Yesterday’s post focused on FCPA criminal trials.
You might be wondering, what about FCPA civil trials?
To my knowledge, there has never been a FCPA civil trial in which the SEC has been put to its burden of proof.
The SEC has otherwise been put to its burden of proof in FCPA enforcement actions, although a scant four times in the FCPA’s 37 year history.
This post highlights those four instances (including two matters that remain pending and which may ultimately result in a FCPA civil trial).
Eric Mattson and James Harris
As highlighted in this previous post, in 2002 a judge in S.D. of Texas dismissed an SEC complaint against Eric Mattson and James Harris. The enforcement action involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment. The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment.
When Mattson and Harris was decided, the S.D. of Texas in U.S. v. Kay case had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation. The SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases. The Court rejected the SEC’s arguments and followed the trial court’s analysis in Kay that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.” See here for the court’s Memorandum and Order.
The SEC’s FCPA website contain no mention of the ultimate outcome of the charges against Mattson and Harris.
As highlighted in this previous post, in 2013 a judge in the S.D. of New York dismissed an SEC complaint against Herbert Steffen, a former Siemens executive, based on alleged improper conduct in Argentina. In dismissing the case against the German national, the judge concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process. The judge stated, in pertinent part, as follows.
“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless. […] [U]nder the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements. This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.”
In connection with the same core enforcement action, the SEC also voluntarily dismissed charges against Carlos Sergi.
The SEC’s FCPA website contain no mention of the ultimate outcome of the charges against Steffen and Sergi.
Elek Straub, Andras Balogh and Tamas Morvai
As highlighted in this previous post, in February 2013 a judge in the S.D. of New York denied the defendants’ motion to dismiss the SEC’s charges in an enforcement action alleging a bribery scheme in Macedonia.
In sum, the foreign national defendants, former executives of Magyar Telekom, moved to dismiss the SEC’s complaint on three principal grounds: (1) the court lacked personal jurisdiction over them; (2) the SEC’s claims were time-barred; and (3) the complaint failed to state claims for certain of its causes of action.
The two most important aspects of the judge’s decision concerned statute of limitations and the jurisdictional element of an FCPA anti-bribery violation.
As to statute of limitations, the judge exhibited judicial restraint in concluding that the plain language of the applicable statute of limitations compelled the conclusion that the limitations period did not begin to run because the foreign national defendants were not physically present in the U.S.
As to the jurisdictional element of an FCPA anti-bribery violation, the judge found the jurisdictional element of 78dd-1 (use of the “mails or any means or instrumentality of interstate commerce”) to be ambiguous and he thus consulted legislative history. In reviewing the legislative history, the judge concluded that the corrupt intent element of the FCPA did not apply to the jurisdictional component of the FCPA. Accordingly, the judge concluded that e-mails routed through and/or stored on network servers located within the U.S. are sufficient to plead the jurisdictional element of an FCPA anti-bribery violation even if the defendant did not personally know where his e-mails would be routed and/or stored.
A trial date has not been set in this case. The current discovery deadline is May 2015.
Mark Jackson and James Ruehlen
As highlighted in this previous post, in December 2012 a judge in S.D. of Texas granted – in an SEC FCPA enforcement action involving alleged conduct in Nigeria – Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that sought monetary damages while denying the motion to dismiss as to claims seeking injunctive relief. Even though the court granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint. As noted in this prior post, that is indeed what happened next, and as noted here a second round of briefing began anew.
As noted in this previous post, in the Defendant’s renewed motion to dismiss they argued that the SEC could not rely on the fraudulent concealment or continuing violations doctrine to extend the limitations period to cover certain claims. A week later the Supreme Court issued its unanimous decision in SEC v. Gabelli (see here for the prior post) and soon thereafter the Defendants filed a notice of supplemental authority with the court arguing that Gabelli “bolstered” their position. On the same day the SEC’s opposition brief was due, the parties jointly notified the court “that in lieu of opposing the [motion to dismiss] the SEC intends to file a Second Amended Complaint.” The filing noted that the then proposed Second Amended Complaint “moots the relief sought in the [the motion to dismiss] because it clarifies that, among the violations alleged, the SEC seeks civil penalties … only to the extent such violations accrued on or before [a certain date]. In short, after being put to its initial burden of proof, the SEC’s case against Jackson and Ruehlen remains a shell of its former self.
The SEC’s case against Jackson and Ruehlen is currently scheduled for trial to begin on July 9, 2014.