InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Argentine Sports Marketing Firm Agrees to $112.8 Million Settlement in Connection with FIFA Corruption Investigation
An Argentine sports marketing firm, entered into a deferred prosecution agreement with the U.S. DOJ on December 13, admitting to wire fraud conspiracy in connection with paying tens of millions of dollars in bribes and kickbacks to high-ranking FIFA officials in order to secure support for broadcasting rights in Argentina, Uruguay, and Paraguay for the 2018, 2022, 2026, and 2030 World Cup. The four-year DPA calls for the firm to pay approximately $112.8 million in forfeiture and criminal penalties. In announcing the DPA, the DOJ noted its consideration of the firm’s remedial actions including termination of its entire senior management team, hiring a new General Manager, Chief Financial Officer, Legal Director, Chief Compliance Officer, and Compliance Manager, cooperation, and implementation of enhanced internal controls and a rigorous corporate compliance program.
The deferred prosecution agreement is part of the DOJ’s wider investigation into corruption in international soccer. Thus far, DOJ has charged 42 defendants and obtained 19 guilty pleas in connection with the FIFA corruption prosecutions. Prior Scorecard coverage of the FIFA investigations can be found here.
Jury Finds Mortgage Company and CEO Liable for Fraud; Awards $92 Million in Damages
A federal jury has ordered two Texas-based home mortgage entities and their chief executive to pay nearly $93 million for defrauding the U.S. government into insuring thousands of risky loans, the Department of Justice announced on November 30.
The mortgage companies and their former CEO were found liable for violating the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by, among other things, failing to maintain an adequate quality control program; and submitting false annual certifications regarding quality control requirements. Specifically, the government contended that defendants operated over 100 “shadow” branch offices that originated FHA-insured mortgage loans without obtaining the necessary HUD approval, and which were therefore not subject to HUD oversight.
Ultimately, the jury awarded $92,982,775 in total damages, including $7,370,132 against the CEO specifically—a sum that is subject to mandatory tripling. Further penalties relating to the FIRREA violations are expected, which U.S. District Judge George Hanks will set at a later date.
New Allegations Surface Regarding Israel-Based Pharmaceuticals Company
Just weeks after announcing that it set aside approximately $520 million for a potential settlement of FCPA matters being investigated by the SEC and DOJ, Reuters reports that a spokeswoman for an Israeli pharmaceutical company has confirmed that they are investigating new potential bribes to state healthcare workers in Romania. Reuters claims to have reviewed emails sent in the past year by an anonymous tipster to the company’s CEO and audit committee that detail bribes paid to healthcare providers in exchange for recommending the company’s drugs. Romania was not among the countries the company identified as being part of the settlement discussions with the SEC and DOJ in its recent SEC filing, although the company has said it is conducting a worldwide investigation of its business practices.
Prior Scorecard coverage of the company’s investigation can be found here.
Former President of Nicaraguan Soccer Federation Pleads Guilty in FIFA Investigation
On December 7, a former president of a Nicaraguan soccer federation, pleaded guilty to racketeering conspiracy and wire fraud conspiracy charges. The guilty plea came in response to allegations that the former president accepted approximately $150,000 in bribes for helping an American company acquire media rights to FIFA events. As part of the plea, the former president agreed to forfeit almost $300,000 and could be sentenced to a maximum of 20 years for each count. Last month, the former president of the American company also pleaded guilty to racketeering and wire fraud conspiracy charges alleging that the former president arranged bribe payments totaling more than $14 million dollars in exchange for media and marketing rights to international soccer tournaments and matches.
The former president was indicted by the DOJ in May 2015 along with 13 other FIFA officials. The former president was the final official to be extradited to the United States. The sprawling investigation has resulted in multiple other guilty pleas from former FIFA officials. Prior Scorecard coverage on the FIFA investigations can be found here.
Trump Nominates Jeff Sessions to be Next Attorney General
On November 18, President-elect Donald Trump announced that he has chosen Sen. Jefferson Sessions (R-Ala.), to become the next U.S. Attorney General. Sessions served as the U.S. Attorney for the Southern District of Alabama for 12 years and was the state's attorney general for two years. Trump also announced his intent to nominate U.S. Rep. Mike Pompeo (R-Kan.) as Director of the CIA and Lt. Gen. Michael Flynn as Assistant to the President for National Security Affairs.
DOJ Announces SCRA Pilot Program Offering Dedicated Legal Support to Military Communities
On November 2, the DOJ announced a new pilot program to provide military communities across the country with dedicated legal support as part of a broader effort by federal prosecutors to enforce the Servicemembers Civil Relief Act (SCRA). Under the program, the DOJ will fund assistant U.S. Attorney and trial attorney positions devoted to providing targeted support on SCRA-related cases in districts with major military bases. In addition, military judge advocate officers serving as legal assistance attorneys will be eligible for designation as “Special Assistant U.S. Attorney” for purposes of handling SCRA litigation matters.
Release Updated FHA Guidance on State and Local Land Use Laws
On November 10, DOJ and HUD issued a Joint Statement updating guidance on the application of the FHA to state and local land use and zoning laws. The guidance—which is provided in the form of frequently asked questions and answers thereto—is designed to help state and local governments better understand how to comply with the FHA when making zoning and land use decisions as well as to help members of the public understand their rights under the FHA. The first section of the Joint Statement, questions 1–6, describes generally the FHA’s requirements as they pertain to land use and zoning. The second and third sections, questions 7–25, discuss more specifically how the FHA applies to land use and zoning laws affecting housing for persons with disabilities, including guidance on regulating group homes and the requirement to provide reasonable accommodations. The fourth section, questions 26–27, addresses HUD’s and DOJ’s enforcement of the FHA in the land use and zoning context.
Israel-Based Pharmaceutical Company Sets Aside $520 Million for Potential FCPA Settlement
An Israel-based pharmaceutical company, stated in its Form 6-K filed with the SEC on November 15, 2016, that it has set aside approximately $520 million for a potential settlement of FCPA matters being investigated by the SEC and DOJ. The company explained that the reserve relates to conduct that occurred between 2007 and 2013 in Russia, Mexico, and the Ukraine, and that it was discovered in the course of the investigation that began in early 2012 with the issuance of an SEC subpoena to the company, as well as a concurrent internal investigation of its worldwide business practices.
Should the pharmaceutical company enter into a settlement, it will top the growing list of pharmaceutical companies that have been subject to multimillion dollar penalties for conduct in violation of the FCPA, including the following:
- A $5.5 million settlement in 2016 of allegations relating to bribery of Chinese and Russian doctors;
- A $20 million settlement in 2016 of allegations relating to bribery of Chinese health care professionals;
- A $25 million settlement in 2016 of allegations relating to bribery of Chinese doctors;
- A $14 million settlement in 2015 of allegations relating to bribery of healthcare professionals at state-owned hospitals in China;
- A$29 million settlement in 2012 of allegations relating to bribery of government employed physicians in Russia, Brazil, China and Poland; and
- A $70 million settlement in 2011 of allegations relating to conspiracy and bribery of doctors employed by state-controlled health care systems in Greece.
Major Global Financial Company Pays $264 Million to Settle FCPA Investigation of its Referral Hiring Practices in China
A major global financial company (“Company”) and a Hong Kong subsidiary (“Subsidiary”) agreed on November 17, 2016, to pay approximately $264 million to the DOJ, SEC, and the Federal Reserve, putting an end to a nearly three year, multi-agency investigation of the Subsidiary’s “Sons and Daughters” referral program through which the children of influential Chinese officials and executive decisions makers were allegedly given prestigious and lucrative jobs as a quid pro quo to retain and obtain business in Asia. The conduct occurred over a seven year period, included the hiring of approximately 100 interns and full-time employees at the request and referral of Chinese government officials, and resulted in more than $100 million in revenues to the Company and approximately $35 million in profit to the Subsidiary.
The Subsidiary entered into a non-prosecution agreement and agreed to pay a $72 million criminal penalty, as well as to continue cooperating with the ongoing investigation and/or prosecution of individuals involved in the conduct. Additionally, the Subsidiary agreed to enhance its compliance programs and report to DOJ on the implementation of those programs. DOJ asserts in its press release that the Subsidiary admitted that, beginning in 2006, senior Hong Kong-based investment bankers set up the referral program as a means to influence the decisions of Chinese officials to award business to the Subsidiary, going so far as to link and prioritize potential hires to upcoming business opportunities, as well as to create positions for unqualified candidates where no appropriate position existed. The Subsidiary also admitted that its bankers and compliance personnel worked together to paper over these arrangements and hide the true purpose of the hire.
DOJ acknowledged that while the Subsidiary did not voluntarily or timely disclose its conduct, in determining an appropriate resolution DOJ considered a number of actions taken by the Company, including the commencement of a thorough internal investigation, the navigation of foreign data privacy law to produce documents from foreign countries, and the provision of access to foreign-based employees for interviews in the US. Additionally, DOJ considered the employment actions taken by the Subsidiary, which resulted in the departure of 6 employees and the discipline of 23 employees.
In connection with the same conduct, the Company also settled allegations with the SEC and the Federal Reserve. In a cease and desist order filed today, the SEC found that the Company violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934. The SEC considered the Company’s remedial actions and cooperation with the ongoing investigation, ordering the Company to pay over $105 million in disgorgement and $25 million in interest. Finally, in a consent cease and desist order filed today, the Federal Reserve Board imposed an approximately $62 million civil monetary penalty on the Company for operating an improper referral hiring program and failing to maintain adequate enterprise-wide controls to ensure candidates were vetted and hired appropriately and in accordance with anti-bribery laws and company policies. This order, among other things, requires the Company to enhance its oversight and controls of referral hiring practices and anti-bribery policies, as well as to continue cooperating with the ongoing investigation.
Election Results: Preliminary Thoughts and Reactions
As a result of last Tuesday’s election, Republicans will control the White House and both houses of Congress in 2017. It is likely there ultimately will be some significant changes affecting financial services regulation and enforcement, but they will take time to implement. The President-elect has articulated sympathy for less regulation and opposition to the Dodd-Frank Act but also an unconventional economic populism. The Congressional Republicans have already prepared, and in some cases passed, more specific changes to limit and cabin the CFPB. We anticipate efforts focused on changing the CFPB Director and CFPB structure, reduced regulation that may encourage product innovation (particularly in the FinTech space), and potentially less emphasis on certain Department of Justice (“DOJ”) enforcement initiatives such as fair lending and the Residential Mortgage-Backed Securities (“RMBS”) task force. Nonetheless, we expect continued enforcement and supervisory activity, including by states and by prudential regulators that are less directly tied to shifting political winds.
Click here to read the full special alert
* * *
Questions regarding the matters discussed in this alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeremiah S. Buckley, (202) 349-8010
- Joseph M. Kolar, (202) 349-8020
- John P. Kromer, (202) 349-8040
- Jon D. Langlois, (202) 349-8045
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- Christopher M. Witeck, (202) 349-8051