White-Collar Crime Committee Newsletter
Spring 2016
Sentencing Commission Revisits Fraud-on-the Market Guidelines
By Gregory J. O'Connell and Vera Kachnowski

At the start of each year, the United States Sentencing Commission proposes amendments to the Sentencing Guidelines. While the 2016 proposed amendments are currently in the comment period, an amendment that was made during the prior cycle is worth examining. On April 9, 2015, the Commission voted to promulgate amendments to the fraud Guideline, §2B1.1, to address four areas of concern, including the treatment of fraud-on-the-market offenses. These securities offenses, which may be prosecuted under 18 U.S.C. §§ 1348 and 1350, involve manipulation of stock prices that is presumed to affect all shareholders. Calculating the exact loss to shareholders is difficult, though, and raises concerns that a defendant might be held responsible for market movements unrelated to their fraud. In the civil context, various calculation methods have been applied to these types of offenses, often requiring expert testimony. Meanwhile, the 2014 Guidelines had provided the following rebuttable presumption in an Application Note to §2B1.1:

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Is the CFTC Attempting to Lower its Standard? Determining Specific Intent in the CEA's Anti-Manipulation Provisions
By Lisa Totino

On January 12th, the Managed Funds Association, Chicago Mercantile Exchange Group Inc., Commodity Markets Council, Futures Industry Association and the Intercontinental Exchange (collectively, "financial industry groups") sought permission to file an amicus curiae brief in U.S. CFTC v. Donald R. Wilson Jr. & DRW Investments to weigh in on the legal standard required for manipulation and attempted manipulation of the price of a futures contract, namely the IDEX USD Three-Month Interest Rate Swap Futures Contract from at least January 2011 through August 2011. As set forth in their amicus brief, the financial industry groups are concerned that the Commodity Futures Trading Commission (the "CFTC" or the "Commission") is advancing the view that, to satisfy the specific intent element of a claim for manipulation or attempted manipulation, it need only prove "an intent to affect price" and not intent to create a "artificial" or "distorted" price, as required under the traditional standard. In response to the financial industry groups' request for leave to file an amicus brief, on January 19th, the Commission urged the court to deny the brief. In doing so, the Commission relied primarily on procedural grounds (i.e., that the amicus brief is not useful, untimely, and without merit) and argued that such issues have been "thoroughly litigated" through 80-pages of pre-trial motions.

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AML Regulatory Alert: Federal Court Rules That Anti-Money Laundering Law Applies To Compliance Officers
By David M. Rosenfield

In its September 2015 memo known as the "Yates Memo," the Department of Justice ("DOJ") outlined its new objective to hold individuals accountable in corporate misconduct cases. A recent federal district court ruling against former MoneyGram Compliance Chief Thomas Haider is an example of how the DOJ's new corporate misconduct policy, as it applies to individuals, is likely to work. The Haider suit is a case against a compliance officer for anti-money laundering ("AML") control failures. What previously would have been viewed as extremely unlikely -a compliance officer being held individually accountable for AML control failures- is now an issue that corporate compliance officers must take very seriously. In almost all cases prior to the Haider decision, only corporations themselves, and not individual employees, were held responsible for improper conduct. Following Haider, corporate compliance officers at financial institutions must protect themselves by ensuring that their companies enforce robust, effective AML policies and procedures, and file all necessary Suspicious Activity Reports ("SARs").

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Insider Trading Showdown: "Personal Benefit" to be Tested at the U.S. Supreme Court
By Robert Hoff and Ivana Greco

By granting cert and agreeing to hear an appeal from the Ninth Circuit Court of Appeals' decision in United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), the U.S. Supreme Court may clarify the scope of the "personal benefit" prong of insider trading law. Clarity on this aspect of insider trading law could be a welcome development for prosecutors, defendants and their counsel, traders and compliance professionals. The Supreme Court's case also has the potential to upend the most significant insider trading case in recent history, the Second Circuit Court of Appeals' decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014).

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