On October 22, 2015, the U.S. Department of Justice Principal Deputy Assistant Attorney General Benjamin C. Mizer, who oversees DOJ’s Civil Division, spoke at the 16th Pharmaceutical Compliance Congress and Best Practices Forum in Washington, D.C.  In addressing “current law enforcement efforts that may bear on what the future holds,” Mizer led off with the recent memo by Deputy Attorney General Sally Yates on individual accountability. Mizer’s remarks complement those by the Assistant Attorney General in charge of the Criminal Division, Leslie R. Caldwell, last month.  For our previous discussions on the memo and Caldwell’s prior remarks click here and here.

Mizer emphasized a few points from the Yates memo, beginning with the one that has been most discussed: in order to qualify for cooperation credit, a corporation must identify all individuals involved in the wrongdoing and provide all relevant evidence implicating those individuals to the government.  As Mizer bluntly stated, “this means no partial credit for cooperation that doesn’t include information about individuals.”  He also stressed that the requirement applies to not only criminal but civil investigations, including False Claims Act investigations.  Mizer called particular attention to the fact that “in order to qualify for the reduced multiples provision under the False Claims Act, the organization must voluntarily identify any culpable individuals and provide all material facts about those individuals.”

Mizer made two other points following on the Yates memo:  both DOJ’s Criminal and Civil Divisions will focus on individuals from the outset of their investigations and DOJ criminal and civil attorneys “have been directed to cooperate to the fullest extent permitted by law at all stages of an investigation.”  The latter is a point that Caldwell made early in her tenure overseeing the Criminal Division at the Taxpayers Against Fraud Education Fund Conference.  It was at that September 2014 conference that Caldwell announced a new procedure whereby qui tam complaints would be shared by the Civil Division with the Criminal Division as soon as the cases were filed and that attorneys in the Frauds Section of the Criminal Division would immediately review them to determine whether a parallel criminal case should be brought.

The public debate about the Yates memo has centered on whether it really says anything new.  In apparent recognition of this debate, Mizer said the memo was issued “to reinforce the department’s commitment” to pursuing not just corporations but the individuals who caused the misconduct to occur and that it shows the “renewed commitment” to pursuing not just corporations but the culpable individuals. Mizer may be foreshadowing that results of this Criminal/Civil Division cooperation are on the horizon.

On Monday, October 19, I’ll be moderating a panel on Strategic Considerations for Navigating a Dual-track M&A and Initial Public Offering Pathway at the Association of Corporate Counsel’s Annual Conference here in Boston. I’ll be joined on the panel by Pete Zorn, Esq., VP of Corporate Development and General Counsel of Albireo Pharma; Stan Piekos, former CFO of NEXX Systems; and Joe Ferra, Managing Director in the Healthcare Investment Banking Group at JMP Securities. If you’re attending the ACC conference, we hope you can join us that day at 4:30 for what we expect will be a great discussion. Continue Reading ACC Annual Conference Panel: Dual-Track M&A and IPO Pathways

On October 13 from 1 – 2:30 pm ET, join Pam Greene and a panel of other experts for a timely webinar covering Regulation A+: Practical Tips and Guidance for Launching a Mini-IPO. Regulation A+ went into effect in June 2015 to allow private US and Canadian based companies to raise equity – up to $20 million under Tier I and up to $50 million under Tier II – from both accredited and nonaccredited investors, subject to certain limitations.

During this webinar, our distinguished panel, including Pam Greene, member in the Corporate and Securities Practice at Mintz Levin;   TJ Berdzik, CFA, of StockCross Financial Services, Inc.; Maggie Chou, of OTC Markets; Yoel Goldfeder, of Vstock Transfer; and Rudy Singh, of S2 Filings, will discuss the legal and business considerations in launching a Tier II Regulation A+ offering, how investors can achieve liquidity through the OTC Market, and why many are calling Tier II offerings a “Mini-IPO”.

We hope you can take part in what is sure to be an informative discussion. Click here to register.

On September 22, 2015, the U.S. Department of Justice’s  Assistant Attorney General in charge of the Criminal Division, Leslie R. Caldwell, spoke at the Global Investigations Review Conference in New York, addressing the recent memo by Deputy Attorney Sally Yates on individual accountability.  Her comments provided a straightforward approach to how the Yates memo could play out in practice.

As recently reported in our Health Law & Policy Matters blog, a central tenet of the Yates memo is that in order to qualify for cooperation credit, a corporation must identify all individuals involved in the wrongdoing and provide all relevant evidence implicating those individuals to the government.  AAG Caldwell explained “This means that companies seeking cooperation credit must affirmatively work to identify and discover relevant information about culpable individuals through independent, thorough investigations.  Companies cannot just disclose facts relating to general corporate misconduct and withhold facts about the responsible individuals.  And internal investigations cannot end with a conclusion  of corporate liability, while stopping short of identifying those who committed the criminal conduct.“

Expanding upon DAG Yates’ remarks last week at NYU Law School, AAG Caldwell stated “We recognize, however, that a company cannot provide what it does not have.  And we understand that some investigations – despite their thoroughness – will not bear fruit.  Where a company truly is unable to identify the culpable individuals following an appropriately tailored and thorough investigation, but provides the government with the relevant facts and otherwise assists us in obtaining evidence, the company will be eligible for cooperation credit.  We will make efforts to credit, not penalize, diligent investigations.  On the flip side, we will carefully scrutinize and test a company’s claims that it could not identify or uncover evidence regarding the culpable individuals, particularly if we are able to do so ourselves.”  AAG Caldwell also explicitly recognized that DOJ can sometimes obtain evidence that a corporation cannot.

To the extent that practitioners read the Yates memo as erecting an impossible hurdle to cooperation credit, AGG Caldwell’s remarks indicate that each case will be evaluated on its facts.  AAG Caldwell made at least one other point worth noting:  the Yates memo does not change existing DOJ policy regarding the attorney client privilege and work product protection.  Prosecutors will not be seeking corporate waiver of these protections.

As originally reported on our Privacy & Security Matters blog, Mintz Levin will sponsor a webinar on September 30 at 1:00 p.m. (ET) to address regulatory compliance and risk management aspects of cyber attacks and data breaches at financial institutions and their service providers.

This topic is especially timely in light of the OCIE’s 2015 Cybersecurity Examination Initiative, announced just this week.  For more details about the key aspects of the OCIE initiative and our upcoming webinar, please check out this excellent post on the Privacy & Security Matters blog.  To register for the webinar, click here.

By Heidi Lawson and Jacquelyn Burke

As was recently reported in the New York Times and elsewhere, the Justice Department issued new policies last week that place individual executives as the focus of their prosecution efforts, and encourage companies to cooperate in building a case against those individuals. The New York Times specifically noted that: (1) allegedly responsible individuals will be the focus of investigations at the outset; and (2) in settlement negotiations, companies will not be able to obtain credit for cooperating with the government unless they identify employees and turn over evidence against them.  This announcement appears to be the start of a larger agenda hinted at by newly minted Attorney General Loretta Lynch, who has promised to focus on white-collar crime. The Times article can be found here.

Of course, the scope and impact of this initiative will become clearer as it is implemented.  However, it should serve as a stark reminder to executives that their interests are not always aligned with those of their company, and that they should closely examine the insurance coverage dedicated to their defense and indemnity of government investigations and other lawsuits.  Continue Reading What Questions Executives Should Be Asking About Their D&O Insurance Following The New DOJ Policies Issued Last Week

A witness testifying under oath before the SEC recently refused to answer any questions directed to him, not because of any privilege, but rather — as he said, sixty-eight different times — because he was “scared” and “frightened.”  The SEC subsequently (and successfully) petitioned a Massachusetts federal court for an order compelling the individual to re-appear before the SEC and comply with the subpoena in question. SEC v. Carlos R. Garza, 1:15-mc-91258-RGS (D.Mass.).

On August 12, 2015, Carlos Garza appeared at the SEC’s Boston District Office pursuant to an administrative subpoena served on him by the SEC in connection with the SEC’s investigation of GAW Miners, LLC, (“GAW”) a purported leader in the virtual currency “mining” industry.

According to the SEC, Garza, the brother of GAW’s CEO, served as a salesman at GAW where he focused on soliciting high-net-worth investors. GAW allegedly started as a distributor of computer hardware used in virtual currency (e.g. “Bitcoin”) mining, but its business model soon transitioned to selling shares in the profits it claimed would be derived from its own virtual currency mining operations. GAW named these shares “Hashlets” because they were claimed to represent a share of the company’s purported “hashing power,” (or computing power), that would be devoted to virtual currency mining. When its profits slowed, GAW allegedly sponsored the introduction of its own, new virtual currency, known first as HashCoin, and eventually as PayCoin. The SEC claimed that although GAW represented to the public that PayCoin would have a fixed value of at least $20 (U.S. dollars) per PayCoin, in actuality, its value quickly declined to approximately $.04 per PayCoin.

The SEC’s continuing investigation centers around potential securities law violations that occurred in connection with GAW’s sale of Hashlets and PayCoin, and the possibility that claims to investors about the virtual currency mining operations were false and misleading. The Commission is also investigating whether GAW’s Hashlet sales had the hallmarks of a Ponzi scheme and is investigating what happened to the millions of dollars in revenue that GAW earned in bitcoin and other virtual currencies.

Notwithstanding his feelings of fear and intimidation, Garza repeatedly claimed during the hour-and-a-half of testimony, that he was “eager to help” but would only do so if the SEC provided him with an attorney. After adjourning the hearing, the SEC promptly filed an Application for Order to Show Cause and for Order to Comply with Administrative Subpoena, which the Court ruled on just five days later.

Per the Court’s Order, Garza has until September 4th to comply or show cause why he need not comply with the subpoena. The Garza case further illustrates that although fear-of-self-incrimination, when properly communicated via assertion of one’s Fifth Amendment Rights, may be a valid grounds for refusing to testify before the SEC, simply claiming general fear, nervousness or intimidation, is not enough.

This summer the SEC has been aggressively pursuing claims against developers and others involved in the EB-5 Immigrant Investor Program, which permits foreign citizens to apply for U.S. residency if they make a qualified investment in a specified project that creates or preserves at least 10 jobs for U.S. workers.  The latest example is a securities fraud suit by the SEC against Lobsang Dargey, a Bellevue, Washington-based real estate developer, who also happens to be a brother-in-law of tennis star Andre Agassi.  According to the SEC, Dargey and his companies obtained investments from 250 Chinese investors under the auspices of the EB-5 program, misled those investors about their prospects for obtaining permanent residency, and diverted millions of dollars from their investments for unrelated projects and Dargey’s personal use, including a home purchase and cash withdrawals at casinos.   Adam Sisitsky and Doug Hauer analyze the case in depth in this post for our sister blog, EB-5 Financing Matters.

The Dargey case is just the latest in a series of recent actions brought by the SEC involving the EB-5 Program.  Other recent examples include SEC v. Luca International Group, LLC , which charged the defendants with defrauding Chinese investors in their oil and gas ventures under the EB-5 program, and In re Ireeco, where the SEC charged two companies with securities laws violations for failing to register as brokers in connection with advising foreign citizens about potential EB-5 investments.  To learn more about these cases check out the posts on EB-5 Financing Matters here and here.    

Pursuant to Section 1502 of the Dodd-Frank Act, which added new Section 13(p)(1) to the Securities Exchange Act of 1934, as amended, the SEC promulgated Rule 13p-1 (the “Conflict Minerals Rule”), which required that issuers that manufacture (or contract to manufacture) products in which conflict minerals are “necessary to the functionality or production of the product” are required to disclose whether or not their products contain tin, gold, tantalum, or tungsten mined from the Democratic Republic of Congo (the “DRC”) and nine of its neighboring countries.  This provision was included in the Dodd-Frank Act at the request of legislators who believed that the process of mining for and producing these particular minerals in certain countries is contributing to a grave, ongoing humanitarian crisis in that region of Africa. Continue Reading DC Circuit Court Reaffirms Earlier Decision Partially Invalidating Conflict Minerals Rule on First Amendment Grounds

Following up on their discussion last week about the SEC’s CitizenVC no action letter, our colleagues Dan DeWolf and Sam Effron have written another alert about the SEC’s recently issued compliance and disclosure interpretations relating to private placements under Regulation D.  For example, they discuss the treatment of securities offerings to an angel investing club and to large groups at venture fairs and demo days; what constitutes a pre-existing relationship; and what makes a relationship “substantive” so that contact with an investor is not considered a “general solicitation” under the SEC’s rules.  You can read more here.