Innospec Checkup
“As of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22. million more than its total debt of $45.0 million.” (see here for the prior post).
“As of June 30, 2010, Innospec had $77.0 million in cash and cash equivalents, $30.0 million more than its total debt of $47.0 million.” (see here for the prior post).
As reported by the company earlier this week (see here):
“As of September 30, 2010, Innospec had $101.5 million in cash and cash equivalents, $53.5 million more than its total debt of $48 million.”
As evident from the above, Innospec’s cash coffers continue to grow and business is doing well. The company’s President and CEO “We are pleased to report strong earnings growth as well as excellent cash generation for the third quarter of 2010. All three of our business segments again performed well, generating double-digit increases in operating income.”
Why does any of this matter?
Because in March 2010, Innospec (see here) agreed to pay $40.2 million in combined DOJ/SEC/SFO fines and penalties for violating the Foreign Corrupt Practices Act and other laws.
However, it could have been worse.
The SEC release (see here) notes that Innospec, without admitting or denying the SEC’s allegations, was ordered to pay $60,071,613 in disgorgement, but because of Innospec’s “sworn Statement of Financial Condition” all but $11,200,000 of that disgorgement was waived.
The release states that “[b]ased on its financial condition, Innospec offered to pay a reduced criminal fine of $14.1 million to the DOJ and a criminal fine of $12.7 million to the SFO. Innospec will pay $2.2 million to OFAC for unrelated conduct concerning allegations of violations of the Cuban Assets Control Regulations.”
In other words, Innospec got a pass on approximately $50 million.
Innospec’s “Inability to Pay” is also noted in the DOJ’s plea agreement (see here).
In other Innospec news, the company’s most recent 10-Q filing (see here) suggests that the company expects its compliance monitor to cost $3.9 million (see pg. 22).
This prior post discussed the civil complaint, based on the DOJ and SEC’s allegations, filed against Innospec by a competitor alleging violations of
the Robinson-Patman Act and the Virginia Antitrust Act as well as the Virginia Business Conspiracy Act.
Here is what Innospec had to say about this litigation in its recent filing:
“On July 23, 2010, NewMarket Corporation and its subsidiary, Afton Chemical Corporation (collectively, “NewMarket”), filed a civil complaint against the Company and its subsidiary, Alcor Chemie Vertriebs GmbH (“Alcor”), in the U.S. District Court for the Eastern District of Virginia. The complaint makes certain claims against the Company and Alcor with respect to alleged violations of provisions of the Robinson-Patman Act, the Virginia Antitrust Act and the Virginia Business Conspiracy Act as a result of alleged actions involving officials in Iraq and Indonesia pertaining to securing sales of the Company’s tetra ethyl lead (TEL) fuel additive, to the apparent detriment of the plaintiffs and their sales of a competing non-lead based fuel additive. The complaint seeks treble damages of an unspecified amount, plus attorneys’ fees, costs and expenses. The factual allegations underlying the complaint appear to relate to the same matters that were the subject of the Company’s recently-disclosed resolution with the DOJ, SEC, OFAC and SFO. On September 22, 2010, the Company filed a motion to dismiss. On October 4, 2010, NewMarket filed an amended complaint incorporating the Sherman Act and related claims in addition to its previous claims. The Company filed its response to the amended complaint and a separate motion to dismiss on October 29, 2010. The Company believes both the complaint and amended complaint are without merit and intends to defend them vigorously, but because of uncertainties associated with the ultimate outcome of these complaints and the costs to the Company of responding to them, we cannot assure you that the ultimate costs and damages, if any, that may be imposed upon us will not have a material adverse effect on our results of operations, financial position and cash flows. As at September 30, 2010 we had accrued $0.5 million in respect of probable future legal expenses and provided no additional accruals in respect of this matter.”
Another Noisy Exit
Steven Jacobs was the President of Macau Operations for Las Vegas Sands Corp. (“LVSC”), a company with shares traded on the New York Stock Exchange (see here).
That is, until his termination on July 23, 2010.
In an October 20th complaint filed against LVSC in District Court, Clark County, Nevada (see here) alleging breach of contract and tort-based causes of action, Jacobs alleges, among other things, that LVSC’s “notoriously bellicose” Chief Executive Officer and majority shareholder made several “outrageous demands” upon him including, but not limited to the following:
“demands that Jacobs use improper ‘leverage’ against senior government officials of Macau in order to obtain Strata-Title for the Four Seasons Apartments in Macau;”
“demands that Jacobs threaten to withhold Sands China business from prominent Chinese banks unless they agreed to use influence with newly-elected senior government officials of Macau in order to obtain Strata-Title for the Four Seasons Apartments and favorable treatment with regards to labor quotas and table limits;”
“demands that secret investigations be performed regarding the business and financial affairs of various high-ranking members of the Macau government so that any negative information obtained could be used to exert ‘leverage’ in order to thwart government regulations/initiatives viewed as adverse to LVSC’s interests;” and
“demands that Sands China continue to use the legal services of a Macau attorney […][an individual media is reporting as a member of a Chinese local government executive council] despite concerns that [the individual’s] retention posed serious risks under the criminal provisions of the United States code commonly known as the Foreign Corrupt Practices Act (‘FCPA’).”
A LVSC spokesperson has been quoted as saying “While Las Vegas Sands normally does not comment on legal matters, we categorically deny these baseless and inflammatory allegations.”
For other examples of recent noisy exists that may implicate the FCPA see this prior post.
An Immaterial Disclosure?
The securities laws generally require issuers to disclose material facts and events to investors.
What is material?
Technically, there is SEC guidance on the issue (see here).
The issue basically boils down to whether the information would affect the judgment of a reasonable investor in making an investment decision.
As Thierry Olivier Desmet (Assistant Regional Director, FCPA Unit, SEC) explained at the recent World Bribery and Corruption Compliance Forum (here) the concept of materiality itself has two “sub-concepts”: (i) quantitative materiality (something that impacts a company’s financial statements) – Desmet conceded that very few bribes are quantitatively material; and (ii) qualitative materiality a “complicated gray area” to use Desmet’s words. He said that all bribes can be considered qualitatively material because they may “automatically trigger a books and records violation.” Because of this, Desmet said that it is “prudent” for any issuer to approach the SEC with any “suspicion” of bribes “as soon as” the company learns of the improper payment.
It is against this backdrop that issuers frequently disclose immaterial payments which may implicate the FCPA.
Case in point, Sensata Technologies Holding N.V. (“Sensata”) (here), a global industrial technology company that began trading on the New York Exchange in March 2010 (see here).
The company had this to say in its October 22nd 10-Q filing (here):
“An internal investigation has been conducted under the direction of the Audit Committee of the Company’s Board of Directors to determine whether
any laws, including the Foreign Corrupt Practices Act (“FCPA”), may have been violated in connection with a certain business relationship entered into by one of the Company’s operating subsidiaries involving business in China. The Company believes the amount of payments and the business involved was
immaterial. The Company discontinued the specific business relationship and its investigation has not identified any other suspect transactions. The
Company has contacted the United States Department of Justice and the Securities and Exchange Commission to begin the process of making a voluntary disclosure of the possible violations, the investigation, and the initial findings. The Company will cooperate fully with their review. The FCPA (and related statutes and regulations) provides for potential monetary penalties, criminal and civil sanctions, and other remedies. The Company is unable to estimate the potential penalties, if any, that might be assessed and, accordingly, no provision has been made in the accompanying condensed consolidated financial statements.”
Since the disclosure, Sensata’s shares have climbed approximately 1.5%.
However, this has not stopped the new breed “FCPA” plaintiff lawyers from acting.
Yesterday, the Shareholders Foundation announced (here) an investigation on behalf of investors of Sensata concerning “whether certain officer and directors of Sensata […] breached their fiduciary duties and are liable for possibly violating the U.S. Foreign Corrupt Practices Act (“FCPA”).”
SciClone – An FCPA Feeding Frenzy
On August 9, 2010 SciClone Pharmaceuticals made an FCPA-related disclosure.
This post discusses what has happened since.
August 10th
Shares of SciClone plunged, at one point down 40% from the previous day’s close, closing down 31.9%. (This is clearly in stark contrast to the recent situation involving Schlumberger discussed in yesterday’s post – here).
Levi & Korsinsky LLP announce that it is investigating SciClone on behalf of shareholders for possible violations of state and federal securities laws.
The Law Offices of Howard G. Smith announce that it is investigation SciClone on behalf of shareholders for possible violations of federal securities laws.
The law firm of Kahn Swick & Foti, LLC announces the commencement of an investigation into SciClone to determine whether it has violated federal securities laws.
Roy Jacobs & Associates announce that it is investigating SciClone for potentially violating the federal securities laws.
August 11
Pomerantz Haudek Grossman & Gross LLP announce that it is investigating claims on behalf of investors of SciClone to determine whether it has violated federal securities laws.
The law firm of Statman, Harris & Eyrich, LLC announce that it is investigating SciClone for potential violations of state and federal law.
Goldfarb Branham, LLP announce that it is investigating SciClone for shareholders who purchased stock of the company and preparing a possible derivative lawsuit against company executives.
Finkelstein Thompson LLP announce that it is investigating potential shareholder claims concerning SciClone.
August 12
Robbins Umeda LLP announce that it commenced an investigation into possible breaches of fiduciary duty and other violations of the law by certain officers and directors at SciClone.
August 13
The law firm of Kahn Swick & Foti announce that the firm has filed the first securities fraud class action lawsuit against SciClone in the United States District Court for the Northern District of California, on behalf of purchasers of the common stock of the Company between May 11, 2009 and August 10, 2010.
August 19
Barroway Topaz Kessler Meltzer & Check, LLP announce that a class action lawsuit was filed in the United States District Court for the Northern District of California on behalf of purchasers of the securities of SciClone.
Brower Piven, A Professional Corporation, announce that a class action lawsuit has been commenced in the United States District Court for the Northern District of California on behalf of purchasers of the common stock of SciClone.
August 20
Kendall Law Group announce an investigating of SciClone for shareholders.
Ryan & Maniskas, LLP announce that a class action lawsuit has been filed in the United States District Court for the Northern District of California on behalf of purchasers of SciClone.
August 28
Roy Jacobs & Associates (again) announce that it is investigating SciClone for potentially violating the federal securities laws.
September 7
The Shuman Law Firm announces that a class action lawsuit has been filed in the United States District Court for the Northern District of California on behalf of anyone who purchased or otherwise acquired SciClone common stock between May 11, 2009and August 10, 2010.
September 8
Kaplan Fox & Kilsheimer LLP announce that it has filed a class action suit against SciClone alleging violations of the Securities Exchange Act of 1934 on behalf of purchasers of SciClone’s common stock during the period May 11, 2009 and August 9, 2010.
September 16
The law firm of Strauss & Troy announce that a class action lawsuit has been filed in the U.S. District Court for the Northern District of California against SciClone for potential violations of state and federal law.
September 23
The law firm of Lieff Cabraser Heimann & Bernstein, LLP announce that class action lawsuits have been brought on behalf of purchasers of the common stock of SciClone.
Given the above, you are probably wondering, geez, what did SciClone disclose – how extensive were the disclosed FCPA violations? Did the company’s CEO or CFO resign? Is the company still in business?
Well, not exactly.
On August 9th, SciClone disclosed (see here) as follows:
“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”
During SciClone’s August 9th earnings conference call Friedhelm Blobel (President and CEO) stated that SciClone “intends to cooperate fully with the SEC and DOJ in the conduct of their investigations, and has appointed a special committee of independent directors to oversee the Company’s efforts.” Blobel noted that “as far as timing is concerned, the lawyers tell us that these investigations typically are long lasting.” In response to the question – is the investigation disrupting day-to-day operations or ongoing sales, Gary Titus (CFO) said that “it is business as usual for SciClone, and we continue to focus on all of the priorities that we have set for the Company …”
That’s right.
All of the above occured because the SEC initiated a formal investigation of SciClone and issued a subpoena to the company and because SciClone received a letter from the DOJ as to an industry-wide investigation suggesting possible improper conduct by the company.
You be the judge.
Are the above referenced investigations and lawsuits a rational and value added exercise for shareholders of SciClone or rather indicative of an FCPA feeding frenzy where everyone, it seems, is trying to get a slice of the pie?
Has this all gotten a bit out-of-hand?
*****
Yesterday, SciClone (see here) announced “continued topline growth and strong cash position in the Third Quarter of 2010.”
Another Stumble For The DOJ In The Kozeny Affair
The DOJ continues to encounter problems in some of its signature FCPA prosecutions.
Earlier this month, it was the Giffen Gaffe (see here).
Last fall, U.S. District Court Judge Shira Scheindin (S.D.N.Y.) remarked at Fredrick Bourke’s sentencing that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.” (See here).
And then there is Victor Kozeny, indicted along with Bourke, and the alleged mastermind of the fraudulent investment scheme related to the privatization of state-owned businesses in the Republic of Azerbaijan.
In 2005, Kozeny was criminally charged (see here) with, among other charges, one count of engaging in a conspiracy to violate the FCPA and twelve counts of violating the FCPA.
To make a long story short, Kozeny remains the most famous FCPA fugitive living a comfortable life in the Bahamas. The DOJ’s repeated efforts to extradite him from the Bahamas to the U.S. have failed. See here.
In the indictment, the DOJ asserted that “Peak House” a multi-million dollar property in Aspen, Colorado was the site of certain of Kozeny’s criminal activity.
Peak House was sold in 2001 for approximately $22 million and the DOJ sought civil forfeiture of the funds it alleged were connected to Kozeny’s criminal activity.
However, U.S. District Court Judge Harold Baer (S.D.N.Y.) recently concluded that the DOJ’s attempt was barred by the statute of limitations.
This latest DOJ setback in the Kozeny affair would seem embarrassing for the DOJ given that Judge Baer criticized the DOJ’s lack of diligence in even attempting to file a civil forfeiture suit in a timely fashion.
Judge Baer concludes his opinion (see here) by stating:
“It is unfortunate that this action, which appears to have some merit and involves a substantial amount of funds, must be dismissed on procedural grounds, but there is no question that the Government learned of the Peak House funds at the very latest by 2005 and sat on its hands until 2009.”
Brian Whisler (here), a former federal prosecutor and current partner in
Baker & McKenzie’s white collar practice and individual who brought this decision to my attention, noted that “this defeat on procedural grounds represents yet another bump in the road for DOJ in the Bourke/Kozeny matter and suggests that DOJ will likely persist in its pursuit of Kozeny now that a criminal conviction is legally required to effect forfeiture of the sale proceeds of Kozeny’s Aspen home and other assets.”