This previous post provided various facts and figures from 2014 SEC FCPA enforcement.
This post focuses on SEC FCPA individual actions historically.
Like the DOJ, the SEC frequently speaks in lofty rhetoric concerning its focus on holding individuals accountable under the FCPA. For instance, in connection with the 2012 Garth Peterson enforcement action, the SEC’s Director of Enforcement stated (here) that the case “illustrates the SEC’s commitment to holding individuals accountable for FCPA violations.”
Speaking generally, SEC Chairman Mary Jo White has stated that a “core principle of any strong enforcement program is to pursue responsible individuals wherever possible … [and that] is something our enforcement division has always done and will continue to do.”
Most recently in November 2014, the SEC’s Director of Enforcement stated as follows.
“I always have said that actions against individuals have the largest deterrent impact. Individual accountability is a powerful deterrent because people pay attention and alter their conduct when they personally face potential punishment. And so in the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals. […] [I]ndividual accountability is critical to FCPA enforcement — and imposing personal consequences on bad actors, including through bars and monetary sanctions, will continue to be a high priority for us.”
Since 2000, the SEC has charged 61 individuals with FCPA civil offenses. The breakdown is as follows.
- 2000 – 0 individuals
- 2001 – 3 individuals
- 2002 – 3 individuals
- 2003 – 4 individuals
- 2004 – 0 individuals
- 2005 – 1 individual
- 2006 – 8 individuals
- 2007 – 7 individuals
- 2008 – 5 individuals
- 2009 – 5 individuals
- 2010 – 7 individuals
- 2011 – 12 individuals
- 2012 – 4 individuals
- 2013 – 0 individuals
- 2014 – 2 individuals
As highlighted by the above statistics, most of the individuals charged – 35 (or 57%) were charged since 2008. Thus, on one level the SEC is correct when it states that individual prosecutions are a focus of its FCPA enforcement program at least as measured against the historical average given that between 1977 and 1999 the SEC charged 22 individuals with FCPA civil offenses.
Yet on another level, a more meaningful level given that there was much less overall enforcement of the FCPA between 1977 and 1999, the SEC’s statements represent hollow rhetoric as demonstrated by the below figures.
Of the 35 individuals charged with civil FCPA offenses by the SEC since 2008:
- 7 individuals were in the Siemens case;
- 4 individuals were in the Willbros Group case;
- 4 individuals were in the Alliance One case;
- 3 individuals were in the Maygar Telekom case; and
- 3 individuals were in the Noble Corp. case.
In other words, 60% of the individuals charged by the SEC with FCPA civil offenses since 2008 have been in just five cases.
Considering that there has been 72 corporate SEC FCPA enforcement actions since 2008, this is a rather remarkable statistic. Of the 72 corporate SEC FCPA enforcement actions, 60 (or 83%) have not (at least yet) resulted in any SEC charges against company employees. This figure is thus higher than the 75% figure recently highlighted regarding the DOJ. This is notable given that the SEC, as a civil law enforcement agency, has a lower burden of proof in an enforcement action.
Compare the fact that since 2008 83% of corporate SEC enforcement actions have NOT (at least yet) resulted in any SEC charges against company employees to the following statistic. Between 1977 and 2004, 61% of SEC corporate FCPA enforcement actions RESULTED in related charges against company employees.
Like the prior DOJ post on the same topic, although certain historical comparisons of FCPA enforcement lack meaningful value, other comparisons are noteworthy.
For instance, while one can question how the SEC held individuals accountable (i.e whether the civil penalties were too lenient) for most of the FCPA’s history, the SEC did frequently hold individuals accountable when a company resolved an FCPA enforcement action.
With the exception of last week’s creative SEC enforcement action against PBSJ and Walid Hatoum ,the last SEC FCPA enforcement action against a company employee related to a corporate FCPA enforcement action occurred approximately three years ago in connection with the Noble Corporation matter (see here for the SEC’s enforcement action against Thomas O’Rourke, Mark Jackson and James Ruehlen – current or former employees of Noble Corporation). Of note from this enforcement action is that when Jackson and Ruehlen put the SEC to its burden of proof, the SEC agreed to settle on the eve of trial in what can only be called a win for the defense. (See here, here and here for prior posts). Indeed, as highlighted in this post, the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.
Once again, like with the DOJ figures, one can ask the “but nobody was charged” question given the gap between corporate SEC FCPA enforcement and related individual enforcement actions.
Yet, like with the DOJ figures and as highlighted in this recent post, there is an equally plausible reason why so few individuals have been charged in connection with many corporate SEC FCPA enforcement actions. The reason has to do with the quality and legitimacy of the corporate enforcement action in the first place.
With the SEC, the issue is not so much NPAs or DPAs (although the SEC has used such vehicles three times to resolve an FCPA enforcement action – DPAs with Tenaris in 2011 and PBSJ Corp. in 2015 and a NPA with Ralph Lauren in 2013). Rather, the issue seems to be more the SEC’s neither admit nor deny settlement policy (notwithstanding its minor tweaks in 2013) as well as the SEC’s increased use of administrative actions.
For more on the SEC’s neither admit nor deny settlement policy and its impact of SEC enforcement actions, see pgs. 946-955 of my article “The Facade of FCPA Enforcement.” In the article, I discuss the affidavit of Professor Joseph Grundfest (Stanford Law School and a former SEC Commissioner) in SEC v. Bank of America and how SEC enforcement actions “typically omit mention of valid defenses and of countervailing facts or mitigating circumstances that, if proven at trial, could cause the Commission to lose it case.” In the article, I also discuss the SEC’s frank admission in the Bank of America case that a settled SEC enforcement action “does not necessarily reflect the triumph of one party’s position over the other.”
Indeed, a notable development from 2014 (see here) was the Second Circuit concluding that SEC settlements are not about the truth, but pragmatism.
Individuals in an SEC FCPA enforcement, even if only a civil action, and even if frequently allowed to settle on similar neither admit nor deny terms, have their personal reputation at stake and are thus more likely than corporate entities to challenge the SEC and force it satisfy its burden of proof at trial as to all FCPA elements.
More recently, the SEC has been keen on resolving corporate FCPA enforcement actions in the absence of any judicial scrutiny. As highlighted in this 2013 SEC Year in Review post, a notable statistic from 2013 is that 50% of SEC corporate enforcement actions were not subjected to one ounce of judicial scrutiny either because the action was resolved via a NPA or through an administrative order. In 2014, as highlighted in this prior year in review post, of the 7 corporate enforcement actions from 2014, 6 enforcement actions (86%) were administrative actions. In other words, there was no judicial scrutiny of 86% of SEC FCPA enforcement actions from 2014.
It is interesting to note that the SEC has used administrative actions to resolve 9 corporate enforcement actions since 2013 and in none of these actions have there been related SEC enforcement actions against company employees.
In other words, and like in the DOJ context, perhaps the more appropriate question is not “but nobody was charged,” in connection with SEC corporate FCPA enforcement actions, but rather – do SEC corporate FCPA settlements necessarily represent provable FCPA violations?
It is also interesting to analyze the 13 instances since 2008 where an SEC corporate FCPA enforcement action resulted in related charges against company employees. With the exception of Siemens, KBR/Halliburton and Magyar Telekom, the corporate SEC FCPA enforcement actions resulting in related charges against company employees occurred in what can only be described as relatively minor (at least from a settlement amount perspective) corporate enforcement actions. These actions are: Faro Technologies, Willbros Group, Nature’s Sunshine Products, United Industrial Corp., Pride Int’l., Noble Corp., Alliance One, Innospec, Watts Water, and PBSJ.
[Note – the above data was assembled using the “core” approach as well as the definition of an FCPA enforcement action described in this prior post]