Board Directors Liable for Whistleblower Retaliation and other SEC News

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There’s been a number of stories recently in the news that would be of interest to securities whistleblowers and potential whistleblowers.  We thought we would briefly recap the ones happening this week which we haven’t previously covered.

Individual Board of Directors Can Be Liable for Whistleblower Retaliation under Dodd-Frank

A decision in an anti-retaliation lawsuit by a FCPA whistleblower in the Northern District of California has held that Dodd-Frank’s SEC whistleblower protections can impose liability on individuals for their actions in contravention of the law. The Court concludes that Congress intended for Dodd-Frank’s protections to be at least as extensive the protections afforded by the Sarbanes-Oxley Act.

Earlier in the opinion, the Court determined that a whistleblower could hold individually liable a member of the corporation’s board of directors as an agent under Section 1514(a) of SOX.

The court opinion also reveals publicly the inner workings of the company’s internal FCPA investigation that led to the $55 million fine by the SEC and the Justice Department in November 2014. The General Counsel of the company identified China as an area of risk after the company began an investigation into potential bribery in other Southeast Asian Countries. However, two internal investigations by an external law firm led to reports that the company was not violating the law. According to the complaint, the General Counsel revealed problems with the internal investigations and was fired for concluding that management was turning a blind eye to the potential violations.

JPMorgan Settlement Looms for $200+ Million

JPMorgan has agreed to settle for more than $200 million the SEC investigation into insufficient disclosures to clients regarding its conflict of interest when selling its own bank products to private-banking clients. However, the settlement has been stalled for several weeks as the two sides argue over whether a waiver should be granted to allow the bank to sell stocks and bonds via private placements.

Certain bad actors are disqualified from underwriting private placements as a result of violations of the federal securities laws. In the past, the SEC has routinely grants waivers to the disqualification. However, over the past few months, the Commission has taken a harder stance and resisted granting such waivers.

IBM Accounting Fraud?

The SEC has opened an investigation into revenue recognition by IBM into certain deals in the United States, Britain and Ireland. IBM announced the investigation to shareholders yesterday after learning about it in August. The SEC previously investigated the company’s cloud computing business for revenue recognition issues in 2013. The securities regulator closed that investigation with recommending an enforcement action.

There may be more announcement of actions like this one in the future. The SEC has made tackling accounting fraud a significant priority. Additionally, the Financial Accounting Standards Board issued a new revenue recognition standard in May 2014. As that standard is fully implemented over the next few years, it is expected to have a significant impact on financial reporting and ambiguities in the law may further heighten the likelihood of enforcement actions against companies.

Another Credit Ratings Agency Settles

At the tail end of the financial crisis, a credit rating agency, DBRS, published its surveillance methodology. However, according to the settlement with the SEC, DBRS failed to conduct its credit rating analysis according to the terms of that methodology for the next three years and it failed to publish changes to the document pursuant to the methods contained therein.

DBRS is regulated by the Rating Agency Act as a nationally recognized statistical rating organization (NRSRO). The SEC order found violations of numerous provisions of the federal securities laws related to its NRSRO application, annual certification and resources/internal controls. The company agreed to pay a penalty of nearly $3 million and disgorge rating surveillance fees of nearly $3 million.

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FCPA News: PTC Settles for $28 Million; GCC Ups Reserve

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There continues to be the release of significant FCPA news this year despite a report from law firm Miller & Chevalier noting that the number of resolved FCPA enforcement actions in 2015 was at its lowest level since 2006. The report looked at both SEC and DOJ investigations which resulted in penalties. All indications so far are that this was just a short term lull in enforcement rather than the beginning of a long term trend.

FCPA News: DOJ Creates Pilot Program and SEC Fines Casino over Macau

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There has been a couple news items related to the Foreign Corrupt Practices Act this week, with the Justice Department announcing a one year pilot program to encourage self-disclosure and the SEC settling its investigation of Las Vegas Sands with an enforcement action totaling $9 million.

Johnson Controls, Analogics Settle FCPA Investigations

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We have now seen our second Foreign Corrupt Practices Act settlement involving vendor payments over the past three weeks as Johnson Controls settled its SEC investigation for $14 million and Analogic previously agreed to pay nearly $15 million to the SEC and DOJ.

SEC launches Investigation Over Soccer Bribery

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The SEC has reportedly launched a civil investigation into several companies with links to FIFA or other soccer bodies under the Foreign Corrupt Practices Act, according to Reuters last week.

When the FIFA bribery scandal first broke and the DOJ filed charges, we discussed whether a whistleblower in the case could get a reward for providing information. One of the issues that we discussed was that the DOJ did not have a reward program for FCPA violations. As such, we speculated that there would have to be a tie-in to the SEC whistleblower program. If enforcement actions happening because of this investigation result in fines of $1 million, a reward is a definite possibility.

Although there has been no explicit mention of which companies are under investigation, one of the companies that had been identified by the media previously was Nike, which had a contract with a Brazilian soccer organization. It is not yet known whether Nike is part of the current investigation.

In other news, Louis Berger agreed last week to pay $17.1 million to settle bribery charges brought by the Department of Justice. The charges stemmed from $3.9 million in bribe payments made to foreign officials in countries which included India, Indonesia, Vietnam and Kuwait. The bribes paid by the New Jersey construction management company and its employees happened from 1998 until 2010.

The FCPA is jointly enforced by the SEC and DOJ. The Justice Department has the power to enforce it against domestic companies and U.S. citizens while the SEC enforces against the companies that it regulates (“issuers” under the law).

If you would like to speak to a whistleblower attorney concerning suspected violations of the law, a lawyer can be reached by our contact form or calling 1-800-590-4116.

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Healthcare Companies Continue to Face FCPA Liability Overseas.


Both Teva and Flowserve have announced potential exposure under the Foreign Corrupt Practices Act (FCPA) in securities filings over the past month due to business practices outside of the United States.

Teva announced that its investigation into potential FCPA violations has discovered conduct that “likely” violated the law. The corporate investigation started in 2012 following an inquiry by the Securities & Exchange Commission and Department of Justice. The company is investigating practices in Latin America, Eastern Europe and Russia.

Teva is an international pharmaceutical company headquartered in Israel. However, in addition to U.S. based companies, the law also applies to issuers on a U.S. stock exchange. Teva trades on the New York Stock Exchange under the stock symbol “TEVA”.

Unlike Teva, Flowserve indicated that it does not believe that the matter will materially impact its business. Flowserve self-reported a potential violation of the FCPA to the DOJ and the SEC following discovery of a violation of its code of conduct by an employee. The company terminated the individual and is conducting an internal investigation.

Flowserve previously settled charges in 2008 brought by the DOJ and the SEC that employees at a subsidiary paid kickbacks to the Iraqi government to obtain contracts related to the United Nations Oil for Food program. The company paid just over $10 million in penalties to resolve the cases. Flowserve is covered by the FCPA both as a U.S. issuer (it trades on the NYSE under the symbol “FLS”) and an American corporation. It is headquartered in a suburb of Dallas, Texas.

Teva and Flowserve are not the only companies to face potential liability. GlaxoSmithKline is investigating allegations of wrongdoing in several countries around the world, including China, Iraq and Poland. GSK already paid China nearly $500 million to settle charges of corruption in that country.

In Iraq, GSK allegedly hired 16 government-employed medical professionals as sales reps. In Poland, the company allegedly used money allocated for medical training to instead bribe doctors. In China, the sales team allegedly provided expensive gifts and cash to influential doctors. It also used a travel agent to send some on vacations while calling them conferences.

News reports have indicated that the allegations in China, Iraq and Poland have all resulted from international whistleblowers. Individuals in all three countries have reportedly provided information to the press regarding the matters the company is investigating.

Pharmaceutical and medical device manufacturers face potential exposure because physicians at state-owned facilities are considered foreign officials under the FCPA. Pfizer, Johnson & Johnson, and Eli Lilly have all paid fines over the past few years to resolve investigations.

FCPA investigations can take a long time, so there is no reason to expect a resolution or settlement involving either GSK, Teva or Flowserve anytime soon. Eli Lilly, for example, disclosed a potential violation of the law in 2003. Following its settlement with the SEC in 2012, the DOJ continued to investigate Eli Lilly. Eli Lilly only recently announced that the Justice Department closed its investigation into the matter.

Here are the links to the securities filings by Teva and Flowserve. The relevant sections can be found by searching for “Foreign Corrupt”.  For additional information, please contact one of our FCPA whistleblower attorneys.

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Corruption Reports Highlight Worldwide Bribery Problem in 2016

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The global problem of bribery isn’t going away anytime soon. Forty percent of all compliance officers reported the risk of bribery and corruption at their company will increase this year, according to the Kroll and Ethisphere Institute report released this morning: The 2016 Anti-Bribery and Corruption Report. Just 8 percent believed that their corruption risks would decrease in 2016.

The Latest on Olympus

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It turns out the superbug lawsuits aren’t the only legal problems for the manufacturer of duodenoscopes. Olympus has now reserved almost $450 million to settle claims of illegal marketing of its products from 2006 to 2011. These allegations involve the payment of kickback to doctors in violation of the False Claims Act, which is among the type of cases that our whistleblower attorneys handle.

The investigation may not be confined to the US. It looks like Olympus has also reported problems to the DOJ with payments to doctors in Brazil for travel, meals and entertainment. I haven’t done any research into the Brazil health care system, but if these doctors work for state-owned enterprises, I suspect the investigation is into potential FCPA violations.

Olympus has also been sued in Pennsylvania state court by two women accusing the company of spreading cancer with their device for laparoscopic power morcellation. The lawsuits accuse the company of failing to design the PKS PlasmaSORD Bipolar Morcellator to reduce the risk and argues that the company should have known about the problem.

Also in the news from Olympus, but related to its scopes and superbug contamination:

A two day advisory committee meeting declared duodenoscopes unsafe but did not instruct the FDA to stop their use by doctors. Instead, the 16 member panel of doctors, health experts and consumer representatives recommended that the FDA require the devices be redesigned.

Olympus and the two other scope manufacturers declined to participate in the two-day FDA panel. They haven’t released safety data about the effectiveness of their new, revised cleaning instructions, either.

Yet, Olympus is now claiming that human errors in the reprocessing of duodenoscopes may be at least partially to blame for the superbug infections. Physicians have contended that a design flaw in the devices makes them difficult to clean.

In early May, the FDA disclosed that it has received 142 reports of contaminated devices and possible patient infections since 2010. Approximately 50% of those came in 2013 and 2014.

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Media Reports FCPA Whistleblower Tip Against Mondelez

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A whistleblower provided information to the Securities and Exchange Commission regarding potential violations of the Foreign Corrupt Practices Act. According to a Wall Street Journal report, the SEC is preparing to bring charges of FCPA violations regarding the internal accounting controls of Mondelez and the two parties are in settlement talks.

The specific issue under investigation and subject to potential charges involved the use of a consultant by its Cadbury division in India to pay bribes to officials for permits and approvals in connection with a factory. There are reportedly other questionable payments out of the division as well.

Mondelez International was created during the 2012 spin-off of Kraft Foods Group, the North American grocery business of the Kraft Foods. Mondelez continues to handle the old Kraft’s food and beverages (the snack division). Separately, Mondelez Global and Kraft Foods Group are involved in a lawsuit with the CFTC over allegations that Kraft manipulated the commodities market.

The SEC has received more than 400 tips concerning potential violations of the FCPA since opening the Whistleblower Office as a result of the Dodd-Frank Act. Soon after the whistleblower program began, and SEC official indicated that due to the size of the rewards he expected the FPCA to be fertile ground for individuals to submit information to the program.

International tips account for more than 10 percent of the reports to the SEC each year, but it is not clear whether the individual providing the tip was located overseas or in the United States.

Previously, there were media reports of a whistleblower in the case against Hewlett Packard. HP ultimately paid $108 million in April 2014 to settle an investigation into suspected bribery in Russia, Poland and Mexico.

If you are considering blowing the whistle on bribery by a publicly traded company, we have put together an informational guide for FCPA whistleblowers that may answer your questions. If you have need additional information, contact one of our FCPA whistleblower attorneys. We can assist you in reporting your evidence of bribery by a publicly traded company or other covered entity to the Securities and Exchange Commission. Please contact an attorney via our contact form or call 1-800-590-4116 for assistance.

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FCPA Investigation of JPM Intern Program Proceeding

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The Wall Street Journal has published a story on a document generated as part of the government’s FCPA investigation into J.P. Morgan Chase which details the hiring of family members or friends of executives in most of the major Chinese IPOs the investment bank took public in Hong Kong. The individuals were hired into the bank’s intern program, known internally as the Sons and Daughters program.

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