Compliancex

On April 18, 2012, I went to Enforcement 2012 in New York City.  No, it’s not the latest Jerry Bruckheimer blockbuster film, though the title may suggest it.

It’s a fascinating annual conference hosted by the Practicing Law Institute (full title: Enforcement 2012: Multi-Agency Enforcement Efforts), which gathers together the leaders of the DOJ, SEC, PCOAB, CFTC, FINRA and the Federal Reserve, all in one room for a full day.[1]

As I work to transition from law to compliance, I have attended or viewed online 10 compliance-related conferences in the last year, and Enforcement 2012 was a stand-out. In upcoming days I will be sharing my take-aways from the conference here on the Compliance Exchange.

“The government is now using in ‘white collar’ cases the same tactics that worked so well in organized crime and gang prosecutions,” said defense attorney Roland Riopelle, a former federal prosecutor in New York. No longer relegated to the mafia or drug offenders, these tactics have aided the SEC and the DOJ in cracking down on  white-collar crimes, especially insider-trading, a prime target of the two agencies.

These non-traditional tactics include phone taps, wiretaps, video bugs, pen registers (used to track phone numbers dialed), informers, dumpster dives, and undercover and sting operations.

The case of ex-FDA chemist Cheng Yi Liang is a good example, said Denis J. McInerney, Fraud Section Chief in the Criminal Division of the DOJ, who was a panelist at Enforcement 2012.  On March 5, 2012 Liang was sentenced to 5 years in prison for insider trading. Over a period of almost 5 years, Liang made profits or avoided losses of $3.8 million by peering into the FDA database of pending drug approvals, noting which drugs were about to be approved and purchasing stock in those drugs’ manufacturers.

According to Mr. McInerney, one of the tactics the DOJ used to catch Liang was to install software on his work computer, which allowed the agency to view the computer’s screen shots in real time.  The DOJ investigators saw that Liang would access the FDA database, click on those drugs that were about to be approved, and then immediately purchase shares of stock in those drugs.

Wiretapping, also increasingly used to investigate insider trading cases, was employed by the SEC to nab hedge fund financier Raj Rajaratnam, now serving an 11-year sentence for running an insider trading network for years.  Rajaratnam, whose conviction was highlighted by Mr. McInerney as an example of the SEC’s and DOJ’s aggressive pursuit of insider traders, is appealing the government’s use of wiretapping to gather evidence against him, claiming that the government violated his constitutional right to privacy and that the wiretapping statute is not intended to be used insider in trading cases.

Even evidence as mundane as a Metrocard can be used in nabbing a white collar criminal, said Marc P. Berger, Deputy Chief of the Securities & Commodities Fraud Task Force at the United States Attorney’s Office for the Southern District of New York. A tipster and a tippee met at a restaurant to exchange insider information and large sums of cash.  The co-conspirators then swiped their subway cards within seconds of each other at a nearby station. New York City Metrocard swipe analyses provided solid evidence of the meeting.

As described by Mr. McInerney, undercover operations undertaken by the SEC and the DOJ are subject to a rigorous approval and review process every 6 months by CUROC, the Criminal Undercover Operations Review Committee, a group consisting of DOJ and FBI employees, and chaired by an FBI member designated by the Director of the FBI.  The undercover operations are also restricted by certain stipulations, adherence to which is monitored by the FBI.  Dozens of proposed undercover operations go through this approval and review process every year.

The purpose of such scrutiny and review is to protect investors and avoid impacting legitimate trading in the marketplace.  Mr. McInerney noted that because wiretapping and undercover operations are so expensive, they are especially burdensome on the agencies, and therefore, are used only when other methods of investigation are inadequate or unlikely to further the interests of the investigation.

One-quarter of the Enforcement 2012 conference was devoted entirely to the various agencies’ efforts to target insider trading, and I will delve a little deeper into this topic, as discussed at the conference, in a future posting.  Stay tuned for my next posting, however, which will cover other enforcement priorities at the SEC, as expressed by Robert S. Khuzami, Director of the Division of Enforcement of the SEC.

[1] Most, if not all, panelists began their comments with a disclaimer that the views they expressed are their own and do not represent the views of the organization they work for.

Mandy Roth is an experienced attorney in the Philadelphia area with a
background in securities fraud litigation.  She is actively seeking to
transition into a compliance position that will leverage her
analytical skills and knowledge of the legal and financial systems.
Mandy also writes articles in French for a French magazine and is an
avid yoga practitioner.  She enjoys networking and can be reached by e-mail or on LinkedIn.