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In The Blink Of An Eye … Along Comes A Securities Fraud Suit

In last week’s roundup (see here) it was noted that on Monday August 9th, SciClone Pharmaceuticals Inc. disclosed in an 10-Q filing as follows:

“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”

As indicated in the prior post, news of the FCPA inquiry sent SciClone’s shares, at one point, down 41% to a 52 week low.

As indicated in this press release on Friday, August 13th, Kahn Swick & Foti, LLC and Former Louisiana Attorney General Charles C. Foti, Jr. filed a securities fraud class action lawsuit against SciClone in the United States District Court for the Northern District of California, on behalf of purchasers of the common stock of the Company between May 11, 2009 and August 10, 2010.

As noted in the law firm release,

“The Complaint alleges that throughout the Class Period, defendants were engaged in illegal and improper sales and marketing activities in China and abroad regarding its products. This ultimately caused the Company to become the focus of a joint investigation by the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) for possible violations of the Foreign Corrupt Practices Act (“FCPA”). It was only at the end of the Class Period, however, that investors ultimately learned the truth about the Company’s operations after it was reported that the SEC and DOJ were investigating the Company for violations of the FCPA. At that time, shares of the Company declined almost 40% in the single trading day, on abnormally large trading volume.”

This has got to set a record for the least amount of time between disclosure of an FCPA inquiry and collateral civil litigation …. less than 100 hours!

As Nathan Vardi at Forbes correctly notes (see here) plaintiff lawyers have indeed “joined the bribery racket.” (In April, Vardi penned a provocative feature article – “The Bribery Racket.” See here for my prior post which links to the article).

This & That

A bit of catch up with today’s post which discusses the recent sentence of Juan Diaz in the continuing Haiti Teleco saga (including an interesting post-enforcement action twist) and a DOJ release that flew under the radar.

Juan Diaz

Juan Diaz was recently sentenced to 57 months in prison after previously pleading guilty to a one-count information charging him with conspiracy to violate the Foreign Corrupt Practices Act and money laundering. (See here for the DOJ release). As noted in the release, Diaz was also ordered to: (i) serve three years of supervised release following his prison term; (ii) pay $73,824 in restitution; and (iii) forfeit $1,028,851.

In May 2009, (see here) Diaz pleaded guilty for his role in an improper payment scheme involving employees of Haiti Teleco, an alleged state-owned national telecommunications company. In the DOJ’s view, that would make the Director of International Relations and the General Director of Haiti Teleco, persons Diaz and others allegedly bribed, Haitian “foreign officials” under the FCPA.

The interesting twist is this.

If Diaz bribed these same employees today, he would be bribing (presumably in the DOJ’s view) not Haitian “foreign officials” but Vietnamese “foreign officials.”


Because in May, Viettel, a telecommunications company run by Vietnam’s military, purchased a 60% stake in Haiti Teleco. (See here).

The 57 month sentence Diaz received is similar to the 60 month FCPA sentence Charles Jumet received in April (see here). Jumet was sentenced to 87 months after pleading guilty to a two-count criminal information charging conspiracy to violate the FCPA and making false statements to federal agents. The false statements portion of the sentence was 20 months.

Civil Forfeiture Action Against Properties Owned by Former President of Taiwan

In July, the DOJ issued a release (see here) about a civil forfeiture complaint it filed against certain U.S. properties “that represent a portion of illegal bribes paid to the former president of Taiwan and his wife.”

With Attorney General Eric Holder’s recent announcement of the Kleptocracy Asset Recovery Initiative (see here), the release should be of interest to those who follow this initiative and the general issue of asset recovery.

Bribe recipients can not be prosecuted under the Foreign Corrupt Practices Act, but U.S. based assets (or other assets that flow through U.S. financial institutions) of bribe recipients can be subject to U.S. legal proceedings under other laws.

As noted in this post from November 2009, Attorney General Holder has called asset recovery a “global imperative” and announced a “redoubled commitment on behalf of the United States Department of Justice to recover” funds obtained by foreign officials through bribery.

The prior post discussed the January 2009 civil forfeiture action the DOJ filed in the aftermath of the Siemens enforcement action against bank accounts located in Singapore in the names of Zulfikar Ali, Fazel Selim, and ZASZ Trading and Consulting Pte Ltd. (“ZASZ”) (see here). According to the DOJ’s complaint (see here), these accounts were used by Siemens and another company to bribe foreign officials in violation of the FCPA, specifically Arafat Rahman (“Koko”), the son of former Bangladeshi Prime Minister Khaleda Zia. The DOJ alleges that the illicit funds in these accounts flowed through U.S. financial institutions thereby subjecting them to U.S. jurisdiction.

Similarly, in January 2010, the DOJ unsealed a criminal indictment against Juthamas Siriwan and Jittisopa Siriwan, the foreign official bribe recipient of the Green’s improper payments and her daughter. See here. Among other things, the indictment seeks forfeiture of approximately $1.7 million.

Thus, the DOJ’s July announcement that it is pursuing U.S. based assets of the former president of Taiwan and his wife very much continues a trend.

According to the DOJ release:

“The former president and his wife were convicted in Taiwan on Sept. 11, 2009, for bribery, embezzlement and money laundering. They are currently sentenced to 20 years in prison. Their convictions were upheld on appeal and are now pending before the Supreme Court in Taiwan. […] The former president and his wife are also currently under indictment in Taiwan for additional alleged acts of graft and money laundering.”

Director John Morton of U.S. Immigration and Customs Enforcement (ICE) stated that the enforcement action “serves as a warning to those corrupt foreign officials who abuse their power for personal financial gain and then attempt to place those funds in the U.S. financial system” and that “ICE’s Homeland Security Investigations agents will continue to work with our law enforcement partners both here and abroad to investigate and prosecute those involved in such illicit activities and hold corrupt foreign officials accountable by denying them the enjoyment of their ill ?gotten gains.”

What appears to make this recent civil forfeiture action different than the previously filed Siemens-related forfeiture action and the previously filed Siriwan enforcement action is that the bribe payor may be beyond the reach of the FCPA.

According to the DOJ release, the entity paying the bribes to the president of Taiwan and his wife was Yuanta Securities Co. Ltd. (YSC). The release notes that YSC “was attempting to increase its ownership share of Fuhwa Financial Holding Company Limited” and that “YSC paid a bribe of 200 million New Taiwan dollars, or approximately $6 million U.S. dollars, […] to ensure that the authorities on Taiwan would not interfere with its acquisition of additional shares and to attempt to establish a relationship with the head of the authorities on Taiwan.”

Neither YSC (here), nor its parent company, Yuanta Financial Holdings, appear to be U.S. issuers. Under 78dd-3 of the FCPA, foreign companies can be subject to the FCPA’s jurisdiction. However, this prong of the FCPA requires a U.S. nexus. A quick scan of the forfeiture complaint does not suggest a U.S. nexus in terms of making the bribe payments – although the complaint clearly does allege a U.S. nexus once the payments were received and used by the former president of Taiwan and his wife.


Curious as to what happened in the above referenced Siemens-related enforcement action? In April 2010, U.S. District Court Judge John Bates granted the DOJ’s motion for default judgment and judgment of forfeiture against the subject properties.

What’s happening in the Siriwan enforcement action? According to the docket, nothing since the indictment was unsealed in January 2010.

On Being An FCPA Associate … A Q&A With Rohan Virginkar

Meet Rohan Virginkar (here), a 2004 graduate of The George Washington University School of Law, and current associate at Foley & Lardner in Washington D.C.

Virginkar has a wealth of FCPA experience and in this post he describes what it takes to succeed as an FCPA associate.

Develop fact investigation skills, pay attention to detail, be self-sufficient, and develop a firm grasp of the FCPA – all good pointers to students and young associates interested in a Foreign Corrupt Practices Act practice.

It also helps to have a valid passport and to embrace unpredictability because you may be sitting at your desk on Tuesday and be in Beijing on Saturday in the often fast-paced world of FCPA investigations.

Below is my Q&A with Virginkar.

What was your first FCPA related assignment?

My first FCPA case was within the first few months of starting as an associate. I traveled to Mumbai to investigate an allegation that an Indian subsidiary of our US-based client had paid money to a local government official in exchange for his agreeing not to disrupt their business. The allegations were true, and we discovered that a manager at the company had actually handed a duffel bag of currency to the official under the guise of a “donation” to the official’s favorite “charity”. It was a valuable introduction to the FCPA: shakedowns by foreign government officials, “charitable donations” to potentially suspect charities; it had many FCPA red flags all in one case.

What countries have you visited doing FCPA work?

In addition to India on that very first investigation, the matters I’ve had the good fortune of working on have taken me all over: Angola, China, Egypt, Indonesia, Kazakhstan, Kuwait, Lebanon, Nigeria, Qatar, Singapore, Thailand, the United Arab Emirates and Venezuela.

Of those countries, what has been your most memorable experience?

Each country I’ve visited on these matters has been memorable because the people, places and work have always defied expectations and offered nice surprises. That said, having a manager at a Chinese company who we instructed to stop paying kickbacks threaten us by saying that some of the payments were going to the Chinese Triads and that he would have to tell them that “the American lawyers” made him stop paying them is definitely one that sticks in mind.

As you learned more about the FCPA, what surprised you the most?

I’ve perhaps been most surprised by the genuine desire of most people around the world to follow the general goals of the FCPA, even if they don’t always understand the strictures and even when they occasionally get it wrong.

If you could change one thing about the FCPA or FCPA enforcement, what would it be?

I think the underlying goals of the FCPA are just, so there isn’t anything about the law that I would necessarily change. In terms of enforcement, I think the lack of clear judicial guidance on a number of gray areas of the FCPA sometimes makes it difficult to advise clients, who are forced to balance their business interests with a desire to comply with the law. I’d like to see more real case law develop, which is something I’m sure we’ll start to see as more individuals face stiff penalties for violations of the FCPA. The newly passed whistleblower provisions also give me some pause, because companies that have put in the resources to develop effective compliance programs with internal reporting mechanisms may now see that undermined because potential whistleblowers may see a financial incentive to make allegations, when such information may or may not be the basis of an FCPA allegation. However, it is too early at this point to know for sure what the practical effect on both enforcement and compliance will be.

What advice to you have to students or young associates interested in having an FCPA practice?

It’s important for young lawyers to hone their general litigation skills. Internal investigations (particularly when they have international elements) are a different beast from general commercial litigation, but the same skills that make someone a good litigator also form the foundation of being a good investigator. You have to be logical, methodical, with an eye for detail, because you never know what the smoking gun will look like. Being flexible and maintaining a good attitude helps too. You quickly learn that things will rarely go as you plan when working abroad, and many of the technological and other comforts we rely on in our legal practices here in the US are often unavailable when you’re overseas. Additionally, having to navigate the social and cultural norms of the people and places where you’re doing an investigation (and the fact that you’re often operating in an environment where the people you’re investigating may resent you and try to make your life more difficult), can make the mechanics of actually conducting the investigation as complex as the substantive issues you’re investigating. You also won’t regret developing a habit of over-preparing and over-thinking, so that when you and your group face an unexpected issue, you have already considered it, or at least have the foundation to think your way through it. Finally, learn the law backwards and forwards. When I started working in this area, one of the attorneys who mentored me told me that he always kept the statute handy and referred to it often, because the answers he was looking for were usually found inside. In practice, I’ve more often than not found this to be true. At a minimum, having a solid working knowledge of the law and its intricacies helps you communicate with your clients about why you may be offering certain advice or asking them to make certain changes to how they do business.

Anonymous Reporting … Common, But Effective?

A company looking to establish “best-practices” FCPA policies and procedures will often implement anonymous reporting mechanisms so that employees and others can report misconduct that may violate the Foreign Corrupt Practices Act or company policy.

The conventional wisdom (see here for example) is that such anonymous reporting mechanisms are effective because, among other things, they remove the stigma of reporting misconduct.

Anonymous reporting is common, but is it effective?

That is question asked by James Hunton (Bently College – see here) and Jacob Rose (University of New Hampshire – see here) in a recently published study in the Journal of Management Studies titled: “Effects of Anonymous Whistle-Blowing and Perceived Reputation Threats on Investigations of Whistle-Blowing Allegations by Audit Committee Members.”

The answer according to Hunton and Rose?

No it isn’t.

Here is the abstract of the paper.

“A total of 83 experienced audit committee members participated in an experiment in which they evaluated the credibility of and allocated investigative resources towards a whistle-blowing allegation of financial reporting malfeasance by corporate executive officers. We manipulated whether the whistle-blowing allegation was made through anonymous or non-anonymous channels and whether the allegation posed a relatively high or low threat to the personal reputation of the audit committee member who was charged with investigating the allegation. Results indicate that the participating audit committee members attributed lower credibility and allocated fewer investigatory resources when the whistle-blowing report was received through an anonymous versus non-anonymous channel, and when the allegation posed a relatively high versus low level of reputation threat. While the Sarbanes–Oxley Act of 2002 requires audit committees of publicly traded firms to provide an anonymous whistle-blowing channel to employees, our findings suggest disturbing unintended consequences of such regulation; specifically, audit committee members might fail to sufficiently investigate whistle-blowing allegations received through anonymous whistle-blowing channels, particularly if the allegation poses a personal reputation threat.”

As noted by the authors, the study “is the first to examine whether and how anonymous whistle-blowing affects corporate directors who are charged with determining the veracity of such allegations” and the study questions “whether anonymous whistle-blowing improves the quality of corporate governance …”

Six Months For The Greens … Plus The Friday Roundup

In September 2009, Gerald and Patricia Green were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. According to the DOJ release (see here) the Los Angeles-area film executives were found guilty of engaging in “sophisticated bribery scheme that enabled the defendants to obtain a series of Thai government contracts, including valuable contracts to manage and operate Thailand’s yearly film festival.”

As noted in the DOJ release:

“The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000.”

Sentencing was originally set for December 17, 2009, was delayed several times, and, at one point, was removed from the calendar altogether (see here).

U.S. District Court Judge George Wu of the Central District of California reportedly wanted to learn more about other FCPA sentences as well as Mr. Green’s health issues.

The DOJ requested a 10 year sentence for both Gerald and Patricia Green.

The DOJ stated that the “court must decline defendants’ remarkable invitation to join the wholesale speculation of FCPA ‘pundits’ as to whether corporate settlements are ‘shielding’ to corporate executives from punishment.”

In closing, the DOJ urged the court to “disregard defendants’ efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals.”

According to this report, Judge Wu yesterday sentenced the Greens, before a packed courtroom, to six months in prison, followed by three years probation (six months of which must be served as home confinement).

According to the report, Judge Wu “also set a restitution figure of $250,000” but “if the Greens, who have had their accounts frozen and assets seized since being arrested in 2007, can prove that none of the $1.8 million they paid in bribes to Thai officials can be recovered, then they will only have to pay $3,000 in restitution.”

Does the “landscape of FCPA sentencing” truly reflect “significant prison terms” as stated by the DOJ?

True, any prison term is significant for a defendant and his/her family and friends.

But with a top sentence of 60 months (Charles Jumet – see here), the 366 day sentence for Frederic Bourke in November 2009 (see here), the 15 month sentence for Jason Edward Steph and the 366 day sentence for Jim Bob Brown both in January 2010 (see here) and now the 6 month sentence for the Greens – is this yet another instance in which DOJ’s FCPA rhetoric does not match reality?


H-P news that does not involve its former CEO, what others are saying about the Giffen Gaffe, SciClone’s stock drop, and Siemens $1 billion customer … it’s all here in the Friday roundup.

H-P Inquiry Escalates

According to a story in today’s Wall Street Journal by David Crawford, the DOJ “has asked Hewlett-Packard Co. to provide a trove of internal records as part of an international investigation into allegations that H-P executives paid bribes in Russia, according to people familiar with the investigations.”

According to the story, the DOJ request “came after German prosecutors complained H-P had refused to provide them with all of the records they requested” and after “H-P initially argued that the German request for bookkeeping records, some of which are five years old, imposed an ‘undue hardship’ on the company.”

The article indicates that the DOJ “asked H-P to comply voluntarily with the request and hasn’t subpoenaed the records” and that “H-P has yet to provide some records” but is “cooperating with the investigations.” According to H-P, the investigation
“involves people that have largely left the company and matters that happened as much as seven years ago.”

What Others Are Saying About Giffen

It’s been one week since the Giffen Gaffe (see here).

Here is what others are saying about the enforcement action that began with charges that James Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions”, yet ended with a misdemeanor tax violation against Giffen and an FCPA anti-bribery charge against a functionally defunct entity (The Mercator Corporation -in which Giffen was the principal shareholder, board chairman, and chief executive officer) focused merely on two snowmobiles.

Scott Horton, writing at Harper’s Magazine (see here) noted that “[t]he outcome is a huge embarrassment to federal prosecutors, who had invested a decade in resources in the effort to convict Giffen of FCPA and related violations.”

Horton, who has been following the case for years, highlighted how the “case has been the focus of political manipulation concerns for years” and closed with this paragraph:

“Kazakhs have long claimed that their government’s strategy of resolving the Giffen case by using the right levers with the American administration–a process that led them to hire former attorneys general and high-profile retired prosecutors, private investigators, and public-relations experts–would be successful. The outcome in the Giffen case appears to ratify that view. The notion of an independent, politically insulated criminal-justice administration in America has just taken another severe hit.”

Steve LeVine, author of The Oil and The Glory page at Foreign Policy, noted (here) that the Giffen resolution is “a considerable comedown for the federal government” and that Giffen’s lawyer “understood correctly that he could set up a collision between the Justice Department and the CIA in which the latter would probably prevail.”

The FCPA and Stock Price

What affect, if any, does an FCPA disclosure or resolution have on a company’s stock price?

It’s an issue I’ve explored before (see here) and best I can tell the evidence is inconclusive and the answer is – it depends.

In the case of a company that does business almost exclusively in China disclosing an FCPA inquiry focused on China, the answer is that disclosure of the FCPA inquiry matters – and quite a bit.

On Monday, SciClone Pharmaceuticals Inc., a Delaware company based in California, disclosed in a 10-Q filing (here) as follows:

“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”

SciClone’s business is focused primarily on China with 90+% of its revenue derived from China sales. Thus, it is not surprising that an FCPA inquiry focused on China had a material impact on the company’s stock price.

As noted in this Reuters story, news of the FCPA inquiry sent SciClone’s shares, at one point, down 41% to a 52 week low.

Siemens $1 Billion Customer

In December 2008, Siemens agreed to pay $800 million in combined U.S. fines and penalties to settle FCPA charges for a pattern of bribery the DOJ termed “unprecedented in scale and geographic scope.” According to the DOJ, for much of Siemens’ operations around the world, “bribery was nothing less than standard operating procedure.”

The Siemens enforcement action remains the largest FCPA settlement ever (even though Siemens itself was not charged with FCPA anti-bribery violations).

On the one year anniversary of the Siemens enforcement action, I ran a post – Siemens – The Year After (see here) which highlighted how the U.S. government continues to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

This U.S. government business has helped Siemens outperform its competitors in a difficult recessionary environment and much of the company’s recent success is the direct result of government stimulus programs around the world.

Using (a U.S. government website designed “to allow taxpayers to see precisely what entities receive Recovery money ..”), I highlighted how several Siemens’ business units have been awarded several dozen contracts funded by U.S. taxpayer stimulus dollars.

It is against this backdrop that Paul Glader’s recent piece in the Wall Street Journal “Siemens Seeks More U.S Orders” caught my eye.

According to the article, Siemens Corp. (the U.S. division of Siemens) currently brings in about $1 billion a year from the U.S. government, a figure the division hopes to double by 2015.

Eric Spiegel, chief executive of Siemens Corp., is quoted in the article as saying: “[o]ne of the beauties of the federal-government spending is it didn’t drop off during the recession.”

To that, I’ll add that one of the unfortunate beauties of engaging in bribery the U.S. government terms “unprecedented in scale and geographic scope” is no slow down in U.S. government contracts in the immediate aftermath of the enforcement action.

It’s one of the FCPA greatest headscratchers – FCPA violaters are and remain some of the U.S. government’s biggest suppliers and contracting partners.

As I’ve noted in numerous prior posts, efforts are underway to try to change this. See here, here and here.


A good weekend to all.

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