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This Week in FCPA

Episode 282 – The Naughty List Edition


With Jay on a holiday assignment, Tom is joined by Professor Karen Woody to look at some of the week’s top compliance and ethics stories this week in the Naughty List edition.
Stories

  1. JPMorgan tagged $200MM for failures in electronic record keeping. Tom in the FCPA Compliance and Ethics Blog. Matt Kelly in Radical Compliance. Tom and Matt in Compliance into the Weeds.  
  2. Nikola was fined $125MM for the former CEO’s imprudent tweets. Tom in the FCPA Compliance and Ethics Blog. Matt Kelly in Radical Compliance. Jaclyn Jaeger in Compliance Week(sub req’d).
  3. SOX 20 years later. Michael Peregrine looks back at the upcoming 20th anniversary of Sarbanes-Oxley in the Harvard Law School Forum on Corporate Governance
  4. France is updating its ABC regime. Frederick Davis in GAB.   
  5. Another Unaoil defendant appeals conviction based upon SFO misconduct. Dylan Tokar in WSJ Risk and Compliance Journal.
  6. What happened to FCPA Compliance in 2021? Dick Cassin explores in the FCPA Blog.  
  7. The story of internal controls and Netflix? Jonathan Marks in BakerTilly.  
  8. Vietnam imposes a 14-year sentence for wildlife trafficking. Jon Rusch in Dipping Through Geometries
  9. Lawyers and ESG. Lawrence Heim in PracticalESG
  10. Prioritizing your policy updates. David Banks in Risk and Compliance Matters.

Podcasts and Events

  1. Want some fun over the holidays? Join Tom and One Stone Creative co-founder Megan Dougherty to explore the full MCU. In Episode 1, Captain America. In Episode 2, Captain Marvel. Next week in Episode 3, Iron Man.  
  2. In December on The Compliance Life, I visited with Matt Silverman, Director of Trade Compliance at VIAVI. Matt is the first Trade Compliance Director I have hosted on TCL. In Part 1, Matt details his academic career and early professional life. In Part 2, Matt moves into trade compliance. In Part 3, Matt moves into the Director’s chair. 
  3. The Compliance Podcast Network welcomes Professor Karen Woody and her new podcast, Classroom Insider. In this unique pod, Karen interviews some of her students to tell them the history of insider trading. Check out Episode 1 on  Episode 2, the disclosure or abstain rule. In Episode 3 (premiering Dec. 31), they will take up narrowing the scope of the disclose or abstain rule. 
  4. The Shout Outs and Rants of Everything Compliance gets its own iTunes show. Everything Compliance has its first-year end review episode. 
  5. On Hidden Traffic, Gwen Hassan hosts Andrew Wallis, head of Unseen UK.

Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Karen Woody is a Professor of Law at Washington and Lee. She can be reached at kwoody@wlu.edu. 

Categories
Daily Compliance News

December 23, 2021 the How to Win Friends Edition


In today’s edition of Daily Compliance News:

  • Wall Street puts hold on RTO. (NYT)
  • Brazilian companies list on NYSE, what could go wrong. (Reuters)
  • SEC blocks Apple bid to block shareholder proposal. (Reuters)
  • Amazon sues India financial crimes agency. (SEC Press Release)
Categories
Blog

On the Naughty List – Urban Meyer

We conclude our pre-Christmas Naughty List review and today we have one person who is on the Very Naughty List. That person is now former Jacksonville Jaguars head coach Urban Meyer. The missteps, inanity and downright irresponsible actions taken by Meyer during his abortive less than one season with the Jags is not only one for the annals in National Football League (NFL) history but provides multiple lessons learned for the compliance professional.
Meyer was a very successful college coach winning national titles at two schools, Florida and Ohio State. But he was clearly out of his depth in the NFL, which of course is professional football and not college football. But the red flags were all there for any who cared enough to look. Clearly, they were ignored by the Jags owner, now to his shame and humiliation. It began almost immediately after Meyer’s hiring when he tried to retain a strength and conditioning coach who had been fired at Iowa for allegations of racial abuse.
Michael DiRocco reported, “In February, Meyer hired former Iowa strength coach Chris Doyle, who was accused of making racist remarks and belittling and bullying players while with the Hawkeyes. Doyle resigned a day later after the Jaguars were criticized for the hire by the Fritz Pollard Alliance.” Before the resignation, Meyer had claimed he had done his due diligence on Doyle with Meyer adding, he “did not consider the implications of hiring him.” Later in the summer, the NFL “fined the Jaguars $200,000 and Meyer $100,000 for excessive contact during a June 1 organized team activity. The team also must forfeit two OTAs during the first week of the 2022 offseason, meaning they will have only eight.”
Please note the season had not even started yet.
The Jags got off to an ignominious start losing to the pathetic Houston Texas and began the season 0-4. It was at this point, missteps turned into inanity. After losing to the Cincinnati Bengals to reach 0-4, Meyer did not travel back to Jacksonville with the team but went to Columbus OH to unwind, relax with friends and to visit with his grandchildren. Almost immediately, “a video began circulating on social media on Oct. 1 that showed a woman who was not Meyer’s wife dancing close to his lap at his Columbus restaurant. Meyer apologized in positional group meetings early in the week, then at a news conference and again in a team meeting later in the week. Khan also issued a public rebuke.”
As the losing wore on, Meyer’s true personality came out. Andrew Gastelum, reported that in November Meyer “was involved in multiple disputes with players and coaches over the last two weeks, including a heated argument with receiver Marvin Jones and that Jones was reportedly so angry with Meyer’s criticism of Jaguars receivers that he left the team facility. According to Pelissero, staff convinced the receiver to return only for him to get into a heated argument with Meyer at practice.” Moreover, “Meyer reportedly challenged assistants to defend their résumés individually during a staff meeting where he told his coaching staff that he was a winner and that they were losers.” Of added significance to this reporting was, according to Tom Pelissero, that the sources for this story came from the NFL office, not simply Jag players. Predictably, in an incredibly inane move, as reported by Jordan Dajani, Meyer denied both events ever happened.
Yet even Meyer was capable of achieving another low, moving to complete irresponsibility.
Enraged and wrongfully believing that the source of this latest escapade came from inside the Jags, he announced anyone that blew the whistle on him would be unceremoniously shown the door, as in immediately. Then last week, Ryan Glasspiegel, reported that former Jags kicker Josh Lambo accused of Meyer of kicking him at practice in August. Lambo said, “It certainly wasn’t as hard as he could’ve done it, but it certainly wasn’t a love tap. “Truthfully, I’d register it as a five (out of 10). Which in the workplace, I don’t care if it’s football or not, the boss can’t strike an employee. And for a second, I couldn’t believe it actually happened. Pardon my vulgarity, I said, ‘Don’t you ever f–king kick me again!’ And his response was, ‘I’m the head ball coach, I’ll kick you whenever the f–k I want.’”
Unsurprisingly Meyer denied this also ever happened. Yet this is where complete irresponsibility turns to the surreal. While Meyer was denying the event ever took place, he had his lawyers threatening the reporter who broke the story. But here is the surrealness, as the lawyers did not dispute that Meyer kicked Lambo, only how hard. So, Meyer’s lawyers admit there was an assault, it just was not serious.
Finally, even the Jags owner had enough and when the assault allegations broke, he fired Meyer that night. The owner, Shad Khan claimed that he had intended to fire Meyer after the latest loss on Sunday, but it took him several days to get his ducks in a row. Of course, while the owner was doing so, Meyer was still coaching the Jags. Me thinks something is rotten with that story.
What are the lessons for the compliance professional in all of this?
Let’s start with due diligence. Meyer was penalized in Columbus for his less-than-ethical behavior around an assistant coach accused of assaulting his wife. He somehow managed to lose or deleted multiple text message on the topic. He was suspended for three games by Ohio State for his conduct. All of this was in the public record and there for all to see. Think executive due diligence is not important? Think again (and while you are thinking about it call Candace Tal.)
Internal Controls. Yes, there are internal controls in football. One such control deals with player safety based upon amount of physical contact which can occur during offseason training camp (OTA). Meyer and the Jags were fined for having players engage in contact drills. In typical Meyer fashion, he had the Jags deny the team had done anything wrong as it was the players who simply could not contain themselves.
Discipline. Pro football has a Neanderthal governance structure (with the noted exception of the Green Bay Packers, who exist in a parallel socialist world). There is no public company, no Board overseeing the company. There is an owner and every significant employee reports directly to the owner. Clearly the owner, who did not do due diligence on Meyer’s character, was not going to discipline him. Although he belatedly claimed he was going to do so after the most recent loss, that seems like “Monday Morning Quaterbacking” to me. Do you really think that if any other Jag employee engaged in any of this behavior they would not have been sacked? Discipline must be delivered uniformly and fairly. That is called Institutional Fairness and is the responsibility of the Chief Compliance Officer (CCO). It is also a requirement of a compliance program. As was noted in the original FCPA Resource Guide, compliance has to apply from the “Board room to the shop floor.” Even in the recent Securities and Exchange Commission (SEC) enforcement action involving JPMorgan, the SEC required “an evaluation of who violated policies and why, what penalties were imposed, and whether penalties were handed out consistently across business lines and seniority levels.”
Perhaps now you might understand why Urban Meyer is on the Very Naughty List. But you can use the lessons learned to help keep your organization off the Naughty List in 2022 and beyond.

Categories
Compliance Into the Weeds

Compliance into the Weeds: On the Naughty List-JPMorgan $200 Settlement

Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. Today, Matt and Tom take a deep dive into the JPMorgan settlement with the SEC and CFTC for faulty electronic record-keeping. Some of the issues we consider are:

·      Why does Matt ‘almost feel bad’ for JPMorgan?
·      There was a paucity of facts. So why is the fine so high?
·      Is it a ‘Compliance Consultant’ or a Monitor?
·      The remediation agreed to by JPMorgan.
·      Lessons learned for the compliance professional and ephemeral communications.
·      Focus on consistent and even-handed discipline for JPMorgan employees going forward.
Resources
Matt in Radical Compliance
Tom in the FCPA Compliance and Ethics Blog

Categories
Daily Compliance News

December 22, 2021 the Predicting Corrupt Pols Edition


In today’s edition of Daily Compliance News:

  • Harvard Prof guilty of lying about China connection. (NYT)
  • NatWest pleads guilty, yet again. (WSJ)
  • Predicting corrupt politicians. (PhysOrg)
  • Nikola fined $125MM for CEO tweets. (SEC Press Release)
Categories
Blog

On the Naughty List – Nikola and Social Media Shenanigans

We continue our exploration of Santa’s Naughty List this week before Christmas by looking at the compliance failures of Nikola Corporation (Nikola). In a Press Release, the Securities and Exchange Commission (SEC) announced that Nikola, a publicly traded company created through a special purpose acquisition company transaction, has agreed to pay $125 million to settle charges that it defrauded investors by misleading them about its products, technical advancements, and commercial prospects via a Cease and Desist Order (Order). This follows on the heels of an earlier filing against former Nikola founder and Chief Executive Officer (CEO), Trevor R. Milton (Milton), for repeatedly disseminating false and misleading information – typically by speaking directly to investors through social media – about Nikola’s products and technological accomplishments.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said in the Press Release, “As the order finds, Nikola Corporation is responsible both for Milton’s allegedly misleading statements and for other alleged deceptions, all of which falsely portrayed the true state of the company’s business and technology. This misconduct — and the harm it inflicted on retail investors — merits the strong remedies today’s settlement provides.” And boy what misconduct it detailed. This matter should be studied by not only every compliance professional but also every business executive. It also points out one of the basic deficiencies of Special Purpose Acquisition Corporations (SPACs).
Nikola was created via the merger of Legacy Nikola and VectoIQ Acquisition Corp. (VectoIQ), which was formed in 2018 as a SPAC, for the purpose of effecting a business combination with one or more businesses. According to the Order, “VectoIQ and Legacy Nikola entered into a Business Combination Agreement (the “Business Combination Agreement”), as well as certain related agreements, pursuant to which Legacy Nikola would merge with a subsidiary of VectoIQ, with Legacy Nikola remaining as the surviving company and as a wholly-owned subsidiary of VectoIQ. On June 3, 2020, Legacy Nikola and VectoIQ consummated the merger contemplated by the Business Combination Agreement (the “Business Combination”), and VectoIQ changed its name to Nikola Corporation” and on June 4, 2020, Nikola’s common stock and warrants began trading on the Nasdaq Global Select Market.
What got Nikola into such SEC hot water was the mouth or rather modern-day social media postings of Milton. The Order stated, “From approximately March 2020 through September 2020, in his capacity as CEO and later as Executive Chairman of Nikola, Milton made materially false and misleading statements on numerous critical topics related to Nikola’s capabilities, technology, reservations, products, and commercial prospects.” Matt Kelly, writing in Radical Compliance, was a bit more pithy stating, “The problem was that almost every statement Milton made about Nikola’s hydrogen vehicles was, well, hot air.” According to the Order, there were multiple instances where Milton mislead investors and indeed anyone reading social media about the company.
Milton made false and misleading statements about the capabilities of Nikola’s first semi-truck prototype, the Nikola One, saying it was a working model and made a fraudulent video to back it up. He made a series of false and misleading claims about Nikola’s then-current hydrogen production capabilities, its costs to produce hydrogen, and the costs at which it obtained electricity to produce hydrogen profitably. He made false statements claiming that Nikola had engineered and already completed a prototype of an electric pickup truck, the Badger. Milton claimed that a “backlog of interest” in the vehicles were in the form of binding contracts, “the vast majority of the pre-orders were indications of interest that were cancellable at any time,” even going so far as to claim one customer had a binding order for 5,000 vehicles when no such contract existed. Finally, to top off all of Milton’s whoppers, he claimed a partnership with General Motors (GM) would generate over $4 billion in cost saving when there was no such arrangement in place.
I went into some detail in these clearly bogus claims to demonstrate why a Chief Compliance Officer (CCO) needs to have a handle on what their CEO is tweeting and social media-ing out. What steps can a CEO take? Here I will borrow once again from the Coolest Guy in Compliance.

  • Take a team approach to reviewing and publishing information about the company, so someone else can put a second set of eyes (The Eyes of Dr. T. J. Eckleburg) on what the CEO says before they hit the send button.
  • This approach should be a formal policy and procedure, fully documented so when the SEC comes knocking there will be a record.
  • A subject matter expert (SME) review on what statements about the company qualify as material information that should be disclosed in filings to the SEC.
  • Your process should also contain a mechanism to correct any misleading or erroneous statements that slip through your fully documented and operating policy and procedure.

If all of this sounds more than vaguely familiar it is because of the imbroglio surrounding Elon Musk and his use of social media. Musk was fined $30 million for his false and misleading tweets and the company was required a legal eagle to vet his tweets. All of this means this a CCO and corporate compliance program should be vigilant for this type of activity. Policies and procedures are mandatory, but they are only the starting point. This is a risk, like all other risks, it must be managed. If you set up policies and procedures but do not follow them, you could find yourself in SEC hot water as both Nikola and Milton have.
Put another way, Nikola got a Christmas present of 125 million lumps of coal. While any decision on Milton may have to wait until 2022, he will most probably be on Santa’s Naughty List for 2022.

Categories
The Compliance Life

Matt Silverman – Move to the Director of Trade Compliance


The Compliance Life details the journey to and in the role of a Chief Compliance Officer. How does one come to sit in the CCO chair? What are some of the skills a CCO needs to success navigate the compliance waters in any company? What are some of the top challenges CCOs have faced and how did they meet them? These questions and many others will be explored in this new podcast series. Over four episodes each month on The Compliance Life, I visit with one current or former CCO to explore their journey to the CCO chair. This month, we have our first Director of Trade Compliance, Matt Silverman, Director of Trade Compliance at VIAVI. We discuss Matt’s journey to the Director’s chair and look down the road at where trade compliance will be in 2025 and beyond.
His first role as a Trade Compliance Director role was at Solvay. In this role, Silverman learned to balance individual employee management and employee development along with day-to-day compliance issues.  Silverman then moved to VIAVI in the role of Global Trade Director & Senior Counsel. In this position he handles a wide variety of trade issues including import, export, sanctions and antiboycott. He also looks for ways to get involved in other areas that may intersect with trade compliance.

Categories
Compliance Kitchen

Year End Wrap Up


The Kitchen wraps up its 2021 with a look back at some of its top stories from the past year.

Categories
Innovation in Compliance

Using Content to Drive Business with Jeffrey Hayzlett


 
Tom Fox welcomes back Jeffrey Hayzlett to this week’s episode of the Innovation in Compliance Podcast. Jeffrey is the CEO and Chairman of The C-Suite Network. In this episode, Tom and Jeffrey explore where the business world is as the year comes to an end.  
 

 
The Changing Business Community
Tom asks Jeffrey to reflect on what businesses are responding to now. “That there are no old ways; there are all going to be new ways,” he remarks. The mood of business is shifting, and businesses are simply going to have to adapt. There aren’t going to be offices in the way they used to be because the pandemic has shown that businesses can operate well remotely. The focus is going to be on how to utilize these new environments in the best way, as well as how to effectively and safely monitor them. Companies are changing the ways they do business as well: before the pandemic content was not a priority; now it is. “You have to be able to use content to drive the business,” Jeffrey iterates. Sometimes content will not generate as much money as you did previously, but it will generate engagement and reach more people. “You have to change, adapt, or die,” Jeffrey insists. 
 
Grow, But Mitigate Risk
The C-Suite Network encourages senior management to mitigate risk as much as possible. Companies have to grow while doing this, however. “If you’re not growing, you’re dying,” Jeffrey tells Tom. Risk is always going to exist in business, but it cannot hinder you as a leader, especially a C-Suite one. “Our job is to be the most strategic people in the room,” Jeffrey adds. Asking the right questions, understanding the directions of the CEOs of the companies they counsel, and assessing the processes and tools these companies have, are all part and parcel of how C-Suite leaders think about, and mitigate risk. 
 
Where Do We Go From Here
Tom asks Jeffrey where he sees in-person conference business going in the coming years. “You’re either gonna have really small groups or really big ones…not much in between,” Jeffrey responds. It’s going to be much more difficult in the coming years for speakers to have sustainable careers because of the digital era the world is in, and because audience preferences are changing. “If you’re not a subject matter expert, if you’re not a celebrity, it’s going to be a long road for you as a professional speaker…You’re really gonna have to have credentials,” he adds. Most people are going to be looking for experts to give them advice on how to move from point A to point B, or for celebrities who can draw people in and help fill a room. “Those are the things that are going to be the key driving factors in the future,” Jeffrey concludes. 
 
Resources
Jeffrey Hayzlett | LinkedIn | Twitter
The C-Suite Network
 
 

Categories
Daily Compliance News

December 21, 2021 the Flash Cash Edition


In today’s edition of Daily Compliance News:

  • Another appeal of Unaoil conviction. (WSJ)
  • Trump International Hotel epicenter of massive corruption. (Insider)
  • Wyoming top state for tax havens. (WaPo)
  • Hacking for insider trading tips. (Reuters)