by T. GormanPosted on Posted in SECActions

In Congressional hearings over the past two years, DOJ officials have faced repeated questioning about the lack of FCPA prosecutions against individuals. While the DOJ and the SEC have negotiated FCPA settlements involving huge payments by the likes of Siemens AG, BASF, JGC and other international giants, those cases have yielded few prosecutions against the individuals alleged in the court papers to have been involved.

Now however the DOJ, along with the SEC, has a partial answer to the questions: Eight former senior executives and agents of Siemens were charged with criminal violations of the FCPA by the Department of Justice. U.S. v. Sharef, 11 Crim 1056 (S.D.N.Y.). Seven of those executives were also charged by the SEC in a parallel civil action. SEC v. Sharef, 11 CIV 9073 (S.D.N.Y. filed Dec. 13, 2011). One former executive settled with the SEC.

The actions center on conduct first revealed in the record setting FCPA settlement in 2008 involving Siemens A.G. The allegations in the criminal indictment and the civil complaint arise out of commitments by Siemen’s executives and agents to pay over $100 million in bribes to Argentine officials to win a $1 billion contract. Named as defendants in the indictment are Uriel Sharef, a former member of the central executive committee of Siemens AG; Herbert Steffen, a former CEO of Siemens Argentina; Andres Truppel, a former CFO of Siemens Argentina; Ulrich Bock, Stephan Singer and Eberhard Reichert, former senior executives of Siemens Business Services or SBS; and Carlos Sergi and Miguel Czysch, intermediaries and agents of the company.

The conduct traces to 1994 when the government of Argentina issued a tender for bids for the DNI project which was to create a new system of national identity booklets with state of the art national id cards. During the bidding process the defendants and others committed Siemens to paying about $100 million in bribes to officials of the Argentine government, members of the opposition party and candidates for office who were likely to come to power during the project. Approximately $31.3 million was paid after March 12, 2001 when Siemens became a U.S. issuer. The defendants used various means to conceal the payments including 17 off-shore shell companies. The project had an estimated value of $1 billion over its life time. In 1998 the project was awarded to a special purpose subsidiary of Siemens.

In 1999 the government suspended the project. When a new government came to power in Argentina, the defendants are alleged to have committed Siemens to paying additional bribes to the new officials. Existing obligations to other officials were also paid.

Nevertheless, in May 2001 the project was terminated. In an effort to recover the lost profits on the project, the defendants caused Siemens to instituted an arbitration against the government of Argentina in Washington, D.C. During that proceeding the fact that the contract was secured through the payment of bribes was suppressed. At the same time Siemens continued to fulfill its obligations to various government officials by making the promised bribe payments in part conceal its activities according to the charging papers. Indeed, payments were even made through a related arbitration instituted in Switzerland by agents of the defendants. Siemens prevailed in the Washington arbitration, securing an award of about $217.

In 2009, following a change in management and the initiation of proceedings by the Munich prosecutors office, the company began cooperating with the DOJ and the SEC as well as German prosecutors. At that time the scheme first was revealed. The company decided to forego the right to the arbitration award.

The indictment alleges violations of the FCPA, conspiracy to commit wire fraud, conspiracy to commit money laundering and substantive wire fraud. The SEC’s complaint alleges violations of Exchange Act Sections 30A, 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5). Both actions are pending.

The SEC settled with defendant Bernd Regendantz, the former CFO of SBS from February 2002 to 2004. He is alleged to have authorized two bribe payments totaling about $10 million. Mr. Regendantz consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 30A and 13(b)(5) and from aiding and abetting violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). He agreed to pay a civil penalty of $40,000 which was deemed satisfied by the payment of a €30,000 administrative fine ordered by the Public Prosecutor General in Munich, Germany.

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by T. GormanPosted on Posted in SECActions

The SEC brought a fraud action against a company and its Chairman and President for defrauding company shareholders out of more than $110 million in the sale of their shares to the company by paying prices which were as much as 300% under value. The suit charges that the purchases were made at the time the company and its then Chairman knew facts which significantly altered the values paid by the shareholders without disclosing those facts. The company was privately owned Stiefel Laboratories Inc., and the Chairman was one of its long time principles, Charles Stiefel. The pharmaceutical company has since been acquired by GlaxoSmithKline plc. The case is in litigation. SEC v. Stiefel Laboratories Inc., Case No 1:11-cv-24438 (S.D. Fla. Filed Dec. 12, 2011).

Stiefel Labs was a closely held private manufacturer of dermatology products. Company employees acquired shares of its stock through a defined contribution pension plan which was controlled by a trustee selected by the company board of directors. Defendant Charles Stiefel served as trustee of the plan from 2001 through late 2008, during which time most of the stock purchases at issue here were made. The trustee had a fiduciary duty to plan participants. The trustee also had a duty to employees to determine in good faith the market value of the shareholder’s common stock. The Summary Plan Description signed by Mr. Stefel and given to employees informed participants that they could sell their stock to the company at “current fair market value.” Fair value of the shares was determined by a third party retained by the defendants.

Beginning in 2006 and continuing through 2009 Stiefel repurchased shares of stock from its shareholders in four instances. During the period the company knew key information regarding the valuation of those shares which was not disclosed to the retained consultant or the selling shareholders:

  • From November 2006 through April 2007 the company purchased 750 shares at $13,012. Those shareholders were not told that in November 2006 five private equity firms had submitted offers to buy preferred stock based on equity valuations of the company at prices which ranged from 50% to 200% higher than the valuations used in the buybacks. The shareholders were also not told that the valuations of company stock made from 2006 through 2008 had been discounted by 35%.
  • From late July 2007 through June 2008 350 shares were repurchased under the plan at $14,517 per share. An additional 1,050 shares were acquired outside the plan at lower prices. In addition to the interest of the five firms, Mr. Stiefel knew that a prominent private equity firm had invested $500 million in the company in late August based on an equity valuation that was 300% higher than the price paid shareholders.
  • From December 2008 through April 2009 the firm repurchased another 800 shares at $16,469 per share. Shareholder had always been informed that the company would remain private. Yet during this period the company was seeking bids and negotiating its sale. On April 20, 2009 Stiefel announced that Glaxo, which first expressed interest in January 2009, would acquire the company at $68,000 per share. During the discussions the company increased its budget to repurchase stock despite undergoing financial distress.

The complaint alleges violations of Exchange Act Section 10(b).

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