SEC Settles Another Case Requiring Admissions
Admissions appear to be a focus of recent SEC settlements. Last week the agency required a political intelligence firm to admit the facts in its OIP as part of the settlement of an action alleging inadequate compliance systems. This week the SEC obtained admissions through a parallel U.K. settlement in connection with an action that was based on FCPA type allegations. In the Matter of Standard Bank PLC, Adm. Proc. File No. 3-16973 (November 30, 2015).
Standard Bank is the London-based international investment bank subsidiary of Standard Bank Group Ltd. of South Africa. It is regulated by the Financial Conduct Authority and the Prudential Regulatory Authority in the U.K. Its affiliate, Stanbic Bank of Tanzania Limited, is a member of the Standard Bank Group of South Africa. It provides various banking products and services in Tanzania.
The Government of Tanzania tried to raise funds for infrastructure projects in the international bond market from 2011 through early 2013. It failed. Standard and Stanbic proposed to raise capital for the projects through a private placement of securities in the U.S. under Regulation S. In February 2012 the firms understood the offering would proceed. Before the appropriate documents were executed, however, the Minister of Finance was replaced.
Over the next several months Standard and Stanbic sought to ensure that the financing would move forward. Stanbic hired the son of the new Minister of Finance. In August 2012 a draft of the Proposal Letter was prepared which listed a fee of 2.4%, in contrast to the original deal which called for a 1.4% fee split between Standard and Stanbic. The additional fee was to be paid to a party called Local Partner, later identified as Enterprise Growth Market Advisors Limited. Enterprise or EGMA is a private Tanzania firm that supports companies raising funds through the capital markets. Stanbic was to pay 1% to Enterprise.
Standard was negligent in not taking “steps to understand what role EGMA would play in the transaction in return for its $6 million fee . . .” according to the Order. Standard could not pay Enterprise without conducting know your customer processes. Accordingly Stanbic would conduct the procedures. Standard did, however, take an active role in drafting the Collaboration Agreement between Stanbic and Enterprise.
In November the Government of Tanzania, through the Minister of Finance, executed a Mandate Letter for the deal with Standard and Stanbic. The two firms would serve as Lead Managers. Enterprise was not mentioned.
On February 27, 2013 the Government of Tanzania issued its floating-rate amortizing, unrated, unlisted, sovereign bonds through a Regulation S private placement. In accord with the transaction documents the gross proceeds of $600 million were transferred to the government’s account in New York. The 2.4% fee was transferred to Stanbic which deposited 1% in an account for Enterprise. No disclosure of that fee was made. The Order alleges violations of Securities Act Section 17(a)(2).
Standard cooperated with the U.K. authorities and the SEC. Following communications from employees regarding cash withdrawals by Enterprise, Standard self-reported to the U.K. Serious Fraud Office, undertook a comprehensive internal investigation and cooperated with the Commission.
To resolve the matter Respondent consented to the entry of a cease and desist order based on the Section cited in the Order. It also agreed to admit the facts in the action brought by the Serious Frauds Office (Standard Bank Plc., No. U20150854, Southwark Crown Court, U.K.) and to pay disgorgement of $8.4 million. That obligation will be satisfied by paying that sum in the U.K. action, or to the extent not paid there, in the SEC action. In addition, the firm will pay a penalty of $4.2 million. Standard also settled with the SFO, entering into the U.K.’s first DPA and paying a fine of $33 million.