July/August 2009 / Cover Story
Prepare for a New Era of Enforcement
Because of criticism over its supervision of Wall Street, SEC staff will be looking for opportunities to demonstrate they are tough. Congress has shown its eagerness to assist in that effort through legislation. Companies and individuals who become targets need to be prepared to respond quickly.
The author suggests holding regular compliance training, even if cost-cutting measures are in place. Those being trained should include foreign employees and agents, to ensure compliance with the Foreign Corrupt Practices Act. Review of insurance policies is vital. D&O insurance should compensate for costs associated with regulatory investigations. Some policies also provide coverage for SEC proceedings, but only if they are against an insured, and because formal orders of investigation rarely specify individuals who are under investigation, it can be difficult to convince the carrier to extend coverage under such a narrow definition. Directors and officers may assume that they will be reimbursed for expenses associated with an SEC investigation under the company’s indemnification provisions, but in case of insolvency the D&O policy may be the only resource available.
From the time a government inquiry is received the company should be mindful of preserving the privileged nature of its internal investigation. The safest way to protect privilege is to retain outside counsel.
