By Dechert LLP | October 27th, 2015

By Catherine Botticelli and James Bobseine

A recent report by the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce (Chamber Report) regarding the enforcement program of the Securities and Exchange Commission (SEC or Commission) identified weaknesses in that program, and made recommendations to remedy those weaknesses. The Chamber Report is only one of a chorus of voices criticizing the SEC‘s enforcement practices, and certain of the SEC‘s actions in the last few months suggest that it has begun to heed these calls for reform.

Catherine Botticelli

James Bobseine

The recommendations of the Chamber Report, titled Examining U.S. Securities and Exchange Commission Enforcement: Recommendations on Current Processes and Practices, include, among others: adopting procedures to limit the SEC‘s use of administrative proceedings; clarifying the SEC‘s policy on admissions of wrongdoing; streamlining the SEC‘s ―long and costly‖ investigative process; and returning to, and codifying, certain ―time-honored practices‖ in the Wells process. According to the Chamber Report, the SEC‘s adoption of the recommendations would help ―ensure clear, predictable, and efficient practices for market participants while eliminating unnecessary ambiguity and serve the tripartite mission of the SEC to promote investor protection, competition, and capital formation.

The Chamber Report was based on a survey of more than 75 legal and compliance executives of public U.S. companies and 30 interviews with persons familiar with the Commission‘s enforcement processes and practices. Although unlikely to directly result in any immediate changes at the SEC, the Chamber Report joined other interested parties suggesting reforms, including members of the judiciary, members of the Commission itself, academics, and federal legislators from both sides of the political divide. Indeed, a number of developments since mid-July have only served to further underscore the importance of issues raised in the Chamber Report.

Reforming the SEC’s Use of Administrative Proceedings

In recent years, the SEC‘s use of administrative law judges (ALJs) to hear its cases has faced growing criticism, as the SEC has increasingly opted to bring enforcement actions in administrative forums. According to an analysis cited in the Chamber Report, over the last 25 years, the SEC‘s Division of Enforcement (Enforcement Division) has ―dramatic[ally] shift[ed]—from bringing cases roughly equally as civil actions in federal court and administrative proceedings before ALJs, to bringing dramatically more cases as administrative proceedings. This increase has coincided with greater agency authority to impose civil penalties in cease-and-desist proceedings, granted by the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

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By Dechert LLP | June 5th, 2014

By Kareena Teh and  Fabian Roday

Chinese anti-corruption efforts historically targeted recipients of bribes, particularly government officials. In the past year, however, Chinese authorities have initiated a very public crackdown on bribe payers in the life sciences industry, commencing investigations into the conduct of a number of multi-national companies operating in China as well as their China-based senior executives. Recent developments indicate that enforcement actions may soon commence against a number of these senior executives. ThisOnPoint considers life sciences investigations in the context of China’s anti-graft campaign and the implications for multi-nationals in China.

Enforcement Actions and Regulatory Developments Targeting the Life Sciences Industry

The current enforcement focus on the life sciences industry commenced in June 2013, when Chinese authorities, apparently acting on a tip from a whistleblower former employee, commenced investigations into allegations that a multi-national life science company paid bribes to doctors and employees of government-owned hospitals and government officials. Arrests were made at the time, and accusations have recently been leveled at various executives of the multi-national company’s China operations. At the same time, investigations into other life science companies (foreign and domestic) were also commenced and are currently pending.

In addition to being subject to heavy fines, prosecutions and convictions, if entered, can have serious operational consequences for the life sciences companies and their senior executives. Both could be blacklisted and barred from bidding for contracts under the Regulations on Establishing a Commercial Bribery Blacklist for the Purchase and Sale of Medicines introduced by the National Health and Family Planning Commission (the NHFPC) at the end of 2013. Senior executives could also be sentenced to lengthy prison terms.

In tandem with the enforcement actions, Chinese authorities have also introduced regulatory measures to penalize and deter bribery and to provide guidance to the life sciences industry, among them the blacklisting scheme referred to above. Under this scheme, a company or an individual convicted of bribery would automatically be included on a provincial blacklist and barred from bidding for contracts with government-funded life sciences institutions for two years in that province, as well as on a national blacklist, following which their bids in other provinces would be given lower priority. The same company or individual, if convicted of bribery again within a five-year period, would also be barred nationwide from bids with publicly funded life sciences institutions for a period of two years.

Another measure is the Nine Prohibitions to Strengthen the Ethical Conduct in the Healthcare Industry, which was issued by the NHFPC and became effective on 26 December 2013. The Nine Prohibitionsprohibit conduct that directly addresses issues uncovered in the wide-ranging investigations undertaken by the Chinese authorities and provides guidance on the “do’s” and “don’t’s” when interacting with life sciences professionals and institutions.

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By Dechert LLP | April 25th, 2014

By Lewis Ho, Kareena Teh,and  Monique Lee

Recent disputes and controversies involving Chinese subsidiaries of foreign pharmaceutical companies have sounded warning bells on legal and ethical issues regarding participation in China’s rapidly growing and evolving pharmaceutical market. This OnPoint explores various scenarios and provides some insight for preemptive measures that can be taken in China.

Anti-bribery initiatives

While pharmaceutical companies have been well aware of the Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act — and the consequences of non-compliance with those laws — many were taken by surprise when they became the focus of investigations and enforcement actions by Chinese authorities in June 2013. These investigations and actions revealed practices that were often excused as “customary” in China, but constituted violations of longstanding anti-corruption laws that traditionally had not been vigorously enforced against bribe-givers. The ensuing arrests and detentions of executives and other employees of the pharmaceutical companies shook up the global pharmaceutical industry. Prosecutions and convictions, if they occur, will have significant consequences for the companies and individuals involved. Apart from fines, the companies and individuals concerned could also be blacklisted and banned from selling their products regionally and nationally (if convicted again within five years). Individuals could also be imprisoned for up to ten years. Given the significance of such prosecutions and convictions in one of the largest drug markets in the world, pharmaceutical companies need to reconsider their operations and business development strategies in China, and to ensure compliance with its anti-corruption laws.

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By Dechert LLP | April 8th, 2014

By Ben Barnett, Rebecca S. Kahan and Nathaniel Hopkins

In the wake of the national financial crisis, both the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) publicly committed themselves to enhanced enforcement of federal financial laws and regulations. Attorney General Eric Holder stated that the DOJ will “remain aggressive” in pursuing white-collar criminal cases. Similarly, SEC Chairwoman Mary Jo White pledged to make the Commission a “strong and effective cop” that will be “aggressive and creative” in its use of enforcement tools.

Proof of these public pronouncements has taken the form of increased criminal prosecutions, criminal investigations, and SEC enforcement actions. Many of these actions, in turn, have demonstrated a new-found appetite among federal prosecutors, investigators, and regulators for obtaining significant amounts of electronically stored information (“ESI”).

Historically, limitations on the potential scope and cost of collecting, reviewing, and producing such electronic information that exist in civil discovery offered no relief or sanctuary to companies or individuals facing criminal or regulatory investigations. Recently, however, some members of the federal judiciary – steeped in civil eDiscovery experience – have demonstrated a willingness to require the government to (i) limit subpoenas to information for which the government has probable cause to request and (ii) destroy irrelevant information.

Fourth Amendment Limitations on Broad Subpoenas Seeking ESI

In In the Matter of the Search of Information Associated with [redacted] @mac.com that is Stored at Premises Controlled by Apple, Inc., Magistrate Judge John M. Facciola – a leading jurist in the ever-evolving eDiscovery arena – denied the DOJ’s application for a search and seizure warrant directed to Apple Inc. as part of an investigation into receipt of kickbacks and conspiracy involving a defense contractor. The government’s subpoena application followed “a standard format” which divided the list of “Particular Things to be Seized” into two parts: (i) “Information to be disclosed by Apple,” and (ii) “Information to be seized by the government.” If authorized, the requested warrant would have required Apple to turn over “the entire universe of information” tied to a single email account. Once in receipt of that information, the government would sort through the data in order to find evidence relevant to their investigation.

Judge Facciola rejected the application, ruling that it was unconstitutionally overbroad. The Judge held that to comply with the Fourth Amendment, the search warrant could not make across-the-board requests for information, but had to be “tailored” to a probable cause justification. This meant that the government would be required to describe the information to be seized “with as much specificity as the government’s knowledge and circumstances allow.” Because the language used in the government’s application was general and generic, Judge Facciola concluded that the requested warrant would amount to nothing more than an unconstitutional “exploratory rummaging” through a personal email account.

The Apple case is not the first time Judge Facciola found a government warrant application for ESI unconstitutionally overbroad. On November 26, 2013, Judge Facciola issued an opinion significantly narrowing the scope of a search warrant for data associated with the Facebook account of Aaron Alexis, the former Navy employee identified as the Washington D.C. Navy Yard shooter. There, the court’s concerns focused on the search and seizure of information related to third parties and the government’s failure to identify how irrelevant information would be handled. Although the warrant application was ultimately granted, the Court required “that some safeguards be put in place to prevent the government from collecting and keeping indefinitely information to which it has no right.”

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ANALYSIS: U.S. Chamber of Commerce Joins Chorus Pushing For Overhaul in SEC Enforcement Practices

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