgment interest, as well as a $130,000 civil penalty. Later that month, the SEC settled with a private equity fund adviser for allegedly improperly allocating compensation-related expenses to three private equity funds that it advised.[55]  According to the SEC, firm employees charged the funds for work unrelated to the three funds, violating the mandates of the governing documents of the funds.  The alleged wrongdoing spanned four years.  The firm cooperated extensively with the SEC, and the Commission accounted for those remedial efforts in settlement.  The firm agreed to more than $2 million in disgorgement and a civil monetary penalty of $375,000.   In a similar case also filed in December, the SEC settled with a fund manager for inadequate disclosures regarding certain expense allocations, as well as the alleged failure to disclose potential conflicts of interest arising from certain third-party service providers.[56]  Without admitting or denying the SEC’s allegations, the company agreed to pay $1.9 million in disgorgement and prejudgment interest and a $1 million civil penalty to settle the charges. At the end of December, the SEC settled with a private equity investment adviser in connection with allegations of improper expense allocations.[57]  According to the SEC, the investment adviser manages private equity funds and as well as co-investment funds on behalf of the company’s employees.  The two types of funds invest alongside each other.  When the adviser sought to acquire certain portfolio companies, co-investors were able to provide additional capital to invest.  According to the SEC, over the course of approximately fifteen years, the adviser failed to allocate certain expenses on a proportional basis between the private equity funds and the co-investor funds.  In connection with settlement, the SEC acknowledged that, following an examination by the Commission’s Office of Compliance Inspections and Examinations but prior to being contacted by the Division of Enforcement staff, the adviser proactively made full reimbursements, with interest, to affected funds.  The adviser agreed to pay a civil money penalty of $400,000. The SEC also brought a number of cases involving wrap fee programs. In August, an investment advisory firm settled allegations that it lacked policies and procedures to provide investors with sufficient information for investors to evaluate the appropriateness of their investments in the company’s wrap fee programs.[58]  Without admitting or denying the allegations, the firm agreed to pay a $200,000 civil penalty and to undertake efforts to enhance its procedures.  And in September, an affiliated investment adviser settled allegations that it failed to disclose conflicts of interest in connection with wrap fee programs.[59]  According to the SEC, over the course of three years, the investment adviser recommended that its clients invest in wrap fee programs, one of which was sponsored by the investment adviser.  Without admitting or denying the allegations, the company agreed to pay a $100,000 civil penalty. B.   Conflicts of Interest In July, the SEC filed a settled administrative proceeding against the managing partner and chief compliance officer of a private equity fund adviser, alleging that he arranged for one of his funds to make a loan to a portfolio company, the proceeds of which were used to purchase his personal interest in the company.[60]  The SEC alleged that the manager failed to disclose the conflicted transaction to the fund’s limited partnership advisory committee.  The manager agreed to pay a civil money penalty of $80,000 without admitting or denying the allegations.  The SEC’s order noted that the fund ultimately did not lose any money on the transaction. In late August, the SEC instituted settled proceedings against an investment adviser in connection with alleged failures to disclose a conflict of interest relating to third-party products.[61]  According to the SEC, the adviser’s retail advisory accounts were invested in third-party products that a U.S. subsidiary of a foreign bank managed.  In contravention of established practice, the adviser’s governance committee did not vote on a proposed recommendation to terminate the third-party products, and instead later permitted new adviser accounts to invest in these products.  In so doing, according to the SEC, the adviser did not disclose a conflict of interest.  Without admitting or denying the allegations, the adviser agreed to pay nearly $5 million in disgorgement and prejudgment interest, as well as a $4 million penalty. C.   Fraud and Other Misconduct In July, the SEC charged a Connecticut-based advisory firm and its CEO with placing around $19 million of investor funds into risky investments, including into companies in which they had an ownership stake, while charging large commissions on top of those investments.[62]  The complaint further alleged that the company overbilled some of its clients by calculating fees based on the earlier value of investments that had decreased in value.  The case is being litigated. In August, a Michigan-based investment management firm and its representative settled claims that they had engaged in a cherry-picking scheme.[63]  According to the SEC, the representative disproportionately allocated profitable trades to favored accounts, including personal and family accounts, at the expense of other clients.  The firm agreed to pay $75,000, and the individual respondent agreed to pay approximately $450,000 in disgorgement and penalties and to be barred from the industry.  The following month, the SEC pursued similar cherry-picking claims against a Louisiana-based adviser and its co-founder.[64]  That case is being litigated.  According to the SEC, it was the sixth case arising out of a recent initiative to combat cherry picking. September was a particularly busy month, as the SEC settled a number of fraud-based cases with investment advisers. The SEC settled charges with two New York City-based investment advisers and their 100% owner and president.[65]  The advisers allegedly engaged in a complex scheme to conceal the loss in the value of their clients’ assets by making false statements, improperly redeeming investments, and failing to disclose a variety of conflicts of interest.  To settle the charges, the advisers agreed to jointly and severally pay disgorgement of approximately $1.85 million and a civil penalty of $600,000. Also in September, the SEC charged a hedge fund adviser and its principal with running a “short and distort” scheme, taking a short position and then making a series of false statements to shake investor confidence and lower the stock price of a publicly-traded pharmaceutical company.[66]  According to the SEC, the fund used written reports, interviews and social media to spread untrue claims, driving the stock price down by more than a third.  The matter is being litigated. Later that month, the SEC settled with an asset manager, its former president, and its former CFO.[67]  The asset manager and former president were charged with fraudulently using investor funds to purchase interests in products offered by the firm’s parent corporation to benefit the parent, at which the former president also worked.  The individuals were also charged with improperly adjusting fund returns to show more favorable results to investors.  No charges were pursued against the parent corporation because of its prompt reporting of the misconduct, extraordinary cooperation with the SEC, and the reimbursement of around $1 million to adversely impacted investors.  The company settled for more than $4.2 million in penalties and disgorgement.  The former president and CFO agreed to pay penalties, and the president also agreed to a three-year bar from the securities industry. Early in December, an investment company settled charges of improperly recording and distributing taxable dividends, when those monies should have been recorded as return of capital.[68]  According to the SEC, while the error was not quantitatively large, it impacted a key metric used by investors and analysts to evaluate performance.  The only sanction imposed was a cease-and-desist order.  The firm admitted that its conduct violated federal securities laws and consented to the imposition of the order. D.   Share Class Selection The SEC has been particularly focused on advisers which recommend mutual funds to clients without adequately disclosing the availability of less expensive share classes.  In February 2018, the Division of Enforcement announced its Share Class Selection Disclosure Initiative, under which the Division agreed not to recommend financial penalties against advisers which self-report violations of the federal securities laws relating to mutual fund share class selection and promptly return money to victimized investors.  While the SEC has yet to announce any enforcement actions resulting from the self-reporting initiative, it has filed a number of actions against advisers which did not self-report such violations. In August, the SEC filed a settled administrative proceeding against a Utah-based investment adviser and broker-dealer relating to mutual fund distribution fees, known as 12b-1 fees.[69]  According to the SEC, for more than four years, the company, in its capacity as a broker-dealer, reaped compensation in the form of 12b-1 fees due to its clients’ mutual fund investments.  However, the company, in its capacity as an investment adviser, disclosed to advisory clients that it did not receive compensation from the sale of mutual funds.  In addition, the adviser recommended more expensive share classes of certain mutual funds when cheaper shares of the same funds were available.  The company agreed to pay over $150,000 to compensate advisory clients and a $50,000 civil money penalty. In mid-September, the SEC filed a settled administrative proceeding against a limited liability company in connection with 12b-1 fees.[70]  According to the SEC, for approximately three years, the adviser improperly collected 12b-1 fees from clients by recommending more expensive mutual fund share classes with 12b-1 fees when lower-cost share classes, without 12b-1 fees, were available.  Further, the SEC alleged that the adviser received, but did not disclose, compensation it received when the adviser invested its clients in certain no-transaction fee mutual funds.  The SEC acknowledged remedial acts undertaken and the company’s cooperation with the Commission.  The adviser agreed to pay over $1.3 million in disgorgement and penalties. On the same day in late December, the SEC settled two additional share class selection cases.  In the first, a Tennessee-based investment adviser settled charges in connection with the recommendation and sale of higher-fee mutual fund shares when less expensive share classes were available.[71]  The SEC alleged that for a period of approximately four years, the company’s president and investment adviser representative were the top two recipients of avoidable 12b-1 fees.  The investment adviser agreed to pay approximately $850,000 in disgorgement and prejudgment interest, as well as $260,000 as a civil penalty; collectively, the two individuals agreed to pay approximately $430,000 in disgorgement and prejudgment interest, in addition to $140,000 in civil penalties.  In the second case, the SEC settled charges with two investment advisers and a CEO of one of the firm on the ground that, despite the availability of less expensive share classes of the same funds, advisory clients’ funds were invested in mutual fund share classes that paid 12b-1 fees to the firms’ investment adviser representatives.[72]  In total, the investment advisers and CEO agreed to pay more than $1.8 million to settle the charges. E.   Misleading Disclosures The SEC brought a number of cases alleging misleading disclosures and omissions in the second half of 2018.  In July, the SEC announced a settlement with a California-based investment adviser and its majority owner.[73]  In the firm’s written disclosures to clients, the firm allegedly made material misstatements about the firm’s financial condition – most saliently, omitting to disclose the firm was insolvent during the relevant period and was operating on $700,000 in loans.  The SEC also alleged that the firm improperly withheld refunds of prepaid advisory fees from clients who requested via email to terminate their relationships.  The firm and its majority owner agreed to pay $100,000 and $50,000 respectively in civil monetary penalties to settle the charges. In August, the SEC settled two cases based on failures to disclose and misleading disclosures by investment advisers.  First, a Boston–based employee-owned hedge fund sponsor settled with the SEC over allegations of omissions, misrepresentations, and compliance failures relating to its practices which resulted in materially different redemption amounts when the fund lost value in a short period of time.[74]  The allegations included a failure to implement a compliance program consistent with the adviser’s obligations under the Advisers Act, a lack of disclosure to all investors of their option to redeem their investment in the fund, and inaccurate statements concerning assets in the Form ADV filed annually with the SEC.  The firm agreed to pay a civil penalty of $150,000. Four days later, the SEC settled with four related investment adviser entities for allegedly misleading investors through the use of faulty investment models.[75]  According to the SEC, the  quantitative investment models contained errors, and after discovering the issue the firms discontinued their use but did not disclose the errors.  The entities agreed to pay $97 million in disgorgement and penalties without admitting liability.  Two individual defendants, the former Chief Investment Officer and the former Director of New Initiatives of one of the entities, were also charged and settled with civil penalties of $65,000 and $25,000 respectively. Also in August, the SEC filed a litigated case against a Buffalo-based advisory firm and principal.[76]  According to the SEC, in anticipation of an SEC imposed bar, the owner of the firm sold the firm to his son.  Yet, after the imposition of the bar, his son failed to apprise clients of the bar and made misleading statements when clients inquired about the bar.  Moreover, the father allegedly impersonated his son when on phone calls with clients. A Massachusetts-based investment manager settled with the SEC on the final day of August.[77]  The company allegedly disseminated advertisements touting hypothetical returns based on blended research strategies while failing to disclose that some key quantitative ratings were determined using a retroactive, back-tested application of the financial model.  The company agreed to pay a civil penalty in the amount of $1.9 million to settle the allegations of violating the Advisers Act by publishing, circulating, and distributing advertisements containing misleading statements of material fact. In the first week of September, the SEC settled with a private investment firm and its managing partner for allegedly failing to provide limited partners in a fund with material information related to a change in the valuation of the fund.[78]  The respondents jointly agreed to pay a civil penalty in the amount of $200,000.  A week later, the SEC filed a lawsuit against an Indianapolis-based investment advisory firm and its sole owner for omitting to disclose that the firm and its owner would receive commissions of almost 20% on sales of securities which it encouraged its clients to buy.[79]  The latter case is being litigated. In December, the SEC settled with a California-based registered investment adviser for material misstatements and omissions in its advertising materials, allegedly inflating the results and success of the back-tested performance for one of its indexes over the course of eight years.[80]  The adviser agreed to pay a civil penalty of $175,000. And in late December, the SEC brought its first enforcement action against robo-advisers for misleading disclosures.[81]  Robo-advisers provide software-based, automated portfolio management services.  In the first robo-adviser case, the company disclosed to clients that it would monitor client accounts for “wash sales,” which could negate the tax-loss harvesting strategy it provided to clients.  According to the SEC, however, for approximately three years the adviser did not provide such monitoring, and wash sales took place in almost one-third of accounts enrolled in the tax-loss harvesting program.  This robo-adviser agreed to pay a $250,000 penalty.  In a separate case, a second robo-adviser agreed to settle charges that it provided misleading performance information on its website and social media.  According to the SEC, the company purported to show its investment performance as compared to robo-adviser competitors, but only included a small fraction of its client accounts in the comparison.  This adviser agreed to pay a $80,000 penalty to settle the matter. F.   Other Investment Adviser Issues Supervision and Oversight In August, the SEC announced a settled action against a Minnesota-based diversified financial services company that had allegedly failed to protect retail investor assets from theft by its agents.[82]  The SEC alleged that the respondents’ agents, many of whom pled guilty to criminal charges, committed fraudulent actions such as stealing client funds and forging client documents.  The company allegedly failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives.  The company agreed to pay a penalty of $4.5 million to settle the charges. In November, the SEC settled charges with a formerly registered investment adviser and its former CEO for negligently failing to perform adequate due diligence on certain investments.[83]  The SEC alleges that the firm failed to implement and reasonably design compliance policies and procedures which led to a failure to escalate and advise clients regarding concerns surrounding the investments, which turned out to be fraudulent.  Without admitting or denying the allegations, the firm agreed to pay a $400,000 civil penalty and the CEO agreed to a $45,000 civil penalty. Cross-Trades The SEC brought a handful of cases involving cross-trades between client accounts which favored one client at the expense of another.  In August, an investment adviser settled allegations that it had engaged in mispriced cross trades that resulted in the allocation of market savings to selected clients.[84]  According to the SEC, approximately 15,000 cross trades were executed at the bid price, resulting in the allocation of market savings to the adviser’s buying clients, while depriving selling clients of market savings.  The SEC further alleged that the adviser cajoled broker-dealers into increasing the price of certain municipal bonds and executed cross trades at these inflated prices, thereby causing buying advisory clients to overpay in these transactions.  To settle the matter, the adviser agreed to reimburse its clients over $600,000, plus interest, and pay a $900,000 penalty.  The following month, the SEC instituted a similar settled administrative proceeding against a Texas-based investment adviser for failing to disclose two cross trades, causing its clients to sustain $125,000 in brokerage fees.[85] Also in September, the SEC brought a settled action against a Boston firm and one of its portfolio managers, alleging that they facilitated a number of pre-arranged cross-trades between advisory client accounts that purposefully benefited certain clients at the expense of others.[86]  In addition to paying a $1 million penalty, the company agreed to reimburse approximately $1.1 million to its harmed clients.  The former portfolio manager agreed to pay a $50,000 penalty and to submit to a nine-month suspension. Testimonial Rule Violations In July, the SEC instituted five distinct settled proceedings against two registered investment advisers, three investment adviser representatives, and one marketing consultant in connection with violations of the Testimonial Rule, which bars investment advisers from publishing testimonial advertisements.[87]  The advertisements were published on social media and YouTube.  The civil penalties ranged from $10,000 to $35,000 for each of the individuals. In September, a Kansas-based investment adviser and its president/majority owner agreed to settle charges in connection with violations of the Testimonial Rule and ethics violations.[88]  The SEC alleges that the investment adviser broadcast advertisements through the radio, and one of the radio hosts later became a client and broadcast his experience.  According to the SEC, the investment adviser contravened its policies by not monitoring the radio coverage.  The firm agreed to pay a civil penalty of $200,000.  Separately, the company’s president/majority owner violated the company’s code of ethics by not reporting transactions in brokerage accounts held for the benefit of his family.  He agreed to pay a civil penalty of $50,000. Pay To Play Abuses There were two “pay to play” cases settled on the same day in July.  In the first matter, the SEC alleged that three associates of a California-based investment adviser made campaign contributions to candidates who had the ability to decide on the investment advisers for public pension plans.[89]  Within two years of the contributions, in contravention of the Advisers Act, the investment adviser received compensation in connection with advising the public pension plans.  The investment adviser agreed to pay a civil penalty of $100,000.  In the other case, the SEC alleged that the firm’s associates made contributions in a number of states, and the investment adviser similarly received payment to advise public pension plans in those states.[90]  The investment adviser agreed to pay a $500,000 civil penalty to settle the charges. Custody Rule Compliance The second half of the year entailed two Custody Rule cases against New York-based investment advisory firms.  Neither firm distributed annual audited financial statements in a timely fashion.  In the July matter, the SEC also alleged that the investment adviser lacked policies and procedures to preclude violations of the Advisers Act.  Without admitting or denying the allegations, the adviser agreed to pay a $75,000 civil penalty.[91]  In the September matter, the SEC also alleged that the firm violated the Compliance Rule by failing to review its policies and procedures on an annual basis.[92]  Without admitting or denying the allegations, the adviser agreed to pay $65,000 as a civil penalty. IV.   Brokers and Financial Institutions A.   Supervisory Controls and Internal Systems Deficiencies In the latter half of 2018, the SEC brought a number of cases relating to failures of supervisory controls and internal systems – an increase in this area over the first half of the year.  As part of its ongoing initiative into American Depositary Receipt (“ADR”) practices, the SEC brought numerous cases relating to the handling of ADRs—U.S. securities that represent foreign shares of a foreign company and require corresponding foreign shares to be held in custody at a depositary bank.  In July, the SEC announced settled charges against two U.S. based-subsidiaries, a broker-dealer and a depositary bank, of an international financial institution alleging improper ADR handling that led to facilitating inappropriate short selling and profits.[93]  Without admitting or denying the allegations, the subsidiaries agreed to pay $75 million in disgorgement and penalties.  In September, the SEC brought settled charges against a broker-dealer and subsidiary of a French financial institution; the broker-dealer agreed to pay approximately $800,000 in disgorgement and penalties without admitting or denying the findings.[94]  In December, the SEC settled charges against a depositary bank; the bank agreed to pay $38 million in disgorgement and penalties without admitting or denying the findings. [95] And finally, also in December, the SEC brought settled charges in two cases for providing ADRs to brokers when neither the broker nor its customer owned the corresponding foreign shares.  In the first December case, the SEC settled charges with a depositary bank headquartered in New York; the bank agreed to disgorgement, interest, and penalties of approximately $55 million without admitting or denying the charges.[96]  In the second case, the SEC settled charges with another depositary bank, a subsidiary of a large New York financial services firm.[97]  The SEC’s order alleged that the improper ADR handling led to inappropriate short selling and dividend arbitrage.  The firm agreed to pay over $135 million in disgorgement, and penalties without admitting or denying the charges. In addition to the ADR cases, the SEC also brought supervision cases for the failure to safeguard customer information and for the failure to supervise representatives who sold unsuitable products.  In July, the SEC brought settled charges against an international investment banking firm for failing to maintain and enforce policies and procedures designed to protect confidential customer information, including the failure to maintain effective information barriers.[98]  The SEC’s order alleged that traders at the bank regularly disclosed material nonpublic customer stock buyback information to other traders and hedge fund clients; the bank agreed to a $1.25 million penalty without admitting or denying the charges.  In September, the SEC announced settled charges against a New York-based broker-dealer and two of its executives for failure to supervise representatives in sales of a leveraged exchange-traded note (“ETN”) linked to oil.[99]  The SEC’s order alleged that the broker-dealer’s representatives did not reasonably research or understand the risks of the ETN or the index it tracked.  The broker-dealer agreed to pay over $500,000 in penalties, interest, and customer disgorgement without admitting or denying the charges, and the two executives agreed to penalties as well as a 12-month supervisory suspension.  The broker who recommended the largest number of ETN sales also agreed to a penalty of $250,000. Along with the supervisory cases described above, the SEC also brought a few cases relating to internal controls.  In August, the SEC announced settled charges in two cases against a large financial institution and two subsidiary broker-dealers involving books and records, internal accounting controls, and trader supervision.[100]  The charges in one action related to losses due to trader mismarking and unauthorized proprietary trading, which the SEC alleged were not discovered earlier due to a failure to supervise.  In the second action, the SEC alleged that the bank lacked controls necessary to prevent certain fraudulent loans. The financial institution and subsidiaries agreed to pay over $10 million without admitting or denying the allegations. Also in August, the SEC initiated settled proceedings against a credit ratings agency for alleged internal controls deficiencies relating to a purported failure to consistently apply credit ratings symbols which were used in models used to rate residential mortgage backed securities.[101]  The ratings agency agreed to pay over $16 million without admitting or denying the allegations. B.   Anti-Money Laundering As in the first half of the year, the SEC continued to bring a number of cases in the anti-money laundering (“AML”) area, all relating to the failure to file suspicious activity reports (“SARs”).  The Bank Secrecy Act requires broker-dealers to file SARs to report transactions suspected to involve fraud or with no apparent lawful purpose. In July, the SEC announced the settlement with a national broker-dealer relating to the failure to file SARs on the transactions of independent investment advisers that it had terminated.[102]  The broker-dealer agreed to pay a $2.8 million penalty to settle the action, without admitting or denying the charges.  Similarly, in September, the SEC instituted a settled administrative proceeding against a New York brokerage firm for failing to file SARs relating to a number of terminated investment advisers.[103]  Without admitting or denying the allegations, the firm agreed to pay a penalty of $500,000; the SEC’s Order noted that the settlement took into account remedial acts undertaken by the firm.  Also in September, the SEC settled charges against a clearing firm for failure to file SARs relating to suspicious penny stock trades.[104]  As part of the settlement, the clearing firm agreed to pay a penalty of $800,000 without admitting or denying the allegations, and also agreed that it would no longer sell penny stocks deposited at the firm. In December, the SEC brought settled charges against a broker-dealer alleging that during the period 2011-2013 it neglected to monitor certain movements of funds through customers’ accounts and to properly review suspicious transactions flagged by its internal monitoring systems.[105]  The firm agreed to pay a $5 million penalty to resolve the charges, as well as a $10 million penalty to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Financial Industry Regulatory Authority (FINRA) to resolve parallel charges.  The broker-dealer did not admit or deny the SEC’s allegations except to the extent they appeared in the settlement with FinCEN. Also In December, the SEC announced settled charges against a broker-dealer for the failure to file SARs concerning over $40 million in suspicious wire transfers made by one customer in connection with a payday lending scam.[106]  The firm agreed to certain undertakings, including the hiring of an independent compliance consultant, without admitting or denying the allegations.  The U.S. Attorney’s Office for the Southern District of New York also instituted a settled civil forfeiture action against the broker-dealer in which it paid $400,000; the U.S. Attorney’s Office additionally entered into a deferred prosecution agreement with the firm. C.   Market Abuse Cases In the second half of 2018, the SEC’s Market Abuse Unit was involved in bringing three cases relating to “dark pools” (i.e., private exchanges) and the use and execution of customer orders.  In September, the SEC announced settled charges against a large financial institution relating to alleged misrepresentations in connection with the operation of a dark pool by one of its affiliates.[107]  The SEC alleged that the firm misled customers relating to high-frequency trading taking place in the pool and also failed to disclose that over half of the orders routed to the dark pool were executed in other trading venues.  The firm and its affiliate agreed to pay over $12 million in disgorgement and penalties without admitting or denying the SEC’s allegations. Also in September, the SEC, together with the New York Attorney General (“NYAG”), brought settled charges against an investment bank relating to the execution of customer orders by one of its desks responsible for handling order flow for retail investors.[108]  The SEC alleged that while the firm promoted the desk’s access to dark pool liquidity, a minimal number of orders were executed in dark pools; additionally, the firm allegedly failed to disclose that retail customers did not receive price improvement on non-reportable orders.  The firm agreed to pay a total of $10 million ($5 million to the SEC and $5 million to the NYAG) without admitting or denying the allegations. And in November, the SEC brought charges against a financial technology company and its affiliate for misstatements and omissions relating to the operation of the firm’s dark pool.[109]  The SEC alleged that the firm failed to safeguard subscribers’ confidential trading information despite assuring firm clients that it would do so, and also did not disclose certain structural features of the dark pool to clients.  The firm and its affiliate agreed to pay a $12 million penalty to settle the charges without admitting or denying the allegations. D.   Books and Records In July, the SEC brought settled charges against a New York-based broker-dealer relating to its failure to preserve records.[110]  The SEC alleged that the broker-dealer deleted audio files after receiving a document request from the Division of Enforcement (because the department responsible for the files was unaware of the request), and also failed to maintain books and records that accurately recorded expenses.  Without admitting or denying the allegations, the firm agreed to pay a penalty of $1.25 million. In September, the SEC announced charges against a broker-dealer for providing the SEC with incomplete and deficient securities trading information known as “blue sheet data” used by the SEC in its investigations.[111]  The SEC’s order alleged that approximately 29% of the broker-dealer’s blue sheet submissions over a four-year time period contained deficiencies due to coding errors.  The broker-dealer admitted the findings in the SEC’s Order and agreed to pay a $2.75 million penalty to settled the charges.  In December, the SEC instituted settled administrative proceedings against three broker-dealers for recordkeeping violations in another matter relating to deficient blue sheet data submissions.[112]  The SEC’s Orders noted that as a result largely of undetected coding errors, the three firms submitted blue sheet data that continued various inaccuracies.  The three broker-dealers admitted the findings in the SEC’s Orders and agreed to pay penalties totaling approximately $6 million.  The SEC’s Orders noted the remedial efforts undertaken by the firms, including the retention of an outside consultant and the adoption of new policies and procedures for processing blue sheet requests. E.   Individual Brokers Finally, in addition to its cases involving large financial institutions, the SEC brought a number of cases against individual broker-dealer representatives.  In September, the SEC filed complaints against two brokers in New York and Florida for excessive trading in retail customer accounts which generated large commissions for the brokers but caused losses for their customers.[113]  The case is being litigated. Also in September, the SEC filed a complaint against a broker for a cherry-picking scheme in which the broker allegedly misused his access to an allocation account to cherry pick profitable trades for his own account while placing unprofitable trades in customer accounts.[114]  The SEC noted that it uncovered the alleged fraud using data analysis.  The case is being litigated, and the U.S. Attorney’s Office for the District of Massachusetts announced parallel criminal charges. Finally, in December, the SEC settled with a self-employed trader (and entities that he owned and controlled) for violations of Rule 105 of Regulation M, which prohibits a person from purchasing an equity security during the restricted period of an offering where that person has sold short the same security.[115]  The SEC’s Order alleged that the trader violated Rule 105 by effecting short sales during restricted periods and mismarking short sales as “long sales” in a total of 116 offerings.  The trader agreed to pay disgorgement, interest, and penalties total approximately $1.1 million without admitting or denying the charges V.   Insider Trading A.   Cases Against Corporate Insiders Corporate Executives July was a busy month for corporate executives accused of insider trading and tipping.  First, the SEC charged the former CEO of a New Jersey-based payment processing company and his romantic partner in an insider trading scheme that leveraged nonpublic information about the potential acquisition of his company by another payment processing company.[116]  On the CEO’s instructions and with his funds, the romantic partner opened a brokerage account and used almost $1 million of the funds to purchase stock in the target company.  According to the SEC, the pair generated $250,000 in profits after the merger was announced.  The case is being litigated. The SEC also settled with a former VP of Investor Relations at a company operating country clubs and sports clubs alleged to have traded in his company’s stock after learning that it was negotiating to be acquired.[117]  After receiving an inquiry from FINRA, the officer resigned from the company and retained counsel who reported the misconduct to the SEC and provided them substantiating documentation.  In return, the SEC agreed to a settlement that involved disgorgement of his profits of approximately $78,000 and a civil penalty equal to about one-half of the disgorgement amount. Later in July, the SEC sued a senior executive at a Silicon Valley tech company for allegedly short selling as well as selling stock in his company ahead of three different quarterly announcements that the company was likely going to miss its revenue guidance.[118]  According to the SEC, the executive made nearly $200,000 in profits from these trades.  Without admitting wrongdoing, the executive agreed to disgorge his profits and pay a corresponding civil penalty, and to bebarred from acting as an officer or director of a public company for five years.  The SEC noted that it had utilized data analysis from its Market Abuse Unit’s Analysis and Detection Center to detect suspicious trading patterns in advance of earnings announcements over time. And at the end of July, the SEC sued a VP of Finance who learned from a senior executive at his company that a Chinese investment group might acquire the company.[119]  While preparing financial projections and conducting diligence, the VP allegedly used his spouse’s brokerage account to purchase shares of his company.  When it became public that his company had rejected the Chinese investment group’s offer in the hopes of receiving a higher price, the company’s share increased 24%, resulting in the VP earning nearly $90,000.  Without admitting liability, the officer agreed to disgorgement of his gains and a corresponding civil penalty. In August, the SEC charged a former biotech executive and others with participating in a scheme that generated $1.5 million of profits by trading ahead of the announcement of a licensing agreement between his company and another large pharmaceutical company.[120]  According to the complaint, the executive informed a friend of the license agreement.  The friend then tipped a former day trader, who, in connection with an insider-trading ring, purchased stock and options and made $1.5 million in illegal profits when the agreement was announced and the company’s stock price jumped 38 percent.  In a parallel action, the U.S. Attorney’s Office for the District of New Jersey charged the day trader and four members of his group with illegal insider trading ahead of secondary public stock offerings. All five defendants have pled guilty to the parallel criminal charges; the four members of the insider-trading ring other than the trader have agreed to partial settlements with the SEC for conduct including their trading on the license agreement, with potential monetary sanctions to be determined at a later date.  The SEC is continuing a previous action against the trader for alleged insider trading ahead of the secondary stock offerings. In August, the SEC sued a former Sales VP at a cemetery and funeral home operator for allegedly benefiting from confidential information obtained through his employer.[121]  After learning about a substantial decline in sales that would necessitate a reduction in the company’s distribution payments, the executive sold all of his shares in the company.  As part of a settlement, the executive agreed to pay disgorgement and a civil penalty. Also in August, the SEC settled charges against a former executive of a cloud security and services company.[122]  According to the SEC, the executive informed his two brothers, to whom he had gifted stock in the past, that the company would miss its revenue guidance, and contacted his brothers’ brokerage firm to coordinate the sale of all of their stock.  When the negative news was announced, the stock price dropped significantly and the brothers collectively avoided losses of over $580,000.  Under the terms of his settlement, the former executive will be barred from serving as an officer or director of a public company for two years and will pay a $581,170 penalty. In September, the SEC brought a settled action against a former executive at a mortgage servicing company.[123]  The SEC alleged that the executive engaged in insider trading surrounding three separate events, including the resolution of litigation and a CFPB enforcement action against the company, as well as negotiations to sell the company. Without admitting or denying the allegations, the executive agreed to disgorge his ill-gotten gains of almost $65,000 and to pay a penalty equal to the disgorgement amount. In October, the SEC charged a company’s former Director of SEC Reporting with trading ahead of a corporate acquisition.[124]  The complaint alleged that the individual bought call options and stock in a company targeted for acquisition by a subsidiary of the company. The matter is being litigated. In November, the acquisition of two health care networks by a large health care company led to two separate misappropriation cases.  The SEC charged a man with insider trading based on information he misappropriated from his wife, a human resources executive at the acquiring company, about the planned acquisitions.[125]  According the SEC, the man overheard his wife’s phone calls while she was working at home.  The husband agreed to pay disgorgement of about $64,000 and a penalty of $72,144.  The SEC also settled an insider trading charge against a man alleged to have misappropriated information from his brother, an executive at one of the target companies.[126]  According to the SEC, the insider had shared the information in confidence at a family holiday party.  The trader agreed to pay disgorgement and penalties totaling about $40,000. Board Members In a high profile case involving drug trials, the SEC and DOJ filed parallel charges for insider trading against a U.S. Congressman, his son, and a host of other individuals.[127]  According to the SEC’s complaint, the Congressman learned of negative drug trial results through his seat on a biotech company’s board.  The Congressman allegedly provided his son the inside information, who then told a third individual.  Over the next few days, the Congressman’s son, the third individual, and a number of their friends and family members sold over a million shares of the biotech company’s stock, which plummeted more than 92 percent following the announcement of the negative results.  As a result of the trading, the Congressman’s son and the third individual avoided approximately $700,000 in losses.  Two of the individuals sued ultimately settled with the SEC without admitting or denying the charges, agreeing to disgorge their gains totaling approximately $35,000 and to pay a matching civil penalty.  The SEC’s cases against the Congressmen, his son, and a third individual are ongoing. In August, the SEC sued the son of a bank board member who learned of the bank’s potential acquisition by another bank from his father prior to the acquisition’s public announcement.[128]  The son realized approximately $40,000 in gains after the acquisition became public.  Without admitting or denying the charges, the son agreed to disgorge the gains and to pay a matching civil penalty. Employee Insiders In July, the SEC sued a former financial analyst at a medical waste disposal company and his mother for trading on inside information that the company would miss its revenue guidance.[129]  Following the company’s earnings announcement, its stock fell 22%, resulting in the analyst and his mother avoiding losses and earning profits of approximately $330,000.  Both the analyst and his mother agreed to settle the case without admitting liability.  They will be required to disgorge their profits and pay a civil penalty in amounts to be later determined by the court. Also in July, in the second SEC case arising out of the Equifax data breach, the SEC charged a software engineer tasked with constructing a website for consumers who were impacted by the data breach for trading the company’s stock before the data breach was publicly disclosed .[130]  The engineer was fired after refusing to cooperate with the company’s investigation, though he and the SEC ultimately settled the case.  As part of that settlement, the engineer was ordered to disgorge $75,000 in profits.  The U.S. Attorney’s Office also filed criminal charges against the engineer. The SEC also filed a number of cases involving corporate scientists.  In July, the SEC charged a scientist at a California biotech company for trading based on positive developments in a genetic sequencing platform.[131]  According to the SEC, the scientist traded during company trading blackouts, in a brokerage account not disclosed to his employer.  He settled the case, agreeing to disgorge approximately $40,000 in profits and paying a similar civil penalty.  In August, the SEC filed suit against a scientist who learned that his healthcare diagnostics company was about to acquire another company in a tender offer.[132]  On the date the acquisition was announced, his company’s stock increased 176%.  As part of the settlement, the scientist agreed to disgorge $14,000 in profits and pay a corresponding civil penalty.  And in a third case, the SEC settled with a scientist at a pharmaceutical company for allegedly trading in advance of positive results of a clinical trial.[133]  The scientist agreed to disgorgement of $134,000, but based on her voluntarily coming forward and reporting her improper trades, the SEC agreed to a reduced penalty of $67,000. The SEC brought charges in August against an in-house attorney for a shipping company who traded on inside information that his company had entered into a strategic partnership with a private equity fund.[134]  As part of a settlement, he was ordered to disgorge nearly $30,000 in profits with a matching civil penalty. And in September, the SEC charged a former professional motorcycle racer handling promotional activities for a beverage company, as well as his father, family friend, and investment adviser, with insider trading for tipping and trading ahead of an impending deal with a large beverage company.[135]  According to the SEC, after the racer had learned a significant deal was imminent, the four individuals collectively purchased over $770,000 in stock and options, in certain instances borrowing funds for the purchases.  Following the announcement, they made over $283,000 in trading profits. Without admitting or denying the findings, the individuals agreed to disgorge ill-gotten gains and to pay civil penalties. B.   Misappropriation by Investment Professionals and Other Advisors Several deal advisors, including bankers, corporate advisors, and accountants, were charged with insider trading by the SEC.  In August, the SEC charged a professional football player and a former investment banker with insider trading in advance of corporate acquisitions.[136]  The SEC alleges that after meeting at a party, the player began receiving illegal tips, facilitated through coded text messages and FaceTime conversations, from the banker about upcoming corporate mergers.  The player allegedly made $1.2 million in illegal profits by purchasing securities in companies that were soon to be acquired, in one instance generating a nearly 400 percent return.  In return, he is alleged to have rewarded the analyst by setting up an online brokerage account that both men could access, by providing cash kickbacks, free NFL tickets, and an evening on the set of a pop star’s music video in which the player made a cameo appearance.  The SEC action is being litigated; both men have pled guilty to related criminal charges.  In November, the SEC also charged a family friend of the banker in connection with the same scheme.[137]  The U.S. Attorney’s Office announced parallel criminal charges against this individual. In September, the SEC filed insider trading charges against a corporate deal advisor for trading in securities of two China-based companies based on confidential information about their impending acquisitions.[138]  According to the SEC, the individual, who had been providing advice to the acquiring companies, opened a brokerage account in his wife’s name and used that account to generate more than $79,500 in trading profits. That same executive later became a director at a Hong Kong-based investment banking firm.  In connection with advising a client on an acquisition of its rival, he was alleged to have again used his wife’s brokerage account to buy high risk call options, which he sold after news of the acquisition for profits of more than $94,400. The case is being litigated. And in December, the SEC charged an individual with misappropriating information from his fiancé, an investment banker working on a merger between two airline companies.[139]   According to the SEC, the trader overheard calls his now-wife made at home on nights and weekends, purchasing call options in the target company and netting approximately $250,000 in profits.  Without admitting or denying liability, the trader agreed to disgorge his profits and pay a matching penalty. Also in December, the SEC alleged that an IT contractor working at an investment bank had traded, and tipped his wife and father, based on information he’d learned from the bank.[140] According to the SEC, the three collectively reaped approximately $600,000 in profits by trading in advance of at least 40 corporate events.  The SEC obtained a court-ordered freeze of assets in multiple brokerage accounts connected to the alleged trading. The SEC brought several cases against accountants and their tippees.  In August, the SEC brought a settled action against a CPA who learned of an acquisition through his work as an accountant providing tax advice to a private company owned by a member of one of the companies.[141]  The individual agreed to disgorge his profits of approximately $8,000 and pay a matching civil penalty. Also that month, the SEC sued a former director of a major accounting and auditing firm for trading ahead of a merger between two of the firm’s clients.[142]  According to the SEC, after learning of the planned merger, the director used a relative’s account to purchase call options, which increased in value by about $150,000 following announcement of the merger.  Though the director later allowed the options to expire without selling or exercising them, he did not inform his employer that he controlled the account when the relative’s name appeared on a list of individuals in connection with a FINRA investigation into suspect trading.  Without admitting liability, the director agreed to pay a $150,500 penalty and to be barred from appearing and practicing before the SEC as an accountant for two years. The SEC brought several other cases involving misappropriation by industry professionals.  In July 2018, the SEC settled charges against a broker who traded ahead of a multi-billion dollar acquisition.[143]  According to the SEC, the broker misappropriated the information from a friend who was a certified public accountant providing personal tax advice to a senior executive at the company being acquired, and who had shared the information in confidence.  Without admitting liability, he agreed to disgorgement of his nearly $90,000 in profits, a comparable civil penalty, and debarment from being a broker.  And in September, the SEC settled a claim against a CPA and a doctor for allegedly trading while in possession of confidential information regarding an impending acquisition.[144]  According to the SEC, the CPA misappropriated the information from a friend who worked at one of the companies. The SEC alleges that after the CPA shared the information with the doctor, both purchased call options in the target company.  Both the CPA and doctor agreed to pay disgorgement and civil penalties. VI.   Municipal Securities and Public Finance Cases With the SEC’s Municipalities Continuing Disclosure (MCDC) Initiative (which as noted above generated  a significant number of cases) completed, the SEC’s Public Finance Abuse Unit returned to its traditionally slower pace, filing just a few cases in the latter half of the year. In August, the SEC charged two firms and 18 individuals with participating in a municipal bond “flipping” scheme (i.e. improperly obtaining new bond allocations from brokers and reselling to broker-dealers for a fee.[145]  According to the SEC, the firms and their principals used false identities to pose as retail investors in order to receive priority from the bond underwriters, and then resold the bonds to brokers for a pre-arranged commission.  The SEC also charged a municipal underwriter with taking kickbacks as part of the scheme.  Most of the parties settled (with sanctions including disgorgement, penalties, and industry bars and suspensions), but aspects of the case are being litigated as well.  The SEC filed another settled case for municipal bond flipping in December.[146] In September, the SEC instituted a settled action against a municipal adviser and its principal for failing to register as municipal advisor and failing to disclose its nonregistration to a school district to which it provided services.[147]  The firm and its principal agreed to pay about $50,000 in disgorgement and penalties, and the principal agreed to be barred from the securities industry. [1]      Admin. Proc. File No. 3-18965, In re Hertz Global Holdings, Inc. (Dec. 31, 2018), available at www.sec.gov/litigation/admin/2018/33-10601.pdf. [2]      Admin. Proc. File No. 3-18966, In re Katz, Sapper & Miller, LLP (Jan. 9, 2019), available at www.sec.gov/litigation/admin/2019/34-84980.pdf. [3]      See SEC Press Release, SEC Enforcement Division Issues Report on FY 2018 Results (Nov. 2, 2018), available at www.sec.gov/news/press-release/2018-250; and accompanying Annual Report at www.sec.gov/files/enforcement-annual-report-2018.pdf. [4]      For more on Kokesh, see Gibson Dunn Client Alert, United States Supreme Court Limits SEC Power to Seek Disgorgement Based on Stale Conduct (June 5, 2017), available at www.gibsondunn.com/united-states-supreme-court-limits-sec-power-to-seek-disgorgement-based-on-stale-conduct/. [5]      For more on Lucia, see Gibson Dunn Client Alert, Supreme Court Rules That SEC ALJs Were Unconstitutionally Appointed (June 21, 2018), available at www.gibsondunn.com/supreme-court-rules-that-sec-aljs-were-unconstitutionally-appointed. [6]      Whistleblower Program, 2018 Annual Report to Congress, available at www.sec.gov/files/sec-2018-annual-report-whistleblower-program.pdf. [7]      SEC Press Release, SEC Awards more Than $54 Million to Two Whistleblowers (Sept. 6, 2018), available at www.sec.gov/news/press-release/2018-179. [8]      SEC Press Release, Whistleblower Receives Award of Approximately $1.5 Million (Sept. 14, 2018), available at www.sec.gov/news/press-release/2018-194. [9]      SEC Press Release, SEC Awards Almost $4 Million to Overseas Whistleblower (Sept. 24, 2018), available at www.sec.gov/news/press-release/2018-209. [10]     SEC Press Release, SEC Charges Firm with Deficient Cybersecurity Procedures (Sept. 26, 2018), available at www.sec.gov/news/press-release/2018-213. [11]     SEC Press Release, SEC Investigative Report: Public Companies Should Consider Cyber Threats When Implementing Internal Controls (Oct. 16, 2018), available at www.sec.gov/news/press-release/2018-236. [12]     For further discussion, see Gibson Dunn Client Alert, SEC Warns Public Companies on Cyber-Fraud Controls (Oct. 27, 2018), available at www.gibsondunn.com/sec-warns-public-companies-on-cyber-fraud-controls/. [13]     SEC Press Release, SEC Charges ICO Superstore and Owners with Operating as Unregistered Broker-Dealers (Sept. 11, 2018), available at www.sec.gov/news/press-release/2018-185. [14]     SEC Press Release, SEC Charges Digital Asset Hedge Fund Manager with Misrepresentations and Registration Failures (Sept. 11, 2018), available at www.sec.gov/news/press-release/2018-186. [15]     SEC Press Release, SEC Charges EtherDelta Founder with Operating an Unregistered Exchange (Nov. 8, 2018), available at www.sec.gov/news/press-release/2018-258. [16]     SEC Press Release, Two ICO Issuers Settle SEC Registration Charges, Agree to Register Tokens as Securities (Nov. 16, 2018), available at www.sec.gov/news/press-release/2018-264. [17]     Admin. Proc. File No. 3-18906, In re Floyd Mayweather Jr. (Nov. 29, 2018), available at www.sec.gov/litigation/admin/2018/33-10578.pdf; SEC Admin. Proc. File No. 3-18907, In re Khaled Khaled (Nov. 29, 2018), available at www.sec.gov/litigation/admin/2018/33-10579.pdf. [18]     SEC Press Release, SEC Suspends Trading in Company for Making False Cryptocurrency-Related Claims about SEC Regulation and Registration (Oct. 22, 2018), available at www.sec.gov/news/press-release/2018-242. [19]     SEC Press Release, SEC Stops Fraudulent ICO That Falsely Claimed SEC Approval (Oct. 11, 2018), available at www.sec.gov/news/press-release/2018-232. [20]     R. Todd, Judge to SEC: You Haven’t Shown This ICO Is a Security Offering, The Recorder (Nov. 27, 2018), available at www.law.com/therecorder/2018/11/27/judge-to-sec-this-ico-isnt-a-security-offering/. [21]     SEC Press Release, SEC Charges Bitcoin-Funded Securities Dealer and CEO (Sept. 27, 2018), available at www.sec.gov/news/press-release/2018-218. [22]     Admin. Proc. File No. 3-18582, SEC Charges Pipe Manufacturer and Former CFO with Reporting and Accounting Violations (July 10, 2018), available at www.sec.gov/enforce/33-10517-s. [23]     SEC Press Release, SEC Charges Telecommunications Expense Management Company with Accounting Fraud (Sept. 4, 2018), available at www.sec.gov/news/press-release/2018-175. [24]     SEC Litigation Release, SEC Charges Outsourced CFO with Accounting Controls Deficiencies (Sept. 12, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24265.htm.  [25]     SEC Press Release, Business Services Company and Former CFO Charged With Accounting Fraud (Sept. 20, 2018), available at www.sec.gov/news/press-release/2018-205. [26]     Admin. Proc. File No. 3-18816, Pipeline Construction Company Settles Charges Relating to Internal Control Failures (Sept. 21, 2018), available at www.sec.gov/enforce/34-84251-s. [27]     SEC Press Release, SEC Charges Salix Pharmaceuticals and Former CFO With Lying About Distribution Channel (Sept. 28, 2018), available at www.sec.gov/news/press-release/2018-221. [28]     Admin. Proc. File No. 3-18891, Tobacco Company Settles Accounting and Internal Control Charges (Nov. 9, 2016), available at www.sec.gov/enforce/34-84562-s.  For a description of the company’s remedial measures, see www.sec.gov/litigation/admin/2018/34-84562.pdf.  [29]     SEC Press Release, SEC Charges Agria Corporation and Executive Chairman With Fraud (Dec. 10, 2018), available at www.sec.gov/news/press-release/2018-276. [30]     SEC Press Release, SEC Charges The Hain Celestial Group with Internal Controls Failures (Dec. 11, 2018), available at www.sec.gov/news/press-release/2018-277. [31]     Admin. Proc. File No. 3-18932, SEC Charges Santander Consumer for Accounting and Internal Control Failures (Dec. 17, 2018), available at www.sec.gov/enforce/34-84829-s. [32]     SEC Press Release, Public Companies Charged with Failing to Comply with Quarterly Reporting Obligations (Sept. 21, 2018), available at www.sec.gov/news/press-release/2018-207. [33]     SEC Press Release, SEC Charges KBR for Inflating Key Performance Metric and Accounting Controls Deficiencies (July 2, 2018), available at www.sec.gov/news/press-release/2018-127. [34]     SEC Press Release, SEC Charges Cloud Communications Company and Two Senior Executives With Misleading Revenue Projections (Aug. 7, 2018), available at www.sec.gov/news/press-release/2018-150. [35]     SEC Press Release, SEC Charges Former Online Marketing Company Executives With Inflating Operating Metrics (Aug. 21, 2018), available at www.sec.gov/news/press-release/2018-161. [36]     Admin. Proc. File No. 3-18819, SEC Charges Payment Processing Company and Former CEO for Overstating Key Operating Metric (Sept. 21, 2018), available at www.sec.gov/enforce/33-10558-s. [37]     Admin. Proc. File No. 3-18955, In re ADT Inc. (Dec. 26, 2018), available at www.sec.gov/litigation/admin/2018/34-84956.pdf. [38]     Admin. Proc. File No. 3-18570, Dow Chemical Agrees to $1.75 Million Penalty and Independent Consultant for Failing to Disclose Perquisites (July 2, 2018), available at www.sec.gov/enforce/34-83581-s. [39]     SEC Press Release, SEC Charges Oil Company CEO, Board Member With Hiding Personal Loans (July 16, 2018), available at www.sec.gov/news/press-release/2018-133. [40]     SEC Litigation Release, SEC Charges Real Estate Investment Funds and Executives for Misleading Investors (July 3, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24185.htm. [41]     Admin. Proc. File No. 3-18770, SEC Charges Arizona Company And Two Senior Executives In Connection With Misleading Disclosures About Material Contract (Sept. 17, 2018), available at www.sec.gov/enforce/33-10550-s. [42]     SEC Press Release, SeaWorld and Former CEO to Pay More Than $5 Million to Settle Fraud Charges (Sept. 18, 2018), available at www.sec.gov/news/press-release/2018-198. [43]     SEC Press Release, Biopharmaceutical Company, Executives Charged With Misleading Investors About Cancer Drug (Sept. 18, 2018), available at www.sec.gov/news/press-release/2018-199. [44]     SEC Press Release, SEC Charges Walgreens and Two Former Executives With Misleading Investors About  Forecasted Earnings Goal (Sept. 28, 2018), available at www.sec.gov/news/press-release/2018-220. [45]     SEC Press Release, Elon Musk Settles SEC Fraud Charges; Tesla Charged With and Resolves Securities Law Charge (Sept. 29, 2018), available at www.sec.gov/news/press-release/2018-226. [46]     Admin. Proc. File No. 3-18838, In re Lichter, Yu and Associates, Inc. et al. (Sept. 25, 2018), available at www.sec.gov/litigation/admin/2018/34-84281.pdf. [47]     SEC Press Release, SEC Suspends Former BDO Accountants for Improperly “Predating” Audit Work Papers (Oct. 12, 2018), available at www.sec.gov/news/press-release/2018-235. [48]     SEC Press Release, SEC Charges Audit Firm and Suspends Accountants for Deficient Audits (Dec. 21, 2018), available at www.sec.gov/news/press-release/2018-302. [49]     Admin. Proc. File No. 3-18856, SEC Charges Drone Seller for Failing to Ensure Accuracy of Financial Statement in Advance of Planned IPO (Sept. 28, 2018), available at www.sec.gov/enforce/33-10564-s. [50]     SEC Litigation Release, SEC Charges Medical Aesthetics Company and Its Former CEO with Misleading Investors in a $60 Million Stock Offering (Sept. 19, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24275.htm. [51]     SEC Press Release, SEC Charges Giga Entertainment Media, Former Officers and Directors with Fraud in Pay-For-Download Campaign (Nov. 15, 2018), available at www.sec.gov/news/press-release/2018-263. [52]     Admin. Proc. File No. 3-18901, SEC Charges San Jose Investment Adviser for Overcharging Fees (Nov. 19, 2018), available at www.sec.gov/enforce/ia-5065-s. [53]     Admin. Proc. File No. 3-18909, Investment Adviser Settles Charges Related to Expense Misallocation and Valuation Review Failures (Dec. 3, 2018), available at www.sec.gov/enforce/33-10581-s. [54]     Admin. Proc. File No. 3-18926, SEC Charges Milwaukee-Based Advisory Firm for Receiving Undisclosed Compensation on Client Transactions (Dec. 12, 2018), available at www.sec.gov/enforce/34-84807-s. [55]     Admin. Proc. File No. 3-18935, SEC Charges Private Equity Fund Adviser for Overcharging Expenses (Dec. 17, 2018), available at www.sec.gov/enforce/ia-5079-s. [56]     Admin. Proc. File No. 3-18930, SEC Settles with Investment Adviser Who Failed to Disclose Conflicts of Interest and Misallocated Expenses (Dec. 13, 2018), available at www.sec.gov/enforce/ia-5074-s. [57]     Admin Proc. File No. 3-18958, In re Lightyear Capital LLC (Dec. 26, 2018), available at www.sec.gov/litigation/admin/2018/ia-5096.pdf. [58]     Admin. Proc. File No. 3-18638, SEC Charges Investment Adviser for Compliance Failures Relating to Wrap Fee Programs (Aug. 14, 2018), available at www.sec.gov/enforce/ia-4984-s. [59]     Admin. Proc. File No. 3-18730, SEC Charges Investment Adviser for Failing to Fully Disclose Affiliate Compensation Arrangement (Sept. 7, 2018), available at www.sec.gov/enforce/ia-5002-s. [60]     Admin. Proc. File No. 3-18604, In re Michael Devlin (July 19, 2018), available at www.sec.gov/litigation/admin/2018/ia-4973.pdf. [61]     SEC Press Release, Merrill Lynch Settles SEC Charges of Undisclosed Conflict in Advisory Decision (Aug. 20, 2018), available at www.sec.gov/news/press-release/2018-159. [62]     SEC Press Release, SEC Charges Investment Adviser and CEO with Misleading Retail Investors (July 18, 2018), available at www.sec.gov/news/press-release/2018-137. [63]     Admin. Proc. File No. 3-18649, In re Roger T. Denha (Aug. 17, 2018), available at www.sec.gov/litigation/admin/2018/34-83873.pdf; Admin. Proc. File No. 3-18648, In re BKS Advisors LLC (Aug. 17, 2018), available at www.sec.gov/litigation/admin/2018/ia-4987.pdf. [64]     SEC Litigation Release, SEC Charges Investment Adviser and Senior Officers with Defrauding Clients (Sept. 20, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24278.htm. [65]     Admin. Proc. File No. 3-18724, In re Mark R. Graham et al. (Sept. 6, 2018), available at www.sec.gov/litigation/admin/2018/ia-5000.pdf. [66]     SEC Litigation Release, SEC Charges Hedge Fund Adviser with Short-And-Distort Scheme (Sept. 13, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24267.htm. [67]     SEC Press Release, SEC Charges LendingClub Asset Management and Former Executives With Misleading Investors and Breaching Fiduciary Duty (Sept. 28, 2018), available at www.sec.gov/news/press-release/2018-223. [68]     Admin. Proc. File No. 3-18912, In re KCAP Financial, Inc. (Dec. 4, 2018), available at www.sec.gov/litigation/admin/2018/34-84718.pdf. [69]     Admin. Proc. File No. 3-18673, In re First Western Advisors (Aug. 24, 2018), available at www.sec.gov/litigation/admin/2018/34-83934.pdf. [70]     Admin. Proc. File 3-18765, In re Capital Analysts, LLC (Sept. 14, 2018), available at www.sec.gov/litigation/admin/2018/ia-5009.pdf. [71]     Admin. Proc. File No. 3-18952, SEC Charges Tennessee Investment Advisory Firm and Two Advisory Representatives with Steering Clients to Higher-Fee Mutual Fund Share Classes (Dec. 21, 2018), available at www.sec.gov/enforce/34-84918-s. [72]     SEC Press Release, Two Advisory Firms, CEO Charged With Mutual Fund Share Class Disclosure Violations (Dec. 21, 2018), available at www.sec.gov/news/press-release/2018-303. [73]     Admin. Proc. File No. 3-18607, SEC Charges Beverly Hills Investment Adviser for Improper Fees and False Filings (July 20, 2018), available at www.sec.gov/enforce/ia-4975-s. [74]     Admin. Proc. File No. 3-18657, In re Aria Partners GP, LLC (Aug. 22, 2018), available at www.sec.gov/litigation/admin/2018/ia-4991.pdf. [75]     SEC Press Release, Transamerica Entities to Pay $97 Million to Investors Relating to Errors in Quantitative Investment Models (Aug. 27, 2018), available at www.sec.gov/news/press-release/2018-167. [76]     SEC Press Release, SEC Charges Buffalo Advisory Firm and Principal With Fraud Relating to Association With Barred Adviser (Aug. 30, 2018), available at www.sec.gov/news/press-release/2018-172.  [77]     Admin. Proc. File No. 3-18704, In re Mass. Financial Services Co. (Aug. 31, 2018), available at www.sec.gov/litigation/admin/2018/ia-4999.pdf. [78]     Admin. Proc. File No 3-18729, In re VSS Fund Mmgt. LLC and Jeffrey T. Stevenson (Sept. 7, 2018), available at www.sec.gov/litigation/admin/2018/ia-5001.pdf. [79]     SEC Press Release, SEC Charges Investment Advisers With Defrauding Retail Advisory Clients (Sept. 14, 2018), available at www.sec.gov/news/press-release/2018-195. [80]     Admin. Proc. File No. 3-18948, In re Sterling Global Strategies LLC (Dec. 20, 2018), available at www.sec.gov/litigation/admin/2018/ia-5085.pdf. [81]     SEC Press Release, SEC Charges Two Robo-Advisers With False Disclosures (Dec. 21, 2018), available at www.sec.gov/news/press-release/2018-300. [82]     SEC Press Release, SEC Charges Ameriprise Financial Services for Failing to Safeguard Client Assets (Aug. 15, 2018), available at www.sec.gov/news/press-release/2018-154. [83]     Admin. Proc. File No. 3-18884, SEC Charges Advisory Firm With Due Diligence and Monitoring Failures (Nov. 6, 2018), available at www.sec.gov/enforce/ia-5061-s. [84]     Admin. Proc. File No. 3-18636, SEC Charges Investment Adviser With Mispricing Cross Trades Between Clients (Aug. 10, 2018), available at www.sec.gov/enforce/ia-4983-s. [85]     Admin. Proc. File No. 3-18767, In re Cushing Asset Management, LP (Sept. 14, 2018), available at www.sec.gov/litigation/admin/2018/ic-33226.pdf. [86]     Admin. Proc. File No. 3-18844, SEC Orders Putnam to Pay $1 Million Penalty, Suspends and Fines Former Portfolio Manager for Prearranged Cross-Trades (Sept. 27, 2018), available at www.sec.gov/enforce/ia-5050-s. [87]     Admin. Proc. File Nos. 3-18586, 3-18587, 3-18588, 3-18589, 3-18590, SEC Charges Investment Advisers and Representatives for Violating the Testimonial Rule Using Social Media and the Internet (July 10, 2018), available at www.sec.gov/enforce/3-18586-90-s. [88]     Admin. Proc. File No. 3-18779, Investment Adviser and Its President Settle Charges for Testimonial Rule and Code of Ethics Violations (Sept. 18, 2018), available at www.sec.gov/enforce/ia-5035-s. [89]     Admin. Proc. File No. 3-18585, In re Oaktree Capital Management, L.P. (July 10, 2018), available at www.sec.gov/litigation/admin/2018/ia-4960.pdf. [90]     Admin. Proc. File No. 3-18584, In re EnCap Investments L.P. (July 10, 2018), available at www.sec.gov/litigation/admin/2018/ia-4959.pdf.    [91]     Admin. Proc. File No. 3-18599, Investment Adviser Settles Charges for Custody Rule Violations (July 17, 2018), available at www.sec.gov/enforce/ia-4970-s. [92]     Admin. Proc. File No. 3-18837, Investment Adviser Settles Charges for Custody Rule and Compliance Rule Violations (Sept. 25, 2018), available at www.sec.gov/enforce/ia-5047-s. [93]     SEC Press Release, Deutsche Bank to Pay Nearly $75 Million for Improper Handling of ADRs (Jul. 20, 2018), available at www.sec.gov/news/press-release/2018-138. [94]     SEC Press Release, SG Americas Securities Charged for Improper Handling of ADRs (Sept. 25, 2018), available at www.sec.gov/news/press-release/2018-211. [95]     SEC Press Release, Citibank to Pay More Than $38 Million for Improper Handling of ADRs (Nov. 7, 2018), available at www.sec.gov/news/press-release/2018-255. [96]     Admin. Proc. File No. 3-18933, In re Bank of New York Mellon (Dec. 17, 2018), available at www.sec.gov/litigation/admin/2018/33-10586.pdf. [97]     SEC Press Release, JPMorgan to Pay More Than $135 Million for Improper Handling of ADRs (Dec. 26, 2018), available at www.sec.gov/news/press-release/2018-306. [98]     SEC Press Release, SEC Charges Mizuho Securities for Failure to Safeguard Customer Information (Jul. 23, 2018), available at www.sec.gov/news/press-release/2018-140. [99]     SEC Press Release, SEC Obtains Relief to Fully Reimburse Retail Investors Sold Unsuitable Product (Sept. 11, 2018), available at www.sec.gov/news/press-release/2018-184. [100]   SEC Press Release, Citigroup to Pay More Than $10 Million for Books and Records Violations and Inadequate Controls (Aug. 16, 2018), available at www.sec.gov/news/press-release/2018-155-0. [101]   SEC Press Release, SEC Charges Moody’s With Internal Controls Failures and Ratings Symbols Deficiencies (Aug. 28, 2018), available at www.sec.gov/news/press-release/2018-169. [102]   SEC Litigation Release, SEC Charges Charles Schwab with Failing to Report Suspicious Transactions (Jul. 9, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24189.htm. [103]   Admin. Proc. File No. 3-18829, In the Matter of TD Ameritrade, Inc. (Sept. 24, 2018), available at www.sec.gov/litigation/admin/2018/34-84269.pdf. [104]   SEC Press Release, Brokerage Firm to Exit Penny stock Deposit Business and Pay Penalty for Repeatedly Failing to Report Suspicious Trading (Sept. 28, 2018), available at www.sec.gov/news/press-release/2018-225. [105]   Admin. Proc. File No. 3-18931, SEC Charges UBS Financial Services Inc. with Anti-Money Laundering Violations (Dec. 17, 2018), available at www.sec.gov/enforce/34-84828-s. [106]   Admin. Proc. File No. 30-18940, Broker-Dealer Settles Anti-Money Laundering Charges (Dec. 19, 2018), available at www.sec.gov/enforce/34-84851-s. [107]   SEC Press Release, SEC Charges Citigroup for Dark Pool Misrepresentations (Sept. 14, 2018), available at www.sec.gov/news/press-release/2018-193. [108]   SEC Press Release, Credit Suisse Agrees to Pay $10 Million to Settle Charges Related to Handling of Retail Customer Orders (Sept. 28, 2018), available at www.sec.gov/news/press-release/2018-224. [109]   SEC Press Release, SEC Charges ITG With Misleading Dark Pool Subscribers (Nov. 7, 2018), available at www.sec.gov/news/press-release/2018-256. [110]   SEC Press Release, SEC Charges BCG Financial for Failure to Preserve Documents and Maintain Accurate Books and Records (Jul. 17, 2018), available at www.sec.gov/news/press-release/2018-134. [111]   SEC Press Release, Broker-Dealer to Pay $2.75 Million Penalty for Providing Deficient Blue Sheet Data (Sept. 13, 2018), available at www.sec.gov/news/press-release/2018-191. [112]   SEC Press Release, Three Broker-Dealers to Pay More Than $6 Million in Penalties for Providing Deficient Blue Sheet Data (Dec. 10, 2018), available at www.sec.gov/news/press-release/2018-275. [113]   SEC Press Release, SEC Charges Two Brokers With Defrauding Customers (Sept. 10, 2018), available at www.sec.gov/news/press-release/2018-183. [114]   SEC Press Release, SEC Uses Data Analysis to Detect Cherry-Picking By Broker (Sept. 12, 2018), available at www.sec.gov/news/press-release/2018-189. [115]   Admin. Proc. File No. 3-18941, In the Matter of Andrew Nicoletta et al. (Dec. 19, 2018), available at www.sec.gov/litigation/admin/2018/34-84876.pdf. [116]   SEC Litigation Release, SEC Charges Former Heartland CEO, Romantic Partner in Insider Trading Scheme (Jul. 10, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24191.htm. [117]   SEC Litigation Release, SEC Charges Former Executive for Insider Trading (Jul. 5, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24186.htm. [118]   SEC Press Release, SEC Detects Silicon Valley Executive’s Insider Trading (Jul. 24, 2018), available at www.sec.gov/news/press-release/2018-142. [119]   Admin. Proc. File No. 3-18618, SEC Charges VP of Finance with Insider Trading (Jul. 31, 2018), available at www.sec.gov/enforce/34-83742-s. [120]   SEC Litigation Release, SEC Charges Former Pharma Executive and Others with Insider Trading (Aug. 23, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24245.htm. [121]   Admin. Proc. File No. 3-18665, In re James T. Lentz (Aug. 22, 2018), available at www.sec.gov/litigation/admin/2018/33-10535.pdf. [122]   SEC Litigation Release, SEC Charges Former Senior Executive At Silicon Valley Company with Insider Trading (Aug. 30, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24251.htm. [123]   SEC Litigation Release, SEC Charges Former Vice President of Ocwen Financial Corporation with Insider Trading (Sept. 28, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24298.htm. [124]   SEC Litigation Release, SEC Charges Ebay’s Former Director of SEC Reporting with Insider Trading (Oct. 16, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24317.htm. [125]   SEC Litigation Release, SEC Charges Husband with Insider Trading Ahead of Announcements by Wife’s Employer (Nov. 8, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24340.htm. [126]   SEC Litigation Release, SEC Charges California Software Consultant with Insider Trading (Nov. 8, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24338.htm. [127]   SEC Press Release, SEC Charges U.S. Congressman and Others With Insider Trading (Aug. 8, 2018), available at www.sec.gov/news/press-release/2018-151; see also SEC Litigation Release, SEC Announces Settlement with Two Traders in Innate Insider Trading Case (Aug. 16, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24236.htm. [128]   Admin. Proc. File No. 34-83795, SEC Charges California Bank Board Member’s Son with Insider Trading (Aug. 7, 2018), available at www.sec.gov/enforce/34-83795-s. [129]   SEC Litigation Release, SEC Charges Former Stericycle Financial Analyst and His Mother with Insider Trading (Jul. 24, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24212.htm. [130]   SEC Litigation Release, Former Equifax Manager Charged With Insider Trading (Jul. 2, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24183.htm. [131]   SEC Litigation. Release, Former Biotech Company Employee Charged with Insider Trading (Jul. 10, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24194.htm. [132]   SEC Litigation Release, SEC Charges Scientist for Insider Trading (Aug. 1, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24221.htm. [133]   Admin. Proc. File No. 3-18645, In re Honglan Wang (Aug. 16, 2018), available at www.sec.gov/litigation/admin/2018/34-83857.pdf. [134]   Admin. Proc. File No. 3-18655, SEC Charges Former In-House Counsel with Insider Trading (Aug. 21, 2018), available at www.sec.gov/enforce/34-83896-s. [135]   SEC Press Release, SEC Charges Former Professional Motorcycle Racer, his Investment Adviser, and Others With Insider Trading (Sept. 27, 2018), available at www.sec.gov/enforce/34-84304-s. [136]   SEC Press Release, SEC Charges NFL Player and Former Investment Banker With Insider Trading (Aug. 29, 2018), available at www.sec.gov/news/press-release/2018-170. [137]   SEC Press Release, SEC Charges Family Friend of Former Investment Banker With Insider Trading (Nov. 2, 2018), available at www.sec.gov/news/press-release/2018-251. [138]   SEC Litigation Release, SEC Charges Acquisition Advisor with Insider Trading (Sept. 14, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24269.htm. [139]   SEC Litigation Release, SEC Charges Husband of Investment Banker with Insider Trading (Dec. 17, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24375.htm. [140]   SEC Press Release, SEC Halts Alleged Insider Trading Ring Spanning Three Countries (Dec. 6, 2018), available at www.sec.gov/news/press-release/2018-273. [141]   SEC Litigation Release, SEC Charges Certified Public Accountant with Insider Trading (Aug. 21, 2018), available at www.sec.gov/litigation/litreleases/2018/lr24240.htm. [142]   Admin. Proc. File No. 3-18652, Former Director At Major Accounting Firm Settles Insider Trading Charges (Aug. 20, 2018), available at www.sec.gov/enforce/34-83889-s. [143]   Admin. Proc. File No. 3-18574, In re Michael Johnson (July 6, 2018), available at www.sec.gov/litigation/admin/2018/34-83602.pdf. [144]   Admin. Proc. File No. 3-18858, In re Unal Patel (Sept. 28, 2018), available at www.sec.gov/litigation/admin/2018/34-84315.pdf. [145]   SEC Press Release, SEC Files Charges in Municipal Bond “Flipping” and Kickback Schemes (Aug. 14, 2018), available at www.sec.gov/news/press-release/2018-153. [146]   Admin. Proc. File No. 3-18936, SEC Charges Former Municipal Bond Salesman with Fraudulent Trading Practices (Dec. 18, 2018), available at www.sec.gov/enforce/33-10587-s. [147]   Admin. Proc. File No. 3-18803, SEC Bars Head of Unregistered Municipal Advisory Firm for Failing to Disclose Material Facts to School District (Sept. 20, 2018), available at www.sec.gov/enforce/34-84224-s. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Marc Fagel, Amy Mayer, Andrew Paulson, Tina Samanta, Elizabeth Snow, Craig Streit, Collin James Vierra, Timothy Zimmerman and Maya Ziv. Gibson Dunn is one of the nation’s leading law firms in representing companies and individuals who face enforcement investigations by the Securities and Exchange Commission, the Department of Justice, the Commodities Futures Trading Commission, the New York and other state attorneys general and regulators, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange, and federal and state banking regulators. Our Securities Enforcement Group offers broad and deep experience.  Our partners include the former Directors of the SEC’s New York and San Francisco Regional Offices, the former head of FINRA’s Department of Enforcement, the former United States Attorneys for the Central and Eastern Districts of California, and former Assistant United States Attorneys from federal prosecutors’ offices in New York, Los Angeles, San Francisco and Washington, D.C., including the Securities and Commodities Fraud Task Force. Securities enforcement investigations are often one aspect of a problem facing our clients. Our securities enforcement lawyers work closely with lawyers from our Securities Regulation and Corporate Governance Group to provide expertise regarding parallel corporate governance, securities regulation, and securities trading issues, our Securities Litigation Group, and our White Collar Defense Group. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: 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) Barry R. Goldsmith (+1 212-351-2440, bgoldsmith@gibsondunn.com) Laura Kathryn O’Boyle (+1 212-351-2304, loboyle@gibsondunn.com) Mark K. Schonfeld (+1 212-351-2433, mschonfeld@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Avi Weitzman (+1 212-351-2465, aweitzman@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Tina Samanta (+1 212-351-2469 , tsamanta@gibsondunn.com) Washington, D.C. Stephanie L. Brooker (+1 202-887-3502, sbrooker@gibsondunn.com) Daniel P. Chung(+1 202-887-3729, dchung@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Richard W. Grime (+1 202-955-8219, rgrime@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) San Francisco Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tadavis@gibsondunn.com) Marc J. Fagel (+1 415-393-8332, mfagel@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8234, mwong@gibsondunn.com) Palo Alto Michael D. Celio (+1 650-849-5326, mcelio@gibsondunn.com) Paul J. Collins (+1 650-849-5309, pcollins@gibsondunn.com) Benjamin B. Wagner (+1 650-849-5395, bwagner@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) Los Angeles Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas M. Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 15, 2019 |
Five Gibson Dunn Partners Recognized in Who’s Who Legal in Restructuring and Insolvency

Who’s Who Legal Restructuring and Insolvency 2019 recognized five Gibson Dunn partners. Los Angeles partners Robert Klyman and Jeffrey Krause, New York partners David Feldman and Michael Rosenthal, and Paris partner Jean-Pierre Farges were listed. The list was published in January 2019.

January 15, 2019 |
Ninth Circuit Judges Call for En Banc Review of the Federal Trade Commission’s Authority to Obtain Monetary Relief

With increasing regularity, the Federal Trade Commission (“FTC”) is seeking and obtaining large monetary remedies as “equitable monetary relief” pursuant to Section 13(b) of the FTC Act.  Indeed, FTC settlements and judgments exceeding $100 million, and even $1 billion, are becoming commonplace. The Supreme Court, however, has never held that Section 13(b) of the FTC Act empowers the FTC to obtain monetary relief.  Although multiple federal circuit courts have held that Section 13(b) provides the agency with this power, several weeks ago two Ninth Circuit judges issued a concurrence in FTC v. AMG Capital Management, LLC et al. calling for the full Ninth Circuit to reconsider this issue en banc in light of the Supreme Court’s 2017 decision in Kokesh v. SEC. Gibson Dunn partners Sean Royall, Blaine Evanson, and Rich Cunningham, and associate Brandon J. Stoker recently published an article discussing the AMG Capital Management concurrence in the Washington Legal Foundation’s The Legal Pulse blog.  The article describes the concurrence and how it fits into the broader legal landscape around this issue, which is clearly poised for further attention from the federal appellate courts, including the Supreme Court. Ninth Circuit Judges Call for En Banc Review of the Federal Trade Commission’s Authority to Obtain Monetary Relief (click on link) © 2019, Washington Legal Foundation, The Legal Pulse, January 15, 2019. Reprinted with permission. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the authors of this Client Alert, the Gibson Dunn lawyer with whom you usually work, or one of the leaders and members of the firm’s Antitrust and Competition or Privacy, Cybersecurity and Consumer Protection practice groups: Washington, D.C. Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Howard S. Hogan (+1 202-887-3640, hhogan@gibsondunn.com) Joseph Kattan P.C. (+1 202-955-8239, jkattan@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) Jeremy Robison (+1 202-955-8518, wrobison@gibsondunn.com) New York Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) Eric D. Vandevelde (+1 213-229-7186, evandevelde@gibsondunn.com) Orange County Blaine H. Evanson (+1 949-451-3805, bevanson@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Dallas M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Olivia Adendorff (+1 214-698-3159, oadendorff@gibsondunn.com) Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 11, 2019 |
How Calif. Privacy Act Could Prompt Private Plaintiff Suits

Orange County partner Joshua Jessen is the author of “How Calif. Privacy Act Could Prompt Private Plaintiff Suits,” [PDF] published by Law360 on January 11, 2019.

January 11, 2019 |
2018 Year-End German Law Update

Click for PDF Looking back at the past year’s cacophony of voices in a world trying to negotiate a new balance of powers, it appeared that Germany was disturbingly silent, on both the global and European stage. Instead of helping shape the new global agenda that is in the making, German politics focused on sorting out the vacuum created by a Federal election result which left no clear winner other than a newly formed right wing nationalist populist party mostly comprised of so called Wutbürger (the new prong for “citizens in anger”) that managed to attract 12.6 % of the vote to become the third strongest party in the German Federal Parliament. The relaunching of the Grand-Coalition in March after months of agonizing coalition talks was followed by a bumpy start leading into another session of federal state elections in Bavaria and Hesse that created more distraction. When normal business was finally resumed in November, a year had passed by with few meaningful initiatives formed or significant business accomplished. In short, while the world was spinning, Germany allowed itself a year’s time-out from international affairs. The result is reflected in this year’s update, where the most meaningful legal developments were either triggered by European initiatives, such as the General Data Protection Regulation (“GDPR”) (see below section 4.1) or the New Transparency Rules for Listed German Companies (see below section 1.2), or as a result of landmark rulings of German or international higher and supreme courts (see below Corporate M&A sections 1.1 and 1.4; Tax – sections 2.1 and 2.2 and Labor and Employment – section 4.2). In fairness, shortly before the winter break at least a few other legal statutes have been rushed through parliament that are also covered by this update. Of the changes that are likely to have the most profound impact on the corporate world, as well as on the individual lives of the currently more than 500 million inhabitants of the EU-28, the GDPR, in our view, walks away with the first prize. The GDPR has created a unified legal system with bold concepts and strong mechanisms to protect individual rights to one’s personal data, combined with hefty fines in case of the violation of its rules. As such, the GDPR stands out as a glowing example for the EU’s aspiration to protect the civic rights of its citizens, but also has the potential to create a major exposure for EU-based companies processing and handling data globally, as well as for non EU-based companies doing business in Europe. On a more strategic scale, the GDPR also creates a challenge for Europe in the global race for supremacy in a AI-driven world fueled by unrestricted access to data – the gold of the digital age. The German government could not resist infection with the virus called protectionism, this time around coming in the form of greater scrutiny imposed on foreign direct investments into German companies being considered as “strategic” or “sensitive” (see below section 1.3 – Germany Tightens Rules on Foreign Takeovers Even Further). Protecting sensitive industries from “unwanted” foreign investors, at first glance, sounds like a laudable cause. However, for a country like Germany that derives most of its wealth and success from exporting its ideas, products and services, a more liberal approach to foreign investments would seem to be more appropriate, and it remains to be seen how the new rules will be enforced in practice going forward. The remarkable success of the German economy over the last twenty five years had its foundation in the abandoning of protectionism, the creation of an almost global market place for German products, and an increasing global adoption of the rule of law. All these building blocks of the recent German economic success have been under severe attack in the last year. This is definitely not the time for Germany to let another year go by idly. We use this opportunity to thank you for your trust and confidence in our ability to support you in your most complicated and important business decisions and to help you form your views and strategies to deal with sophisticated German legal issues. Without our daily interaction with your real-world questions and tasks, our expertise would be missing the focus and color to draw an accurate picture of the multifaceted world we are living in. In this respect, we thank you for making us better lawyers – every day. ________________________ TABLE OF CONTENTS 1.      Corporate, M&A 2.      Tax 3.      Financing and Restructuring 4.      Labor and Employment 5.      Real Estate 6.      Compliance 7.      Antitrust and Merger Control 8.      Litigation 9.      IP & Technology 10.    International Trade, Sanctions and Export Controls ________________________ 1.       Corporate, M&A 1.1       Further Development regarding D&O Liability of the Supervisory Board in a German Stock Corporation In its famous “ARAG/Garmenbeck”-decision in 1997, the German Federal Supreme Court (Bundesgerichtshof – BGH) first established the obligation of the supervisory board of a German Stock Corporation (Aktiengesellschaft) to pursue the company’s D&O liability claims in the name of the company against its own management board after having examined the existence and enforceability of such claims. Given the very limited discretion the court has granted to the supervisory board not to bring such a claim and the supervisory board’s own liability arising from inactivity, the number of claims brought by companies against their (former) management board members has risen significantly since this decision. In its recent decision dated September 18, 2018, the BGH ruled on the related follow-up question about when the statute of limitations should start to run with respect to compensation claims brought by the company against a supervisory board member who has failed to pursue the company’s D&O liability claims against the board of management within the statutory limitation period. The BGH clarified that the statute of limitation applicable to the company’s compensation claims against the inactive supervisory board member (namely ten years in case of a publicly listed company, otherwise five years) should not begin to run until the company’s compensation claims against the management board member have become time-barred themselves. With that decision, the court adopts the view that in cases of inactivity, the period of limitations should not start to run until the last chance for the filing of an underlying claim has passed. In addition, the BGH in its decision confirmed the supervisory board’s obligation to also pursue the company’s claims against the board of management in cases where the management board member’s misconduct is linked to the supervisory board’s own misconduct (e.g. through a violation of supervisory duties). Even in cases where the pursuit of claims against the board of management would force the supervisory board to disclose its own misconduct, such “self-incrimination” does not release the supervisory board from its duty to pursue the claims given the preponderance of the company’s interests in an effective supervisory board, the court reasoned. In practice, the recent decision will result in a significant extension of the D&O liability of supervisory board members. Against that backdrop, supervisory board members are well advised to examine the existence of the company’s compensation claims against the board of management in a timely fashion and to pursue the filing of such claims, if any, as soon as possible. If the board of management’s misconduct is linked to parallel misconduct of the supervisory board itself, the relevant supervisory board member – if not exceptionally released from pursuing such claim and depending on the relevant facts and circumstances – often finds her- or himself in a conflict of interest arising from such self-incrimination in connection with the pursuit of the claims. In such a situation, the supervisory board member might consider resigning from office in order to avoid a conflict of interest arising from such self-incrimination in connection with the pursuit of the claims. Back to Top 1.2       Upcoming New Transparency Rules for Listed German Companies as well as Institutional Investors, Asset Managers and Proxy Advisors In mid-October 2018, the German Federal Ministry of Justice finally presented the long-awaited draft for an act implementing the revised European Shareholders’ Rights Directive (Directive (EU) 2017/828). The Directive aims to encourage long-term shareholder engagement by facilitating the communication between shareholders and companies, in particular across borders, and will need to be implemented into German law by June 10, 2019 at the latest. The new rules primarily target listed German companies and provide some major changes with respect to the “say on pay” provisions, as well as additional approval and disclosure requirements for related party transactions, the transmission of information between a stock corporation and its shareholders and additional transparency and reporting requirements for institutional investors, asset managers and proxy advisors. “Say on pay” on directors’ remuneration: remuneration policy and remuneration report Under the current law, the shareholders determine the remuneration of the supervisory board members at a shareholder meeting, whereas the remuneration of the management board members is decided by the supervisory board. The law only provides for the possibility of an additional shareholder vote on the management board members’ remuneration if such vote is put on the agenda by the management and supervisory boards in their sole discretion. Even then, such vote has no legal effects whatsoever (“voluntary say on pay”). In the future, shareholders of German listed companies will have two options. First, the supervisory board will have to prepare a detailed remuneration policy for the management board, which must be submitted to the shareholders if there are major changes to the remuneration, and in any event at least once every four years (“mandatory say on pay”). That said, the result of the vote on the policy will continue to remain only advisory. However, if the supervisory board adopts a remuneration policy that has been rejected by the shareholders, it will then be required to submit a reviewed (not necessarily revised) remuneration policy to the shareholders at the next shareholders’ meeting. With respect to the remuneration of supervisory board members, the new rules require a shareholders vote at least once every four years. Second, at the annual shareholders’ meeting the shareholders will vote ex post on the remuneration report (which is also reviewed by the statutory auditor) which contains the remuneration granted to the present and former members of the management board and the supervisory board in the past financial year. Again, the shareholders’ vote, however, will only be advisory. Both the remuneration report including the audit report, as well as the remuneration policy will have to be made public on the company’s website for at least ten years. Related party transactions German stock corporation law already provides for various safeguard mechanisms to protect minority shareholders in cases of transactions with major shareholders or other related parties (e.g. the capital maintenance rules and the laws relating to groups of companies). In the future, in the case of listed companies, these mechanisms will be supplemented by a detailed set of approval and transparency requirements for transactions between the company and related parties. Material transactions exceeding certain thresholds will require prior supervisory board approval. A rejection by the supervisory board can be overcome by shareholder vote. Furthermore, a listed company must publicly disclose any such material related party transaction, without undue delay over media providing for a Europe-wide distribution. Identification of shareholders and facilitation of the exercise of shareholders’ rights Listed companies will have the right to request information on the identity of their shareholders, including the name and both a postal and electronic address, from depositary banks, thus allowing for a direct communication line, also with respect to bearer shares (“know-your-shareholder”). Furthermore, depositary banks and other intermediaries will be required to pass on important information from the company to the shareholders and vice versa, e.g. with respect to voting in shareholders’ meetings and the exercise of subscription rights. Where there is more than one intermediary in a chain, the intermediaries are required to pass on the respective information within the chain. In addition, companies will be required to confirm the votes cast at the request of the shareholders thus enabling them to be certain that their votes have been effectively cast, including in particular across borders. Transparency requirements for institutional investors, asset managers and proxy advisors German domestic institutional investors and asset managers with Germany as their home member state (as defined in the applicable sector-specific EU law) will be required (i) to disclose their engagement policy, including how they monitor, influence and communicate with the investee companies, exercise shareholders’ rights and manage actual and potential conflicts of interests, and (ii) to report annually on the implementation of their engagement policy and disclose how they have cast their votes in the general meetings of material investee companies. Institutional investors will further have to disclose (iii) consistency between the key elements of their investment strategy with the profile and duration of their liabilities and how they contribute to the medium to long-term performance of their assets, and, (iv) if asset managers are involved, to disclose the main aspects of their arrangement with the asset manager. The new disclosure and reporting requirements, however, only apply on a “comply or explain” basis. Thus, investors and asset managers may choose not to make the above disclosures, provided they give an explanation as to why this is the case. Proxy advisors will have to publicly disclose on an annual basis (i) whether and how they have applied their code of conduct based again on the “comply or explain” principle, and (ii) information on the essential features, methodologies and models they apply, their main information sources, the qualification of their staff, their voting policies for the different markets they operate in, their interaction with the companies and the stakeholders as well as how they manage conflicts of interests. These rules, however, do not apply to proxy advisors operating from a non-EEA state with no establishment in Germany. The present legislative draft is still under discussion and it is to be expected that there will still be some changes with respect to details before the act becomes effective in mid-2019. Due to transitional provisions, the new rules on “say on pay” will have no effect for the majority of listed companies in this year’s meeting season. Whether the new rules will actually promote a long-term engagement of shareholders and have the desired effect on the directors’ remuneration of listed companies will have to be seen. In any event, both listed companies as well as the other addressees of the new transparency rules should make sure that they are prepared for the new reporting and disclosure requirements. Back to Top 1.3       Germany Tightens Rules on Foreign Takeovers Even Further After the German government had imposed stricter rules on foreign direct investment in 2017 (see 2017 Year-End German Law Update under 1.5), it has now even further tightened its rules with respect to takeovers of German companies by foreign investors. The latest amendment of the rules under the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, “AWV“) enacted in 2018 was triggered, among other things, by the German government’s first-ever veto in August 2018 regarding the proposed acquisition of Leifeld Metal Spinning, a German manufacturer of metal forming machines used in the automotive, aerospace and nuclear industries, by Yantai Taihai Corporation, a privately-owned industry group from China, on the grounds of national security. Ultimately, Yantai withdrew its bid shortly after the German government had signaled that it would block the takeover. On December 29, 2018, the latest amendment of the Foreign Trade and Payments Ordinance came into force. The new rules provide for greater scrutiny of foreign direct investments by lowering the threshold for review of takeovers of German companies by foreign investors from the acquisition of 25% of the voting rights down to 10% in circumstances where the target operates a critical infrastructure or in sensitive security areas (defense and IT security industry). In addition, the amendment also expands the scope of the Foreign Trade and Payments Ordinance to also apply to certain media companies that contribute to shaping the public opinion by way of broadcasting, teleservices or printed materials and stand out due to their special relevance and broad impact. While the lowering of the review threshold as such will lead to an expansion of the existing reporting requirements, the broader scope is also aimed at preventing German mass media from being manipulated with disinformation by foreign investors or governments. There are no specific guidelines published by the German government as it wants the relevant parties to contact, and enter into a dialog with, the authorities about these matters. While the German government used to be rather liberal when it came to foreign investments in the past, the recent veto in the case of Leifeld as well as the new rules show that in certain circumstances, it will become more cumbersome for dealmakers to get a deal done. Finally, it is likely that the rules on foreign investment control will be tightened even further going forward in light of the contemplated EU legislative framework for screening foreign direct investment on a pan-European level. Back to Top 1.4       US Landmark Decision on MAE Clauses – Consequences for German M&A Deals Fresenius wrote legal history in the US with potential consequences also for German M&A deals in which “material adverse effect” (MAE) clauses are used. In December 2018, for the first time ever, the Supreme Court of Delaware allowed a purchaser to invoke the occurrence of an MAE and to terminate the affected merger agreement. The agreement included an MAE clause, which allocated certain business risks concerning the target (Akorn) for the time period between signing and closing to Akorn. Against the resistance of Akorn, Fresenius terminated the merger agreement based on the alleged MAE, arguing that the target’s EBITDA declined by 86%. The decision includes a very detailed analysis of an MAE clause by the Delaware courts and reaffirms that under Delaware law there is a very high bar to establishing an MAE. Such bar is based both on quantitative and qualitative parameters. The effects of any material adverse event need to be substantial as well as lasting. In most German deals, the parties agree to arbitrate. For this reason, there have been no German court rulings published on MAE clauses so far. Hence, all parties to an M&A deal face uncertainty about how German courts or arbitration tribunals would define “materiality” in the context of an MAE clause. In potential M&A litigation, sellers may use this ruling to support the argument that the bar for the exercise of the MAE right is in fact very high in line with the Delaware standard. It remains to be seen whether German judges will adopt the Delaware decision to interpret MAE clauses in German deals. Purchasers, who seek more certainty, may consider defining materiality in the MAE clause more concretely (e.g., by reference to the estimated impact of the event on the EBITDA of the company or any other financial parameter). Back to Top 1.5       Equivalence of Swiss Notarizations? The question whether the notarization of various German corporate matters may only be validly performed by German notaries or whether some or all of these measures may also be notarized validly by Swiss notaries has long since been the topic of legal debate. Since the last major reform of the German Limited Liability Companies Act (Gesetz betreffend Gesellschaften mit beschränkter Haftung – GmbHG) in 2008 the number of Swiss notarizations of German corporate measures has significantly decreased. A number of the newly introduced changes and provisions seemed to cast doubt on the equivalence and capacity of Swiss notaries to validly perform the duties of a German notary public who are not legally bound by the mandatory, non-negotiable German fee regime on notarial fees. As a consequence and a matter of prudence, German companies mostly stopped using Swiss notaries despite the potential for freely negotiated fee arrangements and the resulting significant costs savings in particular in high value matters. However, since 2008 there has been an increasing number of test cases that reach the higher German courts in which the permissibility of a Swiss notarization is the decisive issue. While the German Federal Supreme Court (Bundesgerichtshof – BGH) still has not had the opportunity to decide this question, in 2018 two such cases were decided by the Kammergericht (Higher District Court) in Berlin. In those cases, the court held that both the incorporation of a German limited liability company in the Swiss Canton of Berne (KG Berlin, 22 W 25/16 – January 24, 2018 = ZIP 2018, 323) and the notarization of a merger between two German GmbHs before a notary in the Swiss Canton of Basle (KG Berlin, 22 W 2/18 – July 26, 2018 = ZIP 2018, 1878) were valid notarizations under German law, because Swiss notaries were deemed to be generally equivalent to the qualifications and professional standards of German-based notaries. The reasons given in these decisions are reminiscent of the case law that existed prior to the 2008 corporate law reform and can be interpreted as indicative of a certain tendency by the courts to look favorably on Swiss notarizations as an alternative to German-based notarizations. Having said that and absent a determinative decision by the BGH, using German-based notaries remains the cautious default approach for German companies to take. This is definitely the case in any context where financing banks are involved (e.g. either where share pledges as loan security are concerned or in an acquisition financing context of GmbH share sales and transfers). On the other hand, in regions where such court precedents exist, the use of Swiss notaries for straightforward intercompany share transfers, mergers or conversions might be considered as an alternative on a case by case basis. Back to Top 1.6       Re-Enactment of the DCGK: Focus on Relevance, Function, Management Board’s Remuneration and Independence of Supervisory Board Members Sixteen years after it has first been enacted, the German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK), which contains standards for good and responsible governance for German listed companies, is facing a major makeover. In November 2018, the competent German government commission published a first draft for a radically revised DCGK. While vast parts of the proposed changes are merely editorial and technical in nature, the draft contains a number of new recommendations, in particular with respect to the topics of management remuneration and independence of supervisory board members. With respect to the latter, the draft now provides a catalogue of criteria that shall act as guidance for the supervisory board as to when a shareholder representative shall no longer be regarded as independent. Furthermore, the draft also provides for more detailed specifications aiming for an increased transparency of the supervisory board’s work, including the recommendation to individually disclose the members’ attendance of meetings, and further tightens the recommendations regarding the maximum number of simultaneous mandates for supervisory board members. Moreover, in addition to the previous concept of “comply or explain”, the draft DCGK introduces a new “apply and explain” concept, recommending that listed companies also explain how they apply certain fundamental principles set forth in the DCGK as a new third category in addition to the previous two categories of recommendations and suggestions. The draft DCGK is currently under consultation and the interested public is invited to comment upon the proposed amendments until the end of January 2019. Since some of the proposed amendments provide for a rather fundamentally new approach to the current regime and would introduce additional administrative burdens, it remains to be seen whether all of the proposed amendments will actually come into force. According to the current plan, following a final consultancy of the Government Commission, the revised version of the DCGK shall be submitted for publication in April 2019 and would take effect shortly thereafter. Back to Top 2.         Tax On November 23, 2018, the German Federal Council (Bundesrat) approved the German Tax Reform Act 2018 (Jahressteuergesetz 2018, the “Act”), which had passed the German Federal Parliament (Bundestag) on November 8, 2018. Highlights of the Act are (i) the exemption of restructuring gains from German income tax, (ii) the partial abolition of and a restructuring exemption from the loss forfeiture rules in share transactions and (iii) the extension of the scope of taxation for non-German real estate investors investing in Germany. 2.1       Exemption of Restructuring Gains The Act puts an end to a long period of uncertainty – which has significantly impaired restructuring efforts – with respect to the tax implications resulting from debt waivers in restructuring scenarios (please see in this regard our 2017 Year-End German Law Update under 3.2). Under German tax law, the waiver of worthless creditor claims creates a balance sheet profit for the debtor in the amount of the nominal value of the payable. Such balance sheet profit is taxable and would – without any tax privileges for such profit – often outweigh the restructuring effect of the waiver. The Act now reinstates the tax exemption of debt waivers with retroactive effect for debt waivers after February 8, 2017; upon application debt waivers prior to February 8, 2017 can also be covered. Prior to this legislative change, a tax exemption of restructuring gains was based on a restructuring decree of the Federal Ministry of Finance, which has been applied by the tax authorities since 2003. In 2016, the German Federal Fiscal Court (Bundesfinanzgerichtshof) held that the restructuring decree by the Federal Ministry of Finance violates constitutional law since a tax exemption must be legislated by statute and cannot be based on an administrative decree. Legislation was then on hold pending confirmation from the EU Commission that a legislative tax exemption does not constitute illegal state aid under EU law. The EU Commission finally gave such confirmation by way of a comfort letter in August 2018. The Act is largely based on the conditions imposed by a restructuring decree issued by the Federal Ministry of Finance on the tax exemption of a restructuring gain. Under the Act, gains at the level of the debtor resulting from a full or partial debt relief are exempt from German income tax if the relief is granted to recapitalize and restructure an ailing business. The tax exemption only applies if at the time of the debt waiver (i) the business is in need of restructuring and (ii) capable of being restructured, (iii) the waiver results in a going-concern of the restructured business and (iv) the creditor waives the debt with the intention to restructure the business. The rules apply to German corporate income and trade tax and benefit individuals, partnerships and corporations alike. Any gains from the relief must first be reduced by all existing loss-offsetting potentials before the taxpayer can benefit from tax exemptions on restructuring measures. Back to Top 2.2       Partial Abolition of Loss Forfeiture Rules/Restructuring Exception Under the current Loss Forfeiture Rules, losses of a German corporation will be forfeited on a pro rata basis if within a period of five years more than 25% but not more than 50% of the shares in the German loss-making corporation are transferred (directly or indirectly) to a new shareholder or group of shareholders with aligned interests. If more than 50% are transferred, losses will be forfeited in total. There are exceptions to this rule for certain intragroup restructurings, built-in gains and business continuations, especially in the venture capital industry. On March 29, 2017, the German Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) ruled that the pro rata forfeiture of losses (a share transfer of more than 25% but not more than 50%) is incompatible with the constitution. The court has asked the German legislator to amend the Loss Forfeiture Rules retroactively for the period from January 1, 2008 until December 31, 2015 to bring them in line with the constitution. Somewhat surprisingly, the legislator has now decided to fully cancel the pro rata forfeiture of losses with retroactive effect and with no reference to a specific tax period. Currently pending before the German Federal Constitutional Court is the question whether the full forfeiture of losses is constitutional. A decision by the Federal Constitutional Court is expected for early 2019, which may then result in another legislative amendment of the Loss Forfeiture Rules. The Act has also reinstated a restructuring exception from the forfeiture rules – if the share transfer occurs in order to restructure the business of an ailing corporation. Similar to the exemption of restructuring gains, this legislation was on hold until the ECJ’s decision (European Court of Justice) on June 28, 2018 that the restructuring exception does not violate EU law. Existing losses will not cease to exist following a share transfer if the restructuring measures are appropriate to avoid or eliminate the illiquidity or the over-indebtedness of the corporation and to maintain its basic operational structure. The restructuring exception applies to share transfers after December 31, 2007. Back to Top 2.3       Investments in German Real Estate by Non-German Investors So far, capital gains from the disposal of shares in a non-German corporation holding German real estate were not subject to German tax. In a typical structure, in which German real estate is held via a Luxembourg or Dutch entity, a value appreciation in the asset could be realized by a share deal of the holding company without triggering German income taxes. Under the Act, the sale of shares in a non-German corporation is now taxable if, at some point within a period of one year prior to the sale of shares, 50 percent of the book value of the assets of the company consisted of German real estate and the seller held at least 1 percent of the shares within the last five years prior to the sale. The Act is now in line with many double tax treaties concluded by Germany, which allow Germany to tax capital gains in these cases. The new law applies for share transfers after December 31, 2018. Capital gains are only subject to German tax to the extent the value has been increased after December 31, 2018. Until 2018, a change in the value of assets and liabilities, which are economically connected to German real estate, was not subject to German tax. Therefore, for example, profits from a waiver of debt that was used to finance German real estate was not taxable in Germany whereas the interest paid on the debt was deductible for German tax purposes. That law has now changed and allows Germany to tax such profit from a debt waiver if the loan was used to finance German real estate. However, only the change in value that occurred after December 31, 2018 is taxable. Back to Top 3.         Financing and Restructuring – Test for Liquidity Status Tightened On December 19, 2017, the German Federal Supreme Court (Bundesgerichtshof – BGH) handed down an important ruling which clarifies the debt and payable items that should be taken into account when determining the “liquidity” status of companies. According to the Court, the liquidity test now requires managing directors and (executive) board members to determine whether a liquidity gap exceeding 10% can be overcome by incoming liquidity within a period of three weeks taking into account all payables which will become due in those three weeks. Prior to the ruling, managing directors had often argued successfully that only those payables that were due at the time when the test is applied needed be taken into account while expected incoming payments within a three week term could be considered. This mismatch in favor of the managing directors has now been rectified by the Court to the disadvantage of the managing directors. If, for example, on June 1 the company liquidity status shows due payables amounting to EUR 100 and plausible incoming receivables in the three weeks thereafter amounting to EUR 101, no illiquidity existed under the old test. Under the new test confirmed by the Court, payables of EUR 50 becoming due in the three week period now also have to be taken into account and the company would be considered illiquid. For companies and their managing directors following a cautious approach, the implications of this ruling are minor. Going forward, however, even those willing to take higher risks will need to follow the court determined principles. Otherwise, delayed insolvency filings could ensue. This not only involves a managing directors and executive board members’ personal liability for payments made on behalf of the company while illiquid but also potential criminal liability for a delayed insolvency filing. Managing directors are thus well advised to properly undertake and also document the required test in order to avoid liability issues. Back to Top 4.         Labor and Employment 4.1       GDPR Has Tightened Workplace Privacy Rules The EU General Data Protection Regulation (“GDPR”) started to apply on May 25, 2018. It has introduced a number of stricter rules for EU countries with regard to data protection which also apply to employee personal data and employment relationships. In addition to higher sanctions, the regulation provides for extensive information, notification, deletion, and documentation obligations. While many of these data privacy rules had already been part of the previous German workplace privacy regime under the German Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG), the latter has also been amended and provides for specific rules applicable to employee data protection in Germany (e.g. in the context of internal investigations or with respect to employee co-determination). However, the most salient novelty is the enormous increase in potential sanctions under the GDPR. Fines for GDPR violations can reach up to the higher of EUR 20 million or 4% of the group’s worldwide turnover. Against this backdrop, employers are well-advised to handle employee personnel data particularly careful. This is also particularly noteworthy as the employer is under an obligation to prove compliance with the GDPR – which may result in a reversal of the burden of proof e.g. in employment-related litigation matters involving alleged GDPR violations. Back to Top 4.2       Job Adverts with Third Gender Following a landmark decision by the German Federal Constitutional Court in 2017, employers are gradually inserting a third gender into their job advertisements. The Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) decided on October 10, 2017 that citizens who do not identify as either male or female were to be registered as “diverse” in the birth register (1 BvR 2019/16). As a consequence of this court decision, many employers in Germany have broadened gender notations in job advertisements from previously “m/f” to “m/f/d”. While there is no compelling legal obligation to do so, employers tend to signal their open-mindedness by this step, but also mitigate the potential risk of liability for a discrimination claim. Currently, such liability risk does not appear alarming due to the relative rarity of persons identifying as neither male nor female and the lack of a statutory stipulation for such adverts. However, employers might be well-advised to follow this trend, particularly after Parliament confirmed the existence of a third gender option in birth registers in mid-December. Back to Top 4.3       Can Disclosure Obligation Reduce Gender Pay-Gap? In an attempt to weed out gender pay gaps, the German lawmaker has introduced the so-called Compensation Transparency Act in 2017. It obliges employers, inter alia, to disclose the median compensation of comparable colleagues of the opposite gender with comparable jobs within the company. The purpose is to give a potential claimant (usually a female employee) an impression of how much her comparable male colleagues earn in order for her to consider further steps, e.g. a claim for more money. However, the new law is widely perceived as pointless. First, the law itself and its processes are unduly complex. Second, even after making use of the law, the respective employee would still have to sue the company separately in order to achieve an increase in her compensation, bearing the burden of proof that the opposite-gender employee with higher compensation is comparable to her. Against this background, the law has hardly been used in practice and will likely have only minimal impact. Back to Top 4.4       Employers to Contribute 15% to Deferred Compensation Schemes In order to promote company pension schemes, employers are now obliged to financially support deferred compensation arrangements. So far, employer contributions to any company pension scheme had been voluntary. In the case of deferred compensation schemes, companies save money as a result of less social security charges. The flipside of this saving was a financial detriment to the employee’s statutory pension, as the latter depends on the salary actually paid to the employee (which is reduced as a result of the deferred compensation). To compensate the employee for this gap, the employer is now obliged to contribute up to 15% of the respective deferred compensation. The actual impact of this new rule should be limited, as many employers already actively support deferred compensation schemes. As such, the new obligatory contribution can be set off against existing employer contributions to the same pension scheme. Back to Top 5.         Real Estate – Notarization Requirement for Amendments to Real Estate Purchase Agreements Purchase agreements concerning German real estate require notarization in order to be effective. This notarization requirement relates not only to the purchase agreement as such but to all closely related (side) agreements. The transfer of title to the purchaser additionally requires an agreement in rem between the seller and the purchaser on the transfer (conveyance) and the subsequent registration of the transfer in the land register. To avoid additional notarial fees, parties usually include the conveyance in the notarial real estate purchase agreement. Amendment agreements to real estate purchase agreements are quite common (e.g., the parties subsequently agree on a purchase price adjustment or the purchaser has special requests in a real estate development scenario). Various Higher District Courts (Oberlandesgerichte), together with the prevailing opinion in literature, have held in the past that any amendments to real estate purchase agreements also require notarization unless such an amendment is designed to remove unforeseeable difficulties with the implementation of the agreement without significantly changing the parties’ mutual obligations. Any amendment agreement that does not meet the notarization requirement may render the entire purchase agreement (and not only the amendment agreement) null and void. With its decision on September 14, 2018, the German Federal Supreme Court (Bundesgerichtshof – BGH) added another exception to the notarization requirement and ruled that notarization of an amendment agreement is not required once the conveyance has become binding and the amendment does not change the existing real estate transfer obligations or create new ones. A conveyance becomes binding once it has been validly notarized. Before this new decision of the BGH, amendments to real estate purchase agreements were often notarized for the sake of precaution because it was difficult to determine whether the conditions for an exemption from the notarization requirement had been met. This new decision of the BGH gives the parties clear guidance as to when amendments to real estate purchase agreements require notarization. It should, however, be borne in mind that notarization is still required if the amendment provides for new transfer obligations concerning the real property or the conveyance has not become effective yet (e.g., because third party approval is still outstanding). Back to Top 6.         Compliance 6.1       Government Plans to Introduce Corporate Criminal Liability and Internal Investigations Act Plans of the Federal Government to introduce a new statute concerning corporate criminal liability and internal investigations are taking shape. Although a draft bill had already been announced for the end of 2018, pressure to respond to recent corporate scandals seems to be rising. With regard to the role and protection of work product generated during internal investigations, the highly disputed decisions of the Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) in June 2018 (BVerfG, 2 BvR 1405/17, 2 BvR 1780/17 – June 27, 2018) (see 2017 Year-End German Law Update under 7.3) call for clearer statutory rules concerning the search of law firm premises and the seizure of documents collected in the course of an internal investigation. In its dismissal of complaints brought by Volkswagen and its lawyers from Jones Day, the Federal Constitutional Court made remarkable obiter dicta statements in which it emphasized the following: (1) the legal privilege enjoyed for the communication between the individual defendant (Beschuldigter) and its criminal defense counsel is limited to their communication only; (2) being considered a foreign corporate body, the court denied Jones Day standing in the proceedings, because the German constitution only grants rights to corporate bodies domiciled in Germany; and (3) a search of the offices of a law firm does not affect individual constitutional rights of the lawyers practicing in that office, because the office does not belong to the lawyers’ personal sphere, but only to their law firm. The decision and the additional exposure caused by it by making attorney work product created in the course of an internal investigation accessible was a major blow to German corporations’ efforts to foster internal investigations as a means to efficiently and effectively investigate serious compliance concerns. Because it does not appear likely that an entirely new statute concerning corporate criminal liability will materialize in the near future, the legal press expects the Federal Ministry of Justice to consider an approach in which the statutes dealing with questions around internal investigations and the protection of work product created in the course thereof will be clarified separately. In the meantime, the following measures are recommended to maximize the legal privilege for defense counsel (Verteidigerprivileg): (1) Establish clear instructions to an individual criminal defense lawyer setting forth the scope and purpose of the defense; (2) mark work product and communications that have been created in the course of the defense clearly as confidential correspondence with defense counsel (“Vertrauliche Verteidigerkorrespondenz”); and (3) clearly separate such correspondence from other correspondence with the same client in matters that are not clearly attributable to the criminal defense mandate. While none of these measures will guarantee that state prosecutors and courts will abstain from a search and seizure of such material, at least there are good and valid arguments to defend the legal privilege in any appeals process. However, with the guidance provided to courts by the recent constitutional decision, until new statutory provisions provide for clearer guidance, companies can expect this to become an up-hill battle. Back to Top 6.2       Update on the European Public Prosecutor’s Office and Proposed Cross-Border Electronic Evidence Rules Recently the European Union has started tightening its cooperation in the field of criminal procedure, which was previously viewed as a matter of national law under the sovereignty of the 28 EU member states. Two recent developments stand out that illustrate that remarkable new trend: (1) The introduction of the European Public Prosecutor’s Office (“EPPO”) that was given jurisdiction to conduct EU-wide investigations for certain matters independent of the prosecution of these matters under the national laws of the member states, and (2) the proposed EU-wide framework for cross-border access to electronically stored data (“e-evidence”) which has recently been introduced to the European Parliament. As reported previously (see 2017 Year-End German Law Update under 7.4), the European Prosecutor’s Office’s task is to independently investigate and prosecute severe crimes against the EU’s financial interests such as fraud against the EU budget or crimes related to EU subsidies. Corporations receiving funds from the EU may therefore be the first to be scrutinized by this new EU body. In 2018 two additional EU member states, the Netherlands and Malta, decided to join this initiative, extending the number of participating member states to 22. The EPPO will presumably begin its work by the end of 2020, because the start date may not be earlier than three years after the regulation’s entry into force. As a further measure to leverage multi-jurisdictional enforcement activities, in April 2018 the European Commission proposed a directive and a regulation that will significantly facilitate expedited cross-border access to e-evidence such as texts, emails or messaging apps by enforcement agencies and judicial authorities. The proposed framework would allow national enforcement authorities in accordance with their domestic procedure to request e-evidence directly from a service provider located in the jurisdiction of another EU member state. That other state’s authorities would not have the right to object to or to review the decision to search and seize the e-evidence sought by the national enforcement authority of the requesting EU member state. Companies refusing delivery risk a fine of up to 2% of their worldwide annual turnover. In addition, providers from a third country which operate in the EU are obliged to appoint a legal representative in the EU. The proposal has reached a majority vote in the Council of the EU and will now be negotiated in the European Parliament. Further controversial discussions between the European Parliament and the Commission took place on December 10, 2018. The Council of the EU aims at reaching an agreement between the three institutions by the end of term of the European Parliament in May 2019. Back to Top 7.         Antitrust and Merger Control 7.1       Antitrust and Merger Control Overview 2018 In 2018, Germany celebrated the 60th anniversary of both the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen -GWB) as well as the German federal cartel office (Bundeskartellamt) which were both established in 1958 and have since played a leading role in competition enforcement worldwide. The celebrations notwithstanding, the German antitrust watchdog has had a very active year in substantially all of its areas of competence. On the enforcement side, the Bundeskartellamt concluded a number of important cartel investigations. According to its annual review, the Bundeskartellamt carried out dawn raids at 51 companies and imposed fines totaling EUR 376 million against 22 companies or associations and 20 individuals from various industries including the steel, potato manufacturing, newspapers and rolled asphalt industries. Leniency applications remained an important source for the Bundeskartellamt‘s antitrust enforcement activities with a total of 21 leniency applications received in 2018 filling the pipeline for the next few months and years. On the merger control side, the Bundeskartellamt reviewed approximately 1,300 merger cases in 2018 – only 1% of which (i.e. 13 merger filings) required an in-depth phase 2 review. No mergers were prohibited but in one case only conditional clearance was granted and three filings were withdrawn in phase 2. In addition, the Bundeskartellamt had its first full year of additional responsibilities in the area of consumer protection, concluded a sector inquiry into internet comparison portals, and started a sector inquiry into the online marketing business as well as a joint project with the French competition authority CNIL regarding algorithms in the digital economy and their competitive effects. Back to Top 7.2       Cartel Damages Over the past few years, antitrust damages law has advanced in Germany and the European Union. One major legislative development was the EU Directive on actions for damages for infringements of competition law, which was implemented in Germany as part of the 9th amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen -GWB). In addition, there has also been some noteworthy case law concerning antitrust damages. To begin with, the German Federal Supreme Court (Bundesgerichtshof, BGH) strengthened the position of plaintiffs suing for antitrust damages in its decision Grauzementkartell II in 2018. The decision brought to an end an ongoing dispute between several Higher District Courts and District Courts, which had disagreed over whether a recently added provision of the GWB that suspends the statute of limitations in cases where antitrust authorities initiate investigations would also apply to claims that arose before the amendment entered into force (July 1, 2015). The Federal Supreme Court affirmed the suspension of the statute of limitations, basing its ruling on a well-established principle of German law regarding the intertemporal application of statutes of limitation. The decision concerns numerous antitrust damage suits, including several pending cases concerning trucks, rails tracks, and sugar cartels. Furthermore, recent case law shows that European domestic courts interpret arbitration agreements very broadly and also enforce them in cases involving antitrust damages. In 2017, the England and Wales High Court and the District Court Dortmund (Landgericht Dortmund) were presented with two antitrust disputes where the parties had agreed on an arbitration clause. Both courts denied jurisdiction because the antitrust damage claims were also covered by the arbitration agreements. They argued that the parties could have asserted claims for contractual damages instead, which would have been covered by the arbitration agreement. In the courts’ view, it would be unreasonable, however, if the choice between asserting a contractual or an antitrust claim would give the parties the opportunity to influence the jurisdiction of a court. As a consequence, the use of arbitration clauses (in particular if inconsistently used by suppliers or purchasers) may add significant complexity to antitrust damages litigation going forward. Thus, companies are well advised to examine their international supply agreements to determine whether included arbitration agreements will also apply to disputes about antitrust damages. Back to Top 7.3       Appeals against Fines Risky? In German antitrust proceedings, there is increasing pressure for enterprises to settle. Earlier this year, Radeberger, a producer of lager beer, withdrew its appeal against a significant fine of EUR 338 million, which the Bundeskartellamt had imposed on the company for its alleged participation in the so-called “beer cartel”. With this dramatic step, Radeberger paid heed to a worrisome development in German competition law. Repeatedly, enterprises have seen their cartel fines increased by staggering amounts on appeal (despite such appeals sometimes succeeding on some substantive legal issues). The reason for these “appeals for the worse” – as seen in the liquefied gas cartel (increase of fine from EUR 180 million to EUR 244 million), the sweets cartel (average increase of approx. 50%) and the wallpaper cartel (average increase of approx. 35%) – is the different approach taken by the Bundeskartellamt and the courts to calculating fines. As courts are not bound by the administrative practice of the Bundeskartellamt, many practitioners are calling for the legislator to step in and address the issue. Back to Top 7.4       Luxury Products on Amazon – The Coty Case In July 2018, the Frankfurt Higher District Court (Oberlandesgericht Frankfurt) delivered its judgement in the case Coty / Parfümerie Akzente, ruling that Coty, a luxury perfume producer, did not violate competition rules by imposing an obligation on its selected distributors to not sell on third-party platforms such as Amazon. The judgment followed an earlier decision of the Court of Justice of the European Union (ECJ) of December 2017, by which the ECJ had replied to the Frankfurt court’s referral. The ECJ had held that a vertical distribution agreement (such as the one in place between Coty and its distributor Parfümerie Akzente) did not as such violate Art. 101 of the Treaty on the Functioning of the European Union (TFEU) as long as the so-called Metro criteria were fulfilled. These criteria stipulate that distributors must be chosen on the basis of objective and qualitative criteria that are applied in a non-discriminatory fashion; that the characteristics of the product necessitate the use of a selective distribution network in order to preserve their quality; and, finally, that the criteria laid down do not go beyond what is necessary. Regarding the platform ban in question, the ECJ held that it was not disproportionate. Based on the ECJ’s interpretation of the law, the Frankfurt Higher District Court confirmed that the character of certain products may indeed necessitate a selective distribution system in order to preserve their prestigious reputation, which allowed consumers to distinguish them from similar goods, and that gaps in a selective distribution system (e.g. when products are sold by non-selected distributors) did not per se make the distribution system discriminatory. The Higher District Court also concluded that the platform ban in question was proportional. However, interestingly, it did not do so based on its own reasoning but based on the fact that the ECJ’s detailed analysis did not leave any scope for its own interpretation and, hence, precluded the Higher District Court from applying its own reasoning. Pointing to the European Commission’s E-Commerce Sector Inquiry, according to which sales platforms play a more important role in Germany than in other EU Member States, the Higher District Court, in fact, voiced doubts whether Coty’s sales ban could not have been imposed in a less interfering manner. Back to Top 8.         Litigation 8.1       The New German “Class Action” On November 1, 2018, a long anticipated amendment to the German Code of Civil Procedure (Zivilprozessordnung, ZPO) entered into force, introducing a new procedural remedy for consumers to enforce their rights in German courts: a collective action for declaratory relief. Although sometimes referred to as the new German “class action,” this new German action reveals distinct differences to the U.S.-American remedy. Foremost, the right to bring the collective action is limited to consumer protection organizations or other “qualified institutions” (qualifizierte Einrichtung) who can only represent “consumers” within the meaning of the German Code of Civil Procedure. In addition, affected consumers are not automatically included in the action as part of a class but must actively opt-in by registering their claims in a “claim index” (Klageregister). Furthermore, the collective action for declaratory relief does not grant any monetary relief to the plaintiffs which means that each consumer still has to enforce its claim in an individual suit to receive compensation from the defendant. Despite these differences, the essential and comparable element of the new legal remedy is its binding effect. Any other court which has to decide an individual dispute between the defendant and a registered consumer that is based on the same facts as the collective action is bound by the declaratory decision of the initial court. At the same time, any settlement reached by the parties has a binding effect on all registered consumers who did not decide to specifically opt-out. As a result, companies must be aware of the increased litigation risks arising from the introduction of the new collective action for declaratory relief. Even though its reach is not as extensive as the American class action, consumer protection organizations have already filed two proceedings against companies from the automotive and financial industry since the amendment has entered into force in November 2018, and will most likely continue to make comprehensive use of the new remedy in the future. Back to Top 8.2       The New 2018 DIS Arbitration Rules On March 1, 2018, the new 2018 DIS Arbitration Rules of the German Arbitration Institute (DIS) entered into force. The update aims to make Germany more attractive as a place for arbitration by adjusting the rules to international standards, promoting efficiency and thereby ensuring higher quality for arbitration proceedings. The majority of the updated provisions and rules are designed to accelerate the proceedings and thereby make arbitration more attractive and cost-effective for the parties. There are several new rules on time limitations and measures to enhance procedural efficiency, i.e. the possibility of expedited proceedings or the introduction of case management conferences. Furthermore, the rules now also allow for consolidation of several arbitrations and cover multi-party and multi-contract arbitration. Another major change is the introduction of the DIS Arbitration Council which, similar to the Arbitration Council of the ICC (International Chamber of Commerce), may decide upon challenges of an arbitrator and review arbitral awards for formal defects. This amendment shows that the influence of DIS on their arbitration proceedings has grown significantly. All in all, the modernized 2018 DIS Arbitration Rules resolve the deficiencies of their predecessor and strengthen the position of the German Institution of Arbitration among competing arbitration institutions. Back to Top 9.         IP & Technology – Draft Bill of German Trade Secret Act The EU Trade Secrets Directive (2016/943/EU) on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure has already been in effect since July 5, 2016. Even though it was supposed to be implemented into national law by June 9, 2018 to harmonize the protection of trade secrets in the EU, the German legislator has so far only prepared and published a draft of the proposed German Trade Secret Act. Arguably, the most important change in the draft bill to the existing rules on trade secrets in Germany will be a new and EU-wide definition of trade secrets. This proposed definition requires the holder of a trade secret to take reasonable measures to keep a trade secret confidential in order to benefit from its protection – e.g. by implementing technical, contractual and organizational measures that ensure secrecy. This requirement goes beyond the current standard pursuant to which a manifest interest in keeping an information secret may be sufficient. Furthermore, the draft bill provides for additional protection of trade secrets in litigation matters. Last but not least, the draft bill also provides for increased protection of whistleblowers by reducing the barriers for the disclosure of trade secrets in the public interest and to the media. As a consequence, companies would be advised to review their internal procedures and policies regarding the protection of trade secrets at this stage, and may want to adapt their existing whistleblowing and compliance-management-systems as appropriate. Back to Top 10.       International Trade, Sanctions and Export Controls – The Conflict between Complying with the Re-Imposed U.S. Iran Sanctions and the EU Blocking Statute On May 8, 2018, President Donald Trump announced his decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) and re-impose U.S. nuclear-related sanctions. Under the JCPOA, General License H had permitted U.S.-owned or -controlled non-U.S. entities to engage in business with Iran. But with the end of the wind-down periods provided for in President Trump’s decision on November 5, 2018, such non-U.S. entities are now no longer broadly permitted to provide goods, services, or financing to Iranian counterparties, not even under agreements executed before the U.S. withdrawal from the JCPOA. In response to the May 8, 2018 decision, the EU amended the EU Blocking Statute on August 6, 2018. The effect of the amended EU Blocking Statute is to prohibit compliance by so-called EU operators with the re-imposed U.S. sanctions on Iran. Comparable and more generally drafted anti-blocking statutes had already existed in the EU and several of its member states which prohibited EU domiciled companies to commit to compliance with foreign boycott regulations. These competing obligations under EU and U.S. laws are a concern for U.S. companies that own or seek to acquire German companies that have a history of engagement with Iran – as well as for the German company itself and its management and the employees. But what does the EU prohibition against compliance with the re-imposed U.S. sanctions on Iran mean in practice? Most importantly, it must be noted that the EU Blocking Statute does not oblige EU operators to start or continue Iran related business. If, for example, an EU operator voluntarily decides, e.g. due to lack of profitability, to cease business operations in Iran and not to demonstrate compliance with the U.S. sanctions, the EU Blocking Statute does not apply. Obviously, such voluntary decision must be properly documented. Procedural aspects also remain challenging for companies: In the event a Germany subsidiary of a U.S. company were to decide to start or continue business with Iran, it would usually be required to reach out to the U.S. authorities to request a specific license for a particular transaction with Iran. Before doing so, however, EU operators must first contact the EU Commission directly (not the EU member state authorities) to request authorization to apply for such a U.S. special license. Likewise, if a Germany subsidiary were to decide not to start or to cease business with Iran for the sole reason of being compliant with the re-imposed U.S. Iran sanctions, it would have to apply for an exception from the EU Blocking Statute and would have to provide sufficient evidence that non-compliance would cause serious damage to at least one protected interest. The hurdles for an exception are high and difficult to predict. The EU Commission will e.g. consider, “(…) whether the applicant would face significant economic losses, which could for example threaten its viability or pose a serious risk of bankruptcy, or the security of supply of strategic goods or services within or to the Union or a Member State and the impact of any shortage or disruption therein.” As such, any company caught up in this conflict of interests between the re-imposed U.S. sanctions and the EU Blocking Statute should be aware of a heightened risk of litigation. Third parties, such as Iranian counterparties, might successfully sue for breach of contract with the support of the EU Blocking Regulation in cases of non-performance of contracts as a result of the re-imposed U.S. nuclear sanctions. Finally, EU operators are required to inform the EU Commission within 30 days from the date on which information is obtained that the economic and/or financial interests of the EU operator are affected, directly or indirectly, by the re-imposed U.S. Iran sanctions. If the EU operator is a legal person, this obligation is incumbent on its directors, managers and other persons with management responsibilities of such legal person. Back to Top The following Gibson Dunn lawyers assisted in preparing this client update:  Birgit Friedl, Marcus Geiss, Silke Beiter, Lutz Englisch, Daniel Gebauer, Kai Gesing, Maximilian Hoffmann, Philipp Mangini-Guidano, Jens-Olrik Murach, Markus Nauheim, Dirk Oberbracht, Richard Roeder, Martin Schmid, Annekatrin Schmoll, Jan Schubert, Benno Schwarz, Balthasar Strunz, Michael Walther, Finn Zeidler, Mark Zimmer, Stefanie Zirkel and Caroline Ziser Smith. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. The two German offices of Gibson Dunn in Munich and Frankfurt bring together lawyers with extensive knowledge of corporate, tax, labor, real estate, antitrust, intellectual property law and extensive compliance / white collar crime experience. The German offices are comprised of seasoned lawyers with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world. Our German lawyers work closely with the firm’s practice groups in other jurisdictions to provide cutting-edge legal advice and guidance in the most complex transactions and legal matters. For further information, please contact the Gibson Dunn lawyer with whom you work or any of the following members of the German offices: General Corporate, Corporate Transactions and Capital Markets Lutz Englisch (+49 89 189 33 150), lenglisch@gibsondunn.com) Markus Nauheim (+49 89 189 33 122, mnauheim@gibsondunn.com) Ferdinand Fromholzer (+49 89 189 33 121, ffromholzer@gibsondunn.com) Dirk Oberbracht (+49 69 247 411 510, doberbracht@gibsondunn.com) Wilhelm Reinhardt (+49 69 247 411 520, wreinhardt@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Silke Beiter (+49 89 189 33 121, sbeiter@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Annekatrin Pelster (+49 69 247 411 521, apelster@gibsondunn.com Finance, Restructuring and Insolvency Sebastian Schoon (+49 89 189 33 160, sschoon@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Alexander Klein (+49 69 247 411 518, aklein@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Tax Hans Martin Schmid (+49 89 189 33 110, mschmid@gibsondunn.com) Labor Law Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Real Estate Peter Decker (+49 89 189 33 115, pdecker@gibsondunn.com) Daniel Gebauer (+49 89 189 33 115, dgebauer@gibsondunn.com) Technology Transactions / Intellectual Property / Data Privacy Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Corporate Compliance / White Collar Matters 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) Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com) Antitrust Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Litigation Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) International Trade, Sanctions and Export Control Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Richard Roeder (+49 89 189 33 218, rroeder@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 10, 2019 |
2018 Year-End Update on Corporate Non-Prosecution Agreements and Deferred Prosecution Agreements

Click for PDF In 2018, the number of corporate non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”)[1] in the United States remained steady—2018 yielded at least 24 agreements[2]—but the monetary recoveries skyrocketed to nearly $8.1 billion.[2a]  While the comparative year over year analysis has become more difficult because of a third resolution vehicle, declination with disgorgement, the Department of Justice (“DOJ” or “Department”) continues to embrace corporate NPAs and DPAs as effective tools in resolving investigations into corporate criminal misconduct. This client alert, the twenty-first in our biannual series on NPAs and DPAs: (1) compiles statistics regarding NPAs and DPAs through 2018; (2) highlights important shifts in enforcement agency policy on corporate cooperation; (3) addresses new guidance on imposing and selecting corporate monitors; (4) identifies key provisions in NPAs and DPAs, which may vary depending on the prosecuting authority; (5) analyzes NPAs and DPAs released during the second half of the year; (6) discusses declinations to prosecute that required disgorgement in 2018; and (7) identifies developments in foreign jurisdictions’ use of DPA-style regimes. NPAs and DPAs in 2018 DOJ entered into at least 24 agreements in 2018, of which 13 are NPAs and 11 are DPAs.  The Department also entered into one NPA addendum to address additional conduct without breaching a previously entered NPA, and three declinations that required disgorgement.  In contrast, the Securities and Exchange Commission (“SEC” or “Commission”), for the second year in a row, did not enter into any NPAs or DPAs.  This year’s 24 agreements exceed the number of agreements in 2017 by two, but represent a decrease from 2016, when there were 39 agreements. Of note, 14 of the 24 agreements (and the addendum) involved financial institutions, and seven of the 24 agreements resolved allegations arising under the Foreign Corrupt Practice Act (“FCPA”).  In addition, two of the agreements executed during the second half of 2018 resolved immigration law allegations related to the employment of foreign workers.  Although the natural ebb and flow of resolutions makes broad conclusions from these agreements difficult, we know that DOJ officials continue to emphasize the Department’s commitment to pursuing alleged corporate wrongdoers. Chart 1 below shows all known corporate NPAs and DPAs from 2000 through 2018. Monetary recoveries exploded to nearly $8.1 billion, which almost matched the 2012 high of $9 billion.  A handful of high-value resolutions led to the large recovery amount. Chart 2 below illustrates the total monetary recoveries related to NPAs and DPAs from 2000 through 2018. Corporate Cooperation Redefined       Statements of U.S. Deputy Attorney General Rod J. Rosenstein On November 29, 2018, U.S. Deputy Attorney General Rod J. Rosenstein announced changes to the Department’s approach to defining corporate cooperation when identifying culpable individuals in corporate investigations.[3]   The newly articulated policy, which applies to both criminal and civil corporate cases prosecuted by DOJ, modifies the September 9, 2015 memorandum authored by former Deputy Attorney General Sally Yates (the “Yates Memorandum”).  Under the Yates Memorandum, as a prerequisite for any cooperation credit whatsoever, corporations had to identify all individuals responsible for, or involved in, the underlying misconduct and provide all facts pertaining to such misconduct.[4]  Under the revised policy, corporate criminal defendants must identify “every individual who was substantially involved in or responsible for the criminal conduct.”[5]  Although the revised policy conditions cooperation credit on corporations identifying those who were substantially involved in wrongdoing, the policy also emphasizes that DOJ will not delay resolution of an investigation to gather information on those “whose involvement was not substantial, and who are not likely to be prosecuted.”[6] The Deputy Attorney General detailed how the revised policy modifies cooperation requirements in the civil context.  In contrast to the binary approach to cooperation in criminal matters, the revised policy contemplates a range of cooperation-based outcomes in a civil case.  To qualify for maximum credit, corporate civil defendants must still identify every person who was substantially involved in, or responsible for, wrongdoing.  But “some credit” is available to corporations that fall short of this standard, provided they “meaningfully assist the government’s civil investigation,”[7] and “identify all wrongdoing by senior officials, including members of senior management or the board of directors.”[8] The revised policy better harmonizes the Yates Memorandum with directives in the Justice Manual (formerly known as the U.S. Attorney’s Manual) concerning joint-defense agreements.  Under the Justice Manual, prosecutors cannot ask corporations to refrain from entering into a joint-defense agreement.[9]  Parties to a joint-defense agreement are often prevented from sharing information derived from internal investigations.  The Justice Manual states that corporations in joint-defense agreements may nevertheless wish to tailor their agreements to allow them to provide “some relevant facts to the government” to remain eligible for cooperation credit.  But merely providing “some relevant facts” falls short of the “all relevant facts” threshold under the Yates Memorandum.  By emphasizing that corporations need only identify individuals who were substantially involved in or responsible for wrongdoing, the revised policy is congruent with the “some relevant facts” standard for cooperation credit in the Justice Manual.       The History of Prosecution Policy and DOJ’s Increasing Focus on Cooperation The new policy represents a recalibration of the Department’s approach to corporate cooperation, but it is not a wholesale reversal of the Yates Memorandum.  The policy continues to focus on identifying misconduct at the managerial levels of the corporate hierarchy.  The Deputy Attorney General emphasized in his speech announcing the policy that the “most important aspect” of the new policy in the civil context is that corporations “must identify all wrongdoing by senior officials, including members of senior management or the board of directors.”[10] A natural consequence of the Department’s focus on individual accountability has been to incentivize corporate cooperation in identifying culpable individuals.  In doing so, the Department has elevated the importance of cooperation credit in negotiating criminal and civil resolutions, while ostensibly reducing the significance of an effective, pre-existing compliance program as a mitigating factor.  This shift in emphasis is seen in DOJ’s history of prosecution policy, which we outline below. In 1991, Congress took the groundbreaking step of enacting the Federal Sentencing Guidelines for Organizations (“Organizational Guidelines”), which provide a detailed set of sentencing principles whose twin objectives are the prevention and detection of corporate crime.  Employing a “carrot and stick” approach, the Organizational Guidelines contemplate severe fines imposed on corporations that promote or show indifference toward wrongdoing while drastically reducing fines on companies that actively seek to prevent and discourage illegal activity.  The Organizational Guidelines’ “carrot” (in the form of fine reductions) to incentivize good corporate behavior could be awarded for either or both (1) “self-reporting, cooperation, or acceptance of responsibility,” or (2) “the existence of an effective compliance and ethics program.”  The Organizational Guidelines are clear that credit for an effective compliance program can be awarded separate and apart from cooperation.[11] Starting in 1999 with the Holder Memorandum authored by then-Deputy Attorney General Eric Holder, DOJ issued a series of eponymous policy memoranda attempting to guide the exercise of federal prosecutors’ considerable discretion in the pursuit of corporate actors.  Consistent with the Organizational Guidelines, the Holder Memorandum emphasized both cooperation and the effectiveness of a company’s compliance program as mitigating considerations in DOJ’s charging calculus.  These two mitigating factors are featured in the Thompson Memorandum (2003), the McNulty Memorandum (2007), the Morford Memorandum (2008), and the Filip Memorandum (2008), each of which pronounced new or revised prosecution guidelines.  They also are required considerations in the Justice Manual as part of a prosecutor’s decision to bring charges. The Yates Memorandum is the sixth iteration of namesake policy documents modifying prosecutors’ charging analysis.  The Yates Memorandum sent waves across the defense bar by affirmatively requiring prosecutors to pursue individual defendants from the inception of a corporate investigation.  Perhaps less noticed is the Yates Memorandum’s silence regarding the benefits of an effective compliance program, which was featured prominently in every preceding policy memorandum.  To be sure, the Yates Memorandum was intended to expound on what gives rise to cooperation credit, so it naturally does not address what mitigating consideration DOJ affords an effective compliance program under the Justice Manual, seemingly leaving undisturbed the mitigating credit derived from an effective compliance program.  Regardless, the Yates Memorandum marked the beginning of DOJ policy pronouncements that focus so heavily on cooperation that they appear to obscure and risk devaluing the status of an effective compliance program as a mitigating factor in DOJ’s charging calculus. This phenomenon looms large in the FCPA Pilot Program, which was adopted as the FCPA Corporate Enforcement Policy in November 2017.  The policy explicitly aims to incentivize companies’ behavior “once they learn of misconduct” by offering declinations or penalty reductions to those companies that self-disclose, cooperate, and remediate.  In other words, a company’s compliance program, as it existed before the occurrence of any wrongdoing, is not a required consideration that favors declination or penalty reductions under the FCPA Corporate Enforcement Policy.  To receive cooperation credit for voluntary self-disclosure under the policy, an organization must provide, in a fashion similar to the Yates Memorandum, “all relevant facts known to it, including all relevant facts about all individuals involved in the violation of law”—a requirement that now appears to be at odds with the Department’s recent recognition that identifying all individuals involved in wrongdoing is inefficient and needlessly delays resolutions.       Practical Implications of the Department’s Revised Policy The Department’s revised policy defining corporate cooperation will have practical implications on corporate investigations that are likely to enhance information sharing with DOJ.  Since the Filip Memorandum’s release, the Justice Manual has prohibited prosecutors from affirmatively seeking waiver of attorney-client privilege and protected work product.  Nevertheless, because companies often conduct investigations with the assistance and advice of counsel, they have not always been able to furnish “all relevant facts” to DOJ absent some form of waiver.  The revised policy, by more narrowly focusing on those with substantial involvement in wrongdoing, likely will reduce the number of instances companies will face dueling priorities of protecting privilege versus cooperating with DOJ. Developments in Corporate Monitorships A compliance monitorship is often a condition of resolving a corporate investigation or prosecution with enforcement authorities.  Because monitorships can be time consuming, costly, and intrusive, it is important for companies to understand what the government considers when evaluating the necessity of a monitor, and how the government selects the individual monitor.  In 2018, the government issued guidance addressing both of those points.       The Benczkowski Memorandum On October 12, 2018, Assistant Attorney General Brian A. Benczkowski announced the publication of new guidance on the imposition and selection of monitors in conjunction with corporate resolutions in Criminal Division matters (the “Benczkowski Memorandum”).[12]   The Department promulgated the Benczkowski Memorandum to supplement the 2008 guidance from then-Acting Deputy Attorney General Craig S. Morford (the “Morford Memorandum”),[13] and “to further refine the factors that go into the determination of whether a monitor is needed, as well as clarify and refine the monitor selection process.”[14]   Although the Benczkowski Memorandum technically applies only to the Criminal Division, its practical effect is much broader, both because the Criminal Division is almost always involved in significant corporate resolutions and because the Criminal Division’s policies tend to serve as a bellwether for wider Department efforts. Imposition of a Monitor The Benczkowski Memorandum reiterates the “foundational principle” that imposition of a corporate monitor is not meant to be punitive, but rather aims to deter future misconduct.[15]  In his speech announcing the new guidance, Benczkowski noted that for the past five years, only one in three corporate resolutions involved a corporate monitorship—the majority of corporate resolutions did not require monitors.[16]  The Benczkowski Memorandum reiterates the Morford Memorandum’s pronouncement that prosecutors, when considering the need for a monitor, should assess “(1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation.”[17] The Benczkowski Memorandum articulates the following factors for consideration when evaluating the “potential benefits” of a monitor: (1) the type of misconduct (i.e., whether it involved manipulation of corporate books and records or exploitation of an inadequate system of internal controls); (2) the pervasiveness of the misconduct, and whether it was approved or facilitated by senior management; (3) the company’s investments in, and improvements to, its corporate compliance program and internal control systems; and (4) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate effective deterrence.[18]  In other words, a robust internal compliance system may move the needle toward a resolution without a monitor requirement.  The calculus of whether to impose a monitor accounts for proactive steps taken by the company to prevent or remediate wrongdoing; therefore, maintaining an effective and well-resourced compliance department and/or retaining an independent compliance consultant as soon as wrongdoing is detected may mitigate the likelihood of a monitorship. The ultimate decision of whether to require a monitor weighs the projected costs of the monitorship (both monetary costs and burden on the company’s operations) against the clear benefit derived from it.  The explicit statement that DOJ will consider financial costs signals that DOJ is receptive to concerns voiced by corporations and the white collar bar regarding the heavy financial burden caused by monitorships.  Costs of a monitor include not only professional fees, but also the operational costs of employee time devoted to working with the monitor and responding to requests for documentation.  The Benczkowski Memorandum acknowledges these costs and requires consideration of them in deciding whether a monitor is appropriate.  Within the Criminal Division, attorneys handling a matter must seek and obtain approval from their supervisors and obtain the concurrence of the Assistant Attorney General of the Criminal Division or his or her designee prior to imposing a monitor.           Selection of a Monitor In cases where a monitorship is warranted, the Benczkowski Memorandum outlines procedures for initial selection—and, if necessary, replacement—of the corporate monitor.  As an initial step, the company may recommend three qualified candidates and identify one as the top choice.  A “qualified candidate” is defined by his or her (1) general background, education, experience, and reputation; (2) substantive expertise in the particular area(s) at issue; (3) ability to be objective and independent; and (4) access to adequate resources to effectively discharge his or her responsibilities.  Within 20 days of the execution of a qualifying agreement (e.g., NPA, DPA, or plea agreement), the company should provide a written proposal outlining each candidate’s qualifications and credentials, and certifying that the proposed candidates are not employed by or affiliated with the company and will not be employed by or affiliated with the company for at least two years following the termination of the monitorship.  The written statement should also certify that the company has reviewed potential conflicts with clients of the monitor candidate and resolved conflicts where applicable.  The procedures formalize the selection process, although the practice of companies recommending monitor candidates is not new.[19] Following submission of the written statement from the company, the Criminal Division will review the candidates’ experience, credentials, and expertise in the particular matters at issue, and assess whether the candidates have sufficient resources to carry out monitorship responsibilities effectively.  The attorneys will then determine which monitor candidate(s) to recommend to the Standing Committee on the Selection of Monitors (“Standing Committee”).  Absent from the Benczkowski Memorandum is reference to DOJ’s “commitment to diversity and inclusion” in selecting a compliance monitor, which was—as we discussed in our 2018 Mid-Year Update—a stated consideration for selecting a monitor highlighted in the Panasonic Avionics Corporation (“PAC”) DPA.  PAC had agreed to pay $280 million and to a two-year monitorship in a foreign bribery settlement with DOJ and the SEC in April 2018.[20] The Standing Committee, as described in the Benczkowski Memorandum, includes the Deputy Assistant Attorney General with supervisory responsibility for the Fraud Section (or his or her designee), the Chief of the Fraud Section or other relevant section (or his or her designee), and the Deputy Designated Agency Ethics Official for the Criminal Division.[21]  The Criminal Division attorneys handling a matter where a monitor is imposed will provide the Standing Committee with a memorandum describing the case, explaining why a monitor is required, and setting forth the proposed and recommended candidates.  The Standing Committee will then review and vote on whether to accept the recommendation.  Following the vote, the Office of the Deputy Attorney General will review the recommendation of the Standing Committee and determine whether to grant final approval of the proposed monitor. The paramount goal of this robust selection process is the appointment of a highly qualified, suitable, and conflict-free monitor who will instill public confidence in the monitorship process.[22]  Since the release of the Benczkowski Memorandum, no resolutions have mandated monitorships, and it is difficult to meaningfully assess the memorandum’s impact.  Some view the Benczkowski Memorandum as “business-friendly” and restrictive to prosecutors; they assert that the Trump Administration has blunted enforcement tools like corporate monitorships.[23]  When announcing the new guidance, Benczkowski reiterated that imposition of a monitorship should be “the exception, not the rule.”[24]  Although the Benczkowski Memorandum requires weighing the potential benefits of a monitor against the financial and operational costs, the prosecutor still retains discretion when making the determination.  It remains to be seen whether the guidance will, in practice, reduce the use of monitorships in corporate settlements.  We will continue to track how the Benczkowski Memorandum impacts both the number of monitorships imposed in corporate resolutions and the selection of individuals as monitors. Corporate Resolution Extensions The conclusion and extension of corporate resolutions in 2018 highlight the challenges some corporations face even after a resolution is reached.  MoneyGram International, Inc. (“MoneyGram”) extended its DPA seven times in 2018 (and once in late 2017),[25] most recently through May 10, 2021, and agreed to forfeit an additional $125 million.[26]  MoneyGram’s DPA, originally signed in 2012, resolved allegations that MoneyGram failed to maintain an effective anti-money laundering (“AML”) program and that its agents were complicit in alleged consumer fraud schemes.  Under the DPA, MoneyGram agreed to implement significant compliance measures, including changes to executive compensation, a remediation due diligence plan related to agents, a risk-based transaction monitoring program, and the designation of at least one AML compliance officer to each high risk country.[27] Standard Chartered Bank (“Standard Chartered”) also extended its DPA, and the length of the related monitorship, four times.[28]  Standard Chartered entered a two-year DPA in 2012 to resolve allegations of facilitating payments involving Burma, Iran, Libya, and Sudan in violation of U.S. sanctions laws.[29]  Standard Chartered’s commitments in its 2012 DPA included continued “cooperation with the United States” (as defined in the agreement), as well as “full compliance” with certain AML best practices recommended by third parties.[30]  Standard Chartered noted that it continues to cooperate in an ongoing sanctions-related investigation, and the company has “taken a number of steps and made significant progress” with respect to compliance, but its sanctions compliance program “has not yet reached the standard required by the DPA.”[31]  Standard Chartered most recently extended the DPA term until March 31, 2019, noting that the “vast majority of the issues under investigation pre-date 2012,” and the company is “engaged in constructive discussions with relevant authorities to resolve the investigation as soon as practicable.”[32] These DPA extensions underscore the long resolution process that can await companies after entering into a DPA.  Particularly in complex areas, such as AML and sanctions compliance, companies must devote substantial resources and technical sophistication to implement the compliance enhancements required under their DPAs. Key Provisions in Corporate Resolutions Because DOJ has not issued a standard template for NPAs and DPAs, there is substantial variety in the salient terms of these resolution vehicles.  The variety is evident across agreements signed by different divisions of DOJ and the 93 Offices of the U.S. Attorneys—core terms may vary depending on which prosecutor’s office drafts the resolution.  For example, the U.S. Attorney’s Office for the Southern District of New York often mandates forfeiture of accounts in DPAs.  This practice is unique from NPA and DPA structures in other U.S. Attorney’s Offices, and is followed irregularly at Main Justice.  Accordingly, when negotiating terms of NPAs and DPAs, it is important to focus on the substantive elements, including the following:  (1) duration of the agreement (typically ranges from 12 to 48 months); (2) entities covered by the resolution (parents, subsidiaries, affiliates, and/or joint venture partners); (3) release language (may encompass a specific, alleged crime or all disclosed conduct by the putative defendant to DOJ); (4) what constitutes breach (material violation of law, violation of the agreement, or violation of the statute underlying the resolution); (5) cure for breach (extension of the agreement, revocation of the agreement followed by a plea of guilty, or monetary liquidated damages, as seen in the Netcracker Technology Corporation NPA discussed in our 2017 Year-End Update); and (6) post-agreement reporting obligations (monitorship, self-reporting, annual self-assessment report, or nothing).  The diversity of terms is illustrated in our discussion of recent NPAs and DPAs in the subsequent section. Recent NPAs and DPAs Since the publication of our 2018 Mid-Year Update, DOJ has announced 12 NPAs and DPAs, bringing the total to 24 agreements in 2018.  The Department also issued one NPA addendum.  In July, we discussed the six NPAs and six DPAs announced between January 1, 2018 and July 10, 2018. Those agreements resolved a wide range of allegations, which most prominently related to the FCPA, Racketeer Influenced and Corrupt Organizations Act, money laundering, and wire fraud. Most of the 12 agreements are in effect for terms of 12, 24, or 36 months, and a majority require self-reporting. You can find a summary of the agreements in the Appendix to this publication or read about them in detail in our 2018 Mid-Year Update. As noted in our statistics of this year’s NPAs and DPAs, more than half of the agreements involved financial institutions, seven of which (and the addendum) were executed during the second half of 2018.  Our Developments in the Defense of Financial Institutions publication discusses some of the larger settlements in detail and provides insight into the legal complexities of the industry.  In addition to the government’s distinct focus on financial institutions, two of the agreements announced since July 10 resolved allegations related to the employment of foreign workers.  We discuss the key provisions of each agreement announced during the second half of 2018 below.       American Media, Inc. (NPA) On December 12, 2018, the U.S. Attorney’s Office for the Southern District of New York announced that it entered into an NPA with American Media, Inc. (“AMI”) on September 20, 2018.[33]  The U.S. Attorney’s Office made the announcement in conjunction with the sentencing of Michael Cohen, who, in relevant part, violated campaign finance laws when he facilitated two payments to women to prevent the public disclosure of alleged affairs with then-presidential candidate Donald Trump.[34]  Cohen allegedly used AMI to make a $150,000 payment to one of the women.[35] In the NPA, the U.S. Attorney’s Office acknowledged AMI’s “cooperation and implementation of remedial measures” as principal factors in its decision to forgo criminal prosecution.[36]  AMI agreed to cooperate with government officials and its obligations under the NPA will continue until the later of three years or “the date on which all prosecutions arising out of the conduct described in the opening paragraph of this Agreement are final.”[37]  As part of its remedial duties, AMI agreed to provide employees with written standards covering federal election laws, conduct annual, mandatory training on the written standards, and work with “counsel knowledgeable in the field of federal election law” to advise on the written standards and ensure that “payments to acquire stories involving individuals running for office” comply with the written policies.[38]  In addition, AMI must report to the U.S. Attorney’s Office any violations of its written standards or federal election law during the term of the agreement.[39]  The NPA did not impose a monetary penalty.       Bank Lombard Odier & Co Ltd. (NPA addendum) On July 31, 2018, Bank Lombard Odier & Co Ltd. (“Bank Lombard”) entered into an addendum to the NPA it signed on December 31, 2015, with DOJ.[40]   The original NPA arose from Bank Lombard’s disclosure of its cross-border business for U.S.-related accounts as part of the Swiss Bank Program established by DOJ on August 29, 2013.[41]  This addendum to an NPA is unusual; it is likely the result of the unique nature of the NPAs associated with the Swiss Bank Program. The Swiss Bank Program provided a path for Swiss banks to resolve potential U.S. criminal liabilities related to tax evasion.[42]  To enter the program, Swiss banks were required to advise DOJ by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.[43]  To be eligible, banks had to (1) make a complete disclosure of their cross-border activities; (2) provide detailed information on an account-by-account basis in which U.S. taxpayers had a direct or indirect interest; (3) cooperate in treaty requests for account information; (4) provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; (5) agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and (6) pay appropriate penalties.[44]  Swiss banks meeting all of these requirements were eligible for an NPA.[45]  Bank Lombard entered into an NPA under the Swiss Bank Program on December 31, 2015.[46] After entering into the original NPA—which required Bank Lombard to disclose all of its U.S.-related accounts that were open at each bank between August 1, 2008 and December 31, 2014—Bank Lombard self-disclosed that it was “aware of or should have been aware of” additional U.S.-related accounts at the time it entered into the original NPA.[47]  DOJ acknowledged Bank Lombard’s early self-disclosure of the additional accounts and its full cooperation under the Swiss Bank Program.[48]  Under the terms of the addendum, Bank Lombard agreed to pay an additional sum of $5.3 million calculated in accordance with the terms of the Swiss Bank Program.[49]  The term of Bank Lombard’s obligations under the original NPA (four years) was not extended by the addendum.[50]       Basler Kantonalbank (DPA) On August 28, 2018, Basler Kantonalbank (“BKB”), a bank headquartered in Basel, Switzerland, entered into a three-year DPA with DOJ’s Tax Division and the U.S. Attorney’s Office for the Southern District of Florida.[51]   The DPA resolved a seven-year investigation into the bank by U.S. authorities, which emerged from a U.S. crackdown on offshore tax evasion by wealthy Americans utilizing undeclared Swiss bank accounts. As part of the DPA, BKB admitted that between 2002 and 2012 it conspired with its employees, external asset managers, and clients to: (1) defraud the United States with respect to taxes; (2) commit tax evasion; and (3) file false federal tax returns.[52]   The bank assisted certain U.S. clients in concealing their offshore assets and income from U.S. tax authorities.  By 2010, when BKB’s U.S.-related business was at its peak, the bank held approximately 1,144 accounts for U.S. customers, with an aggregate value of approximately $813.2 million.  Many, but not all, of these accounts were undeclared and part of the conspiracy to defraud the United States.[53] BKB agreed to pay $60.4 million in total penalties.  First, BKB agreed to pay $17.2 million in restitution to the Internal Revenue Service (“IRS”), which represents the unpaid taxes resulting from BKB’s participation in the conspiracy.  Second, BKB agreed to forfeit $29.7 million to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2002 and 2012.  Finally, BKB agreed to pay a fine of $13.5 million.[54] DOJ explained that the penalty amount reflected BKB’s thorough internal investigation and cooperation with the United States, as well as the bank’s extensive remedial efforts.[55]  In particular, BKB demonstrated its acceptance and acknowledgment of responsibility for its conduct by, among other things: (1) advocating for a decision by the Swiss Federal Council in April 2012 to allow banks under investigation by DOJ to legally produce employee and third-party information to DOJ; (2) quickly producing such information after the Swiss Federal Council decision; (3) providing the government with the broadest scope of information permissible under Swiss law; and (4) disclosing facts, including unfavorable ones, discovered during the course of its investigation.[56]  DOJ also credited BKB for waiving any potential defense of foreign sovereign immunity, which may have protected BKB as a state-guaranteed, semi-governmental organization.       Central States Capital Markets, LLC (DPA) On December 10, 2018, Central States Capital Markets, LLC (“CSCM”) and the U.S. Attorney’s Office for the Southern District of New York entered into a DPA to resolve allegations that CSCM failed to timely file a Suspicious Activity Report in violation of the Bank Secrecy Act (“BSA”).[57]   CSCM agreed to accept responsibility for the allegations and forfeited $400,000 to the United States, which “represents a substitute res” for monies processed by CSCM[58] relating to payday lending fraud executed by a customer.[59]   CSCM agreed to cooperate with the government’s investigation, and self-disclose all criminal conduct related to violations of federal law.[60]  As part of its remediation efforts, the DPA requires CSCM to implement and maintain an effective BSA/AML compliance program, as well as “retain an independent consultant on the terms and conditions set by the SEC.”[61]  The term of the DPA is two years.[62] Of note, this is the first criminal BSA charge brought against a U.S. broker-dealer.[63]  In his announcement of the DPA, U.S. Attorney Geoffrey S. Berman stated that the charge “makes clear that all actors governed by the [BSA]—not only banks—must uphold their obligations to protect our economy from exploitation by fraudsters and thieves.”[64]       Hallman Chevrolet (DPA) On August 31, 2018, DOJ announced that the U.S. Attorney’s Office for the Western District of Pennsylvania had entered into a four-year DPA with Hallman Chevrolet, a car dealership located in Erie, Pennsylvania.[65]  The DPA resolved allegations that Hallman Chevrolet engaged in a bank fraud scheme and a conspiracy to commit bank fraud.  In particular, Hallman Chevrolet engaged in a fraudulent down payment scheme by manipulating bills of sale and bank lending contracts to hide from financial institutions the true source of customer down payments and to make customers appear more credit-worthy than they actually were.  As a result, Hallman Chevrolet led the financial institutions into making unsafe investment decisions by having under-collateralized assets and financially risky credit applicants.[66] Pursuant to the DPA, Hallman Chevrolet agreed to pay a monetary penalty of $1.4 million and more than $737,000 in restitution to various lending institutions.  In addition, “Hallman Chevrolet must engage in a substantial corporate compliance and ethics program and a vigorous monitoring and audit regime.”[67]       Health Management Associates, LLC (NPA) Health Management Associates, LLC (“HMA”) entered into an NPA with the Fraud Section on September 21, 2018, to resolve criminal and civil claims relating to “a formal and aggressive plan to improperly increase overall emergency department inpatient admissions at all HMA hospitals.”[68]  Specifically, DOJ alleged that HMA executives and hospital administrators pressured, coerced, and induced physicians and medical directors to meet mandatory admission rate benchmarks and admit patients who did not need inpatient treatment.[69]   The NPA notes that a “relevant consideration” for entering into an NPA was that the parent company of HMA—Community Health Systems (“CHS”)—acquired HMA after the relevant behavior had occurred, and at the time of acquisition HMA was facing multiple lawsuits and was the subject of criminal and civil investigations.[70]  The NPA also notes that following the acquisition of HMA, CHS “engaged in remedial measures, including (1) removing the HMA Board of Directors and senior executives; and (2) integrating the HMA hospitals into [CHS’s] compliance program and implementing certain compliance initiatives to address and remediate . . . [the] issues that were alleged in certain . . . lawsuits and were part of the criminal and civil investigations.”[71] HMA and CHS also received credit for their cooperation with the Fraud Section, which included, among other things, making regular factual presentations; collecting, analyzing, and organizing voluminous evidence and information for the Fraud Section; and providing substantial cooperation to the U.S. Attorney’s Office for the Middle District of Florida in connection with the prosecution of a former HMA executive.[72] Under the NPA, which has a term of three years, HMA agreed to cooperate with the investigation, report allegations or evidence of violations of federal health care offenses, ensure that its compliance and ethics program satisfies the requirements of an amended and extended Corporate Integrity Agreement, and report annually to the Fraud Section regarding remediation and implementation of compliance measures.[73]  HMA also agreed to pay a monetary penalty in the amount of over $35 million.[74] The NPA notes that HMA and CHS agreed to a global resolution of HMA’s civil and criminal liability.  An indirect subsidiary of HMA, Carlisle HMA, LLC, pleaded guilty to one count of conspiracy to commit health care fraud and agreed to pay a criminal fine of over $2.5 million.[75]  HMA also agreed to pay almost $75 million to resolve civil claims arising under federal and state False Claims Acts,[76] and over $148 million to settle qui tam allegations that HMA hospitals provided improper financial incentives to physicians for patient referrals.[77] Mirelis Holding S.A. (NPA) Mirelis Holding S.A. (“Mirelis”), a Swiss financial asset and management firm, entered into an NPA with DOJ’s Tax Division on July 24, 2018, to resolve allegations related to facilitating U.S.-based tax evasion.[78]  DOJ alleged that Mirelis opened, maintained, and serviced accounts for U.S. taxpayer-clients where Mirelis knew or had reason to know that the U.S. taxpayer-clients were not complying with their U.S. tax obligations.[79]  Mirelis originally submitted a Letter of Intent on December 23, 2013, to participate in DOJ’s Swiss Bank Program, but it was ultimately determined that Mirelis did not qualify due to its structure as both an asset management firm and a bank.[80]  However, the NPA entered into on July 24, 2018, requires Mirelis to fully comply with the obligations imposed under the terms of the program.[81]  Additionally, the NPA requires Mirelis to provide transaction information related to certain accounts, close as soon as practicable any U.S.-related dormant accounts, and pay a sum of $10.245 million.[82] The NPA characterized the $10.245 million as $3.245 million in restitution for the approximate pecuniary loss suffered by the United States, $5 million as disgorgement of profits for the approximate amount earned by Mirelis by servicing undeclared U.S. taxpayers, and $2 million as a penalty for Mirelis’s conduct with respect to U.S.-related accounts.[83]  In support of the agreement not to prosecute Mirelis, DOJ cited Mirelis’s voluntary disclosure of its conduct, cooperation with the Tax Division on the status and findings of its internal investigation, and retention of a qualified independent examiner who verified the information Mirelis disclosed, pursuant to the requirement under the Swiss Bank Program.[84]  The NPA has a term of four years.[85]       Neue Privat Bank AG (NPA) On July 18, 2018, the Tax Division announced an NPA with Neue Privat Bank AG (“NPB”), stemming from NPB’s cross-border business, which allegedly ran afoul of U.S. tax law.[86]  NPB, a private Swiss bank, must pay a $5 million penalty for aiding U.S. clients in concealing assets and income from the IRS.[87]   In 2009, NPB’s Board voted to allow U.S. clients to open accounts at the bank, even when the clients had been forced out of other banks.[88]  NPB’s assets under management for U.S. clients subsequently jumped to 450 million Swiss Francs from 8 million Swiss Francs the previous year.[89]  Most of NPB’s U.S. client accounts were managed by external asset managers and firms, and NPB had very little contact with many of its clients.[90]  For some of those clients, NPB did not disclose the account owner’s identity to the IRS.[91] NPB believed it could maintain its U.S. accounts, even if it knew or had reason to believe the accounts were to evade taxes, and indeed continued to service some of those accounts after knowledge that some owners had not declared their accounts to the IRS.[92]  NPB serviced accounts that employed different strategies to conceal income from the IRS, including using numbered accounts, hold mail services, and shell companies.[93]  NPB began to increase its U.S. tax compliance efforts in 2010 and 2011, requiring tax compliance evidence from external asset managers in August 2011, but it still continued to maintain undeclared accounts.[94]  NPB cooperated in the investigation by disclosing the identities of account holders and making bank executives available for interview.[95]  NPB must comply with periodic reporting if it fails to close dormant accounts.[96]  The NPA was set for a term of four years.[97] Petróleo Brasileiro S.A. – Petrobras (NPA) On September 26, 2018, the Fraud Section and the U.S. Attorney’s Office for the Eastern District of Virginia announced an NPA with Petróleo Brasileiro S.A. – Petrobras (“Petrobras”), resolving allegations arising under the FCPA.[98]   Petrobras, the Brazilian semi-public, state-run energy company, agreed to pay $170.64 million to U.S. authorities, with credit for $682.56 million paid to Brazilian authorities after Brazilian and U.S. investigations into the company’s internal controls, books and records, and financial statements.[99] As discussed in greater detail in our 2018 Year-End FCPA Update, certain former Petrobras executives engaged in a corrupt scheme with politicians and Petrobras suppliers and contractors.[101]  Petrobras reached settlements with both DOJ and the SEC.  DOJ agreed to credit payments to the SEC and the Brazilian government to the overall penalty, such that DOJ and the SEC each receive 10% of the total penalty ($85.32 million) and the Brazilian government, which has not found wrongdoing by Petrobras, will receive the remaining 80% ($682.56 million).[102]  In the related SEC settlement, the SEC will credit any amounts Petrobras pays in the shareholder derivative suit against the SEC’s order of approximately $933.473 million in disgorgement and prejudgment interest.[103] Although Petrobras did not voluntarily disclose the underlying conduct, it fully cooperated in the investigation by conducting a thorough internal investigation, sharing findings of that investigation with the government in real time, and presenting regularly to the government.[104]  Petrobras also took significant remedial measures, including replacing its Board of Directors and a number of high-level executives, completely revamping its internal governance systems, and terminating and distancing itself from any employee implicated in the alleged bribery scheme.[105]  DOJ will not require an independent compliance monitor.[106]  Petrobras will, however, be required to report to DOJ every 12 months on its remedial measures over the course of the agreement, including the implementation of its internal governance systems.[107]  The NPA has a term of three years.[108] Société Générale S.A. (DPA) On November 18, 2018, Société Générale S.A. (“SocGen”) and the U.S. Attorney’s Office for the Southern District of New York entered a DPA to resolve allegations involving the Trading with the Enemy Act (“TWEA”) and the Cuban Assets Control Regulations (“Cuban Regulations”) promulgated thereunder.[109]  The DPA term is three years, and it requires SocGen to pay over $1.34 billion, including $717.2 million in forfeiture to the United States.[110]  The remaining portion of the monetary penalty consists of payments to be made for SocGen’s concurrent settlement of related criminal and civil actions with the New York County District Attorney’s Office, the U.S.  Department of Treasury, Office of Foreign Assets Control (“OFAC”), the New York State Department of Financial Services, and the Federal Reserve Board of Governors and the Federal Reserve Bank of New York.  The $1.34 billion in penalties represents the second largest penalty ever imposed on a financial institution for violations of U.S. economic sanctions.[111] DOJ charged SocGen with violations of the TWEA and the Cuban Regulations, alleging that SocGen participated in a conspiracy, which lasted from about 2004 to 2010, to make transfers of credit and payments between, by, and through banking institutions with respect to property in which Cuba had an interest.[112]  Specifically, DOJ alleged that SocGen structured U.S. dollar transactions and operated 21 credit facilities that provided significant money flow to Cuban banks, entities controlled by Cuba, and Cuban and foreign corporations for business conducted in Cuba.[113]  In total, SocGen allegedly engaged in more than 2,500 transactions through U.S. financial institutions that caused those institutions to process close to $13 billion in transactions that otherwise should have been blocked for investigation pursuant to OFAC regulations.[114] DOJ alleges that SocGen’s management and Group Compliance failed to disclose the discovered conduct to OFAC promptly.[115]  Demonstrating good faith and cooperation, SocGen agreed, as part of the DPA, to implement remedial measures required by various state and federal regulators.[116]  Specifically, SocGen agreed to implement or enhance its BSA/AML compliance programs and internal controls to prevent the occurrence of similar criminal conduct going forward.[117] Waste Management of Texas (NPA) On August 29, 2018, the U.S. Attorney’s Office for the Southern District of Texas entered into an NPA with Waste Management of Texas (“Waste Management”).[118]  Between 2003 and April 2012, managers at Waste Management’s Afton, Texas, location allegedly hired individuals to work at the facility without inquiring into their work status in the United States.[119]  In January 2012, after firing ten employees because they were undocumented, the managers provided the fired individuals with identification documents of other, documented people so that they could return to work at Waste Management.[120]  The three managers were indicted in May 2014 for the above conduct, and Waste Management both cooperated in the criminal investigation and conducted its own internal investigation.[121]  As part of the NPA, Waste Management agreed to continue its already enhanced immigration compliance procedures and forfeit over $5.5 million, which amounts to the estimated proceeds from employing undocumented workers at the Afton facility from 2003 to 2012.[122] Wright State University (NPA) On November 16, 2018, Wright State University (“WSU”), a public university, and the U.S. Attorney’s Office for the Southern District of Ohio entered into an NPA in connection with WSU’s admission that it engaged in a conspiracy to commit H-1B visa fraud.[123]   The H-1B visa program allows companies in the United States to temporarily employ foreign workers in occupations that require highly specialized knowledge and a bachelor’s or higher degree in a specific specialty.  There is a numerical cap on the number of H-1B visas that can be issued per year, but, as an institute of higher learning, WSU is “cap exempt,” unlike other types of organizations.[124] According to the agreement, WSU employed 24 foreign employees—pursuant to sponsored research contracts with Webyoga, Inc. (“Webyoga”), a privately held software company—through H-1B visas.[125]  WSU used its “cap exempt” status to apply for the visas.[126]  In doing so, WSU submitted a signed employment offer letter from the university indicating each visa employee would be working for the university and under the supervision of university employees.[127] In fact, the visa employees worked as consultants on behalf of Webyoga in various cities throughout the country, including Atlanta, Orlando, and New York City.[128]  Moreover, WSU invoiced Webyoga for more than $1.8 million in fees associated with the employees’ visas, the employees’ salaries and benefits, and administrative costs for the university.[129]  Between 2010 and 2015, WSU also entered into similar arrangements with other companies wherein it would apply for H-1B visas for individuals, the individuals would work on a routine basis for another company, and that company would reimburse the school.[130]  WSU acknowledged that the placement of H-1B visa employees with other companies violated the terms of their visa applications, and, as a result, companies who were subject to the numerical H-1B visa limitation were able to use excess H-1B employees through their contracts with WSU.[131] As part of the NPA, WSU will pay the federal government a $1 million fine in three installments.  The NPA will remain in effect for a term of two years or until the date upon which the full monetary payment is made, whichever is later. Zürcher Kantonalbank  (DPA) On August 7, 2018, Zürcher Kantonalbank (“ZKB”) and the U.S. Attorney’s Office for the Southern District of New York entered a DPA.[132]  The U.S. Attorney’s Office announced the filing of charges against ZKB in a press release along with the DOJ Tax Division and the IRS.[133]  As part of the DPA, ZKB consented to the filing of a one-count Information charging ZKB with conspiring with others, including U.S. taxpayers, in violation of 18 U.S.C. § 371 to (1) defraud the United States and the IRS; (2) file false federal income tax returns; and (3) evade federal income taxes.[134] The DPA resolves allegations that from roughly 2002 through 2009, numerous U.S. taxpayer-clients conspired with ZKB to conceal from the IRS the existence of bank accounts held by the U.S. taxpayer-clients at ZKB and the income earned in these accounts in order to evade U.S. taxes on income generated in the undeclared accounts.[135]  ZKB allegedly permitted U.S. taxpayer-clients to engage in a number of practices that helped the U.S. taxpayer-clients avoid reporting income to the IRS, including allowing U.S. taxpayer-clients to open undeclared accounts using code names, place assets in undeclared accounts held in the name of sham entities, and make structured withdrawals by checks from undeclared accounts in amounts less than $10,000.[136]  DOJ asserts that these practices helped U.S. taxpayers avoid reporting to the IRS accounts and income earned therefrom by ensuring that taxpayer-clients’ names would appear on the fewest possible documents relating to their accounts, concealing the taxpayer-clients’ beneficial ownership of assets in the accounts, and minimizing the size of withdrawal transactions in order to conceal their occurrence from the U.S. authorities.[137] As a result of this conduct, the DPA requires ZKB to make payments of over $98.5 million to the United States, of which (1) $39.142 million constitutes restitution; (2) over $24.266 million constitutes forfeiture; and (3) over $35.125 million constitutes a penalty.[138]  The restitution amount represents the approximate unpaid pecuniary loss to the United States as a result of the concealment of the ZKB taxpayer-clients’ accounts and income earned therefrom.  The DPA is set for a term of three years.[139] Recent Declinations with Disgorgement In 2018, DOJ agreed to three declinations that require disgorgement under the Department’s FCPA Corporate Enforcement Policy, which it adopted in November 2017.  Companies that would otherwise receive NPAs are now entering into declination with disgorgement letters if they meet certain disclosure, cooperation, and remediation criteria.  We summarize below the three declination with disgorgement letters from 2018.  The agreements notably reiterate the Department’s continued commitment to hold individuals accountable for misconduct.       The Dun & Bradstreet Corporation On April 23, 2018, the Fraud Section and the U.S. Attorney’s Office for the District of New Jersey declined to prosecute The Dun & Bradstreet Corporation (“Dun & Bradstreet”), a business data and analytics company, for alleged violations of the FCPA bribery provisions committed by the company’s subsidiaries in China.[140]   DOJ declined to prosecute due to several factors, including the company’s (1) identification and voluntary disclosure of misconduct; (2) thorough investigation; (3) full cooperation, including the identification of culpable individuals, sharing all related facts, facilitating interviews of current and former employees, and translation of foreign documents; (4) enhancement of internal controls and its compliance program; (5) full remediation, including terminating and disciplining employees; and (6) disgorgement of monies to the SEC.[141] In its parallel administrative order, the Commission ordered Dun & Bradstreet to pay more than $9 million in disgorged profits, prejudgment interest, and a civil penalty.[142]  The order states that the two Chinese subsidiaries allegedly used third parties to make improper payments to obtain non-public financial and personal information in violation of Chinese law.[143]   In violation of the FCPA accounting provisions, Dun & Bradstreet allegedly “failed to devise and maintain sufficient internal accounting controls to detect or prevent the improper payments,” and failed to accurately reflect the transactions in its consolidated books and records.[144]       Insurance Corporation of Barbados Limited On August 23, 2018, the Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York declined to prosecute Insurance Corporation of Barbados Limited (“ICBL”), an insurance company based in Barbados, for alleged violations of the FCPA.[145]  The Fraud Section’s investigation determined that ICBL made approximately $36,000 in bribe payments to Barbadian government officials in exchange for insurance contracts.[146]  The government official who received the bribes laundered the money through U.S. bank accounts.[147]  DOJ declined to prosecute due to several factors, including ICBL’s (1) timely and voluntary disclosure; (2) thorough investigation; (3) cooperation, including the provision of all known, relevant facts and continued cooperation in ongoing DOJ matters; (4) disgorgement of profits related to the misconduct; (5) improvements to its compliance program and internal controls; (6) remedial actions, including termination of involved employees; and (7) DOJ’s ability to identify and charge culpable individuals.[148] ICBL agreed to disgorge almost $94,000, which represents the profit from the illegally obtained insurance contracts.[149]  The company agreed to pay the disgorgement amount to the Treasury Department.[150]  The letter states that it does not protect any individuals against prosecution.[151]       Polycom, Inc. On December 20, 2018, the Fraud Section declined to prosecute Polycom, Inc. (“Polycom”), a communications solutions provider, for alleged violations of the FCPA bribery and accounting provisions caused by the company’s subsidiaries in China.[152]   Polycom’s subsidiaries allegedly used local channel partners to make improper payments via a discount scheme in exchange for business contracts.[153]  DOJ declined to prosecute after considering several factors, including Polycom’s (1) identification of misconduct; (2) prompt and voluntary disclosure of wrongdoing; (3) thorough investigation; (4) full cooperation, including the provision of all related facts, facilitation of current and former employee interviews, translation of documents, identification of unrelated wrongdoing, and continued cooperation with DOJ’s ongoing investigations or prosecutions; and (5) remedial actions, including enhanced internal controls and compliance programs, employee terminations and discipline, and cutting ties with a channel partner.[154] As part of the agreement, Polycom agreed to disgorge $30.978 million, which reflects the profit from the illegally obtained contracts.[155]  The company will pay the disgorged profits to the SEC, the Treasury Department, and the Postal Inspection Service Consumer Fraud Fund.[156]  The declination letter explicitly notes that the agreement does not preclude prosecution of any individuals.[157] On December 26, 2018, the Commission issued an administrative order to resolve alleged violations of the FCPA accounting provisions by Polycom.[158]  As part of the resolution, Polycom agreed to pay over $16 million in disgorged profits ($10,672,926), prejudgment interest ($1,833,410), and a civil penalty ($3,800,000).[159]  The Commission settled with Polycom after considering the company’s self-disclosure, cooperation, and remediation.[160]  Polycom’s resolutions with DOJ and the Commission bring the total monetary penalty to approximately $36 million. International DPA Developments We continue to observe a global trend of adopting and developing DPA frameworks.  As we discussed in our 2018 Mid-Year Update, some jurisdictions—for example, the United Kingdom and France—have already executed DPA-like resolutions.  Other countries—like Canada and Singapore—have fledgling programs that have yet to be utilized.  And still others— for example, Switzerland, Australia, and Poland—are considering proposals to institute similar regimes.  These DPA frameworks have all been discussed at length in our 2018 Mid-Year Update.  The section below updates this prior analysis with new developments from the United Kingdom, which continues to refine its approach to corporate resolutions and completed the term of its first DPA, and Ireland, which is considering the adoption of a DPA model.       United Kingdom The U.K. Serious Fraud Office (“SFO”) did not enter into any DPAs in 2018, keeping the total number at four since the United Kingdom established a DPA program in February 2014.  Nevertheless, agency officials have made clear that they “are open for business,”[161] with a recent increase in core funding,[162] approximately seventy active investigations as of October 2018,[163] and the completion of the United Kingdom’s first DPA. Remarks of SFO Officials In June 2018, the U.K. Attorney General’s Office named a new Director of the SFO, Lisa Osofsky, who officially assumed the role on August 28, 2018.[164]  During her first week on the job, Osofsky delivered remarks at the Cambridge International Symposium on Economic Crime, where she highlighted the importance of “multijurisdictional . . . cooperation to achieve global settlements like Rolls-Royce,”[165] which involved coordination among authorities in the United States, Brazil, and the United Kingdom before reaching a resolution in January 2017.  Osofsky has committed to “[w]orking with the newcomers to DPAs,” including France, Argentina, Canada, and Australia, to strengthen the SFO’s international relationships in anticipation of future complex, global resolutions.[166] Osofsky underscored the importance of remediation in determining whether to offer a DPA to a company under investigation.[167]  In addition to evaluating whether “the company engaged in proactive efforts to clean house and to reform” (including implementing “the right controls”), the SFO also assesses a company’s tone at the top, ensuring that the remediation efforts are “backed by demonstrable commitment at the appropriate level.”[168] Recent remarks from Matthew Wagstaff, Joint Head of Bribery and Corruption at the SFO, echo Osofsky’s emphasis on remediation, while also highlighting the critical importance of cooperation for a company seeking a DPA: “no co-operation means no agreement.”[169]  Notably, during a subsequent speech, Wagstaff stated that the SFO may ask companies that wish to cooperate to waive privilege over first-hand, factual accounts.[170]  Wagstaff asserted that the SFO will not mandate waiver, but “‘the refusal to do so may well be incompatible with an assertion of a desire to cooperate.'”[171]  This statement is significant when coupled with a speech made by Osofsky in which she emphasized “the importance of giving ‘first witness accounts’ to individuals who are later charged with crimes.”[172]  She stated that those accounts “are sometimes the very interviews that you do in the course of your internal investigations,” and warned that investigations may result in tension between the assertion of privilege and “what a court believes MUST be provided to a criminal defendant to ensure a fair trial.”[173]  She concluded that it “is not cooperation” to “blunder into this and then be distressed and offended if we seek those interviews because a court wants us . . . to provide this material to a defendant in the dock.”[174]  Although the SFO does not provide formal guidance to assist companies that are looking to cooperate or self-report—and former Director David Green famously said that the SFO does not “do guidance”[175]—Osofsky has signaled that such guidance may be forthcoming to assist companies that “want to understand what cooperation would look like in the context of [the SFO’s] assessment for a DPA.”[176] Expiration of the Standard Bank PLC DPA On November 30, 2018, the SFO announced that Standard Bank PLC (now ICBC Standard Bank PLC) (“Standard Bank”) had fully complied with the terms of its DPA, marking the successful completion of the SFO’s first-ever DPA.[177]   The SFO entered into a DPA with Standard Bank in November 2015 to resolve allegations of an approximately $6 million payment made by a former subsidiary of Standard Bank to a local entity controlled by Tanzanian government officials.[178]  Standard Bank uncovered evidence of potential wrongdoing and self-reported to the SFO in April 2013.[179]  The press release announcing the end of the DPA states that the SFO will publish (on its website) a “‘Details of Compliance’ outlining how Standard Bank” met the terms of the DPA.[180] Review of the U.K. Bribery Act In addition to the work conducted by the SFO, the House of Lords appointed an ad hoc Select Committee to review and report on the effectiveness of the United Kingdom’s 2010 Bribery Act (“Bribery Act Committee”), with a focus on the impact of DPAs on corporate conduct.[181]  Over the last several months, a number of prominent U.K. enforcement officials have appeared before the Bribery Act Committee, including Osofsky; Max Hill QC, Director of Public Prosecutions at the Crown Prosecution Service; and Hannah von Dadelszen, Head of Fraud at the SFO.[182] During a Bribery Act Committee session last fall, von Dadelszen provided insight into the SFO’s decision-making process behind whether to offer a DPA.  Von Dadelszen reiterated the requirement of cooperation, and emphasized the importance of personnel “housekeeping” at a company looking to secure a DPA.[183]  Von Dadelszen explained the necessity of “maintain[ing] the integrity of the DPA brand,” which “should not be watered down and given to companies run by those who are not truly good corporate citizens.”[184]       Ireland On October 23, 2018, the Law Reform Commission (“LRC”) of Ireland published a report recommending that Ireland adopt a DPA regime largely resembling the U.K. DPA model.[185]   Though the report is currently no more than a proposal, it invites the Irish legislature to pass a comprehensive statute to institute the recommended regime.[186] The LRC’s recommendation draws largely on the U.K. DPA model; therefore, the proposed Irish DPA system would differ from the U.S. DPA framework in a number of key ways.  For example, the LRC recommends that the Irish DPA regime be instituted by statute and be operated by the Office of the Director of Public Prosecutions (“DPP”).[187]  The decision of whether to seek a DPA would remain entirely within the discretion of the DPP, but unlike DPAs in the United States, the DPP would have to obtain judicial approval in order to initiate the DPA process, to finalize a DPA, and to modify an existing DPA.[188]  The DPP would need to present the terms of any proposed DPA to the High Court, which is an intermediate court that hears the most serious criminal and civil cases, as well as appeals from lower courts, for approval.[189]  The LRC’s report outlines the test that the High Court would use when deciding whether to approve a DPA, recommending that the court ask whether the DPA is “in the interests of justice,” and whether its terms are “fair, reasonable, and proportionate.”[190]  The LRC further recommends that the DPP only use DPAs if the company admits wrongdoing and the proposal requires that DPA terms be published, which is also distinct from DPAs in the United States.[191] The LRC’s recommended DPA regime includes several features that would limit the availability of DPAs in Ireland.  For example, the LRC recommends that DPAs only be made available to corporations and other unincorporated entities like partnerships, but not to individuals.[192]  The LRC also recommends that DPAs only be made available in cases involving certain enumerated economic crimes, including conspiracy to defraud, theft, fraud, bribery, corruption, Companies Act and Competition Act offenses, revenue offenses, and market abuse offenses.[193]  Both of these aspects of the Irish model also set it apart from the U.S. DPA system. ________________________________ APPENDIX:  2018 NPAs, DPAs, and Declinations with Disgorgement The charts below summarize the agreements concluded in 2018.  The complete text of each publicly available agreement is hyperlinked in the chart.  If the agreement is not publicly available, the text of the DOJ press release is hyperlinked in the chart. The figures for “Monetary Recoveries” may include amounts not strictly limited to an NPA, DPA, or declination with disgorgement, such as fines, penalties, forfeitures, and restitution requirements imposed by other regulators and enforcement agencies, as well as amounts from related settlement agreements, all of which may be part of a global resolution in connection with the agreement, paid by the named entity and/or subsidiaries.  The term “Monitoring & Reporting” includes traditional compliance monitors, self-reporting arrangements, and other monitorship arrangements found in settlement agreements. U.S. Non-Prosecution and Deferred Prosecution Agreements in 2018 Company Agency Alleged Violation Type Monetary Recoveries Monitoring & Reporting Term of DPA/ NPA (months) American Media, Inc. S.D.N.Y. Campaign Finance NPA N/A Yes 36 Bank Lombard Odier & Co Ltd. DOJ Tax Swiss Bank Program NPA Addendum $5,300,000 No N/A Basler Kantonalbank DOJ Tax; S.D. Fla. Tax Evasion; Fraud (Tax) DPA $60,400,000 Yes 36 Central States Capital Markets, LLC S.D.N.Y. BSA DPA $400,000 Yes 24 Credit Suisse (Hong Kong) Limited DOJ Fraud; E.D.N.Y. FCPA NPA $47,029,916 Yes 36 Cultural Resource Analysts, Inc. M.D. Tenn. Archaeological Resources Protection Act DPA $15,024 No Indefinite Hallman Chevrolet W.D. Pa. Fraud (Bank Loan) DPA $2,137,000 Yes 48 Health Management Associates, LLC DOJ Fraud Fraud (Health Care); FCA NPA $261,026,648 Yes 36 HSBC Holdings plc DOJ Fraud Fraud (Wire Fraud) DPA $109,579,000 Yes 36 Imagina Media Audiovisual SL E.D.N.Y. FCPA NPA $12,883,320 Yes 36 Legg Mason, Inc. E.D.N.Y. FCPA NPA $64,242,000 Yes 36 Mirelis Holding S.A. DOJ Tax Tax and Money-Transaction Violations NPA $10,245,000 No[194] 48 Neue Privat Bank AG DOJ Tax Tax and Money-Transaction Violations NPA $5,000,000 No[195] 48 Panasonic Avionics Corporation DOJ Fraud FCPA DPA $280,602,831 Yes 36 Petróleo Brasileiro S.A. – Petrobras DOJ Fraud; E.D. Va. FCPA NPA $170,640,000 (U.S.) $853,200,000 (Brazil/U.S.) Yes 36 Red Cedar Services, Inc. S.D.N.Y. RICO Act; Fraud (Wire Fraud); AML NPA $2,000,000 No 12 Rite Aid Corporation S.D. W. Va. Controlled Substances Act NPA $4,000,000 No 24 Santee Financial Services, Inc. S.D.N.Y. RICO Act; Fraud (Wire Fraud); AML NPA $1,000,000 No 12 Société Générale S.A. DOJ Fraud; E.D.N.Y. FCPA; Transmitting false commodities reports DPA $1,335,552,888 Yes 36 Société Générale S.A. S.D.N.Y. Trading with the Enemy Act; Cuban Assets Control Regulations DPA $1,340,165,000 Yes 36 Transport Logistics International, Inc. DOJ Fraud; D. Md. FCPA DPA $2,000,000 Yes 36 U.S. Bancorp S.D.N.Y. BSA DPA $613,000,000 Yes 24 Waste Management Texas S.D. Tex. Immigration Violations NPA $5,527,091.55 No Indefinite Wright State University S.D. Ohio Fraud (Visa) NPA $1,000,000 Yes 24 Zürcher Kantonalbank S.D.N.Y.; DOJ Tax Tax Evasion; Fraud (Tax) DPA $98,533,560 Yes 36   FCPA Pilot Program Declination with Disgorgement Letters in 2018 Company Agency Alleged Violation Type Monetary Recoveries Monitoring & Reporting Term of DPA/ NPA (months) The Dun & Bradstreet Corporation DOJ Fraud; D.N.J. FCPA Declination $9,221,484 No N/A Insurance Corporation of Barbados Limited DOJ Fraud; E.D.N.Y. FCPA Declination $93,940.19 No N/A Polycom, Inc. DOJ Fraud FCPA Declination $36,611,410 No N/A   [1] NPAs and DPAs are two kinds of voluntary, pre-trial agreements between a corporation and the government, most commonly DOJ.  They are standard methods to resolve investigations into corporate criminal misconduct and are designed to avoid the severe consequences, both direct and collateral, that conviction would have on a company, its shareholders, and its employees.  Though NPAs and DPAs differ procedurally—a DPA, unlike an NPA, is formally filed with a court along with charging documents—both usually require an admission of wrongdoing, payment of fines and penalties, cooperation with the government during the pendency of the agreement, and remedial efforts, such as enhancing compliance programs and—on occasion—a corporate monitorship.  Although multiple agencies use NPAs and DPAs, since Gibson Dunn began tracking corporate NPAs and DPAs in 2000, we have identified approximately 509 agreements initiated by DOJ and 10 initiated by the SEC. [2] We strive to provide the most up-to-date, accurate information; however, the government shutdown has affected the press functions of the federal government, limiting our access to agreements executed or announced in December 2018. [2a] This amount may include amounts not strictly limited to an NPA or DPA, such as fines, penalties, forfeitures, and restitution requirements imposed by other regulators and enforcement agencies, as well as amounts from related settlement agreements, all of which may be part of a global resolution in connection with the agreement, paid by the named entity and/or subsidiaries. [3] See Rod J. Rosenstein, Deputy Attorney General, U.S. Dep’t of Justice, Remarks at the American [3] See Rod J. Rosenstein, Deputy Attorney General, U.S. Dep’t of Justice, Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0 [hereinafter Rosenstein Speech]. [4] Memorandum from Sally Q. Yates, Deputy Attorney General, U.S. Dep’t of Justice, to Assistant Attorney General, Antitrust Division, et al., Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015), https://www.justice.gov/archives/dag/file/769036/download. [5] Rosenstein Speech, supra note 3. [6] Id. [7] Id. [8] Id. [9] U.S. Dep’t of Justice, Justice Manual, § 9-28 Principles of Federal Prosecution of Business Organizations, https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations. [10] Rosenstein Speech, supra note 3. [11] U.S. Sentencing Comm’n, Guidelines Manual, § 8C2.5(f), https://www.ussc.gov/sites/default/files/pdf/guidelines-manual/2018/GLMFull.pdf. [12] Memorandum from Brian A. Benczkowski, Assistant Attorney General, U.S. Dep’t of Justice, to All Criminal Division Personnel, Selection of Monitors in Criminal Division Matters (Oct. 11, 2018), https://www.justice.gov/opa/speech/file/1100531/download  [hereinafter Benczkowski Memorandum]. [13] Memorandum from Craig S. Morford, Acting Deputy Attorney General, U.S. Dep’t of Justice, to Heads of Department Components and United States Attorneys, Selection and Use of Monitors in Deferred Prosecution Agreements and Non-Prosecution Agreements with Corporations (Mar. 7, 2008), https://www.justice.gov/sites/default/files/dag/legacy/2008/03/20/morford-useofmonitorsmemo-03072008.pdf  [hereinafter Morford Memorandum]. [14] See Brian A. Benczkowski, Assistant Attorney General, U.S. Dep’t of Justice, Remarks at NYU School of Law Program on Corporate Compliance and Enforcement Conference on Achieving Effective Compliance (Oct. 12, 2018), https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-nyu-school-law-program [hereinafter Benczkowski Speech]. [15] Id. [16] Id. [17] Morford Memorandum, supra note 13, see also Benczkowski Memorandum, supra note 12, at 2. [18] Benczkowski Memorandum, supra note 12, at 2. [19] See C. Ryan Barber, DOJ’s New Compliance Monitor Guidance Accounts for ‘Burdens’ on Companies, The National Law Journal (Oct. 12, 2018), https://www.law.com/nationallawjournal/2018/10/12/dojs-new-compliance-monitor-guidance-accounts-for-burdens-on-companies/. [20] Deferred Prosecution Agreement, United States v. Panasonic Avionics Corp. (D.D.C. Apr. 30, 2018). [21] Id. [22] Id. [23] Barber, supra note 19. [24] Benczkowski Speech, supra note 14. [25] See United States. v. MoneyGram International, Inc., 12-cr-00291 (M.D. Pa.), Dkt. 21 (extension from Nov. 8, 2017 to Feb. 6, 2018); Dkt. 23 (to Mar. 23, 2018); Dkt. 25 (to May 7, 2018); Dkt. 27 (to June 21, 2018); Dkt. 29 (to Sept. 18, 2018); Dkt. 31 (to Nov. 6, 2018); Dkt. 33 (to Nov. 9, 2018); Dkt. 34 (to May 10, 2021). [26] Press Release, U.S. Dep’t of Justice, MoneyGram Int’l Inc. Agrees To Extend Deferred Prosecution Agreement, Forfeits $125 Million In Settlement With Justice Department And Federal Trade Commission (Nov. 9, 2018), https://www.justice.gov/usao-mdpa/pr/moneygram-international-inc-agrees-extend-deferred-prosecution-agreement-forfeits-125. [27] Please see our 2012 Year-End Update for more details. [28] Press Release, Standard Chartered, Extension of the U.S. Deferred Prosecution Agreements (July 27, 2018), https://www.sc.com/en/media/press-release/extension-of-the-u-s-deferred-prosecution-agreements/. [29] Press Release, U.S. Dep’t of Justice, Standard Chartered Bank Agrees to Forfeit $227 Million for Illegal Transactions with Iran, Sudan, Libya, and Burma (Dec. 10, 2012), https://www.justice.gov/opa/pr/standard-chartered-bank-agrees-forfeit-227-million-illegal-transactions-iran-sudan-libya-and; Press Release, Standard Chartered, We Have Extended our Deferred Prosecution Agreements (Nov. 9, 2017), https://www.sc.com/en/media/press-release/we-have-extended-our-deferred-prosecution-agreements/. [30] Deferred Prosecution Agreement, United States v. Standard Chartered, Case No. 11-cr-262, Dkt. 2 ¶ 4 (D.D.C. Dec. 10, 2012). [31] Id. [32] Press Release, Standard Chartered, Extension of the U.S. Deferred Prosecution Agreements (Dec. 22, 2018), https://www.sc.com/en/media/press-release/extension-of-the-us-deferred-prosecution-agreements/. [33] Press Release, U.S. Dep’t of Justice, Michael Cohen Sentenced to 3 Years in Prison (Dec. 12, 2018), https://www.justice.gov/usao-sdny/pr/michael-cohen-sentenced-3-years-prison. [34] Id. [35] Id. [36] Non-Prosecution Agreement, American Media, Inc. (Sept. 20, 2018), at 1. [37] Id. at 2. [38] Id. [39] Id. [40] Addendum to Non-Prosecution Agreement, Bank Lombard Odier & Co Ltd. (July 13, 2018), at 1 [hereinafter Bank Lombard Addendum]. [41] Id. [42] U.S. Dep’t of Justice, Swiss Bank Program, available at https://www.justice.gov/tax/swiss-bank-program. [43] Id. [44] Id. [45] Id. [46] Bank Lombard Addendum, supra note 40, at 1. [47] Press Release, U.S. Dep’t of Justice, Justice Department Announces Addendum to Swiss Bank Program Category 2 Non-Prosecution Agreement, Bank Lombard Odier & Co Ltd. (July 31, 2018), https://www.justice.gov/opa/pr/justice-department-announces-addendum-swiss-bank-program-category-2-non-prosecution-agreement. [48] Bank Lombard Addendum, supra note 40, at 1. [49] Id. [50] Id. [51] Deferred Prosecution Agreement, United States v. Basler Kantonalbank, No. 18-CR-60228-Bloom (Aug. 29, 2018) [hereinafter BKB DPA]. [52] Press Release, U.S. Dep’t of Justice, Justice Department Announces Deferred Prosecution Agreement With Basler Kantonalbank (Aug. 28, 2018), https://www.justice.gov/opa/pr/justice-department-announces-deferred-prosecution-agreement-basler-kantonalbank [hereinafter BKB Press Release]. [53] BKB DPA, supra note 51, at 29. [54] Id. at 16–17. [55] BKB Press Release, supra note 52. [56] BKB DPA, supra note 51, at 10. [57] Deferred Prosecution Agreement, Central States Capital Markets, LLC (Dec. 10, 2018), at 1 [hereinafter CSCM DPA]. [58] Id. at 1–2. [59] Press Release, U.S. Dep’t of Justice, Manhattan U.S. Attorney Announces Bank Secrecy Act Charges Against Kansas Broker Dealer (Dec. 19, 2018), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-bank-secrecy-act-charges-against-kansas-broker-dealer [hereinafter CSCM Press Release]. [60] CSCM DPA, supra note 57, at 2-3. [61] Id. at 6. [62] Id. at 3. [63] CSCM Press Release, supra note 59. [64] Id. [65] Press Release, U.S. Dep’t of Justice, Auto Dealership Agrees to Pay Penalty of $1.4 Million and Restitution of More than $730K in Bank Loan Fraud Scheme (Aug. 31, 2018), https://www.justice.gov/usao-wdpa/pr/auto-dealership-agrees-pay-penalty-14-million-and-restitution-more-730k-bank-loan-fraud. [66] Id. [67] Id. [68] Press Release, U.S. Dep’t of Justice, Hospital Chain Will Pay Over $260 Million to Resolve False Billing and Kickback Allegations; One Subsidiary Agrees to Please Guilty (Sept. 25, 2018), https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and-kickback-allegations-one [hereinafter HMA Press Release]. [69] Id. [70] Non-Prosecution Agreement, Health Management Associates, LLC (Sept. 21, 2018), at 1 [hereinafter HMA NPA]. [71] Id. [72] Id. at 1–2. [73] Id. at 4. [74] Id. [75] Id. at 2. [76] Id. [77] Settlement Agreement, U.S. Dep’t of Justice and Health Management Associates, LLC (Sept. 2018), https://www.justice.gov/opa/press-release/file/1096401/download. [78] Press Release, U.S. Dep’t of Justice, Justice Department Announces Resolution With Swiss Financial and Asset Management Firm Mirelis Holding S.A. (July 27, 2018), https://www.justice.gov/opa/pr/justice-department-announces-resolution-swiss-financial-and-asset-management-firm-mirelis. [79] Id. [80] Id. [81] Id. [82] Non-Prosecution Agreement, Mirelis Holding S.A. (July 24, 2018), at 5. [83] Id. at 2. [84] Id. at 4. [85] Id. at 6. [86] Press Release, U.S. Dep’t of Justice, Justice Department Announces Resolution with NPB Neue Privat Bank AG (July 18, 2018), https://www.justice.gov/opa/pr/justice-department-announces-resolution-npb-neue-privat-bank-ag. [87] Non-Prosecution Agreement, NPB Neue Privat Bank AG (June 22, 2018), at 2 [hereinafter NPB NPA]. [88] Press Release, U.S. Dep’t of Justice, Justice Department Announces Resolution with NPB Neue Privat Bank AG (July 18, 2018), https://www.justice.gov/opa/pr/justice-department-announces-resolution-npb-neue-privat-bank-ag. [89] Id. [90] Id. [91] Id. [92] Id. [93] Id. [94] Id. [95] NPB NPA, supra note 87, at 2–3. [96] Id. at 4. [97] Id. [98] Press Release, U.S. Dep’t of Justice, Petróleo Brasileiro S.A. – Petrobras Agrees to Pay More Than $850 Million for FCPA Violations (Sept. 27, 2018), https://www.justice.gov/opa/pr/petr-leo-brasileiro-sa-petrobras-agrees-pay-more-850-million-fcpa-violations. [99] Id. [101] Id. [102] Id. [103] Id. [104] Id. [105] Id. [106] Non-Prosecution Agreement, Petróleo Brasileiro S.A. – Petrobras (Sept. 26, 2018), at 3. [107] Id. at 5. [108] Id. at 4. [109] See Press Release, U.S. Dep’t of Justice, Manhattan U.S. Attorney Announces Criminal Charges Against Société Générale S.A. For Violations Of The Trading With The Enemy Act (Nov. 19, 2018), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-charges-against-soci-t-g-n-rale-sa-violations [hereinafter SocGen Press Release]. [110] See Deferred Prosecution Agreement, Société Générale (Nov. 18, 2018) [hereinafter SocGen DPA]. [111] See SocGen Press Release, supra note 109. [112] See SocGen DPA, supra note 110. [113] See id. [114] See SocGen Press Release, supra note 109. [115] See id. [116] See id. [117] See id. [118] Press Release, U.S. Dep’t of Justice, Waste Management to Forfeit $5.5 Million for Hiring Illegal Aliens (Aug. 29, 2018), https://www.justice.gov/usao-sdtx/pr/waste-management-forfeit-55-million-hiring-illegal-aliens. [119] Id. [120] Id. [121] Id. [122] Id. [123] Non-Prosecution Agreement, Wright State University (Nov. 16, 2018) [hereinafter WSU NPA]. [124] Press Release, U.S. Dep’t of Justice, Wright State University Agrees to Pay Government $1 Million for Visa Fraud (Nov. 16, 2018), https://www.justice.gov/usao-sdoh/pr/wright-state-university-agrees-pay-government-1-million-visa-fraud. [125] WSU NPA, supra note 123, at 5. [126] Id. [127] Id. [128] Id. at 6. [129] Id. [130] Id. [131] Id. [132]See Press Release, U.S. Dep’t of Justice, Manhattan U.S. Attorney Announces Criminal Charges Against Zürcher Kantonalbank of Switzerland, With Deferred Prosecution Agreement Requiring Payment Of $98.5 Million, As Well As Guilty Pleas of Two Zürcher Kantonalbank Bankers (Aug. 13, 2018), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-charges-against-z-rcher-kantonalbank [hereinafter ZKB Press Release]. [133] Id. [134] Id. [135] See Deferred Prosecution Agreement, Zürcher Kantonalbank (Aug. 7, 2018) [hereinafter ZKB DPA]. [136] See id. [137] See ZKB Press Release, supra note 132. [138] See ZKB DPA, supra note 135. [139] See id. [140] U.S. Dep’t of Justice, Declination Letter for The Dun & Bradstreet Corporation (Apr. 23, 2018), at 1. [141] Id. [142] The Dun & Bradstreet Corp., U.S. Sec. & Exch. Comm’n Admin. Order, File No. 3-18446 (Apr. 23, 2018), at 8. [143] Id. at 2, 4–6. [144] Id. at 2. [145] U.S. Dep’t of Justice, Declination Letter for Insurance Corporation of Barbados Limited (Aug. 23, 2018), at 1. [146] Id. [147] Id. [148] Id. at 2. [149] Id. [150] Id. [151] Id. [152] U.S. Dep’t of Justice, Declination Letter for Polycom, Inc. (Dec. 20, 2018), at 1 [hereinafter Polycom Declination]. [153] Press Release, U.S. Sec. & Exch. Comm’n, SEC Charges Polycom, Inc. with FCPA Violation, Admin. Proceeding, File No. 3-18964 (Dec. 26, 2018), https://www.sec.gov/enforce/34-84978-s. [154] Polycom Declination, supra note 152, at 1. [155] Id. at 2. [156] Id. [157] Id. [158] Polycom, Inc., U.S. Sec. & Exch. Comm’n, Admin. Proceeding, File No. 3-18964 (Dec. 26, 2018), at 1. [159] Id. at 6. [160] Id. at 5. [161] Camilla de Silva, Address at ABC Minds Financial Services Conferences (Mar. 16, 2018), https://www.sfo.gov.uk/2018/03/16/camilla-de-silva-at-abc-minds-financial-services. [162] Remarks of Lisa Osofsky, Transcript of House of Lords 2010 Bribery Act Committee Oral Evidence 5 (Nov. 13, 2018), http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/bribery-act-2010-committee/bribery-act-2010/oral/92752.pdf. [163] Remarks of Hannah von Dadelszen, Transcript of House of Lords 2010 Bribery Act Committee Oral Evidence (Oct. 23, 2018), http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/bribery-act-2010-committee/bribery-act-2010/oral/92103.html. [164] Press Release, SFO, Lisa Osofsky Begins Tenure as SFO Director (Aug. 28, 2018), https://www.sfo.gov.uk/2018/08/28/lisa-osofsky-begins-tenure-as-sfo-director/. [165] Lisa Osofsky, Director, SFO, Ensuring Our Country is a High Risk Place for the World’s Most Sophisticated Criminals to Operate (Sept. 3, 2018), https://www.sfo.gov.uk/2018/09/03/lisa-osofsky-making-the-uk-a-high-risk-country-for-fraud-bribery-and-corruption/. [166] Id. [167] Id. [168] Id. [169] Matthew Wagstaff, Joint Head of Bribery and Corruption, SFO, Current Priorities and Future Directions (Nov. 21, 2018), https://www.sfo.gov.uk/2018/11/21/current-priorities-and-future-directions/. [170] Waithera Junghae, Waiving Privilege Shows Willingness to Cooperate, SFO Official Says, Global Investigations rev. (Dec. 6, 2018), https://globalinvestigationsreview.com/article/1177673/waiving-privilege-shows-willingness-to-cooperate-sfo-official-says. [171] Id. [172] Lisa Osofsky, Director, SFO, Keynote Address at the 35th International Conference on the Foreign Corrupt Practices Act in Washington, D.C. (Nov. 28, 2018), https://www.sfo.gov.uk/2018/12/04/keynote-address-fcpa-conference-washington-dc/. [173] Id. [174] Id. [175] Michael Griffiths, SFO Director: We Don’t Do Guidance, Global Investigations rev. (Nov. 1, 2017), https://globalinvestigationsreview.com/article/1149586/sfo-director-we-dont-do-guidance. [176] Waithera Junghae, Lisa Osofsky: “Tell Us Something We Don’t Know”, Global Investigations rev. (Nov. 8, 2018), https://globalinvestigationsreview.com/article/1176629/lisa-osofsky-%E2%80%9Ctell-us-something-we-don%E2%80%99t-know%E2%80%9D. [177] Press Release, SFO, UK’s First Deferred Prosecution Agreement, Between the SFO and Standard Bank, Successfully Ends (Nov. 30, 2018), https://www.sfo.gov.uk/2018/11/30/uks-first-deferred-prosecution-agreement-between-the-sfo-and-standard-bank-successfully-ends/. [178] We addressed the Standard Bank DPA in detail in a client alert on December 3, 2015. [179] Joanne Faulkner, SFO Wraps Up First Deferred Prosecution Agreement, Law360 (Nov. 30, 2018), https://www.law360.com/articles/1106556/sfo-wraps-up-first-deferred-prosecution-agreement. [180] Id. [181] Mara Lemos Stein, U.K. Bribery Act Review Puts Deferred Prosecution Agreements Under Scrutiny, Wall St. J. (Aug. 27, 2018), https://www.wsj.com/articles/u-k-bribery-act-review-puts-deferred-prosecution-agreements-under-scrutiny-1535362200. [182] Caroline Doherty de Novoa, Some of the UK’s most senior prosecutors and judges on the Bribery Act, DPAs and the future of economic crime enforcement, Freshfields Bruckhas Deringer (Nov. 15, 2018), https://risk.freshfields.com/post/102f5vh/some-of-the-uks-most-senior-prosecutors-and-judges-on-the-bribery-act-dpas-and; Remarks of Hannah von Dadelszen, supra note 163. [183] Remarks of Hannah von Dadelszen, supra note 163. [184] Id. [185] Colm Keena, The DPA Regime Recommended for Ireland Does Not Allow Deals Which Give Immunity to Particular Individuals, Irish Times (Oct. 26, 2018), https://www.irishtimes.com/news/crime-and-law/the-dpa-regime-recommended-for-ireland-does-not-allow-deals-which-give-immunity-to-particular-individuals-1.3675677. [186] Law Reform Commission of Ireland, Regulatory Powers and Corporate Offences 266 (2018), https://www.lawreform.ie/_fileupload/Completed%20Projects/LRC%20119-2018%20Regulatory%20Powers%20and%20Corporate%20Offences%20Volume%201.pdf. [187] Id. [188] Id. at 266-67, 275. [189] Id. at 267. [190] Id. [191] Keena, supra note 185. [192] Law Reform Commission of Ireland, supra note 186, at 267. [193] Id. at 269. [194] If Mirelis fails to close any and all U.S.-related accounts classified as “dormant” within the specified time period, it must provide periodic reporting at the request of the Tax Division. [195] If NPB fails to close any and all U.S.-related accounts classified as “dormant” within the specified time period, it must provide periodic reporting at the request of the Tax Division. The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, M. Kendall Day, Sacha Harber-Kelly, Courtney Brown, Melissa Farrar, Chelsea Ferguson, Ben Belair, Abbey Bush, Laura Cole, Brittany Garmyn, Patricia Herold, Jillian Katterhagen Mills, Katie King, William Lawrence, Dan Nadratowski, Susanna Schuemann, and Jason Smith. Gibson Dunn’s White Collar Defense and Investigations Practice Group successfully defends corporations and senior corporate executives in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies and their boards of directors in almost every business sector.  The Group has members in every domestic office of the Firm and draws on more than 125 attorneys with deep government experience, including more than 50 former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission.  Joe Warin, a former federal prosecutor, served as the U.S. counsel for the compliance monitor for Siemens and as the FCPA compliance monitor for Alliance One International.  He previously served as the monitor for Statoil pursuant to a DOJ and SEC enforcement action.  He co-authored the seminal law review article on NPAs and DPAs in 2007.  Debra Wong Yang is the former United States Attorney for the Central District of California, and has served as independent monitor to a leading orthopedic implant manufacturer to oversee its compliance with a DPA.  In the United Kingdom, Sacha Harber-Kelly is a former Prosecutor and Case Controller at the Serious Fraud Office. 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January 9, 2019 |
2018 Year-End False Claims Act Update

Click for PDF One hundred and fifty-five years after Congress enacted the False Claims Act (FCA), it remains the government’s primary tool to combat fraud with respect to government programs, a source of noteworthy Supreme Court jurisprudence, and a window into the government’s enforcement priorities and policy efforts.  Especially during the last decade, few areas of law have generated so much attention among the courts, and so much in damages and penalties paid to the government by private industry.  This year was no exception. In fiscal year 2018, the Department of Justice (DOJ) recovered almost $2.9 billion from companies that do business with the government.  This total marks a slight downturn from recent years, but is still one of the top ten totals of all time (all ten of which have occurred since 2006).  There were also more than 760 new FCA matters initiated during 2018, marking the ninth year in a row that companies were hit with more than 700 new matters.  By all measures, therefore, the breakneck pace of FCA investigations and litigation set during the last decade is not slowing. It is perhaps no surprise then, that key legal questions underpinning FCA litigation also continued to garner significant attention from the federal courts.  For their part, the lower courts continued to deal with a wide range of thorny legal issues, including threshold jurisdictional issues, pleading requirements under the FCA, and standards of liability and proof under the Supreme Court’s seminal 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  The Supreme Court, meanwhile, agreed to hear an important case concerning the statute of limitations in whistleblower suits brought under the FCA, marking the fourth time in as many years that the Supreme Court has opted to interpret the FCA (and the eighth time in the last decade).[1] Not to be outdone by developments on the enforcement and case law fronts, there were also several important legislative and policy developments.  Most notably, DOJ leadership announced significant policy changes in the first half of 2018 that guide how and when the government will pursue FCA actions.  And in the second half of 2018, even though they are still in their early stages, we started to see those changes put into effect.  Indeed, DOJ sought to pull the plug on a dozen FCA cases. We address all of these and other developments in greater depth below.  We first provide an overview of enforcement activity at the federal and state levels during fiscal year 2018 and summarize the most notable FCA settlements that were announced in the second half of 2018 (settlements from the first half of the year were covered in our 2018 Mid-Year Update).  We turn next to the noteworthy developments on the legislative and policy fronts, and then conclude with an analysis of significant cases from the past six months. As always, Gibson Dunn’s recent publications on the FCA may be found on our website, including industry-specific articles, webcasts, presentations, and practical guidance to help companies avoid or limit liability under the FCA.  And, of course, we would be happy to discuss these developments—and their implications for your business—with you. I.   FCA ENFORCEMENT ACTIVITY A.   Total Recovery Amounts: 2018 Recoveries Reach Almost $2.9 Billion The federal government recovered almost $2.9 billion in civil settlements and judgments under the FCA during the 2018 fiscal year.  This number, while sizable, marks the first time since 2009 that recoveries failed to crack the $3 billion threshold.[2]  Still, this total is the tenth highest one-year total in history, a sign of just how historic the past decade has been. The health care industry, as in most years, was the primary FCA target in the 2018 fiscal year, as companies and individuals in that industry agreed to pay $2.5 billion to DOJ in 2018 in FCA matters.  There were 767 new FCA cases filed in 2018, more than 500 of them in the health care space. B.   Qui Tam Activity Of the nearly $2.9 billion that the government recovered in 2018, $2.1 billion came from qui tam cases—the lowest number for recoveries from qui tam cases since 2009.[3]  Of that total, the vast majority came in cases where the government intervened, while qui tam cases where the government declined intervention accounted for just $119 million of the $2.1 billion in qui tam recoveries, a sharp decline from last year’s figures. Even as qui tam recoveries decreased, the proportion of all cases initiated by a whistleblower remained in tune with historical averages at 84% (645 of 767) in 2018—a figure that has vacillated between 77% and 88% every year since 2009.  Going back farther in time, however, it is important to recall that the amount and proportion of qui tam cases has increased substantially since Congress amended the FCA in 1986: from 1987 to 1991, only about one-quarter of FCA cases were qui tam cases, but whistleblowers have now brought over 12,000 qui tam cases since then—71% of the total. Of course, qui tam cases are not the only way FCA cases begin.  This year also saw far more than the usual amount of recoveries in cases originally filed by the government.  This was true even as DOJ seemingly took steps to rein in FCA enforcement activity in certain areas.  Indeed, recoveries in such cases leapt to $767 million in 2018—more than double the amount of last year—and above the total in many other recent years (although still lower than in 2012, 2014, and 2016—all of which saw non-qui tam recoveries north of $1.5 billion). The chart below demonstrates both the increase in overall FCA litigation activity since 1986 and the distinct shift from largely government-driven investigations and enforcement to qui tam-initiated lawsuits.  Although there was a slight decline compared to the prior two years, the total number of FCA cases remains far north of where it was in the first decade of the new millennium, when an average of 476 cases were brought per year. Number of FCA New Matters, Including Qui Tam Actions  Source: DOJ “Fraud Statistics – Overview” (Dec. 21, 2018) The government opts to intervene in FCA cases filed by qui tam relators about 20% of the time.[4]  Even if the government declines to intervene, 70% of any recovery still goes to the government.  In fiscal year 2017, the large majority of cases where the government declined to intervene accounted for 17% of all federal recoveries—only the second time such recoveries exceeded 9%.  That figure dropped to just 4% in fiscal year 2018, however, marking a return to levels more typically seen in past years. Settlement or Judgments in Cases where the Government Declined Intervention as a Percentage of Total FCA Recoveries Source: DOJ “Fraud Statistics – Overview” (Dec. 21, 2018) C.   Trump Administration Enforcement Policy DOJ began the year by issuing a series of internal guidance memoranda and public speeches in an apparent attempt to shift FCA enforcement policy.  In our 2018 Mid-Year Update, we addressed a memorandum from Michael Granston, the Director of the Fraud Section of DOJ’s Civil Division, (the “Granston Memo”) and a memorandum from then-Associate Attorney General Rachel Brand (the “Brand Memo”), which appeared to take at least some initial steps towards addressing potential costs of unbridled FCA enforcement. As detailed further in our 2018 Mid-Year Update, the Granston Memo directs government lawyers evaluating whether to decline intervention in a qui tam FCA action also to “consider whether the government’s interests are served” by seeking dismissal of the underlying qui tam claims pursuant to 31 U.S.C. § 3730(c)(2)(A).[5]  Outlining seven factors for prosecutors to consider when evaluating dismissal of a declined qui tam action, the Granston Memo emphasizes DOJ’s “important gatekeeper role in protecting the [FCA]” and the role that dismissal can play in “preserv[ing] limited resources” and “avoid[ing] adverse precedent.”  In addition, the Brand Memo prohibits DOJ from basing its theories of liability in affirmative civil enforcement cases on noncompliance with other agencies’ guidance documents and from using “its enforcement authority to effectively convert agency guidance documents into binding rules.”[6]  We also addressed a June 14 speech from Acting Associate Attorney General Jesse Panuccio describing these memos and other policy initiatives, including efforts to formalize Department practices around cooperation credit, compliance program credit, and “piling on” by other agencies and regulatory bodies in settlement discussions. Although these actions signaled some potentially significant shifts in the FCA enforcement space, it has been less clear how these changes would be put into practice.  Several additional announcements by the Trump Administration in the latter half of the year have now set those wheels in motion. Most notably, on September 25, DOJ announced the rollout of an updated United States Attorneys’ Manual—now titled the Justice Manual.[7]  Twenty years’ coming, the Justice Manual appears to incorporate the recommendations set forth in the Granston Memo.  Although it does not adopt the Granston Memo wholesale, the Justice Manual does encourage the Department to evaluate a non-exhaustive list of factors, any one of which may be sufficient to support dismissal.[8]  In addition to preserving government resources, these factors include “[c]urbing meritless qui tam claims that facially lack merit (either because the relator’s legal theory is inherently defective, or the relator’s factual allegations are frivolous),” “[p]reventing parasitic or opportunistic qui tam actions” that add “no useful information to a pre-existing government investigation,” and “[p]reventing interference with an agency’s policies or the administration of its programs.”  The enumerated factors also include controlling litigation brought on behalf of the government “to protect the Department’s litigation prerogatives,” “[s]afeguarding classified information and national security interests,” and “[a]ddressing egregious procedural efforts that could frustrate the government’s efforts to conduct a proper investigation.” That the Justice Manual made official substantial portions of the Granston Memo (which was not officially released publicly) may reinforce a trend towards more judicious FCA enforcement by DOJ.  Other data points also show that trend.  In November, DOJ notified the U.S. Supreme Court via an amicus brief that it would move to dismiss the high-profile FCA case against Gilead Sciences (Gilead Sciences., Inc. v. United States ex rel. Campie, 138 S. Ct. 1585 (2018) (discussed in greater detail infra)), should that matter be remanded to the district court in accordance with the Ninth Circuit’s ruling.[9]  Then in December, DOJ moved to dismiss 11 qui tam FCA actions brought by Health Choice Group, LLC against multiple pharmaceutical companies.[10]  In rejecting allegations that the defendants violated the Anti-Kickback Statute (AKS) by providing assistance with prior authorizations and arranging for nurses to educate patients on proper administration of newly-prescribed medicines, among other items, the government stated that the relators’ allegations “lack[ed] sufficient factual and legal support” and would be contrary to previous guidance issued by the Department of Health and Human Services Office of Inspector General (HHS OIG).[11]  Emphasizing that the right for a qui tam plaintiff to proceed with an action without government intervention “is not absolute,” the government moved for dismissal given the need to “preserv[e] scarce government resources and protect[] important policy prerogatives of the federal government’s healthcare programs.”[12]  Specifically, the government emphasized that the “relators should not be permitted to indiscriminately advance claims on behalf of the government against an entire industry that would undermine common industry practices the federal government has determined are . . . appropriate and beneficial to federal healthcare programs and their beneficiaries.”[13] Building on DOJ’s promises to solidify its practices around providing cooperation credit, Deputy Attorney General Rod Rosenstein also announced in November a set of policy changes to “restore” discretion to DOJ attorneys.  Most notably, DOJ now will give cooperation credit to companies that identify every individual who was “substantially involved in or responsible for the criminal conduct” under investigation in white collar investigations.[14]  This shift recalibrates DOJ policy after the so-called “Yates Memo,” issued by then-Deputy Attorney General Sally Yates, which required corporations to provide “all relevant facts” about individuals involved in misconduct and appeared to apply regardless of the significance of those individuals’ involvement.  As such, this policy shift may allow companies to tailor their investigations and advocacy efforts more closely to those individuals most likely to face criminal prosecution.  In addition, Deputy Attorney General Rosenstein announced that DOJ attorneys will be “permitted to negotiate civil releases for individuals who do not warrant additional investigation in corporate civil settlement agreements.”[15]  Although focused primarily on the Foreign Corrupt Practices Act, Deputy Attorney General Rosenstein also remarked on the impact the new standard could have on companies facing civil FCA liability. In September, HHS OIG unveiled a “Fraud Risk Indicator,” designed to increase transparency for health care organizations and their counsel.[16]  According to the HHS OIG website, the Indicator is designed to assess “the future risk posed by persons who have allegedly engaged in civil healthcare fraud”—in other words, parties who have entered into settlement agreements in which the government alleges fraudulent conduct and the settling parties neither admit liability nor enter into a corporate integrity agreement (CIA).  Using published criteria for potential exclusion from federal health care programs, the Indicator assigns the settling party to one of five risk categories, ranging from “High Risk – Exclusion” to “Low Risk – Self-Disclosure.”  Although intended to better inform “various stakeholders, including patients, family members, and healthcare industry professionals,” the Indicator may well give rise to more questions than answers.  For example, it is unclear whether there is a designated process for disputing HHS OIG’s risk assessment (and, if so, how transparent the process will be).  HHS OIG also has not shared how it will use the risk classifications when evaluating whether the company must enter a CIA as part of an FCA resolution. Lastly, there has also been speculation about what approach William Barr, President Trump’s nominee for Attorney General, would bring to FCA enforcement.  In the past, Barr has made comments calling the FCA unconstitutional and an “abomination.”[17]  While serving at DOJ during the administration of President George H.W. Bush, Barr authored a memorandum questioning the constitutionality of the FCA’s qui tam provisions based on separation of powers concerns.  The Supreme Court (and lower courts) have since rejected such arguments.  See, e.g., Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000).  Even if that issue is settled, however—and there have been reports that Barr will back-off such positions during his confirmation hearing—we will be watching carefully to see how Attorney General Barr (if confirmed) influences enforcement of a statute he has so strongly criticized in the past. D.   Industry Breakdown The distribution of recoveries by industry skewed more heavily towards health care than in prior years.  This largely reflects the steep drop in recoveries from the financial industry now that ten years have passed since the financial crisis.[18] Settlement or Judgments by Industry in 2018 1.   Health Care and Life Sciences Industries 2018 was a record setting year in that the health care industry paid nearly 90% of all sums owed to the government in connection with FCA resolutions or cases, eclipsing the total percentage in years past.  Even while the percentage share increased, the total amount, approximately $2.5 billion in 2018, recovered from health care companies remained in line with past figures.  Since 2010, the government has recovered between $2.4 billion and $2.7 billion from health care companies in each year but two. As in years past, a handful of large settlements drove the ten-figure sum—with just five settlements accounting for well over $1.5 billion of the total recovery in the health care sector.  Nearly a billion dollars came from just two settlements—one in which a California-based pharmaceutical company agreed to pay $360 million to settle allegations that it used a non-profit foundation as a conduit to fund copays of Medicare patients in alleged violation of the AKS,[19] and another in which a wholesale drug manufacturer and its subsidiaries agreed to pay $625 million to resolve allegations that they improperly distributed overfill oncology-supportive drugs and paid kickbacks to induce use of the drugs.[20]  Meanwhile, just three other settlements of $150 million,[21] more than $260 million,[22] and $270 million[23] accounted for an additional nearly three quarters of a billion dollars. DOJ’s and HHS OIG’s enforcement activities once again focused heavily on compliance with the AKS and the Stark Law.  The AKS prohibits giving or offering—and requesting or receiving—any form of payment in exchange for referring a product or a service that is covered by federally funded health care programs—and claims resulting from a violation of the AKS are deemed “false” for purposes of the FCA.  The Stark Law, or so-called “self-referral” law, prohibits physicians from referring patients to a provider with which the physician has a financial relationship. While FCA recoveries continued to center on pharmaceutical companies, medical device companies, outpatient clinics, and others, some notable settlements involved hospitals and hospital systems.  For instance, a large hospital chain agreed to pay over $260 million to resolve criminal and civil charges premised on allegations that it inflated fees, such as billing for inpatient services that should have been billed as outpatient services, and remunerated physicians for referrals.[24]  Further, a regional based hospital chain agreed to pay $84.5 million to resolve allegations that it billed for services provided to patients illegally referred in violation of the AKS and Stark Law.[25] 2.   Government and Defense Contracting, Financial, and Other Industries After an increase to $220 million in 2017, recoveries from government contracting firms fell in 2018 to approximately $100 million.  Defense contractors comprised the bulk of government contracting enforcement actions in 2018, in contrast to the prior year, when contractors who provide more routine government services were more of a focus of FCA cases. Ten years out from the 2008 financial crisis, 2018 saw FCA recoveries from financial services companies trickle to their lowest amount ever, with only a pair of notable settlements (involving two mortgage companies) exceeding $10 million. II.   NOTEWORTHY SETTLEMENTS AND JUDGMENTS ANNOUNCED DURING THE SECOND HALF OF 2018 We summarize below a number of the notable FCA settlements announced during the past six months (we covered notable settlements and judgments from the first half of the year in our 2018 Mid-Year Update).  These summaries provide insight into not only the industries that the government has targeted, but also the specific theories of liability that the government and relators have advanced. A.   Settlements 1.   Health Care and Life Sciences Industries On July 9, 2018, a New York-based family of integrated hospitals and two of its subsidiaries agreed to pay over $14.7 million to settle allegations that they submitted inflated or otherwise ineligible claims for payment.  As part of the settlement, the hospital system admitted to, inter alia, submitting claims without sufficient documentation to support the level of services billed; submitting claims for home health services without sufficient medical records to support the claims; and billing Medicare for services referred by physicians with whom the system had a direct financial relationship, in violation of the Stark Law and AKS.  The hospital system agreed to pay an additional $895,427 to the State of New York and entered into a CIA with HHS OIG.  In total, the four whistleblowers will receive approximately $2.8 million of the recovered funds.[26] On July 18, 2018, a New York-based medical device manufacturer agreed to pay $12.5 million to settle allegations that it caused health care providers to submit false claims for procedures involving two unapproved devices that it marketed with purportedly false and misleading statements.  The whistleblower, who formerly worked in the manufacturer’s marketing department, will receive approximately $2.3 million of the settlement.[27] On July 18, 2018, two consulting companies and nine affiliated skilled nursing facilities in Florida and Alabama agreed to pay $10 million to settle allegations that they submitted, or caused the submission of, claims for unnecessary rehabilitation therapy services.  The three whistleblowers, former employees of one of the nursing facilities, will receive $2 million of the recovery.[28] On August 2, 2018, a Detroit-based regional hospital system agreed to pay $84.5 million to resolve allegations that it maintained improper relationships with eight referring physicians, submitted claims for services provided to illegally referred patients in violation of the AKS and Stark Law, and misrepresented the qualifications of a radiology center to federal programs.  The hospital system has also entered into a five-year CIA with HHS OIG.  The four whistleblowers will receive 15% to 25% of the recovery.[29] On August 2, 2018, a South Carolina behavioral-therapy provider for children with autism paid approximately $8.8 million to resolve allegations that it billed for services either misrepresented in the claims or not provided at all.  As part of the settlement, the provider and its parent company entered into a CIA with HHS OIG.  The whistleblower, a former employee, will receive $435,000.[30] On August 3, 2018, a national hospital system, as well as its founder and chief executive officer, agreed to pay $65 million to settle allegations that 14 of its California hospitals admitted Medicare patients for unnecessary inpatient treatment and up-coded claims by falsifying information about patient diagnoses.  As part of the settlement, the system entered a five-year CIA with HHS OIG.  The whistleblower, a former director of improvement at one of the California hospitals, will receive over $17.2 million of the recovery.[31] On August 8, 2018, a pharmaceutical company agreed to pay at least $150 million to resolve allegations that it improperly paid medical practitioners to prescribe its opioid medication, in violation of the AKS.[32]  The company’s founder and five other former executives face criminal charges, including a potential January 2019 trial for conspiracy to commit racketeering, mail and wire fraud, and conspiracy to violate the AKS, and at least two of the defendants have agreed to plead guilty already, including the ex-CEO.[33] On August 15, 2018, a Pennsylvania-based operator of long-term care and rehabilitation hospitals agreed to pay more than $13 million to resolve allegations that they knowingly submitted claims for services referred and provided in violation of the AKS and Stark Law.  Pursuant to the settlement, the operator will pay additional monies to Texas and Louisiana, and has entered a five-year CIA with HHS OIG.  The whistleblower will receive approximately $2.3 million of the recovered funds.[34] On August 16, 2018, a Florida-based nationwide provider of oxygen and home respiratory-therapy services paid $5.25 million to settle allegations that it offered illegal price reductions to Medicare beneficiaries, in violation of the AKS.  The whistleblower, a former billing supervisor for the company, will receive $918,750 of the recovery.[35] On August 23, 2018, a Texas-based national provider of rehabilitation-therapy services agreed to pay $6.1 million to resolve allegations that it offered improper inducements to skilled nursing facilities and physicians in relation to services provided to Medicare beneficiaries.  The whistleblower will receive approximately $915,000 of the recovery.[36] On August 27, 2018, seven ambulance industry defendants agreed to pay more than $21 million to settle allegations that they offered kickbacks to several municipal entities to secure business.  The whistleblower will receive over $4.9 million of the recovery.[37] On September 25, 2018, a Florida-based hospital chain, and a Pennsylvania-based subsidiary, agreed to pay over $260 million to resolve criminal and civil charges for allegedly billing for inpatient services that should have been billed as outpatient services, remunerating physicians for referrals, and inflating claims for emergency department fees, as well as allegations Hospital administrators and executives set mandatory admission-rate benchmarks and pressured physicians to meet them by admitting patients in non-medically necessary cases.  A portion of the recovery will go to participating state programs.  The allegations resolved by the settlement were originally brought in eight whistleblower law suits.  Two whistleblowers will receive $15 million and $12.4 million of the recovery; the other whistleblowers’ shares have not yet been determined.[38] On September 28, 2018, a Montana-based regional health care system and six subsidiaries agreed to pay $24 million to settle allegations that they submitted claims to Medicare for services referred in violation of the Stark Law and AKS.  The health care system allegedly paid excessive compensation to more than 60 physicians, paid excessive compensation to induce referrals, and provided administrative services at below fair market value.  The whistleblower, a former chief financial officer for the system’s physician network, will receive approximately $5.4 million of the recovery.[39] On October 1, 2018, a wholesale drug manufacturer and its subsidiaries agreed to pay $625 million to resolve allegations that they improperly repackaged and distributed overfill oncology drugs.  Last year, one of the subsidiaries pled guilty to illegally distributing misbranded drugs that were not registered with the FDA, and agreed to pay $260 million to resolve criminal charges.  This year’s settlement resolves the parent’s civil liability for submitting purportedly false claims for the allegedly illegally repackaged drugs and allegedly providing kickbacks to induce physicians to purchase the repackaged drugs.  The whistleblower will receive approximately $93 million of the civil settlement.[40] On October 1, 2018, a Medicare Advantage provider agreed to pay $270 million to resolve allegations that it provided inaccurate information that resulted in Medicare Advantage Plans receiving inflated Medicare payments.  The whistleblower will receive approximately $10.1 million of the settlement.[41] On November 6, 2018, an Indiana-based dental care firm agreed to pay approximately $5.1 million to resolve allegations that it submitted false claims by up-coding dental procedures, billing for unperformed or medically unnecessary procedures, and that it allegedly violated state law prohibiting rewarding, disciplining, or otherwise directing personnel in a manner that compromises clinical judgment.  The firm will pay approximately $3.4 million to the United States and $1.8 million to Indiana.  Notably, the firm declined to agree to a proposed CIA, and as a result, is considered by the government a “continuing high risk” to health care programs and beneficiaries.[42] On December 4, 2018, the world’s largest medical device maker agreed to pay $50.9 million to settle allegations relating to conduct by two of its subsidiaries.  The total settlement included $17.9 million in connection with its pleading guilty to a misdemeanor for allegedly distributing an adulterated neurovascular device in violation of the Federal Food, Drug, and Cosmetic Act; $13 million to resolve civil liability for allegedly paying kickbacks to hospitals and institutions to induce the use of a medical device for stroke patients;[43] and an additional $20 million to resolve a DOJ investigation into its subsidiaries’ market-development and physician-engagement activities.[44] On December 6, 2018, a California-based pharmaceutical company agreed to pay $360 million to settle claims that it used a non-profit foundation as an illegal conduit to pay copays of Medicare patients taking its drug, in violation of the AKS, based on allegations that, rather than allowing financially needy Medicare patients to participate in the company’s free drug program, it referred them to the foundation, which paid their copays, resulting in claims to Medicare for the remaining cost.[45] On December 11, 2018, an integrated health care system located in Wisconsin, Illinois, and Michigan agreed to pay $12 million to settle allegations that it entered into improper compensation arrangements with two physicians in violation of the Stark Law.[46] On December 11, 2018, a Pennsylvania-based health system and its chief executive officer agreed to pay $12.5 million to settle allegations that the health system submitted inflated claims for orthopedic surgeries by unbundling and separately billing for services that were part of the same surgery.  The system entered a five-year CIA with HHS OIG as part of the settlement.[47] 2.   Government Contracting and Defense/Procurement On July 6, 2018, a Colorado-based energy industry services company and its owner agreed to pay $14.4 million to resolve allegations that they submitted fraudulent claims for reimbursement to the Department of Energy.  A week earlier, the company’s owner was sentenced to 18 months in prison after pleading guilty to a felony count of intentional submission of false claims.  The government alleged that company’s owner submitted fake invoices for work by contractors and engineers that was never performed, as well as that the owner funneled award money to pay for legal fees, jewelry, car payments, and international travel.[48] On July 26, 2018, a Minnesota-based consumer goods and health care conglomerate agreed to pay $9.1 million to settle whistleblower claims alleging that it knowingly sold defective earplugs to the U.S. military.[49]  The whistleblower was awarded $1.9 million of the settlement. On November 14, 2018, three South Korea-based oil refiners and logistics companies agreed to pay a total of $236 million in criminal fines and civil damages to resolve allegations of a bid-rigging conspiracy.  The settlements consisted of $82 million in criminal fines and $154 million for alleged civil antitrust and FCA violations.  The FCA civil investigation arose from a whistleblower lawsuit involving allegations of false statements made to the government in connection with the companies’ decade-long conspiracy to rig bids on Department of Defense contracts to supply fuel to Army, Navy, Marine Corps, and Air Force bases in South Korea.[50] 3.   Financial Services On October 19, 2018, a Florida-based mortgage company agreed to pay $13.2 million to resolve claims that it had falsely certified compliance with Federal Housing Administration (FHA) mortgage insurance requirements.  The company had participated as a direct endorsement lender (DEL) in the Department of Housing and Urban Development’s FHA insurance program.  Under the program, if a DEL approves a loan for FHA insurance and the loan later defaults, the holder of the loan can submit an insurance claim to HUD for the losses.  Because the FHA does not review a loan for compliance before it endorses the loan, DELs are required to follow certain program rules to ensure that they are properly underwriting and certifying mortgages.  The government alleged that the company knowingly submitted loans for FHA Insurance that did not qualify, improperly incentivized underwriters, and knowingly failed to perform quality control reviews.  The whistleblower, a former employee of the company’s related entity, will receive almost $2 million of the settlement.[51] On December 12, 2018, a Pennsylvania-based mortgage company agreed to pay $14.5 million to resolve similar claims regarding compliance with FHA insurance requirements.  A business that the company acquired in 2015 had participated as a DEL in the FHA insurance program.  The government alleged that the business had misrepresented that its loans met certain origination, underwriting, and quality control requirements.  The investigation was triggered by a whistleblower qui tam suit filed by one of the business’s former employees, who will receive about $2.4 million of the settlement.[52] 4.   Other On November 13, 2018, two international airlines agreed to pay $5.8 million to resolve claims that they falsely reported mail delivery times under contracts with the United States Postal Service (USPS).  USPS had contracted with the commercial airlines to deliver mail to domestic and international locations, and the government alleged that the airlines had submitted false scans reporting the time of delivery.[53] On December 4, 2018, a New York-based law firm agreed to pay a total of more than $4.6 million to resolve allegations that it submitted false and inflated bills to Fannie Mae and the Department of Veterans Affairs for legal work in connection with foreclosures and evictions.  The case arose from a whistleblower lawsuit, in which the law firm agreed to pay the United States an additional $1.5 million, for a total recovery to the United States of more than $6.1 million arising out of these claims.[54] III.   LEGISLATIVE ACTIVITY A.   Federal Legislation FCA-related federal legislative activity remained quiet through the end of 2018.  As lawmakers’ attention turned to election-year campaigning, House and Senate Republicans chose not to renew their attempts to repeal and replace the Affordable Care Act (ACA), which could have impacted the ACA’s amendments to the FCA as discussed in our 2017 Mid-Year Update.  That said, a recent decision by a district court in Texas striking down the ACA in its entirety could, if it withstands appellate scrutiny, negate the ACA’s amendments to the FCA.  See Texas v. United States, 340 F. Supp. 3d 579 (N.D. Tex. 2018).  We will be watching that case carefully. Legislators did not ignore the FCA entirely in the latter half of the year.  In August, Senator Chuck Grassley (R-IA), a longtime champion of the FCA, penned an op-ed highlighting the importance of whistleblowers in protecting taxpayer dollars and arguing for greater congressional oversight of federal health care programs.  Specifically, Senator Grassley lobbied for support for bipartisan legislation cosponsored by Senator Richard Blumenthal (D-CT) that would strengthen the Physician Payment Sunshine Act (PPSA).  Enacted as part of the ACA, the PPSA requires drug and medical device manufacturers to report transfers of value to physicians or teaching hospitals to the Centers for Medicare and Medicaid Services, which become public after a 30-day review period.  The Senators’ bill would expand the PPSA to include transfers of value to nurse practitioners and physicians assistants as well.[55]  The Senate has not yet moved on this legislation, but we will track any progress in our 2019 Mid-Year Update. We also are watching closely as the Trump Administration and the new House majority push forward with various policy initiatives, including those targeted at drug pricing.  FCA cases premised on drug-pricing theories have been common in recent years, including cases based on reporting of drug prices to the government and alleged AKS violations connected to drug prices.  See, e.g., United States ex rel. Derrick v. Roche Diagnostics Corp., 2018 WL 2735090 (N.D. Ill. June 7, 2018) (denying a motion to dismiss an FCA case alleging that Roche Diagnostics violated the AKS by forgiving a disputed drug rebate amount owed to it by a Medicare Advantage plan).  Any legislation (or regulations or guidance) that changes the rules for drug pricing could therefore have significant effects on potential FCA liability. B.   State Legislation As detailed in our 2018 Mid-Year Update and elsewhere, Congress created financial incentives in 2005 for states to enact their own false claims statutes that are as effective as the federal FCA in facilitating qui tam lawsuits.  States passing review by HHS OIG may be eligible to “receive a 10-percentage-point increase in [their] share of any amounts recovered under such laws” in actions filed under state FCAs.[56]  As of mid-2018, HHS OIG approved laws in 12 states (Colorado, Connecticut, Illinois, Indiana, Iowa, Massachusetts, Montana, Nevada, Oklahoma, Tennessee, Texas, and Vermont), while 17 states are still working towards FCA statutes that meet the federal standard (California, Delaware, Florida, Georgia, Hawaii, Louisiana, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Virginia, Washington, and Wisconsin). HHS OIG previously issued an end-of-2018 deadline for states to bring their FCA statutes into compliance or risk losing the 10-percentage-point increase.  As predicted in our 2018 Mid-Year Update, this deadline has spurred some action, and FCAs in three additional states—North Carolina, Virginia, and Washington—have since received HHS OIG’s stamp of approval. Apart from those three states, however, other states with FCA statutes not yet meeting the federal standard have made little progress in amending those statutes.  For example, a Michigan bill that would expand the state’s current False Claims Act beyond the Medicaid context has stalled in the state’s Senate Committee on the Judiciary since January 2017,[57] and another Michigan bill that would amend the civil penalties in the Act to mirror those allowed under the federal FCA has been stuck in the same committee since November 2017.[58]  Similarly, a Pennsylvania bill to create the state’s False Claims Act has languished in the state’s House Judiciary Committee since March 2017,[59] and a New York bill that would increase civil penalties for violations of the state’s FCA was returned to the General Assembly after dying in the state Senate in January 2018.[60] Although HHS OIG’s “grace period” for states to receive the 10-percentage point incentive is expiring, we will notify you of any additional state-level FCA developments in our next Mid-Year Update. IV.   NOTABLE CASE LAW DEVELOPMENTS A.   The Supreme Court Grants Certiorari in One Case and Considers Two Others The Supreme Court has considered issues under the FCA four times in the last four years, and 12 times in the last eighteen years.  Yet again in 2018, the Court has indicated its intent to scrutinize lower courts’ interpretation of the FCA. The Supreme Court granted certiorari in a case that presents issues related to the FCA’s statute of limitations, United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081, 1083 (11th Cir. 2018).  The FCA has a default six-year statute of limitations, which can be extended up to 10 years when information relevant to the claim does not become known to the relevant government official until later in time.  Circuit courts have split on whether a qui tam relator may take advantage of that longer, ten-year period in cases where the government has declined to intervene.  The questions presented by petitioners’ writ of certiorari are “whether a relator in a False Claims Act qui tam action may rely on the statute of limitations in 31 U.S.C. § 3731(b)(2) in a suit in which the United States has declined to intervene and, if so, whether the relator constitutes an ‘official of the United States’ for purposes of Section 3731(b)(2).”  Gibson Dunn represents the petitioners in the case, and we will be sure to report back in these pages when the Court decides the case. As we reported in our 2018 Mid-Year Update, the Court asked for the Solicitor General’s input in a case involving Gilead Sciences Inc.  Many Court observers thought the case had a good chance of being heard because it raised important issues about, among other things, application of the Court’s landmark 2016 decision in Escobar.[61]  But the Solicitor General’s response argued strongly that the Court should not grant certiorari.[62]  Further, the government indicated it would move to dismiss the case if it were sent back to the district court, contending that the case is “not in the public interest.”[63]  DOJ explained that its decision was based on a “thorough investigation” of the merits of the case, but also concerns about the “burdensome” discovery requests that the parties would make of the FDA if the case is allowed to continue.[64]  The about-face by the government, after years of permitting the case to move forward through the lower courts, may indicate heightened concern within DOJ about adverse rulings under Escobar (and, of course, the burden of discovery into government knowledge, which Escobar explained is a key factor in assessing materiality).  As noted above, it also marks a high-profile exercise of the DOJ’s avowed rededication to dismissing at least some unmeritorious cases under the analysis set forth in the Justice Manual and the Granston Memo.  On January 7, 2019, the Supreme Court heeded the Solicitor General’s views and denied certiorari. Finally, as we’ve reported in these pages before, parties in recent years have frequently asked the Court to resolve a circuit split on the pleading standard for FCA claims under Rule 9(b).  The key question that recurs in lower courts is how much specificity a relator must provide under the FCA, and, in particular, whether the relator must provide examples of actual false claims, or just information alleged to be sufficient to infer that such claims were likely submitted.  Almost every year, some plaintiff or defendant petitions for certiorari on this issue.  But despite showing some initial interest back in 2014, when the Court requested the view of the Solicitor General on these issues before ultimately denying certiorari,[65] the Court has since steadfastly rejected these cases.  This year was no exception, with the Court denying certiorari in another case raising pleading questions under the FCA.[66]  Absent further divisions in the courts of appeal, it is unlikely that this issue will make it to the Supreme Court anytime soon. B.   Courts Continue to Grapple with Escobar Since it was decided in 2016, Escobar has become a focal point of FCA litigation at both the appellate and trial court levels.  Indeed, a number of courts have issued opinions interpreting Escobar as it pertains to the implied false certification theory and more generally to the Court’s direction that “rigorous” enforcement of the materiality and scienter elements will protect against “concerns about fair notice and open-ended liability” in FCA matters.  Escobar, 136 S. Ct. at 2002.  As recent decisions demonstrate, Escobar continues to have a wide-ranging impact on FCA jurisprudence. 1.   The Ninth Circuit Addresses the Impact of Escobar on Its Prior Precedents In United States ex rel. Rose v. Stephens Institute, 909 F. 3d 1012 (9th Cir. 2018), amending and superseding 901 F.3d 1124 (9th Cir. 2018), the Ninth Circuit addressed the impact of Escobar on two of its prior precedents. First, the Ninth Circuit explicitly, albeit reluctantly, acknowledged that Escobar changed the landscape of FCA liability in the Ninth Circuit and overruled its prior holding in Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010).  In Ebeid, the Ninth Circuit held that a relator could plead an implied false certification claim merely by alleging that a defendant submitted a claim for payment while in noncompliance with a “law, rule, or regulation” that “is implicated in” submitting such a claim.  Id. at 998.  In Escobar, however, the Supreme Court held that FCA liability can exist under an implied false certification theory under two conditions: “First, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”  136 S.Ct. at 2001. Revisiting Ebeid, the Ninth Circuit observed in Rose that Escobar, if analyzed “anew,” would not necessarily require Ebeid to be overruled because Escobar “did not state that its two conditions were the only way to establish liability under an implied false certification theory.”  Id. at 1018 (emphasis in original).  Regardless, the Rose court conceded that other Ninth Circuit cases since Escobar have gone the opposite direction.  The Ninth Circuit’s prior holdings in United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325 (9th Cir. 2017) and United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890, 901 (9th Cir. 2017)—”without discussing whether Ebeid has been fatally undermined—appeared to require Escobar’s two conditions nonetheless.”  Id. (emphasis in original). Second, the Rose court also considered whether Escobar had any impact on the Ninth Circuit’s decision in United States ex rel. Hendow v. University of Phoenix, 461 F.3d 1166 (9th Cir. 2006).  The Hendow court held at the pleading stage that the relevant question for materiality “is merely whether the false certification . . . was relevant to the government’s decision to confer a benefit.”  Id. at 1173.  Accordingly, the Ninth Circuit determined that a failure to comply with a regulatory requirement that allegedly was a condition of payment was material to government payment.  Id. at 1177.  In Escobar, however, the Supreme Court concluded that whether the government has made compliance with a statutory or regulatory provision a “condition of payment is relevant, but not automatically dispositive” of materiality.  136 S.Ct at 2003. Nevertheless, the Rose court found no basis for overruling Hendow on this point because Hendow “did not state that noncompliance [with a statute, regulation, or contract] is material in all cases.”  Id. at 1019 (emphasis in original) (citation omitted).  The court went on to clarify its view that Escobar provides a “‘gloss’ on the analysis of materiality”; although “it is clear that noncompliance with the incentive compensation ban is not material per se” after Escobar, nonetheless “the four basic elements of a False Claims Act claim, set out in Hendow, remain valid.”  Id. at 1020.  In applying the Escobar materiality factors, the majority noted that conditioning payment on compliance with the incentive compensation ban “may not be sufficient, without more, to prove materiality, but it is certainly probative evidence of materiality.”  Id. In a dissenting opinion, Judge Smith argued that Hendow‘s reasoning—which gave no weight to whether the government had prosecuted violations of the incentive compensation ban and found materiality based solely on statutory, regulatory, and contractual provisions conditioning payment on compliance with the ban—had been explicitly overruled by Escobar, which focuses the materiality inquiry on whether the government “would truly find . . . noncompliance material to a payment decision.”  Id. at 1024. 2.   The Sixth Circuit Addresses Pleading Requirements for Materiality Post-Escobar In Escobar, the Supreme Court identified factors that can bear on the materiality evaluation, including, but not limited to, whether “the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on non-compliance,” whether “the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated,” and whether the noncompliance was “minor or insubstantial.”  136 S.Ct. at 2003-04.  In United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018) (Prather II), the Sixth Circuit weighed in on the specific application of some of these factors at the motion to dismiss stage.  The relator asserted that the defendants fraudulently sought reimbursements from Medicare for home health services without first obtaining a certification of need from a physician as required by the applicable federal regulations. Reversing the district court opinion dismissing the allegations, the Prather II court held that Escobar does not require FCA plaintiffs to allege in their pleadings that the government has previously brought enforcement actions under similar circumstances in order to establish materiality.  Prather II, 892 F.3d at 833-34.  The court further noted that Escobar itself held that none of the materiality factors is dispositive, that information about prior government action may be particularly difficult for relators to obtain at the pleading stage, and that on a motion to dismiss the complaint must be construed in the plaintiff’s favor.  Id. at 834. Additionally, the Prather II court also held that the government’s decision not to intervene was irrelevant to the materiality inquiry.  Id. at 836.  Specifically, it noted that the government had declined to intervene in Escobar itself, but that this had gone unmentioned in Escobar‘s materiality analysis.  Id.  Moreover, the Sixth Circuit held that a contrary finding would undermine the purpose of the FCA, which is “designed to allow relators to proceed with a qui tam action even after the United States has declined to intervene.”  Id. 3.   The Third, Sixth, and Seventh Circuits Strictly Construe the FCA’s Scienter Requirement Three recent circuit court decisions address the “strict enforcement” of the scienter requirement mandated by Escobar. In United States ex rel. Streck v. Allergan, No. 17-1014, 2018 WL 3949031 (3d Cir. 2018), the Third Circuit held that a relator fails to plead scienter where the defendant acted based on a reasonable, if incorrect, interpretation of relevant statutory and regulatory guidance.  In so doing, the court relied on the three-part analysis set forth by the D.C. Circuit in United States ex rel. Purcell v. MWI Corp., 807 F.3d 281, 287-88 (D.C. Cir. 2015), which built on the Supreme Court’s decision in Safeco Insurance Co. v. Burr, 551 U.S. 47 (2007).  The relator in Streck had alleged that pharmaceutical companies violated the FCA by failing to account for “price-appreciation credits” in submitting Average Manufacturing Prices (AMP) for certain drugs for the purposes of calculating rebated owed by those companies to Medicaid under the Medicaid Drug Rebate Program.  2018 WL 3949031 at *1. In affirming the district court’s rejection of relator’s claims, the court first considered “whether the relevant statute was ambiguous.”  Id. at *3.  Second, the court evaluated “whether [the] defendant’s interpretation of that ambiguity was objectively reasonable.”  Id.  And finally, the court assessed “whether [the] defendant was ‘warned away’ from that interpretation by available administrative and judicial guidance.”  Id.  The court held that the statutory definition of “price paid to the manufacturer” for AMP purposes was unclear because it did not specify “initial” price (which would have excluded subsequent price-appreciation credits) or “cumulative” price (which would have included them).  Id. at *4-5.  Although the court acknowledged that defendants’ interpretation excluding price-appreciation credits may not be the “best interpretation of the statute,” it nonetheless held that “this reasonable interpretation of an ambiguous statute was inconsistent with the reckless disregard [relator] was required to allege at this stage of the litigation” and that there was not any guidance “warn[ing] away” from that interpretation.  Id. at *6.  Accordingly, the relator failed to properly allege scienter.  Id. In United States ex rel. Harper v. Muskingum Watershed Conservancy District, 739 Fed. App’x 330 (6th Cir. 2018), the Sixth Circuit made clear that while pleading scienter is not subject to Federal Rule of Civil Procedure 9(b)’s heightened fraud pleading standard, “a complaint that shows no more than ‘the mere possibility of misconduct . . . is insufficient.'”  Id. at 334 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)).  The relator alleged that the defendant “fail[ed] to transfer certain property interests to the United States after determining those interests were no longer necessary to perform its charter provisions” as required under a 1939 agreement with the federal government.  Id. at 331-33.  The relator asserted that board minutes from 1939 demonstrated that the defendant was aware of this obligation.  Id. at 333.  The court recognized that the minutes “could mean that [the defendant] believed more than seventy years later that [its behavior] violated that obligation,” but held that “[a] complaint that requires [a court] to make[] inference[s] upon inferences to supply missing facts does not satisfy Rule 8’s pleading requirements.”  Id. at 334 (emphasis in original) (internal quotations omitted). In United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834 (7th Cir. 2018), the Seventh Circuit emphasized that to plead scienter a plaintiff must make factual allegations specific to the allegedly false claims for payment, rather than general allegations of an existing duty that was violated.  The relator asserted an implied false certification claim, alleging that the defendants, who had contracted with the government to provide office and IT supplies, violated the FCA by submitting bills for products made in countries that were not on an approved list.  Id. at 838.  The court found that the relator had failed to allege “any specific facts demonstrating what occurred at the individualized transactional level for each defendant,” including “what particular information any sales orders submitted by the defendants contained.”  Id. at 841.  Accordingly, the court held that the complaint only established that “the defendants may have sold non-compliant products during a certain time period,” which “does not equate to the defendants making a knowingly false statement in order to receive money from the government.”  Id. at 841–42.  Thus, given Escobar‘s guidance that the “scienter requirement[]” should be “strict[ly] enforce[d],” the relator had “[a]t most” alleged that “defendants made mistakes or were negligent,” which “is insufficient to infer fraud under the FCA.”  Id. at 842. C.   The Ninth and Tenth Circuits Clarify the FCA’s Falsity Requirement The FCA prohibits presentation of “false or fraudulent claim[s]” for payment, but does not specifically define what it means for a claim to be false or fraudulent.  31 U.S.C. § 3729.  Two recent circuit court decisions have sought to clarify the falsity element. In United States ex rel. Polukoff v. St. Mark’s Hospital, 895 F.3d 730 (10th Cir. 2018), the relator alleged that a cardiologist with whom he had worked performed numerous medically unnecessary heart surgeries billed to Medicare.  Id. at 737–38.  The district court granted defendant’s motion to dismiss, holding that a medical judgment—such as a physician’s judgment as to the medical necessity of a procedure—”‘cannot be false’ for purposes of an FCA claim” absent regulations specifically restricting that judgment.  Id. at 741–42.  The Tenth Circuit reversed, rejecting “a bright-line rule that medical judgment can never serve as a basis for an FCA claim.”  Id. at 742.  Rather, the court held that “[i]t is possible for a medical judgment to be ‘false or fraudulent’ as proscribed by the FCA,” noting that the Medicare Program Integrity Manual states that a claim is not reimbursable unless it meets the government’s definition of “reasonable and necessary.”  Id.  Accordingly, the court concluded that a doctor’s certification of medical necessity “is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase,” id. at 743, which the court found to be adequately alleged in the case before it. In United States ex rel. Berg v. Honeywell International, Inc., 740 Fed. App’x 535 (9th Cir. 2018), the Ninth Circuit affirmed a district court opinion holding that where calculations underlying cost estimates submitted in connection with a government contract are sufficiently disclosed, those estimates are not false for FCA purposes even where they were incorrect under the relevant statutory and regulatory framework.  The relator in Berg alleged that Honeywell had submitted false estimates of energy savings relating to improvements to Army buildings.  Berg, 740 Fed. App’x at 537.  The district court granted summary judgment in Honeywell’s favor, finding that because Honeywell “disclosed the assumptions and math underlying its estimates” those estimates were not false for FCA purposes.  Id.  The Ninth Circuit affirmed, noting that “the scope of Honeywell’s statements and the qualifications upon them were sufficiently clear, so that the statements—as qualified—were not objectively false or fraudulent.”  Id.  The court further clarified that even if Honeywell’s estimates were incorrect under the statutory and regulatory framework governing the kinds of contracts at issue, “the statutory phrase ‘known to be false’ does not mean incorrect as a matter of proper accounting methods, it means a lie.”  Id. at 538. D.   Courts Further Elaborate on the Application of Rule 9(b)’s Particularity Requirement to FCA Claims In last year’s year-end update, we took note of the “varying approaches” circuit courts have taken to applying Rule 9(b)’s heightened pleading standards to FCA claims.  Rule 9(b) requires a party “alleging fraud or mistake . . . [to] state with particularity the circumstances constituting fraud or mistake.”  Once again, this year, several circuits addressed how that standard applies in FCA cases, even while, as noted above, the Supreme Court declined once again to enter the fray. 1.   The Ninth Circuit Addresses Rule 9(b) Pleading Standards in the Context of Alleged Group Fraud In United States ex rel. Silingo v. WellPoint, Inc., 904 F.3d 667 (9th Cir. 2018), the Ninth Circuit addressed Rule 9(b)’s heightened pleading standard as applied to an FCA suit filed against multiple defendants in a case of so-called “group fraud.”  In Silingo, the relator worked for a company that provided in-home health assessments of Medicare beneficiaries for Medicare Advantage organizations.  Id. at 674.  The relator alleged not only that her company, but also the organizations who contracted with her company, submitted fraudulent Medicare Advantage reimbursement claims based on inadequate or false health documentation provided by her company.  Id. at 674–75.  The organizations moved to dismiss the complaint on the grounds that it failed to plead fraud with sufficient particularity as to any individual organization.  Id. at 676.  The district court agreed, and dismissed the claims.  Id. The Ninth Circuit reversed, holding that when defendants have “the exact same role in a fraud,” a complaint does not need to distinguish between them in order to satisfy the particularity requirement of Rule 9(b).  Id. at 677.  In other words, “[t]here is no flaw in a pleading . . . where collective allegations are used to describe the actions of multiple defendants who are alleged to have engaged in precisely the same conduct.”  Id. (quoting United States ex rel. Swoben v. United Healthcare Ins. Co., 848 F.3d 1161, 1184 (9th Cir. 2016)).  The court analogized this type of fraud to a “wheel conspiracy” in which a single party (the wheel) separately agrees with two or more other parties (the spokes)—whose “parallel actions . . . can be addressed by collective allegations.”  Id. at 678. 2.   The Eleventh Circuit Requires Relators to Plead at Least One False Claim with Specificity In Carrell v. AIDS Healthcare Foundation, Inc., 898 F.3d 1267 (11th Cir. 2018), the Eleventh Circuit considered the adequacy of pleadings that alleged fraudulent activity was the basis for claims made to the government, but otherwise failed to explicitly link any such activity to a single purportedly false claim.  The relators alleged generally that the defendant had unlawfully incentivized employees to register patients for medical treatment, and that the treatment had then been submitted for reimbursement through federal health care programs.  Id. at 1270.  The district court dismissed all but two of the relators’ claims for lack of particularity pursuant to Rule 9(b).  Id. at 1271. The Eleventh Circuit upheld the dismissal of these claims on the pleadings, holding that Rule 9(b)’s particularity requirement necessitated a “specific allegation of the ‘presentment of [a false] claim.'”[67]  Id. at 1278 (quoting United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1311 (11th Cir. 2002)).  Thus, even if the “mosaic of circumstances” alleged by the relators—”that the Foundation provided incentives to certain patients and employees, that the Foundation frequently requested reimbursement from federal health care programs, and that Foundation policies focused on aggressive patient recruitment”—was assumed to be true, the relators’ claims must be dismissed for “fail[ure] to allege with particularity that these background factors ever converged and produced an actual false claim[.]”  Id. at 1277. E.   The Second Circuit Expands A Circuit Split Regarding the First-to-File Bar The FCA’s so-called “first-to-file bar” limits the ability of qui tam relators to bring “a related action based on the [same] facts” as a “pending action.”  31 U.S.C. § 3730(b)(5).  As discussed in last year’s update, there is a developing circuit split regarding whether a relator may escape the first-to-file bar by filing an amended complaint once the earlier, “pending action” has been dismissed.  In the First Circuit, such an amendment has been deemed by the court in at least some circumstances to cure the first-to-file failure.  United States ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1, 4–5 (1st Cir. 2015).  But in the D.C. Circuit a relator is not permitted to proceed based on an amended complaint if the same relator’s original complaint was otherwise prohibited by the first-to-file bar.  United States ex rel. Shea v. Cellco P’ship, 863 F.3d 923, 926 (D.C. Cir. 2017).  The difference in approach is potentially significant for relators; if they are forced to re-file their complaint, it may be time-barred, whereas they can contend that the date of an amended complaint relates back to the original complaint for statute-of-limitations purposes. In United States ex rel. Wood v. Allergan, Inc., 899 F.3d 163 (2d Cir. 2018), the Second Circuit sided with the D.C. Circuit on this disagreement.  Relying on the plain language of the statute—which mandates dismissal when a relator “brings” an action while a related action is pending—the Wood court held that amendment could not cure a first-to-file defect because “a claim is barred by the first-to-file bar if at the time the lawsuit was brought a related action was pending.”  Id. at 172.  The court did confirm, however, that dismissal based on the first-to-file bar should be without prejudice, id. at 175, and that “absent a statute of limitations issue, the relator will be able to re-file her action, without violating the first-to-file bar,” id. at 174. Additionally, the Wood court further expanded a different circuit split regarding whether a complaint that fails to allege fraud with sufficient particularity pursuant to Rule 9(b) can bar a later-filed complaint under the first-to-file rule.  The Sixth Circuit has held that a complaint that was “legally infirm under Rule 9(b)” cannot “preempt [a] later-filed action” even though the allegations of the first-filed complaint “‘encompass’ the specific allegations of fraud made” in the later-filed action.  Walburn v. Lockheed Martin Corp., 431 F.3d 966, 973 (6th Cir. 2005).  However, the Second Circuit declined to adopt that standard, but instead followed the D.C. Circuit’s decision in United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204 (D.C. Cir. 2011) by holding that there was no basis to incorporate Rule 9(b)’s particularity requirement into the statute.  Wood, 899 F.3d at 169–70.  Accordingly, the fact that a subsequent complaint might be “more detailed” had no bearing on the application of the first-to-file bar.  Id. at 169. As more courts provide their insights on these issues, they may need to be resolved by the Supreme Court. F.   The Third Circuit Clarifies Application of Public Disclosure Bar The FCA’s public disclosure bar mandates the dismissal of a FCA action “if substantially the same allegations or transactions” forming the basis of the action have been publicly disclosed and the relator is not an “original source.”  31 U.S.C. § 3730(e)(4). In United States v. Omnicare, Inc., 903 F.3d 78 (3d Cir. 2018), the Third Circuit addressed the situation where a relator uses publicly available information to shed light on certain non-public information known to the relator.  The relator alleged that one of the defendants, PharMerica—an owner and operator of institutional pharmacies serving nursing homes—”unlawfully discounted prices for nursing homes’ Medicare Part A patients . . . in order to secure contracts to supply services to patients covered by Medicare Part D and Medicaid.”  Id. at 81.  The district court determined that “various reports cumulatively disclosed the alleged fraudulent transactions,” including guidance from the Department of Health and Human Services, publicly available reports discussing the institutional pharmacy market generally, and PharMerica’s 10-k financial disclosures, which the relator admitted provided the “information needed to deduce the fraud.”  Id. at 85, 93 (emphasis in original). The Third Circuit held that the key question is whether “a relator’s non-public information permits an inference of fraud that could not have been supported by the public disclosures alone.”  Id. at 86.  In the context at issue, the court held that a general report on fraud within a particular industry, standing alone is inadequate to trigger the public disclosure bar because it “merely indicate[s] the possibility that such a fraud could be perpetrated” in that industry.  Id.  The court elaborated that “the FCA’s public disclosure bar is not triggered when a relator relies upon non-public information to make sense of publicly available information where the public information—standing alone—could not have reasonably or plausibly supported an inference that the fraud was in fact occurring.”  Id. at 89. The court clarified that it is the responsibility of the court to “determine whether the publicly available documents in fact disclosed information sufficient to raise the inference of fraud.”  Id. at 93 (emphasis in original).  “[A] relator’s subjective belief that he relied upon certain information is immaterial to the court’s decision [on whether there was a prior public disclosure], which must be based on an independent assessment of the scope of the information disclosed by the public documents.”  Id.  Thus, a relator’s admission that “he relied upon certain public documents to deduce [the alleged] fraud” has no bearing on the analysis of whether public documents “disclose the fraud in sufficient detail.”  Id. at 92–93. G.   Several Circuits Narrow Scope of Liability for FCA Retaliation Claims Several circuits this year tightened the range of circumstances under which an employee or former employee may successfully recover under the FCA’s anti-retaliation provision, which entitles employees, contractors, and agents of an employer to relief if they are “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee” in furtherance of the FCA.  31 U.S.C. § 3730(h)(1). 1.   The Tenth Circuit Addresses “Constructive Knowledge” and “Cat’s Paw” Theories of Liability, and Limits Retaliation Claims to Retaliation that Occurs During Employment Two recent Tenth Circuit decisions have placed significant limitations on retaliation claims.  In Armstrong v. The Arcanum Group, Inc., 897 F.3d 1283 (10th Cir. 2018), the court rejected a former employee’s retaliation claim against a government contractor on summary judgment because there was insufficient circumstantial evidence to prove that the employee’s supervisor either directly knew of her complaints, id. at 1288–89, or had “constructive knowledge” of her complaints.  Id. at 1289.  Notably, the court explained that constructive knowledge could not be imputed based on a theory of deliberate ignorance because the supervisor actively tried to learn why the client agency was unhappy with the employee’s performance, but was “rebuffed.”  Id. at 1289.  The court also rejected the plaintiff’s argument that another “management-level” employee’s knowledge of the relator’s complaint should be imputed to her supervisor, holding that “the knowledge of someone who had no role in the [termination] decision is irrelevant to the motive for the decision.”  Id. at 1290. Finally, the court rejected the employee’s attempt to import a “cat’s paw” theory of liability from other discrimination jurisprudence—which would establish liability on the part of an employer who “uncritically relies on [a] biased subordinate’s reports and recommendations in deciding to take adverse employment action.”  Id. at 1290 (internal citation omitted).  While the Tenth Circuit held that the facts of the case did not support such a theory, it left open the question of whether such a theory could support a retaliation claim under the FCA under a different set of facts.  Id. at 1291. In Potts v. Center for Excellence in Higher Education, Inc., 908 F.3d 610 (10th Cir. 2018), the Tenth Circuit affirmed a dismissal for failure to state a claim and held that a former employee does not have a cause of action against an employer for “retaliation” that allegedly occurs after the employee is no longer employed.  The court held that the term “employee,” as it is used in the FCA, “includes only persons who were current employees when their employers retaliated against them.”  Id. at 614.  As such, the FCA’s anti-retaliation provision “unambiguously excludes relief for retaliatory acts occurring after the employee has left employment.”  Id. at 618. 2.   The Fourth Circuit Joins Majority of Circuits in Adopting “But For” Causation Standard A growing number of circuits that have held that whatever their respective approaches might have been previously, the Supreme Court’s decisions in Gross v. FBL Financial Services., Inc. 557 U.S. 167 (2009) and University of Texas Southwest. Medical Center. v. Nassar, 570 U.S. 338 (2013) mandate a “but for” standard of causation in FCA retaliation cases—meaning a plaintiff must show that he would not have faced adverse employment action “but for” his alleged protected activity.  See, e.g., DiFiore v. CSL Behring, LLC, 879 F.3d 71, 77–78 (3d Cir. 2018); United States ex rel. King v. Solvay Pharm., Inc., 871 F.3d 318, 333 (5th Cir. 2017); United States ex rel. Marshall v. Woodward, Inc., 812 F.3d 556, 564 (7th Cir. 2015). In United States ex rel. Cody v. ManTech International, Corp., No. 17-1722, 2018 WL 3770141 (4th Cir. Aug. 8, 2018), the Fourth Circuit followed suit by relying on Gross and Nassar to adopt—albeit in an unpublished decision—a “but for” causation standard for retaliation claims under the FCA.  Prior to Cody, it was an “open question” in the Fourth Circuit whether retaliation claims proceeded under a “but for” standard of causation or under the more lenient “contributing factor” standard.  Id. at *7.  Moving forward, however, there is little reason to believe the “but for” standard announced in Cody will not prevail. V.   CONCLUSION As always, Gibson Dunn will continue to monitor developments in the ever-changing and high-stakes FCA space and stands ready to answer any question you may have.  We will report back to you on the latest news mid-year, in early July. [1] State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 137 S. Ct. 436 (2016); Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016); Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015); Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401 (2011); Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280 (2010); United States ex rel. Eisenstein v. City of New York, New York, 556 U.S. 928 (2009); Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008). [2] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Recovers Over $2.8 Billion from False Claims Act Cases in Fiscal Year 2018 (Dec. 21, 2018), https://www.justice.gov/opa/pr/justice-department-recovers-over-28-billion-false- claims-act-cases-fiscal-year-2018 [hereinafter DOJ FY 2018 Recoveries Press Release]. [3] See U.S. Dep’t of Justice, Fraud Statistics Overview (Dec. 21, 2018), https://www.justice.gov/civil/page/file/1080696/download?utm_medium=email& utm_source=govdelivery [hereinafter DOJ FY 2018 Stats]. [4] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Acting Assistant Attorney General Stuart F. Delery Speaks at the American Bar Association’s Ninth National Institute on the Civil False Claims Act and Qui Tam Enforcement (June 7, 2012), http://www.justice.gov/iso/opa/civil/speeches/2012/civ-speech-1206071.html. [5] See Memorandum, U.S. Dep’t of Justice, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/documents/4358602/Memo-for- Evaluating-Dismissal-Pursuant-to-31-U-S.pdf. [6] See Memorandum, U.S. Dep’t of Justice, Limiting Use of Agency Guidance Documents In Affirmative Civil Enforcement Cases (Jan. 25, 2018), https://www.justice.gov/file/1028756/download. [7] See Press Release, U.S. Dep’t of Justice, Department of Justice Announces the Rollout of an Updated United States Attorneys’ Manual (September 25, 2018), https://www.justice.gov/opa/pr/department-justice-announces-rollout-updated-united- states-attorneys-manual [8] U.S. Dep’t of Justice, Justice Manual, Section 4-4.111, U.S. Dep’t of Justice, https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.111. [9] Brief for the United States as Amicus Curiae at 15, Gilead Sciences., Inc. v. United States ex rel. Campie, No. 17-936, 2018 WL 6305459 (U.S. Sup. Ct. Nov. 30, 2018). [10] See United States’ Mot. to Dismiss Relator’s Second Am. Compl., United States ex rel. Health Choice Grp., LLC v. Bayer Corp., Onyx Pharm., Inc., Amerisourcebergen Corp., & Lash Grp., No. 5:17-CV-126-RWS-CMC (E.D. Tex. Dec. 17, 2018). [11] Id. at 3, 14. [12] Id. at 8, 14. [13] Id. at 16. [14] See Rod J. Rosenstein, U.S. Deputy Attorney General, Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (November 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein- delivers-remarks-american-conference-institute-0 (emphasis added). [15] Id. [16] U.S. Dep’t of Health & Human Servs.—Office of Inspector Gen., Fraud Risk Indicator, https://oig.hhs.gov/compliance/corporate-integrity-agreements/risk.asp. [17] Alison Frankel, AG nominee Barr to back off previous attack on antifraud law: source, Reuters, https://www.reuters.com/article/us-usa-trump-barr/ag-nominee-barr-to-back-off-previous-attack-on-antifraud-law-source-idUSKCN1OW1TJ. [18] See DOJ FY 2018 Recoveries Press Release. [19] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Actelion Agrees to Pay $360 Million to Resolve False Claims Act Liability for Paying Kickbacks (Dec. 6, 2018), https://www.justice.gov/opa/pr/drug-maker-actelion-agrees-pay-360-million -resolve-false-claims-act-liability-paying. [20] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, AmerisourceBergen Corporation Agrees to Pay $625 Million to Resolve Allegations That it Illegally Repackaged Cancer-Supportive Injectable Drugs to Profit from Overfill (Oct. 1, 2018), https://www.justice.gov/opa/pr/amerisourcebergen-corporation-agrees-pay-625-million- resolve-allegations-it-illegally. [21] See Nate Raymond & Andy Thibault, Insys to pay $150 million to settle U.S. opioid kickback probe, Reuters (Aug. 8, 2018), https://www.reuters.com/article/us-insys-opioids/insys-to-pay-150- million-to-settle-u-s-opioid-kickback-probe-idUSKBN1KT1G5. [22] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Hospital Chain Will Pay Over $260 Million to Resolve False Billing and Kickback Allegations; One Subsidiary Agrees to Plead Guilty (Sept. 25, 2018), https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million- resolve-false-billing-and-kickback-allegations-one. [23] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medicare Advantage Provider to Pay $270 Million to Settle False Claims Act Liabilities (Oct. 1, 2018), https://www.justice.gov/opa/pr/medicare-advantage-provider-pay-270-million-settle-false- claims-act-liabilities. [24] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Hospital Chain Will Pay Over $260 Million to Resolve False Billing and Kickback Allegations; One Subsidiary Agrees to Plead Guilty (Sept. 25, 2018), https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260- million-resolve-false-billing-and-kickback-allegations-one. [25] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Detroit Area Hospital System to Pay $84.5 Million to Settle False Claims Act Allegations Arising From Improper Payments to Referring Physicians (Aug. 2, 2018), https://www.justice.gov/opa/pr/detroit-area-hospital-system- pay-845-million-settle-false-claims-act-allegations-arising. [26] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Health Quest and Putnam Hospital Center to Pay $14.7 Million to Resolve False Claims Act Allegations (July 9, 2018), https://www.justice.gov/opa/pr/health-quest-and-putnam-hospital-center-pay-147-million- resolve-false-claims-act-allegations. [27] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medical Device Maker AngioDynamics Agrees to Pay $12.5 Million to Resolve False Claims Act Allegations (July 18, 2018), https://www.justice.gov/opa/pr/medical-device-maker-angiodynamics-agrees-pay- 125-million-resolve-false-claims-act. [28] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Two Consulting Companies and Nine Affiliated Skilled Nursing Facilities to Pay $10 Million to Resolve False Claims Act Allegations Relating to Medically Unnecessary Rehabilitation Therapy Services (July 18, 2018), https://www.justice.gov/opa/pr/two-consulting-companies-and-nine-affiliated-skilled-nursing-facilities-pay-10-million. [29] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Detroit Area Hospital System to Pay $84.5 Million to Settle False Claims Act Allegations Arising From Improper Payments to Referring Physicians (Aug. 2, 2018), https://www.justice.gov/opa/pr/detroit-area-hospital-system-pay-845-million-settle-false-claims-act-allegations-arising; Danielle Nichole Smith, Hospital System Will Pay $84.5 Million To End FCA Kickback Claims, Law360 (Aug. 2, 2018), https://www.law360.com/governmentcontracts/articles/1069818/hospital-system-will- pay-84-5m-to-end-fca-kickback-claims?nl_pk=a3467962-dd33-4efa-a9fc- bff3c03255e8&utm_source=newsletter&utm_medium=email&utm_campaign=governmentcontracts. [30] See Press Release, U.S. Atty’s Office for the Dist. of S.C., Early Autism Project, Inc., South Carolina’s Largest Provider of Behavioral Therapy for Children with Autism, Pays the United States $8.8 Million to Settle Allegations of Fraud (Aug. 2, 2018), https://www.justice.gov/usao-sc/pr/early-autism-project-inc-south-carolinas-largest-provider- behavioral-therapy-children. [31] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Prime Healthcare Services and CEO to Pay $65 Million to Settle False Claims Act Allegations (Aug. 3, 2018), https://www.justice.gov/opa/pr/prime-healthcare-services-and-ceo-pay-65- million-settle-false-claims-act-allegations. [32] See Nate Raymond & Andy Thibault, Insys to pay $150 million to settle U.S. opioid kickback probe, Reuters (Aug. 8, 2018), https://www.reuters.com/article/us-insys-opioids/insys-to-pay-150- million-to-settle-u-s-opioid-kickback-probe-idUSKBN1KT1G5. [33] See U.S. Atty’s Office for the Dist. of Mass., United States v. Michael Babich, Alec Burlakoff, Richard Simon, Sunrise Lee, Joseph Rowan, and Michael Gurry, John Kapoor (Nov. 29, 2018), https://www.justice.gov/usao-ma/victim-and-witness-assistance-program/ united-states-v-michael-babich-alec-burlakoff-richard-simon-sunrise-lee-joseph-rowan-and. [34] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Post Acute Medical Agrees to Pay More Than $13 Million to Settle Allegations of Kickbacks and Improper Physician Relationships (Aug. 15, 2018), https://www.justice.gov/opa/pr/post-acute-medical-agrees-pay-more-13-million- settle-allegations-kickbacks-and-improper. [35] See Press Release, U.S. Atty’s Office for the S. Dist. of Ill., Durable Medical Equipment Provider Lincare Pays $5.25 Million to Resolve False Claims Act Allegations (Aug. 16, 2018), https://www.justice.gov/usao-sdil/pr/durable-medical-equipment-provider-lincare-pays-525-million-resolve-false-claims-act. [36] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Reliant to Pay $6.1 Million to Settle False Claims Act Allegations That it Paid Kickbacks to Nursing Homes for Rehabilitation Therapy Business (Aug. 23, 2018), https://www.justice.gov/opa/pr/reliant-pay-61-million-settle-false-claims-act-allegations-it-paid-kickbacks-nursing-homes. [37] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Ambulance Company and its Municipal Clients Agree to Pay Over $21 Million to Settle Allegations of Unlawful Kickbacks and Improper Financial Relationships (Aug. 27, 2018), https://www.justice.gov/opa/pr/ambulance-company-and-its-municipal-clients-agree-pay-over-21- million-settle-allegations. [38] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Hospital Chain Will Pay Over $260 Million to Resolve False Billing and Kickback Allegations; One Subsidiary Agrees to Plead Guilty (Sept. 25, 2018), https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and- kickback-allegations-one. [39] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Kalispell Regional Healthcare System to Pay $24 Million to Settle False Claims Act Allegations (Sept. 28, 2018), https://www.justice.gov/opa/pr/kalispell-regional- healthcare-system-pay-24-million-settle-false-claims-act-allegations. [40] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, AmerisourceBergen Corporation Agrees to Pay $625 Million to Resolve Allegations That it Illegally Repackaged Cancer-Supportive Injectable Drugs to Profit from Overfill (Oct. 1, 2018), https://www.justice.gov/opa/pr/amerisourcebergen-corporation-agrees-pay-625-million -resolve-allegations-it-illegally. [41] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medicare Advantage Provider to Pay $270 Million to Settle False Claims Act Liabilities (Oct. 1, 2018), https://www.justice.gov/opa/pr/medicare-advantage-provider-pay- 270-million-settle-false-claims-act-liabilities. [42] See U.S. Atty’s Office for the W. Dist. of Ky., $5.1 Million Dollar Settlement Reached With Indiana Dental Firm To Resolve False Claims Allegations (Nov. 6, 2018), https://www.justice.gov/usao-wdky/pr/51-million-dollar-settlement-reached -indiana-dental-firm-resolve-false-claims. [43] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medical Device Maker ev3 to Plead Guilty and Pay $17.9 Million for Distributing Adulterated Device; Covidien Paid $13 Million to Resolve Civil Liability for Second Device (Dec. 4, 2018), https://www.justice.gov/opa/pr/medical-device-maker-ev3-plead-guilty-and-pay- 179-million-distributing-adulterated-device. [44] See Press Release, Medtronic, Medtronic Statement Regarding Recent DOJ Announcement, (Dec. 4, 2018), https://www.medtronic.com/us-en/about/news/media-resources/medtronic- statement-regarding-doj.html. [45] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Actelion Agrees to Pay $360 Million to Resolve False Claims Act Liability for Paying Kickbacks (Dec. 6, 2018), https://www.justice.gov/opa/pr/drug-maker-actelion- agrees-pay-360-million-resolve-false-claims-act-liability-paying. [46] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Wis., Aurora Health Care, Inc. Agrees to Pay $12 Million to Settle Allegations Under the False Claims Act and the Stark Law (Dec. 11, 2018), https://www.justice.gov/usao-edwi/pr/aurora-health-care-inc-agrees-pay- 12-million-settle-allegations-under-false-claims-act. [47] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Coordinated Health and CEO Pay $12.5 Million to Resolve False Claims Act Liability for Fraudulent Billing (Dec. 11, 2018), https://www.justice.gov/usao-edpa/pr/coordinated-health-and-ceo-pay- 125-million-resolve-false-claims-act-liability. [48] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, North American Power Group Ltd and its Owner Agree to Pay $14.4 Million to Resolve Alleged False Claims for Department of Energy Cooperative Agreement Funds (July 6, 2018), https://www.justice.gov/opa/pr/north-american-power-group-ltd-and-its-owner- agree-pay-144-million-resolve-alleged-false. [49] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, 3M Company Agrees to Pay $9.1 Million to Resolve Allegations That it Supplied the United States with Defective Dual-Ended Combat Arms Earplugs (July 26, 2018), https://www.justice.gov/opa/pr/3m-company-agrees-pay-91-million-resolve- allegations-it-supplied-united-states-defective-dual. [50] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Three South Korean Companies Agree to Plead Guilty and to Enter Into Civil Settlements for Rigging Bids on United States Department of Defense Fuel Supply Contracts (Nov. 14, 2018), https://www.justice.gov/opa/pr/three-south-korean-companies-agree- plead-guilty-and-enter-civil-settlements-rigging-bids. [51] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Universal American Mortgage Company LLC (UAMC) Agrees to Pay $13.2 Million to Resolve False Claims Act Allegations Related to Loan Guarantees (Oct. 19, 2018), https://www.justice.gov/opa/pr/universal-american- mortgage-company-llc-uamc-agrees-pay-132-million-resolve-false-claims-act. [52] See Press Release, U.S. Atty’s Office for the Northern Dist. of N.Y., Finance of America Mortgage to Pay $14.5 Million to Resolve False Claims Act Liability Involving FHA Mortgage Lending (Dec. 12, 2018), https://www.justice.gov/usao-ndny/pr/finance-america-mortgage-pay- 145-million-resolve-false-claims-act-liability-involving. [53] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, British Airways and Iberia Airlines Agree to Pay $5.8 Million to Settle False Claims Act Allegations for Falsely Reporting Delivery Times of U.S. Mail Transported Internationally (Nov. 13, 2018), https://www.justice.gov/opa/pr/ british-airways-and-iberia-airlines-agree-pay-58-million-settle-false-claims-act-allegations. [54] See Press Release, U.S. Atty’s Office for the Southern Dist. of NY, Manhattan U.S. Attorney Announces Settlement of Civil Fraud Claims Against Law Firm Rosicki, Rosicki & Associates, P.C., and Two Affiliates for Inflating Foreclosure- and Eviction-Related Expenses (Dec. 4, 2018), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney- announces-settlement-civil-fraud-claims-against-law-firm-rosicki. [55] Senator Chuck Grassley, The Critical Importance of Congressional Oversight, Real Clear Policy (Aug. 21, 2018), https://www.realclearpolicy.com/articles/2018/08/21/the_critical_ importance_of_congressional_oversight_110768.html. [56]  State False Claims Act Reviews, Dep’t of Health & Human Servs.—Office of Inspector Gen., https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.asp. [57]  S.B. 0065, 2017 Reg. Sess. (Mich. 2017), http://www.legislature.mi.gov/(S(2eethmzh3ynmq4revoals1xd))/ mileg.aspx?page=GetObject&objectname=2017-SB-0065. [58]  S.B. 0669, 2017 Reg. Sess. (Mich. 2017), http://www.legislature.mi.gov/(S(y01pr1bmjos4hv4bgw5wcuid))/ mileg.aspx?page=getobject&objectname=2017-SB-0669&query=on. [59]  H.B. 1027, 2017-2018 Reg. Sess. (Penn. 2017), http://www.legis.state.pa.us/cfdocs/billInfo/billInfo.cfm?sYear= 2017&sInd=0&body=H&type=B&bn=1027. [60]  A.B. A07989, 2017-2018 Leg. Sess. (N.Y. 2017), http://nyassembly.gov/leg/?default_fld=&leg_video=&bn=A07989&term=2017&Summary=Y&Actions=Y. [61] See Petition for Writ of Certiorari (No. 17-936), United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Circ. 2017). [62] Br. for the United States as Amicus Curiae, Gilead Sciences, Inc. v. United States ex rel. Campie, No. 17-936 (U.S. Nov. 30, 2018) [63] Id. [64] Id. [65] See 81 U.S.L.W. 3650 (U.S. Mar. 31, 2014) (No. 12-1349). [66] Order Denying Pet. for Cert., United States ex rel. Chase v. Chapters Health System Inc., No. 17-1477 (Oct. 1, 2018). [67] The two remaining claims were subsequently dismissed on summary judgment on the grounds that the activity alleged was lawful—a decision that was also upheld by the Eleventh Circuit.  Id. at 1275. The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, Charles Stevens, Stephen Payne, Stuart Delery, Benjamin Wagner, Timothy Hatch, Joseph West, Robert Walters, Robert Blume, Andrew Tulumello, Karen Manos, Monica Loseman, Geoffrey Sigler, Alexander Southwell, Reed Brodsky, Winston Chan, John Partridge, James Zelenay, Jonathan Phillips, Ryan Bergsieker, Jeremy Ochsenbein, Sean Twomey, Reid Rector, Allison Chapin, Nicholas Scheiner, Jacob Rierson, Jessica Wright, Jessica Pearigen and Peter Baumann. Gibson Dunn’s lawyers have handled hundreds of FCA investigations and have a long track record of litigation success.  From U.S. Supreme Court victories, to appellate court wins, to complete success in district courts around the United States, Gibson Dunn believes it is the premier firm in FCA defense.  Among other notable recent victories, Gibson Dunn successfully overturned one of the largest FCA judgments in history in United States ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017), and the Daily Journal recognized Gibson Dunn’s work in U.S. ex rel. Winter v. Gardens Regional Hospital and Medical Center Inc. as a Top Defense Verdict in its annual feature on the top verdicts for 2017.  Our win rate and immersion in FCA issues gives us the ability to frame strategies to quickly dispose of FCA cases.  The firm has dozens of attorneys with substantive FCA experience, including nearly 30 Assistant U.S. Attorneys and DOJ attorneys.  For more information, please feel free to contact the Gibson Dunn attorney with whom you work or the following attorneys. Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Stephen C. Payne (+1 202-887-3693, spayne@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 9, 2019 |
The Most Notable Government Contract Cost and Pricing Decisions of 2018

Washington, D.C. partner Karen Manos is the author of “The Most Notable Government Contract Cost and Pricing Decisions of 2018,” [PDF] published in Thomson Reuters’ The Government Contractor on January 9, 2019.

January 8, 2019 |
Webcast: FCPA Trends in the Emerging Markets of Asia, Russia, Latin America, and Africa

In 2018, anti-corruption movements in several regions picked up steam, maturing from grassroots, street-level protests to electoral mobilization, far-reaching anti-corruption legislation, and renewed focus from local law enforcement. The constant drumbeat of scandals, impeachments, prosecutions and new legislative efforts highlights the extent to which corruption remains deeply rooted in many regions. As companies increasingly look to compete in emerging markets, the ever-present threat of corruption creates an environment fraught with commercial, legal and reputation risk. Join our team of experienced international anti-corruption attorneys to learn more about how to do business in key markets in Asia (with a focus on China, India, and South Korea), Russia, Latin America, and Africa without running afoul of anti-corruption laws, including the FCPA. Topics to be discussed: An overview of FCPA enforcement and trends for 2018; The corruption landscape in key emerging markets, including recent headlines and scandals; Lessons learned from local anti-corruption enforcement in key markets in Asia, Russia, Latin America, and Africa; Key anti-corruption legislative changes in major markets in Asia, Russia, Latin America, and Africa; and Mitigation strategies for businesses operating in high-risk markets. View Slides (PDF) PANELISTS: Kelly Austin Partner-in-Charge of Gibson Dunn’s Hong Kong office. Ms. Austin focuses her practice in government and internal investigations, regulatory compliance, and international disputes. Ms. Austin has extensive experience in government and corporate internal investigations, including those involving the FCPA, anti-money laundering, securities, and trade control laws. Ms. Austin also regularly guides companies on creating and implementing effective compliance programs. Joel Cohen Co-Chair of the firm’s White Collar Defense and Investigations practice and a member of its Securities Litigation, Class Actions and Antitrust practice groups, Mr. Cohen is a partner in Gibson Dunn’s New York office. He is a former federal prosecutor and has been lead or co-lead counsel in 24 civil and criminal trials in federal and state courts. Mr. Cohen’s experience includes all aspects of FCPA/anticorruption issues, in addition to financial institution litigation and other international disputes and discovery, and he is equally comfortable leading confidential investigations, managing crises or advocating in court proceedings. Sacha Harber-Kelly Partner in Gibson Dunn’s London office and a member of the firm’s White Collar Defense and Investigations practice group. Mr. Harber-Kelly focuses his practice in global white-collar investigations, representing clients in criminal and regulatory investigations as well as cross-border enforcement inquiries. He was a Prosecutor from 2007 to 2017 with the U.K.’s Serious Fraud Office (SFO) in the Anti-Corruption and Bribery Division, where he handled some of the largest and most complex cases brought by the SFO, and he was centrally involved in the U.K.’s development of a Deferred Prosecution Agreement (DPA) regime. He also has worked extensively with a range of other enforcement authorities in the U.K., U.S. and beyond. Benno Schwarz German-qualified partner in Gibson Dunn’s Munich office, Mr. Schwarz is a member of the firm’s International Corporate Transactions and White Collar Defense and Investigations practice groups. Mr. Schwarz has many years of experience in corporate anti-bribery compliance, especially issues surrounding the enforcement of the FCPA and the U.K. Bribery Act as well as Russian law, including the planning and implementation of internal corporate investigations both nationally and internationally, advising on the structuring, implementation and assessment of compliance management systems, and representing companies before domestic and foreign authorities during associated criminal and administrative proceedings. He speaks and conducts transactions and internal investigations in German, English and Russian. F. Joseph Warin Partner in Gibson Dunn’s Washington, D.C. office, Chair of the office’s Litigation Department, and Co-Chair of the firm’s White Collar Defense and Investigations practice group. Mr. Warin is consistently regarded as a top lawyer in FCPA investigations, False Claims Act (FCA) matters, fraud and corporate investigations, and special committee representations. He has handled cases and investigations in more than 40 states and dozens of countries in matters involving federal regulatory inquiries, criminal investigations and cross-border inquiries by dozens of international enforcers, including the U.K.’s SFO and FCA, and government regulators in Germany, Switzerland, Hong Kong, and the Middle East. His credibility at DOJ and the SEC is unsurpassed among private practitioners, a reputation based in large part on his experience as the only person ever to serve as a compliance monitor or counsel to the compliance monitor in three separate FCPA monitorships, pursuant to settlements with the SEC and DOJ. Oliver Welch Associate in Gibson Dunn’s Hong Kong office and a member of the firm’s Litigation and White Collar Defense and Investigations practice groups. Mr. Welch has extensive experience representing clients throughout the Asia region on a wide variety of compliance and anti-corruption issues. His practice focuses on internal and regulatory investigations, including the FCPA, and he regularly counsels multi-national corporations regarding their anti-corruption compliance programs and controls, and assists clients in drafting policies, procedures, and training materials designed to foster compliance with global anti-corruption laws. He also advises on anti-corruption due diligence in connection with corporate acquisitions, private equity investments, and other business transactions. 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  2.50 credit hours, of which 2.50 credit hours 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 Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 2.00 credit hours, of which 2.00 credit hour may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@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 2.00 hours. 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.

January 8, 2019 |
Supreme Court Rejects “Wholly Groundless” Exception To Rule That Parties May Refer Arbitrability Disputes To Arbitration

Click for PDF Decided January 8, 2019 Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272 The Supreme Court held 9-0 that courts may not decline to enforce agreements delegating arbitrability issues to an arbitrator, even if the court concludes that the claim of arbitrability is “wholly groundless.” Background: The Federal Arbitration Act generally permits courts to decide whether a contract requires arbitration of a dispute.  The Act, however, also requires courts to interpret contracts as written, and the Supreme Court has held that an arbitration agreement may “clearly” and “unmistakably” refer the arbitrability issue to an arbitrator.  Here, the defendants in an antitrust lawsuit sought to compel arbitration, citing a clause in their contracts with the plaintiff requiring arbitration of any “dispute arising under or related to” the contracts, “except for actions seeking injunctive relief.”  Although the plaintiff sought both damages and injunctive relief, the defendants argued that arbitration was required because damages were the predominant form of relief requested.  The Fifth Circuit held that the trial court properly declined to refer the arbitrability issue to an arbitrator because the plaintiff’s claim for injunctive relief made the defendants’ request for arbitration “wholly groundless.” Issue: May a court decline to enforce an agreement delegating arbitrability issues to an arbitrator, and resolve arbitrability disputes itself, if it concludes that the claim of arbitrability is “wholly groundless”? Court’s Holding: No.  Courts must enforce agreements to delegate arbitrability issues to an arbitrator, even if the court concludes that a claim of arbitrability is “wholly groundless,” because the Federal Arbitration Act does not contain a “wholly groundless” exception. “The [Federal Arbitration] Act does not contain a ‘wholly groundless’ exception. . . . When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Justice Kavanaugh, writing for a unanimous Court What It Means: In Justice Kavanaugh’s first opinion, the Court was “dubious” that recognizing a “wholly groundless” exception would save time and money, as such an exception would “inevitably spark collateral litigation” over whether a claim for arbitration is “groundless,” as opposed to “wholly groundless.” The decision removes an opportunity for plaintiffs to avoid arbitration of threshold issues of arbitrability where a contract has delegated those issues to an arbitrator.    The Court emphasized again the importance of enforcing arbitration agreements as they are drafted and refusing to create exceptions that would permit judicial second-guessing of arbitration agreements.    Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Labor and Employment Practice Catherine A. Conway +1 213.229.7822 cconway@gibsondunn.com Jason C. Schwartz +1 202.955.8242 jschwartz@gibsondunn.com © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 7, 2019 |
2018 Year-End FCPA Update

Click for PDF 2018 was an extraordinary year in the U.S. government’s efforts to combat foreign corruption.  The 38 combined FCPA enforcement actions, resulting in $1 billion in corporate fines, alone provide much to discuss.  But this is only a part of the story of the year in anti-corruption enforcement, as we also saw an explosion in the pursuit of FCPA-related offenses, continued multi-national enforcement, and a rare appellate decision on the jurisdictional reach of the FCPA, among many other developments. This client update provides an overview of the FCPA and other domestic and international anti-corruption enforcement, litigation, and policy developments from the year 2018, as well as the trends we see from this activity.  For more analysis on the year in anti-corruption enforcement as well as challenges in compliance and corporate governance, please join us for one or both of our upcoming complimentary webcast presentations:  FCPA Trends in the Emerging Markets of Asia, Russia, Latin America, and Africa on January 8 (to register, click here) and Challenges in Compliance and Corporate Governance on January 29 (to register, click here). FCPA OVERVIEW The FCPA’s anti-bribery provisions make it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international organizations with the intent to obtain or retain business.  These provisions apply to “issuers,” “domestic concerns,” and those acting on behalf of issuers and domestic concerns, as well as to “any person” who acts while in the territory of the United States.  The term “issuer” covers any business entity that is registered under 15 U.S.C. § 78l or that is required to file reports under 15 U.S.C. § 78o(d).  In this context, foreign issuers whose American Depository Receipts (“ADRs”) or American Depository Shares (“ADSs”) are listed on a U.S. exchange are “issuers” for purposes of the FCPA.  The term “domestic concern” is even broader and includes any U.S. citizen, national, or resident, as well as any business entity that is organized under the laws of a U.S. state or that has its principal place of business in the United States. In addition to the anti-bribery provisions, the FCPA also has “accounting provisions” that apply to issuers and those acting on their behalf.  First, there is the books-and-records provision, which requires issuers to make and keep accurate books, records, and accounts that, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.  Second, the FCPA’s internal controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Prosecutors and regulators frequently invoke these latter two sections when they cannot establish the elements for an anti-bribery prosecution or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency. International corruption also may implicate other U.S. criminal laws.  Increasingly in recent years, prosecutors from the FCPA Unit of the U.S. Department of Justice (“DOJ”) have begun charging non-FCPA crimes such as money laundering, mail and wire fraud, Travel Act violations, tax violations, and even false statements, in addition to or instead of FCPA charges.  Perhaps most prevalent amongst these “FCPA-related” charges is money laundering—a generic term used as shorthand for several statutory provisions that together criminalize the concealment or transfer of proceeds from certain “specified unlawful activities,” including corruption under the laws of foreign nations, through the U.S. banking system.  DOJ frequently deploys the money laundering statutes to charge “foreign officials” who are not themselves subject to the FCPA.  It is thus increasingly commonplace for DOJ to charge the alleged giver of a corrupt payment with FCPA violations and the alleged recipient with money laundering violations. FCPA AND FCPA-RELATED ENFORCEMENT STATISTICS The below table and graph detail the number of FCPA enforcement actions initiated by DOJ and the Securities and Exchange Commission (“SEC”), the statute’s dual enforcers, during the past 10 years. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC 26 14 48 26 23 25 11 12 19 8 17 9 10 10 21 32 29 10 21 17 Viewed from this perspective, 2018 was undoubtedly a productive year, and enforcement trends must have a multi-year lens.  When we see our counterparts in the hallways of the Bond Building, we see plenty of evidence of a continued frenetic pace of activity within the FCPA Unit.  To illustrate this further, one need only look at a slightly different set of statistics that captures the activity of DOJ’s FCPA Unit rather than the number of cases it brings under a particular statute.  As can be seen from the below table and graph, which includes non-FCPA charges brought by the FCPA Unit in international corruption investigations, 2018 was the second most prolific year in the history of foreign anti-corruption enforcement by the U.S. government. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC DOJ SEC 28 14 51 26 24 25 12 12 21 8 19 9 12 10 27 32 36 10 47 17 2018 FCPA + FCPA-RELATED ENFORCEMENT TRENDS In each of our year-end FCPA updates, we seek not only to report on the year’s FCPA enforcement actions but also to identify and synthesize the trends that stem from these actions.  For 2018, seven key enforcement trends stand out from the rest: 1.      DOJ brings “FCPA-related” charges against individuals at an unprecedented pace; 2.      Venezuela in the spotlight; 3.      Continuing scrutiny of the financial services industry; 4.      Continuing reverberations from Brazil’s “Operation Car Wash”; 5.      Public company executives, don’t forget about the SEC . . . ; 6.      The SEC continues to assert aggressive theories in non-precedential settlements; and 7.      DOJ issues four declinations under the FCPA Corporate Enforcement Policy.             DOJ Brings “FCPA-Related” Charges at an Unprecedented Pace As discussed above, DOJ has in the past several years fundamentally changed its approach to international corruption cases.  A phenomenon we first reported in our 2009 Year-End FCPA Update, when it was but a trickle, has now become a full-fledged river.  In 2018, DOJ’s FCPA Unit brought 26 non-FCPA criminal cases on top of 21 FCPA enforcement actions.  This is a dramatic upswing in non-FCPA prosecutions brought by the FCPA Unit, on par with the output of the prior decade combined.  Accounting most significantly for this trend is DOJ’s aggressive deployment of the money laundering statute, in particular against officials of foreign governments. For decades, it has been established law that “foreign officials”—a necessary participant in at least completed FCPA bribery schemes—are nonetheless not covered by the anti-bribery provisions.  And for many years that meant that DOJ focused its criminal enforcement efforts on the “supply side” of bribery.  But starting several years ago, and then exploding in the numbers shown this year, DOJ has attacked the “demand side” every bit as aggressively, principally by charging foreign official bribe recipients (though not sitting, high-level officials) with money laundering.  The most prolific example would be those charged in connection with the Venezuelan bribery schemes described in the following section, although by no means is this the only example. In addition to turning the officials of foreign sovereigns into U.S. defendants, another significant characteristic of DOJ’s money laundering explosion is the potential for theories of U.S. jurisdiction that exceed even the FCPA in their aggressiveness.  For an FCPA bribery charge, the defendant should be a U.S. national, a U.S. company, an employee or agent of an issuer or U.S. company, or a foreign party alleged to have taken an action on U.S. soil.  But for money laundering jurisdiction, DOJ has for some time taken the position that the mere use of U.S. correspondent bank accounts—through which the vast majority of U.S. dollar transactions worldwide are routed—is sufficient to vest the United States with jurisdiction to prosecute.  Thus, if a wire for a corrupt payment in U.S. dollars is made from an account in Foreign Country A to an account in Foreign Country B, but routes instantaneously through a bank account in a U.S. dollar-denominated account in New York, DOJ may assert it has jurisdiction over that transaction even if the parties and business at issue are wholly foreign.  Examples of this aggressive theory on display in 2018 can be seen in the Chi Ping Patrick Ho and Azat Martirossian prosecutions discussed below, among others.  The law on this issue is at this point unclear and subject to multiple statutory and due process defenses—we expect this aggressive assertion of extra-U.S. jurisdiction to be a frequent source of litigation in the years to come. One final point of note with respect to the DOJ FCPA Unit’s focus on money laundering charges is that increasingly FCPA Unit attorneys are teaming up with attorneys from the Money Laundering and Asset Recovery Section (“MLARS”).  We have been covering in these updates the work of MLARS for years now, including through their “Kleptocracy Asset Recovery Initiative,” which uses civil forfeiture actions to freeze, recover, and, in some cases, repatriate the proceeds of foreign corruption.  Several significant FCPA investigations of the recent past began as MLARS forfeiture actions, including prominently those involving “1MDB” in Malaysia and Gulnara Karimova in Uzbekistan as discussed herein, years before they became criminal FCPA cases.  Further, although this update captures developments through 2018, in early January 2019 MLARS and FCPA Unit prosecutors teamed up once again in a big way with the unsealing of criminal charges against several individuals in connection with an alleged bribery and kickback scheme in Mozambique.  We will continue to monitor this and other enforcement activity in future updates. To help our clients meet these developing challenges, Gibson Dunn has on its team the former chiefs of both the DOJ FCPA Unit (Patrick F. Stokes) and MLARS (M. Kendall Day)—not to mention also the former key member of what is now the SEC’s FCPA Unit (Richard W. Grime) and former head of the Enforcement Division at the U.S. Department of Treasury’s Financial Crimes Enforcement Network, aka FinCEN (Stephanie Brooker).  Few if any firms can match the depth of our bench in this area.             Venezuela in the Spotlight                         PDVSA “pay-to-play” procurement scheme For three years now, we have been covering the steady expansion of charges brought by DOJ in connection with an alleged “pay-to-play” corruption scheme involving procurement processes at Venezuelan state-owned energy company Petróleos de Venezuela S.A. (“PDVSA”).  As we first reported in our 2015 Year-End FCPA Update, DOJ alleges that between 2009 and 2014 U.S. businesspersons paid millions of dollars in bribes to PDVSA officials to influence the award of competitive energy contract procurements, as well as to secure preferential treatment in the payment of outstanding debts owed by PDVSA. During the second half of 2018, DOJ unsealed charges against five new defendants in the PDVSA procurement investigation.  On July 31, Jose Manuel Gonzalez-Testino was arrested at Miami International Airport based on a criminal complaint filed in the U.S. District Court for the Southern District of Texas alleging substantive and conspiracy FCPA charges for the payment of at least $629,000 in bribes to an official of PDVSA’s purchasing arm, which based on the allegations appears to be Cesar David Rincon-Godoy, who pleaded guilty to one count of money laundering earlier in the year.  In another pairing of charges against bribe payer and bribe recipient, on September 13, DOJ announced guilty pleas by Juan Carlos Castillo Rincon and Jose Orlando Camacho, respectively a former manager for a Houston-based logistics and freight forwarding company and a former PDVSA procurement official.  Castillo Rincon pleaded guilty to FCPA conspiracy for making corrupt payments to Orlando Camacho, who himself pleaded guilty to money laundering conspiracy for receiving the payments.  On October 30, another former PDVSA procurement official, Ivan Alexis Guedez, pleaded guilty to a money laundering conspiracy charge in connection with his receipt of corrupt payments.  Finally, on December 10, former PDVSA official Alfonzo Eliezer Gravina Munoz pleaded guilty for the second time in connection with the PDVSA investigation.  As previously reported in our 2016 Mid-Year FCPA Update, Gravina Munoz pleaded guilty in 2016 to money laundering conspiracy and tax charges associated with his alleged receipt of bribes.  Gravina Munoz agreed to cooperate with U.S. investigators as part of the original guilty plea, yet according to his 2018 guilty plea to obstruction of justice, he concealed information about a co-conspirator and tipped that person off about the investigation, leading the co-conspirator to destroy evidence and attempt to flee the United States (based on the timing of his arrest at the airport in July 2018, some have reported that the co-conspirator is Gonzalez-Testino). In total, DOJ has (publicly) brought 20 cases of FCPA and FCPA-related charges against 19 individuals associated with the PDVSA procurement corruption investigation.  Fifteen of these defendants have pleaded guilty in connection with 16 of these cases, all awaiting a 2019 sentencing date before the Honorable Gray H. Miller of the U.S. District Court for the Southern District of Texas.  Three of the remaining four defendants are listed as fugitives and have yet to be brought within the jurisdiction of the court, while the fourth (Gonzalez-Testino) awaits a trial date.             Venezuelan currency exchange schemes There can be no question that the above-described PDVSA procurement case is significant.  But developments in 2018 in separate corruption-related cases out of Venezuela may ultimately prove to be even more substantial. According to a July 23 affidavit in support of multiple arrest warrants, a confidential witness approached federal agents in 2016, confessed to his or her involvement in a corrupt currency conversion / embezzlement scheme involving PDVSA funds, and agreed to cooperate in a surreptitious manner.  Two years and more than 100 recorded conversations later, “Operation Money Flight” has yielded (public) charges against nine individuals for $1.2 billion in alleged money laundering. Although complex in operation, the genesis of the scheme relates simply to a substantial difference between the official and unofficial rates at which Venezuelan bolivars could be exchanged for U.S. dollars.  Co-conspirators allegedly entered into contracts to convert PDVSA bolivars into dollars at the unofficial rate (e.g., 60:1) and then, with the assistance of corrupt payments to government officials, allegedly converted the purchased bolivars back into dollars at the official rate (e.g., 6:1).  In so doing, co-conspirators allegedly were able to receive as much as 10 times their investment by effectively embezzling money from PDVSA. The first charges were announced on July 25, 2018, with the arrest of Matthias Krull, a German national resident in Panama working for a European bank, and Gustavo Adolfo Hernandez Frieri, a naturalized U.S. citizen who operated financial services firms out of Florida.  Also charged in connection with the money laundering scheme are businesspersons Francisco Convit Guruceaga, Jose Vincente Amparan Croquer, Hugo Andre Ramalho Gois, Marcelo Federico Gutierrez Acosta y Lara, and Mario Enrique Bonilla Vallera, former legal counsel for the Venezuelan Ministry of Oil and Mining Carmelo Urdaneta Aqui, and former PDVSA Finance Director Abraham Edgardo Ortega.  Only weeks after his arrest in Miami, Krull pleaded guilty to a single money laundering conspiracy count and was sentenced on October 29, 2018 to 10 years in prison.  Ortega, who was arrested in September and pleaded guilty to a single money laundering conspiracy count on October 31, 2018, awaits an April 2019 sentencing date.  Frieri, who was arrested in Italy reportedly while on vacation with his family, is still undergoing extradition proceedings.  The remaining defendants have yet to make an appearance in the U.S. District Court for the Southern District of Florida and are designated as fugitives. A second set of charges connected to alleged currency conversion corruption in Venezuela (though not specific to PDVSA) was announced on November 19, 2018, when DOJ unsealed an indictment against Raul Gorrin Belisario, the billionaire owner of the Globovision news network, charging him with conspiracy to violate the FCPA and numerous money laundering counts.  On the same day, DOJ unsealed money laundering guilty pleas by former Venezuelan National Treasurer Alejandro Andrade Cedeno and former bank owner Gabriel Arturo Jimenez Aray.  According to the charging documents, Gorrin Belisario bribed two successive Venezuelan National Treasurers, including Andrade Cedeno, to enter into contracts for foreign exchange transactions at favorable rates.  Gorrin Belisario and Jimenez Aray allegedly laundered the bribes and proceeds of the scheme through a Dominican bank owned by the latter.  Jimenez Aray was sentenced to three years in prison, while Andrade Cedeno was sentenced to 10 years in prison and agreed to forfeit a staggering $1 billion in cash and luxury assets that he allegedly received as bribes.  Gorrin Belisario has yet to make an appearance in the U.S. District Court for the Southern District of Florida and is designated a fugitive.             Continuing Scrutiny of the Financial Services Industry                         1MDB We have been tracking for several years now investigative activity related to Malaysian sovereign wealth fund 1Malaysia Development Berhad (“1MDB”).  As covered in our 2016 Year-End FCPA Update, the investigations first surfaced with a massive civil forfeiture action filed by MLARS in the U.S. District Court for the Central District of California seeking to recover funds allegedly misappropriated from 1MDB.  On November 1, 2018, the investigation took a turn with prosecutors from the FCPA Unit and MLARS unsealing criminal FCPA charges in the U.S. District Court for the Eastern District of New York against Malaysian businessperson Low Taek Jho and two former bankers, Tim Leissner and Ng Chong Hwa.  Collectively, the three are alleged to have participated in the diversion of more than $2.7 billion from 1MDB, between 2009 and 2014 and in connection with three separate bond offerings, for the illicit purposes of making payments to officials of state-owned investment funds of Malaysia and the UAE and embezzlement for their own personal benefit. Leissner has pleaded guilty to a two-count information charging him with a dual FCPA conspiracy—both to violate the anti-bribery provisions and to circumvent his former issuer-employer’s internal controls—as well as money laundering conspiracy.  Sentencing is currently set for January 2019, although of note Leissner already has agreed to forfeit more than $40 million in connection with the scheme.  Ng and Low were each indicted on FCPA bribery and money laundering charges, with Ng additionally being charged with FCPA internal controls violations.  Ng has been arrested in Malaysia and is awaiting extradition proceedings, while Low remains at large.                         Legg Mason Inc. We covered DOJ’s June 2018 non-prosecution agreement with Maryland-based investment firm Legg Mason in our 2018 Mid-Year FCPA Update.  As anticipated therein, the SEC followed with its own FCPA charges, announcing on August 27, 2018 a settled cease-and-desist proceeding associated with the alleged scheme to bribe Libyan officials to secure investment opportunities.  To resolve the SEC’s FCPA internal controls charge, Legg Mason agreed to pay $34.5 million in disgorgement and prejudgment interest.  This resolution is unusual because typically the SEC and DOJ resolve investigations on the same day and not months apart, but the cases were coordinated in that the investment firm received credit in the DOJ resolution for disgorgement ultimately paid to the SEC and the SEC’s order does not include a separate civil penalty in recognition of Legg Mason’s $32,625,000 criminal fine.                         Joo Hyun Bahn After pleading guilty earlier this year to criminal FCPA charges in connection with the feigned Vietnamese skyscraper plot covered in our 2017 Year-End and 2018 Mid-Year FCPA updates, on September 6, 2018, former real estate broker Joo Hyun Bahn consented to an administrative cease-and-desist order with the SEC based on the same conduct.  To resolve civil FCPA anti-bribery, books-and-records, and internal controls allegations, Bahn agreed to pay $225,000 in disgorgement, which was deemed satisfied by the forfeiture and restitution payments that Bahn was ordered to pay in the criminal proceeding.  On the same day that the SEC resolution was announced, the Honorable Edgardo Ramos of the U.S. District Court for the Southern District of New York sentenced Bahn to six months in prison, to forfeit $225,000, and pay to $500,000 in restitution. Notably, there have been no reports of a pending resolution involving Bahn’s former employer, real estate firm Colliers International.  If this continues to the case, it may reflect a judgment that charges are not appropriate given Bahn’s alleged deceit toward his former employer coupled with the fact that the deal in question was never consummated.             Continuing Reverberations from Brazil’s “Operation Car Wash” Our readership is well aware that the long-running “Operation Car Wash” investigation has resulted in significant corruption-related enforcement activity both within and without Brazil.  To say nothing of its seismic domestic impact, where it is credited with toppling a presidential administration, viewed strictly from a U.S. FCPA perspective Operation Car Wash has become one of the most significant “clusters” of FCPA enforcement activity ever.  Prior FCPA enforcement actions with connections to this investigation against Braskem S.A., Keppel Offshore & Marine Ltd., Odebrecht S.A., Rolls-Royce plc, and SBM Offshore N.V. are covered in our 2016 and 2017 year-end FCPA updates.  Said Principal Deputy Assistant Attorney General John P. Cronan at the recent Latin Lawyer / Global Investigations Review Anti-Corruption and Investigations Conference in São Paulo, “our close relationship with Brazil has borne fruit with some of the Department of Justice’s most significant FCPA resolutions over the past 12 months.” On September 27, 2018, DOJ and the SEC added to the “Operation Car Wash” numbers by announcing a joint FCPA resolution with Petróleo Brasileiro S.A. – Petrobras (“Petrobras”), Brazil’s state-owned oil company.  Petrobras entered into a non-prosecution agreement with DOJ to resolve FCPA accounting allegations based on the conduct of certain former executives who already have been convicted in Brazil for concealing their engagement in a scheme of embezzlement and political payoffs that harmed and caused severe loss to Petrobras.  The SEC likewise alleged that Petrobras violated the FCPA’s accounting provisions, as well as certain non-scienter-based provisions of the Securities Act and the Exchange Act through allegedly misleading statements to U.S. investors in connection with a stock offering completed in 2010.  In moves illustrative of the unusual nature of the resolution, DOJ explicitly recognized that Petrobras was a victim of its former employees’ embezzlement, and the SEC acknowledged the company’s “significant cooperation” with the SEC’s investigation and its status as an Assistant to the Prosecution in 51 proceedings in Brazil. Although some have reported the financial resolution reached by Petrobras as high as $1.78 billion, the amount to be paid by the company in connection with the FCPA resolutions is far more modest.  To resolve the criminal case, Petrobras agreed to a fine of $853.2 million, but will pay only $85.3 million (10%) of that to DOJ, with an 80% offsetting credit applied against $682.56 million to be paid to fund social responsibility programs in Brazil as part of an agreement with the Brazilian Federal Prosecutor’s Office and a 10% offsetting credit applied against a civil penalty imposed by the SEC.  Similarly, the SEC imposed $933.5 million in disgorgement and prejudgment interest and an $853.2 million penalty, but takes only $85.3 million of that after crediting the Brazilian resolution against the penalty and, in a first-of-its kind for FCPA resolutions, crediting the entire disgorgement amount against the shareholders’ class action settlement described in our 2018 Mid-Year FCPA Update.  Said SEC FCPA Unit Chief Charles E. Cain of this latter credit while speaking at the Securities Enforcement Forum on November 1, 2018:  “It made sense for this case,” and other companies should not expect the same result moving forward.  Thus Petrobras will in effect pay just over $170 million to resolve its FCPA resolutions with DOJ and the SEC. In another Operation Car Wash-related FCPA enforcement action, Houston-based offshore drilling company Vantage Drilling International resolved SEC allegations that it lacked adequate internal controls over payments to its supplier of drilling assets—a Taiwanese shipping magnate who was the company’s largest shareholder and sat on its board—and the engagement of a third-party agent without due diligence to assist in marketing the company to Petrobras.  According to the SEC, Vantage Drilling failed to respond to red flags indicating a risk that the director and the agent would bribe Petrobras officials in connection with obtaining a $1.8 billion contract that benefitted the company.  Vantage Drilling previously has identified the Taiwanese director as Hsin-Chi Su, one of several people who along with former Vantage Drilling CEO Paul Bragg have been charged by Brazilian prosecutors. Without admitting or denying the allegations, Vantage Drilling consented to the cease-and-desist proceeding and agreed to pay $5 million in disgorgement.  The SEC did not impose additional penalties in light of Vantage’s financial condition.  The company initiated bankruptcy proceedings after Petrobras terminated its drilling services contract in 2015 in reaction to the corruption allegations.  DOJ closed its investigation into the company in 2017 without taking action.             Public Company Executives, Don’t Forget about the SEC . . . It is a frequent and misguided critique of FCPA enforcement that executives in high-profile positions are not held to account for the misdeeds that occur on their watch.  Although frequently there are legitimate jurisdictional, prudential, or other explanations for this purported phenomenon, DOJ and the SEC have each made a point in recent years of underscoring their commitment to holding individuals accountable for corporate misconduct.  For example, SEC FCPA Enforcement Chief Charles E. Cain said recently, “Corporate culture starts at the top, and when misconduct is directed by the highest level of management it is critical that they are held accountable for their conduct.”  Two examples of the SEC charging public company executives in 2018 FCPA enforcement actions in the wake of corporate resolutions follow. On September 25, 2018, the SEC announced a settled cease-and-desist proceeding against Patricio Contesse González, the former longtime CEO of Chilean chemical and mining company and ADR-issuer Sociedad Química y Minera de Chile, S.A. (“SQM”), which 20 months earlier paid more than $30 million to resolve DOJ / SEC FCPA enforcement actions as covered in our 2017 Mid-Year FCPA Update.  The SEC’s order alleges that González used a discretionary “CEO account” to funnel $15 million to Chilean politicians and then failed to disclose these payments to SQM’s internal and external auditors.  To resolve the SEC’s allegations that he caused SQM to violate and himself violated the FCPA books-and-records and internal controls provisions, as well as signed misleading management representation letters to SQM’s external auditor and signed false certifications in SQM’s filings, González agreed to pay a civil penalty of $125,000. Similarly, on December 18, 2018, the SEC announced a settled cease-and-desist proceeding with Paul A. Margis, the former CEO of Panasonic Avionics Corporation (“PAC”), a U.S. subsidiary of Japanese electronics company and former American Depositary Share-issuer Panasonic, which together with PAC paid more than $280 million in an April 2018 DOJ / SEC FCPA resolution as covered in our 2018 Mid-Year FCPA Update.  The SEC alleged that Margis authorized $1.76 million in payments to three third parties, one of whom was a government official actively negotiating with PAC for a post-retirement position as he simultaneously negotiated with PAC for a major contract extension on behalf of his state-owned airline employer, even though these third parties provided little-to-no work on behalf of PAC.  To resolve the charges that he circumvented PAC’s internal controls, falsified PAC’s books and records, caused Panasonic to violate the FCPA’s accounting provisions, and misled external auditors in certifications and representation letters, Margis agreed to pay a civil penalty of $75,000.  While not an FCPA resolution, PAC’s former CFO Takeshi Uonaga agreed in a parallel resolution to pay a $50,000 civil penalty to resolve allegations that he backdated a contract to allow for untimely recognition of revenue in connection with a contract with the same state-owned airline. The SEC Continues to Assert Aggressive Theories in Non-Precedential Settlements In 2018, the SEC resolved 10 corporate FCPA enforcement actions that did not have a corresponding DOJ resolution.  In several of these SEC-only resolutions, the SEC leveraged the accounting provisions to bring cases predicated upon aggressive theories of FCPA liability that, at least on the face of the charging documents, bore a tenuous (or non-existent) connection to foreign bribery.  In another case, the SEC seemed to stretch (if not break) the boundaries of the anti-bribery provision.  Thus continues a trend we have observed periodically over the years, including most recently in our 2017 Year-End FCPA Update.  Although settlements are clearly non-binding in the legal sense, any FCPA practitioner knows that they are frequently bandied about as precedent in settlement discussions and thus become a very real part of the body of FCPA enforcement that must be contended with. In our 2018 Mid-Year FCPA Update, we reported on two cases involving aggressive interpretations of the accounting provisions:  (1) the SEC’s cease-and-desist proceeding against Elbit Imaging Ltd., where the violation alleged by the SEC concerned the use of third parties on whom due diligence was not performed and no evidence of work performed; and (2) the SEC’s cease-and-desist proceeding against Kinross Gold, where the alleged violations related to the slow implementation of compliance controls at two acquired subsidiaries, failure to respond to internal audits flagging the inadequate controls, and inadequate efforts to ensure that payments to vendors and consultants were used appropriately.  In neither case did the SEC directly allege specific corrupt payments. More recently, on September 28, 2018, the SEC announced a settled cease-and-desist proceeding against Michigan-based medical technology company Stryker Corporation, related to alleged violations of the FCPA’s accounting provisions.  The allegations relate to the company’s internal controls purportedly being insufficient to detect the risk of improper payments in India, China, and Kuwait.  Specifically, the SEC alleged that an internal forensic review of Stryker’s Indian subsidiary identified no supporting documentation for 27% of higher-risk transactions tested, as well as inflated invoices in connection with third-party sales to private hospitals.  The SEC further alleged that Stryker’s Chinese subsidiary used at least 21 sub-distributors that were not vetted, approved, or trained as required by company policy, which increased the risk of improper payments, and that Stryker did not test or otherwise assess compliance with its policies by a distributor in Kuwait that made over $32,000 in duplicative per diem payments to health care professionals over the course of three years.  To resolve these FCPA accounting allegations, and without admitting or denying the SEC’s findings, Stryker consented to the entry of a cease-and-desist order and agreed to pay a $7.8 million civil penalty.  Stryker also was required to retain an independent compliance consultant, narrowly focused on reviewing Stryker’s anti-corruption policies and procedures and internal controls applicable to third parties, for an 18-month term.  It is likely that the compliance monitor was imposed, at least in part, because this was Stryker’s second FCPA resolution, having resolved a prior FCPA enforcement action with the SEC in October 2013 as detailed in our 2013 Year-End FCPA Update. Employing a different sort of aggressive FCPA theory, on September 12, 2018, the SEC announced a settled cease-and-desist proceeding against a multinational conglomerate for alleged violations of the FCPA’s anti-bribery, books-and-records, and internal controls provisions.  The company was alleged among other things to have made improper payments with respect to public housing officials in Azerbaijan to retain sales.  What makes this case stand out as aggressive in its charging theory is the Section 30A bribery charge relating to the conduct in Azerbaijan.  The only clear allegation of involvement by the parent in its Russian subsidiary’s alleged conduct is that the parent “failed to detect the conduct”—seemingly an inadequate internal controls theory, if that.  Further, there is a prominent allegation of U.S. jurisdictional nexus via the fact that the payments made on behalf of the Russian subsidiary “were [made] in U.S. dollar denominations and involved U.S. correspondent banks.”  To resolve the allegations, the company agreed to pay $13.9 million, consisting of nearly $10 million in disgorgement and prejudgment interest and a $4 million penalty.  DOJ closed its investigation in March 2018 without bringing its own enforcement action. Finally, on December 26, 2018, the SEC brought an FCPA enforcement action unlike any other of which we are aware.  The SEC charged Brazilian state-owned power company and issuer Centrais Elétricas Brasileiras S.A. (“Eletrobras”) with violations of the FCPA’s books-and-records and internal controls provisions based entirely on the alleged self-dealing of its now-former executives, which had no apparent benefit to the company.  Specifically, the SEC alleged that executives of an Eletrobras subsidiary managing a massive nuclear power plant construction project received kickbacks from private Brazilian construction companies in exchange for paying inflated or sham invoices on behalf of the company.  Payments also were allegedly made to Brazilian political party and government officials, which is why we count this as an FCPA enforcement action; however, the payments were made on behalf of the Brazilian construction companies and only funded, in part, out of the alleged sham invoices and inflated contract prices paid by the Eletrobras subsidiary.  There is no allegation that Eletrobras received an improper benefit via these payments, and indeed it would seem that the company was a victim in this course of conduct.  Nonetheless, the SEC alleged that Eletrobras maintained deficient internal controls and had inaccurate books and records as a result of this scheme.  To resolve the SEC proceedings, without admitting or denying the findings, Eletrobras consented to the entry of a cease-and-desist order and agreed to pay a $2.5 million civil penalty.  There was no disgorgement as there was no benefit to Eletrobras alleged.  The company previously announced that DOJ closed its investigation without taking enforcement action.             DOJ Issues Four Declinations under the FCPA Corporate Enforcement Policy DOJ issued four public declination letters in 2018 pursuant to the FCPA Corporate Enforcement Policy.  Two of these coincided with parallel SEC FCPA enforcement actions, one anticipates a future foreign regulatory action, and the fourth stands alone as a corporate action (but follows an individual enforcement action).  All of the letters followed decisions by the named companies to make voluntary disclosures, which is a threshold requirement under the FCPA Corporate Enforcement Policy. The first declination letter of 2018 concerned Dun & Bradstreet as we covered in our 2018 Mid-Year FCPA Update.  Descriptions of the three declination letters from the second half of 2018 follow: Güralp Systems Limited – On August 20, 2018, DOJ issued a public declination letter to UK seismology company Güralp Systems in connection with the same set of events leading to the U.S. money laundering conviction of Heon-Cheol Chi, former Director of the Korea Institute of Geoscience and Mineral Resources (“KIGAM”) Earthquake Research Center, described in our 2017 Year-End FCPA Update.  DOJ stated in the letter that it was closing its investigation without charges against Güralp Systems, despite evidence of corrupt payments to Chi, based on a variety of factors, including most prominently that Güralp Systems, “a U.K. company with its principal place of business in the U.K., is the subject of an ongoing parallel investigation by the U.K.’s Serious Fraud Office for violations of law relating to the same conduct and has committed to accepting responsibility for that conduct with the SFO.”  As described below, several former Güralp Systems executives have been charged in the UK, but the UK investigation of Güralp Systems remains ongoing. Insurance Corporation of Barbados Limited – Three days later, on August 23, 2018, DOJ issued a public declination letter to Barbadian insurance company ICBL.  This letter came several weeks after DOJ unsealed a March 2018 indictment charging Donville Inniss, a former Minister of Industry and member of Parliament of Barbados, with money laundering in connection with his alleged receipt of $36,000 from ICBL in exchange for agreeing to award government contracts to the insurer.  Pursuant to the declination letter, which is countersigned by ICBL’s Board Chair, ICBL agreed to the letter’s brief recitation of facts and to disgorge nearly $94,000 in profits received from the tainted contracts, making it the first so-called “declination with disgorgement” agreement under the official FCPA Corporate Enforcement Policy (although prior such agreements were reached under the predecessor FCPA Pilot Program).  Inniss’s trial is scheduled for June 2019 before the Honorable Kiyo A. Matsumoto of the U.S. District Court for the Eastern District of New York.  Interestingly, a redacted superseding indictment filed by DOJ in the case makes clear that money laundering charges have been filed under seal against the former CEO and a senior vice president of ICBL. Polycom, Inc. – The year’s final FCPA enforcement event, announced on December 26, 2018, involved a coordinated SEC cease-and-desist order entered against, and DOJ declination letter issued to, California telecommunications provider Polycom.  The allegations set forth in the SEC order, which charge violations of the FCPA’s books-and-records and internal controls provisions, assert that between 2006 and 2014 employees of Polycom’s Chinese subsidiary provided discounts to distributors or resellers while knowing that those discounts would be used to fund improper payments to government end customers.  To resolve these allegations, Polycom agreed to pay $12.5 million in disgorgement and prejudgment interest plus a $3.8 million civil penalty.  DOJ then issued a letter declining to prosecute Polycom for the China conduct, prominently noting the company’s voluntary disclosure, cooperation, and agreement to enter into the SEC resolution.  What is perhaps most noteworthy about the Polycom settlement is that whereas the SEC explicitly limited its disgorgement to illicit profits earned on or after September 27, 2012—clearly in recognition of the five-year statute of limitations imposed by 28 U.S.C. § 2462 and Kokesh v. SEC, 137 S. Ct. 1635 (2017)—DOJ made a condition of its declination letter that Polycom disgorge an additional $20.3 million representing profits earned outside “the time limits prescribed by 28 U.S.C. § 2462.”             Rounding Out the 2018 FCPA Enforcement Docket Additional 2018 FCPA enforcement actions not covered above or in our 2018 Mid-Year FCPA Update are as follows: Roger Richard Boncy – On October 30, 2018, DOJ filed a superseding indictment in the case against retired U.S. Army colonel and Haitian non-profit founder Joseph Baptiste, covered in our 2017 Year-End FCPA Update, to add Boncy as a defendant on the FCPA conspiracy, Travel Act, and money laundering conspiracy charges.  Boncy is a former lawyer of dual U.S.-Haitian citizenship who once served as Haiti’s Ambassador-at-Large.  According to the indictment, Boncy and Baptiste solicited bribe money from two undercover FBI agents who were posing as prospective investors for a multi-million dollar port development project in Haiti.  But instead of funneling the bribe money to Haitian officials, Baptiste allegedly pocketed it.  Although the trial of Baptiste nearly went forward in late 2018, in light of the superseding indictment, a joint trial for Baptiste and Boncy is now scheduled for June 2019. Sanofi – On September 4, 2018, the SEC announced a settled FCPA accounting resolution with Paris-headquartered and U.S.-listed pharmaceutical manufacturer Sanofi, pursuant to which the company agreed to pay $25.2 million in disgorgement, prejudgment interest, and penalties to resolve allegations regarding corrupt payments to government procurement officials and healthcare providers in Kazakhstan and the Middle East.  Sanofi also agreed as part of the resolution to self-report about anti-corruption compliance to the SEC for a two-year period. Juan Andres Baquerizo Escobar – On July 11, 2018, DOJ filed a criminal money laundering charge against another defendant involved in the ongoing investigation of corruption at Ecuador’s state-owned oil company, Petroecuador.  Baquerizo Escobar, an Ecuadorian businessperson, pleaded guilty two months later to facilitating the transfer of $1.72 million in bribes to Petroecuador officials between 2012 and 2016.  He awaits a January 2019 sentencing date.  As discussed in our 2017 Year-End and 2018 Mid-Year FCPA updates, charges have been brought against four other defendants in this investigation—money laundering charges against former Petroecuador officials Arturo Escobar Dominguez and Marcelo Reyes Lopez, money laundering charges against Ecuadorian businessperson Jose Larrea, and FCPA and money laundering charges against Ecuadorian businessperson Frank Roberto Chatburn Ripalda.  The first three have all now pleaded guilty, including Larrea on September 11, 2018, and been sentenced to prison terms of 53 months (Reyes Lopez), 48 months (Escobar Dominguez), and 27 months (Larrea), respectively.  Chatburn Ripalda was scheduled to go to trial in February 2019, but a superseding indictment charging him with additional alleged bribes to Petroecuador officials was filed on December 13, 2018.  A hearing on the superseding indictment and likely a new trial date is set for January 2019. 2018 FCPA-RELATED ENFORCEMENT LITIGATION             Second Circuit Issues Important FCPA Jurisdictional Decision in Hoskins On August 24, 2018, the U.S. Court of Appeals for the Second Circuit issued a long-awaited decision in the criminal FCPA case filed against former Alstom executive Lawrence Hoskins.  As we reported in our 2015 Year-End and 2016 Mid-Year FCPA updates, the Honorable Janet Bond Arterton of the U.S. District Court for the District of Connecticut ruled below that Hoskins, a UK national working for a UK subsidiary of a French company, could not be held liable under the FCPA pursuant to a theory of conspiring with or aiding-and-abetting a person who was subject to the statute where it could not be shown that Hoskins was himself subject to the statute.  In an unusual move underscoring the programmatic importance of this issue, DOJ took an interlocutory appeal to the Second Circuit. The Second Circuit largely affirmed the judgment of the district court, in an opinion authored by the Honorable Rosemary S. Pooler.  Specifically, the Second Circuit affirmed the lower court’s ruling that the government may not charge a defendant under the FCPA based on conspiracy or aiding-and-abetting theories if that defendant does not himself fall within one of the “three clear categories of persons who are covered by [the FCPA’s anti-bribery] provisions.”  The Court’s opinion extensively reviews the FCPA’s legislative history and concludes that the text of the statute reflected “surgical precision” on its drafters’ part in clearly establishing its jurisdictional reach to specifically exclude foreign persons who are neither agents of U.S. companies and who did not act within the territory of the United States.  Thus, under the interpretive principle established in the Supreme Court’s landmark Gebardi decision, such persons likewise cannot be charged with FCPA conspiracy or aiding-and-abetting offenses.  The Second Circuit went on to observe that the general presumption against the extraterritorial application of statutes provided an independent basis to preclude the government from charging Hoskins with FCPA conspiracy given an absence of clearly expressed congressional intent to allow conspiracy and aiding-and-abetting liability to broaden the FCPA’s extraterritorial reach.  The Court did, however, hold that the government should be permitted to make a showing that Hoskins acted as an agent of a domestic concern (namely, Alstom’s U.S. subsidiary), in which case he could be held liable for conspiring with Alstom’s U.S. employees or other foreign nationals who did act within the territory of the United States. Given the paucity of appellate decisions interpreting and construing the FCPA, this decision is a significant precedent limiting the government’s ability to prosecute non-resident, foreign defendants who do not act within U.S. territory and are not agents of a U.S. issuer or domestic concern.  Of course, DOJ may well respond by attempting to rely on an expanded view of agency liability to reach non-resident defendants who did not act within U.S. territory.  Further, as set forth in other portions of this Update, DOJ is increasingly relying upon the money laundering statute as an alternative basis for criminal liability where corrupt transactions pass through the U.S. banking system.  As for Hoskins’s case, it has been returned to the District of Connecticut with a March 2019 trial date.             DOJ Secures FCPA Trial Conviction We reported in our 2018 Mid-Year FCPA Update on the then-pending motion to dismiss of Chi Ping Patrick Ho, the head of a China and Virginia-based NGO who was indicted in December 2017 on FCPA and money laundering charges associated with his alleged role in separate corruption schemes in Chad and Uganda.  Following oral argument on July 19, 2018, the Honorable Loretta A. Preska of the U.S. District Court for the Southern District of New York denied Ho’s motion to dismiss the indictment making two separate findings:  (1) it is not inconsistent to charge Ho both as a foreign national acting within the territory of the United States pursuant to 18 U.S.C. § 78dd-3 and at the same time as an agent of a domestic concern subject to 18 U.S.C. § 78dd-2—these are factual questions to be addressed by the jury; and (2) that wire transfers from one foreign jurisdiction to another foreign jurisdiction, passing through the United States via a correspondent banking account transfer as most U.S. dollar transactions do, may survive a facial challenge to a money laundering charge.  The Court deferred Ho’s due process challenge to the latter charge pending the evidence to be submitted at trial. Motion to dismiss denied, Ho proceeded to trial.  The evidence presented at the seven-day trial included that Ho offered gift boxes containing $2 million in cash to the President of Chad, who rejected the offer and provided no illicit benefit to Ho or his employer.  Ho then turned his attention to the second corruption scheme in Uganda, whereby he allegedly paid $500,000 via wire transfer to a purported charitable foundation designated by the Foreign Minister and a $500,000 cash “campaign donation” to the President.  On December 5, 2018, after only three hours of deliberation, the federal jury in Manhattan returned a guilty verdict on seven of the eight counts set forth in the indictment, including FCPA and money laundering charges.  A key witness for the government at Ho’s trial was Cheikh Gadio, the former Foreign Minister of Senegal alleged to have been Ho’s co-conspirator.  Gadio himself had been charged with money laundering, as reported in our 2017 Year-End FCPA Update, but on September 14, 2018 DOJ dismissed that charge.  On December 18, 2018, Ho filed a one-paragraph motion to set aside the verdict pursuant to Rule 29(c), which was denied by Judge Preska in a one-word order dated December 19.  Ho is scheduled to be sentenced in March 2019.             Court Dismisses Civil FCPA Charges against Former Och-Ziff Executives In our 2017 Mid-Year FCPA Update, we discussed the SEC’s civil FCPA charges against two executives of New York-based hedge fund Och-Ziff Capital Management Group LLC, Michael L. Cohen and Vanja Baros, arising out of an alleged corruption scheme in various African countries.  Cohen and Baros filed separate motions to dismiss the SEC’s charges based on the Kokesh decision, in which the Supreme Court unanimously held that disgorgement is a “penalty” as defined in 28 U.S.C. § 2462 and therefore subject to the five-year statute of limitations.  The defendants argued that the conduct alleged in the SEC’s complaint, which occurred between 2007 and 2012, was time-barred. On July 12, 2018, the Honorable Nicholas G. Garaufis of the U.S. District Court for the Eastern District of New York agreed with the defendants and dismissed the SEC’s charges.  In a 32-page memorandum opinion, Judge Garaufis held that:  (1) the Court can and should consider a statute-of-limitations defense on a motion to dismiss, determining whether the relief sought by the SEC operates as a penalty based on the allegations set forth in the complaint; (2) the SEC may not allege conduct that is untimely in the complaint only then to seek discovery of whether there are additional violations within the statute-of-limitations period; (3) a tolling agreement executed by Cohen, which would have made timely certain of the SEC’s claims concerning alleged conduct in sub-Saharan Africa, was limited by its express language to the SEC’s initial investigation in Libya and therefore did not encompass investigations that arose from the initial investigation; and (4) the SEC’s claim began to accrue at the time of the alleged violations of law, not when the defendants allegedly received illicit benefits from that misconduct, and in any event the SEC did not specifically allege that the defendants received illicit benefits within the applicable statute-of-limitations period. Although the Court’s decision is undoubtedly significant for the growing body of FCPA case law, it represents only a partial victory for defendant Cohen.  As reported in our 2018 Mid-Year FCPA Update, Cohen has been charged by criminal indictment with FCPA-related offenses arising from his alleged failure to disclose his interest in an African mining operation to a charitable foundation client and subsequent acts to cover up the transaction after the SEC opened an investigation.  The criminal case also is before Judge Garaufis, but the allegations, timing, and theory of that case are different and it is unclear whether the statute of limitations will be a viable defense for Cohen.  Discovery in that matter is ongoing, with the next status hearing set for February 2019.             Court Dismisses FCPA-Related Charges against Former Military Contractor In an FCPA-related case that has largely flown under the radar of the FCPA community, in December 2017 DOJ charged former military contractor Charley Dean Hill with making false statements to FBI agents investigating payments by Hill’s employer—a security and infrastructure provider—to obtain government licenses and permits from Iraqi officials.  Specifically, DOJ alleged that in a 2010 interview Hill stated falsely that he had never sent cash from Iraq to the United States. The single-count false statements charge was initially filed by way of criminal information, pursuant to a plea agreement, but then Hill backed out of the plea agreement and was charged by indictment in February 2018.  Hill filed a motion to dismiss the indictment on the grounds that it was untimely to charge him nearly eight years after the alleged false statement.  DOJ defended on the grounds that it timely sought and received a tolling order pursuant to 18 U.S.C. § 3292, which permits DOJ to toll the statute of limitations for up to three years while it seeks foreign-located evidence from a foreign government pursuant to a Mutual Legal Assistance Treaty.  But following a lengthy and spirited oral argument on the motion before the U.S. District Court for the District of South Carolina, the Honorable Henry M. Herlong, Jr. determined that because DOJ did not enumerate the false statements statute (18 U.S.C. § 1001) as one of the crimes under investigation in its § 3292 tolling application, the tolling order did not cover the crime ultimately charged and DOJ’s indictment was untimely.  The Court therefore granted Hill’s motion to dismiss.             Defendant Sentenced in HISS Case As we first reported in our 2015 Mid-Year FCPA Update, in January 2015 DOJ filed a civil action in the U.S. District Court for the Eastern District of Louisiana to forfeit nine New Orleans properties allegedly purchased with the proceeds of corruption involving the former Executive Director of the Honduran Institute of Social Security (“HISS”).  Several years later, as discussed in our 2018 Mid-Year FCPA Update, a grand jury returned an indictment charging Carlos Alberto Zelaya Rojas, the nominal owner of the properties, with 12 counts of money laundering and other offenses.  The indictment alleged that Zelaya Rojas assisted his brother, the former HISS Executive Director, who was himself criminally charged in Honduras with taking millions of dollars in bribes from two Honduran businessmen, with laundering at least $1.3 million in bribe payments, including through the purchase of the nine New Orleans properties.  Following his June 2018 guilty plea to a single count of money laundering conspiracy, on October 3, 2018, Zelaya Rojas was sentenced by the Honorable Martin L.C. Feldman to 46 months in prison, in addition to the forfeiture of the nine properties. Court Refuses to Consider Motion to Dismiss on Fugitive Disentitlement Grounds The U.S. District Court for the Southern District of Ohio recently issued a decision in the ongoing prosecution of Azat Martirossian on an important and recurring issue in FCPA and FCPA-related prosecutions.  As readers of our updates well know, FCPA and FCPA-related indictments are frequently filed under seal where they wait months or even years for an internationally located defendant to cross a border subject to the long-arm of U.S. law enforcement.  But, for a variety of reasons, DOJ will frequently unseal an indictment with one or more defendants still outside of their jurisdictional reach.  The oft-recurring question in these cases is whether the international defendant may challenge the basis for their indictment without coming to the United States and physically submitting him or herself to the jurisdiction of the court. In the instant case, on May 24, 2018, Martirossian—an Armenian citizen and Chinese resident “who has never set foot in the United States”—was added to the Rolls-Royce related indictment most recently described in our 2018 Mid-Year FCPA Update.  Weeks later, on June 22, 2018, counsel for Martirossian filed a motion to dismiss the money laundering charges even as Martirossian himself remained outside the United States.  DOJ responded by invoking the “fugitive disentitlement doctrine” and asking the Court to hold the motion in abeyance.  On October 9, 2018, the Court granted the government’s motion, and stayed Martirossian’s motion “until or unless he submits to the jurisdiction of this Court.”  Martirossian has since filed both an interlocutory appeal and a writ of mandamus with the U.S. Court of Appeals for the Sixth Circuit, which both remain pending as of publication.             FCPA-Related Charges Unsealed 10 Years Later We have been reporting for some time now on the unusual case of Lebanese businessman Samir Khoury.  Khoury has long suspected that he was the so-called “LNG Consultant” described in public charging documents arising from the Bonny Island, Nigeria corruption cases of a decade ago, and further that there was an indictment against him filed under seal, just waiting for him to travel to the United States or a country with an extradition treaty.  In a remarkably aggressive strategy, Khoury filed multiple civil suits in the U.S. District Court for the Southern District of Texas seeking to unseal the indictment if, as he suspected, it exists.  Khoury has gotten his wish. On July 9, 2018, the Honorable Keith P. Ellison granted Khoury’s motion to unseal a November 2008 indictment charging him with mail and wire fraud offenses arising out of the Bonny Island, Nigeria scheme, as discussed in our 2009 Mid-Year FCPA Update, among others.  Within days of the indictment being unsealed, Khoury filed a motion to dismiss the indictment for violation of his rights under the Speedy Trial Act, or, alternatively, as time-barred under the applicable statute of limitations.  DOJ responded by arguing that Khoury’s motion should not be considered, under the fugitive disentitlement doctrine, until he appears before the court to answer the charges.  A hearing on the motion was held on November 29, 2018, at which Judge Ellison declined for a second time to apply the fugitive disentitlement doctrine.  Khoury has moved to compel the government to produce certain additional evidence necessary to file a revised motion to dismiss and a hearing on this motion is scheduled for January 2019.             Third Circuit Affirms FCPA Sentence We reported in our 2016 Mid-Year FCPA Update on the April 2016 guilty plea of Dmitrij Harder, former owner and president of a Pennsylvania-based consulting company, based on FCPA bribery charges that he made more than $3.5 million in “consulting” payments to the sister of an official of the European Bank for Reconstruction and Development to corruptly influence the award of contracts to clients of Harder’s.  As noted in our 2017 Year-End FCPA Update, Harder was sentenced in July 2017 to 60 months in prison by the U.S. District Court for the Eastern District of Pennsylvania. Harder appealed his sentence to the U.S. Court of Appeals for the Third Circuit, claiming that the District Court failed to meaningfully consider his arguments concerning sentencing disparity and mitigation, including a chart prepared by a law professor concluding that the average sentence for FCPA defendants is only 13 months, as well as a novel argument that Harder deserved a reduced sentence because the Russian energy projects promoted by his bribes had delivered “exceptionally positive economic results” in Eastern Siberia.  On November 8, 2018, the Third Circuit affirmed the District Court’s sentence.  The Honorable Eugene E. Siler, sitting by designation from the Sixth Circuit, authored the unanimous, unpublished panel opinion finding that the district court had properly considered all of Harder’s arguments for a lower sentence. 2018 FCPA-RELATED POLICY DEVELOPMENTS DOJ Revises Standard Non-Waiver Agreement Following Fourth Circuit Decision Non-waiver agreements between companies and DOJ historically have been used as an imperfect truce between companies attempting to preserve privilege protections and DOJ seeking to obtain the benefits of information identified during internal investigations.  Pursuant to these agreements, companies agreed to share the work product fruits of their investigations with DOJ and DOJ agreed not to assert that this disclosure constituted a waiver of various privileges.  On June 27, 2018, the U.S. Court of Appeals for the Fourth Circuit upset the metaphorical applecart with a significant (though unpublished) decision, In re Grand Jury 16-3817 (16-4), enforcing a non-waiver provision against DOJ.  Already its impacts are being seen by all who practice in FCPA matters before DOJ. To facilitate cooperation with a DOJ investigation, “X Corp.” (whose identity is under seal) executed agreements allowing employees, including a former in-house attorney, to share privileged material in interviews with DOJ while expressly disclaiming waiver.  Years later, DOJ subpoenaed the attorney to testify before a grand jury about the same statements made during the interview.  X Corp. intervened and sought a protective order. On appeal from the district court’s denial of the protective order, the U.S. Court of Appeals for the Fourth Circuit reversed.  The Court held that the plain language of the agreement with DOJ showed that X Corp. expressly reserved its privileges as to DOJ.  Accordingly, X Corp. could assert privilege over the information before the grand jury as if the prior interview never occurred. In response to the Fourth Circuit’s decision, DOJ has adopted a new form agreement that is significantly less protective of company interests.  How this will impact DOJ’s ability to obtain cooperation in corporate FCPA investigations—which is a very complicated issue influenced by many factors beyond privilege—remains to be seen. Does the “China Initiative” Signal Enhanced FCPA Scrutiny of Chinese Companies? On November 1, 2018, in the context of announcing criminal and civil enforcement proceedings against a Chinese company, a Taiwanese company, and three Taiwanese nationals in connection with the alleged theft of trade secrets from a U.S. company, then-Attorney General Jeff Sessions declared a “China Initiative” to be led by DOJ’s National Security Division, with participation from other DOJ offices, including the Criminal Division (which houses the Fraud Section / FCPA Unit).  While the primary focus of the so-called “China Initiative” seems to on countering economic espionage, lurking among the initiative’s 10 stated goals is to “[i]dentify [FCPA] cases involving Chinese companies that compete with American businesses.” Although we have been reporting for years on the risks of doing business in China, and our studies have demonstrated that China is the most frequent situs of conduct charged in FCPA enforcement actions, we have seen nothing in the public sphere or our confidential caseload to suggest that DOJ’s FCPA Unit will be departing from its historical focus on conduct rather than nationality.  For example, when asked about the China Initiative several weeks later at the ACI FCPA Conference, Unit Chief Daniel S. Kahn responded, “We are prosecutors, and we follow evidence, and that’s what we have always done.”  It is noteworthy that although many FCPA cases involve Chinese conduct, far fewer involve Chinese nationals or companies.  No doubt this is in significant part due to the jurisdictional challenges of DOJ bringing such an action.  All of this is to say, time will tell whether and if so how the China Initiative’s FCPA goal will be operationalized by DOJ’s FCPA Unit, which is led by dedicated, career civil servant prosecutors, many layers removed from those who announced the policy. Of course, if the Chinese Initiative is perceived as leveraging the FCPA to achieve political objectives, the Chinese government may counter with steps to frustrate DOJ investigations.  As we note below, in October 2018, China enacted a new blocking statute, the International Criminal Judicial Assistance Law, that could be used to prevent Chinese companies from providing evidence or assistance to foreign authorities like DOJ.             DOJ Provides Additional Guidance Concerning Criminal Division Monitors Speaking at the New York University School of Law on October 12, 2018, Assistant Attorney General Brian A. Benczkowski announced a new namesake memorandum (the “Benczkowski Memorandum”) providing additional guidance for the selection of compliance monitors.  The memorandum reaffirms prior guidance on this issue from the “Morford Memorandum” of March 2008, while elaborating on considerations Criminal Division attorneys should take into account when deciding whether to require a monitor.  These considerations include the potential costs of a monitor, not only in monetary terms but also with respect to “whether the proposed scope of a monitor’s role is appropriately tailored to avoid unnecessary burdens to the business’s operations.” Benczkowski’s remarks also are of interest in another respect.  Monitors have tremendous power and discretion in their activities and, in some situations, the power dynamic leads companies facing what they believe are unreasonable demands to feel that they have little practical recourse.  Rejecting the notion that companies should suffer in silence and emphasizing the active role that DOJ should play in policing monitors, Benczkowski remarked that “it is incumbent on our prosecutors to ensure that monitors are operating within the appropriate scope of their mandate” and that “we absolutely want to know of any legitimate concerns regarding the authorized scope of the monitorship, cost or team size.”  These are welcome remarks for companies undergoing or facing the prospect of an FCPA monitorship. Of final note, Benczkowski broke from the recent movement to centralize corporate compliance expertise within a single “compliance counsel” position, and declared a renewed focus on “a workforce better steeped in compliance issues across the board.”  To that end, he announced as a priority the hiring of attorneys not only with courtroom prosecutorial experience, but with experience evaluating corporate compliance programs to supplement the already talented and experienced DOJ workforce.             DOJ Extends FCPA Corporate Enforcement Policy to M&A In a July 25, 2018 speech before ACI’s Global Forum on Anti-Corruption Compliance in High Risk Markets, Deputy Assistant Attorney General Matthew S. Miner announced important guidance for companies that identify FCPA issues in pre-acquisition due diligence or post-acquisition compliance integration.  Specifically, acknowledging that DOJ wishes to encourage M&A activity by companies with strong compliance programs and not to have “the specter of enforcement . . . be a risk factor that impedes such activity by good actors,” Miner announced that “we intend to apply the principles contained in the FCPA Corporate Enforcement Policy to successor companies that uncover wrongdoing in connection with mergers and acquisitions and thereafter disclose that wrongdoing and provide cooperation, consistent with the terms of the Policy.”  One month later, at a GIR Live event, Miner expanded his comments to make clear that they apply to “other types of potential wrongdoing, not just FCPA violations,” unearthed in connection with an acquisition and disclosed to DOJ. These announcements make good policy sense given the number of FCPA enforcement matters that arise from acquisitions, including notably in 2018 the Polycom matter described above. 2018 FCPA-RELATED PRIVATE CIVIL LITIGATION The FCPA does not provide a private right of action, but as we often note, civil litigants long have pursued a variety of causes of action against companies in connection with FCPA-related conduct, with varying success.  The second half of 2018 certainly was no exception.  Examples of matters with material developments over the past six months include:             Shareholder Lawsuits Freeport-McMoRan Inc. – As covered in our 2016 Mid-Year FCPA Update, on January 26, 2016, shareholders filed a securities fraud class-action alleging that the international mining company failed to disclose bribery in Indonesia.  The suit followed reports that the Indonesian House of Representatives was investigating payments by a senior executive of Freeport Indonesia to the speaker of the House.  On August 3, 2018, the Honorable Diane J. Humetewa of the U.S. District Court for the District of Arizona granted Freeport’s motion to dismiss.  The Court found, among other things, that plaintiffs failed to plead sufficient facts to plausibly claim that the executive attempted to bribe Indonesian officials.  Rather, the pleadings only left open this possibility and suggested that Freeport Indonesia may have been solicited for a bribe and not itself committed any wrongdoing. General Cable Corp. – On July 23, 2018, the Honorable William O. Bertelsman of the U.S. District Court for the Eastern District of Kentucky granted General Cable’s motion to dismiss a putative class action, which contended that the company inflated its stock value by failing to disclose that employees of its foreign subsidiaries had violated the FCPA in connection with the conduct ultimately leading to General Cable’s December 2016 resolutions with DOJ and the SEC described in our 2016 Year-End FCPA Update.  In dismissing the suit, the Court concluded that plaintiffs had not met the stringent pleading standard for breach-of-prudence claims based on non-public information and that their breach of loyalty and duty to monitor claims were similarly deficient.  The plaintiffs have noticed an appeal to the U.S. Court of Appeals for the Sixth Circuit. Grupo Televisa S.A.B. – On August 6, 2018, shareholders filed an amended complaint against ADR-issuer and Mexican media giant Grupo Televisa in the U.S. District Court for the Southern District of New York, alleging that it failed to disclose the payment of millions of dollars in bribes to secure broadcast rights for the FIFA World Cup.  The action came after the former CEO of Argentine sports marketing company Torneos y Competencias (which, as covered in our 2016 Year-End FCPA Update, entered into a $113 million, four-year deferred prosecution agreement) testified at the corruption trial of three former FIFA officials that Grupo Televisa had participated in the scheme.  This witness previously pleaded guilty in November 2015 to wire fraud and other charges and agreed to testify on the government’s behalf.  Grupo Televisa moved to dismiss the complaint on October 15, and the plaintiffs filed their opposition on November 16, 2018. KBR Inc. – On August 31, 2018, the Honorable Ewing Werlein, Jr. of the U.S. District Court for the Southern District of Texas dismissed an investor class action lawsuit filed soon after the Serious Fraud Office announced in April 2017 that it was investigating KBR in connection with its ongoing Unaoil investigation.  In dismissing the case, the Court noted that the “Plaintiffs act as if the opening of an investigation is all they need to make wholesale allegations of bribery against KBR.”  Although the Court granted leave to file an amended complaint, none was filed, and the case was terminated on September 24, 2018. Rio Tinto plc – On August 31, 2018, the Honorable Andrew L. Carter of the U.S. District Court for the Southern District of New York dismissed an investor lawsuit alleging that former executives of the mining company bribed an acquaintance of Guinea’s then-President to maintain mining contracts in the country and misled investors by failing to disclose the alleged bribery.  The suit came on the heels of Rio Tinto notifying authorities in the United States, the United Kingdom, and Australia that it was investigating a payment to the third party.  Rio Tinto moved to dismiss for, among other reasons, failure to state a claim, arguing that the payment was not made to a “foreign official” and therefore did not violate the FCPA.  In granting the motion to dismiss, Judge Carter agreed that plaintiffs failed adequately to allege that the recipient of the payments in question was a “foreign official,” and likewise rejected that the recipient could be an “instrumentality,” a term he found covers entities, not individuals.             Civil Fraud / RICO Actions The multi-billion-dollar resolution between Odebrecht S.A. and authorities in Brazil, Switzerland, and the United States discussed in our 2016 Year-End FCPA Update has spurred civil litigation in federal court with the Brazilian construction conglomerate.  In June 2017, investment funds filed a civil fraud suit in the U.S. District Court for the Southern District of New York, alleging that the Odebrecht bonds they purchased lost value when the scandal broke.  On August 8, 2018, the U.S. District Court for the Southern District of New York allowed certain federal and state law claims to proceed. This is not the only suit against Odebrecht stemming from the resolution discussed above.  On June 12, 2018, Ecuadorian manufacturer Plastiquim and its owner initiated a suit in Florida state court against Odebrecht and others alleging fraud, RICO violations, conspiracy, and unfair business practices.  According to the filings, Odebrecht failed to disclose that a business loan Plastiquim obtained through an Odebrecht affiliate was a vehicle for laundering money tied to Odebrecht’s bribery scheme.  On December 18, 2018, Odebrecht filed a motion to dismiss the complaint. 2018 INTERNATIONAL ANTI-CORRUPTION DEVELOPMENTS             World Bank Enforcement The World Bank Group continued its active role in global anti-corruption enforcement.  In its most-recent fiscal year, the World Bank debarred 78 firms and individuals, recognized 73 cross-debarments from other multilateral development banks, and referred 43 matters to national authorities.             Europe                         United Kingdom             Alstom Executives On December 19, 2018, a global sales manager for Alstom Power Ltd.’s Boiler Retrofits unit, Nicholas Reynolds, was found guilty of conspiracy to corrupt by a jury at Blackfriars Crown Court.  Two days later, he was sentenced to 4.5 years in prison and made to pay costs of £50,000.  As a result of Reynolds’ conviction, the Serious Fraud Office (“SFO”) lifted reporting restrictions and revealed additional details of the investigation dating back several years. Reynolds was charged at the same time as John Venskus, the former Business Development Manager at Alstom Power Ltd., who pleaded guilty in October 2017 and was sentenced to 3.5 years in prison.  Göran Wikström, the former Regional Sales Director at Alstom Power Sweden AB, also pleaded guilty in June 2018 and was sentenced to 31 months in prison and made to pay £40,000 in costs. Reynolds, Venskus, and Wikstom allegedly were part of a conspiracy to bribe officials and politicians to secure contracts for a Lithuanian power station.  The SFO alleged that they falsified records to circumvent bribery and corruption controls, causing Alstom companies to pay more than €5 million to secure contracts worth €240 million.  Alstom Power Ltd. pleaded guilty to conspiracy to make corrupt payments in May 2016 and paid a fine of £6.3 million, compensation to the Lithuanian government of nearly £11 million, and prosecution costs of £700,000. The SFO further reported that, on April 10, 2018, Alstom Network UK Limited was found guilty of one count of conspiracy to corrupt in relation to bribes allegedly paid to win a Tunisian tram and infrastructure contract.  The company and two former executives were acquitted of other charges relating to Indian and Polish transport contracts.             Güralp Systems Executives Earlier in this Update we discuss the declination letter received by UK seismology company Güralp Systems Limited for alleged payments to Heon-Cheol Chi, Director of the KIGAM Earthquake Research Center in Korea.  As noted above, one of the principal reasons asserted by DOJ in support of its declination was Güralp’s commitment to accepting responsibility in connection with an ongoing SFO investigation.  Although no corporate resolution has yet been reached with Güralp, three of its former executives—founder Cansun Güralp, former managing director Andrew Bell, and former head of sales Natalie Pearce—have been charged by the SFO with conspiracy to make corrupt payments in violation of Section 1 of the Criminal Law Act 1977 and Section 1 of the Prevention of Corruption Act 1906.  Trial dates have not yet been set.             Gulnara Karimova Asset Seizure We reported in our 2016 Mid-Year and 2017 Year-End FCPA updates on the foreign bribery resolutions involving alleged bribes to Gulnara Karimova, daughter of the late Uzbek President, to influence telecommunications matters in Uzbekistan.  On October 3, 2018, the SFO issued a claim in the High Court in London against Karimova and acquaintance Rustam Madumarov, pursuant to the Proceeds of Crime Act 2002, to recover assets that were allegedly obtained using the bribes.  A hearing on the matter has yet to be scheduled.  For her part, Karimova is reportedly serving a sentence of house arrest in Uzbekistan.             ENRC Ruling On September 5, 2018, the English Court of Appeal issued judgment in The Director of the Serious Fraud Office and Eurasian Natural Resources Corporation Limited, reversing a highly criticized High Court judgment, finding that interviews conducted by outside lawyers and work conducted by forensic accounts in an internal investigation is covered by legal privilege.  For more on this important decision, please see our Client Alert, “Court of Appeal in London Overturns Widely Criticised High Court Judgment in SFO v ENRC.” Look for much, much more on UK white collar developments in our forthcoming 2018 Year-End United Kingdom White Collar Crime Update, to be released on January 22, 2019.                         Greece More than two years after trial began in the so-called cash-for-contracts scandal, Prodromos Mavridis—a former telecommunications manager for Siemens’ Greek affiliate—testified in October 2018 that he did not pay politicians from a slush fund to secure state contracts.  Mavridis, whose testimony centered on a contract for Siemens to digitize the network of OTE, Greece’s primary telecommunications provider, testified that Siemens’ Managing Board had unfairly pinned on him responsibility for the slush fund.  The trial, which has been postponed repeatedly, continues more than a decade after authorities first launched a probe into Siemens’ activities. Greek anti-corruption authorities in October 2018 ordered former defense minister Yiannos Papantoniou and his wife detained pending trial on charges that he accepted and laundered kickbacks in connection with a Greek navy contract.  Papantoniou has denied wrongdoing, citing an earlier Greek Parliamentary probe that was closed based on insufficient evidence.                         Italy In September 2018, an Italian court handed down a split decision in a long-running corruption trial concerning oil and gas industry-related bribes in Algeria.  The court found oil services group Saipem and its former CEO Pietro Tali guilty on corruption charges relating to nearly €198 million in payments Saipem made to Algerian intermediaries to secure €8 billion worth of contracts with Algeria’s state-owned energy firm Sonatrach.  The court seized €198 million from Saipem, which was also fined €400,000, and then sentenced Tali to nearly five years in prison.  The court also convicted former Saipem executives Pietro Varone and Alessandro Bernini and sentenced each of them to more than four years in prison. At the same time, the court acquitted oil and gas giant Eni, as well as former Eni CEO Paolo Scaroni and current Eni Chief Upstream Officer Antonio Vella, of similar charges.  Prosecutors had alleged that Eni—which jointly controls Saipem—sought to use the payments to win approval from Algeria’s energy ministry of Eni’s plan to acquire a Canadian oil and gas company that held rights to a large Algerian gas field. Separately, Italy’s governing coalition moved in September 2018 to bar those convicted of serious corruption crimes from working with the state through a so-called “bribe destroyer” bill.  The bill would impose a lifetime ban on holding public office or seeking state contracts on people sentenced to more than two years in prison for corruption-related offenses.  For those sentenced to fewer than two years for corruption-related crimes, the bill would impose a five-to-seven-year ban.  The bill now goes to Parliament, where the ruling coalition has a majority in both houses.                         The Netherlands On September 4, 2018, global financial institution ING Group NV agreed to pay authorities in the Netherlands €775 million to settle allegations that it violated Dutch anti-money laundering and counter-terrorism financing laws.  Allegations in the settlement concern millions of dollars that passed through ING accounts, allegedly without sufficient scrutiny, between 2010 and 2016.  These payments allegedly included $55 million to Gulnara Karimova, daughter of the then-President of Uzbekistan who has been implicated in several recent enforcement actions in multiple countries.  The resolution included €100 million in disgorgement and a fine of €675 million, the largest ever imposed by the Dutch Public Prosecution Service.  ING issued a press release the next day announcing that the U.S. SEC had closed a related investigation.                         Switzerland On August 28, 2018, Pascal Collard, a former Geneva-based oil trader with global commodity trading company Gunvor Group, received an 18-month suspended sentence from the Swiss Federal Criminal Court for bribing officials to secure oil shipments from the Republic of Congo and the Ivory Coast.  In September 2017, the Swiss Attorney General’s office opened an investigation into Gunvor and its Dutch subsidiary charging the companies with organizational failings that allowed their employees to violate bribery laws.                         Russia The Russian State Duma recently enacted new anti-corruption legislation, which entered into force in August 2018.  The new legislation has two key components.  First, if a company doing business in Russia is suspected of bribery, Russian prosecutors may petition for and obtain a court-ordered freeze of company assets.  The value of the frozen assets may not exceed the maximum potential penalty, which can range from a minimum of 1 million rubles to a maximum of 100 times the sum of the bribe.  Second, companies operating in Russia can exempt themselves from corporate liability for bribery by self-reporting the wrongdoing.  Specifically, a company that uncovers and discloses to authorities illicit conduct committed by itself or its employees (or enables a government investigation to identify such conduct) may automatically receive a full release from the statutory penalty for bribery.                         Ukraine In anticipation of the upcoming annual EU-Ukraine Association Council, the EU published its Association Implementation Report on Ukraine.  Regarding anti-corruption, the report recognized Ukraine’s progress on the legislative front and in establishing anti-corruption institutions, but at the same time noted ongoing difficulties with implementing such measures and their limited effect to date. For example, as of September 2018, the National Anticorruption Bureau of Ukraine (“NABU”) and the Specialized Anticorruption Prosecutor’s Office had initiated 644 investigations of high-level corruption.  But only 21 of these investigations have resulted in convictions.  The vast majority (including the highest-profile investigations) have been stymied by Ukraine’s courts.  Further, the new High Anti-Corruption Court (“HACC”), a judicial body designed to grant a panel of nominated, independent judges jurisdiction over cases pursued by the NABU, was established in June 2018.  Its nominating committee has yet to be selected, however, and as a result no judges have been appointed.  Likewise, although the National Agency for Prevention of Corruption (“NAPC”) has set up an automatic verification system for electronic asset declarations submitted by Ukrainian government officials, the NAPC had verified only 400 out of 2.7 million submitted declarations by October 2018.             The Americas                         Argentina In the second half of 2018, Argentina was captivated by a corruption scandal implicating dozens of politicians and businesspeople.  The aptly named “Notebooks” scandal concerns notebooks belonging to the chauffeur of Roberto Baratta, a high-ranking official in the administration of former President Cristina Fernández de Kirchner.  Covering more than a decade, the notebooks allegedly describe tens of millions of dollars in bribes from public works contractors and others seeking favorable treatment that the chauffeur delivered to Fernández, her husband and former President Néstor Kirchner, and other high-level officials. Fernández was indicted on September 17, 2018, but her status as a sitting senator in Argentina’s legislature grants her immunity from arrest.  The federal judge presiding over many of the criminal cases stemming from the Notebooks scandal asked the legislature to impeach Fernández, but the effort failed in the face of strong political support.  Fernández’s former planning minister, Julio De Vido—who was sentenced in October 2018 to almost six years in prison on separate graft charges—also is under investigation in the Notebooks scandal.  While Fernández’s administration is the focus of the investigation, current President Macri’s cousin, the former head of an Argentinian construction company, also is implicated, and in November, authorities indicted the president of Techint Group, Paolo Rocca.  Dozens of businesspeople seeking to avoid prison time have entered into plea deals. On the legislative front, in October 2018, the Argentine Anti-Corruption Office adopted “Integrity Guidelines” pursuant to Argentina’s Law on Criminal Liability of Legal Persons, which as covered in our 2018 Mid-Year FCPA Update came into effect in March 2018.  Modeled on similar guidance from the United States, the United Kingdom, and Brazil, the guidelines are designed to aid in complying with Articles 22 and 23 of the law, which outline requirements for corporate compliance programs.                         Brazil In the wake of a tumultuous presidential election, the fight against corruption remains at the forefront of Brazilian life.  The late 2018 election was widely viewed as a repudiation of the Workers’ Party, which was at the epicenter of Brazil’s massive anti-corruption investigation, Operation Car Wash.  President-elect Jair Messias Bolsonaro has taken a hard line against corruption in his speeches and named leading anti-corruption figures to his administration.  For example, Bolsonaro retained Wagner de Campos Rosário, who played a critical role in negotiating corporate leniency agreements in connection with Operation Car Wash, as the Minister of Transparency and Chief of the Comptroller General of the Federal Union.  Bolsonaro also appointed Judge Sérgio Moro, the federal judge who has presided over Operation Car Wash since 2014, to serve as Minister of Justice and Public Security. Independent of these political developments, Brazilian enforcement authorities have continued to investigate and prosecute corruption at high levels.  In 2018, the Operation Car Wash Task Force launched 10 new phases, bringing the total to 57.  Most recently, enforcement authorities have focused on allegations of corrupt payments by commodity traders.  Since 2014, the investigation has resulted in more than 1,000 search and seizure orders, more than 250 arrest warrants, approximately 550 international cooperation requests, approximately 180 individual plea bargain agreements, more than 10 leniency agreements, more than 200 convictions, and recovery of approximately $3 billion (R$12.3 billion) via plea deals.  Five of the six living Brazilian ex-presidents—Fernando Collor de Mello, Luiz Inácio Lula da Silva, Dilma Rousseff, José Sarney, and Michel Temer—have been implicated.  Collor, Lula, and Rousseff are currently defendants in criminal cases, while Sarney’s and Temer’s cases await further analysis by the Supreme Court.  Lula, currently serving a prison sentence for money laundering and corruption related to Operation Car Wash, recently was also charged with money laundering in connection with a bribery scheme involving Equatorial Guinea. In another Operation Car Wash-related development, Dutch oil and gas services provider SBM Offshore N.V. announced two agreements in July and September 2018 to pay a total of $347 million to Brazilian authorities and Petrobras to resolve allegations of paying bribes to secure contracts with the state-owned oil company.  As we reported in our 2017 Year-End FCPA Update, SBM previously reached an FCPA resolution with DOJ in November 2017.  In a seeming nod to these Brazilian resolutions, the $238 million fine in the DOJ FCPA settlement credited a to-be-paid amount to Brazilian authorities. Plea bargains have remained an essential tool for Brazilian authorities to expose systemic corruption, in Operation Car Wash and in other investigations.  Nonetheless, there are uncertainties about the use of this tool, including with respect to the use of plea bargain evidence by other agencies and the consequences of breaching an agreement.  For example, the Attorney General’s Office has requested the rescission of plea bargain agreements with Joesley and Wesley Batista, whose corruption cases were reported in our 2017 Year-End and 2018 Mid-Year FCPA updates.  To provide greater legal certainty around the negotiation of plea bargains, the Brazilian Prosecutor’s Office recently published guidance on the procedures necessary to enter into a plea bargain.  Other Brazilian agencies likewise have engaged in efforts to incentivize whistleblowing and to enhance transparency and accountability.  These efforts, combined with the new Ministry of Justice and Public Security’s vow to tackle corruption, look to make 2019 a key year in Brazil’s ongoing fight against corruption.                         Costa Rica As 2018 drew to a close, Costa Rica’s judiciary faced a crisis, as various members of the Costa Rican Supreme Court have been suspended or impeached for alleged links to a corruption scandal known as the “Cementazo.”  The scandal revolves around businessman Juan Carlos Bolaños and his cement importation company, Grupo JCB.  Bolaños was arrested, convicted, and sentenced to serve prison in 2017.  In April 2018, the legislature impeached Judge Celso Gamboa for allegedly alerting Bolaños to developments in the case against him.  And in July 2018, the Costa Rican judiciary reprimanded four judges accused of stifling investigations by ignoring evidence of influence peddling on the part of two congressmen linked to Bolaños’s scheme.  Days later, the president of Costa Rica’s Supreme Court, Carlos Chinchilla, announced his immediate retirement at age 55.  The Costa Rican Attorney General’s Office has filed a criminal action against the five judges.                         El Salvador In a groundbreaking stand against corruption in this Central American nation, former President Elías Antonio “Tony” Saca González was sentenced in September 2018 to 10 years in prison and ordered to return $260 million after pleading guilty to charges of embezzlement and money laundering.  Saca, who served as president between 2004 and 2009, detailed an elaborate $300 million corruption scheme in a lengthy confession during an August 2018 court hearing.  Saca implicated other public officials, including then-First Lady Ana Ligia de Saca, who he said received, among other things, all-expense paid trips overseas and a $10,000 monthly stipend.  She now faces her own criminal case for money laundering and other crimes.  In a move that mirrors her husband’s, she recently offered to plead guilty in exchange for receiving the shortest possible sentence.  El Salvador’s District Attorney’s Office currently is evaluating whether to accept the former first lady’s offer. Former President Saca is the first president in Salvadoran history to stand trial for corruption.  This case could serve as a model for the prosecution of other leaders accused of corruption.  In June 2018, for example, the District Attorney’s Office ordered the arrest of 30 close friends and family of former President Mauricio Funes, Saca’s successor, for their alleged participation in a multi-million dollar embezzlement scheme.  Although Funes received asylum in Nicaragua in 2016, claiming political persecution shortly after prosecutors opened a civil unlawful enrichment action against him, he and his son were ordered to return hundreds of thousands of dollars to El Salvador.                         Guatemala Anti-corruption efforts in Guatemala suffered a significant setback as President Jimmy Morales announced that the U.N.-sponsored International Commission Against Impunity in Guatemala (known by its Spanish acronym “CICIG”) would be shut down and replaced by local Guatemalan institutions.  As detailed in our 2018 Mid-Year FCPA Update, CICIG is an anti-corruption commission that has conducted investigations against top Guatemalan leaders and businesspeople.  CICIG currently is conducting a probe against President Morales for illicit campaign financing.  In a move denounced as an attack on judicial independence, Morales attempted to expel CICIG chief Iván Velásquez Gómez in 2017, shortly after Guatemala’s attorney general announced she would seek to remove Morales’s immunity from prosecution.  The Supreme Court of Justice of Guatemala swiftly halted Morales’s efforts.  The Court has thrice received requests to prompt Congress to deliberate whether Morales should be stripped of immunity for unlawful acts committed during his tenure as his political party’s secretary general.  It permitted the last of these requests to proceed to Congress in mid-2018. In August 2018, Morales announced that he would transfer CICIG’s authority to Guatemalan hands due to CICIG’s alleged selective prosecution, intimidation of the citizenry, and erosion of due process and the presumption of innocence.  The decision was met with intense disapproval from human rights organizations and advocates, although it received only mild criticism from the U.S. embassy in Guatemala.  Morales has since revoked or denied visas to dozens of CICIG personnel probing his potential wrongdoing, including Velásquez Gómez.                         Haiti A recent corruption scandal has led to public unrest.  A Haitian Senate probe has accused more than a dozen former government officials—including former Prime Ministers Jean-Max Bellerive and Laurent Lamothe—and businesspeople of embezzling $2 billion from a Venezuelan oil discount program.  Anti-corruption protests arising from the probe turned violent in October and November 2018, with protestors demanding an accounting of the funds.  After the protests, two top government officials and 15 advisers were fired, in accordance with recommendations from an August 2018 report from the Haitian Senate.                         Mexico With the July 2018 election of Andres Manuel López Obrador, Mexico’s anti-corruption movement received another boost.  Campaigning largely on the fight against corruption, President López Obrador is expected to complete the implementation of the National Anti-corruption System (“NAS”), as well as other reform efforts.  Although it was approved in 2016, the NAS faced significant roadblocks under former President Peña Nieto, who stalled the appointment of a national general prosecutor, national anti-corruption chief prosecutor, and judges on the new Federal Administrative Court. In the meantime, Mexico continues to pursue existing corruption cases.  After announcing earlier this year that it would impose a nearly $60 million penalty on Odebrecht for bribery violations, Mexico’s main anti-corruption auditor has expressed the government’s intention to recover this fine through seizure of balances owed to Odebrecht by state-owned Pemex, in the face of legal resistance from Odebrecht.  Moreover, in addition to debarring Odebrecht bids from public tenders until 2020, officials from the López Obrador administration have signaled that future bids from Odebrecht and other companies will be shut out throughout President López Obrador’s tenure. Yet arguably the biggest development in anti-corruption enforcement for Mexico this year is the adoption of the United States-Mexico-Canada Agreement (“USMCA”), an agreement among the three nations that will replace the 25-year-old NAFTA.  In the USMCA, the three countries have included a chapter dedicated solely to anti-corruption.  In Chapter 27, titled “Anticorruption,” the parties agree to adopt and enforce anti-corruption measures, protect whistleblowers, and promote the participation of the private sector in fighting corruption, among other things.  Mexico reportedly made the primary efforts to include Chapter 27 in the hopes of promoting and maintaining foreign investment.                         Venezuela Venezuela’s Attorney General, Tarek William Saab, continued his office’s anti-corruption campaign this year.  Saab revealed that, during his first year in office, the Public Prosecutor’s Office convicted 616 individuals, including many former government officials, on charges of corruption.  The Public Prosecutor’s Office also uncovered 18 different corruption schemes within the oil industry.  One of these schemes involved Venezuela’s state-owned energy company, PDVSA.  In September 2018, Saab announced arrest warrants for nine officials involved in the fraudulent purchase of aluminum tanks for transporting fuel.  PDVSA had paid millions of dollars for 234 tanks, only 168 of which were delivered and not according to the appropriate technical specifications.  Saab estimates this resulted in a loss of approximately $19 million. The country’s president has not escaped allegations of corruption.  In November 2018, Venezuela’s exiled Supreme Tribunal of Justice requested that Interpol issue an international arrest warrant for President Nicolás Maduro for accepting money from illegal activities.  According to Venezuela’s former Attorney General, President Maduro accepted millions of dollars in bribes from Odebrecht. Asia                         China China grabbed the attention of the global legal community in October 2018 with its International Criminal Judicial Assistance Law (“ICJA”).  Although guidance relating to its implementation and enforcement remains to be seen, the ICJA would appear to act as a blocking statute and prohibit entities and persons in China from cooperating with or providing evidence to foreign investigators absent the authorization of Chinese authorities.  Much remains to be written about the ICJA, but we will continue to monitor this development that could substantially impact many FCPA investigations. On the enforcement front, the sixth year of President Xi Jinping’s anti-corruption campaign brought a number of significant structural changes to China’s anti-corruption regime and a steady stream of high-profile investigations and prosecutions.  In addition to the changes discussed in our 2018 Mid-Year FCPA Update, the Chinese government established the State Administration for Market Regulation (“SAMR”), which is empowered to investigate commercial bribery and unfair competition, among other things, and centralizes and consolidates functions previously assigned to several regulatory bodies, including the State Administration for Industry and Commerce.  In total, nearly 350,000 officials, including 25 at the provincial or ministerial level, have been punished for violating austerity rules since late 2012.  And on November 30, 2018, China for the first time extradited a former Chinese official accused of taking bribes from the European Union.                         India In July 2018, long-awaited amendments to India’s Prevention of Corruption Act (Amendment) Act, 2018 came into force.  In the works for several years, the amendments contain a number of significant changes to the anti-corruption law in India which we have detailed in our Client Alert, “Amendments to the Prevention of Corruption Act, 1988: Implications for Commercial Organizations Doing Business in India.” On the enforcement front, India’s Central Bureau of Investigation (“CBI”) in May registered a case under the Indian Penal Code and Prevention of Corruption Act alleging that officers linked to AirAsia India conspired with Indian officials to expedite approvals and change Indian aviation policies to benefit the airline.  CBI’s investigation is ongoing.                         Japan In July 2018, Japanese prosecutors indicted three executives of Yokohama-based power plant manufacturer Mitsubishi Hitachi Power Systems Ltd (“MHPS”)—Satoshi Uchida, Fuyuhiko Nishikida, and Yoshiki Tsuji—for allegedly bribing a Thai official in 2015.  Nishikida and Tsuji admitted to the charges in December 2018, while Uchida’s first hearing is set for January 11.  This scheme came to the attention of prosecutors after a self-report by MHPS.  MHPS became the first company to enter into a plea agreement in Japan for organized crime and bribery, and in recognition of its cooperation, MHPS was not prosecuted for the scheme.  Japan’s plea bargain system for organized crime and bribery cases was only introduced in June 2018, just one month before MHPS’s plea agreement.                         Korea Two former Korean presidents received substantial terms of imprisonment in 2018 for corruption-related offenses. In August 2018, Park Geun-Hye, who as reported in our 2018 Mid-Year FCPA Update was convicted of 16 corruption-related offenses in April 2018, saw her prison sentence and fine increased to 25 years and KRW 20 billion (~$18 million) for accepting more improper payments than previously thought.  Earlier in the summer, Park received an eight-year sentence on separate charges of interfering with the 2016 elections and illegally diverting millions of dollars from the National Intelligence Service.  Park is currently serving her terms consecutively. In October 2018, Lee Myung-Bak was sentenced to 15 years and a fine of KRW 13 billion (~ $11.5 million) for bribery and embezzlement.  The Seoul Central District Court concluded that he received more than KRW 11 billion (~ $10 million) in bribes before and during his presidency.                         Malaysia In April 2018, Malaysia passed the Malaysian Anti-Corruption Commission (Amendment) Act 2018, which introduces a new section creating liability for commercial organizations if a person associated with the organization engages in corruption.  Directors, controllers, officers, partners, and members of the company management can face a jail term of up to 20 years and a fine of the higher of 10 times the value of the bribe or RM 1 million (~ $240,000).  Modeled after the UK Bribery Act, a defense is available for companies that “had in place adequate procedures to prevent persons associated with the commercial organization from undertaking such conduct.”  While the Act officially came into force on October 1, 2018, the provisions relating to corporate liability will not be operative for another two years to provide companies with time to enhance their internal controls. On the enforcement front, on December 17, 2018, Malaysian prosecutors brought charges against three units of a prominent New York-headquartered investment bank and issuer for allegedly false and misleading statements in materials prepared in connection with the 1MDB bond offerings.  Other charges filed by Malaysian authorities have targeted former Prime Minister Najib Razak, his wife Rosmah Mansor, and several former Malaysian foreign intelligence agents.                         Thailand On July 22, 2018, Thailand’s new anti-corruption law—the Act Supplementing the Constitution Relating to the Prevention and Suppression of Corruption B.E. 2561 (2018)—came into force.  The new law expands the scope of persons covered by the law.  Previously, only individuals and entities registered in Thailand could be liable for bribery, but the new law applies to legal entities registered abroad if they have Thai operations.  Much like the UK Bribery Act, under the Thai law a company can be liable for bribes paid by “associated persons” for the company’s benefit unless the company can demonstrate that it had in place adequate internal controls.             Middle East and Africa                         Israel On December 2, 2018, Israeli police recommended that Prime Minister Benjamin Netanyahu be indicted on bribery and fraud charges, among others, marking the third time in 2018 that the police recommended indicting Netanyahu.  The most-recent recommendation stems from allegations that Netanyahu awarded contracts to Israeli telecom company Bezeq in exchange for favorable news coverage.  Netanyahu has denied the allegations, and the decision whether to indict him in any of the three cases, which would be unprecedented, is with Attorney General Avichai Mandelblit.                         Saudi Arabia On September 25, 2018, Saudi Arabia amended its anti-corruption law to remove the 60-day statute of limitations applicable to anti-corruption investigations into current and former Saudi ministers.  The amendment follows the large-scale anti-corruption probe, initiated in November 2017 by Crown Prince Mohammed bin Salman, that involved detaining and questioning of hundreds of influential Saudis as covered in our 2017 Year-End and 2018 Mid-Year FCPA updates.  That effort has resulted in the Saudi government seizing more than $100 billion.                         South Africa In September 2018, the son of former South African President Jacob Zuma (who was ousted in February in connection with corruption allegations as reported in our 2018 Mid-Year FCPA Update) reportedly agreed to testify at a judicial inquiry into allegations that the wealthy Gupta brothers—Ajay, Atul, and Rajesh—illegally influenced cabinet appointments and the award of state contracts during Zuma’s administration.  Former deputy finance minister Mcebisi Jonas reportedly told investigators in August 2018 that Zuma’s son helped arrange a meeting between him and the Guptas at which he was offered his post and a nearly $40 million bribe.  The son denied that any bribe was offered.  The group handling the investigation, the South African Commission of Inquiry into State Capture, Corruption and Fraud in the Public Sector, reportedly has been given until March 2020 to investigate.  The Guptas reportedly are in the UAE, but an extradition treaty recently signed between the two countries may signal that additional developments are on the horizon. CONCLUSION As is Gibson Dunn’s semi-annual tradition, over the next several weeks we will be publishing a series of enforcement updates for the benefit of our clients and friends as follows: Tuesday, January 8:  2018 Year-End Update on Corporate NPAs and DPAs; Wednesday, January 9:  2018 Year-End False Claims Act Update; Thursday, January 10:  2018 Year-End Developments in the Defense of Financial Institutions; Friday, January 11:  2018 Year-End German Law Update; Monday, January 14:  2018 Year-End Trade Secrets Update; Tuesday, January 15:  2018 Year-End Securities Enforcement Update; Wednesday, January 16:  2018 Year-End Securities Litigation Update; Thursday, January 17:  2018 Year-End UK Labor & Employment Update; Friday, January 18:  2018 Year-End Class Actions Update; Monday, January 21:  2018 Year-End FDA and Health Care Compliance and Enforcement Update – Drugs and Devices; Tuesday, January 22:  2018 Year-End UK White Collar Crime Update; Wednesday, January 23:  2018 Year-End Activism Update; Monday, January 28:  2018 Year-End Cybersecurity Update (United States); Tuesday, January 29:  2018 Year-End Cybersecurity Update (European Union); Wednesday, January 30:  2018 Year-End Health Care Compliance and Enforcement Update – Providers; Thursday, January 31:  2018 Year-End Government Contracts Litigation Update; Friday, February 1: 2018 Year-End Media and Entertainment Update; Monday, February 4:  2018 Year-End Transnational Litigation Update; Tuesday, February 5:  2018 Year-End AI & Related Technologies Update; Wednesday, February 6:  2018 Year-End Sanctions Update; and Thursday, February 7:  2018 Year-End China Antitrust Update. The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, John Chesley, Christopher Sullivan, Richard Grime, Patrick Stokes, Wendy Cai, Ella Alves Capone, Claire Chapla, Winson Chu, Timothy Deal, Austin Duenas, Daniel Harris, Patricia Herold, Korina Holmes, Derek Kraft, Nicole Lee, Vinay Limbachia, Lora MacDonald, Michael Marron, Jesse Melman, Steve Melrose, Katie Mills, Erin Morgan, Alexander Moss, Jaclyn Neely, Jonathan Newmark, Nick Parker, Arturo Pena Miranda, Anna Luiza Ramos, Emily Riff, Katie Salvaggio, Liesel Schapira, Emily Seo, Jason Smith, Pedro Soto, Ian Sprague, Laura Sturges, Karthik Ashwin Thiagarajan, Bonnie Tong, Jeffrey Vides, Milagros Villalobos, Caitlin Walgamuth, Alina Wattenberg, Oliver Welch, Carissa Yuk, and Caroline Ziser Smith. 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 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) 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) Marc J. Fagel (+1 415-393-8332, mfagel@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, sharber-kelly@gibsondunn.com) 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) Audrey Obadia-Zerbib (+33 1 56 43 13 00, aobadia-zerbib@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) São Paulo Lisa A. Alfaro (+55 (11) 3521-7160, lalfaro@gibsondunn.com) Fernando Almeida (+55 (11) 3521-7095, falmeida@gibsondunn.com) Singapore Grace Chow (+65 6507.3632, gchow@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 4, 2019 |
Government Shutdown Update – Sanctions, Export Controls and Other International Trade Operations

Click for PDF The U.S. Government is now approaching the second week of a partial shutdown that has affected nine departments, several agencies, and approximately 800,000 federal workers.  The U.S. Government agencies responsible for administering U.S. sanctions, export controls, and other trade-related functions are among those affected by the lapse in federal appropriations.  As a result, these agencies have substantially reduced their operations.  While some of these agencies’ core functions will continue to operate, the shutdown will certainly increase wait times for licenses, advisory opinions, or other responses and will generally hamper communication with the agencies, even on time-sensitive requests.  A brief overview of the current operating status of these international trade-related agencies follows below. OFAC The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), which administers U.S. sanctions programs, remains functional but in limited capacity.[1]  OFAC continues to administer the Specially Designated Nationals and Blocked Persons (“SDN”) List and to enforce U.S. sanctions and will administer newly authorized sanctions should the need arise.  OFAC is situated in the U.S. Treasury Department’s Office of Terrorism and Financial Intelligence, which will continue to perform certain limited national security-related functions. Guidance from the Department indicates that OFAC will also have limited capacity to communicate with financial institutions and other affected industries during the shutdown.  As a result of these restrictions, the public can expect increased wait times for responses to license applications, voluntary disclosures, advisory opinions, and other communications.  In our experience, most efforts to contact OFAC policy personnel have gone unanswered and messages to compliance officers have been met with out-of-office replies citing the shutdown. BIS and DDTC Although the U.S. Department of Commerce is closed, its Bureau of Industry and Security (“BIS”), which is responsible for administering U.S. export controls applicable to dual use items, remains relatively well-staffed.  According to the Department’s shutdown guidance, almost 70 percent of the Bureau’s 358 employees are excepted from the shutdown either because they are considered essential or because funding for their positions comes from alternative sources.[2]  The Department’s shutdown guidance also notes that ongoing export enforcement will continue during the lapse in appropriations.[3]  However, as with the other agencies described here, even a slight reduction in personnel may make it more difficult to receive responses from BIS. The U.S. Department of State’s Directorate of Defense Trade Controls (“DDTC”) administers restrictions on the export of defense articles, defense services, and related technical data.  While the State Department has provided relatively little information regarding its shutdown operations, DDTC has helpfully set forth certain specifics regarding its “significantly curtailed” operations.[4]  During the shutdown DDTC will have limited ability to process license requests, advisory opinions, and retransfers.  DTrade, the portal for requesting and receiving license requests, automatically rejects new submissions, and the Directorate’s daily pick-up and drop-off service is cancelled.  Requests in-process at the time of the shutdown will remain in-process but further action will not occur until funding is restored.  DDTC may, however, respond to certain emergency requests. Other Trade-Related Functions Other offices and agencies responsible for performing trade-related functions are differently impacted by the ongoing shutdown.  For example, The Committee on Foreign Investment in the United States (“CFIUS”), the interagency committee tasked with reviewing foreign investment in the United States, is also operating at reduced capacity.  According to guidance published by the Department of the Treasury, CFIUS will be able to perform “caretaker functions” related to existing reviews or investigations of inbound investment initiated before the recently enacted Foreign Investment Risk Review Modernization Act (“FIRRMA”), but ongoing cases will be tolled.[5]  Although the Committee will continue to perform certain national security functions, other CFIUS activities are suspended. Although BIS is experiencing only limited personnel reductions, the Department of Commerce’s International Trade Administration and the Bureau of Economic Analysis are operating with a fraction of their normal operating personnel.  The U.S. International Trade Commission is closed, which could delay the release of the Commission’s report on the economic impact of the new U.S.-Mexico-Canada Agreement.[6]  The Office of the U.S. Trade Representative, which administers the new tariffs on Chinese imports, remains operational.[7]    [1]   U.S. Dep’t of the Treasury, Lapse of Appropriations Plan 7 (Dec. 2018), available at https://home.treasury.gov/system/files/266/DO-Lapse-Contingency-Plan-2018-12-18.pdf.    [2]   U.S. Dep’t of Commerce, Plan for Orderly Shutdown Due to Lapse of Congressional Appropriations 6 (Dec. 17, 2018), available at https://www.commerce.gov/sites/default/files/2018-12/DOC%20Lapse%20Plan%20-%20OMB%20Approved%20-%20Dec%2017%2C%202018.pdf.    [3]   U.S. Dep’t of Commerce, Shutdown Due to Lapse of Congressional Appropriations, Blog (Dec. 22, 2018), https://www.commerce.gov/news/blog/2018/12/shutdown-due-lapse-congressional-appropriations.    [4]   DDTC, U.S. Dep’t of State, Industry Notice: Lapse in Funding, News & Events (Dec. 22, 2018), https://www.pmddtc.state.gov/?id=ddtc_public_portal_news_and_events.    [5]   U.S. Dep’t of the Treasury, Lapse of Appropriations Plan 7 (Dec. 2018), available at https://home.treasury.gov/system/files/266/DO-Lapse-Contingency-Plan-2018-12-18.pdf.    [6]   Jennifer Scholtes, Caitlin Emma, and Katy O’Donnell, How the Shutdown Is Reaching a Breaking Point, Politico (Jan. 3, 2018), https://www.politico.com/story/2019/01/01/how-the-shutdown-is-reaching-a-breaking-point-1053885.    [7]   Press Release, Office of the U.S. Trade Representative, USTR Operating Status (Dec. 28, 2018), available at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/december/ustr-operating-status. The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Adam M. Smith, R.L. Pratt and Stephanie Connor. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade practice group: United States: Judith Alison Lee – Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com) Ronald Kirk – Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, rkirk@gibsondunn.com) Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com) Marcellus A. McRae – Los Angeles (+1 213-229-7675, mmcrae@gibsondunn.com) Adam M. Smith – Washington, D.C. (+1 202-887-3547, asmith@gibsondunn.com) Christopher T. Timura – Washington, D.C. (+1 202-887-3690, ctimura@gibsondunn.com) Ben K. Belair – Washington, D.C. (+1 202-887-3743, bbelair@gibsondunn.com) Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com) Laura R. Cole – Washington, D.C. (+1 202-887-3787, lcole@gibsondunn.com) Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, sconnor@gibsondunn.com) Helen L. Galloway – Los Angeles (+1 213-229-7342, hgalloway@gibsondunn.com) Henry C. Phillips – Washington, D.C. (+1 202-955-8535, hphillips@gibsondunn.com) R.L. Pratt – Washington, D.C. (+1 202-887-3785, rpratt@gibsondunn.com) Scott R. Toussaint – Palo Alto (+1 650-849-5320, stoussaint@gibsondunn.com) Europe: Peter Alexiadis – Brussels (+32 2 554 72 00, palexiadis@gibsondunn.com) Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com) Patrick Doris – London (+44 (0)207 071 4276, pdoris@gibsondunn.com) Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com) Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com) Richard W. Roeder – Munich (+49 89 189 33-160, rroeder@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 21, 2018 |
Turnarounds & Workouts Names Jeffrey Krause Among its Outstanding Restructuring Lawyers

Los Angeles partner Jeffrey Krause was named by Turnarounds & Workouts to its 2018 list of Outstanding Restructuring Lawyers. The list was published in the December 2018 issue. Krause serves as Co-Chair of the firm’s Business Restructuring and Reorganization Practice Group.  He has a broad corporate restructuring practice and has handled significant debtor and creditor committee representations, as well as representations of acquirers of assets from chapter 11 debtors, lessors and secured and unsecured creditors.  He is a fellow of the American College of Bankruptcy.

December 21, 2018 |
Landmark Judgments by General Court of the European Union Declare State Aid for Two Infrastructure Projects Illegal

Click for PDF In September and December 2018, Gibson Dunn attorneys won three cases before the General Court of the European Union (cases T-630/15, Scandlines Danmark and Scandlines Deutschland v Commission and T-631/15, Stena Line Scandinavia v Commission of 13 December 2018; and Case T-68/15 HH Ferries and others v Commission of 19 September 2018). In the first two of those judgments, handed down on 13 December 2018, Gibson Dunn represented the ferry lines Scandlines and Stena Line Scandinavia. In both cases, the General Court annulled a European Commission decision of 15 July 2015 authorising State aid for a major infrastructure project, the Fehmarn fixed link, worth 7.4 billion EUR consisting of a 12-mile coast-to-coast underwater tunnel between Denmark and Germany for road and rail traffic. With these two landmark judgments, the General Court declared that the financial support granted by Denmark in the form of State guarantees and State loans to the Fehmarn fixed link is illegal, effectively bringing the construction works of that infrastructure project to a halt.  The cases attracted several third-party interveners.  The Danish State  intervened in order to support the European Commission, while the Swedish Shipping Association and NABU (a major German environmental organization) intervened to support Scandlines. These two judgments followed an earlier Gibson Dunn victory before the General Court on 19 September 2018 in which the General Court annulled the European Commission’s decision authorising State aid for another significant infrastructure project, the Øresund fixed link.  In this case, Gibson Dunn represented the competing ferry line HH Ferries.  The Øresund fixed link consists of a 10 mile long bridge and an underwater tunnel between Denmark and Sweden, worth 3 billion EUR (Case T-68/15 HH Ferries and others v Commission).  Both the Danish and Swedish States intervened in the case to support the European Commission. These three judgments are the latest in a list of prominent judgments of EU Courts setting out the compliance requirements for infrastructure projects within the EU. Specifically, the General Court makes clear that State aid to any major infrastructure project must be limited in time and amount. For example, the European Commission argued in the Fehmarn fixed link cases that the State guarantees and loans were limited to a 55-year period after the opening of the fixed link. However, the General Court found that this period did not provide a precise indication of the exact duration and end date of the State guarantees and State loans. In fact, the General Court concluded that this ’55-year’ period was, in itself, extremely long and indeterminate and relates, in any case, only to the availability of the State guarantees and State loans, without fixing a time limit of each State guarantee and State loan. The judgments also clarify that the State aid for such infrastructure projects may not include any ‘operating aid’, that is support for operating costs, such as costs for electricity, water, and labour etc. which are costs that a company would normally have to bear in its day-to-day management or ordinary activities.  In this context the General Court also ruled that loans taken out for refinancing investment costs constitute a form of prohibited operating aid, something that will have a major impact on the financing model underlying both infrastructure projects. Finally, the General Court also held that the European Commission had erred by not requiring the Danish authorities to disclose to the European Commission the conditions for triggering the benefit of the guarantees. In this regard, the European Commission admitted that it did not know the conditions on which the guarantees would be triggered at the time when it approved the State aid. As a result of the judgments, the European Commission may not authorise State aid to support the financial model underlying both the Fehmarn and Øresund fixed links.  In addition, the annulment has the immediate effect of making any further State aid to the projects illegal.  The European Commission is now tasked with determining whether it is feasible to issue a new authorisation of the State aid for these projects whilst complying with the strict limitations laid down by the General Court.  As mentioned above, the effect of this is that the construction of the Fehmarn fixed link project will therefore most likely be ceased at least for the foreseeable future.  The banks financing the Øresund fixed link may also withdraw their loans, thereby rendering the overall commercial operation of the fixed link non sustainable – unless prices for crossing the fixed link are significantly raised, something which the ferry lines would welcome. The following Gibson Dunn lawyers assisted in preparing this client update: Lena Sandberg, Peter Alexiadis, and Yannis Ioannidis. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following lawyers in Brussels: Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) Please also feel free to contact any of the practice group leaders and members: Brussels Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com) Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com) Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com) David Wood (+32 2 554 7210, dwood@gibsondunn.com) London Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com) Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com) Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com) Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com) Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com) Munich Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Hong Kong Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com) Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com) Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 20, 2018 |
Rachel Brass and Scott Edelman Named Litigators of the Week

The Am Law Litigation Daily named San Francisco partner Rachel Brass and Century City partner Scott Edelman as “Litigators of the Week” [PDF] for successfully defending Ottogi Company, Ltd. and Ottogi America, Inc. against a $500 million price-fixing class action. After a five-week trial, a jury in the Northern District of California took just three hours to find for the defense across the board. The profile was published on December 20, 2018. Gibson Dunn’s worldwide Antitrust and Competition Practice Group numbers over 150 lawyers located throughout the United States, Europe and Asia.  Our antitrust team includes former high-ranking officials from the U.S. Department of Justice (DOJ), the U.S. Federal Trade Commission (FTC), the U.S. Solicitor General’s Office and the European Commission, as well as Fellows of the American College of Trial Lawyers.  The practice group is seamlessly integrated with Gibson Dunn’s powerhouse class action and appellate litigation teams to enable the firm to handle any crisis, as well as a matter from inception all the way through the U.S. Supreme Court.

December 19, 2018 |
Webcast: CFIUS Reform: Implications for Private Equity Investments

On August 13, 2018, President Trump signed legislation that will significantly expand the scope of inbound foreign investments subject to review by the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”). The Foreign Investment Risk Review Modernization Act (“FIRRMA”) expanded the scope of transactions subject to the Committee’s review by granting CFIUS the authority to examine the national security implications of a foreign acquirer’s non-controlling investments in U.S. businesses that deal with critical infrastructure, critical technology, or the personal data of U.S. citizens. Critically, an express carve-out for indirect foreign investment through certain investment funds may prevent many transactions by private equity funds from falling into the Committee’s expanded jurisdiction. In this webcast presentation, our panelists discuss the new CFIUS legislation and its impact on private equity investments. View Slides (PDF) PANELISTS: Judith Alison Lee, a partner in Gibson Dunn’s Washington, D.C. office, is Co-Chair of the firm’s International Trade Practice Group. She practices in the areas of international trade regulation, including USA Patriot Act compliance, economic sanctions and embargoes, export controls, and national security reviews (“CFIUS”). She also advises on issues relating to virtual and digital currencies, blockchain technologies and distributed cryptoledgers. Jose W. Fernandez, a partner in Gibson Dunn’s New York office and Co-Chair of the firm’s Latin America Practice Group, previously served as Assistant Secretary of State for Economic, Energy and Business Affairs during the Obama Administration, and led the Bureau that is responsible for overseeing work on sanctions and international trade and investment policy. His practice focuses on mergers and acquisitions and finance in emerging markets in Latin America, the Middle East, Africa and Asia. Stephanie L. Connor, a senior associate in Gibson Dunn’s Washington D.C. office, practices primarily in the areas of international trade compliance and white collar investigations. She focuses on matters before the U.S. Committee on Foreign Investment in the United States (“CFIUS”) and has served on secondment to the Legal and Compliance division of a Fortune 100 company. Michael Garson is a Senior Managing Director at Ankura with more than 20 years of experience as an attorney in private practice, an in-house general counsel, and a C-suite operations and compliance executive. In those roles, he advised companies and enterprises of all sizes on US federal, state, and municipal procurements and grants and has specific expertise in defense and technology matters. 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 1.50 credit hours, of which 1.50 credit hours 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 Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hour may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@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 1.50 hours. 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.  

December 18, 2018 |
Barbara Becker Named to The Deal’s Powerhouse 20

Barbara Becker was named to The Deal’s Women in M&A: The Powerhouse 20, featuring female M&A lawyers and bankers at the top of their professions. Becker is a corporate partner in the New York office of Gibson Dunn and Co-Chair of Gibson Dunn’s Mergers and Acquisitions Practice Group.  She advises companies on all significant business and legal issues, including mergers and acquisitions (including domestic and cross-border), spin-offs, joint ventures and general corporate matters. She also advises boards of directors and special committees of public companies. Becker represents corporations and investment banks based in and outside of the United States and other investors in their M&A activities. She focuses on clients in the consumer/retail, technology, healthcare and industrial industries.  The list was published on December 18, 2018.

December 20, 2018 |
Gibson Dunn Ranked in the Legal 500 Deutschland 2019

The Legal 500 Deutschland 2019 ranked Gibson Dunn in four practice areas and named Frankfurt partner Dirk Oberbracht as Leading Lawyer in Private Equity. The firm was recognized in the following categories: Antitrust, Compliance, Compliance: Internal Investigations, and Private Equity: Transactions. Oberbracht is a leading Private Equity and M&A lawyer. He advises private equity investors, corporate clients, families and management teams. He has extensive expertise in cross-border and domestic deals, including carve-outs, joint ventures, minority investments, corporate restructurings and management equity programs.

December 18, 2018 |
Gibson Dunn Ranked Top in Debt Restructuring and Insolvency by Magazine des Affaires

French business magazine Magazine des Affaires has ranked Gibson Dunn in the top tier in both its debt restructuring and insolvency categories. The rankings were published in the December 2018 restructuring special of Magazine des Affaires.