Welcome to Compliance Hot Spots. This week we're looking at a first-ever prosecution on the consumer product safety front, and scroll down for Who Got the Work and notable moves and announcements. Trump's announced a new SEC nominee, and the head of Nardello & Co.'s Atlanta office is up for a federal court seat. Our headline roundup offers analysis on new OFAC settlements, and a spotlight on a new move by Main Justice to dismiss a False Claims Act case. Thanks for reading. Tips, feedback and general musings on your practices are welcome. I'm at [email protected] and 202-828-0315, or follow me on Twitter @cryanbarber.

A Product-Safety Prosecution First

In July 2012, Simon Chu and Charley Loh laid eyes on what the U.S. Justice Department would later identify as the first warning sign: a video, provided by a consumer, of a burning Chinese humidifier.

The dehumidifer was like the ones their companies in City of Industry, California, imported and sold in the United States. And in the months that followed, as Chu and Loh continued to receive consumer reports of Chinese dehumidifiers catching fire, the two learned from their own testing that the plastic of the products they imported and distributed failed to meet safety standards.

But rather than notify U.S. consumer product safety regulators and face a costly recall, Chu and Loh carried on with their business, the Justice Department claims in the first criminal prosecution over an alleged failure to report a dangerous product defect.

The case in Los Angeles federal court has provided a real-world reminder of the criminal consequences that can accompany failures to immediately report known dangers with consumer products. “It's a wakeup call,” said Crowell & Moring partner Cheryl Falvey, a former general counsel to the Consumer Product Safety Commission.

For Falvey, the indictment brought to mind the prosecution of former Peanut Corporation of America officials who were convicted of knowingly shipping salmonella-tainted peanut butter, contributing to an outbreak that sickened hundreds and may have contributed to nine deaths, Centers for Disease Control and Prevention.

Stewart Parnell, the company's former owner and president, was sentenced in 2015 to 28 years in prison following a trial in which prosecutors presented evidence that he lied to the U.S. Food and Drug Administration as it investigated the outbreak.

In the case of Chu and Loh, federal prosecutors have alleged that the two withheld information about the defective dehumidifiers from the CPSC, along with retailers and insurance companies that paid for fire damage.

“It is definitely the first ever prosecution for failure to report. But when you really look at the case, the behavior here was egregious. The lying to the government seems as much of a motivator as the failure to report,” Falvey said.

The law requiring immediate disclosure of known safety risks, she added, “is a criminal statute and corporate executives need to be aware of that. You saw that play out in the Peanut Corporation of America case.”

The case against Chu and Loh is being prosecuted by senior litigation counsel Allan Gordus and trial attorney Natalie Sanders of the Justice Department's consumer protection branch, and assistant U.S. attorneys Joseph Johns and Dennis Mitchellof the Central District of California.

“When corporate executives delay reporting defective consumer products to the CPSC, it puts consumers at needless risk for injury or even death,” Assistant Attorney General Jody Hunt of the Department of Justice's Civil Division said in a statement. “We will seek to hold accountable corporate executives who value profits over the safety of consumers by failing to immediately report their dangerous products.”

Defense lawyers for Chu and Loh had not immediately entered appearances in the case.

Compliance Headlines: What Caught My Eye

>> When the Whistle Blows: How In-House Counsel Can Improve Internal Reporting Structures. Insight from Kirkland & Ellis partner Zach Brez and Morgan, Lewis & Bockius partner Thomas Linthorst: Companies should start out by creating a culture that tells employees it's OK to bring concerns forward. General counsel, chief executive officers and chief compliance officers should regularly highlight reporting lines and emphasize compliance. [Corporate Counsel]

>> Start Worrying, Whistleblower Bar: DOJ Moves to Toss Long-Running Gilead Case. “If you're a lawyer who represents whistleblowers with potential evidence of fraud against the United States, you should be fretting about a Justice Department motion filed Friday in a long-running False Claims Act suit against Gilead in federal court in San Francisco.” [Reuters]

>> Anti-corruption Compliance: How Effective Programs Spot Issues Early. A team from Jenner & Block—including partners Erin Schrantz and Matthew Cipollain the firm's investigations, compliance and defense practice—offer guidance on how to spot corruption issues early. Among them: 1) There is no shortcut for risk-based monitoring and 2) more eyes and ears make for a better early detection system. [NLJ] Read the National Law Journal's full special compliance report.

>> One of Brexit's Rare Winners: Big British Law Firms. “Regulatory lawyers, those steeped in the staggering legal minutia produced by Brexit, have lately gone from drudges to rainmakers. These attorneys strategize with clients for life after Europe's single market, consultations that often end in bewilderment and rage.” [NYT]

>> Shell to Quit Refining Lobby Over Climate Disagreement. “Royal Dutch Shell on Tuesday became the first major oil and gas company to announce plans to leave a leading U.S. refining lobby due to disagreement on climate policies.” [Reuters]

>> Raising Money in the Crypto World Has Gotten a Lot Harder. “Startups raising money via initial coin offerings brought in just $118 million in the first quarter, according to data from research site TokenData. In the same period in 2018, companies raised $6.9 billion. Investors have been spooked by regulators' clash with ICOs and the overall bear market in cryptocurrencies.” [WSJ]

>> OFAC Action Against Stanley Black & Decker Highlights Importance of Compliance Monitoring. Two recent settlements announced by the Treasury's Office of Foreign Assets Control show the agency “trying to drive home the message that deceptive practices involving a foreign subsidiary will not shield the U.S. parent company from potential liability for that subsidiary's actions,” said Michael Dobson, former senior sanctions policy adviser for the Office of Foreign Assets Control. Dobson, of counsel at Morrison & Foerster, added: “The OFAC catchphrase these days is better compliance through enforcement.” [Corporate Counsel]

>> Rise of Chief Ethics Officer. “Much of the time, particularly in finance, the role comes from a need to ensure compliance with federal regulations and other rules designed to prevent monetary misdeeds, such as money laundering and insider trading. But a few forward-looking companies are turning to the position, regardless of specific title, to help steer corporate values more broadly and oversee everything from fair trade discussions to, more recently, ensuring AI algorithms are unbiased.” [Forbes]

>> U.S. Lawmakers Grill Trump's Interior Dept. Pick on Oil Drilling, Ethics. “President Donald Trump's pick to run the U.S. Department of Interior, a former energy lobbyist, faced tough questions during his Senate confirmation hearing on Thursday about potential conflicts of interest and the administration's unpopular plan to expand offshore oil drilling.” [Reuters] David Bernhardt formerly led the natural resources law practice at Brownstein Hyatt Farber Schreck, where he reported $953,085 in partner income on a financial disclosure.

Who Got the Work

>> Sullivan & Cromwell white-collar partner Samuel Seymour and Brad Karp(above), chairman of Paul, Weiss, Rifkind, Wharton & Harrison, are representing Standard Chartered Bank in continued negotiations with the U.S. Justice Department in a sanctions investigation, according to new court filings in the U.S. District Court for the District of Columbia. “The parties have made substantial progress in their discussions concerning the potential resolution of the government's pending investigation of SCB's possible historical violation of U.S. sanctions laws and regulations after 2007,” prosecutors said in the filing. The government's legal team includes bank-integrity unit trial attorney Jennifer Wine at Main Justice and Peter Lallas, an assistant U.S. attorney in D.C.

>> Dentons white-collar partner Maxwell Carr-Howard represented Fresenius Medical Care AG & Co., the world's largest provider of dialysis equipment and related services, in a foreign-bribery investigation. Fresenius agreed to pay U.S. authorities nearly $232 million to resolve allegations that it bribed doctors and health officials in some 17 countries in order to obtain business, my colleague Sue Reisinger reports at Law.com. Read the nonprosecution agreement here.

>> William MacLeod, chair of Kelley Drye & Warren's antitrust and competition group, represented Office Depot in a Federal Trade Commission enforcement action. The Boca Raton-based office supply retailer agreed to pay $25 million to settle allegations that the company tricked customers into spending millions of dollars on repairs by deceptively claiming it found malware symptoms or infections on their computers, my colleague Kristen Rasmussen reports. The FTC's team included Claire Wack, Sung W. Kim, Colleen Robbins and Thomas Biesty. Read the settlement order here.

>> Labaton Sucharow represented a JPMorgan executive in a whistleblower action at the SEC, Bloomberg reports. “Blowing the whistle is rarely easy, and it certainly hasn't been for my client, but this historic SEC whistleblower award and related enforcement action reaffirms that doing the right thing pays,” Jordan Thomas, a lawyer for the whistleblower, said in a statement. Read the SEC's announcement here.

Notable Moves & Announcements

Suzanne Rich Folsom (at left) has joined Manatt, Phelps & Phillips as a partner in the firm's investigations and compliance practice in Washington. Folsom was most recently general counsel, chief compliance officer and senior vice president of government affairs at U.S. Steel Corp. from 2014 until the end of 2017. Duane Holloway replaced her at U.S. Steel in April 2018. My colleague Ryan Lovelace has more here.

• Allison Herren Lee will be the Trump administration's next SEC nominee, the White House said Tuesday. Lee served at the agency from 2005 to 2018, including as counsel to Obama-era Commissioner Kara Stein. Lee earlier was a litigation partner at Sherman & Howard in Denver, Colorado.

• Trump nominated Steven Grimberg on Tuesday to serve as a judge on the U.S. District Court for the Northern District of Georgia. Grimberg heads the Atlanta office of the global investigations firm Nardello & Co., where he is a managing director and general counsel of the Americas. Grimberg joined the firm last year. Earlier, he was deputy chief of the economic crimes section in the U.S. attorney's office in Atlanta.

• George Sorial is leaving his post as chief compliance counsel at the Trump Organization, according to The Wall Street Journal. Jill Martin, now an assistant general counsel at the company, will succeed Sorial.

• Daniel Gallagher, a former commissioner with the U.S. Securities and Exchange Commission, is returning to Wilmer Cutler Pickering Hale and Dorr as a partner. Gallagher has been chief legal officer at Mylan for the last two years, my colleague Ryan Lovelace reports.

• Jenner & Block has hired an eight-lawyer group of energy and regulatory lawyers from a Chicago boutique that has shuttered. The lawyers, led by partners Michael Guerra, Anne Mitchell, Glenn Rippie and John Rooney, formerly practiced at Rippie Rooney & Ratnaswamy, my colleague Roy Strom reports. The addition of the attorneys represents a boon to a growing energy practice at litigation-focused Jenner.

• Senthil Kumar has been appointed BNY Mellon's chief risk officer, succeeding Jim Wiener. Kumar joined the bank from Citigroup. Wiener has moved into a new role as head of balance sheet and capital strategy, the Journal reported.

• Hadassa Waxman has joined Proskauer Rose as a white-collar litigation partner in New York. Waxman joins from the U.S. attorney's office in Manhattan, where she had served as co-chief of the general crimes unit.

• Former SDNY assistant U.S. attorney Rachel Maimin and former U.S. Securities & Exchange Commission senior counsel H. Gregory Baker have joined Lowenstein Sandler as partners in its white-collar criminal defense practice in New York City.

• Baker Botts said Jeffrey Wood, former acting assistant attorney general for the Justice Department's environment and natural resources division, is joining the firm's environmental law practice in Washington.