Securities Litigation

Addressing the annual meeting of the Compliance & Legal Division of the Securities Industry and Financial Markets Association, Manhattan U.S. Attorney Preet Bharara stressed the importance of industry compliance and legal personnel as gatekeepers in risk avoidance and loss prevention. Bharara started with a nod to the "necessity and importance" of corporate prosecutions as drivers of change for persistent and systemic problems. Noting the CommerzBank deferred prosecution agreement among other recent cases, he repeated his now-annual refrain that corporate prosecutions are possible without "the sky falling, nuclear winter" or the world ending. Bharara then returned to his theme that the industry's "gatekeepers" perform a function "more important in the long run than anything people in government can do." Striking the obligatory call for a "culture of compliance," he said that management needs to recognize the value of long-term loss-prevention and risk-avoidance measures on par with short-term revenue generation. Bharara suggested that financial-industry management must:

1. Include compliance and legal at the decision-making table, from the start (not just for crisis clean-up) and avoid siloed structures that prevent that level of involvement;
2. Heed compliance and legal, listening to their suggestions and solutions, rather than just paying them lip-service or for post-hoc window-dressing; and,
3. Value them, in substance and in compensation. Bharara illustrated this last point by paraphrasing an old credit card commercial, tallying the multi-billion costs of crisis management, outside counsel fees and regulatory settlements against the "priceless" value of heeding preventative advice.

Perhaps more to the point, Bharara stressed that the role of the compliance and legal function within an organization transcends the mantra of "culture," and has a substantive effect on prosecutorial charging decisions, issues of intent and good-faith, and remedies - both in settlement and in sentencing under the federal guidelines. Or, to paraphrase another old commercial urging preventative car maintenance: Compliance - "pay me now or pay me later." Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Managing Partner of the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 28 years' experience representing financial institutions in litigation, regulatory and compliance matters. © 2015 by Thomas K. Potter, III (all rights reserved)