And it was not last week’s SEC administrative order.
As highlighted in this previous post, in March 2016 Judge Melinda Harmon (S.D.Tex.) dismissed securities fraud claims brought against Key Energy Services (See In re Key Energy Services Inc. Securities Litigation, 2016 WL 1305922 (March 31, 2016). The action touched upon, in part, the same general conduct alleged in the SEC’s order.
While there are obvious substantive and procedural differences between a securities fraud action and a finding of FCPA books and records and internal controls violations (what last week’s SEC order found), at the very least these two actions were part of the same parallel universe.
Thus, it is interesting to explore what happened in the action subjected to judicial scrutiny vs. last week’s SEC order.
In short, whereas the SEC found that Key Energy “failed to implement and maintain sufficient internal controls,” a federal court judge found (despite plaintiffs’ allegations to the contrary including statements from several confidential witnesses) that Key Energy’s “FCPA controls were adequate.” Whereas the SEC suggests, with the benefit of hindsight that there were controls that Key Energy should have had, a federal court judge found that certain of the controls Key Energy did not have were not even required for a company to have adequate internal controls.