Attention general counsel, audit committee members and board of directors. Just because the SEC thinks your company has violated the FCPA, it isn’t necessarily so and you don’t have to roll over and write a check. To state the obvious, unless a company caves, the SEC actually has to prove an FCPA violation and history has demonstrated that when forced to do, the SEC often fails.
Cobalt International has been under FCPA scrutiny since March 2011. As highlighted in this prior post, the company’s initial disclosure stated:
“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. (“Nazaki”), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations.”
During its FCPA scrutiny, Cobalt experienced the “front-page effect” (see here for the prior post) and its stock price dropped approximately 10%. Cobalt fought back against the media article as highlighted in the post.
Cobalt’s FCPA scrutiny escalated in August 2014 when the company disclosed it received a Wells Notice from the SEC, a rare occurrence in the FCPA context. (See here for the prior post). The disclosure stated:
“As previously disclosed, the Company is currently subject to a formal order of investigation issued in 2011 by the SEC related to its operations in Angola. […] In connection with such investigation, on the evening of August 4, 2014, the Company received a “Wells Notice” from the Staff of the SEC stating that the Staff has made a preliminary determination to recommend that the SEC institute an enforcement action against the Company, alleging violations of certain federal securities laws. In connection with the contemplated action, the Staff may recommend that the SEC seek remedies that could include an injunction, a cease-and-desist order, disgorgement, pre-judgment interest and civil money penalties. The Wells Notice is neither a formal allegation nor a finding of wrongdoing. It allows the Company the opportunity to provide its reasons of law, policy or fact as to why the proposed enforcement action should not be filed and to address the issues raised by the Staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding. The Company intends to respond to the Wells Notice in the form of a “Wells Submission” in due course.
The Company has fully cooperated with the SEC in this matter and intends to continue to do so. The Company has conducted an extensive investigation into these allegations and the receipt of the Wells Notice does not change the Company’s belief that its activities in Angola have complied with all laws, including the U.S. Foreign Corrupt Practices Act. The Company is unable to predict the outcome of the SEC’s investigation or any action that the SEC may decide to pursue.”
The prior post also contained detailed comments from Cobalt’s CEO during an investor conference call regarding the SEC’s position.
Yesterday in this release, Cobalt stated:
“[The Company] has received a termination letter from the United States Securities and Exchange Commission (“SEC”) advising Cobalt that the SEC’s FCPA investigation relating to Cobalt’s operations in Angola has concluded and that the Staff does not intend to recommend any enforcement action by the SEC. This formally concludes the SEC’s investigation, which began in 2011 in response to allegations of a connection between senior Angolan government officials and Nazaki Oil and Gaz, S.A., an Angolan company that, until 2014, held a working interest alongside Cobalt on Blocks 9 and 21 offshore Angola. As previously disclosed, Cobalt received a formal investigative order from the SEC in November 2011 and a Wells Notice on August 4, 2014. Joseph H. Bryant, Cobalt’s Chairman and Chief Executive Officer, stated, “We are of course pleased with the closure of the SEC’s investigation. We have the utmost respect for the SEC and its investigative process, and cooperated fully with the SEC. Cobalt remains committed to conducting operations and creating shareholder value transparently and in compliance with all applicable laws and regulations.” Cobalt continues to cooperate with the United States Department of Justice with regard to its parallel investigation.”
What would this new era of FCPA enforcement look like if more companies did what Cobalt did? It’s a good question.
Curiously, some are suggesting that Cobalt received a “declination” from the SEC. This is like suggesting that the loser of this Sunday’s Super Bowl “declined” to win.