by T. GormanPosted on Posted in SECActions

2007 was the year of the record settlement. Vetco International and Baker Hughes both paid record fines to resolve FCPA cases. Indeed, Baker Hughes set two records, one for the largest combined DOJ/SEC FCPA settlement and a second for penalty paid for violating an SEC cease and desist order. DOJ prosecutors claim to be guided by the sentencing guidelines in deciding on fines. The SEC notes that it follows its statement on corporate penalties. Nevertheless, in view of the emphasis in this area and the increasing number of investigations and prosecutions, these records may not last long. At the same time, it is important to note that both of these cases involved entities with prior FCPA violations.

In February 2007, Vetco International paid DOJ a record fine of $26 million to resolve an FCPA case. In this action, three wholly owned subsidiaries of Vetco pled guilty to FCPA bribery charges, while a fourth entered into a non-prosecution agreement. U.S. v. Vetco Gray Controls, Inc., No. 07-004 (S.D. Tex. Filed Feb. 6, 2007); U.S. v. Aibel Group Ltd., No. 07-005 (S.D. Tex. Filed Feb. 6, 2007).

The government alleged that Vetco Gray UK provided services and construction equipment to Nigeria’s first deep water oil drilling project. It did so in conjunction with Aibel Group, Vetco Gray Controls, Inc., and Vetco Controls Ltd. Vetco Gray Controls, Inc. is a domestic concern based in Huston.

From 2002 to 2005, the companies authorized a freight forwarding agent to make at least 378 corrupt payments totaling $2.1 million to Nigerian Customs officials. The payments were made to obtain preferential treatment.

Previously, in 2004 Vetco Gray UK, then named ABB Vetco Gray UK, pled guilty to FCPA bribery charges relating to a Nigerian government agency. Before this entity was acquired, DOJ issued an opinion to Vetco International, noting that the subsidiary must implement an FCPA compliance program.

The plea agreements require the payment of a record $26 million fine and that the company undertake a complete investigation of the conduct in various countries. In addition, the agreement requires that if any of the companies are sold, the agreement must provide that it binds the acquirer to the monitoring and investigation obligations.

Two months later, two more FCPA records were set in the Baker Hughes combined DOJ and SEC settlement. In those settlements, the company agreed to pay over $44 million in the combined settlements, a record. As part of the settlement the company agreed to pay a $10 million civil penalty for violating a 2001 SEC cease and desist order, which is also the first of its kind.

The SEC complaint alleges that Baker Hughes paid two agents about $5.2 million, knowing that some or all of the money was intended to bribe officials of state-owned companies in Kazakhstan. Subsequently, the company was awarded a contract in the oil fields in Kazakhstan. This contract generated over $210 million in gross revenue. The agents paid were hired at the behest of defendant Roy Fearnley, who claimed that the company would not get future business absent payment.

A second contract was obtained with KazTranOil, the national oil transportation operator of Kazakhstan. A fee of $1 million was paid to the agent, who represented a high raking executive of KazTranOil.

Baker Hughes also made payments in Nigeria, Angola, Indonesia, Russia, Uzbekistan and Kazakhstan. Those payments were made under circumstances which reflect a failure of sufficient controls to determine the nature of the payments and whether they were for legitimate services.

To resolve this matter with the SEC, Baker Hughes consented to the entry of an injunction based on the anti-bribery, books, records and internal control provisions. In addition, the company agreed to the entry of an order requiring the payment of over $19.9 million in disgorgement, over $3 million in prejudgment interest and the payment of a $10 million civil penalty. The company also agreed to retain an independent consultant to review its FCPA compliance procedures. SEC v. Baker Hughes, Inc., Civil Action No. 07-01408 (S.D. Tex. Filed April 26, 2007).

To settle with the Department of Justice Baker Hughes entered into a deferred prosecution agreement. That agreement requires the company to hire an independent monitor for three years to oversee the creation of a robust compliance program and to make a series of reports to DOJ. BHS, a subsidiary, pled guilty to FCPA violations. The charging documents alleged that in connection with a bid to develop and oil field the subsidiary agreed to pay 2% of the revenue on the current project and 3% on future projects and a commission of $4.1 million. U.S. v. Baker Hughes, Inc., No. 07-130 (S.D. Tex. Filed April 11, 2007).

by T. GormanPosted on Posted in SECActions

The SEC has reportedly been conducting inspections and taking surveys as part of its market surveillance efforts. U.K. regulators are taking a different approach, however: cold calls and new regulations requiring tape recordings and record keeping for electronic communications.

The Federal Services Authority (“FSA”) is initiating a new program of cold calling traders and investors as part of its efforts to gather evidence of potential market about and crimes. Traditionally, the FSA has given several weeks notice of possible interviews. Now, however, market participants are being cold called. The interviews are being conducted “under caution,” meaning that the conversations are admissible in court. The focus of the inquiries is recent trades and market transactions conducted by the person. The regulator hopes to uncover evidence it might otherwise not obtain with this new technique.

In another move to improve its market surveillance, the FSA is implementing new rules requiring firms to record all telephone conversations and electronic communications relating to client orders and the conclusion of transactions in the equity, bond, and derivative markets. Firms will be required to maintain the records for six months. Although the FSA originally suggested that the records be maintained for three years, after discussions with industry members and in view of the cost, the period was reduced.

These new policing techniques are part of an effort to more effectively monitor market activity and stem the rising tide of insider trading in U.K. markets. FSA research shows that about twenty-five percent of all takeover deals are preceded by suspicious trading. At the same time the FSA has had a difficult time gathering evidence and proving insider trading. The regulator expects these new techniques to improve its ability to detect and prove insider trading and other market abuses.

The FSA’s Press Release announcing the Policy is located here. Additional coverage regarding the policy can be viewed here.