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.
Case in point is this recent SEC enforcement action against Gulfport Energy Corporation.
In summary fashion, the SEC’s administrative order found:
“These proceedings arise from Gulfport’s failure to disclose certain perquisites and related person transactions concerning Gulfport’s former CEO, Michael G. Moore (“Moore”).
From the time he became CEO in 2014 until his resignation in October 2018 (the “Relevant Period”), Moore: (1) caused Gulfport to incur approximately $650,000 worth of charges by traveling on chartered aircraft for reasons that were not integrally and directly related to the performance of his CEO duties; and (2) used a Gulfport corporate credit card for personal expenses that he did not repay timely, which resulted in Gulfport extending Moore interest-free credit and carrying a related person account receivable. Additionally, during 2015, Gulfport paid Moore’s son’s company approximately $152,000 to provide landscaping services.
Throughout the Relevant Period, Moore failed to provide required information to enable Gulfport to identify these perquisites and related person transactions, and as a result, Gulfport made material misstatements in its annual reports and definitive proxy statements. Further, Gulfport’s insufficient internal accounting controls resulted in Gulfport’s failure to accurately record Moore’s perquisites in its books and records.”
According to the order:
“During the Relevant Period, Gulfport did not have any internal policies or procedures specifically governing the use of chartered aircraft. Gulfport’s Code of Business Conduct and Ethics, however, required that “[a]ll Company assets should be used for legitimate business purposes only.” Also, by 2016, Gulfport issued an Employee Handbook, approved and adopted by Moore, that provided that company resources should not be used for personal expenses. Gulfport’s Code of Business Conduct and Ethics during the Relevant Period required employees, including Moore, to “maintain familiarity with the disclosure requirements applicable to the Company and . . . prohibited [employees] from knowingly misrepresenting, omitting, or causing others to misrepresent or omit, material facts about the Company to others, whether within or outside the Company, including the Company’s independent auditors.”
From 2014 to 2018, Moore caused Gulfport to pay for his travel by chartered aircraft in some instances where his travel was not integrally and directly related to the performance of his duties as CEO, costing Gulfport approximately $650,000. For example, Moore used chartered aircraft for himself and his wife to attend two events sponsored by a Gulfport supplier: a wine tasting weekend in Napa, California and a poker tournament in Las Vegas, Nevada. Neither one of these events was integrally and directly related to Moore’s duties as Gulfport’s CEO. As a result of these trips and others that were not integrally and directly related to the performance of Moore’s duties, Gulfport incurred aircraft related charges of $107,300 in 2014, $175,800 in 2015, $138,700 in 2016, $163,600 in 2017, and $63,800 in 2018.
As a result of the lack of policies and procedures discussed above, Gulfport did not review Moore’s chartered aircraft usage to determine if it involved perquisites or personal expenses. While Gulfport was aware of the chartered aircraft usage through its process of purchasing and tracking the charter services, no one at Gulfport reviewed the individual flights to determine the flight purpose.
Moore also did not provide information about his flights to Gulfport during the annual process to identify perquisites and other personal benefits that might require disclosure. Each year, in connection with the preparation of the proxy statement, Moore received a document titled “Questionnaire for Directors, Officers and Certain Other Persons” (the “D&O Questionnaire”). The D&O Questionnaire required that perquisites and personal benefits be disclosed, and contained detailed examples and explanations concerning benefits that may require disclosure, including “[p]ersonal use of Company provided aircraft.” Further, the D&O Questionnaire highlighted that “[i]f you have any doubts about whether to include an item of information, please resolve those doubts in favor of disclosure.” During the Relevant Period, Moore did not identify any use of chartered aircraft on his D&O Questionnaires, which he completed and signed. Moore’s use of chartered aircraft was, in certain instances, not integrally and directly related to the performance of his duties to Gulfport. Further, chartered aircraft were not generally available on a non-discriminatory basis to all Gulfport employees to be used in the manner in which Moore used chartered aircraft.
Because Moore failed to provide Gulfport with certain information about his use of chartered aircraft, Gulfport’s books and records were inaccurate since they improperly characterized Moore’s flight expenses as business travel expenses when they were not integrally and directly related to the performance of his duties as CEO, and not generally available on a nondiscriminatory basis to all employees.”
Based on the above, the SEC found that Gulfport, among other things, violated the books and records provisions “by failing to record the true nature of the expenses as personal benefits and perquisites paid to Moore in the company’s books, records, and accounts.” In addition, the SEC found that Gulfport violated the internal controls provisions “by failing to implement sufficient internal accounting controls concerning perquisites and related person transactions.”
The Gulfport enforcement action is not only a reminder that the FCPA has always been a law much broader than its name suggests, but also a reminder just how inconsistent the SEC’s approach is to enforcing the books and records and internal controls provisions.
For instance, even though the Gulfport matter involved CEO conduct and resulted in material misstatements in its annual reports and definitive proxy statements, the enforcement action did not involve any monetary settlement amount.
Compare this to the BHP Billiton enforcement action (see prior posts here, here and here) in which the SEC assessed a $25 million civil penalty for – better sit down for this one – the company’s “failure to devise and maintain sufficient internal controls over a global hospitality program that the company hosted in connection with its sponsorship of the 2008 Beijing Summer Olympic Games.” Or the SEC’s enforcement action against Telefonica Brasil (see prior posts here and here) in which the SEC assessed a $4.1 million civil penalty for – are you still sitting down – “a hospitality program that the company hosted in connection with the 2014 World Cup and 2013 Confederations Cup.”