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Rosenstein speech on streamlining regulatory probes welcomed

Rosenstein speech on streamlining regulatory probes welcomed

A speech by Deputy U.S. Attorney General Rod Rosenstein last week, in which he said federal agencies should coordinate and limit the imposition of multiple penalties for the same conduct, is unlikely to have a significant impact on directors and officers liability insurance rates, but is nonetheless good news for firms, say experts.

During a May 9 speech to the New York City Bar White Collar Crime Institute, Mr. Rosenstein also reiterated the DOJ’s commitment to the so-called Yates memo.

The September 2016 memo by Sally Quillian Yates, who was then Deputy U.S. Attorney General, called on federal prosecutors to hold individuals more accountable and requires firms to turn over information about culpable individuals in return for credit for their assistance in a probe.

“Today, we are announcing a new department policy that encourages coordination among department components and other enforcement agencies when imposing multiple penalties for the same conduct,” said Mr. Rosenstein, according to a transcript of his speech.

“It is important for us to be aggressive in pursuing wrongdoers. But we should discourage disproportionate enforcement of laws by multiple authorities. In football, the term ‘piling on’ refers to a player jumping on a pile of other players after the opponent is already tackled.

“Our new policy discourages ‘piling on’ by instructing department components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigation of the same misconduct,” he said. “‘Piling on’ can deprive a company of the benefits of certainty and finality ordinarily available through a full and final settlement.”

Mr. Rosenstein also endorsed the Yates memo, although he did not refer to it explicitly by that name. “Corporate settlements do not necessarily directly deter individual wrongdoers,” he said.

“They may do so indirectly, by incentivizing companies to develop and enforce internal compliance programs. But at the level of each individual decision-maker, the deterrent effect of a potential corporate penalty is muted and diffused. Our goal in every case should be to make the next violation less likely to occur by punishing individual wrongdoers,” he said.

Referring to Mr. Rosenstein’s comments on “piling on,” Dan A. Bailey, a member of Bailey Cavalieri L.L.C. in Columbus, Ohio, said: “I don’t know that it’s going to be a terribly significant development, but it certainly helps directors and officers if they are in the line of fire by several different regulators.”

He added, “But from an insurance standpoint, I don’t really see it having any material impact. The background on that is, over the last few years, most D&O policies have expanded their coverage to include certain types of fines and penalties,” but “there is still a reluctance by many underwriters to grant full coverage for any fine and penalty.”

Mr. Bailey added that if the new DOJ policy “has any practical effect, it will be to reduce the total amount of fines and penalties … so that one wrongdoing doesn’t trigger multiple fines and penalties by multiple regulators vs. one regulator.”

“It’s good press,” said Rob Yellen, New York-based executive vice president of Willis Towers Watson P.L.C.’s FINEX North America practice. But fines and penalties “are one of the last things” D&O insurers think about because they are generally not insured.

Joseph Monteleone, a partner with Weber Gallagher Simpson Stapleton Fires & Newby L.L.P. in Bedminster, New Jersey, said: “It only applies to the DOJ,” which deals only with criminal matters.

From a D&O insurance perspective, “the more pressing concern would be with respect to what the (U.S. Securities and Exchange Commission) does. The SEC isn’t bound by this, at least not directly,” he said.

“If the DOJ is pursing criminal investigation or criminal charges and the SEC has a civil action, the DOJ may lay off in favor of the SEC,” which would be beneficial. But it is possible that if there is an SEC action and a private class action, the SEC would defer to the private plaintiff, Mr. Monteleone said.

Damian Brew, managing director with Marsh L.L.C.’s FINPRO practice in New York, said: “It’s fascinating. This is probably the most meaningful statement that we have had from the DOJ, really, since the Yates memo on this issue. Although that really dealt more with personal responsibility as opposed to corporate responsibility.”

Mr. Brew said: “Given all the pressures our clients face, I think it’s going to be viewed as a favorable development,” whether or not it impacts D&O insurance.

“I don’t think that it’s going to limit the number of prosecutions” brought against companies or their directors and officers by the department, said William Boeck, senior vice president at Lockton Cos. L.L.C. in Kansas City, Missouri.

Donna Ferrara, Chicago-based senior vice president and managing director at Arthur J. Gallagher & Co., said other attorneys general “have said this in other ways, like we shouldn’t be spending a lot of money beating our heads against the wall” if there are various investigations going on, “we should get the most bang for our buck and not have a problem with that.”

Ms. Ferrara said the most interesting part of the speech was on the Yates memo, that “it’s the individuals who are committing the crime, so let’s focus on getting the individuals and not the corporation.”

Mr. Brew said he was not surprised by Mr. Rosenstein’s comments. “The Yates memo was very practical, and even at the time, I remember talking to a lot of attorneys in and outside of government who indicated they thought it was already the practice, and it more or less just memorialized what was meant to be.”

“I haven’t seen anything from the DOJ walking the memo back,” he said.



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