The Foreign Corrupt Practices Act 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 and these provisions are among the most generic legal provisions one can possibly find.
The latest examples are recent SEC enforcement actions against View Inc. and Co-Diagnostics Inc.
This administrative order involving View Inc. states in summary fashion:
“View, Inc. (“View”) is a manufacturer of “smart” windows headquartered in Milpitas, California.
In a series of periodic reports, proxy statements, and registration statements filed with the Commission from December 2020 to May 2021, View accrued and disclosed an estimated warranty liability of $22 million to $25 million, consisting largely of projected costs to manufacture replacements for windows with a particular defect. However, View had also decided to pay to ship and install the replacement windows (the “Installation Costs”). Including those expenses, it was probable and reasonably estimable that View would spend approximately $48 million to $53 million total to repair its windows. Therefore, under generally accepted accounting principles in the United States (“US GAAP”), View should have recognized and disclosed a warranty liability of approximately $48 million to $53 million, rather than the approximately $22 million to $25 million that it recognized and disclosed.
As a result, View materially misstated its warranty liability for fiscal years 2019 and 2020 and the first quarter of 2021.
Throughout this time, View had insufficient internal accounting and disclosure controls. View also failed to maintain books and records that accurately reflected the liabilities.”
Based on the above, the order finds violations of (among other things) the FCPA’s books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, View agreed to cease and desist from future violations of the charged securities laws.
The SEC’s order states: “The SEC decided not to impose civil penalties against View because the company self-reported the misconduct to the SEC, promptly undertook remedial measures, and cooperated with the staff’s investigation.”
This administrative order involving Co-Diagnostics finds in summary fashion:
“These proceedings concern Co-Diagnostics’s issuance of misleading press releases on February 6 and 10, 2020 concerning a screening test it had developed to detect the novel coronavirus, later named COVID-19 by the World Health Organization. Specifically, the press releases misleadingly suggested that the test could be used by consumers to detect COVID-19, when in fact, at that time, the test was intended for Research Use Only (“RUO”), which meant it could not be sold for clinical diagnostic purposes.
Co-Diagnostics offered and sold securities to investors after it issued the February 6 and 10, 2020 press releases.
In addition, Co-Diagnostics failed to disclose related party transactions involving the family members of the company’s Chief Executive Officer (“CEO”) and then-Chief Financial Officer (“CFO”), Secretary, and General Counsel in its annual reports for the fiscal years ended December 31, 2018, 2019, and 2020 and in its definitive proxy statements filed in 2019, 2020, and 2021. Co-Diagnostics also failed to keep accurate books and records and failed to have disclosure controls and procedures designed to ensure the company disclosed related party transactions as required.”
Based on the above, the order finds violations of (among other things) the FCPA’s books and records provisions.
Without admitting or denying the SEC’s findings, Co-Diagnostics agreed to pay a $250,000 civil penalty.
