by T. GormanPosted on Posted in SECActions

The SEC continued what appears to be a growing trend of bringing insider trading cases as administrative proceedings. Since the beginning of September the Commission has filed at least four insider trading actions as administrative actions rather that civil injunctive cases (here). The list now extends to five with the filing of In the Matter of Steven Durrelle Williams, Civil Action No. 3-146246 (November 3, 2014).

Mr. Williams was the CEO of Intellicheck Mobilisa, Inc., a provider of identity systems products and wireless security applications. In August 2012 he filed a Form 144 indicating an intent to sell company shares.

In the third quarter of 2012 the revenue for the firm declined. A typical bump in sales that had been experienced in prior years during the period did not materialize. Beginning on September 14, and continuing for the next four days, Mr. Williams was involved in a series of communications regarding the potentially disappointing quarter.

On September 14 Mr. Williams also spoke positively about the company and its business prospects with an Investor. He told the Investor Intellicheck was working closely with some large potential customers who were expected to place orders soon. Five days later, on September 19, the investor made the first of two purchases of Intellicheck shares. On that date and the next the Investor’s purchases represented about 80% of the trading volume.

The day before the Investor’s first purchase Mr. Williams entered a day order to sell 270,000 of his 420,395 shares in the company. The order, with a limit price of $1.90, did not fill. The next day, while the Investor was purchasing, Mr. Williams entered a sell order for 200,000 at a limit price of $1.83. This time 98,700 shares were sold. A portion of the proceeds from that sale were used to exercise options. On September 20 Mr. Williams ordered the sale of the remaining 101,300 shares. This time 93,187 were sold.

On November 8 Inellicheck released its disappointing third quarter results. The stock closed down from the prior day’s close 11.6%. Over the next two days the price continued to decline. Mr. Williams avoided losses of $103, 712. The investor suffered at least $98,514 in damages from Mr. Williams’ conduct, according to the Order which alleges violations of Securities Act Sections 17(a) and Exchange Act Section 10(b).

To resolve the proceeding Mr. Williams consented to the entry of a cease and desist order based on the Sections cited in the Order. The order also prohibits Mr. Williams from serving as an officer or director of any issuer for two years and requires that he pay $103,712 in disgorgement, prejudgment interest, and a civil penalty of $75,000.

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by T. GormanPosted on Posted in SECActions

The SEC and the DOJ resolved FCPA charges with California based life science research and clinical diagnostics company Bio-Rad Laboratories, Inc. The charges stem from bribes paid in Russia, Vietnam and Thailand. The company self-reported and provided what the SEC and the DOJ acknowledged as extensive cooperation. Nevertheless, the disgorgement award was one of the largest in a Commission action. In the Matter of Bio-Rad Laboratories, Inc., Adm. Proc. File No. 3-16231 (November 3, 2014).

Bio-Rad has two industry segments, Life Science and Clinical Diagnostics. Its international operations are overseen by its international sales organization. From 2005 through early 2010 a substantial portion of subsidiary Bio-Rad Russia’s business consisted of sales of clinical diagnostic products to the Russian government. The contracts came from a public tender offer process. The products sold in Russia were manufactured by the firm’s indirect French subsidiary and recorded on its books and records. Because of certain Russian regulations and tax provisions, the French subsidiary in some instances sold the products directly to the Russian government.

The French subsidiary, during the time period, paid two foreign corporations called the Russian agents in the papers, commissions of 15% to 30% “demonstrating a conscious disregard for the high probability that the Russian Agents were passing along at least a portion of their commissions to the Russian government officials . . .” according to the Order. The practice of using the agents began prior to 2005 primarily for their influence. The Russian agents had no offices in Russia, no employees and thus no likely capability to perform the services outlined in the contracts. When a new country manager took over in 2007 he conducted no due diligence regarding the agents although he knew that distribution costs were about 2% to 2.5% in contrast to the large commissions paid to the agents. Overall the agents were paid $4.6 million on sales of $38.6 million. When the contract with the agents was terminated in 2010 the Russian subsidiary of the company lost its first government contract in Russia.

Throughout the period the international managers ignored a series of red flags. Those included the fact that the agents could not perform the services required, their payments were requested in installment amounts that avoided the need for additional approvals, many of the contracted for service were not necessary and many of the invoices for the agents were generated by the Russian subsidiary of the firm.

From 2005 through 2009 the country manager of the Vietnam office authorized the payment of bribes to government officials to obtain business. In 2006 when it was discovered that bribes were being paid, the Vietnam office country manager stated that paying bribes was customary in the country. Later in an e-mail the country manager told a Singapore finance employee that paying third party fees was outlawed by the firm’s ethics policy but that Bio-Rad would lose 80% of its Vietnam sales without the practice. Subsequently, the sales practices were altered to sell in Vietnam through a distributor at a deep at a deep discount. The distributor then sold the products at full price to the government. The charges were booked under various labels. Gross revenue was $23.7 million.

In Thailand Bio-Rad acquired a 49% interest in Diamed Thailand as part of an acquisition in October 2007. Little due diligence was done on the subsidiary. At the time of the acquisition Diamed Thailand had an established bribery scheme using a Thi agent to sell diagnostic products to government customers. Bio-Rad’s Asia Pacific GM learned about the practice at a conference but failed to halt the improper payments. From 2007 through 2010 Diamed Thailand made improper payments of $708, 608 which generated sales revenues of $5.5 million.

When the firm discovered the practices it self-reported and conducted an extensive investigation. It provided extensive cooperation to the SEC and the DOJ and undertook significant remedial actions.

The Commission’s Order alleged violations of the bribery and books and records and internal control provisions of the FCPA. The company resolved the charges by consenting to the entry of a cease and desist order based on Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B). The firm agreed to pay disgorgement of $35,100,000 and prejudgment interest. The criminal charges, based on the actions in Russia, were resolved with a non-prosecution agreement and the payment of a $14.35 million criminal fine.

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