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book image Corporate Governance: Avoiding and Responding to Misconduct
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Author Name Kevin T. Abikoff
796 Pages  
Published date 2018
ISBN no. 978-1-58852-142-2
eBook ISBN no. 978-1-58852-304-4
Condition New
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Chapter 1: Financial Fraud in Context
§ 1.01 Introduction
§ 1.02 Bubbles
[1] Tulipmania
[2] The South Sea Bubble
§ 1.03 Swindles
[1] Crédit Mobilier
[2] The Savings and Loan Scandal
[3] William Duer and Wall Street’s First Crash
[4] Ponzi, “The Boston Swindler”
[5] De Angelis and the Salad Oil Swindle
[6] Madoff, The New Ponzi Scheme
§ 1.04 Lessons Learned from Previous Bubbles and Scandals
Chapter 2: Structural Governance: Board of Directors’ Committee Mechanics and Mechanisms
§ 2.01 Background
§ 2.02 The Role of Board Committees
§ 2.03 Regulating Board Committees
[1] The Compensation Committee
[2] The Nominating/Governance Committee
[3] Non-Board Committees: The SEC Disclosure Committee Recommendation
[4] Comments
§ 2.04 Lead Director
[1] NYSE Rules Regarding Lead Directors
[2] Comments
§ 2.05 Director Self-Evaluation
[1] Background
[2] Comments
§ 2.06 Promoting Director Quality
[1] Term Limits and Mandatory Retirement
[2] Limitations on Board Memberships
[3] Board Entrenchment
Chapter 3: Structural Governance: Director Independence and Related Issues
§ 3.01 Background
§ 3.02 Overview of Common Law Standards
[1] Disinterestedness
[2] Independence
§ 3.03 Sarbanes-Oxley: The Role of the Audit Committee; Audit Committee Independence and Related Issues
[1] Sarbanes-Oxley Independence Requirement
[2] Sarbanes-Oxley Audit Committee Oversight of Independent Auditors
[3] Audit Committee Complaint Handling Responsibilities
[4] Retention of Experts
§ 3.04 New York Stock Exchange Independence Standards
[1] Listing Standards Prior to the Blue Ribbon Committee’s Recommendations
[2] Recommendations of the Blue Ribbon Committee
[3] NYSE Standards
§ 3.05 NASDAQ and American Stock Exchange Independence Standards
§ 3.06 Securities and Exchange Commission Standards Regarding Independence
[1] 1999 Amendments to SEC Rules
[2] 2003 Amendments to SEC Rules
[3] 2012 Amendments to SEC Rules
[4] Regulation S-K, Item 407
[5] Related Person Transactions
§ 3.07 Private Litigation: Raising the Bar
Chapter 4: Enhanced Controls
§ 4.01 Introduction
§ 4.02 Internal Controls
[1] Background
[2] Modern “Internal Control” Initiatives
[a] Management Reporting Under the SEC Rules
[b] The Auditor’s Attestation Report
[i] Exemption for Smaller Companies
[ii] JOBS Act Exemption
[c] Disclosure Controls and Procedures
[i] Substantive Interaction with the Internal Controls Over Financial Reporting
[ii] Evaluation and Disclosure Issues
§ 4.03 Officer Certifications
[1] Past Initiatives
[2] Current Requirements
[a] SEC June 2002 Requirements
[b] Sarbanes-Oxley Act Changes
[c] SEC Implementation of the Sarbanes-Oxley Act
[d] Enforcement
[i] Section 906
[ii] Section 302 of the Sarbanes-Oxley Act
[e] NYSE Certification
[3] Comments
§ 4.04 Practical Considerations
[1] Disclosure Committees
[2] Sub-Certification
Chapter 5: Framework for Corporate Compliance
§ 5.01 Introduction
§ 5.02 Defining an Effective Compliance Program
[1] The Sentencing Guidelines Standards
[2] Overview of Select Federal Agency Standards
[3] The Department of Justice
[4] The Securities and Exchange Commission Standards
[5] New York Stock Exchange Standards
§ 5.03 Developing an Effective Compliance Program
[1] Benchmark the Compliance Programs of Similarly Situated Companies
[2] Ensure Involvement of Senior Management and the Board in the Design
[3] Set the Right Tone at the Top
[4] Conduct a Risk Assessment
[5] Require Regular Reporting to Senior Management and the Board
[6] Monitor Compliance
[7] Use Available Benchmarking Tools
[8] Adapt Policies to Different Locations and Units
[9] Conduct Periodic Assessments of the Compliance Program
[10] Exercise Extreme Caution When Granting Exceptions
[11] Employ Reporting Mechanisms
[12] Take Prompt and Appropriate Corrective Action
[13] Make Ethics Part of the Hiring and Evaluation Processes
[14] Communicate Regularly and Through Multiple Media
[15] Train Employees and Third Parties
§ 5.04 Codes of Business Conduct
[1] Federal Laws and Regulations Encouraging the Introduction of Codes of Conduct
[a] Sarbanes-Oxley Requirements
[b] SEC Implementing Regulations
[2] Listing Rules Requiring the Introduction of Codes of Conduct
[a] NYSE Rules
[b] NASDAQ Rules
[3] Legal Risks of Codes of Conduct
§ 5.05 SEC Whistleblower Protections
Chapter 6: Common Law Directorial Duties in Light of Allegations or Evidence of Misconduct
§ 6.01 Background
§ 6.02 The Business Judgment Rule
§ 6.03 Directorial Duties
[1] The Duty of Care
[a] Permissible Reliance on Others
[b] Exculpation Clauses
[2] The Duty of Loyalty
[a] Disinterestedness
[b] Independence
[c] Good Faith
Chapter 7: The SEC’s Influence on Board Responses to Allegations or Evidence of Misconduct
§ 7.01 Background
§ 7.02 Historic SEC Views Regarding Directorial Duties
§ 7.03 The Seaboard Report and the Penalties Guidance
[1] The Seaboard Report
[2] The Penalties Guidance
[3] Cooperation of Individuals
Chapter 8: The Department of Justice Influence on Board Responses to Allegations or Evidence of Misconduct
§ 8.01 Overview
§ 8.02 The Federal Sentencing Guidelines Impact on Investigatory Behavior
[1] Involvement In or Tolerance of Criminal Conduct
[2] Effective Compliance and Ethics Program
§ 8.03 The Department of Justice Guidelines for Prosecution of Corporation’s Impact on Investigatory Behavior
[1] Cooperation and Voluntary Disclosure
[a] Identity of Purported Wrongdoers
[b] Make Witnesses and Documents Available
[2] Disclosure of Results of Investigation and Privilege Waiver
Chapter 9: The Role of Counsel in the Investigative Process
§ 9.01 Background
§ 9.02 Historical Background and Past Approaches to the Role of Counsel
[1] The Alabama Code
[2] ABA Approaches
[a] Canons of Professional Ethics
[b] The Model Code of Professional Responsibility
[c] The Model Rules of Professional Conduct
§ 9.03 Modern Developments in the Role of Counsel
[1] Sarbanes-Oxley Section 307 and SEC Part 205
[a] Sarbanes-Oxley Section 307
[b] Part 205—Background, Scope and Definitions
[c] Section 205.3—Issuer as Client
[i] Section 205.3(b)—Duty to Report Evidence of a Material Violation
[ii] Section 205.3(c)—Alternative Procedures
[iii] Section 205.3(d)—Issuer Confidences
[iv] The “Noisy Withdrawal” Provision
[d] Section 205.4—Responsibilities of Supervisory Attorneys
[e] Section 205.5—Responsibilities of Subordinate Attorneys
[f] Section 205.6—Sanctions and Discipline
[g] Section 205.7—No Private Right of Action
[2] ABA Developments
[a] Rule 1.13—Organization as Client
[b] Rule 1.6—Confidentiality of Information
[3] DOJ Enforcement Initiative
[a] Background to the Lauren Stevens Prosecution
[b] Summary of Proceedings and Outcome
[c] Lessons From the Stevens Prosecution
[1] Current State Provisions
[a] State Reaction to the SEC’s Noisy Withdrawal Provision
[b] Responses to ABA Amended Rules
Chapter 10: Whistleblowers
§ 10.01 Introduction
[1] Historical Background
[2] Existing Whistleblower Legislation
[a] Federal Civil False Claims Act
[b] U.S. Sentencing Guidelines
[c] Private Securities Litigation Reform Act
[d] Department of Labor/OSHA Regulations
§ 10.02 Sarbanes-Oxley Whistleblower Initiatives
[1] Section 301 of the Sarbanes-Oxley Act
[2] Section 307 of the Sarbanes-Oxley Act
[3] Sections 806 and 1107 of the Sarbanes-Oxley Act
[a] Section 806
[b] Section 1107
[c] Jurisdiction and Remedies
[d] Comments
§ 10.03 Dodd-Frank Act
[1] Statutory Overview
[2] Anti-Retaliation Protection
§ 10.04 Practical Implications
Chapter 11: Document Retention and Production with Emphasis on Rules Relating to Electronic Discovery
§ 11.01 Overview and Context
[1] The Duty to Preserve and the Spoliation of Evidence
[2] Cost Shifting in Electronic Discovery
[3] Technologies Used in Electronic Discovery
§ 11.02 Enhanced Obligations of Accountants and Accounting Firms to Preserve Documents
§ 11.03 2006 Amendments to the Federal Rules of Civil Procedure Relating to Electronically Stored Information
[1] Rule 26(b)(2) of the Federal Rules of Civil Procedure
[2] Rule 26(f) of the Federal Rules of Civil Procedure
[3] Rule 37(e) of the Federal Rules of Civil Procedure
Chapter 12: Pitfalls of Failed Document Production Efforts
§ 12.01 Criminal Penalties for Document Destruction
[1] The Andersen Prosecution
[2] The Legislative Aftermath: The Sarbanes-Oxley Amendments
[a] Sarbanes-Oxley Section 802
[i] 18 U.S.C. § 1519
[ii] 18 U.S.C. § 1520
[b] Sarbanes-Oxley Section 1102
[i] Changes in Criminal Penalties
[ii] Potentially Lesser Scienter Requirement: Knowingly Rather than Corruptly
[iii] Adoption of the “In Contemplation of” Standard
[iv] Expanded Applicability to “Administration of Any Matter”
§ 12.02 The Hazards of Spoliation: Zubulake and Morgan Stanley
[1] Spoliation Overview
[2] Case Study: Zubulake
[3] Case Study: Morgan Stanley
[4] Case Study: Qualcomm
§ 12.03 SEC Requirements and Link to Cooperation
[1] Case Study: Lucent Technologies Inc.
[2] Case Study: Banc of America Securities LLC
§ 12.04 Commentary
Chapter 13: Treatment of Electronic Materials at Issue in Securities and Exchange Commission Investigations
§ 13.01 Introduction
§ 13.02 Plan for Litigation
[1] Know the Systems
[2] Develop Questions for IT
[3] Know the Contacts
[4] Designate a Technical Resource
[5] Develop the Matrix—Plan for Electronic Material and Treatment Classification
[6] Consistent Treatment and Execution
[7] Know What Work Product Results
[8] Protocols and Standards
[9] Know How the Work Product Will Be Produced
§ 13.03 Act Quickly
[1] Preservation Notice
[2] Call IT
[3] Assembling the Litigation Team
[4] Setting Up and Managing an Archive
[a] Location
[b] Environment
[c] Security
[d] Mitigating Disaster Recovery
[5] Controlling Electronic Materials and Chain of Custody
§ 13.04 Do It Right
[1] Create an Ongoing Resource List
[2] Sweeps
[a] Define
[b] Execute
[c] Locate
[d] Sequester
[3] Create Electronic Material Maps
§ 13.05 Conclusion
Chapter 14: Select Issues in SEC Enforcement
§ 14.01 Commencement
[1] Introduction
[2] Sources of Information
[3] The Informal Investigation
[4] The Formal Investigation
[5] Parallel Investigations
§ 14.02 Conduct of Investigation
[1] Documents, Information and Testimony
[2] Attorney-Client Privilege
[3] Work Product Protection
[4] Confidentiality Agreements
[5] The Wells Process
[6] Inadvertent Disclosure
§ 14.03 Enforcement Actions
§ 14.03A Cooperation Tools
[1] Cooperation Agreements
[2] Deferred Prosecution Agreements
[3] Non-Prosecution Agreements
§ 14.04 Remedies
[1] Cease and Desist Order
[2] Suspensions and Revocations
[3] Injunctive Relief
[4] Monetary Relief
[5] Fair Funds Distribution
[6] Emergency Relief
§ 14.05 Sarbanes-Oxley Enforcement Reforms
§ 14.06 Collateral Consequences
Chapter 15: Select Issues in White Collar Criminal Enforcement
§ 15.01 Vicarious Liability
§ 15.02 Corporate Prosecutions
[1] Principles of Federal Prosecution of Business Organizations
[a] Nature of the Offense
[b] Pervasiveness of Wrongdoing within the Corporation
[c] The Corporation’s Past History
[d] Cooperation and Disclosure
[e] Corporate Compliance Programs
[f] Voluntary Disclosures
[g] Restitution and Remediation
[h] Collateral Consequences
[i] Adequacy of Prosecuting the Individuals Responsible
[j] Civil or Regulatory Alternatives to Prosecution
[k] Prosecutorial Discretion
[2] Negotiated Agreements
[a] Deferred-Prosecution Agreements
[b] Non-prosecution Agreements
[3] Criminal Prosecutions
§ 15.03 The Cooperation Decision
[1] Generally
[2] Self-Disclosure Requirement for Government Contractors
[3] Negative Consequences of Cooperation
[a] Fines and/or Restitution
[b] Waiver of the Privileges
[c] Independent Monitoring
[i] Guidelines for Monitorships
[ii] Trends in Monitorships

[A] Hybrid Monitorships

[B] Self-Reporting Monitorships

[d] Becoming Adverse to Employees
§ 15.04 Corporate Sentencing
[1] Corporate Sentencing Considerations
[2] Statutory Sentencing Considerations
Chapter 16: Select Aspects of Executive Compensation
§ 16.01 Introduction
§ 16.02 Section 16—Reporting of Insider Securities Transactions
[1] Accelerated Reporting
[2] Electronic Filing and Web Site Posting
§ 16.03 Pension Plan Blackouts—Notices and Trading Restrictions
[1] Introduction
[2] SEC Regulations
[3] DOL Regulations
§ 16.04 Prohibition on Loans
[1] Background
[2] The Statutory Prohibition
[3] Law Firm Position Paper
§ 16.05 Form 8-K Reporting of Executive Compensation
[1] Introduction
[2] The 2004 Amendments
[3] SEC Interpretations
[4] The 2006 Amendments
[5] The Emergency Economic Stabilization Act of 2008
§ 16.05A Dodd-Frank Act
[1] Say on Pay
[2] Say on Golden Parachutes
[3] Pay Versus Performance Disclosures
[4] SEC Implementation
§ 16.05B Jumpstart Our Business Startups Act (JOBS Act)
[1] Emerging Growth Companies
[2] Registration Requirements
§ 16.06 Restrictions on Deferred Compensation
[1] Background
[2] Restrictions on Deferred Compensation Plans - The Statutory Provision
[3] Restrictions on Deferred Compensation Plans—Final Regulations
[a] Definitions and Scope
[b] Permissible Payment Events
[c] Timing of Deferral Election
[d] Prohibition on Acceleration
[4] Restrictions on Funding of Deferred Compensation
§ 16.07 Conclusion
Chapter 17: Select Issues in Securities Class Action Litigation
§ 17.01 Introduction
[1] Enactment of the Securities Laws
[2] Private Enforcement of Securities Laws
§ 17.02 Selection of Lead Plaintiff
[1] Introduction
[2] Procedure for Determining Lead Plaintiff
[3] Standards for Lead Plaintiff Selection
[a] Identifying the Presumptive Lead Plaintiff
[b] Determining the Plaintiff with the Largest Financial Interest
[c] The Adequacy and Typicality Requirements
[4] Limitations on Professional Lead Plaintiffs
[5] Rebuttal of the Presumption of Lead Plaintiff
[6] Grouping of Leading Plaintiffs
§ 17.03 Pleading Standards
[1] Introduction
[2] Pleading Standards Under Rule 9(b)
[3] Pleading Standards Under the PSLRA
[4] Pleading Scienter
[5] Use of Anonymous Sources
[6] Pleading Damages
[7] The Securities Act
[8] Section 18
§ 17.04 PSLRA Stay of Discovery Provisions
[1] Lifting the Stay (In General)
[2] Particularized Discovery as Necessary to Prevent Undue Prejudice
[3] Fighting for Corporate Life
[4] The Need to Preserve Evidence
[5] Shifting the Burden: Previous Production
[6] Circumventing the Stay
§ 17.05 Class Certification
[1] Certification Deadlines
[2] Requirements for Class Certification
[a] Rule 23(a) Requirements
[i] Numerosity
[ii] Commonality
[iii] Typicality
[iv] Adequacy of Representation
[b] Rule 23(b) Requirements
[3] Challenges to Class Certification
[a] Common Issues May Not Predominate When Reliance is Not Presumed
[b] “Unique Defense” Makes Plaintiff an Atypical Representative
[c] Denying Class Certification or Limiting Class Size in Section 11 Actions
§ 17.06 Statute of Limitations
[1] The Exchange Act
[a] Claims Involving Fraud: Section 10(b) and Rule 10b-5
[i] Length of the Limitations Period
[ii] “Discovery” of Facts Constituting Fraud
[iii] The Merck Decision
[iv] Circumstances that Suggest Fraud
[b] Section 18
[c] Section 9(e)
[2] The Securities Act
[a] Length of the Limitations Period
[b] Triggering the Limitations Period
[i] Discovery of Facts Constituting the Violation
[ii] Bona Fide Offering
Chapter 18: Select Issues in the Foreign Corrupt Practices Act
§ 18.01 Introduction
§ 18.02 Overview of the FCPA
[1] Anti-Bribery Provisions
[2] Accounting Provisions
[a] Record Keeping
[b] Internal Controls
[3] Sanctions
§ 18.03 “Promises” and “Anything of Value”
§ 18.04 The “In Furtherance” Requirement
§ 18.05 Who Is a “Foreign Official”
§ 18.06 The Intent Requirement
[1] Corruptly
[2] Knowing
[3] Willfully
§ 18.07 The “Obtain or Retain Business” Element
§ 18.08 Use of Advisory Opinions
[1] History of the FCPA Advisory Opinion Process
[2] FCPA’s Current Advisory Opinion Process
§ 18.09 Enforcement Trends
[1] Prosecution of Individuals
[2] Broad Reading by Agencies of FCPA Elements
[a] Expansive Jurisdictional Reach
[b] Whistleblower Reports
[c] Efforts to Protect Compliance Officers
[3] Industry-Wide Investigations
[4] Violations Absent Bribery
[5] Private Litigation
[a] Derivative Suits
[b] Securities Suits
[c] Suits by Foreign Governments
[6] International Anti-Corruption Enforcement
§ 18.10 Due Diligence
[1] In General
[2] Need for Appropriate Due Diligence—Baker Hughes as a Case Study
[a] The Baker Hughes Settlement
[b] Due Diligence Lessons from Baker Hughes
[c] When a Problem is Discovered
Chapter 19: Select Issues in Governance of Not-for-Profit Organizations
§ 19.01 Introduction
[1] Cautionary Tales
[a] The Nature Conservancy
[b] American Red Cross
[c] American University
[d] Smithsonian Institution
[e] Wounded Warrior Project
[2] Self-Regulation
§ 19.02 Policies and Procedures
[1] Code of Ethics
[2] Disclosure
[3] Conflicts of Interest
[4] Whistleblowing
[5] Business Records
[6] Reimbursing Expenses
[7] Loans to Directors and Officers
[8] Political Activity and Lobbying
§ 19.03 Board Structure and Composition
[1] Governing Body
[2] Diversity and Financial Literacy
[3] Independence
[4] Compensation
§ 19.04 Board Responsibilities
[1] Meet Regularly
[2] Review Size and Structure
[3] Train Board Members
[4] Review Governing Instruments
[5] Review Goals for Implementing Mission
[6] Supervise and Evaluate CEO
[7] Perform Self-Evaluation
[8] Limit Terms for Board Members
[9] Review Risk Management
§ 19.05 Timetables
Appendix A The Department of Justice Memorandum on “Principles of Federal Prosecution of Business Organizations” (the “McNulty Memorandum”)
Appendix B United States Sentencing Guidelines Chapter 8—Sentencing of Organizations
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