District Court Order Threatens Confidentiality of Compliance Monitor Reports

Reports of compliance monitors retained in accordance with corporate settlements have generally been kept out of public view – until now. Finding that a compliance monitor’s report is a judicial record and the public has a First Amendment right to see it, Judge John Gleeson of the Eastern District of New York granted, in large part, the pro se request of an HSBC mortgage customer to unseal the first annual report of the compliance monitor HSBC retained in connection with its $1.9 billion settlement with the DOJ. The matter is stayed pending appeal. As settlements frequently require engaging a compliance monitor, this decision carries implications for any hedge fund manager or other investment adviser entering into such a settlement. For SEC enforcement actions resulting in monitorships, see “Repeat Custody Rule Offenders Face Severe SEC Sanctions” (Dec. 10, 2015); “Inadequate Disclosure of Expense Allocations May Carry Unintended Consequences” (May 14, 2015); and “SEC Settlement Emphasizes the Importance – and Limits – of Fund and Transaction Disclosure” (Apr. 2, 2015).

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