As we say not as we do, scrutiny alerts and updates, and further RIP to the “Arthur Andersen effect.” It’s all here in 200th edition of the Friday roundup.
As We Say, Not As We Do
This previous post highlighted the April Fools’ Day 2015 SEC enforcement action against KBR for its non-existent, theoretical muzzling of individuals in certain employment agreements. According to the SEC, this violated SEC Rule 21F-17, which provides in relevant part: (a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”
Earlier this week, the SEC returned to this enforcement theory by finding in an administrative order that BlueLinx Holdings Inc. “violated securities laws by using severance agreements that required outgoing employees to waive their rights to monetary recovery should they file a charge or complaint with the SEC or other federal agencies.”
SEC enforcement officials stated:
“We’re continuing to stand up for whistleblowers and clear away impediments that may chill them from coming forward with information about potential securities law violations.”
“Companies simply cannot undercut a key tenet of our whistleblower program by requiring employees to forego potential whistleblower awards in order to receive their severance payments.”
Without admitting or denying the SEC’s findings, BlueLinx agreed to pay a $265,000 civil penalty.
The irony – as also noted in the prior post – is that all NPAs and DPAs that the SEC has used to resolve corporate FCPA enforcement actions contain a so-called muzzle clause along the following lines:
“Respondent agrees not to take any action or to make or permit any public statement through present or future attorneys, employees, agents, or other persons authorized to speak for it, except in legal proceedings in which the Commission is not a party in litigation or otherwise, denying, directly or indirectly, any aspect of this Agreement or creating the impression that the statements in [the Statement of Facts” are without factual basis. […] Prior to issuing a press release concerning this Agreement, the Respondent agrees to have the text of the release approved by the staff of the Division.”
Similar to the SEC’s own internal controls deficiencies, this appears to be another example of as we say, not as we do.
Scrutiny Alerts and Updates
Earlier this week, the U.K. Serious Fraud Office announced that it “has opened a criminal investigation [in July 2016] into allegations of fraud, bribery and corruption in the civil aviation business of Airbus Group. These allegations relate to irregularities concerning third party consultants.”
As highlighted in this prior post GPT Special Project Management Ltd, a unit of Airbus, has been under scrutiny since August 2012 for its business dealings in Saudi Arabia.
This 2009 post highlights how a U.S. Congressman accused Airbus of bribery. The Congressman stated that “agents for the Airbus company have openly said that yes we do use bribery, in fact we budget for it.”
A question to ponder regarding the scrutiny of Airbus is whether there is any functional difference between the Airbus allegations and U.S. diplomats who act as “marketing agents” for U.S. companies in the airplane industry to help broker sales with foreign governments.
This article – “The Uncomfortable Truths and Double Standards of Bribery Enforcement” – highlights a Boeing example.
As described by the NY Times:
“[Foreign] government leaders had one thing in common: they were trying to decide whether to buy billions of dollars’ worth of commercial jets from Boeing or its European competitor, Airbus. And United States diplomats were acting like marketing agents, offering deals to heads of state and airline executives whose decisions could be influenced by price, performance and, as with all finicky customers with plenty to spend, perks.”
This June post highlighted how the DOJ determined that Biomet breached its 2012 DPA (used to resolve an FCPA enforcement action concerning alleged conduct in Argentina, Brazil and China) because of subsequent problematic conduct in Mexico and Brazil.
Earlier this week Zimmer Biomet disclosed:
“We believe it is probable that Biomet will incur additional liabilities related to these investigations, which we have accrued in ‘Other current liabilities’ as of the Closing Date. It is reasonably possible our estimates may change in the near future once the DOJ and SEC complete their investigations and we conclude our discussions regarding possible resolution.”
In March Novartis agreed to pay $25 million to resolve an SEC Foreign Corrupt Practices Act enforcement action concerning alleged conduct in China. Shortly thereafter (as highlighted in this post), Novartis became the focus of additional scrutiny for alleged conduct in Turkey.
Earlier this week, as highlighted here, six current or former employees were indicted by a Seoul, South Korea prosecutors office for providing kickbacks to doctors including paying for their travel abroad. As noted in the article:
“Novartis said it launched its own internal investigation immediately after being alerted to the Korean shortcomings. It has begun remediation measures and will discipline employees who broke rules, the company said. “Novartis does not tolerate misconduct,” it said. “We will continue to invest significant efforts to fully embed a culture of compliance throughout our Korean organization.”
Further RIP to the “Arthur Andersen effect”
This June post declared the so-called Arthur Andersen effect (i.e. that criminal charges alone, and certainly criminal convictions, could be the death sentence of a business organization) dead when FedEx beat back DOJ criminal charges.
The prior post noted a pending criminal trial against Pacific Gas & Electric Corporation (PG&E).
PG&E, a publicly-traded company, was criminally charged in April 2014 with multiple violations of the Natural Gas Pipeline Safety Act. Shortly thereafter, the DOJ brought additional criminal charges for obstruction of the investigation of the National Transportation Safety Board, as well as additional violations of the Natural Gas Pipeline Safety Act.
Pursuant to the Arthur Anderson effect, criminal charges alone should have lead to the demise of the company.
However, the company fought back and while the jury was deliberating the court granted the DOJ’s request to drop its claim under the Alternative Fines Act. What was once a possible $562 million case was trimmed to a $6 million case.
The jury continued to deliberate and earlier this week the jury failed to convict on six of the twelve criminal counts.
That the jury convicted PG&E on six criminal counts does not undermine the latest example of why the Arthur Anderson effect is dead.
Indeed, PG&E is still in business today; in fact its stock price has trended upward since the guilty verdicts.
A good weekend to all.