Posted by Mark Pugsley.

By Mark Pugsley and Matthew R. Lewis

In recent months companies and their executives have become the subject of greater scrutiny by regulators, investigators, and prosecutors. Whether or not this increased scrutiny is warranted, the focus on companies and their executives is the new reality. Taking a proactive position on corporate compliance can help prevent harsh actions by the government when perceived wrongdoing occurs.

Increased Scrutiny from the SEC

Due to recent financial scandals such as Bernie Madoff’s massive Ponzi scheme and other regulatory failures that some argue led to the near collapse of our financial system, the Securities and Exchange Commission is facing increased pressure from congress and the Obama administration to “fix” these problems. As a result, the SEC’s Division of Enforcement, which investigates alleged violations of securities laws, has begun to be far more aggressive.

We are seeing increased SEC scrutiny in all areas of its jurisdiction, including the Foreign Corrupt Practices Act (FCPA), financial disclosure requirements, anti-fraud statues and insider trading. Funding for the SEC is being increased significantly. In its 2011 budget request, the SEC requested an increase of approximately $139 million over the SEC’s 2010 funding levels.

The Salt Lake City Regional Office of the SEC has been reorganized to meet these new priorities. They are hiring new litigators, and re-focusing their activities on detecting and aggressively prosecuting securities violations. The enforcement attorneys in Salt Lake City have been aggressively investigating reports of alleged Ponzi schemes and other types of securities violations throughout Utah and the country. The SEC is also using new technology to identify risks to investors and to increase its market surveillance capabilities in the area of trading violations.

Perhaps most troubling, we are seeing that more of these cases are being referred to the U.S. Attorney’s office for criminal prosecution. The SEC’s new Director of the Division of Enforcement, Robert Khuzami, is a former prosecutor with the U.S. Attorney’s Office for the Southern District of New York and was chief of that office’s Securities and Commodities Fraud Task Force. Khuzami has been joined at the top ranks of the SEC by two other former criminal prosecutors.

Under Khuzami’s leadership the enforcement staff has begun – for the first time – entering into cooperation agreements with company insiders who agree to provide information leading to enforcement actions in exchange for governmental protection. Khuzami recently announced that the SEC has now instituted a formal framework of incentives to secure the cooperation of persons who saw, heard and witnessed securities fraud first-hand.

Increased Civil and Criminal Enforcement in Other Areas

In other areas, increased regulatory scrutiny, more severe civil enforcement, and even criminal prosecution are also becoming far more common in cases that were previously handled administratively.

In recent months, state and federal authorities have targeted many internet marketers doing business in Utah. In civil actions, authorities have frozen the assets of the companies and the personal assets of the executives, taken over businesses, and appointed receivers to wind down the affairs of the business. In other cases criminal charges have been filed and executives have been arrested rather than allowing them to turn themselves in as they had in the past.

Investigators are aggressively investigating potential fraud and abuse relating to healthcare insurance and workers compensation insurance. In many cases, executives or business owners have been charged with criminal violations.

Companies and their executives are also at increasing risk of becoming the target of immigration investigations relating to the employment of illegal or undocumented aliens.

In light of the current regulatory and enforcement environment, company executives need to put corporate compliance much higher on their priority list. Although companies may be tempted to shelve compliance efforts when profits are down or other challenges emerge, companies and their executives do so at their peril and often lament these choices when the harsh glare of a prosecutor or regulator falls on them or their company. Ensuring corporate compliance comes with a price, but the price is minimal when compared to the potential alternatives.


This article was originally published in the April 2010 issue of Utah CEO Magazine. The authors are partners at the Salt Lake City law firm of Ray Quinney & Nebeker.

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