The week in GRC: Pandemic puts squeeze on compliance teams, and whistleblower attorneys see boom
– CNBC reported that the NYSE trading floor, which had been closed since March 23 as a result of the Covid-19 pandemic, partially reopened on Tuesday. The NYSE closed the floor due to multiple positive coronavirus tests of workers at the building. It was the first time the floor was shut while electronic trading continued.
In the partial reopening, only roughly 80 floor brokers will be present, about 25 percent of the number before the pandemic. Designated market-makers will not be present initially. Everyone entering must take a temperature test – not a coronavirus test – even though temperature testing will not pick up a significant number of people who contract coronavirus but are asymptomatic.
Those entering must also sign a legal document stating they understand the risks, will follow the rules and indemnify the NYSE against lawsuits. In addition, the NYSE will bar anyone who used public transportation to get to the exchange.
– According to Reuters, the pandemic and economic crisis it has sparked are creating work for whistleblower attorneys as the SEC cracks down on a range of related misconduct, from companies touting fake cures to misuse of federal aid. The SEC received roughly 4,000 complaints from mid-March to mid-May, a 35 percent increase on the year-ago period, said Steven Peikin, the agency’s co-head of enforcement, this month.
That is leading to work for lawyers who help whistleblowers navigate the SEC’s reward program for tipsters whose information leads to penalties of more than $1 million for offenders. ‘Unfortunately, fraudsters often seek to exploit difficult situations like the ongoing pandemic for their own gain. The SEC frequently relies on the tips we receive from the public,’ an SEC spokesperson said.
Two factors appear to be driving the surge in tips, according to lawyers: the scale of the crisis has led to misconduct across all areas of the SEC’s authority, and mass unemployment has encouraged whistleblowers who may otherwise have feared retaliation by employers.
– Compliance departments are finding themselves in the crosshairs of corporate cost-cutters, raising concerns about the potential for mistakes or bad behavior to go undetected, according to the Wall Street Journal. Layoffs and furloughs in compliance departments have come to industries hardest hit by the pandemic, say consultants, researchers and compliance officers. Companies less affected by the economic downturn are cutting compliance-related expenses or making preparations for possible budget cuts. Some are not filling vacant positions or delaying planned investments in technology.
Compliance teams have largely been protected from major budget cuts over the past decade, said Julie Myers Wood, CEO of compliance and investigations firm Guidepost Solutions. ‘It’s unrealistic to think in a company that has mass layoffs across the board that compliance will be spared,’ she said. ‘I think fewer people will be asked to do more.’
– The Financial Times reported that JPMorgan Chase CEO Jamie Dimon said US banks will not restart their share buyback programs until executives can see ‘the whites of the eyes of the recovery’ and they will not return to pre-coronavirus levels. Dimon predicted another big provision for loan losses in the second quarter, on top of that taken earlier this year as JPMorgan braced for defaults from borrowers hit by the pandemic, although he added that the bank was also continuing to experience a boom in its trading business.
Eight top US banks voluntarily suspended buybacks in the middle of March as the Covid-19 crisis threatened stiff loan losses and outsize demands for additional credit. The eight companies spent a combined $108 billion on buybacks last year. It was ‘a little premature’ to begin a conversation about resuming those payments, which made up the vast majority of the cash returned to shareholders, Dimon said.
– According to Reuters, Lufthansa said its supervisory board postponed approval of a €9 billion ($9.9 billion) bailout in light of conditions imposed by the EU. The European Commission has asked Lufthansa to waive landing rights for six out of 300 slots at Frankfurt and Munich airports, where Lufthansa has a two-thirds market share. Lufthansa said the demand would ‘lead to a weakening’ of the hub function at its home airports.
‘The resulting economic impact on the company and on the planned repayment of the stabilization measures, as well as possible alternative scenarios, must be analyzed intensively,’ Lufthansa said. But the supervisory board continues to regard the bailout plan ‘as the only viable alternative for maintaining solvency,’ the company said.
– The FT reported on disagreement between rival factions on the board of WeWork over who can claim to represent the company. WeWork told a court on Wednesday that a board meeting on Friday would vote on appointing Alex Dimitrief, former general counsel of General Electric, and Frederick Arnold, the former CFO of Convergex, to fill its two empty board seats. The Delaware court denied a request from a special board committee to stop WeWork appointing the directors.
The special committee sued SoftBank last month and the new directors will review whether the committee had the legal standing to do so on WeWork’s behalf. The legal dispute between the two board factions is based on SoftBank’s failure to follow through with a $3 billion offer to buy shares from WeWork’s early investors. SoftBank says conditions of its tender were not met and has challenged the committee’s right to speak for the company.
WeWork declined to comment but the special committee issued a statement saying: ‘We believe SoftBank has no basis to question the special committee’s authority to bring this action and we are pleased by the court’s recognition that any effort by SoftBank to challenge that authority must be presented to the court.’
A SoftBank spokesperson said: ‘WeWork is pursuing best practices of corporate governance to determine what role if any WeWork should have in this contractual dispute among its shareholders. The court’s decision today allows that process to go forward.’
– Reuters reported that the state of Arizona filed a consumer fraud lawsuit against Google alleging that the company used ‘deceptive’ and ‘unfair’ practices to obtain the location data of users. ‘Google collects detailed information about its users, including their physical locations, to target users for advertising. Often, this is done without the users’ consent or knowledge,’ said Attorney General Mark Brnovich in a tweet.
The lawsuit comes as technology companies have been facing regulatory scrutiny around the world over their policies and data-monitoring practices. ‘The attorney general and the contingency fee lawyers filing this lawsuit appear to have mischaracterized our services. We have always built privacy features into our products and provided robust controls for location data,’ said a Google spokesperson in a statement.
– According to the WSJ, Jonathan Karp has been appointed president and CEO of book publisher Simon & Schuster, succeeding Carolyn Reidy, who died of a heart attack earlier this month. Simon & Schuster, which is owned by ViacomCBS, publishes many high-profile authors including Stephen King, Bob Woodward and David McCullough.
– The WSJ said the International Accounting Standards Board (IASB) granted temporary relief to companies accounting for rent concessions they received on leases due to the Covid-19 pandemic. The move by the IASB, which sets accounting standards in more than 140 countries, is designed to make it easier for companies leasing several properties to account for their lease liabilities if they are getting breaks on rent.
Many companies, notably retailers, have been finding it difficult to meet rent obligations and have been negotiating with landlords to skip payments to maintain liquidity during the pandemic.
– According to the FT, Germany’s financial regulator BaFin is looking into whether Wirecard CEO Markus Braun violated insider trading rules when he bought €2.5 million ($2.8 million) of shares in the payments company this week. The purchase took place inside the 30-day closed period ahead of Wirecard’s full-year results, scheduled for June 18, a time when executives are usually prohibited from stock trading.
‘We are evaluating [whether] the transaction actually violated the trading ban,’ a BaFin spokesperson said. ‘There are some exceptions – for instance, for employee share purchase plans that have been set up ahead of the closed period.’
Wirecard declined to comment. Braun’s family office, which holds his stake in the company, said the transaction was ‘not legally objectionable’ and that ‘the requirements of capital market law were complied with in full,’ adding that ‘all necessary information was publicly known.’