This previous post  highlighted the SEC’s Foreign Corrupt Practices Act (and related) enforcement action against Michael Cohen and Vanja Baros (former Och-Ziff executives) based on the same core conduct as the DOJ and SEC’s September 2016 enforcement action  against Och-Ziff.
The post noted that the meaty 80 page complaint against Cohen and Baros was a clear signal that a negotiated settlement was unable to be reached and that the defendants would put the SEC to its burden of proof. It was further noted that the SEC is rarely put to its burden of proof in FCPA enforcement actions (corporate or individual) and indeed has never prevailed in FCPA history  when put to its ultimate burden of proof. Prior posts here  and here  summarized the issues in the motion to dismiss briefing.
Yesterday, in yet another blow to the SEC when put to its burden of proof in an FCPA enforcement action, Judge Nicholas Garaufis (E.D.N.Y.) dismissed the SEC’s complaint finding the SEC’s claims time-barred .
In terms of background, the SEC alleged that Cohen and Baros: (i) violated the FCPA’s anti-bribery provisions; (ii) aided and abetted Och-Ziff’s FCPA’s anti-bribery violations; (iii) aided and abetted Och-Ziff’s FCPA books and record violations; (iv) circumvented internal accounting controls.
In short, the court concluded:
“The court agrees that the SEC’s claims— all of which accrued more than five years before the SEC filed suit, and seek relief that is at least partly penal, not solely remedial—are time-barred. Accordingly, the court dismisses the amended complaint and need not address Defendants’ remaining arguments.”
The court considered whether, following Kokesh (see this prior post  summarizing the Supreme Court’s 2017 decision), the SEC may pursue claims for monetary relief against either Defendant. The SEC offered three arguments in opposition and the court disagreed with all of them.
First, the SEC argued that the court should not consider the statute of limitations argument on a motion to dismiss. The court rejected this.
Second, the SEC argued that its claims against Cohen were timely as a result of tolling agreements Cohen executed with the SEC. As to the three tolling agreements Cohen executed, the court found them – in light of general principles of contract law – limited to certain discrete transactions and not as the court stated “actions arising out of investigations that themselves arose out” the investigation covered by the tolling agreements. The court further stated:
“Nor did these tolling agreements use the sort of broad, open-ended language that might have evinced the parties mutual intent to extend the statute of limitations applicable to any claims the SEC might bring.”
Third, the SEC argued that the court should authorize discovery into whether Defendants received ill-gotten gains within the limitations period, which the SEC contended would render its claims for disgorgement timely. As to this issue, the opinion states:
“The court will not authorize such a fishing expedition. […] The SEC cites no authority for the proposition that it may resist a motion to dismiss on statute-of-limitations grounds by suggesting that discovery might reveal timely misconduct not alleged in its complaint.”
Moreover, the court rejected the SEC’s argument that its disgorgement claims accrued only when (and apparently each time) Defendants received ill-gotten gains as a result of the allegedly corrupt transactions.” In rejecting this argument, the court stated:
“[S]tatute of limitations runs from when Defendants allegedly engaged in misconduct, not when they received compensation in connection with that misconduct.”
In a final blow to the SEC, the court also rejected the SEC’s position that its suit may proceed to seek injunctive relief. The court concluded “that the SEC’s requested injunction would operate at least partly as a penalty, and thus that all relief requested by the SEC is time-barred.”
FCPA Institute - Houston (March 26-27, 2020)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active learning. Learn more, spend less. CLE credit is available.