Posted on January 26, 2008 in Securities
In preparing a paper about emerging trends related to enforcement of the Foreign Corrupt Practices Act ("FCPA"), I have been scouring some very good public databases that provide a wealth of current information about the unmistakable heightened risks that listed companies face in today’s business environment. The SEC’s Edgar database (http://www.sec.gov/edgar.shtm) allows visitors to search forms which listed companies must periodically file.
In searching Edgar with various search expressions to see how many and which companies have publicly reported they have authorized or are conducting internal investigations because of potential FCPA liabilities discovered through due diligence associated with merger and acquisition ("M & A") activities, I noted how regulators appear to be adapting old tools in new ways. This epiphany became apparent when I noticed how many Houston-based entities associated with the energy business reported having internal investigations based on contact from the SEC/DOJ that stemmed from disclosures made by business competitors in the industry, or that had launched preemptive internal investigations after learning that competitors in the same markets had reported they had launched internal investigations.
See, e.g., pp. 15-16 of the Form 10-Q filed on Nov. 9, 2007 by Noble Corporation, a provider of diversified services for the oil and gas industry that performs contract drilling services worldwide, which reported, inter alia, that:
The audit committee commissioned the internal investigation after the Company’s management brought to the attention of the audit committee a news release issued by another company that disclosed that the other company was conducting an internal investigation into the FCPA implications of certain actions by a customs agent in Nigeria in connection with the temporary importation of that company’s vessels into Nigeria.
The DOJ’s Antitrust Division has experienced great success in its international antitrust investigations by offering immunity to the first company to cooperate with it through the "Corporate Leniency Program." As Deputy Assistant Attorney General Gerald F. Masoudi explained in a Feb. 2007 speech at the Cartel Conference in Hungary:
Under that program, the first corporate cartel member that comes promptly to the Antitrust Division, cooperates with our investigation and otherwise meets the requirements of our program will get a promise of full immunity not only for the corporation, but also for cooperating individuals. The Antitrust Division’s Corporate Leniency Program is our greatest source of cartel evidence, and has served as a model for similar programs that have been adopted by antitrust authorities around the world.
The IRS also has worked to tailor its audits to specific industries by means of its Market Segment Specialization Program (MSSP) and corresponding "Audit Techniques Guides" that "focus on developing highly trained examiners for a particular market segment" and "contain examination techniques, common and unique industry issues, business practices, industry terminology and other information to assist examiners in performing examinations."
Another very helpful source of public information is the Stanford Law School Securities Class Action Clearinghouse (http://securities.stanford.edu/), which provides information about federal class actions involving securities litigation. Listed companies that have international operations can search this site to review class action pleadings and other information to see the different theories that have been employed by class action counsel seeking to obtain damages that are claimed to relate to false or inadequate disclosures made by companies about the scope or extent of potential harm faced by companies due to conduct implicating the FCPA. See, e.g., In re Titan Corporation, Dckt. # 04-CV-676 (S.D. CA, filed July 18, 2005), available at http://securities.stanford.edu/1030/TTN04-01/
In a paper about emerging trends related to the FCPA I presented for a panel that I moderated ("Foreign Corrupt Practice Act Issues in Emerging Markets: How to Evaluate and Minimize the Risks") at the ABA Annual Meeting in August 2007 for the Section of Business Law, I explained some of the theories that plaintiffs have developed in trying to obtain damages from companies allegedly related to FCPA violations.
One such area involves wrongful termination suits, which "have been filed by individuals who claim they were retaliated against for refusing to risk incurring FCPA liability when pressured to do so by their former employers, or for not keeping quiet about bribery and wrongdoing activities they discovered." Michael E. Clark, Evaluating and Minimizing the FCPA Risks When Conducting Business in Emerging Markets (citing, inter alia, D’Agostino v. Johnson & Johnson, Inc., 133 N.J. 516, 628 A.2d 305 (N.J. 1993) (suit by a Swiss resident alleging he was terminated by a Swiss subsidiary of a New Jersey corporation for not going along with a scheme to bribe a Swiss official so that his employer’s pharmaceutical products would be approved).
Another area involves common law fraud suits, as illustrated by Metro Communications Corp., BVI v. Advanced Mobilecomm Technologies, Inc., 854 A.2d 121, 142-43 (Del. Ch. 2004) (“Metro’s complaint revolves around the claim that it was not sufficiently informed about the bribery scandal and its consequences until it had already responded affirmatively to numerous capital calls and … poured millions … into Fidelity Brazil. This factual core forms the basis of three distinct disclosure-based legal theories that Metro has advanced in an effort to recoup those sums. [¶] First, Metro pleads common law fraud claims against all the defendants alleging that [they] … knowingly or recklessly made false statements to Metro with the intent to induce Metro to continue to contribute capital, and that Metro reasonably relied on those statements to its detriment. Metro also bases its fraud claims on the defendants’ alleged active concealment or nondisclosure of material information to Metro. [¶] Second, Metro asserts equitable fraud claims against all the defendants, arguing that they are susceptible to liability even if they did not know that certain statements made to Metro were false. [¶] Third, Metro has asserted fiduciary duty claims against the former managers of Fidelity Brazil ….”).
More to come . . .
©Michael E. Clark, Hamel Bowers & Clark LLP. The information provided in this blog does not, nor is it intended to, create an attorney-client relationship. It is offered solely for informational purposes. For additional information about me, my practice, background and interests, see the following pages (which contain links to some of my published papers and articles: www.avvo.com/attorneys/77007-tx-michael-clark-121553.html and www.superlawyers.com/texas/lawyer/Michael-E-Clark/a051f497-181f-4399-862b-cd4a7ad5c1cf.html
The treatise about pharmaceutical law that I devised and for which I am Editor-in-Chief was published in December 2007 by BNA/ABA Section of Health Law. See http://books.google.com/books?id=uWrhQSZ14AMC&printsec=frontcover&dq=%22pharmaceutical%22+%26+marketing+regulation&sig=ACfU3U1w36Sipb34e7yDRLiYdPylbg9-oQThis entry discusses how FCPA issues oftentimes appear in parallel civil litigation and how plaintiffs’ counsel are successfully leveraging FCPA enforcement activities to obtain financial settlements for their clients.