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. For lack of a better term, these enforcement actions have longed been called non-FCPA, FCPA enforcement actions by this site.
By my count, in the last approximate 30 days (as the SEC’s fiscal year came to a close), the SEC announced eight such actions. (See here, here, here, here and here for previous posts).
This post rounds up the other non-FCPA, FCPA enforcement actions in recent days.
On September 28th, the SEC announced that Commonwealth Edison Company (ComEd), an Exelon’s subsidiary, agreed to pay a $46.2 million civil penalty. The enforcement action actually involved bribery, but domestic – not foreign – bribery.
This administrative order finds in summary fashion:
“These proceedings arise out of violations of the antifraud, books and records, and internal accounting control provisions of the Securities Act and the Exchange Act by Respondents as a result of a multi-year scheme by ComEd to corruptly influence and reward Michael Madigan (“Madigan”), the then-Speaker of the Illinois House of Representatives, for his assistance with respect to legislation affecting ComEd’s business. The scheme occurred from around 2011 through 2019 and involved ComEd arranging for various Madigan associates to obtain jobs, vendor subcontracts, and monetary payments associated with those jobs and vendor subcontracts, for the benefit of Madigan and Madigan’s associates, with the intent to influence and reward Madigan.”
See here for a prior post from May 2023 highlighting how various former ComEd executive and associates were criminally convicted at trial of, among other things, FCPA books and records charges. In 2020 ComEd resolved its own DOJ enforcement action based on the same core conduct by agreeing to pay $200 million. (See here). The DOJ enforcement action against ComEd did not involve any FCPA books and records or internal control charges. (See here).
In connection with last week’s SEC enforcement action against ComEd, in a separate civil complaint, the SEC charged Anne Pramaggiore (former ComEd CEO) with, among other things, aiding and abetting Exelon’s and ComEd’s violations of the books and records and internal controls provisions.
In summary fashion, the complaint alleges:
“While defendant Anne Pramaggiore was Commonwealth Edison Company’s CEO, and later as Exelon Utilities’ CEO, she participated in a fraudulent scheme to corruptly influence Michael Madigan, who at the time was the powerful, long-serving Speaker of the Illinois House of Representatives. Under her watch and with her active participation, ComEd and its parent, Exelon Corporation, showered Madigan confederates with over a million dollars in payments. The goal was to ingratiate the Exelon organization to Madigan so he would do its political bidding in Springfield. The payments were supposedly for services rendered. But Pramaggiore knew those payments bought ComEd and Exelon one thing and one thing alone: Clout. Not legal, lobbying, or consulting services.”
Other non-FCPA, FCPA enforcement actions brought by the SEC last week include Newell Brands (and its former CEO Michael Polk) and former executives of Pareteum Corp.
Newell Brands
This administrative order finds in summary fashion:
“This matter involves Newell’s misleading statements regarding non-GAAP financial measures that it called “core sales growth” and “core sales,” which Newell described in its earnings releases as giving investors “a more complete understanding of underlying sales trends.” Newell explained that the core sales measure would allow investors to understand “sales on a consistent basis” by removing from its “net sales” measure the effects of acquisitions, divestitures, and foreign currency fluctuations. Newell disclosed its year-over-year core sales growth rate as part of the headline of its quarterly earnings releases. Newell also provided investors guidance about its expected core sales growth rate, and analysts followed Newell’s publicly announced core sales growth.
From Q3 2016 through Q2 2017 (the “Relevant Period”), Newell announced core sales growth rates that were misleading because Newell did not also disclose that its publicly disclosed core sales growth rate was higher as the result of actions taken by Newell that were unrelated to its actual underlying sales trends. Internal communications during this period recognized that Newell’s sales were disappointing and had fallen short of management’s goals. In response, Newell’s then-CEO, [Michael] Polk, approved plans to pull forward sales from future quarters, asked employees to examine accruals established for customer promotions in order to determine if they could be reduced, and agreed with decisions to reclassify consideration payable to customers that resulted in the value of that consideration not being deducted as required by generally accepted accounting principles (GAAP). These actions, which Newell did not disclose, increased Newell’s publicly disclosed core sales growth rates during the Relevant Period, and, as a result, Newell’s and Polk’s descriptions of Newell’s growth to investors as “strong” and “solid” were misleading.”
Based on the above, the order finds that Newell violated, among other things, the FCPA’s books and records and internal controls provisions, and that Polk was the cause of these violations.
Without admitting or denying the SEC’s findings, Newell agreed to pay a $12.5 million civil penalty and Polk agreed to pay a $110,000 civil penalty.
In this release, Mark Cave (Associate Director of the SEC’s Enforcement Division) stated:
“[This] order finds that Newell’s former CEO issued an instruction to ‘scrub’ the company’s accruals after he learned that the company was projecting a ‘massive’ and ‘disappointing’ miss for the quarter. Senior executives of public companies hold positions of trust, and they risk abusing the duties attendant to their offices when they reach into a company’s accounting control processes as a way of making up for performance shortfalls.”
Former Executives of Pareteum Corp.
As highlighted in this prior post, in 2021 Pareteum Corp. (a New York-based telecommunications company) resolved an SEC accounting and disclosure fraud matter which found, among other things, violations of the FCPA’s books and records and internal controls provisions.
In this September 28th compliant, and in connection with the same core conduct, the SEC charged Edward O’Donnell (former Chief Financial Officer) and Victor Bozzo (former Chief Commercial Officer) with, among other things, violations of the FCPA’s books and records and internal controls provisions. In addition, the SEC announced settled charges against Pareteum’s former Controller, Stanley Stefanski, for his role in the scheme.
