There was not an acceleration of Foreign Corrupt Practices Act enforcement actions in the final weeks of the Biden administration similar to what happened in the final weeks of the Obama administration (see here).
There were however several non-FCPA, FCPA enforcement actions brought by the SEC.
What is a non-FCPA, FCPA enforcement action?
It is a term long used on this site to describe enforcement actions charging or finding violations of the FCPA’s books and records and internal controls provisions, but not in the context of foreign bribery.
This post highlights five recent actions.
Celsius Holdings
This administrative order states in summary fashion:
“From at least late-2019 to mid-2023, fitness drink seller Celsius Holdings, Inc. engaged in SEC reporting, books and records, internal accounting controls, and disclosure controls and procedures violations.
Specifically, in 2021, Celsius improperly accounted for stock-based compensation expenses when the company modified the terms of stock awards for six departing employees and retiring board members. In quarterly reports for the second and third quarters of 2021 and certain current reports, Celsius issued financial statements that were materially inaccurate and misleading because they understated general and administrative expenses and were not in accordance with generally accepted accounting principles (“GAAP”). The improper accounting resulted in inaccurate books and records. Celsius also failed to devise and maintain internal accounting controls to address modifications to stock awards.
In 2022, the company corrected certain previously reported financial information to reflect stock-based compensation expenses for the second and third quarters of 2021 in accordance with GAAP, which caused Celsius’ previously reported net income to become a net loss for the three- and nine-month periods ended September 30, 2021.
In addition, from at least September 2019 to August 2023, Celsius failed to maintain disclosure controls and procedures designed to ensure that non-financial information required to be disclosed in the company’s Exchange Act filings was timely reported. During this period, the company did not have established or written controls or procedures relating to nonfinancial disclosures.”
Based on the above, the order finds that the Celsius violated, among other things, the books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, Celsius agreed to pay a $3 million civil penalty.
Singularity Future Technology
This administrative order states in summary fashion:
“This matter involves financial reporting, accounting, books and records, and controls violations by Singularity, a shipping and logistics company that has also sought to expand its operations into digital assets. In each of its past eight fiscal years, Singularity has disclosed that its internal control over financial reporting (“ICFR”) and disclosure controls and procedures (“DCP”) were ineffective and reported multiple material weaknesses. These ineffective controls and material weaknesses, as well as its failure to maintain required books and records, contributed to Singularity needing to restate, in March 2023, certain prior period financials (the “March 2023 Restatement”) due to improperly accounting for a series of related party transactions and improper revenue recognition.”
Based on the above, the order finds that the Singularity violated, among other things, the books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, Singularity agreed to pay a $350,000 civil penalty.
American Electric Power Company
This administrative order states in summary fashion:
“These proceedings arise out of American Electric Power’s violations of the federal securities laws in connection with its relationship with, and statements made about, Empowering Ohio’s Economy, Inc. (“Empowering Ohio”), an Internal Revenue Code Section 501(c)(4) entity that American Electric Power formed, fully funded, and controlled.
In July 2020, former Speaker of the Ohio House of Representatives Larry Householder (“Householder”) and Generation Now, Inc. (“Generation Now”), a 501(c)(4) organization controlled by Householder, were charged with federal racketeering and conspiracy related to a years-long bribery scheme. Shortly after Householder’s arrest, American Electric Power issued a press release regarding its relationship with Empowering Ohio and contributions to Generation Now. The press release was misleading because it omitted key facts. Specifically, in the press release, American Electric Power stated that it did not make any contributions to Generation Now. This statement was misleading because American Electric Power had fully funded Empowering Ohio, and an American Electric Power employee directed Empowering Ohio’s contributions to Generation Now. American Electric Power also failed to disclose material related party transactions with respect to payments it made to Empowering Ohio in its 2019 Form 10-K. Finally, American Electric Power failed to keep accurate books and records and devise and maintain a sufficient system of internal accounting controls with respect to the identification and disclosure of material related party transactions.”
Based on the above, the order finds that the American Electric Power violated, among other things, the books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, American Electric Power agreed to pay a $19 million civil penalty.
DMK Pharmaceuticals
This administrative order states in summary fashion:
“These proceedings arise out of an accounting and disclosure fraud case concerning DMK Pharmaceuticals Corporation f/k/a Adamis Pharmaceuticals Corporation (“DMK Pharmaceuticals” or “Adamis”) and Robert O. Hopkins, its former Chief Financial Officer.
From 2016 through 2021, Adamis and Hopkins generated a material percentage of the company’s revenues through illegal prescriptions written by a veterinarian who was compensated under a sham consulting agreement, and falsely recorded payments to the veterinarian as legitimate consulting expenses. Adamis’s periodic reports filed with the Commission from 2016 through 2021 included improperly recognized revenue and had materially false and misleading statements concerning risk factors. Hopkins was responsible for the company’s financial reporting and periodic reports, and knew that the periodic reports were materially misleading because of the sham agreement and payments to the veterinarian.”
Based on the above, the order finds that the Adamis violated, among other things, the books and records and internal controls provisions and that Hopkins caused the violations.
Without admitting or denying the SEC’s findings, Adamis agreed to pay approximately $335,000 in disgorgement and prejudgment interest.
Acreage Holdings
This administrative order states in summary fashion:
“These proceedings arise out of Acreage’s failure to make and keep books, records, and accounts in the manner required by [the books and records provisions]. In late December 2019 and early January 2020, Acreage engaged in a round-trip transfer of cash with an affiliated but unconsolidated entity (“Entity A”) that temporarily inflated Acreage’s year-end 2019 cash balance on its internal accounting records.
Shortly before the close of Acreage’s fiscal year ended December 31, 2019 (“FY 2019”), Acreage caused Entity A to transfer approximately $4.2 million from Entity A to Acreage’s bank account with the express understanding that Acreage would return all the money to Entity A in early January 2020, after the end of FY 2019. Acreage received cash in the amount of approximately $4.2 million from Entity A on December 26, 2019, and Acreage returned that exact same amount of cash to Entity A on January 3, 2020.
Acreage subsequently created journal entries and other records that mischaracterized the round-trip transfer, first as a repayment of debt owed by Entity A and subsequently as a short-term loan from Entity A to Acreage. Both characterizations misrepresented the true nature of the transfers. After certain employees’ concerns about the roundtrip nature of the transaction were escalated to a member of Acreage’s board of directors and the director began making inquiries, Acreage recorded an additional journal entry that effectively reversed the transaction from an accounting perspective, and the money that Acreage had received from Entity A was not included in Acreage’s publicly reported financial statements for FY 2019.
During the audit of Acreage’s FY 2019 financial statements, Acreage created and provided written documents to the accounting firm conducting the audit (“Audit Firm A”) that also misrepresented and omitted material facts about the round-trip cash transfer with Entity A.”
Based on the above, the order finds that the Acreage violated the books and records provisions.
Without admitting or denying the SEC’s findings, Acreage agreed to pay a $225,000 civil penalty.
