2012 was a big year in the government’s pursuit of white collar crime. 2013 – the five year anniversary of the financial crisis – brings new legislators, new regulators, and the possibility that a looming statute of limitations may compel authorities to act or forever abandon certain investigations that arose as a result of the economic crisis. Nevertheless, the landscape of white collar enforcement and financial regulation in the coming year is likely to look familiar. This is true, in part, because change is slow and the implementation of new agendas will take time. A bigger factor, however, may be the government’s notable success in prosecuting high profile corporate insiders and the record financial recoveries obtained in the resolution of corporate fraud cases in 2012. In setting an agenda for the pursuit of white collar crime in 2013, the government may lay claim to the old adage that if it ain’t broke, don’t fix it.
Highlighted by federal prosecutors’ successful pursuit of Galleon founder Raj Rajaratnam and Goldman Sachs board member Rajat Gupta, 2012 was a banner year for the Justice Department’s success prosecuting insider trading cases. This focus on insider trading shows no sign of slowing down – the end of 2012 and beginning of 2013 have been marked by the government’s highly publicized pursuit of various employees of the hedge fund SAC Capital Advisors. The Justice Department’s attention on global companies is likely to continue as well. In 2012, the government reached large settlements with financial institutions, such as HSBC, Standard Chartered, and ING, that were accused of failing to maintain appropriate internal controls, and obtained a guilty plea to felony wire fraud from Swiss bank UBS. The Justice Department also has stepped-up enforcement of the Foreign Corrupt Practices Act, investigating corporate bribery of foreign officials to obtain business in recent years, and continues to expand its investigation of the manipulation of the London interbank offered rate, or Libor.
The Justice Department’s 2013 budget request reveals its intention to remain focused on these areas. Although the overall amount requested was 0.4% lower than the amount authorized in 2012, the Justice Department request seeks a $55 million increase for “financial and mortgage fraud initiatives to complement ongoing efforts to root out various forms of fraud.” Approximately 68% of the $55 million increase is to be used to increase criminal enforcement efforts, while the remaining 32% goes to increasing civil enforcement. According to the DOJ, this amount will allow for the creation of 328 additional positions, including 40 FBI agents, 184 attorneys, 49 in-house investigators, and 31 forensic accountants, to “support the Department’s investigation and prosecution of the broad range of crimes that fall under the definition of financial fraud, including securities and commodities fraud, investment scams, and mortgage foreclosure schemes.”
The Justice Department’s focus on financial fraud has been in lock-step with the work of the Securities Exchange Commission, which aggressively has pursued wrongdoing related to the financial crisis of 2008 and insider trading. That being said, the current leadership of the Securities Exchange Commission is in flux, with the recent departure of Enforcement Director Robert Khuzami, Chairman Mary Schapiro, and other key officials responsible for reshaping the agency in this vein. Although staffing changes of this nature are relatively common after an election year, what remains to be seen is whether the new Enforcement Director and Chairman will continue to be as active as their predecessors, who hold the record for the number of enforcement actions filed in a two year period.
Given the agency’s recent track record, the SEC is likely to stay true to the course charted over the past year despite personnel changes, continuing to police insider trading and focus on cases related to the economic crisis of 2008. With respect to the latter category of cases, the SEC argues that the five year statute of limitations on SEC enforcement actions should be extended until that time when the agency reasonably can be expected to detect the fraud. The SEC’s attempt to draft a “discovery rule” onto the statute of limitations is currently before the Supreme Court in Gabelli v. SEC, (No. 11-1274). According to media reports, the Court has expressed reservation about this position, the prospect of which may play a part in the agency’s enforcement efforts in 2013.
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