“Hey, Look, There’s A Hoof Cleaner!” – SEC Commissioners Again Criticize Recent Internal Controls Enforcement Theory
Yesterday’s post highlighted the SEC’s enforcement action against R.R. Donnelley & Sons Company (RRD) and how – in the non-FCPA, FCPA enforcement action – the SEC “pushed the internal controls envelope” in connection with a cybersecurity breach at the company. In prior recent enforcement actions against SolarWinds and Charter Communications, the SEC also “pushed the internal controls envelope.” (See here and here).
In connection with the Charter Communications matter, SEC Commissioners Hester Peirce (appointed by President Trump) and Mark Uyeda (appointed by President Biden) issued a blistering statement criticizing the SEC’s internal controls enforcement theory by stating that the SEC “does not have authority to tell companies how to run themselves – but [the SEC is] now routinely us[ing] the internal controls provisions to do just that.”
In connection with the RRD matter, Commissions Peirce and Uyeda once again criticized the SEC’s internal controls theory of enforcement and stated that the SEC “stretch[ed] the law to punish a company that was the victim of a cyberattack” and “distort[ed] a statutory provision.”
The SEC Continues To Push The Internal Controls Envelope
To push the envelope means to surpass normal limits or attempt something viewed as radical or risky.
The FCPA’s enforcement agencies (the DOJ and SEC) have long pushed the envelope and enforcement agency officials may think – why not – a risk averse company is often going to cough up millions of dollars just to make us go away regardless of the underlying enforcement theory.
As highlighted in this prior post, in November 2023, Charter Communications agreed to cough up $25 million in a non-FCPA, FCPA enforcement action in which the SEC found that the company violated the FCPA’s internal controls provisions in connection with stock buybacks.
HF Foods Group Resolves Books And Records And Internal Controls Matter
The Foreign Corrupt Practices Act has always been a law much broader than its name suggests.
Sure, the FCPA contains anti-bribery provisions which concern foreign bribery.
Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.
However, the fact remains that most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery. For lack of a better term, these enforcement actions have longed been called non-FCPA, FCPA enforcement actions by this site.
The latest example concerns HF Foods Group Inc., a Nevada-based food service distributor to Asian restaurants in the United States.
FAT Brands Is Criminally And Civilly Charged
It is rare for a publicly traded company to force the Securities and Exchange Commission to prove a civil case in court. The vast majority of issuers opt to resolve a matter through – in recent years – nearly always an administrative order.
It is extremely rare for a publicly traded company to force the Department of Justice to prove a criminal case in court. The vast majority of issuers opt to resolve a matter through – in recent years – an alterative resolution vehicle such as a non-prosecution agreement, deferred prosecution, etc.
FAT Brands (a global franchising company which currently owns 18 restaurant brands including Johnny Rockets, Fazoli’s, Ponderosa, and Bonanza Steakhouses) appears to be that rare company as the company (and various current or former executives) were recently civilly charged by the SEC and criminally charged by the DOJ. (See here and here).
The SEC charges include alleged violations of the FCPA’s books and records and internal controls provisions in yet another so-called non-FCPA, FCPA enforcement action.
C-Bond Systems Resolves Books And Records And Internal Controls Matter
The Foreign Corrupt Practices Act has always been a law much broader than its name suggests.
Sure, the FCPA contains anti-bribery provisions which concern foreign bribery.
Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.
However, the fact remains that most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery. For lack of a better term, these enforcement actions have longed been called non-FCPA, FCPA enforcement actions by this site.
The latest example concerns C-Bond Systems, Inc., a Texas-based company that sells window strengthening products.