I am honored to be here representing the dedicated men and women of the Department of Justice. Like the SEC’s Enforcement staff, many of our prosecutors are tasked with investigating financial fraud and corporate crime. They are assigned to the Department’s 94 U.S. Attorneys’ Offices and the Criminal Division’s Fraud Section or its Money Laundering and Asset Recovery Section.
The theme of today’s conference is cooperation and coordination between our two agencies. In speaking with you today, it is my aim to underscore why it is so critical that the Department’s prosecutors work closely with you.
As you well know, uncovering, investigating, and prosecuting financial fraud and corporate malfeasance in a globalized economy is already a difficult task – and fraudulent schemes are only growing more sophisticated by the day. The DOJ has considerable expertise in this area, and so do our partners here at the SEC. For example, the SEC staff’s ability to detect complex insider trading and market-manipulation activity using its ARTEMIS system is, I believe, unparalleled. The Department often depends on the SEC’s staff to flag these abusive schemes for further investigation and potential prosecution by our respective agencies. For these reasons, it is imperative that the DOJ and the SEC continue their partnership in ensuring sound and reliable markets, which have been the engine of economic growth over our nation’s history.
Speaking of history, financial fraud is certainly not a new phenomenon in America. One of the first widely-known acts of financial fraud in our country was committed just a few years after the ratification of the Constitution. In April 1792, Alexander Hamilton – then serving as the first Secretary of the Treasury – wrote that there “should be a line of separation between honest Men & knaves; between respectable stockholders and dealers in the funds, and mere unprincipled Gamblers.”[1]
In penning these words, Hamilton was surely thinking about William Duer, who had served as his first Assistant Secretary of the Treasury. Hamilton and Duer’s Treasury Department had bought up outstanding bonds held by the former colonies. It was widely expected that, once acquired by the federal government, those bonds would benefit from enhanced credibility and, thus, an increase in value. But Duer crossed the line and betrayed the trust of the American people.
As a high-ranking Treasury official, Duer knew precisely which bonds were going to be purchased by the government. He used this privileged knowledge to enrich himself and others. Like so many frauds, Duer’s scheme appeared successful at first, though it eventually unraveled as he miscalculated and incurred steep losses, landing himself in debtor’s prison and sparking a credit crisis.
Now, our nation’s history may have its record of knaves and unprincipled gamblers. But it is also full of men and women like yourselves – people who have devoted their careers to ensuring that our markets remain a reliable and fair playing field for American investors.
The cooperation between our two agencies is not new. The DOJ has long considered the SEC an indispensable partner in protecting markets and investors, promoting lawful commerce around the world, and deterring misconduct. Our two agencies have closely coordinated on a wide range of matters, and our cooperation has only grown as financial matters have become increasingly complex and globalized.
Today, I’d like to take time to highlight three points about the deepening and increasingly productive relationship between the SEC and the DOJ – points we all can be proud of.
- The first is our impressive record of joint enforcement.
- The second is our agencies’ joint efforts to ensure that we avoid creating arbitrary and unnecessary barriers to economic growth through our enforcement activities.
- And the third point is the importance of the DOJ and the SEC’s work in promoting ethical business practices and sound corporate governance and compliance policies.
I.
I’ll begin with our coordination to punish wrongdoers and to protect investors. As I have mentioned, the white-collar crime, financial fraud, and corruption cases that our agencies handle are some of the most complex and difficult cases to uncover, investigate, and prosecute. Together, however, through information sharing and open dialogue, we are able to overcome those challenges.
Take, for example, our work together on FCPA cases. These matters often involve complicated financial transactions, significant sums of money, sophisticated parties, and voluminous evidence scattered throughout the world. But by working together in close coordination, the SEC and the DOJ are often able to focus our work, and succeed in vindicating the law.
Earlier this year, the DOJ and the SEC announced a joint resolution with Mobile TeleSystems – the largest telecommunications company in Russia – for bribing officials in Uzbekistan.[2] The company agreed to pay over 850 million dollars to resolve the case, including a 100-million-dollar civil penalty to the SEC. The matter first came to the DOJ as a referral from the SEC, and our two agencies were able to work closely together to investigate and resolve the matter.
Another recent example of our partnership is the “Power Traders Press” case out of the Eastern District of New York.[3] In this case, sixteen defendants were charged in connection with their involvement in a 147-million-dollar scheme to defraud hundreds of investors, many of whom were in their 70s, 80s, and 90s. From 2014 to 2017, the defendants engaged in a boiler-room scheme to steal investors’ life savings. Among other predatory tactics, they encouraged elderly victims to purchase shares in companies that the fraudsters were manipulating. And, after the victims incurred substantial losses, the defendants further persuaded them to double down and continue purchasing shares on the promise that prices would rise again. Of course, prices didn’t rise again, and these victims suffered further losses.
Operating in parallel on the investigation, the SEC ultimately brought civil cases against many of the same defendants who were also charged criminally by the U.S. Attorney’s Office in the Eastern District of New York. In the criminal matter, 12 of the 16 defendants have pleaded guilty, and those who have been sentenced have received substantial prison sentences were ordered to forfeit ill-gotten gains and to pay restitution to their victims.
I wish to relay special gratitude to the SEC for its work in this particular case. Chairman Clayton has rightly emphasized the need to look out for the interests of Main Street investors – the ordinary folks who depend on our markets to save money for school, homes, and retirement. Protecting everyday American investors, especially those who comprise vulnerable segments of our population, is one of this Administration’s highest priorities, and it should be a special focus of our work at the DOJ and the SEC.
I frequently tell the leadership of our Criminal Division that the objective of our criminal enforcement efforts in the white-collar arena is not to secure big headlines by taking down large companies or high-profile defendants. Rather, the objective should be to do the right thing for investors and markets. Cases like Power Traders Press are just as important as cases like Mobile TeleSystems. In my view, our best cases are those that yield tangible results for everyday people.
II.
While the DOJ and the SEC must be vigilant in investigating and prosecuting white-collar misconduct, we must also ensure that we are acting fairly and prudently. This leads to my second point. During parallel investigations, our agencies should ensure that we remain mindful of – and properly account for – the collateral consequences that our matters can sometimes have.
These potential consequences include the cost to defend against an investigation, the cost associated with resolving the matter, and the intangible effects that a case can have on a company’s reputation and its ability to do business going forward. In many cases, these costs are borne not just by the wrongdoers, but also by others who were not involved in the misconduct, such as shareholders. And these costs are often amplified in our increasingly complex regulatory environment when multiple criminal and regulatory enforcement agencies seek to investigate the same or overlapping conduct.
The DOJ is mindful of these issues. That’s why, in May 2018, the Department issued the “Policy on Coordination of Corporate Resolution Penalties,” known colloquially as “the policy against piling-on.” It can be found both online and in our Justice Manual. This policy emphasizes that, to achieve an equitable outcome, the DOJ “should consider the totality of fines, penalties, and/or forfeiture imposed by all Department components as well as other law enforcement agencies and regulators.”[4]
It’s been almost a year and a half since this common-sense policy was issued, and the DOJ’s prosecutors have continued to execute it with my full support. The Mobile TeleSystems case that I discussed earlier provides an excellent example. There, the Department credited the 100 million dollars that the company paid to resolve the parallel SEC matter against the 850 million dollars the company agreed to pay to the DOJ.
As another example, in April, the Celadon Group – a publicly-traded transportation company – entered into a deferred prosecution agreement with the Justice Department to resolve an investigation into a complex accounting and securities fraud scheme. This scheme was conceived by former executives who falsified transactions in order to mislead investors. The Celadon Group agreed to pay over 42 million dollars in restitution to investors, to implement rigorous internal controls, and to cooperate with the Department’s related individual investigations. The company simultaneously reached a 7-million-dollar civil settlement with the SEC to resolve parallel allegations, which reflected the disgorgement of ill-gotten profits. This figure was set in recognition of the DOJ’s existing provision for restitution to the victims of this fraud.[5]
I have been pleased to see that the SEC is also very mindful of the collateral impact that our work can have. In July of this year, for instance, Chairman Clayton issued a “Statement Regarding Offers of Settlement” that aligns the SEC’s waiver application process with the final approval and announcement of a resolution.[6] The Commission’s new policy streamlines the resolution process and provides companies with much-needed transparency about the effects a settlement may have on their operations.
Speaking of streamlining, I believe that both of our agencies also must be mindful of the significant time that our investigations can take and the limited resources we have to pursue them. One way to address this is to ensure that we move efficiently in our investigations. But we also should ensure that we employ a discriminating eye on the front end when deciding which cases to pursue, making better choices about the use of our limited time and resources. By focusing on high-quality matters in the first instance, we can ensure that each case gets the attention it deserves and that our investigations move forward expeditiously. And by cutting down the time that proverbial clouds hang over companies and, as just mentioned, by encouraging companies to resolve matters at an earlier stage, we can get money back to harmed investors more quickly and more efficiently. I think we can all agree that this is a worthwhile goal.
III.
That all being said, protecting investors isn’t just about punishment and restitution – it’s also about promoting ethical business practices. Hence, the third facet of the DOJ and the SEC’s relationship that I’d like to address today: incentivizing companies to adopt sound corporate practices and policies by providing them with appropriate credit for good behavior and cooperation.
On this front, the DOJ and the SEC have co-chaired the Financial Fraud Working Group and jointly-published the Resource Guide to the FCPA.[7]
The Justice Department, of course, recently announced revisions to its FCPA Corporate Enforcement Policy.[8] The new iteration of the Policy incentivizes good corporate behavior, expands transparency for companies seeking corporate resolutions, and increases the effectiveness of related individual prosecutions.
The Policy achieves these goals by encouraging companies to voluntarily bring misconduct to our attention at an earlier stage and to fully cooperate with investigations. This way, the Justice Department can take more investigative steps and gather more evidence without having to go through as many formal processes, including Mutual Legal Assistance Treaty requests.
Critically, this Policy also makes it clear that, if a company meets the benchmarks of good corporate behavior, the DOJ can use its discretion to act in deference to an SEC parallel resolution. For example, Cognizant, a technology-solutions company, authorized a third-party construction firm to pay approximately 2 million dollars in bribes to government officials in India. Yet in light of the company’s voluntary self-disclosure, internal reforms, full cooperation, active remediation, and a simultaneous SEC resolution – the DOJ declined prosecution. We disgorged approximately 19 million dollars in profits and credited the company for the amount already paid to the Commission.[9]
In another instance, the Justice Department declined to prosecute the commercial and data analytics firm Dun & Bradstreet over bribery in China under an almost identical set of criteria.[10]
I would also note that the cooperation between the SEC and the DOJ in this area extends beyond resolving cases and issuing complementary policies. For example, when the DOJ’s Criminal Division recently trained its prosecutors on its new Evaluation of Corporate Compliance Programs guidance, a sizable group from the SEC’s Enforcement Division also participated. This is exactly the type of cooperation and coordination we need to ensure we are pursuing financial fraud on behalf of the American people.
***
To conclude, the three points I’ve touched upon characterize the great relationship between the DOJ and the SEC – a relationship that well serves the American people. Thanks to its enduring nature, we’re better prepared today to pursue the Hamiltonian desire to distinguish between “knaves,” and on the other hand, “honest Men.”
The principles and the goals of the Department and the Commission are aligned. As such, I’m certain our efforts will positively and lastingly benefit both Wall Street and Main Street. On behalf of the Justice Department, we look forward to many more years of working alongside the SEC.
Thank you for your time, and I hope you enjoy the remainder of this conference.
ENDNOTES
[1] Hamilton, Alexander to Philip Livingston. Personal letter. “From Alexander Hamilton to Philip Livingston, 2 April 1792.” Founders Online, National Archives.
[2] “Mobile Telesystems Pjsc and Its Uzbek Subsidiary Enter into Resolutions of $850 Million with the Department of Justice for Paying Bribes in Uzbekistan.” Office of Public Affairs, U.S. Department of Justice. 7 Mar. 2019.
[3] “Melville-Based Boiler Room Employees Sentenced to Prison for Their Roles in $147 Million Stock Manipulation Scheme.” U.S. Attorney’s Office, Eastern District of New York, U.S. Department of Justice. 12 Sept. 2019.
[4] Rosenstein, Rod J. “Policy on Coordination of Corporate Resolution Penalties.” Office of the Deputy Attorney General, U.S. Department of Justice. 9 May 2018. Justice Manual. U.S. Department of Justice.
[5] “Celadon Group, Inc. Enters into Corporate Resolution for Securities Fraud and Agrees to Pay $42.2 Million in Restitution.” Office of Public Affairs, U.S. Department of Justice. 25 Apr. 2019.
[6] Clayton, Jay. “Statement Regarding Offers of Settlement.” U.S. Securities and Exchange Commission. 3 Jul. 2019.
[7] “A Resource Guide to the U.S. Foreign Corrupt Practices Act.” Criminal Division, U.S. Department of Justice and Enforcement Division, U.S. Securities and Exchange Commission. 16 Jan. 2015.
[8] “9-47.120 – FCPA Corporate Enforcement Policy.” Criminal Division, U.S. Department of Justice.
[9] “Re: Cognizant Technology Solutions Corporation.” Criminal Division, U.S. Department of Justice. 13 Feb. 2019.
[10] “Re: The Dun & Bradstreet Corporation.” Criminal Division, U.S. Department of Justice. 23 Apr. 2018.
These remarks were delivered by U.S. Attorney General William P. Barr at the U.S. Securities and Exchange Commission’s Criminal Coordination Conference on October 3, 2019, in Washington, D.C.