Not all companies under Foreign Corrupt Practices Act scrutiny disclose the fees and expenses to conduct an internal investigation.
In my estimation, approximately 25% of issuers do so.
Calavo Growers, Inc. has done so.
As highlighted in this prior post, in January 2024 Calavo (a global leader in quality produce, including avocados, tomatoes and papayas, and a pioneer of healthy fresh-cut fruit, vegetables and prepared foods) disclosed:
“On January 16, 2024, the Company announced that its internal audit process had identified to the Audit Committee of the Board of Directors certain matters that the Board of Directors determined after fiscal year end merited enhanced evaluation. A Special Committee of the Board of Directors (the “Special Committee”) was established to commence an investigation, with the assistance of external legal counsel and external forensic accountants. The Special Committee determined that certain of those matters related to the Company’s operations in Mexico raised potential issues under the Foreign Corrupt Practices Act (“FCPA”). The Company voluntarily disclosed this ongoing investigation to the SEC and the DOJ, and the Company intends to fully cooperate with the SEC and the DOJ in connection with these matters.”
Calavo’s recent quarterly filing states that it “cannot currently predict the timing of completion or the outcome of its internal investigation or of any actions that may be taken by the SEC, the DOJ or Mexican authorities in connection with the matters under investigation, and the Company cannot currently estimate the amount or range of loss or potential impact on its consolidated financial statements associated with these matters.”
In the same filing, Calavo disclosed: “For the three and six months ended April 30, 2024, we incurred $2.7 million and $5.0 million of professional fee expenses related to the FCPA investigation in Mexico, respectively.”
Is spending $5 million in professional fee expenses over six months to conduct an FCPA investigation in one country “just what it takes” or is this an example of “boiling the ocean.”
The phrase “boiling the ocean” was used by then Assistant Attorney General Leslie Caldwell in April 2015. As highlighted in this post, against the backdrop of ever-escalating FCPA investigative fees (an issue that has been highlighted on FCPA Professor for years), Caldwell stated:
“All too often, criticism is leveled against the Justice Department for purportedly causing companies to spend years, and many millions of dollars, investigating potential violations. This is particularly true in the FCPA context where the need for international evidence can add to the expense and burden of an investigation. Critics wrongly question the wisdom of disclosing misconduct and cooperating with the government in light of what they perceive to be the department’s requirement that companies then must conduct unnecessarily costly, time consuming and widespread investigations.
There is no question that some cooperating companies spend large sums of money investigating potential misconduct and correcting internal controls issues that allowed the misconduct to occur. The decision to incur those costs, however, is one made by those companies, not a requirement of the department. When a company chooses to cooperate with the government, the manner in which the company approaches its cooperation, and its own investigation of the conduct, can significantly affect the length of the investigation and the costs incurred by the company.
Although we expect internal investigations to be thorough, we do not expect companies to aimlessly boil the ocean. Indeed, there have been some instances in which companies have, in our view, conducted overly broad and needlessly costly investigations, in some cases delaying our ability to resolve matters in a timely fashion.”
Assistant Attorney General Caldwell returned to this issue in a November 2016 FCPA speech (see here for the prior post and video clips) when she stated:
“I’ve seen over the years, alot of companies that did way too broad of investigation and in my experience that was not the result of what DOJ told them to do.”
During my nearly decade-long FCPA private practice career, I conducted several FCPA internal investigations around the world. Such investigations are not a cost-free exercise.
However, Calavo’s disclosure that it has incurred $5 million in professional fee expenses over six months to conduct an FCPA investigation in one country strikes me as a bit unusual.
If I were a Calavo board member (not to mention a Calavo shareholder), I would have some concerns.
