Key Takeaways

• The SEC and DOJ announce that they are focusing on individual and corporate accountability, including a renewed emphasis on lawyers and accountants as the first line of defense against misconduct.
• The DOJ will also restore prior guidance regarding cooperation credit and will issue new guidance to prosecutors on considering historical misconduct when deciding appropriate resolutions to criminal investigations.
• Individuals and companies should prepare for increased SEC and DOJ scrutiny. New investigations and prosecutions may be brought swiftly and aggressively. Evaluating and updating compliance controls regarding data security, anti-bribery, anti-corruption, and cryptocurrency may help mitigate these risks.

Newly installed senior leadership at the Department of Justice (“DOJ”) Criminal and Civil Divisions and the Securities and Exchange Commission’s (“SEC”) Division of Enforcement (“Division”) set forth agency priorities signaling the Biden Administration’s focus on gatekeepers and individual and corporate accountability. Delivering their remarks remotely at the ABA’s 36th National Institute on White Collar Crime, members of the DOJ and SEC made clear that there will be a shift from the enforcement priorities of the prior administration. The key points of their remarks are outlined below.

Agency Priorities

SEC

Gurbir Grewal, Director of the SEC’s Division of Enforcement, spoke on the Division’s priorities, including the restoration of trust among market participants whose perception is that bad actors are not being held accountable. Grewal is seeking to hold wrongdoers accountable no matter who they are and to renew focus on gatekeepers including auditors, underwriters, and attorneys. He noted, “They’re the first line of defense more often than not against all manner of misconduct.”[1]

Grewal also spoke on the Division’s continued focus on cryptocurrency, particularly unregistered and fraudulent initial coin offerings. The SEC and its Staff have generally been skeptical of digital assets, but questions continue to loom as to the SEC’s jurisdiction to regulate cryptocurrency. Grewal said the SEC will look to the economic realities of the transaction and if something is an investment contract, it will fall within the SEC’s jurisdiction. The Division remains focused on policing the market in general and specifically the cryptocurrency market.

Grewal confirmed the rules of the road when it comes to enforcement: self-reporting and cooperation are important and doing the bare minimum does not serve anyone’s interests. Grewal urged advocates who come before the Division to be candid and confront any unfavorable evidence rather than critique the Staff or highlight litigation risk.

DOJ

Deputy Attorney General Lisa Monaco presented a keynote address at the ABA conference on October 28.[2] Monaco focused on individual and corporate accountability and announced three actions she is taking with respect to DOJ policies on corporate criminal enforcement.[3] The first action relates to individual accountability. Monaco directed the DOJ to restore prior guidance which will require that companies provide all non-privileged information about individuals involved in or responsible for the misconduct at issue to be eligible for any cooperation credit. “To be clear,” she said, “a company must identify all individuals involved in the misconduct, regardless of their position, status or seniority.”[4]

The second action concerns a company’s prior misconduct and how that should factor into a corporate resolution. The DOJ must consider all prior misconduct by a company in order to determine the appropriate resolution with that company. To that end, Monaco announced that she is issuing new guidance to prosecutors regarding historical misconduct, including an amendment to the “Principles of Federal Prosecution of Business Organizations.” “Going forward,” explained Monaco, “prosecutors will be directed to consider the full criminal, civil and regulatory record of any company when deciding what resolution is appropriate for a company that is the subject or target of a criminal investigation.”[5]

The third and final action relates to the use of corporate monitors. To the extent that prior DOJ guidance suggested that monitorships are disfavored, Monaco is rescinding that guidance. Instead, the DOJ is free to require the imposition of independent monitors whenever it is appropriate to do so in order to satisfy prosecutors that a company is living up to its compliance and disclosure obligations under the Deferred Prosecution Agreement or Non-Prosecution Agreement.

Monaco also announced the formation of the Corporate Crime Advisory Group, which will be made up of representatives from every part of the DOJ involved in corporate criminal enforcement. This group will have “a broad mandate and will consult broadly” to consider some of the issues Monaco previewed.[6] Monaco concluded her remarks with five points, which she referred to as the “answers” to the questions that will arise as to what this all means:

• Companies need to actively review their compliance programs to ensure they adequately monitor for and remediate misconduct — or else it’s going to cost them down the line.
• For clients facing investigations, as of today, the department will review their whole criminal, civil and regulatory record — not just a sliver of that record.
• For clients cooperating with the government, they need to identify all individuals involved in the misconduct — not just those substantially involved — and produce all non-privileged information about those individuals’ involvement.
• For clients negotiating resolutions, there is no default presumption against corporate monitors. That decision about a monitor will be made by the facts and circumstances of each case.
• Looking to the future, this is a start — and not the end — of this administration’s actions to better combat corporate crime.[7]

Nicolas L. McQuaid, Principal Deputy Assistant Attorney General for the DOJ’s Criminal Division also presented during the conference and emphasized the importance of data analytics and data-driven investigations. A team of FBI agents will be working inside the DOJ’s Fraud Section to focus specifically on data. McQuaid also discussed additional areas of focus, which include insider trading, healthcare fraud, Foreign Corrupt Practices Act violations, anti-corruption, and—similar to the SEC—cryptocurrency. McQuaid did note, however, that in the digital asset space, there are complexities when it comes to multi-agency jurisdiction, citing specifically that foreign exchange, when combined with a digital asset, is an interest area for the Commodity Futures Trading Commission.[8] Bryan M. Boynton, Acting Assistant Attorney General for the DOJ’s Civil Division, also cited cyber fraud as a priority for the DOJ, mentioning specifically Deputy Attorney General Monaco’s recent announcement of a new civil cyber initiative.[9]

As the government makes plans to return more of its workforce to the office and to ramp up more in-person activity, we can expect existing cases to gather speed and new investigations and prosecutions to be initiated swiftly and aggressively. The BakerHostetler White Collar, Investigations, and Securities Enforcement and Litigation team and Blockchain Technologies and Digital Currencies team are comprised of dozens of experienced individuals, including attorneys who have served in the DOJ and SEC. Our attorneys include former United States Attorneys, Branch Chiefs, and Unit Chiefs as well as partners who have served in the SEC’s Division of Enforcement and the SEC’s Office of the General Counsel, and attorneys with extensive experience across all sectors of the blockchain and cryptocurrency markets, including investigations, BSA/AML compliance, tax, privacy, transactions, intellectual property, and technology design.