Foreign Corrupt Practices Act settlement amounts are one obvious consequence of FCPA non-compliance and tend to generate the most headlines. However, as has been discussed on these pages for years including in this article “FCPA Ripples”, settlement amounts tend to be a relatively modest consequence of the overall financial ramifications of FCPA scrutiny and enforcement.
Pre-enforcement action professional fees and expenses are often 3-5 times (and sometimes higher) the actual FCPA settlement amount and post-enforcement action professional fees and expenses quickly add up as well.
In addition, many instances of FCPA scrutiny result in shareholder litigation – whether a derivative action against officers and directors for alleged breaches of fiduciary duty and/or a securities fraud action.
As highlighted in this prior post, in 2017 Sociedad Quimica y Minera de Chile S.A. (SQM) (a chemical and mining company based in Chile with American Depository Shares listed on the New York Stock Exchange) resolved a $30.5 million FCPA enforcement action (DOJ and SEC) in relation to alleged conduct with Chilean officials.
As sure as the sun rises in the east and dogs bark, plaintiffs lawyers representing shareholders on a contigent fee basis filed civil lawsuits on behalf of investors in SQM alleging violations of §§10(b) and 20(a) of the Exchange Act and Rule 10b-5.
The Complaint alleged that SQM, primarily through its former CEO (who separately resolved an SEC FCPA enforcement action – see here), illegally paid politicians and their proxies for years and made materially false and misleading statements and omissions regarding its compliance with the law and code of ethics, the effectiveness of its internal controls, the accuracy of its financial statements and its dispute with a Chilean governmental entity.
After several years of motion practice, the parties have sought court approval for a $62.5 million settlement. As detailed in the court papers, lead counsel will apply for an award of attorneys’ fees up to 17.5% of the settlement amount (approximately $10.9 million) plus litigation expenses not to exceed $1.4 million.