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The Former CFO Of RAE Systems Speaks

How often have you heard the former Chief Financial Officer of a company that recently resolved a Foreign Corrupt Practices Act enforcement action speak on camera regarding his experience and that of the company?

The answer is probably never.

That is what makes this [1] recent video of Randall Gausman, the former CFO of RAE System, interesting and instructive.  If I were a corporate board member, I would make it required viewing for the CFO to best demonstrate how FCPA scrutiny can be burdensome and distracting to the company.

First, a bit of background.

As discussed in this [2] prior post, in December 2010 RAE System (a San-Jose, California publicly-traded company and “a leading global provider of rapidly deployable connected, intelligent gas detection systems” resolved parallel DOJ and SEC FCPA enforcement actions.  The conduct at issue concerned “improper benefits corruptly paid by employees of two joint ventures majority owned and controlled by RAE Systems to foreign officials of departments, agencies, and instrumentalities” of the Chinese government.  In connection with the SEC enforcement action, the then Chief of the SEC’s FCPA Unit stated as follows.  “RAE Systems develops products to detect harmful emissions, yet it did not have adequate measures in place to detect and root out internal wrongdoing. Companies that fail to respond to red flags can be held liable for the acts of their joint venture partners.”

Back to the video which was recorded by the Markkula Center for Applied Ethics at Santa Clara University (here [3]).

In the video, Gausman speaks of discovery of the problem giving rise to the enforcement action and the company’s internal investigation and voluntary disclosure.  Gausman also tells how the company’s FCPA scrutiny came to derail his other jobs duties and, at approximately six minutes of the video, Gausman describes a falling out with the company’s CEO that raises a host of questions.

Of note, Gausman also explains how the company’s pre-enforcement action professional fees and expenses (approximately $4.2 million) exceeded the combined fine and penalty amount ($2.95 million) it paid to resolve the enforcement action.  This has become common when a company is the subject of FCPA scrutiny.

[The above video, as well as several others, are included on the FCPA Profesor YouTube channel – here [4]]