April 23, 2019

White Collar: Sen. Warren Thinks CEOs Would Look Great In Stripes

There’s no love lost for corporate CEOs on Capitol Hill these days – particularly among Democratic lawmakers.  Here’s a case in point – Sen. Elizabeth Warren (D – Mass.) has introduced “The Corporate Executive Accountability Act,” which would impose criminal liability on any executive officer who negligently permits or fails to prevent a violation of law by their company.  Yup, she said “negligently.”  Here’s an excerpt from this Cleary Gottlieb blog:

If enacted, the bill would constitute a dramatic departure from the typical requirements for a criminal conviction. Traditionally, crimes require both a wrongful action and a particular mental state—the mens rea, or guilty mind. The required mental state is usually (at a minimum) knowledge with respect to the actions that constitute the crime.

The Supreme Court has observed that “[t]he contention that an injury can amount to a crime only when inflicted by intention . . . is as universal and persistent in mature systems of law as belief in freedom of the human will and a consequent ability and duty of the normal individual to choose between good and evil.” Negligence—which is the mental state required for conviction under the Corporate Executive Accountability Act—is a much lower threshold, requiring only that a person act unreasonably, and is usually reserved for the context of civil liability.

The blog notes that there’s precedent for imposing criminal liability on executives who aren’t directly involved in or aware of wrongdoing – the “Responsible Corporate Officer Doctrine” has made that possible under a handful of federal statutes. The blog points out that this doctrine has been applied narrowly to offenses against public health & welfare.

In contrast, Sen. Warren’s proposed legislation – which could not conceivably have anything to do with the fact that she’s running for president – would expand the doctrine’s reach to any crime committed by a company with at least $1 billion in revenue, “regardless of whether the crime affects the public health or welfare or impacts the general public at all.”

China IPO Pig Outs: Credit Where It’s Due

Last fall, I blogged about the new standard in management pig-outs being set by Chinese tech IPOs – apparently, several newly public companies were giving their CEOs $1+ billion bonuses for their role in taking the companies public.

According to this recent article from The Guardian, one of the recipients of that corporate largesse – Xiaomi founder & CEO Lei Jun – has opted to give his bonus to charity.  At a measly £750 million, it doesn’t even amount to $1 billion at current exchange rates, but it’s the thought that counts.

Inside the SEC’s Investor Advisory Committee

If you’re looking for insight into the role that the SEC’s Investor Advisory Committee plays in the agency’s regulatory initiatives, check out this recent “Dimensions” interview of IAC member & UVA law professor Paul Mahoney. Here’s what Prof. Mahoney says about why you should keep an eye on IAC findings & recommendations:

The statute mandates that the SEC review any findings or recommendations that the IAC brings it. Moreover, the SEC must respond publicly to those findings and recommendations and disclose what action, if any, it intends to take in response. So, of course, securities lawyers and financial-reporting professionals should want to know what the IAC is doing because we have, at a minimum, the power to draw the SEC’s attention to an issue.

Beyond that, the IAC has a statutorily mandated consultative role in the SEC’s ongoing work to modernize and simplify the ongoing disclosure requirements for public companies under Regulations S-K and S-X, which the SEC calls the Disclosure Effectiveness Project.

John Jenkins