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SEC Files Opposition Brief To Jackson and Ruehlen’s Motion To Dismiss

This previous post discussed the February 2012 SEC FCPA enforcement action against Mark Jackson (former Noble Corporation CEO) and James Ruehlen (current Director and Division Manager of Noble’s subsidiary in Nigeria).  The enforcement action is based on the same core set of facts alleged in the 2010 Noble Corporation enforcement action (see here for the prior post).  The February 2012 post noted that unlike the vast majority of FCPA defendants (corporate and individual) charged in an SEC enforcement action, Jackson and Ruehlen appeared poised to launch a defense.

This previous post discussed Jackson’s and Ruehlen’s May 2012 motion to dismiss and noted the significance of the event in terms of the SEC’s FCPA enforcement program as the SEC is rarely put to its burden of proof in FCPA enforcement actions.  To my knowledge, the Jackson and Ruehlen enforcement action represents the first time since the SEC lost the Mattson and Harris individual enforcement actions in 2002 (see here for a prior post discussing the case) that the Commission will be put to its burden of proof in an FCPA enforcement action.

Last Friday the SEC filed its opposition to the motion to dismiss (here) and in summary fashion the SEC’s opposition brief states as follows.

“The Complaint charges defendants Jackson and Ruehlen, a former and current senior officer of Noble Corporation (“Noble”), respectively, with multiple violations of the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. § 78dd-1, and other violations of the federal securities laws. Noble, an international oil drilling company, used for years an intermediary “customs agent” to pay bribes to government officials of the Nigerian Customs Service and other Nigerian government officials. Jackson and Ruehlen were intimately involved in arranging, approving, falsely booking, and concealing Noble’s bribe payments to foreign officials. Together, the defendants participated in paying hundreds of thousands of dollars in bribes to improperly obtain approximately eight illegitimate duty exemptions, known as temporary import permits (“TIPs”), and twenty-two TIP extensions. These TIPs and extensions were obtained illicitly so that Noble’s oil rigs offshore in Nigeria could continue to operate under lucrative drilling contracts. Jackson approved the payments and concealed the payments from Noble’s audit committee and auditors. Ruehlen prepared false documents as to the movement of the rigs, sought approval for the payments from Jackson and others at Noble, and processed and paid the bribe money to the intermediary customs agent.

Defendants contend that the Commission has failed to state a claim upon which relief may be granted pursuant to FRCP 12(b)(6). They attack the sufficiency of the Complaint in scattershot fashion, but their arguments distilled to their essence advance six primary arguments for dismissal:

First, the defendants argue that the SEC must allege the “specific identity” of Nigerian officials for whom the defendants authorized the payment of bribes. This line of argument finds no support in the text, legislative history, case law, or purposes of the FCPA. Defendants authorized bribes to foreign officials through intermediaries. The Complaint identifies the officials by country and government agency and alleges defendants’ corrupt intent to improperly influence those officials through the payment of money. Neither the FCPA nor the notice pleading standards of Federal Rule of Civil Procedure 8(a) require anything more. As the language, text, legislative history and policies of the FCPA confirm, a violation of its provisions rests with the intent of the person authorizing the bribes, not with the identity or role of the official targeted for bribery. The name, title or exact position of the official need not be pleaded or proved, as confirmed by decisions under analogous domestic bribery statutes.

Second, the defendants argue that the Complaint fails to allege facts to support the inference that their payments fell outside of the FCPA’s statutory “routine governmental action” (a.k.a. “facilitating payments”) exception. Yet, the SEC is not required to plead preemptively around a statutory exception that a defendant might invoke. For over a century, including in the securities context, the Supreme Court has held that a pleading based on a general provision that defines the elements of a statutory violation need not negate an exception made by proviso or otherwise to those elements. The “facilitating payments” exception fits that rule. Thus, the defendants, not the SEC, must raise the exception’s application in the pleadings and prove its applicability at trial. Moreover, the Complaint satisfies any purported need to “plead around” the exception. The well-pled facts, such as that the bribes were paid to induce foreign officials to falsely certify facts and accept false paperwork, indicate that defendants’ bribes were not “facilitating payments,” i.e., payments authorized to expedite or secure the performance of an ordinarily or commonly performed official act.

Third, Ruehlen claims that the FCPA’s routine government action exception is unconstitutionally vague as applied to him. Claims of this nature have been soundly rejected by the courts, including by the Fifth Circuit. Also, the Complaint abundantly alleges that Ruehlen sought and obtained authorizations to pay bribes that cannot be understood reasonably as anything other than crossing the line of prohibited conduct.

Fourth, the defendants contend that the Complaint does not allege facts giving rise to the inference that they acted “corruptly.” This attack on the Complaint ignores the well-pled facts and misconstrues the law. The legislative history of the FCPA and the decisions in the Fifth Circuit and elsewhere reject defendants’ definition of “corruptly.” Defendants also overlook that states of mind, such as intent and purposes, may be alleged generally. The Complaint alleges defendants’ corrupt intent, and the allegations are supported by ample facts.

Fifth, the defendants seek to dismiss the Complaint as insufficiently pleading alleged securities violations other than bribery. Defendants, for example, argue that the SEC fails to specify the books and records that were falsified and the internal controls that they evaded. Defendants’ line of arguments directed to these issues are, first, largely premised on their attack on the Commission’s bribery claims – an attack that this Court should reject. In addition, the defendants simply ignore the facts actually pled in the Complaint. The allegations set forth in great detail what Jackson and Ruehlen claim not to find in the Complaint, including identifying the books and records falsified and the internal controls evaded or not implemented.

Sixth, the defendants argue that the Complaint is untimely because the applicable statute of limitations permits relief only for conduct occurring five years before the filing of the Complaint on February 24, 2012. Yet buried in footnotes in their briefs, the defendants admit that they signed tolling agreements extending the statute of limitations. The Complaint alleges violative conduct within the limitations period even absent the tolling agreement. What is more, various equitable doctrines would apply to toll the statute. And the statute of limitations does not apply to claims for equitable relief such as injunctions.

Finally, throughout each of their briefs, defendants intermittently challenge facts asserted in the Complaint, advance facts not alleged in the Complaint but purportedly reflected elsewhere, and argue for inferences favorable to them. At the pleadings stage, these arguments are not a proper basis for granting a motion to dismiss and must be rejected. The Commission has stated a claim upon which relief may be granted for each of Claims One through Seven, and defendants’ motions to dismiss should be denied.”

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