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Bio-Rad Internal Investigation Documents Highlight The Lack Of Transparency In FCPA Enforcement

Foggy

The DOJ and SEC frequently speak about the importance of transparency in Foreign Corrupt Practices Act enforcement – as well they should because transparency is a fundamental tenet of the rule of law.

Those in the know however have long recognized that FCPA enforcement is seldom transparent. However, assessing this is nearly impossible in most instances because FCPA internal investigation documents are seldom in the public domain.

Yet, as highlighted in this post, certain Bio-Rad FCPA internal investigation documents were recently publicly disclosed as exhibits in an FCPA-related whistleblower action and the documents call into question the transparency of the FCPA enforcement action against the company.

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Friday Roundup

Roundup

Selective SEC release, scrutiny alert, from the docket, for the reading stack, for your viewing pleasure, and a survey. It’s all here in the Friday roundup.

Selective SEC Release

Since it was filed in December 2011, this site has closely followed the SEC’s long-standing Foreign Corrupt Practices Act enforcement action against former Magyar Telekom executives Elek Straub (former Chairman and CEO); Andras Balogh (former Director of Central Strategic Organization); and Tamas Morvai (former Director of Business Development and Acquisitions) with various FCPA and related offenses. (See here for the prior post).

The complaint alleged, in connection with a bribery scheme in Macedonia and Montenegro, that the individuals violated or aided and abetted violations of the FCPA’s anti-bribery, books and records, and internal controls provisions; knowingly circumvented internal controls and falsified books and records; and made false statements to the company’s auditor.

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From The Dockets

Judicial Decision

This previous post mentioned that the DOJ filed a superseding indictment adding Foreign Corrupt Practices Act charges to its existing 2015 enforcement action against Ng Lap Seng and Jeff Yin.

This previous post highlighted the May 2015 civil case brought by Sanford Wadler (the former General Counsel of Bio-Rad) asserting various employment claims against the company in the aftermath of the company’s 2014 FCPA enforcement action in which it agreed to pay approximately $55 million to resolve DOJ and SEC FCPA enforcement actions.

This post further highlights the DOJ’s individual criminal charges against Ng and Yin as well as the strange twist in the Wadler – Bio-Rad litigation.

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Friday Roundup

Roundup2

Scrutiny alerts and updates, civil litigation updates, SEC enforcement statistics, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Millicom

The telecom and media company headquartered in Luxembourg with shares traded over the counter (OTC) in the U.S. recently disclosed:

“Millicom … announced that it has reported to law enforcement authorities in the United States and Sweden potential improper payments made on behalf of the company’s joint venture in Guatemala. A Special Committee of the Board of Directors made the decision in connection with an independent investigation being overseen by the Special Committee and conducted by international law firm Covington & Burling LLP, with the support of Millicom’s management team. Millicom is committed to fully cooperating with the authorities. It is not possible at this time to predict the matter’s likely duration or outcome. Millicom is committed to the highest ethical business standards and to full compliance with all applicable laws and regulations in every market in which the company operates.”

AEI

Speaking of FCPA scrutiny in Guatemala, according to this article in the Nation, Jaguar Energy Guatemala, a subsidiary of Houston-based AEI, “participated in an influence-trafficking scheme to obtain privileged information and favors from high-level Guatemalan officials. Among other things, the subsidiary is accused of paying to obtain meetings with the country’s former president Otto Pérez Molina.”

Goldman Sachs

The Wall Street Journal recently went in-depth regarding a Malaysian government investment fund,  1Malaysia Development Bhd., or 1MDB, and the role of Prime Minister Najib Razak. As noted in this article:

“[T]he fund has become the center of a political scandal that has engulfed Malaysia’s government. The fund is mired in debts of over $11 billion. It is a subject of a raft of local and international investigations, including, in Malaysia, by the central bank, auditor general, anticorruption agency and a parliament committee. It has faced accusations that billions of dollars are missing and that money was misused for political purposes or siphoned off in corruption by individuals.”

According to this article:

“Goldman Sachs Group Inc.’s role as adviser to a politically connected Malaysia development fund resulted in years of lucrative business. It also brought exposure to an expanding scandal. As part of a broad probe into allegations of money laundering and corruption investigators at the Federal Bureau of Investigation and the Justice Department have begun examining Goldman Sachs’s role in a series of transactions at 1Malaysia Development Bhd., people familiar with the matter said. The inquiries are at the information-gathering stage, and there is no suggestion of wrongdoing by the bank, the people said. Investigators “have yet to determine if the matter will become a focus of any investigations into the 1MDB scandal,” a spokeswoman for the FBI said.”

Bristol-Myers

It was fairly obvious to knowledgeable observers that when the SEC brought an FCPA enforcement action against Bristol-Myers earlier this month (see here for the prior post), but the DOJ did not, that this signaled that there would not be a DOJ enforcement action as such parallel actions are almost always brought on the same day. Should there be any doubt, the company recently disclosed: “The Company has also been advised by the Department of Justice that it has closed its inquiry into this matter.”

Civil Litigation Updates

As highlighted in Foreign Corrupt Practices Act Ripples, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall consequences that can result from FCPA scrutiny or enforcement. Among other things, FCPA scrutiny or enforcement often leads to private shareholder litigation as well as other civil claims such as wrongful termination by employees who allegedly “blew the whistle.”

Two developments from the FCPA-related civil dockets.

This recent post highlighted the civil lawsuit filed by Sanford Wadler, the former General Counsel and Secretary of Bio-Lab Laboratories, against the company and certain executive officers and board members in the aftermath of the company’s FCPA scrutiny and enforcement action. In his complaint, Wadler alleged various unfair employment practices. In this recent decision from the Northern District of California, the court largely denied the defendants’ motion to dismiss and allowed the bulk of Wadler’s claims to proceed.

It did not take long for the Ninth Circuit to affirm a lower court order dismissing derivative claims against H-P directors for, among other things, alleged breach of fiduciary duty in connection with the company’s FCPA scrutiny.  The court’s 4 page order is here.

SEC Enforcement Statistics

Although the SEC has a specialized FCPA Unit (one of only five specialized units at the SEC) and declared the FCPA to be a “vital part” of its overall enforcement program, the fact remains that FCPA enforcement is a relatively minor part of the SEC’s overall enforcement program.

Indeed, as noted in this recent SEC release:

“In the fiscal year that ended in September, the SEC filed 807 enforcement actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.  Of the 807 enforcement actions filed in fiscal year 2015, a record 507 were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.”

In the SEC’s FY 2015, there were 13 FCPA enforcement actions.

Nevertheless, the SEC’s release does mention:

Combating Foreign Corrupt Practices

Reading Stack

The most recent FCPA Update by Debevoise & Plimpton is here.

Miller & Chevalier’s Autumn FCPA Review is here.

An informative read here from Professor Peter Henning at his White Collar Crime Watch column in the New York Times titled “Reforming the SEC’s Administrative Process.”

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A good weekend to all.

Former Bio-Rad General Counsel Brings Employment Claims Against Company And Executives In The Aftermath Of An FCPA Enforcement Action

Bio-Rad

In recent years several terminated corporate employees have alleged unfair employment practices in connection with some aspect of FCPA scrutiny or enforcement.

Indeed, in 2010 FCPA Professor coined the term “noisy exit” to describe this dynamic.

Last week, Sanford Wadler, the former General Counsel and Secretary of Bio-Lab Laboratories, filed this civil complaint in federal court (N.D. Cal.) against the company and certain executive officers and board members alleging various unfair employment practices.  In summary fashion, the complaint alleges:

“This matter presents the classic case of whistleblower retaliation. After learning of his employer Bio-Rad’s involvement in extensive bribery occurring in Russia, Thailand, and Vietnam, Wadler investigated evidence of similar violations of the Foreign Corrupt Practices Act (“FCPA”) in China, where corruption is notoriously endemic. Key Bio-Rad officers and directors wanted Wadler to turn a blind eye to this misconduct or sweep it under the rug, but he refused. Instead, and following his mandatory duties under federal securities laws as the Company’s chief legal officer, Wadler investigated this potential criminal activity and reported it up the ladder. When Wadler reasonably began to believe that the conspiracy to violate the FCPA went all the way to the top of the corporate hierarchy, he reported his concerns to the Company’s audit committee. Then, just shortly before Bio-Rad was scheduled to present to the SEC and DOJ regarding the Company’s investigation into potential FCPA violations, the Company fired Wadler precisely because he refused to be complicit in its wrongdoing. A company is not allowed to attempt to silence whistleblowers in this manner.”

Wadler’s complaint asserts various federal and state law claims.

As highlighted in this previous post, in November 2014 Bio-Rad agreed to pay approximately $55 million to resolve DOJ and SEC FCPA enforcement actions.

Wadler’s complaint contains interesting allegations as to the inner-workers of how FCPA allegations were handled at Bio-Rad as well as critical allegations concerning the law firms hired by Bio-Rad to conduct the FCPA internal investigation.

Wadler is represented by Michael Von Loewenfeldt of Kerr & Wagstaffe LLP

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