Federal Securities Law Blog : Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

On November 14, 2012, the Securities and Exchange Commission ("SEC") and the Department of Justice ("DOJ") released A Resource Guide to the U.S. Foreign Corrupt Practices Act. The Resource Guide provides an analysis of the U.S. Foreign Corrupt Practices Act ("FCPA") and reviews how the SEC and DOJ approach FCPA enforcement.

The Resource Guide covers a variety of topics including:

• who and what is covered by the FCPA's anti-bribery and accounting provisions;
• the definition of a "foreign official";
• what constitute proper and improper gifts, travel, and entertainment expenses;
• facilitating payments;
• how successor liability applies in the mergers and acquisitions context;
• the hallmarks of an effective corporate compliance program; and
• the different types of civil and criminal resolutions available in the FCPA context.

The Resource Guide incorporates hypotheticals, examples of enforcement actions and matters that the SEC and DOJ have declined to pursue, and summaries of applicable case law and DOJ opinion releases.

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On August 16, 2012, in a Complaint filed in the U.S. District Court in the Northern District of California, the Securities and Exchange Commission ("SEC") charged Oracle Corporation with violating the Foreign Corrupt Practices Act ("FCPA").  The Complaint alleges that, from 2005 to 2007, employees of an Indian subsidiary of Redwood Shores, a California-based enterprise systems firm, arranged transactions with India's government in a way that enabled Oracle India Private Limited's distributors to secretly "park" approximately $2.2 million of transaction proceeds in side funds. The Complaint alleges that Oracle India employees then directed its distributors to make unauthorized payments out of these side funds to local vendors, who operated merely as storefronts that did not provide any services to Oracle. It is further alleged that these payments were documented by Oracle's subsidiary using fake invoices. 

The SEC's Complaint alleges that (1) Oracle violated the FCPA's books and records provisions and internal controls provisions by failing to accurately record the side funds that Oracle India maintained with its distributors, and (2) Oracle failed to devise and maintain a system of effective internal controls that would have prevented the improper use of company funds.  Without admitting or denying the SEC's allegations, Oracle agreed to pay a $2 million penalty to settle the SEC's charges.

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On Monday, June 18, 2012, DOJ announced that it had entered into a two-year Deferred Prosecution Agreement with Data Systems & Solutions LLC ("DS&S"), a company that provides design, installation, maintenance and other services at nuclear and fossil fuel power plants, to resolve violations of the Foreign Corrupt Practices Act. The company, which is based in Reston, Virginia, agreed to pay an $8.82 million criminal penalty. DOJ acknowledged DS&S’s "extraordinary cooperation" in resolving the matter.

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On June 14, 2012, David Edmonds, the sole remaining U.S. defendant in the Carson FCPA case entered into a plea agreement. He will plead guilty to a one-count indictment alleging a violation of the FCPA. The case has been closely watched because of a number of the interesting arguments raised the defendants, but as those motions were denied, and the June 26 trial date approached, four defendants pled guilty in a two-month period.

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On May 29, 2012, Florida Federal Judge Jose E. Martinez granted a Government Motion to reduce the sentence of Robert Antoine, the former director of international relations for Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), the Haitian state-owned telecommunications company, from 48 months to 18 months, based on his cooperation with the Government's FCPA investigation into the Haiti Teleco matter. The Government has had its share of difficulties in FCPA cases recently (as discussed here), but this case reflects what may happen when things go well in an FCPA prosecution. The Court papers discuss the cooperation provided by Mr. Antoine both before his plea agreement and during the two trials involving three other defendants.

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Back on December 1, 2011, when Judge A. Howard Matz entered an order vacating the convictions and dismissing the Superseding Indictment against Lindsey Manufacturing Company, Keith Lindsey, Steve Lee in the criminal FCPA case, he noted that "Dr. Lindsey and Mr. Lee were put through a severe ordeal. … The financial costs of the investigation and trial were immense, but the emotional drubbing these individuals absorbed undoubtedly was even worse. As for [Lindsey Manufacturing], the very survival of that small, once highly-respected enterprise has been placed in jeopardy." The Government appealed that decision to the Ninth Circuit. However, now, the ordeal for the two men and their company is over – on Friday, May 25, 2012, the Government filed a Motion to Dismiss their appeal.

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On Monday, May 21, 2012, Florida Federal Judge Jose E. Martinez sentenced Jean Rene Duperval, the former director of international relations for Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), the Haitian state-owned telecommunications company, to nine years in prison for his role in a scheme to launder bribes paid to him by two Miami-based telecommunications companies. The sentence is the latest in the very lengthy sentences imposed to the participants in the Haiti Teleco scheme, and marks the second sentence of a foreign official in the case – Mr. Dupreval's sentence was more than twice as long as his predecessor, Robert Antoine, who was sentenced to 48 months in prison in June 2010.

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In connection with a May 14, 2012 hearing, Judge James Selna has prepared Tentative Minute Orders which deny two motions in the Carson FCPA cases. In a Motion to Suppress and a Motion to Dismiss, the defendants raised issues regarding DOJ's relationship with Control Components, Inc. ("CCI"), the employer of defendants, who cooperated with the investigation and provided certain information. In addition to our discussion below, Professor Mike Koehler of The FCPA Professor Blog takes a careful look at the case (which includes copies of the tentative rulings, here and here).

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On Monday, April 30, 2012, two of the remaining defendants in the Carson FCPA case submitted Reply Briefs in support of motions that raise significant issues about the impact on the employees when a corporation conducts an internal investigation and ultimately cooperates with the Government. The briefs argued that: (1) certain statements should be suppressed because the Government offered no evidence from the participants in discussions between the corporation's counsel and DOJ prior to interviews of employees during an internal investigation (thereby failing to rebut defendants' arguments that their Fifth Amendment rights were violated); and (2) the Government's tactics during discovery violated defendants' rights by denying them the opportunity to present a complete defense. The arguments on these issues are set to be heard on May 14, 2012.

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On Wednesday, April 25, 2012, DOJ announced that Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China, pled guilty in federal court in Brooklyn, New York for participating in a conspiracy to evade the internal accounting controls which the company was required to maintain under the FCPA. Because Morgan Stanley had a system of internal controls designed to assure that its employees were not bribing government officials, the Government did not prosecute the company. The SEC also announced that it brought and settled a case against Mr. Peterson.

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In a Brief filed on April 2, 2012, the Government argued that the statements by defendants in an FCPA case that were given to their employer during an internal investigation should not be suppressed because the employer's "actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors," and because defendants could not "show that their statements were involuntary." The Government was addressing a Motion to Suppress filed on March 5, 2012 in the Carson case in which defendants argued that because Control Components, Inc. ("CCI") had collaborated with DOJ during the investigation, it was a Government agent whom improperly compelled statements from the defendants during an internal investigation in violation of their Fifth Amendment rights. The Court has scheduled a hearing on the Motion for May 14, 2012.

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On Tuesday, March 27, 2012, the Government filed a motion in the FCPA Sting Case to dismiss the charges against Jonathan M. Spiller, Haim Geri, and Daniel Alvirez, the three defendants who had previously pled guilty to conspiracy charges in the case and were awaiting sentencing. This unusual event occurred after the Court had dismissed the same conspiracy charge against other defendants in the case and the Government dropped all other charges against the other defendants. As a result, the Sting Case, which was announced in January 2010 as a "turning point" in FCPA prosecutions, will end with zero convictions.

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On Monday, March 12, 2012, a federal jury in Florida convicted Jean Rene Duperval on two counts of conspiracy to commit money laundering and 19 counts of money laundering related to an FCPA scheme involving Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), the Haitian state-owned telecommunications company. Following a week-long trial, the jury took only three hours to convict Mr. Duperval, a former director of international relations for Haiti Teleco. The conviction is the latest Government prosecution related to FCPA at Haiti Teleco, and marks the second conviction of a foreign official involved in the scheme.

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On Monday, March 5, 2012, several of the defendants in the Carson FCPA case in California filed a Motion to Dismiss and a Motion to Suppress, raising a new set of interesting issues in a case where the corporation has already settled with the Government and individual employees face charges. In both motions, the defendants raised issues regarding DOJ's relationship with Control Components, Inc. ("CCI"), the employer of defendants. In the Motion to Dismiss, defendants argued that "the impact of the cumulative impediments – unique investigation tactics preventing Defendants access" to certain evidence deprived them of their Due Process and Sixth Amendment rights, ("including the right to present a complete defense") and that "dismissal is the only appropriate remedy" for such severe prejudice. In the Motion to Suppress, defendants argued that because CCI had collaborated with DOJ during the investigation, it was a Government agent whom improperly compelled statements from the defendants during an internal investigation in violation of their Fifth Amendment rights. As a result, defendants argue that the statements should be suppressed.

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At an in Chambers hearing on February 16, 2012, Judge James Selna issued an Order in U.S. v. Carson, addressing the jury instructions regarding the terms "foreign official" and "instrumentality." In doing so, Judge Selna rejected a number of the proposed instructions submitted by the defendants, sticking closing to the list of non-exclusive factors he identified in his prior decision on this issue.

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Another chapter ended in the series of FCPA criminal prosecutions arising out of the TSKJ Joint Venture this week, when Texas federal Judge Keith P. Ellison sentenced three men for their role in the portion of the case involving Kellogg Brown & Root. On Thursday, February 23, 2012, former KBR executive, Albert "Jack" Stanley was sentenced to 30 months in jail, while Jeffrey Tesler, who controlled an entity through which payments were funneled, was sentenced to 21 months in prison. On Wednesday, February 22, 2012, Wojciech Chodan, the former Vice President of M.W. Kellogg, Ltd., received a sentence of one year unsupervised probation.

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In a Motion filed this morning, the Government moved to dismiss with prejudice the Superseding Indictment against the remaining defendants in the FCPA Sting Case. In doing so, the Government cited the two mistrials, as well as the acquittal of three defendants, and other rulings in the case.

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On Thursday, February 9 2012, prosecutors filed a motion in federal court in Texas requesting that the remaining charges against John O'Shea be dismissed. On January 16, 2012, the Court dismissed the FCPA charges against Mr. O'Shea, leaving one count of conspiring to violate the FCPA, four counts of money laundering and one count of creating a false document to obstruct the Government's investigation. Thursday's motion stated:

In light of the Court’s prior statements and rulings, as well as the resulting collateral estoppels issues associated with the Court’s judgment of acquittal, the government hereby moves pursuant to Rule 48(a) of the Federal Rules of Criminal Procedure to dismiss the remaining counts of the criminal Indictment against Mr. O’Shea with prejudice.

The motion was filed two days after the Government revealed that it was considering dropping charges in another FCPA case – the FCPA Sting case in Washington, DC.

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A story from the Blog of the Legal Times states that prosecutors "are considering whether to abandon" the charges in the FCPA Sting Case in federal court in Washington, DC. Mike Scarcella's blog entry (available here) states that prosecutor Joey Lipton reported to Judge Richard Leon at a February 7, 2012 status conference that "Assistant Attorney General Lanny Breuer and U.S. Attorney Ronald Machen Jr. are examining the continued viability of the case," and a decision on whether the cases will continue will be made by February 21, 2012.

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On Monday, February 6, 2012, the SEC and DOJ resolved their respective investigations with a medical device company and its subsidiary by entering into settlements stemming from alleged bribes paid to doctors in Greece for more than a decade. The U.S. subsidiary, Smith & Nephew Inc., agreed to pay a $16.8 million fine as part of a deferred prosecution agreement with the DOJ, while the English parent company, Smith & Nephew plc, agreed to settle the SEC’s charges by paying more than $5.4 million in disgorgement and prejudgment interest.

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For those readers of the blog who are litigators or follow litigation issues, today's post from Professor Mike Koehler's FCPA Professor Blog has a real treat: a guest post from the foreman of the recently concluded trial in the FCPA Sting Case. The foreman provides a detailed description of the issues considered by the jurors during their lengthy deliberations in which they (1) reached a partial verdict as to two defendants; and (2) remained deadlocked as to three defendants, resulting in a mistrial. The post provides a rare insight into the deliberations of a jury during a FCPA criminal trial.

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On January 31, 2012, Judge Richard Leon declared a mistrial in the trial of the second group of defendants in the FCPA Sting case when the jury was unable to reach a verdict as to John and Jeana Mushriqui and Mark Morales. The mistrial occurred the day after the jury returned a partial verdict, finding two of the defendants not guilty.  The result adds to the string of litigated FCPA cases where the Government has failed to secure (or maintain) a conviction in recent weeks.

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Four separate websites have reported this afternoon that two of the defendants in the FCPA Sting or "Shot Show" case have been acquitted and Judge Richard Leon has stated that he would declare a mistrial if the jury is unable to reach a verdict as to the remaining three defendants. Specifically, C. M. Matthews and Joseph Palazzolo of the Wall Street Journal, Professor Mike Koehler of the FCPA Professor Blog, Mary Jacoby of Main Justice and Richard Cassin of the FCPA Blog all reported this afternoon that the jury found Patrick Caldwell and John Godsey not guilty, but remained hung as to John and Jeana Mushriqui and Mark Morales.

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On Monday, January 16, 2012, Judge Lynn Hughes granted defendant John O'Shea's motion for acquittal in the FCPA case, dismissing the FCPA charges case against him. According to a Press Release from defense counsel, Judge Lynn Hughes "found that the Government’s chief witness, … could not tie Mr. O’Shea to the alleged crimes. The judge found that O’Shea’s conduct, including efforts to renew an ABB-Esimex contract, was reasonably explained by lawful motives." The decision by Judge Hughes marks the second loss in less than two months for the Government in cases related to the  Comisión Federal de Electricidad ("CFE") – Judge A, Howard Matz had previously vacated the guilty verdict in the Lindsey Manufacturing case, as discussed here.  UPDATED (on January 19, 2012): While Judge Hughes' Order dismisses the 12 FCPA counts, the Judge has scheduled a status conference for the remaining counts (conspiracy, money laundering and creating a false document) for January 20, 2012.

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On Monday, January 9, 2012, Judge Richard Leon, who had already dismissed the central conspiracy count against six defendants in the FCPA Sting Case, was faced with an interesting question: if the conspiracy count was dismissed for insufficient evidence, should the trial continue when much of the evidence the Government has offered was based on the acts and statements of coconspirators who were not present at the trial? The Motion for a Mistrial filed by the defendants presently at trial argued that they were prejudiced by the evidence regarding the now-dismissed conspiracy count. Judge Leon denied the Motion, ruling that the trial will continue.

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On January 3, 2012, Judge Lynn Hughes denied defendant John O'Shea's Motion to Dismiss the Indictment against him. Mr. O'Shea's Motion, which was filed in March 2011, argued that the Indictment failed to alleged that he bribed a "foreign official" because it only alleged that he bribed employees of a state-owned entity. Judge Hughes' decision marked the fifth time the argument has been rejected. The case against Mr. O'Shea is now set to go to trial on January 11, 2012.

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Today, the Federal Securities Litigation Blog continues its with its larger-than-usual blog entry examining the Top 10 securities litigation stories that were the most intriguing in 2011. As mentioned yesterday, like any sort of Top 10 list, not everyone will agree. Other bloggers will have their own lists with different stories. But on a personal basis, these stories that fascinated me – like a good book, I look forward to the next "chapter" in these stories in 2012.

Here's a quick headline look at the Top 5:

5. The SEC's Inspector General Reports on the Conduct of the Commission Staff.

4. Insider Trading at Galleon Management: Record-Setting Results.

3. The New Whistleblower Rules: Do I Tell Management Before I Tell The SEC?

2. The Lindsey Manufacturing Saga: The Verdict DOJ was "Fiercely Committed" to Obtaining is Vacated.

1. The Citigroup Case: Judge Rakoff's Decision and the Potential Impact on How SEC Cases Proceed.

These five stories are discussed in greater detail after the jump.

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Today and tomorrow, the Federal Securities Litigation Blog will take a break from discussing the most recent events and, with a larger-than-usual entry, examine the Top 10 securities litigation stories that were the most intriguing in 2011. Undoubtedly, others will be preparing similar lists and this is not intended to be a definitive or complete version. Instead, these are the stories that piqued my interest. Half of the list will be discussed today and the other half tomorrow.

Here's a quick headline look at the bottom half of the Top 10:

10. The D.C. Circuit Vacates SEC Exchange Rule 14a-11 Regarding Shareholders' Rights to Include Board Nominee on Proxy Materials.

9. The Jenkins Litigation: Settlement Negotiations in Clawback Case Collapse, But Are Ultimately Resolved.

8. The SEC's Director of the Division of Enforcement Now Has Authority To Issue Witness Immunity Orders.

7. Where is That File? The SEC Addresses Issues Related to the Destruction of Documents and Discovery Issues Relating to their Notes.

6. The FCPA Sting Case: One Hung Jury, One On-Going Trial, A Conspiracy Count Dismissed and More to Come.

These five stories are discussed in greater detail after the jump.

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On Thursday, December 22, 2011, Judge Richard Leon ruled on the Rule 29 Motions for Judgment of Acquittal in the FCPA Sting Case by dismissing Count 1 (on the grounds that there was not sufficient evidence to that the six defendants participated in the overarching conspiracy to violate the FCPA) as to all six defendants in Trial Group No. 2. In addition, Judge Leon dismissed the Government's case against defendant Stephen Giordanella in its entirety. The trial will resume on January 3, 2012 with the remaining five defendants having their opportunity to put on their defense. The rulings are considerable setback for the Government in what the Department of Justice called the first sting operation in an FCPA case.

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On Tuesday, December 13, 2011, the Department of Justice and the SEC brought charges against a group of former employees and agents of Siemens AG for FCPA violations based on an alleged decade-long scheme to bribe senior Argentine government officials to secure, implement and enforce a $1 billion contract with the Argentine government to produce national identity cards. In the words of Assistant Attorney General Lanny Breuer, "[t]his indictment reflects our commitment to holding individuals, as well as companies, accountable for violations of the FCPA." The authorities have been undoubtedly active in the FCPA area this year against individuals, securing a sentence of record length against a telecommunications executive in one case (as discussed here), but suffering setbacks in other cases, such as the hung jury in the first of several trials in the FCPA sting case against employees of companies in the military and law enforcement products industry (discussed here) and the recent decision by Judge Matz to vacate the convictions of executives of Lindsey Manufacturing (and the company itself) (as discussed here).

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On December 1, 2011, Judge A. Howard Matz entered an order granting the motion to dismiss filed by Lindsey Manufacturing Company, Keith Lindsey, Steve Lee in the criminal FCPA case against them. As discussed here, the Court announced its intention to do so at a hearing on November 29, 2011. In its Order, the Court said that the Government conducted a "sloppy, incomplete and notably over-zealous investigation … that was so flawed that the Government’s lawyers tried to prevent inquiry into it." The Court's decision was based, in part, on: the untruthful testimony of an FBI agent to the grand jury; the provision of false information in applications for search and seizure warrants; the improper review of e-mail communications between a defendant and her lawyer; the failure to comply with discovery obligations and other court rulings; and misrepresentations to the Court. The Court held that "the multiple acts of misconduct … undoubtedly affected the verdicts and thus substantially prejudiced" the Defendants, necessitating the decision – made with what the Court called "deep regret" – to vacate the convictions and dismiss the Superseding Indictment.

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At a hearing on November 29, 2011, Judge A. Howard Matz stated that he would be granting the motion to dismiss for prosecutorial misconduct filed by Lindsey Manufacturing Company (a privately-held company), its President Keith Lindsey, and its Vice President Steve Lee in the criminal FCPA case against them. Judge Matz prepared a tentative order which he shared with the parties and plans to issue a formal order on Wednesday, November 30, 2011. According to Edward Pettersson's article on Bloomberg.com, "[t]he judge cited government misconduct including providing false information to get a search warrant, making unauthorized searches and giving incorrect testimony to a grand jury." As a result, the May 2011 convictions of conspiracy and FCPA charges against the company and Messrs. Lindsey and Lee will be dismissed.

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On Tuesday, October 25, 2011, defendants Joel Esquenazi and Carlos Rodriguez, former executives of Terra Telecommunications Corporation who were convicted in August 2011 for their roles in a conspiracy to violate the FCPA and commit money laundering, were sentenced to 15 years and 7 years in prison, respectively. With respect to Mr. Esquenazi, a Press Release from the U.S. Attorney's Office for the Southern District of Florida pointed out that "[t]his is the longest sentence ever imposed in a case involving the Foreign Corrupt Practices Act."

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A report on Monday, October 3 from Bloomberg Markets Magazine detailed a years-long scheme by Koch Industries, Inc. to make improper payments to win contracts in six countries – payments which the company admitted "constitute violations of criminal law." The article states that the Justice Department would not confirm or deny the existence of any investigation into the activities, but such an investigation seems likely given the articles description of events that may violate the FCPA or the laws regarding the Iran Trade Embargo.

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Sean McKessey, the Chief of the Office of the Whistleblower at the SEC, spoke at a panel discussion regarding the Foreign Corrupt Practices Act on Tuesday morning. Mr. McKessey commented on the efforts of his office to date and responded to questions regarding a number of issues.

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On August 23, 2011, the Government filed a Motion with Ninth Circuit Court of Appeals stating that it was dropping its appeal of the decision of District Court Judge George Wu to sentence Gerald and Patricia Green to only six months in prison following their conviction on FCPA charges. The Government had originally requested that the couple be sentenced to "a significant number of years" years, but later lowered their request to ten years. The couple has already served their six month sentences.

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In the FCPA Sting Case, U.S. v. Goncalves, No. 09-cr-00335 (D.D.C.), which resulted in a mistrial last month for four of the 22 defendants (as discussed here), the Court has set a new schedule for the defendants, with four separate trials scheduled to begin between September 22, 2011 now and mid-May 2012. In the mean time, the Government defended its Indictment against a post-trial Rule 29 motion filed by the four defendants originally tried, arguing that the Court has already rejected the defense arguments and that the evidence at trial proved the existence of a conspiracy.

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On Friday, August 5, 2011, a Florida jury convicted Joel Esquenazi and Carlos Rodriguez, former executives of Terra Telecommunications Corporation, for their roles in a conspiracy to violate the FCPA and commit money laundering. U.S. v. Esquenazi, Case No. 09-cr-21010 (S.D. Fla. Filed Dec. 4, 2009), The convictions were the latest event in Government's aggressive prosecution of FCPA violations for bribes paid to Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), a state-owned telecommunications company in Haiti.

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The Federal Securities Law Blog is pleased to announce its first e-Book: The "New Era" of FCPA Enforcement and How Defendants Are Fighting Back.

The e-Book discusses recent developments in three FCPA cases being litigated: the Lindsey Manufacturing case, the Carson case (both pending in California) and the "Shot Show" or FCPA Sting case (tried in federal court in D.C.). The e-Book focuses on the tactics and arguments being used by both the prosecution and the defense team in those cases.

The e-book is available here.

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The last week has seen various developments in three FCPA cases that have been closely watched in the legal community this year. The Government has previously pledged a "new era" of FCPA enforcement and not surprisingly, the Government's aggressive tactics and theories that appear to be part of this new era have come under attack.

• On Monday in the Lindsey Manufacturing case (previously discussed here and here), the defendants filed a supplemental brief further detailing claimed prosecutorial misconduct, and again requesting that the convictions in that case be vacated.

• On Monday in the Carson case (previously discussed here), which is scheduled to go to trial in 2012, the parties filed objections to proposed jury instructions regarding the key issue of whether an employee of a state-owned company is a foreign official.

• Two recent developments occurred in the FCPA "Sting" Case (previously discussed here) which resulted in a July 2011 mistrial: a new motion attacking the Government's theory was filed last Thursday, and the Court held a hearing on Tuesday to discuss a new schedule for the trials in the 22-defendant case. 

Each of the cases merit close attention as they proceed.

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On Thursday, July 7, 2011, D.C. Federal Judge Richard Leon declared a mistrial in a criminal case against four defendants who were accused of conspiracy and FCPA violations when the jury was unable to reach an unanimous verdict on all charges. The case represented a setback for the Government, who had brought charges against 22 individuals based on a sting operation, the first of its kind to involve FCPA charges to be tried.

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On Wednesday, May 18, Judge James Selna in California became the latest Judge to rule on the issue of whether the FCPA extended to payments made to employees of foreign state-owned companies. Judge Selna denied defendants' motion to dismiss in U.S. v. Carson, holding that "the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact." As a result, the issue will be presented to the jury.

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In January 2010, the SEC announced "a series of measures to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency's investigations and enforcement actions." One of those measures included the use of Deferred Prosecution Agreements ("DPA"). On Tuesday May 17, the SEC announced that it has entered into its first such agreement, settling an FCPA matter with Tenaris S.A., a global manufacturer of steel pipes. In announcing the settlement, the Commission provided some guidance as to what cooperation was provided by Tenaris in order to earn such the first DPA.

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UPDATED on May 16, 2011 -- As mentioned previously, Lindsey Manufacturing Company (a privately-held company) was the first corporate defendant to be convicted after trial of FCPA charges (for conspiracy to violate the FCPA and five counts of FCPA violations based on payments to employees of the Comisión Federal de Electricidad ("CFE"), an electric utility company owned by the government of Mexico). Assistant Attorney General Lanny Breuer stated last fall that it was a "new era of FCPA enforcement." The Lindsey Manufacturing verdict and some of the arguments raised by the defense present some indication of exactly how aggressively these issues will be fought by the government and defendants alike.

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On Tuesday, May 10, 2011, a federal jury convicted Lindsey Manufacturing Company (a privately-held company), its President Keith Lindsey, its Vice President Steve Lee and an intermediary, Angela Aguilar in an FCPA case. The charges were based on payments to employees of the Comisión Federal de Electricidad ("CFE"), an electric utility company owned by the government of Mexico, which were made in exchange for the CFE to award contracts to Lindsey Manufacturing. The case is notable for two different reasons: (1) Lindsey Manufacturing was the first corporate defendant to fully litigate FCPA charges through trial; and (2) Lindsey Manufacturing was one of the three recent cases where defendants raised the argument as to whether the FCPA extended to payments made to employees of foreign state-owned companies, an assertion which failed in this instance.  UPDATE on May 16, 2011 – Professor Michael Koehler of the FCPA Professor Blog reports that Lindsey Manufacturing was NOT the first company to litigate an FCPA case all the way through trial: "That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial."  

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On May 2, 2011, a derivative complaint was filed against eleven members of the Board of Directors of Johnson & Johnson alleging breach of fiduciary duty, mismanagement and violations of the federal securities laws based on the company's recent settlements with the Department of Justice and the Securities Exchange Commission regarding violations of the Foreign Corrupt Practices Act. As Kevin LaCroix's blog, The D & O Diary, pointed out, this was the "the first civil lawsuit relating to" the Government's investigations into "whether drug companies paid bribes overseas to increase sales and to obtain regulatory approvals."

On April 8, 2011, DOJ announced that Johnson & Johnson had agreed to pay a $21.4 million criminal penalty as part of a deferred prosecution agreement to resolve improper payments by its subsidiaries to government officials in Greece, Poland and Romania and kickbacks paid to the former government of Iraq under the United Nations Oil for Food Program in violation of the FCPA. The same day, the SEC announced that it had charged Johnson & Johnson with violating the FCPA based on same conduct. The company settled with the SEC by consenting to a court order permanently enjoining it from future violations of certain provisions of the Exchange Act and agreeing to pay over $38 million in disgorgement and $10 million in prejudgment interest. 

In the shareholders' derivative lawsuit, Wollman v. Coleman, No. 11-cv-02511 (D.N.J. Filed May 2, 2011), plaintiffs alleged that the Board members failed to implement internal controls to detect and prevent the bribery scheme in breach of their fiduciary duty to ensure compliance with the FCPA and concealing those violations from Johnson & Johnson shareholders by signing false and misleading Annual Reports and Proxy Statements while these events occurred. The lawsuit seeks an unspecified amount of damages, plus attorneys fees and costs. 

As Mr. LaCroix points out, "there may be further enforcement actions and settlements in connection with the ongoing pharmaceutical industry bribery probe," and those settlements may result in "a parallel wave of follow on civil litigation."

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On Friday, March 18, 2011, FINRA issued Regulatory Notice 11-12 entitled "FINRA Reminds Firms of Their Obligations Under the Foreign Corrupt Practices Act" (available here). The Notice, which provides a brief review of the FCPA, discusses the application of the Act's prohibitions to member firms.

As stated in the Notice, the FCPA not only makes it "unlawful to bribe foreign officials to obtain or retain business in a foreign country," but "[t]he accounting provisions generally require each company considered to be an 'issuer' under the FCPA to make and keep books and records that accurately and fairly reflect the company’s transactions and to devise and maintain an adequate system of internal accounting controls."

The Notice advises firms "to review their business practices to ensure they are complying with all of their obligations under the FCPA." The Notice further warns that a "member firm’s failure to comply with its FCPA obligations will be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade in violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade)."

FINRA's Notice is just the latest statement reflecting the increased focus on FCPA enforcement. In remarks made in November 2010 (available here), Assistant Attorney General Lanny A. Breuer stated that firms had a "right to be more concerned," because "we are in a new era of FCPA enforcement; and we are here to stay." Last week, Mark Mendelsohn, the former Deputy Chief of the Fraud Section at DOJ, in an interview with the Wall Street Journal (discussed here) warned that the "rise in prosecutions of individuals … is a trend that is here to stay and will continue to grow."

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On Thursday, March 17, 2011, the Wall Street Journal published an interview (available here, log-in required) with Mark Mendelsohn, the former Deputy Chief of the Fraud Section at DOJ, whose responsibilities included enforcement of the Foreign Corrupt Practices Act ("FCPA").

Mr. Mendelsohn, who left DOJ in 2010 to join Paul Weiss, discussed the future of FCPA enforcement. Highlights of the interview included:

• "The Dodd-Frank whistleblower provision is going to significantly change the game and create large financial incentives for whistleblowers to come forward to the SEC. We're going to see even more reporting to the government both by companies looking to get ahead of the whistleblowers and by whistleblowers. It will be a real challenge for the SEC and DOJ to keep up."

• "The rise in prosecutions of individuals I think is a trend that is here to stay and will continue to grow especially as the Justice Department and the SEC have more resources at their disposal."

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