by T. GormanPosted on Posted in SECActions

The Department of Justice ended one of its most significant FCPA prosecutions against individuals in the history of the Act, voluntarily dismissing with prejudice all of the remaining charges in the Africa sting case. U.S. v Goncalves, No. 09-cr-335 (D.D.C.). The court papers filed by the DOJ stated that the unprecedented step follows careful consideration of three factors: “(1) the outcomes of the first two trials in which . . . juries remained hung as to seven defendants and acquitted two . . . and one defendant [was acquitted] . . .pursuant to Fed. R. Crim. P. 29; (2) the impact of certain evidentiary and other legal rulings . . .; and (3) the substantial governmental resources, as well as judicial, defense, and jury resources, that would be necessary to proceed . . .”

The dismissal may mark a turning point in FCPA enforcement. The DOJ and SEC have had a string of significant corporate settlements over the years. Ever increasing sums were paid in settlement. What was once a headline grabbing, and record setting amount, became an after thought in the wake of the next huge case and even larger settlement.

Born of this trend, the African sting case was quickly hailed as another FCPA milestone. It represented the largest FCPA sting operation in history. Twenty two defendants were indicted in an action that was so large it had to be broken into segments for trial. Early on defendants began pleading guilty. What had been declared to be a “new era” of FCPA enforcement seemed destine to continue.

Then things started to unravel. In the first corporate case where a jury returned a verdict, the court tossed the case out on post-trial motions as to Lindsey Manufacturing and the other defendants. U.S. v. Aguillar, Case no. 2:10-cr-01031 (C.D.Cal.). While the ruling was predicated on prosecutorial misconduct, the court made it clear that a key factor was the weakness of the evidence. The first African Sting case ended with a hung jury after the court dismissed substantive FCPA charges as to certain defendants and each money laundering charge. In another case the court dismissed all the FCPA charges as to former ABB official John O’Shae. U.S. v. O’Shae, H-09-cr-429 (S.D. Tx). Subsequently the DOJ dismissed the remaining charges. That was followed by the second African Sting trial which ended in two acquittals and a hung jury as to three defendants. Post trial juror comments made it clear that that jurors thought little of the government’s case.

In the wake of DOJ’s dismissal of all the remaining African sting charges the critical question is where does the “new era” of enforcement go? Nobody would seriously argue with the goals of the FCPA. At the same time enforcement officials have steadfastly resisted efforts to amend portions of the Act to give clarity to key terms such as who is a foreign official or to add a compliance defense which should only serve to foster the goals of the FCPA. Those officials also seem to have overlooked suggestions that their interpretations of the Act are at times over-reaching such as in the application of its jurisdictional provisions and the construction of the facilitation payment provisions.

Perhaps now is a good time to stop and reflect on what the courts and jurors have said about the “new era” of FCPA enforcement. Surely that era should be more than a dazzling array of ever increasing monetary payments by corporations or actions against individuals built on questionable blue collar tactics. Surely it should be more than business organizations spending ever increasing sums to conduct far reaching and perhaps at times unnecessary investigations at huge expense in a effort to win cooperation credit. Surely it should be more than brining increasing numbers of charges against individuals and demanding longer and longer prison terms. Perhaps now is the time to craft meaningful reform to the Act and enforcement policy to ensure clearer guidance and a more balanced application of the statutes to ensure that the laudable goals of the statute in a fair and balanced manner in the future. That would truly be a “new era” of FCPA enforcement.

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by T. GormanPosted on Posted in SECActions

The U.S. Attorney’s Office in Manhattan and the SEC continue to expand the expert networking investigation. As last week drew to a close criminal and civil insider trading charges were brought against John Kinnucan. U.S. v. Kinnucan, 12-mj-00424 (S.D.N.Y. Unsealed Feb. 17, 2012); SEC v. Kinnucan, Civil Action 12-cv-01230 (S.D.N.Y. Filed Feb. 17, 2012). Mr. Kinnucan is the president of Broadband Research Corporation, an expert network company which was also named as a defendant in the Commission’s action. Mr. Kinnucan made headlines early in the expert network investigations when he circulated an e-mail claiming the FBI had approached him about wearing a wire.

The criminal complaint alleges that Mr. Kinnucan obtained material non-public or inside information such as quarterly revenue numbers from employees at publically traded companies. The SEC complaint limits the time period to 2009 through 2010 while making the same general allegation.

Both complaints focus on June and July 2010 when Mr. Kinnucan is alleged to have obtained information from an employee of F5 Networks, Inc. that the quarterly revenue for the company would exceed street expectations. Specifically, an employee at F5 with whom Mr. Kinnucan is alleged to have cultivated a relationship over a period of time, told him in a telephone conversation on July 2, 2010 that the unadjusted revenue number for F5 was $232 million.” That confirmed the company would exceed revenue guidance of $220 million. Mr. Kinnucan is alleged to have immediately furnished this information to several clients at least three of whom traded making profits or avoiding losses of about $1.58 million.

In the criminal case Mr. Kinnucan has been charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud and two counts of securities fraud. In the civil case Mr. Kinnucan and the firm have been charged with violating Exchange Act Section 10(b). Mr. Kinnucan has been arrested. Both cases are pending.

The court papers in both cases suggest that the charges against Mr. Kinnucan will be expanded in the future. This is bolstered by the fact that a former SanDisk Corporation executive pleaded guilty to participating in a securities fraud scheme last week. Specifically, Donald Barnetson pleaded guilty to one count of conspiracy to commit securities and wire fraud. Prosecutors claim that Mr. Barnetson furnished inside information to Mr. Kinnucan in July 2010 about the future earnings of his company and again in September 2010 about confidential negotiations regarding a dispute between SanDisk and Apple Inc., according to a Businessweek report.

To date the SEC has charged twenty-two defendants in connection with the expert network investigation.

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