Issue link: https://digital.shearman.com/i/1265921
UNUSUAL DEVELOPMENTS FCPA DIGEST July 2020 28 a "penalty" and not "equitable relief," and as only the latter is authorized by statute, argued the order was impermissibly issued. The Ninth Circuit affirmed the SEC's order based on extensive precedent permitting the SEC to seek disgorgement. The petitioners then focused their Supreme Court appeal on the broad question of whether any form of disgorgement could be ordered, arguing such orders were in effect a "penalty" in violation of the statutory framework. At its core, the Liu decision permits the issuance of disgorgement orders as long as they are issued as equitable relief—which leads to the prohibition of orders where the SEC fails to return funds to victims or where the disgorgement amount is greater than the defendant's net profits from the crime. The Court remanded to the lower courts to determine whether the order against the petitioners could be upheld in accordance with the newly imposed restrictions. In sum, the Supreme Court found that disgorgement must be "for the benefit of investors," and as such must be tied directly to a defendant's ill-gotten gains, or "net profits." This restriction prohibits most instances of joint-and-several liability for disgorgement orders, as it may extend liability beyond the defendant's own profits. The Court further noted that a calculation of "net profits" must account for legitimate business expenses, which are then generally deducted from the final disgorgement amount. This, of course, leaves several open questions, particularly with respect to what constitutes a legitimate business expense, what mechanisms the SEC will utilize for redistributing disgorged funds to victims if deposited with the U.S. Treasury, and how the SEC's occasional use of a broad theory of market harm will affect the agency's ability to disgorge profits—if there are no easily identifiable victims. The clarification provided by the Supreme Court in Liu, however, provides a welcome end to the three years of relative uncertainty following the issuance of the Supreme Court's Kokesh opinion in 2017. FOREIGN DEVELOPMENTS Netanyahu Corruption Trial Begins in Israel As we previously reported, Israeli Prime Minister Benjamin Netanyahu was indicted on charges of bribery, fraud, and breach of trust in three separate cases in November 2019. Netanyahu was charged with bribery for allegedly providing regulatory benefits to an Israeli news company, Bezeq, in exchange for favorable news coverage; fraud and breach of trust for assisting a film mogul with a visa application, a merger, and tax breaks in exchange for expensive gifts; and fraud and breach of trust for discussing limiting the free circulation of a newspaper, Israel Hayom, to help a competing newspaper, Yediot Ahronot, corner more of the media market. On May 24, 2020, Netanyahu's trial, State of Israel v. Benjamin Netanyahu, officially commenced in East Jerusalem's District Court in front of a panel of three judges. Netanyahu did not enter a plea, but gave a speech before entering the courtroom in which he stated that he was innocent. The proceedings during the opening session were procedural in nature. Netanyahu's attorney, Micha Fetman, who recently joined the defense team, stated that he needed time to get up to speed, and prosecutors estimated that it could take Fetman up to three months to review the relevant material. It was also decided that Netanyahu, along with three other defendants—Shaul and Iris Elovitch, owners of Bezeq, and Arnon Mozes, publisher of Yediot Ahronot—would be excused from attending every procedural session in person. According to media reports, it could be a year before preliminary arguments are completed and witnesses begin to testify. As such, it may take several years to reach a verdict. Netanyahu will continue to serve as Prime Minister as he is not required by law to step down, and he has refused to resign. We will continue to monitor developments in this case. France Issues CJIP Guidance As we previously reported, under France's anti-corruption law, Sapin II, French prosecutors may offer defendants the Public Interest Judicial Agreement ("CJIP"), a settlement agreement closely resembling deferred prosecution agreements ("DPAs") offered by enforcement authorities in the U.S. With the CJIP, companies can pay a fine and avoid going to trial or pleading guilty. On June 2, 2020, Justice Minister Nicole Belloubet of the French Ministry of Justice issued guidance on what companies must do to be offered the CJIP. While the guidance does not have the same binding effect as a law, French prosecutors are expected to follow the guidance. According to media reports, the guidance is considered particularly influential because it comes from the executive, rather than from an agency like the National Financial Prosecutor's Office ("PNF") or French Anti-Corruption Agency ("AFA"). The guidance states that companies cannot have previous convictions and must voluntarily disclose misconduct to be eligible for the CJIP. The guidance also states that companies are expected to cooperate with prosecutors, including naming individuals involved in misconduct. The cooperation requirement in the guidance is seen as a significant step as there was previously no such requirement for the CJIP under Sapin II. Additionally, the guidance states that French authorities will work with some of France's largest unions to develop a framework to encourage companies to voluntarily self-disclose. In terms of prosecuting individuals, the guidance states that prosecutors should consider an individual's previous charges, involvement in the misconduct, and willingness to cooperate with prosecutors when offering a plea deal. Individuals cannot enter into the CJIP.