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Fired General Counsel Wins $10.9 Million in FCPA Whistleblower-Retaliation Case
On February 6, 2017, a federal jury in San Francisco awarded the former general counsel of a life sciences company $10.9 million in a landmark FCPA whistleblower-retaliation case brought under the Sarbanes-Oxley Act (SOX), the Dodd-Frank Act, and California state law. After three hours of deliberation, the jury found that the company’s former general counsel of nearly 25 years, was fired for reporting suspected FCPA violations to the company’s audit committee in February 2013, a protected activity under SOX’s anti-retaliation provisions. Although the former general counsel did not report his concerns to the SEC, the court held in 2015 that internal whistleblowing under SOX was also protected by the Dodd-Frank Act’s anti-retaliation provisions, opening the door to Dodd-Frank’s double back-pay remedy. The company’s last-minute motion to block purported attorney-client privileged information from trial –“virtually all of the evidence and testimony Plaintiff might rely upon to prove his case” – was denied by the court in December 2016.
The jury ultimately awarded the former general counsel $2.96 million in back-pay – to be doubled under Dodd-Frank – plus $5 million in punitive damages. As detailed in a previous FCPA Scorecard post, the company paid $55 million in November 2014 to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. The former general counsel’s report to the audit committee had involved separate allegations that the company violated the FCPA in China.
Global Money Services Business Reaches Settlements with 49 States and the District of Columbia
On January 31, state attorneys general from 49 states and the District of Columbia announced a $5 million settlement with a global money services business that resolves investigations into allegations that scammers used the company’s wire transfer services to defraud consumers over a period of 9 years. The company agreed to implement an anti-fraud program as part of the settlement, with the settlement funds paying for the states’ costs and fees. As discussed previously on InfoBytes, the company recently entered a $586 million settlement with the DOJ in connection with similar AML-related claims, which will be used for refunds to the victims of fraud-induced wire transfers.
Japanese Multinational Electronics Corporation Discloses FCPA Investigation
On February 2, a Japanese multinational electronics corporation disclosed that its U.S. subsidiary was being investigated by the DOJ and SEC for possible violations of the FCPA and other related laws. According to its press release, the company 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 the company had not spoken publicly about the probe until this week, the Wall Street Journal first reported the investigation in 2013. The subsidiary company makes in-flight entertainment and communication systems for airlines.
**UPDATE** PHH v. CFPB
On January 27, PHH filed a scheduled response brief to views briefed last month by the U.S. Department of Justice (DOJ) under President Obama, likely bringing to a close the parties’ briefing of the CFPB’s petition for en banc review by the full D.C. Circuit of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. Also on January 27, PHH separately filed a (less significant) brief, opposing the recent-filed motion to intervene on the CFPB’s behalf submitted by 17 Attorneys General.
As previously covered on InfoBytes, late last year the Court invited briefing by President Obama’s DOJ on behalf of the United States. (Note that the DOJ does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The DOJ’s brief focused on the constitutional issue (without wading into the RESPA rulings), and argued that the en banc court should either (i) review the panel’s majority holding that the CFPB’s structure was unconstitutional because the majority’s reasoning was erroneous in view of Supreme Court precedent, or (ii) review and simply adopt the dissenting panelist’s view that because the panel was in all events reversing the CFPB’s RESPA rulings and remanding to the CFPB on that basis, the panel majority should not have reached the constitutional issue.
In response to the DOJ, PHH argues that en banc review is unnecessary because the DOJ had only pointed to an error in the panel’s constitutional reasoning, without stating whether DOJ’s preferred mode of analysis would have led to a different result than the one reached by the panel, namely the severing of the “for cause” removal provision applicable to the CFPB Director under Dodd-Frank. PHH also contended that there is no precedent for an en banc court panel to review a panel decision just to determine whether the panel had properly reached a constitutional issue, and that in any event the panel’s decision to reach the issue was entirely proper (and therefore not worthy of review) because, as PHH’s framed the matter, the panel could not have remanded the case to an agency with a potentially unconstitutional structure.
In addition, on January 26, two other non-parties filed two motions to intervene on the CFPB’s side: (i) one by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, Sen. Sherrod Brown of Ohio and Rep. Maxine Waters of California, respectively; and (ii) one by a coalition of interest groups, which included the Center for Responsible Lending, US PIRG, Americans for Financial Reform, the Leadership Conference on Civil and Human Rights, and other movants.
Nation's Biggest Bank Agrees to $55 Million Settlement with DOJ Regarding Allegations of Discriminatory Lending Practices
On January 18, the DOJ filed a lawsuit in the United States District Court for the Southern District of New York accusing a national bank of discriminating against minorities in home lending. According to the government’s complaint, the DOJ alleges, among other things, that the bank “failed to adequately monitor for and fully remedy the effects of race and national origin disparities in APR” and did not “maintain adequate data to determine whether it was discriminating” before ending its wholesale lending practice in late 2009. Two days later, on January 20, the bank agreed to settle the matter and will pay $55 million, while denying any wrong doing. The bank maintains its view that the DOJ’s case is based on legacy allegations that concern pricing decisions of independent third-party brokers. The details of the settlement have not been released as of the publication date of this post.
Global Money Service Business Settles Alleged AML and Consumer Fraud Allegations; Fined $586 Million in Settlement
On January 19, the DOJ announced that it had entered into Deferred Prosecution Agreement with a global money services business regarding allegations the company failed to maintain effective anti-money laundering program and aiding and abetting wire fraud. The announcement claims that between 2004 and 2012, the company “violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme.” Under the terms of the Agreement, the business must forfeit $586 million and “implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates, monitoring to detect and prevent fraud-induced money transfers, due diligence on all new and renewing company agents, and suspension or termination of noncompliant agents.”
In a related case, the company also agreed to a consent order with the FTC to resolve parallel allegations by the FTC in a complaint filed on January 19 in the U.S. District Court for the Middle District of Pennsylvania. The complaint alleges that the company’s conduct violated Section 5 of the FTC Act and the Telemarketing Sales Rule.
Two More Former Hedge Fund Company Executives Charged by SEC in Far-Reaching Bribery Scheme
On January 26, the SEC charged two more former executives at an American hedge fund company 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 the former head of the company’s European office in London, and an investment executive on Africa-related deals, caused “[the company] 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 the company’s 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, Chief of the SEC’s FCPA Unit, said the defendants “were the masterminds of the company’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 the company’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 the company’s settlement with the DOJ and SEC can be found here.
SEC Investigating Multi-level Marketing Corporation for FCPA Violations in China
On January 20, 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. The company 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 the company 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 the company to “fundamentally restructure” its multi-level marketing operations and compensation structure.
American Casino and Resort Company Pays $7 Million Penalty to Resolve Criminal FCPA Charges
On January 17, Nevada-based gaming and resort company 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. The company 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 the company 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 the company 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 the company resolved similar FCPA claims with the SEC in related proceedings last April. There the SEC filed a cease and desist order against the company and the company agreed to pay a civil penalty of approximately $9 million. The SEC alleged that the company 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. The company had consented to the SEC’s order without admitting or denying the charges. Previous FCPA Scorecard coverage of the company’s SEC settlement can be found here.
Misleading Mortgage Investors Costs Germany's Largest Bank $7.2 Billion
On January 17, the Department of Justice (DOJ) announced a $7.2 billion settlement with Germany’s largest lender, resolving federal civil claims that a German global bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007. Under the terms of the settlement agreement, the bank must pay a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and must provide $4.1 billion in consumer relief. The DOJ described the settlement as “one of the largest FIRREA penalties ever paid.”
As a part of the settlement, the bank acknowledged misleading investors in the packaging, securitization, marketing, sale, and issuance of RMBS. Pursuant to the agreement, an independent monitor will determine whether the bank has satisfied its consumer relief obligations. In connection with the settlement, the DOJ released an appendix containing credit and compliance due diligence results from a selection of the bank’s RMBS, along with a list of the RMBS at issue. The settlement— described by the DOJ as “one of the largest FIRREA penalties ever paid”—does not release any individuals from potential criminal or civil liability. The bank has agreed to fully cooperate with investigations related to the conduct covered by the agreement.