Why it matters: The DOJ and SEC have been busy in the weeks since our last newsletter. On the FCPA front, the DOJ announced to much fanfare the launch of its new FCPA Voluntary Disclosure pilot program, while the SEC announced another FCPA resolution with a pharmaceutical company relating to bribes paid by its drug sales reps in hotspot China. The SEC settled charges with another pharmaceutical company alleging that it fraudulently misled investors about a new drug's status with the Food and Drug Administration. And overall, the past weeks proved to be fraught for individuals, who were held accountable for wrongdoing ranging from FCPA violations, financial crimes (e.g., securities and bank fraud, money laundering, insider trading) to U.S. sanctions violations. Read on for a sampling of the recent activity in the world of DOJ and SEC enforcement.

Detailed discussion: The following is a recap of the recent DOJ and SEC activity that caught our eye this month:

Foreign Corrupt Practices Act (FCPA):

  • The DOJ's FCPA voluntary disclosure pilot program: On April 5, 2016, the DOJ announced the launch of a one-year FCPA pilot program intended to, among other things, motivate corporations to (1) "voluntarily self-disclose," (2) "fully cooperate" and (3) "timely and appropriately remediate." The DOJ also provided written descriptions of those terms and outlined the maximum mitigation credit available to a corporation that adheres to them. We issued a special alert detailing the new pilot program on April 6, 2016, which you can readhere.
  • March 23, 2016—The SEC announced another FCPA resolution in China: Last month, in our article entitled "FCPA Focus on China, Princelings and the First SEC FCPA DPA with an Individual: Qualcomm and PTC," we discussed the recent government enforcement focus on China as a hotbed of alleged improper FCPA activity by U.S. companies. After we had "gone to print," the SEC announced on March 23, 2016, that Novartis AG (Novartis) agreed to pay $25 million to resolve allegations that it had violated the FCPA in connection with improper payments and gifts by employees and "complicit managers" at its China-based subsidiaries to doctors and other healthcare professionals at Chinese state-run hospitals and health facilities. The SEC alleged that such payments and gifts resulted in several million dollars in increased prescription drug sales for Novartis at the relevant Chinese health facilities. Without admitting or denying the SEC's findings, Novartis consented to the SEC's order finding that it violated the FCPA's internal controls and books and records provisions because the payments and gifts were improperly recorded in Novartis's books as a result of Novartis failing to devise and maintain a sufficient system of internal accounting controls or an effective anticorruption compliance program to detect and prevent such improper activity. In addition to paying $25 million (consisting of $21.5 million in disgorgement, $1.5 million in prejudgment interest and a $2 million penalty), Novartis agreed to provide status reports to the SEC for the next two years on its "remediation and implementation of anti-corruption compliance measures." Novartis recently announced in a security filing that its Korean subsidiary is under criminal investigation by Korean prosecutors for allegedly "utiliz[ing] medical journals to provide inappropriate economic benefits to healthcare professionals."
  • April 20, 2016—Former owner and president of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co. (the Chestnut Group) pleaded guilty to FCPA violations for bribing an official at the European Bank for Reconstruction and Development (EBRD): The DOJ announced that Dmitrij Harder admitted as part of his guilty plea to paying $3.5 million in bribes between 2007 and 2009 to an EBRD official in order to influence the official's actions on applications for EBRD financing submitted by the Chestnut Group's clients and to influence the official to direct business to the Chestnut Group. Sentencing is scheduled for July 21, 2016.
  • March 23, 2016—Miami businessman Abraham Shiera pleaded guilty to FCPA charges in connection with a bribery scheme involving state-owned energy company Petroleos de Venezuela S.A. (PDVSA): The DOJ announced that Shiera pleaded guilty to charges of violating the FCPA for his role in a scheme to corruptly secure energy contracts from PDVSA. Sentencing is scheduled for July 8, 2016. The DOJ said that four others charged in relation to the case had pleaded guilty, including three foreign officials. We covered Shiera's and another man's arrest and charging in our January 2016 newsletter under "The FCPA in 2016: DOJ and SEC Focus on International Cooperation and Investigation of Individuals."

Other enforcement resolutions of note with corporations and individuals:

  • March 29, 2016—Biotech company AVEO Pharmaceuticals, Inc. (AVEO) agreed to pay $4 million to settle charges that it fraudulently misled investors about a new drug's status with the Food and Drug Administration (FDA): The SEC announced that AVEO and three of its former officers fraudulently concealed the FDA's level of concern about a new "flagship" drug used to treat kidney cancer by omitting from public statements to investors the fact that FDA staff had recommended a second clinical trial to address their concerns about patient death rates during the first clinical trial. According to the SEC's findings in a complaint filed in a Massachusetts district court, which were neither admitted or denied by AVEO, AVEO and its former officers raised $53 million in a public stock offering in January 2013 while failing to disclose in offering materials, press releases or investor conferences that the FDA staff had explicitly recommended during a May 2012 meeting that AVEO conduct a second clinical trial (deemed by the defendants to be too "expensive and time consuming") for the drug. When the FDA made public months later that it had recommended an additional clinical trial (the drug was never approved), AVEO's stock price declined by 31%. The SEC's complaint charges AVEO and the three former officers with, among other things, violations of the antifraud provisions of the federal securities laws, and the settlement with AVEO is subject to court approval. Proceedings are continuing against the three former officers, as to which the SEC is seeking disgorgement plus interest and penalties, permanent injunctions, and officer-and-director bars.
  • March 28, 2016—The DOJ and SEC announced parallel criminal and civil investigations into a $95 million scheme to defraud investors conducted by a financial services firm partner: In its press release, the DOJ announced that Andrew Caspersen, a partner at the New York office of a "multinational financial services firm involved in private equity and alternative asset advisory work," was being charged in an unsealed complaint with securities and wire fraud in connection with "a scheme to defraud investors of over $95 million." The press release detailed the DOJ's allegations in the complaint filed in the S.D.N.Y. that from July 2015 through March 2016, Caspersen fraudulently solicited investors by "falsely representing that he had authority to conduct deals on behalf of his employer with another private equity fund, and that investors' funds would be invested in a secured loan to an investment firm." The DOJ alleged that Caspersen failed to do this and instead "converted the funds to his own use without the authorization of his investors." In its press release, the SEC announced a parallel civil investigation against Caspersen for "defrauding two institutions he solicited to invest in a shell company he controlled whose name was deceptively similar to that of a legitimate private equity fund." The SEC's complaint seeks a permanent injunction, disgorgement plus interest, and monetary penalties.
  • March 23, 2016—The former CEO of $3 billion publicly traded TierOne Bank was sentenced to 11 years in prison for orchestrating a scheme to hide over $100 million in losses from shareholders and regulators: The DOJ announced that, in addition to his jail sentence, Gilbert G. Lundstrom was also ordered to pay a $1.2 million fine. Lundstrom had been convicted in November 2015 after a two-week jury trial of wire fraud, securities fraud and falsifying bank entries, as well as conspiracy to commit those acts. According to the DOJ, evidence presented at trial showed that Lundstrom designed an "aggressive strategy" to expand TierOne's portfolio beyond traditional lending in Nebraska to riskier areas such as commercial real estate in Las Vegas, which strategy "decimated" the bank with the onset of the financial crisis. The jury found that, among other things, Lundstrom and his co-conspirators thereafter intentionally concealed the more than $100 million in losses in the bank's loan and real estate portfolio from investors and regulators, and provided inflated figures in its required filings with the SEC and the Office of Thrift Supervision.
  • March 21, 2016—Three foreign nationals charged with U.S. sanctions violations on behalf of Iran: The DOJ announced the unsealing of an indictment in the S.D.N.Y. against three foreign nationals charged with conspiring to conduct "hundreds of millions of dollars-worth" of international transactions between 2010 and 2015 benefitting the government of Iran and Iranian companies in violation of the U.S. sanctions that were put in place against Iran in 1979 pursuant to the International Emergency Economic Powers Act. The three foreign nationals were also charged with money laundering and bank fraud. One of the defendants, a Turkish national with dual Iranian and Turkish citizenship, was arrested on March 19, 2016. The other two defendants, both Iranian citizens, remain at large.
  • March 18, 2016—The former head of an offshore brokerage was sentenced to 18 years in prison for an international "pump and dump" scheme: The DOJ announced that Harold Bailey Gallison II was sentenced in Virginia federal court for conspiracy to commit international money laundering and wire fraud in connection with his admitted role in an off-shore "pump and dump" scheme involving stocks of two companies traded on the over-the-counter (OTC) market. As part of his guilty plea, Gallison admitted to participating in a conspiracy to use his offshore brokerage platform to artificially inflate (i.e., "pump") the trading volume and price of the shares of two OTC stocks by "touting business activities and deceptive revenue forecasts and by engaging in coordinated trading activity to create the appearance of increasing market demand." Gallison also admitted that he and others then sold (i.e., "dumped") the shares at the inflated prices and laundered the proceeds through bank accounts in the U.S. and overseas. In addition to jail time, Gallison was ordered to pay $1.7 million in restitution. Gallison had been charged along with eight other individuals for their roles in the scheme in an indictment unsealed in July 2015.
  • March 16, 2016—The SEC announced the settlement of insider trading charges against a former compliance associate at Goldman Sachs: Without admitting or denying the SEC's allegations, Yue Han, a former compliance associate at Goldman Sachs in New York, consented to judgment being entered against him in the S.D.N.Y. pursuant to which he agreed to disgorge over $460,000 in illegal profits and consent to an industry bar. The SEC had charged Han with insider trading on November 25, 2015, alleging that he "traded on confidential information contained in e-mails sent and received by Goldman Sachs' employees who advised investment banking clients on impending merger and acquisition transactions." Ironically, Han allegedly gained access to the e-mails "as part of his work developing surveillance software to monitor other employees for potential misconduct, including insider trading."

See here to read the SEC's 3/23/16 Litigation Release/Administrative Summary entitled "Novartis Charged With FCPA violations."

See here to read the DOJ's 4/20/16 press release entitled "Former Owner and President of Pennsylvania Consulting Companies Pleads Guilty to Bribing Official at European Bank for Reconstruction and Development."

See here to read the DOJ's 3/23/16 press release entitled "Miami Businessman Pleads Guilty to Foreign Bribery and Fraud Charges in Connection with Venezuela Bribery Scheme."

See here to read the SEC's 3/29/16 press release entitled "SEC: Biotech Company Misled Investors About New Drug's Status With FDA."

See here to read the DOJ's 3/28/16 press release entitled "Financial Services Firm Partner Arrested And Charged In Manhattan Federal Court With $95 Million Scheme To Defraud Investors" and here to read the SEC's 3/28/16 press release entitled "Securities Professional Charged With Defrauding Institutional Investors."

See here to read the DOJ's 3/23/16 press release entitled "Former CEO of $3 Billion TierOne Bank Sentenced to 11 Years in Prison for Orchestrating Scheme to Hide More than $100 Million in Losses from Shareholders and Regulators."

See here to read the DOJ's 3/21/16 press release entitled "Turkish National Arrested for Conspiring to Evade U.S. Sanctions Against Iran, Money Laundering and Bank Fraud."

See here to read the DOJ's 3/18/16 press release entitled "Former Head of Offshore Brokerage Sentenced to 18 Years for Conspiracy to Commit International Stock Fraud and Money Laundering."

See here to read the SEC's 3/16/16 Litigation Release in the case of Securities and Exchange Commission v. Yue Han, et al.