Following the Toshiba Accounting Fraud, More Scandals in Japanese Companies Expected

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An article in Bloomberg View suggests that the accounting issues at Toshiba and Olympus are just the start of what could be equivalent to the more than dozen accounting frauds revealed in the United States after the Tech bubble burst in 2000. The article expressly indicates that there will probably be more revelations of problems due both to corporate governance and culture in Japanese businesses.

According to the article, most boards of Japanese public companies are made up of employees of the company. The lack of external oversight encourages them to expand employee perks instead of maximize shareholder value. The stagnant economy has allegedly led them to fake profitability in order to keep their lifestyle and bank loans going. The conclusion of this section of the article is that if one of the shining stars of the Japanese economy has been cooking the books, then the less successful companies are likely doing so as well.

The U.S. response to the scandals was the Sarbanes-Oxley Act. Japan’s Prime Minister Shinzo Abe has apparently introduced a new corporate governance code requiring outside directors on boards. The opinion piece indicates it is an important but encourages the Japanese Government to take additional action.

We were contacted last week from a reporter in Japan asking for our opinion of whistleblower law in Japan and the Toshiba scandal. The essential question was why an individual had not come forward to report this scandal before now.

Japan has a law protecting whistleblowers from retaliation that was enacted in 2006. According to our research, the fines in the law are so small that companies would rather just pay the fines than comply with the law.

Japan also hasn’t historically treated its whistleblowers well, so there was probably reluctance to come forward. The whistleblower who brought a case against Olympus under this anti-retaliation law did not fare well. This was the first to reach Japan’s highest court. Additionally, Michael Woodford, the whistleblower in the Olympus accounting scandal, was also fired after blowing the whistle. Until Japan is able to reassure whistleblowers that they will be protected, they won’t come forward to stop scandals like the one at Toshiba.

However, there are options. Employees in Japan of companies listed on a U.S. stock exchange may decide instead to avail themselves of the confidentiality of the Dodd-Frank whistleblower program instead of reporting to either the company or the Japanese government. The SEC whistleblower reward program has provided a financial incentive encouraging thousands to come forward every year to report violations of US securities laws. If the SEC takes action and recovers a monetary penalty of more than $1 million, an eligible whistleblower is due between 10 and 30 percent of the recovery.

There are nineteen examples already of whistleblowers coming forward to this program and helping to put a stop to problems before investors lost all of their money, and receiving an award. The US has received tips from around the globe about violations but since the program is still new, people are still being educated about it. Four people from overseas have received rewards.

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Australia Joint Committee Recommends More Whistleblower Protections

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Australia appears to have moved one step closer to adopting whistleblower rewards and additional retaliation protections with a report last month by the Parliamentary Joint Committee on Corporations and Financial Services. The report’s main recommendation is for Australia to establish a Whistleblower Protection Authority to support whistleblowers, prioritize the handling of whistleblower tips and investigate instances of retaliation.

CFTC Warns Investors on Offshore Forex and Binary Options Entities

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The CFTC has launched a website alerting retail investors to foreign companies soliciting and/or accepting funds from U.S. investors without permission to operate in this country. The website lists FOREX and binary options brokers and is called the RED List. The new tool complements other CFTC initiatives to fight financial fraud such as the CFTC’s SmartCheck.

The SEC and CFTC previously issued a joint alert warning investors about fraudulent schemes involving binary options. Binary options are an all-or nothing payout – if the value of the underlying asset has increased as of the contract expiration, a pre-determined amount of money is paid out on the option. If not, no money is paid out. Unlike options that trade on the stock market, they do not offer the ability to purchase the underlying asset. Instead, they are exercised automatically and paid in cash.

Only a portion of binary options are listed on registered exchanges in the United States. A number of vendors offer internet-based trading in these securities. Providers of binary options operating in the United States in this fashion may be operating without a license in violation of section 5 of the Securities Act (unregistered offer and sale of securities) and Section 15(a) of the Exchange Act (unregistered broker-dealer).

Investors have reported securities fraud to the SEC and CFTC securities in connection with these platforms. In their alert, the agencies broke this down into three different categories of alleged fraud. They include (1) the failure to credit customer accounts or reimburse funds after accepting the money; (2) identity theft involving information provided; and (3) manipulation of the trading software and rules to game the results and avoid payouts to winning customers.

Forex investors have been the target of fraud by both the small players as well as the big players (recently fined more than $1 billion collectively for market manipulation and anti-competitive actions).

Although these firms may be overseas making enforcement difficult, the Dodd-Frank whistleblower programs created by the SEC and CFTC do offer up the possibility of a reward for reporting information about these frauds if one of the securities regulators is able to collect monetary sanctions as a result of their conduct. Our CFTC whistleblower attorneys can assist you with answers to questions about this information as well as assistance reporting violations of the Commodity Exchange Act to the U.S. Government. To speak to an attorney, fill out our contact form or call 1-800-590-4116.

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China’s Focus Media & CEO Get $55.6 Million SEC Fine

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China has been on the radar of U.S. businesses, investors and the SEC for some time now. And we aren’t just talking about it as a cause of the recent stock market tumble. China is the leading country for allegations of violations of the Foreign Corrupt Practices Act, and the SEC has been seeking information about Chinese companies to investigate potential accounting fraud. In light of these concerns and less advantage to being listed on a U.S. exchange, numerous Chinese companies have been delisting or entering going private transactions.

The agreement to settle an SEC investigation into Focus Media and its CEO over inaccurate disclosures to investors for $55.6 million isn’t surprising in that light, but it probably will open some eyes in China. Focus Media is a large Chinese advertising companies with displays in public locations such as elevators and outdoors. It was taken private in 2013 in a leveraged buyout.

In connection with the settlement, a SEC official in the New York office indicated that the SEC wasn’t going to let the geographic location of companies prevent them from ensuring public companies make accurate statements to investors. This is obviously aimed at sending a message to companies located outside of the United States that they can’t take advantage of the U.S. financial markets with impunity.

For whistleblower rewards, the SEC does not distinguish between the geographic location or citizenship of the source of the tip. Chinese whistleblowers can earn an award under the Dodd-Frank program the same as United States citizens.

Photo Credit. I have no idea if that is a Focus Media billboard or not, but I thought it was appropriate. Of course, I haven’t translated it.

SEC Has Recovered Over $1 Billion Due to Whistleblower Tips

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Over the past week, the U.S. Securities and Exchange Commission has issued total rewards of over $20 million to three SEC whistleblowers. As a result, SEC enforcement actions involving whistleblowers have now recovered more than $1 billion in financial remedies against whistleblowers.

SEC Issues Annual Whistleblower Report for 2017

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The annual SEC whistleblower report to Congress for Fiscal Year 2017 has been released. It provides information and data about the activities of the SEC Whistleblower Office (referred to in the report as OWB) from October 1, 2016 to September 30, 2017. Over the year period, the SEC received over 4,400 whistleblower tips during Fiscal Year 2017 and paid out awards totaling nearly $50 million. The SEC also brought a number of enforcement actions to address companies that unlawful retaliated against or impeded whistleblowers.

FCPA Report: Little Bribery by WalMart Outside India

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The Wall Street Journal is reporting that internal and government investigations into suspected violations of the Foreign Corrupt Practices Act (FCPA) by Wal-Mart Stores have not turned up the evidence of a massive bribery scheme that many commentators expected. Instead, the FCPA investigation discovered millions of dollars in improper payments to Indian officials to speed goods through customs or secure real estate permits but most of these payments were in small amounts of between $5 and $200.

However, there is still time for additional evidence to be uncovered before government officials make up their mind as to the potential size of any fine for the FCPA violations. One event that might alter the landscape of potential penalties would be if a whistleblower came forward with additional evidence and testimony concerning. The SEC whistleblower program incentivizes individuals with the promise of rewards of between 10 and 30 percent of monetary sanctions over $1 million that result from the information provided.

This series of events happened during the Government’s investigation into Countrywide. One of the mortgage whistleblowers in the case came forward with information about the Hustle loan program after the government investigation did not reveal the major misconduct.

The Government investigation of Walmart started in 2012 following public revelations by the New York Times and involved two dozen attorneys, investigators and agents at the DOJ, SEC, FBI and IRS. The results of the federal investigation reportedly match the results of the company’s own investigation.

Wal-Mart has spent more than $650 million as part of its investigation and efforts to bolster compliance. Initially starting in Mexico, it expanded to include, at a minimum, China, India and Brazil. Siemens AG, which paid $800 million to settle the investigations by the DOJ and SEC into its own bribery charges, reportedly spent more than $1 billion on its investigation and global remediation.

The article predicts that the potential government fine of WalMart will be well below previous estimates. In 2012, a Business Insider article calculated how the penalty imposed on the world’s largest retailer could reach over $13 billion. Instead, the Wall Street Journal surmised that because most of the bribery occurred in India and the company earned little profits in the country, there would be a relatively limited fine.

The WSJ story also suggests that there may not be any criminal charges against executives of Wal-Mart. Following the New York Times story concerning the potential cover up of millions of dollars of bribery in Mexico, this seemed unlikely. A grand jury was convened in the case but the status of it was not revealed by the article.

If you have evidence of bribery by a publicly traded corporation, contact one of our FCPA whistleblower attorneys for assistance reporting it to the U.S. Government. An attorney can be reached via our contact form or by calling 1-800-590-4116.

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WSJ Reports Ontario Securities Whistleblower Tips Against Major Private Equity Firm

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Since the Ontario Securities Commission opened its whistleblower program to tips, at least four individuals have filed complaints against one of Canada’s largest private equity firms according to the Wall Street Journal. Officials at the Ontario Securities Commission and a unit of the Toronto Police Service have inquired about the matter with the multi-billion dollar investment firm at issue.

Next FCPA Investigation From Brazil: Eletrobras

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Eletrobras, the tenth largest power utility company in the world and the largest electricity provider in Brazil, has hired a law firm to investigate potential violations of the Foreign Corrupt Practice Act. For those that have been paying attention to the bribery scandals involving the country generally and Petrobras specifically, this should not be a big surprise.

Media attention may have shifted away from Brazil momentarily because of the breaking news over the FIFA corruption scandal. But the pendulum should swing back to the Latin American country soon. It seems that corruption is everywhere there.

Eletrobras delayed its annual report in April because of allegations that the chief executive of Eletronuclear, its subsidiary, took bribes. The investigation by law firm Hogan Lovells is focused on contracts with construction companies implicated in the Brazilian Government’s investigation and other large contracts entered into by the company.

The FCPA Blog is predicting that Petrobras and Eletrobras could yield a substantial number of enforcement actions by the SEC or the DOJ. Since they are publicly traded in the United States, they are subject to the FCPA, the U.S. anti-bribery law. And as state-owned enterprises, any individual or company that bribed them in order to obtain or retain a contract or other business would also violate the FCPA. So the potential is there for these two disclosures to kickstart enforcement actions against many other companies, if the corruption was widespread.

Are you considering blowing the whistle on bribery by a publicly traded company? Review our FCPA whistleblower guide and then contact one of our SEC whistleblower attorneys to have your questions answered. An attorney can be reached by our contact form or by phone at 1-800-590-4116.

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BNY Mellon Fined for Internships; Ford Investigated for Russian Customs Bribes

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Bank of New York Mellon has agreed to pay $14.8 million to settle the SEC investigation into possible violations of the Foreign Corrupt Practices Act regarding internships it provided to family members of sovereign wealth fund officials.

The SEC accused BNY Mellon of hiring the family members to win or keep investment contracts involving the sovereign wealth fund assets. Their internship programs are highly competitive and the investment bank did not apply the normal rigorous process to applicants related to individuals qualifying as foreign officials under the FCPA. BNY Mellon neither admitted nor denied the charges in the settlement.

Investment banks have been under investigation since 2011 when the SEC began its industry-wide bribery investigation by seeking information from multiple banks within its jurisdiction. Goldman and Deutsche Bank have also disclosed investigations into their hiring practices.

In other FCPA news, the SEC is reportedly investigating Ford for Russian customs bribes. The SEC has joined a German investigation into bribes by U.S. automaker Ford and German freight company Schenker into suspected bribery at the port of St. Petersburg in Russia. According to Reuters, the port is known for long delays and the alleged bribes were to speed the passage of containers through Russian customs. As a U.S. issuer trading on the New York Stock Exchange, Ford must comply with the terms of the Foreign Corrupt Practices Act.

Questions about this or other FCPA issues? We have put together an informational guide for FCPA whistleblowers that may answer your question. If you have need additional information, contact one of our FCPA whistleblower attorneys. We can also 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.

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