by T. GormanPosted on Posted in SECActions

The DOJ and the SEC continue to conduct industry wide FCPA investigations as part of the “new era” of enforcement. One such inquiry focuses on the medical device industry. In connection with that inquiry the DOJ and the SEC entered into settlements involving Smith & Nephew, a world wide medical device manufacturer. See, e.g., SEC. v. Smith & Nephew Plc, Civil Action No. 1;1-CV-00187 (D.D.C. Feb. 6, 2012).

Smith & Nephew plc is a U.K. based company whose ADRs are traded in New York. One of its wholly owned subsidiaries is Smith & Nephew, Inc., based in Memphis, Tenn. According to the court papers, from 1998 through 2008 Smith & Nephew, through two of its subsidiaries, authorized the payment of bribes to Greek health care providers. The purpose of the payments was to induce physicians to purchase products from the subsidiaries.

Beginning in 1997 the two subsidiaries crafted a scheme through which they created a pool of funds to pay the Greek health care providers. In the first part of the scheme the two subsidiaries sold their devices to a Greek Distributor at full price. Discounts due the distributors, and totaling over $19 million, were then funneled off to shell entities controlled by the distributor. The money supposedly was to pay for marketing services. There were no such services however. Rather, portions of the money were used by the distributor to make the payments to the Greek health care providers. Employees at the subsidiaries and the parent were aware of this project, according to the papers.

To resolve the criminal inquiry the U.S. subsidiary entered into a deferred prosecution agreement. Under that agreement the company will pay a $16.8 million criminal fine. The company also agreed to implement a rigorous system of internal controls and retain a compliance monitor for eighteen months. The DOJ acknowledged the cooperation of the company, citing its internal investigation and remedial efforts.

To settle with the SEC, the parent company consented, without admitting or denying the allegations in the complaint, to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 30A, 13(b)(2)(A) & 13(b)(2)(B). The company also agreed to retain an independent consultant and pay disgorgement of $4,028,000 along with prejudgment interest. The SEC releases do not mention cooperation.

Tagged with: , , ,

by T. GormanPosted on Posted in SECActions

The number of actions settled by the SEC in the last fiscal year remained essentially constant, according to a report prepared by NERA Economic Consulting. In contrast, the number of securities class actions filed last year ticked up slightly in the U.S. compared to the prior year (here). Securities litigation in other countries such as Canada, the U.K. and Australia, however, generally increased, according to other NERA reports.

Canada

The filing of securities class actions in Canada increased significantly in 2011, continuing a recent trend. In 2011 fifteen new cases were filed, compared to ten in 2010 and nine in 2009. Indeed, the number filed in 2011 is almost triple the average number of actions brought from 1997 through 2010.

The largest number of cases filed in 2011 were so-called Bill 198 actions. Those relate to the adoption of a continuous disclosure system in late 2005. A number of the new cases involve Chinese issuers. This trend prompted the Ontario Securities Commission to announce in July 2011 that it is conducting a targeted review Canadian issuers with significant operations in emerging markets.

Many Canadian domestic companies also risk being named in securities class actions in the U.S. the report concludes. Those cases almost always involve companies with securities listed on U.S. exchanges. In 2011 five Canadian domiciled companies were named as defendants in six securities class action filings in the U.S., an increase from the three cases filed each year in 2009 and 2010. Since 1997 Canadian domiciled companies have been named as defendants in 74 U.S. securities class actions. Of those cases 28% had a parallel class action filed in Canada. Since Bill 198 was instituted at the end of 2005 however 46% of the U.S. class actions filed against Canadian domiciled companies have had a parallel action filed in Canada.

United Kingdom.

In the U.K. NERA measured regulatory enforcement trends in terms of fines imposed. For fiscal 2010/2011 the consulting firm found that fines were at record levels. Standing alone however, that finding does not fully reflect enforcement activity. Aside from a few large actions where the fines were imposed at record levels, in fact the total amount of fines imposed decreased. Furthermore, while the FSA is imposing more fines than previously, it has focused on unsuitable investments and mis-selling. In contrast, market abuse cases against firms are rare, the report concludes.

Other key findings include:

  • Total fines for fiscal 2010/2011: ₤98.6 million compared to ₤33.3 million for the prior fiscal year;
  • Of total fines imposed in fiscal 2010/2011 ₤64 million were in four cases; and
  • For individuals in fiscal 2010/20 the number of fines imposed was more than ten times the average over the six years prior to fiscal 2008/2009.

Japan

Enforcement actions by the Securities and Exchange Surveillance Commission centered on claimed misstatements reached a record high of 12 in 2010, up from nine in the prior year, according to NERA. Actions by the SESC tend to foretell trends in private litigation according to the report.

In private litigation the number of judgments increased to a record 56 cases in 2010, up from 14 in 2009. Indeed, the 56 civil and criminal judgment cases in 2010 more than doubled the average of 25 per year from 1998 through 2009. The number of judgments centered on alleged misstatements, however, decrease d to seven in 2010 in contrast to fourteen in the prior year.

Australia

In Australia the number of securities class action filings continued to increase. In 2009 six actions were filed compared to five in 2008 and three each year in 2006 and 2007. A key to the increase in the number of cases is the manner of funding. Previously, according to the report, until recently there was a strong disincentive to bring an action because of the risk of incurring significant legal costs. The emergence of commercial litigation funding has altered the incentives for, and ability of, investors to participate.

Tagged with: , , , , ,