Whistleblower award, a non-FCPA, FCPA enforcement action, and an open question.
It’s all here in the Friday roundup.
Whistleblower Award
Recently, the SEC announced “an award of more than $37 million to a whistleblower whose information led to a successful SEC enforcement action and a related action.”
According to the release:
“The whistleblower was the initial source of the company’s internal investigation, as well as the source for investigations by the SEC and another agency. While the company reported the alleged conduct to the SEC and the other agency, the whistleblower receives credit for the investigations being initiated because the whistleblower provided the same information to the SEC within 120 days of providing it internally.”
According to this Wall Street Journal article, the whistleblower award was in connection with a “bribery scheme at a large European healthcare company.” Lawyers for the whistleblowers (Christopher Connors of Connors Law Group LLC and Andy Rickman of Rickman Law Group LLC) stated in the article “we have seen a sharp increase in recent years in increased investigative activity by the SEC and DOJ – especially involving whistleblowers – in the healthcare industry.”
European healthcare companies that have resolved FCPA enforcement actions in recent years include: Novartis, Fresenius, Sanofi, Smith & Nephew, and GlaxoSmithKline. (See here).
Non-FCPA, FCPA Enforcement Action
The FCPA 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, the name non-FCPA, FCPA enforcement actions has long been used on this site.
The latest example was this SEC enforcement action against Exela Technologies Inc. and its former CFO James Reynolds.
In summary fashion, this administrative order states:
“This matter involves accounting, financial reporting and controls deficiencies by Exela, a business process automation company headquartered in Irving, Texas. These deficiencies led to a multi-year restatement of Exela’s financial statements concerning, among other things, its failure to properly account for and report its exposure to a shareholder lawsuit and to disclose and account for related party transactions. Reynolds, Exela’s former Chief Financial Officer, caused Exela’s failure to properly report two related party transactions in one quarter.
From mid-2017 through 2019, Exela failed to properly account for and report equity and related liabilities associated with an appraisal action filed in 2017 by minority shareholders in connection with the complex set of transactions by which Exela became a public company through a merger with a special purpose acquisition company (“SPAC”). Those shareholders dissented from a merger that was one of the preliminary steps in the business combination and sought to obtain the fair value of their shares through an appraisal action. While Exela had disclosed to investors the existence of the appraisal claim in its public filings while the suit was pending, Exela failed to accrue for any payment it would have to make to those dissenting shareholders, on the basis that because it was unable to predict the outcome of the appraisal action, a loss was not probable and estimable. As subsequently determined with its outside auditor, however, Exela should have accrued an estimated liability at the time the action was filed, even though it could not predict the outcome of the appraisal action. In addition, the Company’s auditor also discovered that during the same time period, the Company failed to properly identify, account for and, in one quarter, disclose certain related party transactions with a related entity that was controlled by Company leadership who were principals of the Company’s then-largest shareholder. Reynolds caused Exela’s failure to identify and disclose two of those transactions in one 2019 quarterly filing.”
Based on the above, the SEC found that Exela violated, among other things, the books and records and internal controls provisions of the FCPA. Without admitting or denying the SEC’s findings, Exela agreed to pay a $175,000 civil penalty.
An Open Question
This recent DOJ job posting for Principal Assistant Deputy Chief Position in the Foreign Corrupt Practices Act (FCPA) Unit notes that the DOJ’s FCPA unit has “approximately 35 prosecutors [who] focus on prosecuting foreign bribery cases.”
It’s an open question whether the DOJ’s FCPA Unit, which generally brings 8-10 corporate FCPA enforcement actions per year (largely against cooperating companies through negotiated resolution vehicles) as well as a small handful of individual FCPA enforcement actions (largely against defendants who plead) actually needs 35 prosecutors.
