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On May 24, the SEC announced that it had awarded a whistleblower more than $4.5 million for sending an anonymous tip to a company, triggering an internal investigation within the company to review the allegations, while also sending the tip to the SEC within 120 days of reporting it to the company. Following its internal investigation, the company reported the allegations to the SEC and another agency. As a result of the company’s self-reporting, the SEC initiated its own investigation of the alleged misconduct.
This was the first time a claimant was awarded under SEC Rule 21F-4(c)(3), 17 C.F.R. § 240.21F-3(c), which provides that a whistleblower may be eligible for an award when he or she voluntarily provides the SEC with original information within 120 days of providing it to a company through the company’s internal procedures for reporting allegations of possible violations of law.
The SEC’s whistleblower award order can be seen here.
On May 9, Telefônica Brazil S.A. settled SEC charges that it spent $621,756 on 2014 World Cup tickets and hospitality for Brazilian and foreign government officials. The company will pay $4.125 to settle SEC claims that it violated internal accounting controls and recordkeeping requirements connected to providing 124 World Cup tickets and hospitality to 93 government officials at an average cost per guest of $3,204. The SEC took Telefônica Brazil’s remediation efforts into account, including “enhanced internal accounting controls” and “adopting a new anti-corruption policy and compliance structure.”
The SEC announced this week that it had awarded a whistleblower $37 million for providing “smoking gun” evidence that led to a successful enforcement action; the substance of the underlying case was not described. This was the third largest whistleblower award given since the SEC’s first award in 2012. A second whistleblower received $13 million. The largest whistleblower award remains the one granted in March 2018, $50 million awarded to two banking employees.
The SEC’s whistleblower award order from March 26, 2019 can be seen here.
Ninth Circuit issues opinion in Wadler v. Bio-Rad Laboratories, Inc., remands for possible new trial
On February 26, 2019, the Ninth Circuit issued a long-awaited opinion in Sanford Wadler v. Bio-Rad Laboratories, Inc., et al. The 23-page opinion, slated for publication, takes a mixed view of the trial outcome, vacating in part, affirming in part, and remanding for the district court to determine whether to hold a new trial.
Two years ago, following a $55 million civil and criminal FCPA settlement by Bio-Rad, a jury awarded Wadler (the company’s former General Counsel) $11 million in punitive and compensatory damages, including double back-pay under Dodd-Frank, in his whistleblower retaliation case against his former employer. Bio-Rad appealed to the Ninth Circuit, arguing that the district court erroneously instructed the jury that SEC rules or regulations prohibit bribery of a foreign official; that the company’s alleged FCPA violations resulted from Wadler’s own failure to conduct due diligence as the company’s General Counsel; that the district court should have allowed certain impeachment testimony and evidence related to Wadler’s pursuit and hiring of a whistleblower attorney; and that Wadler was not a “whistleblower” under Dodd-Frank because he only reported internally and did not report out to the SEC. The Court heard arguments on November 14, 2018.
Section 806 of the Sarbanes-Oxley Act, codified as 18 U.S.C. § 1514A, protects whistleblowers from retaliation under certain circumstances, including reporting violations of “any rule or regulation of the Securities and Exchange Commission.” Bio-Rad alleged, and the Ninth Circuit agreed, that the district court’s jury instructions incorrectly stated that Section 806 encompasses reports of FCPA violations. The Court ruled that “statutory provisions of the FCPA, including the three books-and-records provisions and anti-bribery provision . . . are not ‘rules or regulations of the SEC’ under SOX § 806.” However, the Court found that with the right instructions, a jury could have still ruled in Wadler’s favor. Accordingly, the Court vacated the Section 806 verdict and remanded to the district court for consideration of a new trial. On the other hand, the Court held that the same jury instruction error was harmless for the purposes of Wadler’s California public policy claim, so the Court upheld that verdict and its associated damages. The Court also rejected Bio-Rad’s claims of evidentiary error. Finally, the Court ruled that under Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767, 778 (2018), Dodd-Frank does not apply to people who only report misconduct internally, and vacated the Dodd-Frank claim. As for damages, the Ninth Circuit affirmed Wadler’s compensatory and punitive damages award but vacated the double back-pay associated with the Dodd-Frank claim.
This decision is likely the first circuit court opinion to cite Digital Realty in an FCPA case for its holding that individuals who only report violations internally do not hold “whistleblower” status under Dodd-Frank.
On February 20, TechnipFMC, a London-based oil and gas services company, reported in a filing with the SEC that it has set aside $280 million as an estimate for the settlement of investigations by U.S., Brazilian, and French law enforcement authorities regarding potential violations of anticorruption laws in several countries. The company’s predecessor, Technip SA, previously paid $338 million to settle FCPA charges brought by the DOJ and the SEC in 2010.
On February 15, Cognizant Technology Solutions Corporation, an information technology and business process outsourcing company, paid $25 million to settle SEC civil charges that it violated the FCPA. The SEC alleged that Cognizant paid $3.6 million in bribes through its construction contractor to senior government officials in India in order to obtain permits needed to build, among other things, a large office campus in Chennai. The SEC alleged that by paying the bribes, Cognizant thereby avoided millions of dollars in costs it would have otherwise incurred. To resolve the SEC’s allegations, Cognizant paid $19 million in disgorgement and a $6 million penalty.
The DOJ declined to bring criminal charges against Cognizant, citing, among other factors, the company’s voluntary self-disclosure, comprehensive investigation, full cooperation and remediation, and its preexisting compliance program. Cognizant issued a statement highlighting that the matter did not concern any of the company’s work with clients and did not affect any of the services it provides to clients.
On the same day the settlement was announced, two former Cognizant executives – the president and chief legal officer – were hit with civil and criminal charges for allegedly authorizing $2 million in bribes and directing the creation of false contractor change orders to mask payment of the bribes. The former executives are charged with violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. Pursuant to its letter agreement with DOJ, Cognizant is required to fully cooperate in the ongoing prosecutions.
On December 26, Brazil’s Centrais Elétricas Brasileiras S.A. – Eletrobras (Eletrobras or the company) entered into an administrative order to settle the SEC’s claims that Eletrobras violated the books and records and internal accounting controls provisions of the FCPA and agreed to pay a civil monetary penalty of $2.5 million.
Eletrobras, which is majority-owned by the Brazilian government, is alleged to have – through former officers of its nuclear power generation subsidiary – rigged bids and paid bribes through private construction companies in relation to construction of a nuclear power plant in Brazil. This matter was first announced publicly in October 2016 when the company hired outside counsel to conduct an internal investigation into related conduct.
In entering into this administrative order, the SEC consider the company’s cooperation efforts, including sharing facts discovered in its internal investigation and producing and translating related documents, as well as its efforts towards remediation, including discipline of involved employees, enhancement of internal accounting controls and compliance functions, and adoption of new anti-corruption policies and procedures.
Previous coverage can be found here.
On December 26, Polycom, Inc. (Polycom or the company), a wholly-owned subsidiary of Plantronics, Inc., entered into an administrative order to settle claims by the SEC that Polycom violated the books and records and internal accounting controls provisions of the FCPA. The alleged conduct involved improper payments made through distributors and resellers of Polycom Communications Solutions (Beijing) Co., Ltd. (“Polycom China”) to Chinese government officials from 2006 through 2014 in an effort to obtain business from public sector customers.
According to the administrative order, at the instruction of the Vice President of Polycom China, sales personnel used a sales management system outside of the U.S.-based company-approved database to parallel-track sales to public sector customers in China. The scheme involved providing discounts to distributors and resellers that were used to cover the costs of payments to Chinese government officials. These discounts were not passed on to the end customer, and the purpose of those discounts was not tracked in the company-approved database. Polycom China sales personnel were also instructed by the VP to use non-company email addresses when discussing and arranging these deals.
Pursuant to the administrative order, Polycom will pay to the SEC approximately $10.7 million in disgorgement, $1.8 million in prejudgment interest, and a $3.8 million civil monetary penalty.
On the same day, DOJ released a December 20, 2018 declination letter settling its investigation of the same conduct. Pursuant to the declination letter, Polycom agreed to disgorge approximately $10.15 million to the U.S. Treasury Department and $10.15 to the U.S. Postal Inspection Service Consumer Fraud Fund.
In settling these matters, both the SEC and DOJ cited Polycom’s identification of the misconduct, thorough internal investigation conducted by outside counsel, prompt voluntary disclosure, full cooperation, and remediation efforts. Polycom’s lauded cooperative efforts included making certain employees available for interviews, as well as producing all requested documents and translating large volumes of those documents from Mandarin to English. The remedial efforts cited included termination of eight employees and discipline of eighteen others, termination or reorganization of certain channel partner relationships, enhancement of third party oversight, and improvements to anticorruption and related trainings provided to China-based employees (certain materials of which had previously not been translated into Mandarin, the first language of many Polycom China employees).
On December 18, the former CEO and CFO of U.S.-based Panasonic Avionics Corporation (PAC) settled SEC charges that they knowingly violated books and records and internal accounting controls provisions of the federal securities laws and caused similar violations by PAC’s parent company, Osaka, Japan-based Panasonic Corp. (Panasonic). As detailed in prior FCPA Scorecard coverage, Panasonic and PAC settled related FCPA charges in April and agreed to pay a combined $280 million to the DOJ and SEC.
PAC’s former President and CEO, Paul A. Margis, and its former CFO, Takeshi “Tyrone” Uonaga, consented to the entry of their administrative orders without admitting or denying the findings and agreed to pay penalties of $75,000, and $50,000, respectively.
The SEC alleged Mr. Margis authorized the use of a third-party to pay more than $1.76 million to several consultants who provided little to no services. One of these consultants, a Middle East government official, was paid $875,000 to help secure over $700 million in business from a state-owned airline, but the position “required little to no work.” The bribery scheme involving this foreign official was previously described in the DPA with DOJ and the SEC Settlement Order. Mr. Margis was also charged with making false representations to PAC’s auditor regarding internal accounting controls, and books and records.
The SEC charged Mr. Uonaga in connection with a backdating scheme that resulted in Panasonic improperly recording $82 million in revenue. Mr. Uonaga was charged with making false representations to PAC’s auditor regarding the company’s financial statements, internal accounting controls, and books and records. The order against Mr. Uonaga suspends him from appearing or practicing before the Commission as an accountant for at least five years.
Mr. Margis and Mr. Uonaga were previously described in the SEC Settlement Order as PAC Executive 1 and PAC Executive 2, respectively. The DOJ has not brought any criminal charges against any individuals in this matter.
On November 30, a U.S.-based agriculture company, CHS Inc., disclosed in an SEC filing that it is cooperating with an investigation being conducted by the SEC and DOJ involving payments made to Mexican customs officials. The payments were made in connection with grain shipments crossing the U.S.-Mexican border by train. CHS Inc. is a Fortune 100 company that is owned primarily by farmer and rancher cooperatives and has extensive operations in the energy sector in addition to agriculture.
The SEC filing states that the company voluntarily self-disclosed the potential violations and stressed the company’s full cooperation with the investigation, which includes “investigating other areas of potential interest to the government.” The DOJ has placed great emphasis on the importance of voluntary self-disclosure and cooperation in recent policy statements. See previous Scorecard coverage here. This investigation is noteworthy because while investigations in the energy sector are common, investigations in the agricultural sector are less so. The eventual resolution of this investigation may provide useful guidance for other agribusiness companies.
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Henry Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates an Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference