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Massachusetts-Based Technology Company and Two Chinese Subsidiaries Pay $28 Million to Settle Civil and Criminal FCPA Charges; SEC Uses First DPA With Individual
On February 16, the SEC and DOJ announced a settlement with a Massachusetts-based technology company for violations of the FCPA. The technology company and two Chinese subsidiaries agreed to pay $28 million to settle the parallel civil and criminal actions, with the technology company paying approximately $13.5 million in disgorgement and prejudgment interest to settle the SEC’s charges, and its two Chinese subsidiaries paying approximately $14.54 million in penalties in a Non-Prosecution Agreement with the DOJ.
The company admitted that its subsidiaries in Shanghai and Hong Kong provided non-business related travel and other improper payments to Chinese government officials to win business. Specifically, from 2006 to 2011, the two subsidiaries provided nearly $1.5 million to Chinese officials in improper travel, gifts, and entertainment. The Chinese officials were employed by state-owned entities that were customers of the technology company. The travel and entertainment expenses included overseas trips to visit the technology company’s facilities, including cooperate headquarters in Massachusetts, but the majority of the time on the trips was spent on recreational excursions unrelated to the purported business purpose. For example, the company paid for Chinese officials to visit New York, Las Vegas, San Diego, Los Angeles, and Honolulu, as well as guided tours, golfing, and other leisure activities during those trips. Employees of the company’s subsidiaries also provided gifts to the Chinese officials, including cell phones, iPods, gift cards, wine, and clothing. The payments were recorded in the company’s books and records as legitimate commissions or business expenses.
As part of the investigation, the SEC also entered into its first Deferred Prosecution Agreement (DAP) with an individual in an FCPA case. The SEC announced that it would wait three years to bring any FCPA charges against a former employee of one of the subsidiaries, Yu Kai Yuan, because of the cooperation he provided during the SEC’s investigation.
Amsterdam-Based Telecommunications Company Pays $795 Million to Settle FCPA Charges Both in US and Abroad
On February 18, an Amsterdam-based telecommunications company and its Uzbek subsidiary reached a global settlement with the SEC, DOJ, and Dutch regulators Openbarr Ministerie (OM) and the Fiscal Intelligence and Investigation Service (FIOD), in which the telecommunications company will pay more than $795 million to resolve FCPA violations in Uzbekistan. The Amsterdam-based telecommunications provider was charged with bribing an Uzbek government official related to the President of Uzbekistan in exchange for government-issued licenses. Between 2006 and 2012, the telecommunications company and its subsidiary made more than $114 million in bribe payments through an entity affiliated with the Uzbek official and disguised approximately half a million dollars as charitable donations made to charities affiliated with the Uzbek official.
The terms of the settlement require the telecommunications company to pay $397.5 million to Dutch regulators, $230.1 million to the DOJ, and $167.5 million to the SEC; it must also retain an independent corporate monitor for three years. DOJ also filed a forfeiture proceeding, seeking more than $550 million held in Swiss bank accounts which it alleged were funds that the Amsterdam-based telecommunications company and two other telecommunications companies used to bribe and/or launder the bribe payments to the Uzbek official. This forfeiture complaint follows the DOJ’s earlier forfeiture complaint filed on June 29, 2015, seeking forfeiture of more than $300 million in funds held in Belgium, Luxembourg, and Ireland.
Large International Bank Discloses Involvement in "Sons and Daughters" Investigation
A large international bank on Monday became the latest bank to disclose requests for information from the SEC related to the long-running “Sons and Daughters” investigation into the hiring of “candidates referred by or related to government officials or employees of state-owned enterprises in Asia-Pacific.” The bank noted that it “is cooperating with the SEC’s investigation.” Prior coverage of other aspects of the “Sons and Daughters” investigation around the world is available here.
SEC Announces Regional Directors for Enforcement in Los Angeles Office
On February 9, the SEC named C. Dabney O’Riordan and Alka Patel Associate Directors for Enforcement in the Los Angeles Regional Office. O’Riordan began her SEC career as a staff attorney in the Los Angeles office, has been a member of the agency’s Division of Enforcement’s Asset Management Unit since its 2010 inception, and in 2012 was named Assistant Director of the Division of Enforcement. Similarly, Patel began her career in the Los Angeles office as a staff attorney in 2001, became Assistant Director in 2009, and has served as a member of the Division of Enforcement’s Foreign Corrupt Practices Act since its 2010 inception. During their tenure at the SEC, both O’Riordan and Patel investigated and litigated a number of significant securities law matters. In their new roles, O'Riordan and Patel will oversee enforcement efforts in southern California, Arizona, Nevada, and Hawaii.
SEC Adopts Cross-Border Security-Based Swap Rules
On February 10, the SEC released a fact sheet on rules that would require non-U.S. companies using personnel located in a U.S. branch or office “to arrange, negotiate, or execute a security-based swap transaction in connection with its dealing activity to include that transaction in determining whether it is required to register a security-based swap dealer.” The rules, which the SEC voted to adopt in its February 10 open meeting, are intended to ensure that U.S. and foreign dealers engaging in security-based swap dealing activity in the United States are subject to Title VII of the Dodd Frank Act. In addition, the final rules would exempt certain international organizations – those excluded from the definition of U.S. person in Exchange Act rule 3a71-3(a)(4)(iii) – from the requirement that non-U.S. persons include transactions they arranged, negotiated, or executed using personnel located in a U.S. branch or office in their dealer de minimis threshold calculations. Effective 60 days after publication in the Federal Register, but with a later compliance date, the rules should, according to SEC Chair Mary Jo White, “improve transparency and enhance stability and oversight in the security-based swap market, while reducing potential competitive disparities, lessening the likelihood of market fragmentation, and mitigating the risk that may flow into U.S. financial markets.”
SEC Names Jane Jarcho Deputy Director of National Exam Program
On February 3, the SEC named Jane Jarcho Deputy Director of its Office of Compliance Inspections and Examinations (OCIE). Jarcho will continue to serve as the National Director of the OCIE’s Investment Adviser/Investment Company examination program, a role she assumed in 2013. As the head of the Investment Adviser/Investment Company examination program, Jarcho increased company examinations more than 27% and “targeted areas such as cybersecurity, never before examined investment advisers and investment companies, alternative mutual funds, fixed incomes, and retirement accounts.” Jarcho’s SEC career began in 1990 in the Division of Enforcement, where she held various positions, including Branch Chief, Senior Trial Counsel, and Assistant Regional Director. In 2008, Jarcho joined the OCIE; prior to being named National Director of the office, she served as Associate Director of the Investment Adviser/Investment Company examination program.
Germany-Based Software Company Settles Bribery Case with SEC for $3.7 Million
On February 1, the SEC agreed to a $3.7 million settlement with a Germany-based software company regarding allegations that it violated the FCPA regarding the payment and offer of bribes to senior Panamanian government officials. The settlement, stemming from the actions of the company's former executive Vincente Garcia who pleaded guilty last August to one count of conspiracy to violate the FCPA, found that the company lacked appropriate internal controls to detect the illegal activity. According to the SEC, Garcia arranged the sale of heavily discounted software licenses and used the savings to create a “slush fund.” The money in this fund was then used to pay bribes and kickbacks.
The SEC order also found that the company lacked sufficient internal controls to prevent the violations. While the company did not admit or deny the findings, it consented to the cease-and-desist order and agreed to disgorge $3.7 million in profits plus prejudgment interest of $188,896.
California-Based Pharmaceutical Company Settles with SEC Regarding FCPA Offenses in China
On February 4, the SEC settled FCPA allegations with a California-based pharmaceutical company with a cease and desist order finding that the company violated the FCPA’s anti-bribery, books and records, and internal controls provisions related to activities in China. The SEC found that from at least 2007 to 2012, employees of the company’s subsidiaries gave money and gifts to Chinese officials (including employees of state-owned hospitals) in order to boost sales. The SEC further found that the company failed to devise and implement a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program.
The company consented to the SEC’s order without admitting or denying the charges and agreed to pay $12.8 million to resolve the charges, including a $2.5 million penalty, the disgorgement of $9.426 million in profits, and $900,000 in prejudgment interest. The company will also provide status reports to the SEC for the next three years regarding remediation efforts and new anti-corruption compliance measures. The company simultaneously announced that the DOJ had declined to pursue any additional action.
SEC Announces Settlement with Loan Servicer for Misstating Financial Results
On January 20, the SEC announced a settlement with a residential and commercial loan servicer for allegedly misstating its financial results for the last three quarters of 2013 and the first quarter of 2014, the consequence of “an internal accounting controls failure that caused the company to rely on a valuation methodology that did not conform to U.S. Generally Accepted Accounting Principles (GAAP).” According to the SEC, the servicer relied on a related party’s improper valuation of mortgage servicing rights that had been acquired from the servicer itself. In addition, the servicer falsely represented in its Form 10-K that it had policies, procedures, and practices to ensure that its Executive Chairman was recused from approving related party transactions when, in fact, it had no such written policies or procedures: “[A]lthough the Executive Chairman had a practice of recusing himself from negotiations and certain approvals of related party transactions, that practice was inconsistent and ad hoc.” Without admitting or denying the SEC’s findings, the servicer agreed to pay a $2 million civil money penalty to settle the charges.
SEC Adopts Interim Rules Implementing Provisions of the FAST Act
On January 13, the SEC announced that it approved interim final rules to implement certain sections of the Fixing America’s Surface Transportation Act (“FAST Act,”), revising Forms S-1 and F-1 for emerging growth companies and smaller reporting companies. Specifically, the rules amend Forms S-1 and F-1 to allow emerging growth companies to omit financial information for certain historical time periods prior to the offering, provided registration statements include all required financial information at the time of the offering. Additionally, under the revised Form S-1, smaller reporting companies, excluding blank check companies, shell companies, or issuers for offerings of penny stocks, will be allowed to use incorporation by reference for future federal securities laws filings after the registration statement becomes effective. These eligible smaller reporting companies will be required to be current by having filed: (i) an annual report for its most recent fiscal year; and (ii) “all required Exchange Act reports and materials during the 12 months immediately preceding filing of the Form S-1.” These rules will become effective when published in the Federal Register.