This prior post went in-depth into the recent Foreign Corrupt Practices Act (and related) enforcement action against Alere and this post continues the analysis by highlighting additional issues to consider.
“Then Some” Enforcement Action
The majority of SEC FCPA enforcement actions are “just” FCPA enforcement actions. However, the Alere enforcement action was a “then some” enforcement action as the majority of the enforcement action (and indeed the bulk of the overall $13 million settlement) concerned findings of other securities laws violations regarding revenue recognition and related practices.
While not common, “then some” FCPA enforcement actions are not unheard of either.
Other recent examples include: Orthofix (enforcement action included allegations about improperly booking revenue); Olympus (enforcement action included allegations regarding violations of U.S. Anti-Kickback Statute which prohibits payments to induce purchases paid for by federal health care programs); Standard Bank (in connection with a U.K. bribery enforcement action, the SEC brought related securities laws violations); and Weatherford (enforcement action included allegations regarding commercial transactions with Cuba, Iran, Syria and Sudan that violated U.S. sanction and export control laws).
Timeline
As highlighted in this previous post, Alere previously disclosed:
“On August 28, 2015, we received a subpoena from the U.S. Securities and Exchange Commission, or SEC, which indicated that it is conducting a formal investigation of Alere. The SEC’s subpoena relates to, among other things, (i) our previously filed restatement and revision to our financial statements, including the accounting for deferred taxes for discontinued operations, as well as our tax strategies and policies and (ii) our sales practices and dealings with third-parties (including distributors and foreign government officials) in Africa relating to sales to government entities.”
Thus, from start to finish Alere’s FCPA scrutiny lasted two years and 1 month. Given that instances of FCPA scrutiny typically last between 3-4 years, this is speedy and no doubt a reflection of the M&A context in which Alere’s scrutiny arose.
Indeed, on the same day as the SEC’s enforcement action, Alere also announced an agreement with the DOJ to resolve a False Claims Act and related civil charges and the Federal Trade Commission also announced that: “Abbott Laboratories and Alere Inc. have agreed to a divestiture of two point-of-care medical device products line in order to settle Federal Trade Commission charges that Abbott’s proposed $8.3 billion acquisition of Alere will cause harm to competition.”
It is unlikely that these three events just coincidentally occurred on the same day.
Kokesh Only Matters to the Extent Companies Don’t Roll Over and Play Dead
As highlighted here, in June the Supreme Court unanimously held in SEC v. Kokesh that disgorgement is a penalty and thus disgorgement actions must be commenced within five years of the date the claim accrues. However, as highlighted in this post, Kokesh, not to mention other Supreme Court decisions and other legal principles, only matter to the extent companies under FCPA scrutiny do not roll over and play dead.
The FCPA portion of the Alere enforcement action concerned alleged improper payments “from 2007 through at least 2012” in Colombia and in early 2012 in India. In other words, 5-10 years prior to the enforcement action. Yet, Alere agreed to pay $$3.8 million ($3.3 million in disgorgement and $.5 million in prejudgment interest) for this conduct.
In short, Kokesh is not going to matter one bit if companies role over and play dead when under FCPA scrutiny.
No-Charged Bribery Disgorgement
The disgorgement amount paid by Alere is controversial for another reason as well.
The Alere enforcement action involved findings that the company violated the FCPA’s books and records and internal controls provisions – not the FCPA’s anti-bribery provisions.
As highlighted in this previous post, so-called no-charged bribery disgorgement is troubling.
Among others, Paul Berger (here) (a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
