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  • Tips for Minimizing Missteps When Interfacing with SEC Staff


    In a recent article published in Law360, BuckleySandler partners Thomas Sporkin and Robyn Quattrone, and associate Kendra Kinnaird, write about SEC enforcement proceedings and provide tips for minimizing missteps when interfacing with SEC staff. Counsel’s conduct and interactions with SEC staff prior to, during and following any type of informal or formal investigation can have a huge impact on the staff’s treatment and management of the proceeding. The authors review recent statements from senior government officials and examples from recent enforcement proceedings and explain that, while courtesy and professionalism will not avoid actions where they are warranted, mismanaging interactions with staff can make matters worse and even seemingly small and simple mistakes can be costly to the reputations (and wallets) of clients. To aid practitioners and companies facing an SEC investigation, the authors provide best practices for counseling clients and interacting with SEC staff prior to the filing of a formal SEC enforcement action, including tips for developing compliance programs, presenting internal investigation results, and negotiating penalties and other settlement provisions.

    SEC Enforcement

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  • Special Alert: DOJ Increasingly Pursuing Monetary and Non-Monetary Relief in Civil Enforcement Actions

    Federal Issues

    On December 29, General Cable Corporation, a Kentucky-based manufacturer and distributor of cable and wire, entered into a non-prosecution agreement with the DOJ regarding improper payments to government officials in Angola, Bangladesh, China, Indonesia, and Thailand. The company agreed to pay the DOJ a $20.5 million criminal penalty. The company simultaneously resolved an investigation by the SEC over the same conduct, and agreed to disgorge approximately $55.3 million, along with a $6.5 million penalty regarding accounting violations at its Brazilian subsidiary.

    According to the DOJ, beginning in 2002, General Cable employees became aware that the company’s foreign subsidiaries were using third party agents and distributors to make corrupt payments to foreign officials in various countries to secure business. In 2011, employees from a General Cable subsidiary expressed concerns to regional and parent-level executives that commission payments were being used for improper purposes but the company failed to investigate the payments or implement a system of internal controls to detect and prevent the abuse. In total, General Cable subsidiaries paid approximately $13 million to third party agents and distributors from 2002 to 2013, a portion of which was used to make unlawful payments to foreign government officials. According to the DOJ, the payments and resulting contracts netted the company more than $51 million in profits on sales to state-owned enterprises around the world. The SEC separately found that due to weak internal controls, the company failed to detect improper inventory accounting at its Brazilian subsidiary, causing the company to materially misstate its financial statements from 2008 to the second quarter of 2012.

    Simultaneous with its resolution with the company, SEC also resolved charges against Karl J. Zimmer, General Cable’s then-senior vice president and the individual responsible for sales in Angola. Zimmer agreed to pay the SEC a $20,000 penalty without admitting or denying that he knowingly circumvented internal accounting controls and caused FCPA violations when he approved over $340,000 in payments to an agent in Angola. The SEC separately noted that while General Cable’s former CEO and CFO had now returned millions of dollars in compensation they had received during the period of the violations, the SEC had found no personal misconduct by either former officer.

    The company’s $20.5 million criminal penalty represented a 50 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range based on the DOJ’s conclusion that General Cable “voluntarily and timely disclosed the conduct at issue, fully cooperated in the investigation and fully remediated. The benefits General Cable received from the DOJ are similar to those companies can receive for participating in the Fraud Section’s FCPA Pilot Program for the self-reporting of FCPA violations. Prior coverage of the Fraud Section’s FCPA Pilot Program can be found here.

    Andrew Schilling Civil Fraud Actions Enforcement

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  • Seventh Circuit Compels Coverage Under D&O Policy Despite “Insured vs. Insured” Exclusion

    Consumer Finance

    On June 29, the U.S. Court of Appeals for the Seventh Circuit directed a D&O insurance provider to cover certain claims against defendants insured under the same policy as some plaintiffs despite an “insured vs. insured” exclusion from coverage under the insurance arrangement. Miller v. St. Paul Mercury Ins. Co., No. 10-3839 (7th Cir. June 29, 2012). The dispute began when five plaintiffs sued Strategic Capital Bancorp, Inc. (“SCBI”) for fraud and other state law claims flowing from SCBI’s alleged material misstatements relating to the company’s financial condition. Three of the plaintiffs were directors or officers covered under SCBI’s policy; the other two plaintiffs were not insureds under the policy. When SCBI notified its insurance carrier and requested indemnity and defense coverage under the insurance agreement, the carrier refused, citing the policy’s “insured vs. insured” provision. All parties to that initial lawsuit then filed a new action against the carrier in an effort to force it to provide coverage. The Seventh Circuit reversed the district court’s dismissal of those claims brought by the two non-insured plaintiffs. In a lawsuit involving both insured and non-insured plaintiffs, the court ruled, the insurance carrier must “provide indemnity for losses on claims by non-insured plaintiffs but not for losses on claims by insured plaintiffs.” The court reasoned that such a holding conforms to the parties’ expectations, minimizes the risk of arbitrary results, and discourages efforts to manipulate the result through strategic party joinder or case consolidation.

    Directors & Officers

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  • FDIC Reveals Banks’ Living Wills

    Consumer Finance

    On February 2, Panasonic Corporation disclosed that U.S. subsidiary Panasonic Avionics was being investigated by the DOJ and SEC for possible violations of the FCPA and other related laws.  According to its press release, Panasonic is cooperating in the investigation and recently began settlement discussions with both agencies.  The countries at issue in the investigation have not been disclosed.

    Although Panasonic had not spoken publicly about the probe until this week, the Wall Street Journal first reported the investigation in 2013.  Panasonic Avionics makes in-flight entertainment and communication systems for airlines.

    FDIC Bank Compliance Bank Resolution

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  • New York Federal Court Certifies Class in MBS Litigation


    Trevor McFadden, previously a partner with the law firm Baker McKenzie, was appointed Deputy Assistant Attorney General last month, with oversight over the Fraud and Criminal Appellate Sections.  He takes over from Sung-Hee Suh, who was appointed to the role in September 2014.


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  • FHFA Announces REO Pilot Program Developments


    On July 3, FHFA announced the selection of the winning bidders in its real estate owned (REO) pilot program, with the initial transactions expected to close in the third quarter of 2012. FHFA launched its REO pilot program in February 2012 and bids from qualified investors were sought during the second quarter of the year for roughly 2,500 single-family foreclosed properties held by Fannie Mae. According to FHFA, investors qualified for the bidding process after a rigorous evaluation, considering factors such as their financial strength, asset management experience, property management expertise, and experience in the geographic area of the available properties. In a February 27 press release announcing its REO pilot sales initiative, FHFA identified the locations of the available properties, including the Chicago and Los Angeles metro areas.

    Fannie Mae REO FHFA

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  • FTC Wins Judgment in Mortgage Modification Case


    On January 26, the SEC charged two more former executives at Och-Ziff Capital Management Group with being the “driving forces” behind a massive bribery scheme across Africa that violated the FCPA.  The civil complaint, which was filed in the United States District Court for the Eastern District of New York, alleges that Michael Cohen, the former head of Och-Ziff’s European office in London, and Vanja Baros, an investment executive on Africa-related deals, caused “Och-Ziff to pay tens of millions of dollars in bribes to government officials on the continent of Africa.”  Specific allegations include that they induced Libyan authorities to invest in Och-Ziff managed funds, and directed illicit efforts to secure mining deals by bribing government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo.  In announcing the complaint, Kara Brockmeyer, Chief of the SEC’s FCPA Unit, said the defendants “were the masterminds of Och-Ziff’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments.”  The complaint seeks disgorgement and civil monetary penalties among other remedies.

    The complaint follows Och-Ziff’s payment last September of $412 million to the DOJ and SEC to settle criminal and civil charges in one of the largest ever FCPA enforcement actions.  Previous FCPA Scorecard coverage of Och-Ziff’s settlement with the DOJ and SEC can be found here.


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  • West Virginia AG Reaches Settlement with Debt Collection Firm

    Consumer Finance

    On January 20, Herbalife Ltd., a Los Angeles-based maker of nutritional supplements and weight management products, disclosed in a Form 8-K filing that it is being investigated by the SEC in connection with the company’s activities in China.  Herbalife said it is also conducting its own review and “has discussed the SEC’s investigation and the company’s review with the Department of Justice.”  It also said it is cooperating with the SEC but “cannot predict the eventual scope, duration, or outcome of the matter at this time.”

    The announcement comes months after Herbalife agreed last July to pay $200 million in consumer redress to settle Federal Trade Commission allegations that it operated a pyramid scheme and “deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.”  The FTC deal also required Herbalife to “fundamentally restructure” its multi-level marketing operations and compensation structure.

    State AG Debt Collection

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  • New York State Appeals Court Upholds Decision Dismissing Buyback Lawsuit


    On January 17, Nevada-based gaming and resort company Las Vegas Sands Corp. agreed to pay the DOJ nearly $7 million to resolve FCPA charges with a non-prosecution agreement (NPA) in connection with payments from 2006 to 2009 totaling almost $6 million to a business consultant to promote its brand in China and Macau.  Sands admitted that the payments were made “without any discernable legitimate business purpose,” that its executives had knowingly and willfully failed to implement adequate internal accounting controls to ensure that the payments were legitimate, and that it failed to prevent the false recording of those payments in its books and records, continued to make the payments even after warnings from its finance staff and an outside auditor, and terminated the finance department employee who raised those concerns.

    The $7 million criminal penalty is a 25-percent discount from the bottom of the U.S. Sentencing Guidelines fine range.  In announcing the NPA, the DOJ credited Sands for its full cooperation in the investigation, including conducting a thorough internal investigation and voluntarily providing evidence and information to the DOJ, and its extensive remedial measures, including expanding its compliance and audit programs and making significant personnel changes.  The DOJ found particularly notable that Sands no longer employs or is affiliated with any of the individuals implicated in the investigation and hired a new general counsel and new heads of its internal audit and compliance functions.

    In an unusual move, the DOJ’s announcement comes several months after Sands resolved similar FCPA claims with the SEC in related proceedings last April.  There the SEC filed a cease and desist order against Sands and the company agreed to pay a civil penalty of approximately $9 million.  The SEC alleged that Sands violated the FCPA’s internal controls and books and records provisions in connection with more than $62 million in payments to a consultant operating in China and Macau who did not properly document how the money was used.  Sands had consented to the SEC’s order without admitting or denying the charges.  Previous FCPA Scorecard coverage of the Sands SEC settlement can be found here.


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  • Supreme Court Dismisses Writ of Certiorari in RESPA Case


    On January 13, Chilean chemical and mining company Sociedad Quimica y Minera de Chile, S.A. (SQM) agreed to pay nearly $30.5 million to resolve criminal and civil FCPA charges in connection with payments to politically-connected individuals in Chile. SQM admitted that, from at least 2008 to 2015, it made approximately $15 million in payments to Chilean politicians, political candidates, and individuals connected to them.  Many of the payments violated Chilean tax law and/or campaign finance limits and were not supported by documentation.  Rather, SQM made many of these payments to third-party vendors associated with the politically-connected individuals based on fictitious contracts and invoices for non-existent services.  SQM falsely recorded many of these payments in its books and records.

    SQM agreed to a three-year deferred prosecution agreement (DPA) with the DOJ, including a $15,487,500 criminal penalty, and agreed to retain an independent compliance monitor for two years.  The criminal penalty reflected a 25 percent discount from the low end of the U.S. Sentencing Guidelines fine range due to the company’s full cooperation and substantial remediation.  SQM also agreed to pay a $15 million penalty to the SEC pursuant to an Administrative Order Instituting Cease-and-Desist Proceedings to settle the SEC’s charges that the company violated the books and records and internal controls provisions of the FCPA.

    This settlement demonstrates the jurisdictional-reach of the U.S. government in enforcing the FCPA.  SQM, a Chilean company with no U.S. operations, agreed to settle both the SEC’s and DOJ’s charges even though the entirety of the conduct occurred outside of the United States and was committed by foreign nationals.  The only tie to the United States referenced in the SEC and DOJ settlement papers is that SQM is registered with the SEC as a foreign private issuer (its Series B shares have been listed on the NYSE since 1993).


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