Just two week days remain in the SEC’s fiscal year and time will tell whether historical end of September Foreign Corrupt Practices Act enforcement actions will be forthcoming.
In the meantime, we can nibble on a non-FCPA, FCPA enforcement action announced by the SEC today (among a flurry of actions announced in recent days).
Non-FCPA, FCPA enforcement actions are a term long used by this site to describe enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions that have nothing to do with foreign bribery.
The latest example involves Hyzon Motors Inc. (a New York-based company that builds hydrogen fuel cell electric vehicles) and Craig Knight, (Hyzon’s former CEO and Max Holthausen (former managing director of Hyzon’s European subsidiary).
This settled civil complaint alleges in summary fashion:
“Hyzon Motors, Inc., a publicly traded company that assembles hydrogen fuel cell electric vehicles (“FCEVs”), made false and misleading statements to investors about its customer and supplier relationships and overstated the number of FCEVs it had completed, delivered, and sold. For instance:
(a) From January through July 2021, in advance of two key capital-raising events, Hyzon exaggerated the status of its business dealings with its potential customers and suppliers, including well-known companies, to create the false appearance that significant sales transactions were imminent;
(b) On July 13, 2021, shortly before the capital-raising events, Hyzon falsely claimed that it had delivered its first FCEV – a milk truck to be used by a European dairy company – and posted a misleading video to social media that gave the false impression that it ran on hydrogen when, in fact, it did not; and
(c) In documents filed with the SEC from November 2021 through March 2022, Hyzon stated that its European and Chinese subsidiaries sold 87 FCEVs in 2021, when, in reality, Hyzon either did not own the vehicles to sell or had not completed them prior to shipment.
Knight, Hyzon’s chief executive officer (“CEO”), was responsible for the content of the false statements about Hyzon’s customer and supplier relationships […]. Knight also pledged some of his Hyzon stock in order to finance the purchase of additional stock, but hid the pledge from Hyzon because it violated an agreement he signed in connection with the capital-raising events. Knight sought to purchase these additional shares to artificially boost Hyzon’s stock price in response to a negative report about the company. Knight should have disclosed this improper stock pledge in response to a questionnaire he completed in connection with Hyzon filing its 2022 proxy statement.
Holthausen, who was the head of Hyzon’s European subsidiary and an executive officer and management team member of Hyzon, was responsible for the false statements in July 2021 about Hyzon’s supposed delivery of the FCEV milk truck, when he knew that vehicle did not operate on hydrogen power. He was also responsible for Hyzon’s misreporting of vehicle sales in 2021 by its European subsidiary, when he knew that the European subsidiary was not selling the vehicles, but merely retrofitting customer-owned trucks to run on hydrogen power.
Hyzon later reversed recognition of the 87 FCEV sales in 2021 by its European and Chinese subsidiaries when it filed financial restatements.
Ultimately, Defendants’ fraud was uncovered and disclosed to the public in a series of announcements from September 2021 through March 2023, causing a dramatic decline in Hyzon’s share price and a reduction of approximately 85% in Hyzon’s value.”
Based on the above, the complaint alleges, among other things, violations of the FCPA’s books and records and internal controls provisions.
Under the heading “Hyzon Maintained False Books and Records, and Holthausen Aided and Abetted Hyzon’s Misconduct,” the complaint alleges:
“Hyzon failed to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of its assets for the third quarter and annual periods of 2021, as well as the first quarter of 2022. In 2021, Hyzon improperly recorded in its books and records the purported sales transactions described above. In the first quarter of 2022, Hyzon failed to record in its books and records certain of the sales transactions that should have been recorded in the first quarter of 2022 but were improperly recorded in 2021.
Holthausen knowingly provided substantial assistance to Hyzon’s misconduct with respect to the purported Hyzon Europe sales recorded in Hyzon’s books and records in 2021. As alleged above, Holthausen knew that Hyzon Europe did not own the FCEVs that Hyzon purported to sell in 2021. Hyzon improperly recorded revenue from these sales in its books and records with Holthausen’s knowledge and approval.”
Under the heading “Hyzon Failed to Maintain Internal Accounting Controls,” the complaint alleges:
“Hyzon failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that its sales transactions were recorded as necessary to permit the preparation of its financial statements in conformity with generally accepted accounting principles. As alleged above, Hyzon did not maintain internal accounting controls to ensure that sales by Hyzon Europe and Hyzon China met the criteria for revenue recognition under generally accepted accounting principles.”
Without admitting or denying the SEC’s allegations, Hyzon, Knight, and Holthausen each consented to permanent injunctions and to pay $25 million, $100,000, and $200,000, respectively, in civil penalties.
