May 31, 2017

SEC Enforcement’s New Director: Steve Peikin?

Reportedly, SEC Chair Jay Clayton plans to tap one of his former Sullivan & Cromwell partners to lead the SEC’s Enforcement Division – Steve Peikin. Sounds like Steve will be the co-head with Stephanie Avakian, who was elevated from Deputy Director to Acting Director back in December. Here’s an excerpt from this WSJ article by Dave Michaels:

The decision to hire two top managers for the SEC’s enforcement division would ease some of the issues created by Mr. Peikin’s past work for Wall Street. Mr. Peikin has done high-profile defense work for Barclays PLC and Goldman Sachs Group Inc. Under SEC ethics rules, he would be barred for one year from supervising any cases that affect Goldman or other clients of Sullivan & Cromwell.

Mr. Peikin, a graduate of Harvard Law School, leads the criminal defense and investigations group at Sullivan & Cromwell. From 1996 to 2004 he was an assistant U.S. attorney in Manhattan, where he oversaw the Southern District of New York’s securities and commodities task force. During that era, Mr. Peikin earned headlines for his prosecution of star technology banker Frank Quattrone, who was convicted of obstructing a government investigation and witness tampering, although an appeals court later threw out the judgment.

More recently, Mr. Peikin was part of the defense team for futures trader Michael Coscia, who became the first U.S. trader criminally convicted of spoofing, a fraudulent trading strategy. Spoofing, which became illegal under the 2010 Dodd-Frank Act, involves placing orders that one doesn’t intend to fulfill, in an effort to trick other traders into altering their prices in a direction that benefits the spoofer. Mr. Coscia’s case is now pending before a federal appeals court.

This wouldn’t be the first time the Enforcement Division had Co-Directors. Broc blogged about Mary Jo White’s decision to “split the baby” back in 2013. The use of co-heads solves any conflict issues caused by bringing in someone from outside the agency to lead the Division…

D&O Insurance: Structuring Concerns

No director wants sub-par insurance coverage – and counsel is at least partially on the hook if that happens. This blog by Kevin LaCroix explains why program structure matters & how competing interests affect coverage decisions. Here’s the intro:

Most D&O insurance buyers understand the critical importance of limits selection – that is, deciding how much insurance to buy. But an equally important question involves the issue of program structure – that is, how the insurance program is put together.

Many insurance buyers understand that, in order to be able to purchase an insurance program with the desired limits of liability, their D&O insurance will be structured with a layer of primary insurance and one or more layers of excess insurance. In addition, these days many D&O insurance buyers also purchase an additional layer – usually on the top of program – of Side A Difference in Condition (DIC) insurance.

As noted in a recent post on the “Pillsbury Policyholder Pulse” blog, no coverage may be less understood than the Side A DIC policy. But even if frequently misunderstood, the coverage provides corporate directors and officers an important safety net. Moreover, there are other important D&O insurance program structure issues, beyond just the need for Side A DIC insurance.

D&O Insurance: What Startups Need To Know

D&O insurance is also important for private companies – more than 25% have had claims in the last three years & the average loss was $387,000. For early-stage ventures, it’s purchased around the time the company gets outside investors & directors, or at the time of hiring employees – but the list of potential claimants can also include customers, vendors, suppliers, creditors & others.

This Morrison & Foerster article gives tips on deciding what coverage to get – and when & how to get it (also see this blog by Kevin LaCroix). Here’s some intel on how coverage & premiums are determined:

A startup can plan on approximately $15,000 in premiums for $1 million of coverage, depending on market condition & policy wording. Specific premium amounts are largely determined by the company’s current financial statements – income statement & balance sheet. Any prior claims will also have a negative impact on pricing.

It’s critical to be able to negotiate policy wording to extract the broadest coverage grants for the business. Policy premiums may vary among insurance providers, but a startup can expect to pay higher premiums for greater coverage.

Liz Dunshee