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Swiss National, A Former Maxwell Technologies Exec, Criminally Charged

When highlighting the frequent lack of individual Foreign Corrupt Practices Act charges in connection with most corporate FCPA enforcement action, the qualifier “at least yet” has always been used.  This qualifier if warranted because in certain instances individual charges follow years after a corporate FCPA enforcement action.

For instance, in January 2011 Maxwell Technologies (a California-based manufacturer of energy storage and power delivery products) resolved parallel DOJ and SEC FCPA enforcement actions concerning alleged business conduct in China by agreeing to pay approximately $14 million.

Alleging the same core conduct at issue in the 2011 corporate enforcement action, earlier this week the DOJ criminally charged Alain Riedo, a Swiss citizen, with conspiracy and substantive violations of the FCPA’s anti-bribery provisions, books and records and internal controls provisions.  According to the indictment, Riedo was, at various relevant times, a Vice President and General Manager of Maxwell Technologies S.A. (a wholly-owned subsidiary of Maxwell Technologies incorporated and located in Switzerland)  as well as a Senior Vice President and officer of Maxwell.  As noted in this SEC filing, in July 2009 the employment contract between Riedo and Maxwell was terminated.

According to this Wall Street Journal Risk and Compliance post, Riedo is currently “the director of the Fribourg chapter of the Chamber of Commerce and Industry of Switzerland” and the DOJ considers Riedo a fugitive.

As indicated above, the allegations in the Riedo indictment mirror the conduct at issue in the 2011 Maxwell corporate enforcement action.

In pertinent part, the DOJ alleges that Riedo and others made “corrupt payments to Chinese government officials, including officials at Pinggao Group, Xi-an XD and Shenyang HV, and to others” and falsely “record[ed] such payments on Maxwell’s books, records, and accounts, in order to obtain and retain business, prestige, and increased compensation for Riedo, Maxwell, Maxwell S.A. and others.”

As in the prior corporate enforcement action, Pinggao is alleged to be a “state-owned and state-controlled manufacturer of electric-utility infrastructure in Henan Provice, China,” Xi-an XD is alleged to be a “state-owned and state-controlled manufacturer of electric-utility infrastructure in Shaanxi Province, China,” and Shenyang HV is alleged to be “either state-owned or substantially controlled by the Chinese government.”

Like the prior corporate enforcement, Agent 1 (a Chinese national who served as Maxwell S.A.’s third party agent from 2002 to 2009 and was “responsible for the sale of Maxwell capacitors to customers” in China) is prominently mentioned in the Riedo indictment.  According to the indictment, Agent 1 “would and did pay bribes to Chinese government officials” and “would and did ensure that the quotes [obtained from Maxwell S.A.] contained a secret mark-up of approximately 20 percent, resulting in a higher total price to the Chinese customers for Maxwell S.A.’s equipment.”  According to the indictment, Riedo and another individual caused Maxwell S.A.’s books and records to “falsely record the ‘extra amount’ bribe payments as commissions, sales expenses, or consulting fees.”

The indictment further alleges that Riedo and another individual “would and did hamper efforts by other Maxwell executives to learn the truth about operations and finances at Maxwell S.A’s operations in Switzerland” and that “after Maxwell terminated its sales-representative arrangement with Agent 1, Riedo would and did attempt to re-hire Agent 1 as the company’s sales agent in China under the name of another company and against the instructions of Maxwell’s CEO.”

The DOJ generally alleges the following U.S. acts by Riedo.

  • Riedo electronically transmitted or caused to be transmitted to Maxwell’s headquarters in California Maxwell S.A’s false books and records and also caused the false entries to be included “in Maxwell’s books, records, and accounts, including Maxwell’s publicly filed financial statements and SEC filings.”
  • Riedo signed a “sub-certification” as part of Maxwell’s Sarbanes-Oxley process and falsely certified information that Riedo knew was incorrect and that Riedo caused the false “sub-certification” and other financial data to be sent to corporate headquarters in California.
  • Riedo sent an e-mail from Switzerland to California “asking Maxwell’s CFO to release funds to Agent 1 to retain business in China”
  • Riedo sent an e-mail from Switzerland to California attaching an “FCPA” certificate and asking Maxwell’s CFO to proceed in approving payment of an extra amount.

The DOJ further alleges that Riedo completed an internal Maxwell questionnaire and answered “no” to various FCPA issues “when in fact Riedo knew that Agent 1 was, directly and indirectly, receiving extra-amount payments and passing those payments along to employees of Chinese state-owned entities and other companies in order to obtain or retain business.”

Based on the above allegations, the indictment charges conspiracy to violate the FCPA’s anti-bribery and books and records and internal controls provisions, two substantive violations of the anti-bribery provisions, five substantive violations of the FCPA’s books and records provisions, and one substantive violation of the FCPA’s internal controls provisions.

This will be an interesting case to follow should Riedo choose to contest the DOJ’s charges.

Aside from the enforcement theory that employees of alleged China SOEs are “foreign officials” under the FCPA (the same general issue is currently on appeal before the 11th Circuit – see here), are potential jurisdiction issues.  In certain respects, this action may implicate the same general issues as in SEC v. Elek Strab et. al (see here for the pre-trial motion to dismiss decision) and SEC v. Herbet Steffen (see here for the pre-trial motion to dismiss decision).

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