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A Summary Of The SEC’s Trial Court Woes In FCPA Enforcement Actions

You be the Judge

This recent post summarized the dismissal of the SEC’s Foreign Corrupt Practices Act (and related) charges against 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 enforcement action is believed to be only the fourth time in FCPA history in which the SEC was put to its ultimate burden of proof in an FCPA enforcement action.

As highlighted in this post, the SEC also lost in the other three instances and in the FCPA’s 40 year history the SEC has never prevailed when put to its ultimate burden of proof.

A brief explanation about what is meant by ultimate burden of proof. When an SEC complaint survives a motion to dismiss or even a summary judgment motion (as happened in the FCPA enforcement action against former Magyar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai, see here and here) this does not represent the SEC prevailing on its ultimate burden of proof. However, when a court grants a defendants motion to dismiss or summary judgment motion, this represents an SEC failure when put to its ultimate burden of proof. In FCPA history, there has never been an actual trial in an SEC FCPA enforcement action. The Jackson – Ruehlen matter (discussed below because, in part, the SEC failed on certain of its claims) came close, however after the court denied competing motions for summary judgment the SEC approached the defendants to settle and they did so on very favorable terms (see here, here and here).


In 2002 the S.D. of Texas dismissed an SEC complaint against Eric Mattson and James Harris.  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.  When Mattson and Harris was decided, the S.D. of Texas in U.S. v. Kay case had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation.  The SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases.  The Court rejected the SEC’s arguments and followed the trial court’s analysis in Kay 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.


As highlighted in this previous post, in 2013 Judge Shira Scheindlin (S.D. of New York) dismissed an SEC complaint against Herbert Steffen.  In dismissing the case against the German national, Judge Scheindlin concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process.  Judge Scheindlin 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.”


As highlighted in this previous post, in December 2012 Judge Keith Ellison (S.D. of Texas) granted – in an SEC FCPA enforcement action involving alleged conduct in connection with temporary importation permits in Nigeria for oil rigs.–  Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that sought monetary damages while denying the motion  to dismiss as to claims seeking injunctive relief. In the decision, Judge Ellison also concluded, in an issue of first impression, that the SEC has the burden of negating the FCPA’s facilitation payments exception.

Even though the court granted the motion as to the SEC’s monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint.  As noted in this prior post, that is indeed what happened next, and as noted here a second round of briefing began anew.  As noted in this previous post, in the Defendant’s renewed motion to dismiss they argued that the SEC could not rely on the fraudulent concealment or continuing violations doctrine to extend the limitations period to cover certain claims.  A week later the Supreme Court issued its unanimous decision in SEC v. Gabelli (see here for the prior post) and soon thereafter the Defendants filed a notice of supplemental authority with the court arguing that Gabelli “bolstered” their position.  On the same day the SEC’s opposition brief was due, the parties jointly notified the court “that in lieu of opposing the [motion to dismiss] the SEC intends to file a Second Amended Complaint.”  The filing noted that the then proposed Second Amended Complaint “moots the relief sought in the [the motion to dismiss] because it clarifies that, among the violations alleged, the SEC seeks civil penalties … only to the extent such violations accrued on or before [a certain date].  In short, after being put to its initial burden of proof, the SEC’s case against Jackson and Ruehlen remained a shell of its former self.

As highlighted here, in pre-trial proceedings, Judge Ellison expressed concerns regarding the SEC’s position regarding, among other things, the FCPA’s facilitating payments exception. On the eve of trial in July 2014, the SEC approached the defendants about resolving the matter and a settlement was reached. Without admitting or denying the SEC’s allegations Jackson and Ruehlen agreed not to violate the FCPA in the future. Neither defendant was required to pay any monetary penalty and the resolution was widely (and correctly) viewed as an SEC defeat.

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