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SEC To Be Put To Its Burden – Motion To Dismiss Filed In Jackson And Ruehlen Enforcement Action

In February, the SEC announced here charges against “three oil services executives [associated with Noble Corporation] with violating the FCPA by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.”  Previously Noble Corporation (along with several other companies in an enforcement action I dubbed CustomsGate) resolved an FCPA enforcement action involving both a DOJ and SEC component (total settlement amount was approximately $8.2 million ($2.6 million criminal fine via a non-prosecution agreement; $5.6 million in disgorgement and interest via a SEC complaint)  – see here for the prior post.

Like the vast majority of FCPA defendants in SEC enforcement actions, one of the individual defendants, Thomas O’Rourke (the former controller and head of internal audit at Noble Corporation), chose to settle the SEC’s complaint without admitting or denying the SEC allegations.

Not so with the other two individual defendants:  Mark Jackson (former Noble Corporation CEO) and James Ruehlen (current Director and Division Manager of Noble’s subsidiary in Nigeria).  This prior post contained the comments of Jackson’s lawyer, David Krakoff (here – BuckleySandler) who stated as follows: “We unequivocally deny the SEC’s baseless allegations. Mr. Jackson will vigorously defend himself in court where the evidence will show what the SEC already knows, that at all times Mr. Jackson acted in good faith at Noble. He looks forward to clearing his good name in this proceeding.”  The prior post also contained the comments of Ruehlen’s lawyer F. Joseph Warin (here – Gibson Dunn & Crutcher) who stated that “the claims against Mr. Ruehlen are wrong and they will be proven so at trial.”

I noted in the prior post that this could get interesting as the SEC is rarely put to its burden of proof in FCPA enforcement actions (or any of its actions for that matter).

Yesterday Jackson and Ruehlen filed separate motions to dismiss (see here and here).

To my knowledge, this is 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.

Thus, yesterday’s motion is a significant event in terms of the SEC’s FCPA enforcement program.

The remainder of this post summarizes the motion to dismiss (internal citations omitted).

Ruehlen Motion to Dismiss

Ruehlen was charged in the SEC complaint (here) with Count 1 – FCPA anti-bribery violations; Count 2 – aiding and abetting Noble Corp’s FCPA anti-bribery violations; Count 3 – aiding and abetting Noble Corp’s failures to make and keep accurate books, records, and accounts  and to devise and maintain internal accounting controls; and Claim 4 knowingly circumventing Noble’s internal controls and falsifying or causing to be falsified Noble’s books, records, and accounts in violations of FCPA’s books and records provisions.

In summary, the motion states as follows.

“Despite the repetition of the word “bribe” fifty-three times in its Complaint, Plaintiff fails to allege a violation of law. The FCPA distinguishes between prohibited corrupt payments made to obtain or retain business (i.e., bribes), and permissible payments to “secure the performance of a routine governmental action,” such as “obtaining permits, licenses, or other official documents” or for “processing governmental papers” (i.e., facilitation payments). The Complaint assumes that all payments to foreign officials are per se illegal bribes, never acknowledging the FCPA’s exception for facilitation payments.

The distinction between a permissible facilitation payment and an unlawful bribe turns on the purpose and effect of the payment, namely whether it is being made to induce the recipient to act improperly based on his or her particular role, duties, or responsibilities in order to obtain or retain business—facts that the SEC must allege to state a claim. Despite investigating this matter for nearly five years, the SEC apparently does not know—and therefore cannot allege—the identity, role, duties, or responsibilities of any “Nigerian government officials” to whom Noble or Mr. Ruehlen allegedly authorized payments. By failing to identify the particular foreign officials to whom Noble and Mr. Ruehlen allegedly authorized payments, Mr. Ruehlen and this Court are simply left to guess whether the alleged unidentified government officials had the power to assist Noble in obtaining or retaining business by engaging in non-routine governmental action, as the statute requires. Accordingly, the SEC fails to satisfy its burden of pleading plausible facts under Federal Rule of Civil Procedure 8 and Twombly that the payments at issue were prohibited bribes under the FCPA, rather than lawful facilitation payments.

Second, without identifying the intended recipients of the alleged payments or alleging facts showing how these officials abused their authority on Noble’s behalf, Plaintiff fails to allege that Mr. Ruehlen acted “corruptly,” that is, with “a bad purpose or evil motive,” or with the “intent to influence a foreign official to misuse his official position.”  To the contrary, the Complaint shows that Mr. Ruehlen reasonably believed that the payments were proper because, among other things, they had been reviewed and approved by Noble’s senior management who were tasked with ensuring Noble’s compliance with the FCPA and approving facilitation payments. The failure to plausibly allege facts showing corrupt intent provides an independent basis to dismiss the claims against Mr. Ruehlen.

Third, to the extent that Plaintiff’s first and second claims against Mr. Ruehlen survive these challenges, the Court must nevertheless dismiss them because the law in effect at the time failed to give Mr. Ruehlen “fair notice” of the interpretation now being advanced by the SEC in this case. In addition, the SEC’s strained and subjective interpretation of the FCPA’s facilitation payment exception makes it impossible for well-intentioned individuals to navigate between lawful and unlawful conduct and, therefore, is unconstitutionally vague as applied to Mr. Ruehlen.

Fourth, Claims 3 and 4 must be dismissed because the SEC fails to specify the particular book, record, or account that it claims Mr. Ruehlen knowingly falsified (or unreasonably caused to be false) or the particular internal control that he allegedly knowingly circumvented. Additionally, to the extent that the alleged violations refer to Noble’s decision to treat the special handling fees as facilitation payments rather than bribes, these violations are entirely predicated on the underlying FCPA violations alleged in Claims 1 and 2. Finally, this action is governed by the five-year statute of limitations. Because the claims against Mr. Ruehlen are principally based on alleged conduct that occurred outside the limitations period and because the SEC raises no basis for tolling, they are time-barred and must be dismissed.”

Jackson Motion to Dismiss

Jackson was charged in the SEC complaint (here) with Count 1 – FCPA anti-bribery violations; Count 2 – aiding and abetting Noble Corp’s FCPA anti-bribery violations; Count 3 – aiding and abetting Noble Corp’s failures to make and keep accurate books, records, and accounts  and to devise and maintain internal accounting controls; Count 4 knowingly circumventing Noble’s internal controls and falsifying or causing to be falsified Noble’s books, records, and accounts in violations of FCPA’s books and records provisions and Rule 13b2-1; Count 5 – misleading auditors; Count 6 – signing false certifications; and Count 7 – control person liability.

In summary the motion states as follows.

“The Complaint against Jackson must be dismissed under Rule 12(b)(6) because it fails to state a claim that is plausible on its face. Only factual allegations—not unsupported conclusions or accusations of legal violations—may sustain a Complaint. But, stripped of its conclusions about what Jackson “knew,” the Complaint comes up woefully short in pleading several essential elements of Claim I, a Foreign Corrupt Practices Act (“FCPA”) anti-bribery violation—that Jackson acted with corrupt intent, and that he knew payments would be made to a foreign official to obtain sought-after unlawful acts from that foreign official. Instead, the factual allegations in the Complaint regarding alleged bribes are equally consistent, if not more, with wholly legal actions under the “facilitating payments” exception to the FCPA. The bribery claim therefore must be dismissed as implausible under controlling Supreme Court precedent. And because the other claims in the Complaint are entirely dependent on the existence of illegal bribes, they too must be dismissed. Finally, because the vast majority of the conduct alleged in the Complaint took place well over five years before the Complaint was filed, the bribery claim and many of the derivative claims are barred by the statute of limitations.”

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