On November 9, an Atlanta-based claims management firm disclosed that it reported possible FCPA violations to DOJ and SEC. The company discovered the possible violations during an internal audit and has since launched an investigation, using outside counsel and external forensic accountants. The company stated that it intends to cooperate with the SEC and the DOJ in this matter, but the filing did not elaborate on the nature or location of the potential violations.
On November 16, the SEC’s Office of the Whistleblower (OWB) issued its 2015 annual report to Congress on its Whistleblower Program established pursuant to Dodd-Frank. According to the report, in Fiscal Year 2015, the OWB received more than 3,900 whistleblower tips – a 30% increase since 2012, which the SEC attributes to increased public awareness of the program due to Dodd Frank’s implementing rule awarding tipsters 10 to 30 percent of a securities violation when the penalty is greater than $1 million. Additional items to note from the report include: (i) the SEC brought its first enforcement action against a company for using language in confidentiality agreements that impeded a whistleblower from reporting possible securities law violations; (ii) the SEC received whistleblower submissions from all 50 states and the District of Columbia, along with tips from individuals in 95 countries outside of the U.S.; and (iii) the most common complaint categories reported were Corporate Disclosures and Financials, followed by Offering Fraud and Manipulation.
Developments in Uzbekistan Telecommunications FCPA Investigations: Dutch Telecommunications Company Makes Provision in Connection with Investigation; DOJ Names Russian Telecommunications Company in Civil Forfeiture Action
On November 3, a Dutch telecommunications company announced that, based on its assessment of ongoing FCPA investigations, it would make a provision in the amount of $900 million in its third quarter financial statements. The company previously disclosed that the SEC, the DOJ, and the Dutch Public Prosecution Service were conducting investigations related to its business in Uzbekistan and prior dealings with a Gibralter-registered company that negotiates mobile phone licenses on behalf of the Uzbek government.
On November 5, another company under investigation for its conduct in Uzbekistan disclosed that the DOJ referenced it in a civil forfeiture complaint. The DOJ’s complaint was directed at an unnamed Uzbek government official, but the complaint alleged that the company and certain other parties made corrupt payments to the unnamed official to gain access to the Uzbek telecommunications market.
On November 2, a pharmaceutical company disclosed that the DOJ requested documents and other information related to the company’s compliance with the FCPA. The SEC is also investigating the company’s compliance with the FCPA, a fact the company disclosed in May. The SEC’s subpoena sought information about the company’s grant-making activities worldwide, specifically naming Japan, Brazil, Turkey and Russia in its request, and also addressed non-FCPA items. The company said that it plans to cooperate with DOJ’s investigation.
On November 12, the SEC named Marc Wyatt as the Director of the Office of Compliance Inspections and Examinations (OCIE) and the leader of the agency’s National Exam Program. When Andrew Bowden left the SEC in April 2015, Wyatt stepped in to serve as the agency’s Acting Director. Prior to joining the SEC in 2012, Wyatt was a principal and senior portfolio manager of a global multi-strategy hedge fund and a senior investment banker in both the U.S. and the U.K. In a separate November 13 announcement, the SEC appointed Sanket Bulsara as the Deputy General Counsel for Appellate Litigation and Adjudication, succeeding Michael A. Conley, who was appointed as SEC Solicitor. Former SEC Solicitor Jacob H. Stillman will continue to serve as senior advisor.
On November 5, the SEC announced Bryan Bennett as head of its Los Angeles examination program. Bennett will oversee examiners, accountants, and attorneys based in Southern California, Nevada, Arizona, Hawaii, and Guam. Bennett joined the SEC in 2008 and was later named manager, leading various teams in the investment adviser and investment company examination program. In January 2015, the SEC named Bennett the assistant director of the Los Angeles examination program. Prior to joining the SEC, Bennett was a litigator in private practice.
On October 20, the White House announced two intended nominations for Daniel Gallagher’s replacement as SEC Commissioner, Hester Maria Pierce and Lisa M. Fairfax. Currently, Ms. Pierce is a Senior Research Fellow and Director of Financial Markets Working Group at the Mercatus Center at George Mason University. Previously, she served as a Staff Attorney at the SEC in the Division of Investment Management and as Counsel to SEC Commissioner Paul Atkins. Ms. Fairfax is a professor at George Washington University Law School, where she serves on the Executive Board and as Director for Programs for the George Washington Center for Law, Economics and Finance.
On October 13, the SEC announced a $19.5 million settlement with a Swiss bank for allegedly misleading U.S. investors by making false and misleading statements and omissions in connection with the offering of complex retail structured notes. Among other things, the SEC’s Cease-and-Desist Order alleges that, between December 2009 and November 2010, the Swiss bank failed to disclose to investors (i) taking unjustified markups; (ii) participation in hedging trades with non-systematic spreads; and (iii) trading prior to certain hedging transactions. The SEC further alleged the bank’s conduct “negatively impacted or, in the case of trading before hedging transactions, had the potential to negatively impact, pricing inputs used to calculate the” currency index. Without admitting or denying the charges, the bank agreed to pay disgorgement and prejudgment interest of $11.5 million and a civil money penalty of $8 million. $5.5 million of the disgorgement and prejudgment funds will be distributed to investors affected by the bank’s actions. According to the SEC, the action is the agency’s first case to involve misstatements and omissions by an issuer of retail structured notes.
On October 9, the SEC announced that it would not seek further review of the U.S. Court of Appeals for the District of Columbia’s July ruling prohibiting the SEC from retroactively applying the Dodd-Frank Act’s sanctions provisions to violations occurring before the Act’s effective date. Koch et al. v. SEC, No. 14-1134 (D.C. Cir. Jul. 14, 2015). In addition, the SEC further advised that persons subject to an existing SEC order that may be impacted by the Koch decision, because the conduct involved occurred before the July 22, 2010 effective date of Dodd-Frank, may apply for relief from the Commission’s order.
On October 5, the SEC announced a settlement with Bristol-Myers Squibb to resolve allegations that the pharmaceutical company’s Chinese joint venture, BMS China, gave cash, jewelry, and other benefits to health care providers in order to boost prescription sales at state-owned or controlled hospitals. The SEC proceeded via an administrative cease and desist order. The SEC’s order found that the company violated the internal controls and books and records provisions of the FCPA. Bristol-Myers consented to the SEC’s order without admitting or denying the findings, and agreed to disgorge profits of $11.4 million plus $500,000 in pre-judgment interest and pay a civil penalty of $2.75 million. Bristol-Myers also agreed to report to the SEC for two years regarding the status of its efforts to implement anti-corruption compliance controls.
The SEC’s order states that Bristol-Myers failed to investigate red flags and claims by terminated BMS China employees that raised the possibility that sales personnel were making improper payments. The order also states that Bristol-Myers was too slow to fill gaps in its internal controls regarding interactions with health care providers.
On October 2, Canadian mining company Kinross Gold Corp. announced that the SEC and DOJ are investigating potentially improper payments to government officials in West Africa. The company’s announcement states that it received subpoenas from the SEC in 2014 and 2015, and a request for information from the DOJ in December 2014. The subpoenas came after the company launched an internal investigation in August 2013 to investigate a whistleblower complaint alleging improper payments to government officials and internal control deficiencies in the company’s West African mining operations.
On September 29, Hyperdynamics Corp. announced a settlement with the SEC, fully resolving the SEC’s FCPA investigation into the Houston-based oil and gas company’s operations in the Republic of Guinea. The SEC proceeded via an administrative cease and desist order. Hyperdynamics consented to the SEC’s order without admitting or denying the findings, and agreed to pay a $75,000 penalty. The SEC’s order describes books and records and internal control offenses based on the lack of supporting documentation related to $130,000 the company paid for public relations and lobbying services in the Republic of Guinea during 2007 and 2008.
Hyperdynamics first disclosed that the DOJ was investigating alleged FCPA violations by the company in the Republic of Guinea in 2013. In May of this year, the company announced that the DOJ’s investigation had concluded without enforcement action, and released the DOJ’s declination letter, which noted Hyperdynamics’s cooperation with the investigation. At that time, the company acknowledged that a parallel SEC investigation was ongoing. Previous BuckleySandler coverage of this investigation can be found here.
On September 28, the SEC filed a settled complaint in Washington, D.C. federal court against Tokyo-based Hitachi, Ltd. for alleged FCPA books and records and internal controls offenses. According to the SEC’s Complaint, the company failed to accurately report payments made to the African National Congress (ANC), South Africa’s ruling political party, in connection with a multi-billion dollar plan to build new power stations in the country. Hitachi purportedly sold a 25-percent stake in a South African subsidiary to a company that was a front to funnel funds to the ANC. The SEC alleges that Hitachi was (i) aware that it had partnered with a “funding vehicle” for the ANC; (ii) encouraged the front company to continue using its political influence to obtain additional government contracts; and (iii) agreed to pay “success fees” to the front company. Hitachi did not admit wrongdoing in the settlement and agreed to pay a $19 million penalty.
In its announcement, the SEC’s Director of Enforcement, Andrew Ceresney, cited Hitachi’s “lax internal control environment” as the factor that led to the conduct described in the complaint. Continuing the trend of international cooperation in FCPA investigations, the SEC also thanked the African Development Bank and the South African Financial Services Board for their assistance with the investigation.
On October 1, the U.S. Attorney for the Southern District of New York filed a complaint against New Jersey fund manager William J. Wells charging him with running a “Ponzi” scheme which raised over $1.5 million from investors. According to the complaint, Wells “engaged in a fraudulent scheme to obtain investments by falsely representing that he had achieved consistently positive trading returns in the U.S. equity markets, including through the successful use of options to hedge risk.” Wells allegedly misled investors by claiming that (i) his trading was generating positive returns when it was not; (ii) investors held investments in certain stocks when, in fact, neither Wells nor his firm did; and (iii) sub-accounts had been created for clients, but no such sub-accounts were ever funded. Wells was charged with one count of securities fraud and one count of wire fraud, each carrying a maximum prison sentence of 20 years and a maximum fine of $5 million, or two times the gross gain or loss from the offense.
On September 29, the SEC named William Royer as the Atlanta Regional Office’s Associate Director of the examination program. Since June of this year, Royer has served as the examination program’s Acting Associate Director. In his role, Royer will supervise staff responsible for the examination of broker-dealers, investment advisers, investment companies, transfer agents, along with other SEC registrants. Prior to joining the SEC in 2013 as an Assistant Director within the Office of Compliance and Inspections and Examinations’ Office of the Chief Counsel, Royer worked as a securities attorney in private practice and served as General Counsel for two international investment management firms.