The most recent issue of Debevoise & Plimpton’s always stellar FCPA Update contains an interesting article titled “Do FCPA Remedies Follow FCPA Wrongs? ‘Disgorgement’ in Internal Controls and Books and Records Case.” See here. The article chronicles the “growing trend” in which the SEC “has obtained hefty FCPA-related settlements including company obligations to ‘disgorge’ various amounts” even though the corporate defendant is not charged with an FCPA anti-bribery violation.
Indeed, it is a growing trend. In my 2010 SEC FCPA Enforcement Year in Review post (here), I calculated that 96% of SEC FCPA enforcement settlement amounts in 2010 consisted of disgorgement and prejudgment interest (including in cases where the SEC does not charge an FCPA anti-bribery violation).
The Debevoise author group (which includes Paul Berger (here) a former Associate Director of the SEC Division of Enforcement) concludes that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” The authors note that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
In pointed language, the author groups concludes as follows. “Given the bedrock principle that a court’s equitable power to order such disgorgement goes only as far as the scope of the violation, it is difficult to determine how a court could lawfully allow disgorgement of profits for uncharged violations without the remedy crossing line into ‘punishment’ for the violations actually charged. Although settling companies that willingly accept disgorgement as a remedy in such cases may have important strategic interests at stake – e.g., avoiding primary anti-bribery charges – even these companies (as well as the SEC) must consider that the federal courts may at some point step in and forbid such settlements as beyond ‘the bounds of fairness, reasonableness, and adequacy.’ Similarly, although stipulated SEC civil cease and desist orders do not require judicial approval for their entry, the same result could occur if, and when, the agency seeks judicially to enforce the requirements of a jurisdictionally-flawed order in one of the ‘no charged bribery disgorgement’ cases. At some point, in any event, Congress may well determine that the practice of seeking ‘disgorgements’ in cases in which there is no jurisdictionally-cognizable bribery charged by the SEC is an inappropriate use of the agency’s authority. In light of these serious legal issues, the Commission itself may wish to re-examine its settlement practices in this arena.”
For additional reading on this topic, see my article “The Facade of FCPA Enforcement” (here) – specifically the section titled “Disgorge What?” (pages 981-984).