by T. GormanPosted on Posted in SECActions

The Commission filed another settled insider trading action. The case centered on a tender offer by Koch Industries, Inc. for Oplink Communications, Inc., announced before the market opened on November 19, 2014. Following the announcement the share price for Oplink increased 14%. In the Matter of Vi Chen, CPA., Adm. Proc. File No. 3-17361 (July 26, 2016).

Respondent Chen is a CPA licensed to practice in California. Prior to joining Oplink she worked as an accountant for a number of publicly-traded firms. In August 2016 she became the controller of Oplink, a firm that sells optical networking components and subsystems. When Ms. Chen joined the firm she signed an acknowledgment indicating that she had received, understood and agreed to comply with the insider trading policy. She was also subject to firm policies regarding trading stock trading by officers, directors and management. Firm policy only permitted trading during certain periods.

By August 2014 Koch and Oplink moved past preliminary discussions and executed a non-disclosure agreement. Over the following months the two companies engaged in due diligence with the assistance of outside advisers. Koch submitted a series of written offers to acquire Oplink.

Ms. Chen first learned about the proposed transaction at an October 13, 2014 meeting with the firm’s CFO. She then worked on the due diligence, participating in meetings and calls with Koch representatives. Ms. Chen prepared deal related work product regarding her employer’s financial condition.

During a blackout period Ms. Chen began purchasing Oplink stock. Specifically, she bought 4,700 shares in two brokerage accounts under the names of relatives. Later in October she purchased additional shares in an account under the name of her sister.

Following the deal announcement Ms. Chen liquidated the shares, realizing profits of $34,678.44. In December 2014 the transaction proceeds were withdrawn from each account. The next month she personally received $28,500 from one of the accounts. The Order alleges violations of Exchange Act Sections 10(b) and 14(e).

To resolve the action Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, she will be denied the privilege of appearing and practicing before the Commission as an accountant with the right to request reinstatement after five years. She is also denied the privilege of serving as an officer or director of a public company for five year. Ms. Chen will, in addition, pay disgorgement of $34,678.44, prejudgment interest and a civil penalty equal to the amount of the disgorgement.

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by T. GormanPosted on Posted in SECActions

The SEC resolved another FCPA action centered on the entry of LAN Airlines S.A. into Argentina. Previously, the Commission settled with the CEO of the company who agreed to the entry of a cease and desist order based on Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). He also paid a penalty of $75,000. This time the settlement was with the company. In the Matter of LAN Airlines S.A., Adm. Proc. File No. 3-17357 (July 25, 2016).

LAN was a publically traded airline firm based in Santiago, Chili. LAN Argentina S.A. was a subsidiary of LAN during the period. Prior to 2004 the firm explored options for expanding into Argentina. In 2005 officials from the Argentine Transportation Secretary’s Office contacted LAN to determine if the company would be interested in purchasing Lineas Aereas Federales S.A. or LAFSA, a state owned airlines. While initially LAN declined later in the year the vice president of business development met with the president of Argentina, the Transportation Secretary and other officials regarding LAFSA. Eventually LAN purchased a 49% stake in the airline – Argentinean law did not permit a foreign firm to own a controlling interest.

After purchasing LAFSA LAN faced a series of challenges. Those included demands from a number of labor unions and the need to secure a controlling interest in the Argentinian airline and expand its routes. LAN Argentina would also need a cash infusion to be successful.

LAN was successful in obtaining a decree permitting it to become a majority ownership of LAFSA. The company then faced demands from the labor unions which wanted large pay and benefit increases. The unions also threatened to enforce a so-called single function rule which would limit the work of each employee to one service. Strict application of the rule would require LAN to significantly increase its payroll.

In early 2006 a consultant who had initially contacted LAN before the LAFSA deal again offered his services. By this point the consultant was a Cabinet Advisor to the Ministry of Federal Planning, Public Investment and Services, Department of Transportation. The consultant offered to negotiate directly with the unions. LAN’s CEO was informed that the consultant was well connected with the unions and could strike a deal.

The CEO approved the retention of the consultant, agreeing to payments totaling $1,150,000. At the time the CEO understood that “it was possible the consultant would pass some portion” of the money to union officials in Argentina. Subsequently, the consultant reached an oral agreement with the unions.

In October 2006 the consultant sent the vice president of business at LAN a consulting agreement. The agreement provided for the payment of $1,150,000 for a study of existing air routes in Argentina and the regional market. The CEO of LAN knew the agreement was not for a study. Other steps were taken to disguise the arrangement.

Subsequently, an invoice was received for $58,000, payable to an account in Spain in the name of another company. The firm was owned by the consultant’s son and wife. The payment was in addition to the previously agreed sum. The invoice was paid and the consultant’s agreement approved. LAN made the required payments.

The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). To resolve the action the firm undertook a series of remedial acts. Those included steps to create a basic compliance program, the adoption of a new Code of Conduct and other internal corporate polices including an Anti-Corruption Guide. A new compliance manager was retained. The firm also agreed to the retention of an independent compliance monitor. The company entered into a deferred prosecution agreement with the DOJ and agreed to pay a criminal fine of $12,750,000. In view of that fine the Commission did not impose a penalty.

To resolve the proceeding LAN consented to the entry of a cease and desist order based on the Sections cited in the Order. The firm will also pay disgorgement of $6743,932 along with prejudgment interest.

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