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The New York Times recently summarized "The Year in White-Collar Crime" though it acknowledged that, because of the time it takes for such cases to develop, many of the events were the result of factors initiated some time ago.




To highlight, significant events in 2014, include:

  • The Justice Department's multibillion-dollar settlements with Bank of America and JPMorgan Chase for selling "shoddy" mortgage-backed securities before the financial crisis hit in 2008.
  • Similarly, the S.E.C. sued former chief executives and other officers of Fannie Mae and Freddie Mac for not adequately disclosing the companies’ exposure to the subprime mortgages that led to the bailout.
  • The Justice Department further developed its civil fraud lawsuit filed in 2013 against Standard & Poor’s for giving high ratings to mortgage-backed securities that collapsed during the financial crisis.
  • With respect to insider trading, the article noted that the Justice Department suffered a significant loss in the United States Court of Appeals for the Second Circuit. On appeal, the convictions of two former hedge fund managers were thrown out based upon the “doctrinal novelty” of the government’s prosecution theories with respect to recipients of information with, at best, tangential connections to the insider sources providing advanced notice about corporate earnings.
  • The S.E.C. also increased its push to bring more cases before in-house administrative law judges as opposed to pursuing matters, including insider trader cases, in federal court.
  • To combat fraud, the trend to utilize whistleblowers will likely increase. Not only because of recent high-profile and lucrative awards, but per The New York Times, "Senator Charles E. Grassley, who is expected to be the chairman of the Senate Judiciary Committee in 2015, has long been a proponent of whistle-blowing."
  • On a related note, The New York Times posits that as "the economy gains strength, the pressure to report ever-increasing revenue and profit means that some corporate managers will be tempted cross the line in the belief that any little tweaks to financial reports can be made up as business gets better in the next year."


Based upon these events, I suspect we will see the following in the coming year:


Fallout from the financial crisis will continue. For example, you can expect numerous "spin-off suits" – cases brought by injured institutional investors, fraud cases against former key executives at alleged bad actors, cases brought against entities involved in the securitization process (originators, aggregators, depositors, issuers, underwriters, trustees, servicers, ratings agencies), derivative suits based upon share losses, etc. – to be filed more often and in more jurisdictions. (In pop culture terms, these "Law & Order" matters will yield their own versions of "SVU", "Criminal Intent" and "Law & Order:  L.A.")


The Justice Department will have to be more selective with the insider trading cases they bring. As The New York Times correctly notes, "[i]n future cases, the government will have to show that the tipper received something close to a tangible benefit for providing the information, and that so-called remote recipients who are a step removed from the source knew about that benefit. That will put a greater burden on the Justice Department and S.E.C. to uncover evidence establishing a relationship built on more than just pure friendship when information is passed along." In the face of this standard, you can expect even more use of ALJs in insider trading cases (which allows for limited discovery and a faster track (with initial decisions often required within a year)). It was the Dodd-Frank Act which allowed for expanded use of administrative proceedings, and though Courts often uphold the use of ALJs, as rancor over this trend increases, you can expect this issue to move its way through the appellate and/or legislative process as the new Congress and insider trading targets will attempt to temper Dodd-Frank's scope. Considering the resources and legislative agendas that can be at play in these matters, I suspect this will come to a head sooner rather than later.


Finally, whistleblowing litigation – based upon real and imagined circumstances – will become a growth industry, with some increased focus on internal accounting, auditing, and reporting functions. These matters will also likely be a source of "spin-off suits." (If the financial crisis is "Law & Order" you can consider whistleblower spinoffs to be the "NCIS" of litigation). To help mitigate risk in these areas, specific policies and procedures to address whistle-blowing claims should be considered by private companies and existing processes at public companies should be evaluated and, if necessary, improved.