Panelists Offer Tips to Mitigate Anxiety Regarding Corporate Enforcement, Litigation

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By Susan Bokermann

Feb. 10 — “It is obviously an active regulatory atmosphere,” according to Andrew J. Ceresney, “but we think it is important for investors to have an active cop on the beat who’s looking for misconduct.”

The director of the Securities and Exchange Commission Enforcement Division spoke on a Feb. 10 panel during the Practising Law Institute's Corporate Governance conference.

The panel spoke generally about what the focus of enforcement actions will be in 2015 and how to mitigate litigation, specifically discussing trends related to corporate cooperation and how to avoid surprises for the board of directors.


The SEC has been focused on financial reporting and audit cases over the last few years, Ceresney explained, noting the creation of the Financial Reporting and Audit Task Force. Made up of both attorneys and accountants, the task force is one way in which the SEC is able to be more vigilant and actively look for cases, he said.

The SEC is also focusing increasingly on the Foreign Corrupt Practices Act. “This year, we have already had in the first quarter almost as many FCPA cases as last year,” Ceresney said. He noted a few additional trends developing in FCPA actions: the SEC's focus on individuals, and credit for self-reporting and corporate cooperation.

Other expectations for 2015 include increased criminal prosecutions of corporations and an increase in cross-border enforcement, said Lewis J. Liman, partner at Cleary Gottlieb Steen & Hamilton LLP.

Corporate Cooperation

The panelists also discussed how they view corporate cooperation efforts—and why they are so important.

“A corporation, if it wants to have cooperation credit, need[s] to be all in,” Liman said. This means identifying if there is wrongdoing, who is responsible for the wrongdoing and providing evidence of the wrongdoing.

Regulators will expect a cooperating company to “sit down and provide a summary of what it is different people have said and be prepared to highlight who the relevant witnesses will be,” said Liman. They will expect a “full, early and authentic investigation,” meaning that “nobody is immune.” Liman went on to say that regulators will expect this cooperation to extend to international operations.

Once a company has discovered misconduct, “there are only two things [it] can control now: remediation, [it] can stop the conduct and get rid of the wrongdoer, and [it] can cooperate,” said Ceresney. “Companies that don’t self-report are taking a huge gamble.” He said it’s likely that if a company doesn’t report the misconduct, the SEC will hear about it anyway. Further, he said, the decision not to self-report does have consequences, including more penalties.

Some challenges of corporate cooperation include the additional costs of outside counsel and balancing the expectations of different regulators involved in an investigation, according to Elaine H. Mandelbaum, managing director and general counsel, Citi Institutional Clients Group.

Surprise for the Board

Relatedly, the panelists discussed how in examining wrongdoing, corporations should optimize their escalation processes, which will result in fewer surprises for the board.

“Boards and senior management hate surprises,” said Linda C. Thomsen, a partner at Davis Polk & Wardwell LLP and a former SEC Enforcement Division director.

Mandelbaum agreed, saying “you need to do anything you can to avoid that.” The first way to do that, she said, is to have “a robust escalation process in place within the organization.”

“You also need an escalation policy, an ethics hotline, committees that meet on regular basis to discuss potential escalations, and in the legal department, close lines of sight with the other control functions with compliance, risk and finance, as well as with the business,” she continued.

Companies also need to have a quarterly process in place to identify issues and make sure things are coming to their attention, said Mandelbaum.

“You don’t want to turn a firehose on senior management and the board with all kinds of information,” said Mandelbaum, so coming up with a process to escalate certain issues is important. However, “I think avoiding surprise is probably winning out over the fears of escalation these days,” she said.

Ultimately, Thomsen acknowledged that avoiding enforcement actions is not easy. “This is not a walk in the park,” she said.

To contact the reporter on this story: Susan Bokermann in Washington at

To contact the editor responsible for this story: Ryan Tuck at