by T. GormanPosted on Posted in SECActions

The SEC filed another settled action in which payments to health care professionals at state owned entities in China were alleged to be violations of the Foreign Corrupt Practices Act. Although the company furnished extensive cooperation, it paid disgorgement, prejudgment interest and a penalty to resolve books and records and internal control violations. In the Matter of Mead Johnson Nutrition Company, Adm. Proc. File No. 3-16704 (July 28, 2015).

Mead Johnson is a global manufacturer and marketer of infant formula and child nutrition products. The firm has subsidiaries which operate in various parts of the world. Subsidiary Mead Johnson China operates in the PRC where the firm began doing business in the1990s. By 2013 the company had operations in 241 cities in China.

Part of Mead Johnson’s marketing from 2008 through 2013 was through the medical sector which included health care facilities and health care professionals. The firm’s China subsidiary used third-party distributors to market, sell and distribute products in the country. Distributors were provided a discount for company products that was allocated for funding certain marketing and sales efforts of the China subsidiary and other purposes. Those funds, called a Distributor Allowance, belonged to the distributor. Yet Mead Johnson retained certain control over the funds and the books and records.

Mead Johnson China’s sales personnel marketed through medical channels and health care facilities. Health care professionals at the facilities were encouraged to recommend the company products. Incentives to make that recommendation and collect certain information were provided in the form of cash payments and other things, contrary to company policy. The payments were made from the Distributor Allowance funds. The firm failed to devise and maintain adequate systems of internal controls over the operations of its China subsidiary to ensure that the sales expenditures through its distributors were not used for unauthorized or improper purposes.

In 2011 the firm received information about possible violations of the FCPA. An internal investigation failed to discover any violation. The firm did halt the Distributor Allowance funds to ensure the money was not being used for an improper purpose. All practices regarding compensation to health care professionals were halted by 2013. The firm did not self-report the allegation in 2011 or promptly disclose the existence of it in response to a subsequent SEC inquiry into the matter, according to the Order.

A second investigation, commenced in 2013, discovered the violations. The company thereafter cooperated with the SEC and undertook significant remedial measures. The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

To resolve the matter the company consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, the company will pay disgorgement of $7,770,000, prejudgment interest and a civil monetary penalty of $3 million.

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by T. GormanPosted on Posted in SECActions

As the Chinese stock market continues to spiral down, news agencies continue to report on the efforts of the government to abate the crash. In contrast, the Securities and Futures Commission of Hong Kong is reporting another record year of investment in the fund management business (here).

The combined fund management business grew to a value of over $17.6 billion for 2014 the regulator reported. That represents a 10.5 % increase over the prior year. It also contrasts with 2010 when the value of the combined fund management business was just over $10 billion, illustrating the dramatic grow of the business in just four years.

About $17.4 billion of the reported $17.6 billion for 2014 represented the non-REIT fund management business while about $206 million was the capitalization of REITS. That represents: $11.3 billion for licensed corporations; $1 billion for registered institutions; $452 million for insurance companies (less certain assets); $3 billion for other private banking businesses of registered institutions; and $1.6 billion for the fund advisory business.

Much of the growth was fueled by overseas investors. According to the report about $12.4 billion of the $17.4 billion invested in the fund management business came from overseas investors. That represents an increase by about 9% of the amount of funds from overseas investors. The overall percentage of overseas investment remained about constant compared to the prior year. In 2010 overseas investment represented 71% of the overall compared to 71.9% in the prior year which was up from the 64.6% in 2012.

The asset management business in Hong Kong also continued to grow. In 2014 the non-REIT assets managed in Hong Kong increased by 17.7% compared to the prior year, accounting for about $6.8 billion. While the percentage of assets managed in Hong Kong increased compared to the prior year, it was down from the high of 69.2% in 2012 and slightly below 2011 and 2011.

The report attributes the growth since 1999 when it was first issued to the “robust regulatory regime . . .[which] is fundamental to Hong Kong’s development as an international asset management centre. . .” and the SFC’s continued cooperation and work with international regulators.

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