ACC Boston: notes on some of the substantive presentations (Part 2)

The recap of the first four of the six formal presentations we covered you can find by clicking here.

In this Part 2 we cover:  the personal liabilty of a general counsel; DOJ/SEC enforcement efforts in 2009

1.  Don’t Prosecute the General Counsel

The panel consisted of Peter Anderson (partner at Sutherland Asbill & Brennan), Kirk Forrest (Vice President, General Counsel & Secretary Minerals Technologies Inc.), William Jacobson (Chief Compliance Officer at Weatherford International LTD), Kevin M. Kelcourse (Branch Chief SEC Boston Regional Office), Cynthia Krus (partner at Sutherland Asbill & Brennan), James Ritt (Managing Director and General Counsel Morgan Keegan & Company, Inc.), and Lewis Wiener (partner at Sutherland Asbill & Brennan LLP).

The panel  set up four scenarios:

Scenario #1 – FCPA

• German prosecutors advise you they are conducting an investigation into payments to a government official ostensibly for attendance at and promotion of conferences in Germany at which the company’s products will be marketed.

• Government official was in a position to authorize the purchase of the company’s products. The payments are not substantial but were routed through Swiss bank accounts.

• CEO authorized the payments.

• Payment was described in the company’s books and records as “consulting” services related to the marketing of a product in Geneva.

• Your auditing firm has made an inquiry.

• Media beginning to report rumors of payments and reports have caught the attention of the DOJ.

Scenario #2 – Short-Sale Campaign

• Prominent short seller takes large (20%) short position in your company and launches campaign to drive down stock price.

• Campaign includes public speeches, letters to Board alleging fraud and accounting improprieties, slandering executive officers and demanding action on behalf of company’s stockholders.

• Media attention is attracted by newspaper and magazine articles, blogs, and other message boards

• Stock price plummets.

• Plaintiffs attorneys notice; lawsuits filed

• SEC launches informal investigation focusing on issues of fraud and accounting improprieties alleged by short seller.

• DOJ similarly announces investigations.

Scenario #3 – Fraud & Accounting Improprieties

• SEC announces investigation of your company related to allegations of improper accounting practices.

• SEC uncovers a series of loans made to several executive officers without receiving approval from the appropriate committee of the board of directors.

• The loans (total $150+ million) have not been appropriately reflected in the company’s financial statements nor disclosed to shareholders.

• Board of Directors forms special committee to review and hires independent legal counsel to assist.

• Special committee discovers that loans to the executive officers were made with low to no interest; board of directors nor shareholders were aware of the existence of the loans as required by appropriate procedures and disclosure obligations under federal securities laws.

• Special committee also discovers that the same group of executive officers sold shares of your company’s common stock for more than $500 million and failed to disclose such sales.

Action Items in Response to Scenarios

• Evaluate your corporate governance framework

• Develop a strong “tone at the top”

• Review/modify your code of ethics, corporate governance guidelines and other corporate governance policies

• Review/modify your disclosure controls and procedures

• Review/modify your internal controls over financial reporting

• Develop/ enhance and test your whistleblower procedures

• Implement a corporate governance education program for officers and directors

For more information the panel recommened an Akin Gump/ACC PowerPoint entitled “Recent trends in DOJ and SEC actions against in-house counsel” which you can access by clicking here.

2.  Forecasting DOJ and SEC Enforcement Efforts in 2009

As a new Democratic president sounds a populist call, and the U.S. market continues to deteriorate amidst revelations of gross corporate mismanagement, the hue and cry for cracking down on corporate wrongdoing has reached a fever pitch. In light of public statements by President Obama, new Attorney General Eric Holder and new SEC Commissioner Mary Shapiro, there is reason to believe that the government will exert unprecedented pressure on corporations to cooperate with government enforcement efforts in 2009.   For a full analysis click here.