THE FCPA: A KEY FOCUS OF SECURITIES REGULATORS

While insider trading has been dominating the news, the Foreign Corrupt Practices Act remains a key focus of securities regulators. The Department of Justice continued to unwind a years long conspiracy to violate the FCPA with the guilty plea yesterday of Wojciech J. Chodan, a former commercial vice president and consultant to the U.K. subsidiary of Kellogg, Brown & Root, Inc., now a subsidiary of Halliburton Company. Mr. Chodan pleaded guilty to conspiring to violate the FCPA. The date for sentencing has not been set.

The conduct on which Mr. Chodan’s plea is based traces to 1990 and continued over the next fourteen years. At that time KBR, Snamprogetti Netherlands B.V., Technip S.A. and another company formed a joint venture to secure contracts from Nigeria LNG, Ltd., a company formed by the Nigerian government which held a 49% interest. The government created the company to capture and sell natural gas associated with oil production in the country. The joint venture partners determined that bribes had to be paid to acquire business.

From 1995 through 2004, the joint venture was awarded four EPC contracts by Nigeria LNG Ltd. to build facilities on Bonny Island. KBR CEO Albert Stanley and others met with a designated representative of the government and negotiated the agreements and bribes. Mr. Chodan recommended that the joint venture hire two agents to pay the bribes. One was a Gibraltar corporation controlled by Jeffrey Tesler. The other was a Japanese trading company. About $132 million was paid to the Gibraltar company. Another $50 million was paid to the Japanese trading company. At various points during the venture, Messrs. Stanley, Chodan and others met with government officials to secure the appointment of a representative with whom they could deal.

Previously, KBR, Snamprogetti, Technip and Mr. Stanley resolved their cases:

• KBR pleaded guilty to conspiring to violate the FCPA. The company agreed to pay a $402 million criminal fine which is at the lower end of the sentencing guideline range and to retain a monitor for three years. U.S. v. Kellogg Brown & Root LLC, Case No. H-09-071 (S.D. Tex. Filed Feb. 11, 2009) (here). The company and its parent also settled with the SEC, consenting to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records and internal control provisions of the FCPA and to pay disgorgement of $177 million. SEC v. Halliburton Co., Case No. 4:09-CV-399 (S.D. Tex. Filed Feb. 11, 2009) (also discussed here).

• Snamprogetti settled with DOJ, entering into a deferred prosecution agreement and agreeing to pay a criminal fine of $240 million. The fine is about 20% below the guideline range, reflecting the full cooperation of the company. U.S. v. Snamprogetti Netherlands B.V., Case No. H-10-460 (S.D. Tex. Filed July 7, 2010). The parent company and the subsidiary settled with the SEC, consenting to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records provisions and to pay a civil penalty of $125 million. SEC v. ENI, S.p.A., Case No. 4:10-cv-0214 (S.D. Tex. Filed July 7, 2010) (here).

• Technip entered into a deferred prosecution agreement with DOJ and to pay a $240 million criminal fine which is about 25% below the guideline calculation reflecting its cooperation. The company also agreed to install a compliance monitor. U.S. v. Technip, H-10-439 (S.D. Tex. Filed June 28, 2010). To settle with the SEC, Technip consented to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records provisions of the FCPA. The company also agreed to disgorge $98 million in profits from the scheme along with prejudgment interest. SEC v. Technip, Case No. 4:10-cv-02289 (S.D. Tex. Filed June 28, 2010) (here).

• Mr. Stanley pleaded guilty to a two count information charging conspiracy to violate the FCPA and conspiracy to commit wire and mail fraud. U.S. v. Stanley, H-08-597 (S.D. Tex. Filed Sept. 3, 2008).

INSIDER TRADING: A GLOBAL PROBLEM

Insider trading continues to dominate securities enforcement. In the U.S., the Galleon cases are marching toward trial, while the Manhattan U.S. Attorney rolls up guilty pleas and cooperating witnesses. The recently revealed insider trading inquiry regarding expert networks is also moving forward with yet another revelation that one of the hedge funds raided by the FBI is not a target. To date, two of the three funds have been informed that, despite the storm trooper tactics used to seize their records, they are not targets of the investigation.

U.S. securities regulators are not the only ones focusing on insider trading. Securities regulators around the globe appear to be concentrating on the problem. For example:

Quebec: The Autorite des marches financies, Quebec’s securities regulator, has been investigating trading in the share of Consolidated Thompson Iron Mines Ltd. since 2008. To date, two company insiders have either been convicted or pleaded guilty, while a third is awaiting trial. In 2006, the company obtained a feasibility study relating to its Bloom Lake iron ore deposit. Before publication of the findings from the report, Richard Quesnel, the chief executive officer, purchased 30,000 shares. Recently, he was convicted following trial of insider trading and failing to file the required reports regarding his transactions. Last week, Martial Cote, an engineer for the company, pleaded guilty to insider trading. He was fined $18,000 by a Quebec judge. Mr. Quesnel, who stepped down from his position at the company during the trial, plans to appeal the ruling. Company Engineer Patrice Live is awaiting trial on insider trading charges.

Brazil: Brazil’s Securities Commission, CVM, fined Credit Suisse Group 26.4 million Brazilian reais or about $15.35 million for insider trading and influencing local markets. The charges are based on the involvement of Credit Suisse International and its local unit, Credit Carteira Propria, in the sale of energy transmission company Terna Participacoes SA or Cemig to energy generator Companhaia Energetica de Minas Gerais SA. The bank’s involvement in the transaction reportedly caused an unusual increase in the trading volumes and share prices of Terna. According to CVM, prior to the announcement in April 2009 that Terna of Italy was being sold to Cemig, Credit Suisse traded, making gains of BRL 8.8 million in less than two weeks.

Kenya: The Capital Markets Authority, or CMA, lost its second insider trading case in the last two days. CMA brought insider trading charges against Terry Davidson, the former CEO of Kenya Commercial Bank. Mr. Davidson was accused of insider trading in connection with his acquisition of Uchumi shares, a retail chain, when he purchased over 6000 shares valued at 9.5 million shillings. The court ruled that Mr. Davidson did not have inside information at the time of the purchase. Two days earlier the court concluded that former Uchumi general manager Bernard Kibaru had not engaged in insider trading when making a similar purchase.

Turkey: The Capital Markets Board announced that it will increase fines and jail sentences for manipulation and insider trading. Presently these crimes are punishable by sentences ranging from two to five years. The new rules will permit regulators to confiscate gains and will preclude partners and senior executives from selling shares of their company unless they have been held for at least three months following purchase.

Tokyo: The Tokyo district prosecutor and the Securities and Exchange Surveillance Commission are bringing insider trading charges against the husband of a Seiyu, Ltd. board member based on trading in advance of a tender offer. Seiyu is a unit of Wal-Mart Stores, Inc. In 2007, Wal-Mart had a majority stake in Seiyu. In October 2007, the board of Seiyu considered a proposal for a tender offer by Wal-Mart to buy out the minority shareholder of Seiyu. After that meeting but before the announcement the husband purchased shares which were later sold at a profit of Y7 million.

Sydney: John Joseph Hartman was sentenced to three years in prison after pleading guilty to 25 offenses under the Corporations Act which constitute insider trading and tipping. Mr. Hartman is alleged to have made about $1.9 million. John Hartman had been employed at Orion Asset Management until January 2009. During his employment he studied the impact of securities transactions by the company, noting that the volume of the transactions moved the price. Subsequently, he began using advance information about the purchases and sales of the company to trade through a friend. Specifically, he had his friend place trades in advance of those made by his employer in the shares of Henderson Group, Alumina, Riverdale Mining, CSR, AMP, Caltex, Transpacific Industries and Suncorp-Metway. Mr. Hartman has agreed to cooperate with prosecutors against a friend to whom he passed the information. He has also repaid about $1.5 million of the trading profits.

FCPA Program: Thursday, December 9, 2010 from 12:00 to 1:30 p.m. Tom Gorman and Frank Razzano will co-chair the “Third Annual FCPA Update: Current SEC & DOJ Enforcement Activities.” The program is sponsored by the ABA Criminal Justice Section, White Collar Securities Fraud Subcommittee of which Mr. Gorman is co-chair.

The panel of speakers includes: Judge Stanley Sporkin, Law Offices of Stanley Sporkin, Peter B. Clark, Cadwalader, Wickersham & Taft, F. Joseph Warin, Gibson Dunn, and Tammy Eisenberg, Chief Compliance Officer and General Counsel of DIAM, New York City.
The program will be webcast nationally and live in Washington, D.C. at the offices of Pepper Hamilton where Mr. Razzano is a partner, 600 14th Street, Washington, D.C. Lunch will be served during the program. To register please click on the following link: http://www.abanet.org/cle/programs/t10fpa1.html