1. Faculty Spotlight: Karen Woody

Faculty Spotlight: Karen Woody Professor Karen Woody, an expert in securities law, financial regulation, and white-collar crime, has used the podcast format to advance teaching and research.

By Jeff Hanna
December 9, 2024

Karen Woody has described her path to the W&L School of Law faculty as "a bit of a winding one."

After graduating from the Washington College of Law at American University, Woody immediately began practicing corporate law and spent the next decade defending multinational companies, often in very large cases involving the Foreign Corrupt Practices Act. That meant flying around the world and operating at a breakneck speed.

Even with such a hectic schedule, Woody found time to work as an adjunct law professor and discovered that she often left the classroom with more energy than she had when she'd entered. "Teaching is really energizing," said Woody. "There are new ideas. There is a new sort of life to it. It's also fun."

In addition to that spark she got from working with students, Woody enjoyed the opportunity to dive deeper into issues because of the comparatively slower pace of academic life. "I was able to grapple with these issues at length. It was nice to spend some time thinking about the ideas and theories behind the work. That is what enticed me into academia."

When she made the move to academia in 2015, it was to a business school rather than a law school. She joined the faculty at Indiana University's Kelley School of Business where she taught courses in corporate finance law and business planning. She found her teaching there dovetailed nicely with much of the work she'd been doing. But in 2019, she had the opportunity to transition to law school teaching at W&L, where she particularly enjoys watching students begin the process of becoming lawyers and helping them stay current on an area of the law, like securities regulations, that is constantly changing. "It's what keeps me coming back and keeps me fresh," she said.

Woody's scholarship has focused on securities law, financial regulation, and white-collar crime. Her current research deals with corporate internal controls - processes, regulations, and practices that a company puts in place not only to enhance performance but also to comply with laws and avoid fraud. Woody has compared these controls to a smoke alarm that warns of incidents that could threaten a business.

She is particularly interested in the government's oversight of these internal controls and the Securities and Exchange Commission's increasing use of the Foreign Corrupt Practices Act (FCPA) to punish - or threaten to punish - companies for the ineffectiveness of their controls. As an example of this trend, she cites the SolarWinds case from 2023 when the SEC brought charges of fraud and internal control failures against the software company after one of the worst computer hacks of the 21^st century.

In 2019, more than 18,000 SolarWinds customers installed the company's Orion software as part of a routine update. Orion was infected with a malicious code, providing Russian hackers a backdoor into the computer systems of about 100 companies and a dozen government agencies. The SEC alleged SolarWinds not only failed to maintain adequate internal controls but also overstated its cybersecurity practices and understated known vulnerabilities. The SEC filed its complaint in October 2023, but a judge dismissed most of the case this past July.

"Even though it was an internal controls charge, the SEC tried to use provision that has to do with accounting controls and apply it to cybersecurity controls," said Woody. "It was the first time a judge pushed back and said the internal controls provision has to do with accounting and books and records, but not about cybersecurity. In essence, the judge was telling them to find a different law."

Although Woody agrees with the judge's decision in this case, she also thinks there need to be separate internal controls for cybersecurity issues, which are bound to become more frequent.

"I agree that the government should be going after SolarWinds for what happened and its lack of internal controls, but I think there are other ways to prosecute this kind of case."

Because Woody served as outside counsel to defend multinational companies in significant FCPA cases, she does see a company's side of many issues. For instance, she said it's impossible for a company to protect itself against issues it has never even known about. In some cases, a company could be allowed to admit that something went wrong with its internal controls even as it was making best efforts to keep up with rapid change, especially as technology evolves.

"This is what I'm currently exploring," she said. "Should the standard for companies be more of a 'keeping up with the Joneses' negligence-based standard - as in, I'm doing the best I can under the circumstances? Or should any failure of internal controls mean strict liability? What level of liability should we push for a company if it's acting in good faith?"

Technology has made an impact on Woody's own work as well in the form of podcasting. She is not only a frequent guest on podcasts that focus on compliance, securities and accounting fraud, and white-collar crime, but also has her own podcast - "The Woody Report," a bi-weekly series that has covered everything from Elon Musk's purchase of Twitter to "shadow insider trading." She uses podcasting to keep current in her field.

"I realized how much I had to ramp up when the podcast was going to be about something new," she said. "It keeps me on my toes."

Woody took the medium to another level three years ago when she and her students in her insider trading seminar launched "Classroom Insiders," an eight-episode show featuring Woody in conversation with a student in the class. The podcast was honored by the Academy of Interactive and Visual Arts with a 2022 Communicator Award in the category of Individual Episodes - Crime and Justice.

The podcast's second season, underway this semester, has a different twist. Pairs of students will explore important cases that have not been covered in class, then Woody will conduct recorded interviews with them. "I've always said that I know my students get it when they can teach it back to me and to someone else," Woody said. "The technology allows me to do this in a new way."

"Classroom Insiders" is available through a variety of streaming services, including Spotify and Apple Music.

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