by T. GormanPosted on Posted in SECActions

Airbus SE, a France based global provider of civilian and military aircraft agreed to resolve corruption charges with authorities in the United States, France and the U.K tied to a multi-year scheme. The company agreed to pay fines totaling over $3.9 billion.

Beginning in 2008, and continuing for the next seven years, the company engaged in a global corruption scheme that utilized the payment of bribes to, among others, foreign officials, to obtain business advantages. With respect to the FCPA, the DOJ papers focus on China and agreements entered into in conjunction with the purchase and sale of aircraft by private and state owned enterprises. Emails and other actions that were part of the scheme were undertaken in the United States.

With respect to violations of The Arms Control Act or AECA and the International Traffic in Arms Regulations or ITAR, the papers note that the firm failed to provide the Department of State’s Directorate of Defense Trade Controls or DDTC with accurate information related to commissions paid to third party brokers retained to solicit, promote and otherwise secure the sale of defense articles and defense services to foreign armed forces. Airbus falsely reported information about their its conduct to the U.S. government for over five years. This permitted the firm to gain valuable licenses to export U.S. military technology. Such conduct creates a national security risk, according to the papers.

The charges in other countries are linked to similar conduct. For example, the papers in the U.K. action brought by the Serious Fraud Office center on wrongful, corrupt conduct undertaken for similar purposes in Malesia, Sri Lanka and Taiwan.

Airbus resolved the issues with the DOJ, which had limited jurisdiction and less of an interest that France or the U.K. according to the court documents, by entering into a deferred prosecution agreement tied to a criminal information which charges conspiracy to violate the anti-bribery provisions of the FCPA and conspiracy to violate the AECA and its implementing regulations, the ITAR. The firm will pay $527 million for the FCPA and ITAR violations, and an additional 50 million Euros or about $55 million, as part of a civil forfeiture agreement for the ITAR related conduct. The DOJ agreed to credit a portion of the amount paid by the company to the Parquet National Financier or PNF in France under Airbus’ agreement with that regulator. Airbus will also pay a $10 million penalty to the State Department’s DDTC of which the DOJ is crediting $5 million.

In resolving matters with the DOJ, Airbus was not given credit for self-reporting with respect to the FCPA violations since those were revealed in a U.K. investigation. The company did receive credit for its cooperation during the investigation and its remedial efforts and for reporting the other violations.

Airbus also resolved charges with the PNF by agreeing to pay more than 2 billion Euros or about $2.29 billion pursuant to an agreement with that regulator. The company settled, in addition, with the U.K. Serious Fraud Office related to bribes in Malaysia, Sri Lanka, Taiwan, Indonesia and Ghana. Airbus agreed to pay about 990 million Euros or approximately $1.09 billion. The PNF and the SFO investigated the company as part of a joint investigative team.

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by T. GormanPosted on Posted in SECActions

A look forward – a look back:

Proposed changes to the Volker rule, modified last fall by banking agencies and the SEC and CFTC, would permit banks to invest heavily in, or sponsor, venture capital funds according to some commentators. The changes, unveiled at the end of last week, are being cast as “common sense” modifications by the banking agencies. Some claim the proposals could weaken the rule and encourage the kind of risk taking it was intended to prevent. No doubt there will be more on the proposals.

The SEC released the agenda for its coming small business conference last week. In addition, the e CFTC announced new position limit regulations for certain agricultural products; SEC enforcement continued to focus on main street investors; and, Cornerstone Research released a Report announcing that the filing of new securities class actions reached yet another new high as the decade drew to a close.

SEC

Proposed disclosure amendments: The Commission approved proposed amendments to Regulation S-K. The proposals focus on updating and modernizing certain disclosure requirements. Key proposals center on Rule 303 and MD&A. The proposals were issued January 30, 2020 (here).

Proposals: Five federal financial regulatory agencies, including the SEC, proposed modifications to the Volker rule general prohibition on investing in or sponsoring hedge funds or private equity funds (Jan. 30, 2020)(here).

Small business: The Commission announced the agenda for the meeting of the Small Business Capital Formation Advisory Committee to be held on Tuesday, February 4, 2020 (here).

OCIE inspections: The SEC’s Office of Compliance Inspections and Examinations published a series of observations gleaned from hundreds of exams over a period of years. While OCIE’s charge is the inspection of registered investment entities, the observations of the exam staff offer important insights for all in this critical and constantly evolving area. The observations are set-forth in Cybersecurity and Resiliency Observations, Office of Compliance Inspections and Examinations (Jan. 27, 2020)(here). Topics covered include: Governance and risk management; access rights and controls; data loss prevention; mobile security; incident response and resiliency; vendor management; and training and awareness.

SEC Enforcement – Filed and Settled Actions

The Commission filed 2 civil injunctive actions and no administrative proceedings last week, exclusive of 12j and tag-along actions.

Misappropriation: SEC v. Matthes, Civil Action No. 2:20-cv-125 (E.D. Wis. Filed Jan. 28, 2020). Defendant Edward Matthews is a registered representative and investment adviser at a nationwide financial services firm. Over a period of about six years, beginning in 2013, Defendant misappropriated about $2.4 million from clients in two ways. First, he convinced a number of clients to invest in what was supposed to be a safe investment offered by a registered entity that would pay 4% per year. He had clients write checks to him for the investment that totaled about $1.4 million. In fact, he misappropriated the money. Second, he misappropriated another $1 million from brokerage clients through unauthorized withdrawals. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 201(1) and 206(2). The case is pending. See Lit. Rel. No. 24762 (Jan. 28, 2020).

Manipulation: SEC v. Aubel, Civil Action No. 16-cv-10670 (D. Mass.) is a previously filed action which named as defendants David Aubel and Robert Raffa who previously settled. The complaint alleged that Defendants concealed their interests in Green Energy Renewable Solutions, Inc.’s stock while it was being manipulated. Defendants previously pleaded guilty in a parallel criminal action. The Court entered a final judgement by consent as to Defendant Aubel. The judgement enjoins him from future violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b), 13(d) and 16(a). He was also ordered to pay a penalty of $150,000 along with disgorgement of $242,553 which was deemed satisfied by the restitution order in the parallel criminal case. See Lit. Rel. No. 24725 (Jan. 27, 2020).

Offering fraud: SEC v. Carpoff, Civil Action No. 2:20-cv-00180 (E.D. Ca. Filed Jan. 24, 2020). Defendants Jeffrey and Paulette Carpoff, residents of California, controlled DC Solar Solutions, Inc. and DC Solar Distribution, Inc. The former was owned by Mr. Carpoff. The latter was owned by wife Paulette. Both firms filed for bankruptcy protection in 2019. The two firms operated together. DC Solar told investors that it designed, manufactured and leased renewable energy products to serve the needs of a diverse “off-grid” market place. Over a period of several years, investors were offered the opportunity to acquire an interest in DC Solar in the form of either an investment fund or a sale-lease back arrangement. Each required investors to purchase generators from DC Solutions while simultaneously leasing the units to DC Distribution. The units would then be leased to end-users. Profits were supposed to come from tax credits, depreciation on the generators and lease payments. The face value of the deals inked by investors exceeded $2.7 billion. Investor were not aware that most of the generators sold were never manufactured, that that most of the revenue payments they received came from cash invested by others or that Mr. Carpoff arranged for investors to receive false certificates, assuring them that all was well with their investments. Throughout the process the lack of legitimate revenue was concealed through repeated circular bank transfers involving the two firms. False financial statements were also furnished to prospective investors. And, Defendants misappropriated at least $140 million of the investor capital. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. The U.S. Attorney’s Office for the Eastern District of California filed a parallel criminal action. See Lit. Rel. No. 24724 (Jan. 24, 2020).

CFTC

Position limits: The agency adopted new, speculative position limits for certain agricultural contracts that are subject to federal limits to conform to the requirements of the Dodd-Frank Act on January 30, 2020 (here).

Securities Class Actions

The number of securities class action filings set a new record, according to a recent report by Cornerstone Research titled Securities Class Action Filings, 2019 Year in Review (here). In 2019 428 securities class actions were filed in federal and state courts compared to the 420 initiated the year before. Core filings, defined as all such suits except those tied to M&A, also set a record at 268 compared to 238 suits filed the year before. While the number of M&A suits filed did not set a record, the 160 cases initiated represents the third largest number.

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