The week in GRC: SEC issues 2021 enforcement report and banks asked to report environmental crimes

Nov 19, 2021
This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that Royal Dutch Shell plans to consolidate its dual UK and Dutch structure and relocate its headquarters to London, which it said would help facilitate returns to shareholders and make it simpler to overhaul its portfolio of assets.

The company said bringing an end to its complex structure should also make it easier for investors to value the firm at a time when it has committed to transitioning to low-carbon energy. Under its plan, the company’s headquarters will be in the UK rather than The Hague, and its CEO and board meetings will relocate to the UK.

– Duke Energy said it would add two directors backed by Elliott Management to its board as part of a deal, after the activist investment firm had pressed the utility company to conduct a strategic review, Reuters reported. Elliott went public earlier this year with demands that Duke split into three companies. In response, Duke said there was no strategic logic to breaking the company apart. It argued such a move would burden each entity with extra costs that would negatively impact services and threaten Duke’s ability to pay its shareholder dividend.

On Monday, Duke Energy named Idalene Kesner, dean of Indiana University’s Kelley School of Business, as the new independent director. An additional independent board member, agreeable to both parties, will be appointed no later than March 31, 2022.

CNBC reported that Casper Sleep announced it will be taken private by private equity firm Durational Capital Management. ‘This agreement offers a promising opportunity to realize the highest value for our stockholders while providing Casper with much needed capital to execute on future initiatives to sustain and grow its business,’ said Casper co-founder and CEO Philip Krim.

Krim said the company has been talking to outside advisers and Casper’s board for several months to evaluate a range of financial alternatives, before deciding that this one was the best choice. Casper’s board unanimously supports the offer from Durational and recommends that shareholders approve the transaction, he said.

Reuters reported that regulators said banks around the world should put controls over financial risks from climate change at the heart of their board and assess whether their capital buffers could cope with floods, fires and sudden asset price falls. The Basel Committee of regulators from the G20 economies and other countries proposed its first set of principles for dealing with climate-related risks as debate continues over how far and fast regulators should move.

Basel’s proposed principles focus on requiring banks to quantify climate risks and have controls to mitigate them. The principles would require banks to have processes enabling them to understand and assess the potential impact of climate change on their business and strategy. ‘The board and senior management should clearly assign climate-related responsibilities to members and committees, and exercise effective oversight of climate-related financial risks,’ the committee said.

–The SEC named Daniel Gregus director of the agency’s Chicago regional office, where he has been acting co-director since June. Gregus has been with the SEC for 28 years and has held leadership roles in both the division of enforcement and the division of examinations.

Reuters said law firm business leaders are optimistic about client demand and profits over the coming year but are worried about growing competition for attorney and staff talent. Recruiting and staffing issues were the top three risks to law firm profitability cited in a survey by Thomson Reuters and Georgetown Law’s Center on Ethics and the Legal Profession.

Slightly more than half (51 percent) of respondents said lawyer recruitment and retention is a ‘high risk’ to company profitability, with another 35 percent calling it ‘medium risk.’ And 31 percent listed poaching of staff by competitors as a high risk to profitability. Associate salary increases were listed as a high or medium risk to profitability by 29 percent and 46 percent, respectively, of survey respondents.

– The WSJ reported that, according to people familiar with the matter, the SEC is investigating claims that Cassava Sciences, the sixth-best performing US stock this year, manipulated research results for its experimental Alzheimer’s drug. Cassava disclosed Monday in a securities filing that it is co-operating with government investigations, without naming any agency. Cassava said an investigation isn’t a sign that wrongdoing occurred. An SEC spokesperson declined to comment.

The accusations appeared in a public petition filed in August by two physicians to the Food and Drug Administration (FDA), asking it to suspend Cassava’s clinical trials. Cassava CEO Remi Barbier denied the doctors’ claims. He said short-sellers have abused the FDA’s petition process, which allows people to raise public health concerns with the government.

Reuters reported that Willis Towers Watson, which has been under pressure from activist investor Elliott Management, appointed four new directors. Inga Beale, the former CEO of Lloyd’s of London, is one of the newly appointed directors, the insurance broker said, adding that Fumbi Chima, Michael Hammond and Michelle Swanback are also joining the board.

Willis further announced that board chair Victor Ganzi would not stand for re-election at the company’s AGM in 2022 after his current term expires. Three of the incoming directors will be a part of a new four-member board committee called the operational transformation committee, which will be focused on the company’s turnaround efforts.

– The SEC announced its enforcement results for fiscal year 2021, including that it filed 434 new enforcement actions during that period, a 7 percent increase over the previous year. The new actions spanned the entire securities arena, including against what the agency called ‘emerging threats’ in the crypto and special purpose acquisition company spaces.

The SEC filed 697 total enforcement actions in fiscal year 2021, including the 434 new actions, 120 actions against issuers who were delinquent in making required filings with the SEC and 143 ‘follow-on’ administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions or other orders. This represented a 3 percent decrease over the total actions filed in fiscal year 2020.

In fiscal year 2021, which ended on September 30, the SEC also obtained judgments and orders for nearly $2.4 bn in disgorgement and more than $1.4 bn in penalties, which represented a respective 33 percent decrease and 33 percent increase over amounts ordered in the previous fiscal year.

– The WSJ reported that the Financial Crimes Enforcement Network (FinCEN) issued its first-ever advisory on environmental crimes, asking banks and other financial institutions to pay special attention to transactions that may be linked to activity that the agency says contributes to climate change and a loss of biodiversity.

FinCEN traditionally has focused on crimes such as terrorism, corruption and drug trafficking, but the new emphasis on environmental crimes is part and parcel of a governmentwide push by the Biden administration to mitigate the causes of climate change.

Environmental crime ranks as the third-largest illicit activity in the world, generating hundreds of billions in estimated profits, according to FinCEN. The agency has asked banks to file a report when they come across a transaction that might be linked to such activity.

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