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From The Dockets

This post summarizes a strange state law claim filed by a former Walmart attorney and recent decision by a federal court judge concluding that resolving a Foreign Corrupt Practices Act enforcement action through a deferred prosecution agreement does not constitute a conviction.

Walmart Matter

Recently Shane Perry (a former Walmart attorney who worked on Walmart’s internal FCPA investigation in Mexico in 2011 and later became the Ethics Officer for Walmart de Mexico) filed this lawsuit [1] in Arkansas state court claiming that on July 6, 2017 “he was terminated in a ruthless fashion based on information carelessly gathered and processed at the orders of senior management for punishment and retaliation.”

Among other things, Perry alleges that a female Walmart employee “falsely reported Mr. Perry for inappropriate conduct”  and that “an even more outrageous investigation by Walmart involved Mr. Perry’s role as a parent” after a co-worker reported that he used “corporal punishment” on his children. According to the complaint, “Walmart reported Mr. Perry to the state authorities for felony child abuse.”

According to Perry “the real reason Walmart falsified the information about [him] was based on its animosity toward him over the Mexico Memo and its impact on the negotiations with the U.S. government.” The complaint alleges among other things that Walmart “attempted to induce Mr. Pertty to change a five-year old memo to illegally, fraudulently, and unethically reduce [Walmart’s] risk and liability in the FCPA bribery matter” and that “Walmart embarked on the destruction of Mr. Perry’s credibility so as to diminish the credibility of the Mexico Memo he authored.”

As noted in this article [2], a Walmart spokesperson stated: “Mr. Perry’s termination was due to violation of our ethics, discrimination and harassment policies and had nothing to do with his work on our seven-year FCPA investigation.”

DPA Does Not Equal a Conviction

In late 2017 Keppel Offshore & Marine resolved an FCPA enforcement action concerning conduct in Brazil. (See here [3] for the prior post). In resolving the net $105.5 million FCPA enforcement action, Keppel agreed to a deferred prosecution agreement.

Thereafter, various investment funds managed by EIG Management Company LLC filed a civil action alleging that Keppel, Petrobras, Sete Brasil (a Brazilian company that developed and chartered mobile offshore drilling rigs to Petrobras and that the investment funds invested in) were all members of a RICO conspiracy that engaged in bribery and kickbacks.

One disputed issue in connection with the motion to dismiss was a provision in the Private Securities Litigation Reform Act which “bars civil RICO claims alleging predicate acts of securities fraud” as well as the PSRLA’s exception for “an action against any person that is criminally convicted in connection with the fraud.”

The litigants disagreed whether Keppel’s DPA was a “criminal conviction” for purposes of the PSLRA bar. In pertinent part, the court concluded [4]:

“A party that enters into a deferred prosecution agreement has not been convicted of a crime. Indeed, the obvious purpose of entering into a deferred prosecution agreement is to avoid a criminal conviction.”

[…]

“It is, of course, completely illogical to contend that an agreement expected to lead to dismissal of criminal charges actual constitutes a conviction. In sum, the scope of the criminal conviction exception is narrow, and applying the exception to cover a deferred prosecution agreement – which is not a conviction – is inconsistent with the statutory scheme. Accordingly, the Court concludes that the PSRLA’s criminal conviction exception is not applicable.”

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