January 9, 2012

Corp Fin Issues MD&A Guidance on European Sovereign Debt Exposures

On Friday, Corp Fin issued the latest in its “CF Disclosure Guidance Topic” series with Topic No. 4: European Sovereign Debt Exposures due to concerns that banks aren’t consistently disclosing their direct – and indirect – exposure to the sovereign debt crisis in Europe. This guidance provides a long laundry list of what the Staff is seeking from financial institutions in this area, including noting that recent comments sought enhanced disclosure – on a country-by-country basis on:

– Gross sovereign, financial institutions, and non-financial corporations’ exposure, separately by country;
– Quantified disclosure explaining how gross exposures are hedged; and
– Discussion of the circumstances under which losses may not be covered by purchased credit protection.

I remember how some of the banks were criticized back during the financial crisis in ’08 and ’09 for a lack of transparency – so this guidance is timely ahead of what may be a challenging year for banks…

SEC Changes “Neither Admit Nor Deny” Settlement Policy (When There is a Parallel Criminal Case)

As noted in this NY Times article, the SEC has modified its newly controversial “neither admit nor deny” settlement language policy in the wake of pressure from Judge Jed Rakoff (see this blog) and Congress (see this blog about an upcoming hearing).

On Friday, SEC Enforcement Director Rob Khuzami issued the following statement about the Staff’s recent policy change:

Following a review by senior enforcement staff that began this spring and separate discussions with the Commissioners over the last several months, last week we modified our settlement language for cases involving criminal convictions where a defendant has admitted violations of the criminal law. As explained below, the new policy does not require admissions or adjudications of fact beyond those already made in criminal cases, but eliminates language that may be construed as inconsistent with admissions or findings that have already been made in the criminal cases.

Under our traditional “neither admit nor deny” approach, a defendant could be found guilty of criminal conduct and, at the same time, settle parallel SEC charges while neither admitting nor denying civil liability. This approach has reflected that the goals, objectives and other factors in the civil settlements that we and other federal and state agencies enter into often are distinguishable from those at issue in criminal proceedings. It nevertheless seemed unnecessary for there to be a “neither admit” provision in those cases where a defendant had been criminally convicted of conduct that formed the basis of a parallel civil enforcement proceeding.

The change applies to cases involving parallel (i) criminal convictions or (ii) NPAs or DPAs that include admissions or acknowledgments of criminal conduct. Under the new approach, for those settlements we will:

– Delete the “neither admit nor deny” language from the settlement documents.
– Recite the fact and nature of the criminal conviction or criminal NPA/DPA in the settlement documents.
– Give the staff discretion to incorporate into the settlement documents any relevant facts admitted during the plea allocution or set out in a jury verdict form or in the criminal NPA/DPA.
– Retain the current prohibition on denying the allegations of the Complaint/OIP or making statements suggesting the Commission’s allegations are without factual basis.

‪The revision applies in the minority of our cases where there is a parallel criminal conviction (by plea or verdict) or criminal NPA/DPA involving factual or legal claims that overlap to some degree with the factual or legal claims set out in the Commission’s complaint or OIP.

This policy change does not affect our traditional “neither admit nor deny” approach in settlements that do not involve criminal convictions or admissions of criminal law violations. In particular, it is separate from and unrelated to the recent ruling in the Citigroup case, which does not involve a criminal conviction or admissions of criminal law violations. We have appealed that ruling and the reasons for that appeal are described in the public statement I issued at that time.

As many former Staffers have emailed me, this settlement language saga is small potatoes since once a defendant has admitted criminal culpability in a DOJ case (or has been convicted), it won’t care much about admitting in the SEC’s civil case. One member shared this view: “The reason the SEC shouldn’t care much about the loss of injunctions under the Rakoff approach (and he actually opposes only injunctions, not settlements more broadly) is that they have developed the far more effective tool of the non-prosecution agreements.”

Here’s some good analysis from David Smyth about this latest development in his “Cady Bar the Door” blog. And here’s other commentary that I blogged a few weeks back on “The Mentor Blog”…

Webcast: “The ‘Former’ Corp Fin Staff Speaks”

Tune in tomorrow for the webcast – “The ‘Former’ Corp Fin Staff Speaks” – to hear former Senior Staffers from the SEC’s Division of Corporation Finance Brian Breheny of Skadden Arps, Marty Dunn of O’Melveny & Myers, Linda Griggs of Morgan Lewis and Dave Lynn of and Morrison & Foerster weigh in on what you need to be doing for the upcoming proxy season, and provide a “bring-down” of what’s happening now in Corp Fin.

As the grace period has ended – and all memberships expired on December 31st – if you haven’t yet renewed your membership for for ’12, you will need to able to access this program. Renew now.

– Broc Romanek