This is not the first post regarding the parasitic nature of most Foreign Corrupt Practices Act related shareholder litigation. (See this September 2012 with the same title as this post).
The game is very predictable. In the days and weeks following an FCPA enforcement action, or even a company disclosing or otherwise being the subject of FCPA scrutiny, the lawsuits and/or “investigations” by plaintiffs firm will start to mount.
As noted in this Forbes article:
“The Justice Department’s unprecedented campaign to enforce a once-backwater statute called the Foreign Corrupt Practices Act, or FCPA, has made corporate lawyers and accountants rich as big companies pay big law and accounting firms to investigate and defend potential violations. Plaintiff lawyers have noticed the enormous fees, which are often reaching into the hundreds of millions of dollars, enhanced FCPA enforcement is generating and are moving to extract their own cut.”
This prior post detailed June 2011 Congressional testimony on behalf of the U.S. Chamber Institute for Legal Reform that touched upon FCPA-civil litigation and I generally agree with the criticisms made of this “piggyback-litigation phenomenon.”
Several prior posts have highlighted how such shareholder derivative claims (alleging that officers and directors breached their fiduciary duties because the company resolved an FCPA enforcement action) seldom, if ever, get past the motion to dismiss stage.
Yet, several companies make the business decision to settle such claims for what amounts to nuisance value for the company, but which represents a handsome pay day for plaintiff’s counsel for doing and accomplishing next to nothing.
This recent proposed settlement of several derivative actions against Avon and former officers and directors demonstrate this point.
First a bit of background.
As highlighted here, in December 2014 Avon agreed to resolve its long-standing FCPA scrutiny in a $135 million FCPA enforcement action.
As a condition of settlement, Avon agreed in the DPA to, among other things, “continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements [set forth in the DPA] (see here – specifically Attachment C – a 9 page supplement to the DPA which details various requirements).
Pursuant to the DPA, Avon also agreed to retain an independent compliance monitor for an 18 month term and agreed to various periodic reporting obligations to the DOJ.
In the proposed settlement of the derivative actions, Avon agreed to “implement and maintain for the next four years a global ethics and compliance regime that confers substantial benefits on Avon and its shareholders.”
The specific requirements such as:
- responsibilities for FCPA compliance;
- a global anti-corruption policy and code of conduct;
- third-party policies;
- and director and associate compliance training
should not be difficult to accomplish as Avon is already doing such things in connection with the settlement of the FCPA enforcement action and pursuant to the DPA.
Under the heading “Reasons for the Settlement,” the notice of proposed settlement states:
“[Avon] entered into the Stipulation to avoid the continuing additional expense, inconvenience, and distraction of this litigation and to avoid the risks inherent in any lawsuit, and without admitting any wrongdoing or liability whatsoever.”
Same for the Individual Defendants.
Yet, as frequently happens, “The Board of Avon in its business judgment has approved the Settlement.”
What does Plaintiffs’ counsel receive for bringing this “piggy-back” litigation and securing a settlement in which Avon is obligated to do what Avon is already obligated to do under the DPA?
Nice work plaintiffs’ counsel, but what did you really accomplish?