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Friday Roundup

Roundup

No comment, scrutiny alert, when the obvious is not so obvious, quotable, undercover, follow-up, and for the reading stack. It’s all here in the Friday roundup.

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The recent FCPA enforcement action against Chile-based LAN Airlines (in which the company paid $22 million to resolve DOJ and SEC enforcement actions concerning an alleged payment to resolve an Argentina labor dispute) suggested that both Argentine and Chilean law enforcement officials had commenced investigations of the conduct approximately five years ago.

I’ve tried to find information in the public domain regarding these apparent law enforcement investigations but have generally struck out.

For instance, I contacted LAN’s investor relations office and posed the following question:

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Key Energy And The Parallel Universe

parallel universe

The conduct giving rise to last week’s FCPA enforcement action against Key Energy Services (see here and here for prior posts) was subject to judicial scrutiny once.

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.

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Taking Care of Caremark

caremark

A corporate director’s duty of good faith has evolved over time to include an obligation to attempt in good faith to assure that an adequate corporate information and reporting system exists.

In Caremark (a 1996 decision by the Delaware Court of Chancery – a trial court), the court held that a director’s failure to do so, in certain circumstances, may give rise to individual director liability for breach of fiduciary duty. 

Search for the term “FCPA” and “Caremark” and you will find enough reading material to last the rest of the day. However, much of the analysis is thin and more importantly often fails to mention Stone v. Ritter (a more important 2006 decision by the Delaware Supreme Court). Whereas Caremark answered the “could” question, Stone answers the “when” question and the “when” question (when can directors face individual liability for internal control failures) is not nearly the boogeyman that many FCPA commentators make it out to be.

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Ninth Circuit Dismisses Shareholder Action Focused On Wynn Resort’s $135 Million Donation To The University Of Macau

Judicial Decision

This post earlier this week highlighted the Eighth Circuit’s recent opinion affirming dismissal of several Wal-Mart FCPA related derivative actions.

Continuing with the theme, in this recent opinion the Ninth Circuit affirmed dismissal of a shareholder derivative lawsuit alleging that Wynn Resorts board of director defendants breached their fiduciary duties and committed corporate waste by, among other things, approving a $135 million donation to the University of  Macau because, the shareholders allege, the donation caused the company to incur legal expenses and be exposed to potential liability.

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Eighth Circuit Affirms Dismissal Of Wal-Mart Derivative Actions

Wal-Mart

As highlighted in this prior post, in March 2015 a federal district court dismissed eight Wal-Mart shareholder derivative actions (consolidated into one) brought in the aftermath of the company’s FCPA scrutiny.

Last Friday in this opinion, the Eighth Circuit affirmed the dismissal.

Those who predicted that the Wal-Mart derivative actions would set a new standard for director liability were once again proven wrong (see here for the prior post).

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