Subscribe to our FinCrimes Update for news about the Foreign Corrupt Practices Act and related prosecutions and enforcement actions.
On Thursday, November 16, 2017, Wal-Mart Stores, Inc. (“Wal-Mart”) disclosed in an SEC filing that it has set aside $283 million for a potential resolution with DOJ and SEC of alleged FCPA violations. The investigation into possible FCPA violations in Mexico was first disclosed in Wal-Mart’s December 2011 SEC filing and, in subsequent filings, Wal-Mart stated that the allegations had been expanded to include possible violations in Brazil, China, and India, among others.
In its November 16 filing, Wal-Mart reiterated that it has been cooperating with the DOJ and SEC in their investigations, and the discussions with these government agencies has progressed such that Wal-Mart can reasonably estimate a probable loss of $283 million, although it noted that the company cannot assure that its efforts to resolve these matters will ultimately succeed as anticipated.
Click here for FCPA Scorecard’s prior coverage of this matter.
Bloomberg reports that Wal-Mart is nearing a resolution of a five-year old joint inquiry by the DOJ and SEC. Citing an unnamed source familiar with the matter, Bloomberg reports that the company is preparing to pay $300 million to settle allegations that company employees paid bribes in Mexico, China, and India. The same source reported that the resolution will also include at least one guilty plea by a Wal-Mart subsidiary, a non-prosecution agreement for the parent company, and a monitorship.
In March of 2015, a federal district court in Arkansas dismissed with prejudice a consolidated shareholder derivative suit accusing Wal-Mart Stores Inc.’s (Wal-Mart) board of directors of concealing Mexican bribery claims from investors. The lawsuit was filed after a 2012 article by the New York Times reported that top officials at Wal-Mart’s Mexican subsidiary oversaw millions of dollars in bribes in connection with the company’s expansion in Mexico. See previous Scorecard coverage here. The same article is believed to have touched off the DOJ’s and SEC’s inquiry. If true, a $300 million resolution would not be near the top end of FCPA resolutions.
On May 13, a Delaware Chancery Court judge dismissed a shareholder derivative suit accusing Wal-Mart Stores Inc.'s (Wal-Mart) board of directors of failing to conduct an adequate investigation of Mexican bribery allegations. The lead plaintiffs in the suit, two large state employee pension funds, alleged that the Wal-Mart board of directors also covered up the bribery allegations, which were exposed after a 2012 article by the New York Times reported that top officials at Wal-Mart's Mexican subsidiary oversaw millions of dollars in bribes in connection with the company's expansion in Mexico. The Delaware judge found that an earlier case filed in Federal Court in Arkansas involved the same facts as the Delaware action and had been full y litigated before it was dismissed with prejudice in April 2015. The Arkansas Court had found that the plaintiffs failed to establish that a pre-suit demand on the directors to take action would have been futile, and that holding "preclude[d] re-litigation of the issue" in the Delaware action. See previous FCPA Scorecard coverage of the Arkansas action here. In 2014, the plaintiffs had won the right to access various Wal-Mart internal documents, but they were denied the right to use other Wal-Mart documents that were allegedly provided by an anonymous whistleblower. See previous FCPA Scorecard coverage here.
On March 31, a federal district court in Arkansas dismissed with prejudice a consolidated shareholder derivative suit accusing Wal-Mart Stores Inc.'s (Wal-Mart) board of directors of concealing Mexican bribery claims from investors. The Court found that that the plaintiffs did not establish that a pre-suit demand on the directors to take action would have been futile, and failed to show that the directors knew about or consciously ignored the alleged FCPA violations at the Mexican subsidiary. The Court wrote: "Nothing in the complaint suggests any particularized basis to infer that a majority of the board had actual or constructive knowledge of the alleged misconduct, let alone that they acted improperly with scienter." For the same reasons, the Court dismissed claims that the directors allowed the filing of knowingly false proxy statements. Plaintiffs filed the lawsuit after a 2012 article by the New York Times reported that top officials at Wal-Mart's Mexican subsidiary oversaw millions of dollars in bribes in connection with the company's expansion in Mexico.
On September 26, the United District Court for the Western District of Arkansas adopted a magistrate judges recommendation denying Wal-Marts motion to dismiss a securities fraud class action arising out of allegations of bribery in Mexico. Plaintiffs had alleged that certain company officials at Wal-Marts Mexican subsidiary paid bribes to obtain permits for new stores in Mexico, and that Wal-Mart had deceived investors by claiming in an SEC filing in December 2011 that its investigation of the alleged bribery had taken place in fiscal year 2012. Plaintiffs alleged that Wal-mart actually learned of the suspected corruption in 2005 and conducted an internal investigation in 2006, much earlier than disclosed. The plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, 25 U.S.C. §§ 78j(b) and 78t(a), and violations of SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. The court held that the plaintiffs had met the heighted pleading standard required by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b). The court found, among other things, that the plaintiffs sufficiently alleged that Wal-Marts omission from its 2011 filing of the prior 2005 investigation rendered the filing misleading and that the allegations in the complaint, taken collectively, meet the requisite scienter requirement because they alleged that Wal-Mart knew it was omitting material information that led the statement as a whole to be misleading. Wal-Mart is still under investigation by the DOJ and SEC related to possible FCPA violations in its foreign subsidiaries, and has disclosed continued cooperation with authorities and strengthening of its global anti-corruption measures. In its fiscal 2014 Global Compliance Program Report, Wal-Mart said it spent a total of $439 million in legal fees and other costs associated with investigations of alleged FCPA violations and to restructure its global compliance policies and procedures.
Delaware Supreme Court Upholds Ruling Ordering Wal-Mart to Disclose Documents Relating to Mexican Bribery Allegations
On July 23, the Delaware Supreme Court unanimously upheld a ruling by the Court of Chancery granting Wal-Mart Stores, Inc. shareholders access to various documents relevant to highly publicized allegations that Wal-Mart engaged in a long-running bribery scheme in Mexico. At the same time, the Court also affirmed the Court of Chancery's ruling that the shareholders could not use confidential documents allegedly provided by an anonymous whistleblower. The shareholders initiated an action pursuant to Delaware General Corporation Law § 220, which authorizes shareholders to access corporate books and records for "any proper purpose." Wal-Mart voluntarily provided some documents, but the Court of Chancery ordered a more wide-ranging production. All of Wal-Mart's challenges to that ruling were rejected by the Supreme Court. The most notable aspect of the Supreme Court's ruling was its determination that Wal-Mart would have to produce documents held by corporate officers, as opposed to documents held by members of the board of directors. Wal-Mart argued that the only proper purpose for which the shareholders needed the documents was to determine whether a demand on Wal-Mart's Board (a predicate to filing a derivative lawsuit) would be futile. Instead, the Court held that the shareholders had also established a proper purpose of investigating "the underlying bribery and how the ensuing [internal] investigation was handled." Moreover, the Supreme Court held that documents possessed by corporate officers were relevant to the demand futility issue to the extent the officers may have reported their knowledge to members of the board. The Supreme Court also upheld the Court of Chancery's rulings that Wal-Mart would have to produce documents beyond a date cut-off that Wal-Mart sought, that Wal-Mart would have to search disaster recovery tapes for certain custodians (Wal-Mart had previously agreed to some searches of disaster recovery tapes), and that Wal-Mart would have to produce otherwise privileged documents under the Garner doctrine, an exception to the privilege for documents relating to alleged breaches of fiduciary duties by those in control of the corporation. On the other hand, the Supreme Court sided with Wal-Mart with regard to certain confidential documents apparently provided to the shareholders' counsel by an anonymous whistleblower. Wal-Mart demanded the return of those documents, claiming that they were stolen by a former employee in its IT Department. The Supreme Court agreed, at least as to documents that had not otherwise been publicized by the media or members of Congress. However, the Court noted that the shareholders would still be able to obtain the documents if they were within the scope of the shareholders' valid § 220 demands.
- Jeffrey P. Naimon to discuss "Post-pandemic CFPB exam preparation" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Making fair lending work for you" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Reading the tea leaves of President Biden’s initial financial appointees" at LendIt Fintech
- APPROVED Webcast: Staying in the know with Buckley regtech solutions
- Moorari K. Shah to discuss “CA, NY, federal licensing and disclosure” at the Equipment Leasing & Finance Association Legal Forum
- Jonice Gray Tucker to discuss "Compliance under Biden" at the WSJ Risk & Compliance Forum
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable