SEC Settles FCPA Charges With Two Former Telecom Executives

Two former executives of Hungarian telecom firm Magyar Telecom settled FCPA charges with the SEC shortly prior to the commencement of their trial. Former CEO Elek Straub, and former Director of Central Strategic Organization Andras Balogh, agreed to pay penalties of, respectively $250,000 and $150,000. Each former officer agreed to be barred from serving as an officer or director of a public company for a period of five years. Another former company official named in the complaint previously settled with the Commission. SEC v. Straub, Case No. 11 civ 9645 (S.D.N.Y. Filed Dec. 29, 2011).

The action derives from the 2011 settlements of the company and its majority owner, Deutsche Telekom AG, with the SEC and the Department of Justice. SEC v. Magyar Telekom, Plc., Case No. 11 civ 9646 (S.D.N.Y. Filed Dec. 29, 2011). Those cases focused on potential legal changes in the telecommunications market in Macedonia beginning in early 2005. At that time the government was liberalizing the market in ways Magyar Telekom deemed detrimental to its subsidiary. To mitigate the impact of those changes the company entered into an arrangement under which government officials would delay the entrance into the market of a third mobile license. Other regulatory benefits would also be available. As part of the arrangement company officials paid $6 million under circumstances in which they knew, or were aware of, a high probability that circumstances existed in which all or part of the money would go to Macedonian officials. The payments were funneled through various mechanisms including intermediaries and a sham consultancy. The books and records of the company were falsified. Deutsche Telekom reported the results of Magyar’s operations in its consolidated financial statements.

The SEC’s complaint against Magyar and its parent alleged that the subsidiary violated Exchange Act Sections 30A and 13(b)(5) and that both companies violated Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). To settle with the SEC, Magyar consented to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. The company also agreed to pay disgorgement and prejudgment interest in the amount of $31.2 million. The action against its parent was resolved in connection with the non-prosecution agreement Deutsche Telekom entered into with the DOJ described below.

With the DOJ, Magyar Telecom entered into a two year deferred prosecution agreement. The information charged the company with one count of violating the anti-bribery provisions of the FCPA and two counts of violating the books and records provisions of the FCPA. As part of the settlement the company agreed to pay a $59.6 million criminal penalty. The company also agreed to implement an enhanced compliance program and submit annual reports on its efforts. At the time Magyar’s ADRs were traded on the New York Stock Exchange. Deutsche Telekom, whose ADRs are traded on the NYSE, entered into a two year non-prosecution agreement. The parent company agreed to pay a $4.36 million penalty in connection with inaccurate books and records and to enhance its compliance program.