Top Menu

When The SEC Is Put To Its Ultimate Burden Of Proof


As has been highlighted more than once on this website, the FCPA Blog is a frequent source of FCPA misinformation and rubbish.

In this recent post, the FCPA Blog asserts that most individual FCPA defendants are convicted and that only a “tiny percentage of individual FCPA defendants – win acquittals.”

Acquittal of course is a technical legal term, but the suggestion that only a “tiny percentage of individual FCPA defendants” prevail over the government when the government is put to its ultimate burden of proof is misinformation and rubbish.

A future post will highlight numerous instances in which individual FCPA defendants have prevailed over the DOJ in criminal matters, but this post first focuses on individuals prevailing over the SEC in civil matters.

For starters, it is much less likely for the SEC to be put to its ultimate burden of proof by an individual FCPA defendant compared to the DOJ. Among the reasons is that the consequences for resolving an SEC matter are generally only financial and can often be done without admitting or denying the SEC’s allegations or findings. By contrast, the consequences for resolving a DOJ matter are generally to be labeled a convicted felon (and the collateral consequences which flow from that designation), a loss of liberty in the form of a jail sentence, as well as financial.

As highlighted below, in the FCPA’s approximate 45 years, it is believed that the SEC has been put to its ultimate burden of proof by individual defendants just three times and the SEC lost all three of these matters.

Eric Mattson and James Harris (2002)

As highlighted in this previous post, in 2002 a judge in the S.D. of Texas dismissed an SEC complaint against Eric Mattson and James Harris (individuals associated with Baker Hughes).  The enforcement action involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment.  The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment. The Court rejected the SEC’s arguments and concluded that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.”  See here for the court’s Memorandum and Order.

Herbert Steffen (2013)

As highlighted in this previous post, in 2013 a judge in the S.D. of New York dismissed an SEC complaint against Herbert Steffen (a former Siemens executive).  In dismissing the case against the German national, the judge concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process.  The judge stated, in pertinent part, as follows.

“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.  […] [U]nder the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements.  This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.”

Michael Cohen and Vanja Baros (2018)

As highlighted in this previous post, in 2018 a judge in the E.D. of New York dismissed an SEC complaint against Michael Cohen and Vanja Baros (former Och-Ziff executives) based on the same core conduct as the DOJ and SEC’s September 2016 enforcement action against Och-Ziff. The SEC alleged that Cohen and Baros: (i) violated the FCPA’s anti-bribery provisions; (ii) aided and abetted Och-Ziff’s FCPA’s anti-bribery violations; (iii) aided and abetted Och-Ziff’s FCPA books and record violations; (iv) circumvented internal accounting controls. However, the court concluded:

“The court agrees that the SEC’s claims— all of which accrued more than five years before the SEC filed suit, and seek relief that is at least partly penal, not solely remedial—are time-barred. Accordingly, the court dismisses the amended complaint and need not address Defendants’ remaining arguments.”

Other Dynamics to Consider

As will also be highlighted in the future post concerning individual FCPA defendants in criminal matters, in accessing how individual FCPA defendants fare in civil matters vs. the SEC, it is important to recognize that when the government is facing legal or factual difficulties in advance of trial, it can simply pull the case or offer to settle based on substantially lesser grounds.

For instance, in 2012 the SEC brought an enforcement action against Mark Jackson and James Ruehlen (a former and current executive of Noble Corp.) in connection with the same core conduct as the 2010 FCPA enforcement action against Noble Corp. The defendants mounted a legal defense and with the passage of time, the SEC’s case against the defendants was consistently trimmed as the SEC attempted to meet its burden (see this post as well as here).  Among other things, a portion of the SEC’s claims were dismissed or abandoned on statute of limitations grounds and the trial court judge ruled, in an issue of first impression, that the SEC has the burden of negating the FCPA’s facilitation payments exception. On the brink of the SEC’s first-ever FCPA trial, the SEC approached defense counsel (according to knowledgeable sources) to settle the matter on substantially lesser grounds.

Without admitting or denying the SEC’s allegations, Jackson consented to a final judgment permanently restraining and enjoining him from violating the FCPA’s books and records provisions. In a release, Jackson’s counsel stated:

“We are very pleased with today’s settlement.  It resolves allegations that have hung over Mr. Jackson for many years without any admission of liability, without any payment of money and without any restriction on Mr. Jackson’s future employment opportunities.  Mr. Jackson can now move forward with his life and career.”

Without admitting or denying the SEC’s allegations, Ruehlen consented to a final judgment permanently restraining and enjoining him from aiding and abetting FCPA books and records violations.  In a release, Ruehlen’s counsel stated:

“We are very pleased with yesterday’s settlement.  Mr. Ruehlen is an exemplary and dedicated employee who first brought the allegations to light and fully cooperated with the SEC’s investigation.  While we were looking forward to presenting our case to a jury, the settlement of one record-keeping claim – without any admission of liability or wrongdoing, monetary penalty, or restriction on Mr. Ruehlen’s employment – satisfactorily ends the matter and allows Jim to focus his energies on his work for Noble.”

In neither consent order was Jackson or Ruehlen required to pay any civil fine. Score this one as you see fit, but as the Second Circuit has recognized, SEC neither admit nor deny settlements are not about the truth, but pragmatism.

The Jackson and Ruehlen enforcement action is an example of the SEC essentially pulling a case that is known to the public because of the court dockets.

In accessing how potential individual FCPA defendants fare in potential matters vs. the SEC and/or DOJ it is also important to recognize that defense counsel is often able to back the SEC or DOJ down from even bringing an enforcement action by making legal and factual arguments behind closed doors. Unfortunately, these examples relevant to the overall issue discussed in this post, are not in the public domain, but do happen. (See this podcast for instance).

Powered by WordPress. Designed by WooThemes