by T. GormanPosted on Posted in SECActions

Braskem S.A., a Sao Paulo based producer of petrochemicals and thermoplastic product whose ADRs are traded on the NYSE, and its controlling shareholder, Odebrecht S.A., a privately held Brazilian international construction firm, resolved FCPA bribery charges with the SEC, the DOJ and Brazilian and Swiss authorities. Odebrecht and Braskem pleaded guilty to criminal charges and Braskem also entered into an FCPA consent decree with the SEC. Overall the settlement involves the payment of about $3.5 billion by the two firms.

The case centers on a scheme that traces to 2001 as to Odebrecht and 2006 as to Braskem. Over the period Odebrecht made over $788 million in illicit payments. Over the period Braskem executives directed the payment of payment of over $250 million in bribes to Brazilian officials through Odebrecht and a labyrinth of offshore entities. Firm officials sought to secrete the payments by falsifying the books and records. See, e.g., SEC v. Braskem, S.A., Civil Action No. 1:16-cv-02488 (D.C. Filed December 21, 2016).

Examples of the transactions involving Braskem drawn from the SEC’s complaint include the following. First, Braskem funneled payments of about $4.3 million to officials of Petrolco Brasileiro S.A., the Brazilian energy giant based in Rio de Janerio, in connection with a joint venture with the firm. The joint venture agreement was entered into in 2005 to build a plant. Braskem executives were concerned that the agreement would be canceled because of public pressure.

Braskem executives met with a Petrobras official and a Brazilian congressman. Payments were made so influence would be used to preclude the cancellation of the agreement. The illicit payments were channeled through Odebrecht’s off-book accounts. The effort was successful. Braskem saved about $8.4 million.

Second, Braskem paid about $20 million to Brazilian officials in connection with an agreement negotiated in 2008 with Petrobras for the sale and acquisition of naphtha, a derivate from crude oil Braskem used in it petrochemical production. In connection with the deal, firm executives met with Brazilian officials. In return for the payment of the bribes, influence was exerted on the contract approval process, resulting in Braskem obtaining a pricing formula which reduced its costs. All, or at least part of the bribes, were paid through Odebrecht’s off-book accounts.

Finally, Braskem made payments beginning in 2006 to Brazilian officials to secure favorable federal legislation. In return for the payments Brasken obtained tax and other benefits.

Throughout the period Braskem’s policies, procedures and controls failed to specifically address the FCPA. The firm’s code of conduct failed to prohibit improper payments to foreign officials or political parties or even reference the FCPA. Its procurement and accounts payable processes during the period did not have adequate payment approval standards.

The SEC’s complaint alleged violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). To resolve the action Braskem consented to the entry of an injunction prohibiting future violations of the Sections cited. The firm also agreed to pay disgorgement in the amount of $65 million to the SEC and retain an independent consultant. See Lit. Rel. No. 23705 (December 21, 2016).

To resolve charges with the DOJ Odebrecht pleaded guilty to a one-count criminal information charging conspiracy to violate the anti-bribery provisions of the FCPA. The firm agreed that the appropriate criminal fine is $4.5 billion but that amount is subject to further analysis since the company may not be able to pay that amount. Braskem pleaded guilty to a one-count criminal information also charging conspiracy to violate the FCPA anti-bribery provisions. The firm has agreed to pay a total criminal penalty of $632 million. Sentencing is scheduled for January 2017 in related proceedings. The firm did not self-report but cooperated during the investigation yielding a reduction in the fine from the bottom of the range calculated under the sentencing guidelines.

Braskem also settled with the Ministerio Publico Federal in Brazil and the Office of the Attorney General in Switzerland. Under the terms of those agreement the company will pay disgorgement of $325 million (including the amount paid to the SEC). The firm also agreed to pay 70% of the total criminal penalty to Brazilian authorities and 15% to Swiss. The U.S. will receive about $94.6 million of the total criminal penalties paid or 15%.

Under the terms of the criminal plea agreements both firms will continue to cooperate with enforcement officials, adopt enhanced compliance procedures and retain independent compliance monitors for three years. The combined $3.5 billion settlement is the largest ever global foreign bribery resolution.

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by T. GormanPosted on Posted in SECActions

Whistleblowers are an important source of information for the Commission’s enforcement program. This is reflected by the periodic monetary awards handed out by the agency. It is also evidenced by the increasing number of actions brought by the SEC to protect the ability of would-be whistleblowers to assist its enforcement efforts. The most recent action in this regard involved a firm that tried to bar employees from acting as whistleblowers while retaliating against an employee who raised concerns about misconduct. In the Matter of SandRidge Energy, Inc., Adm. Proc. File No. 3-17739 (December 20, 2016).

SandRidge Energy, based in Oklahoma City, was listed on the NYSE but was delisted. Later the firm filed for bankruptcy protection, emerged from Chapter 11, and again had its shares listed on the NYSE.

Beginning prior to August 12, 2011 when the Commission issued rules implementing Exchange Act Section 21F, SandRidge used a form of separation agreement for departing employees that contained three provisions that impeded whistleblowers. First, the agreements contained a Future Activities provision. This section stipulated that former employees could not voluntarily cooperate with any government agency in any complaint or investigation concerning the company. Second, a Confidential Information clause prohibited the former employee from making any use of, or disclosing to anyone including a government agency, any confidential company information without written consent. Third, the ageement contained a Preserving Name and Reputation section that prohibited the former employee from disparaging, embarrassing or harming the firm or its employees to any government or regulatory agency or in the media.

Following the enactment of the Commission’s whistleblower rule SandRidge would agree to modify the restrictive provisions on request. In some instances the firm agreed to remove part of the restrictive language. In a few agreements all of the provisions were eliminated. The company, however, continued to use the clauses in most of its agreements. For example, on and after April 1, 2015, the date of the Commission’s first enforcement action charging a violation of Rule 21F-17, the firm implemented a planned reduction in force as to 113 employees. The severance agreements contained the restrictive clauses. After receiving a number of client alerts about the SEC action, SandRidge modified its form of separation agreements but not those from the reduction in force.

On May 11, 2015 the staff contacted SandRidge regarding its agreements based on copies attached to Commission filings. The firm agreed to remediate the issue and undertook amendments. Former employees were told of the remediation. Nevertheless, when a former employee was contacted in February 2016 the person refused to speak with the staff, citing the terms of the severance agreement.

On March 31, 2015 the company terminated an employee identified only as Whistleblower. Senior executives of the firm decided to terminate Whistleblower because the person was expressing concerns regarding the process by which the company calculated oil and gas reserved. Whistleblower had a history of raising such concerns which traced back to the time he was hired in 2012.

The senior executives considered restructuring Whistleblower’s reporting. A review of his emails was made using key word searches based on his complaint. The company decided to terminate Whistleblower because he was disruptive. At the time, no investigation of his claims had been made. The Order alleges violations of Exchange Act Section 21F and Rule 21F-17.

To resolve the matter the firm consented to the entry of a cease and desist order based on the Section and Rule cited in the Order. The firm also agreed to pay a penalty of $1.4 million.

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