HITACHI AGREES TO SETTLE US SEC CHARGES FOR INACCURATELY RECORDING IMPROPER PAYMENTS
In September 2015, the United States Securities and Exchange Commission (SEC) charged Tokyo-based conglomerate Hitachi, Ltd. (Hitachi) with violating the Foreign Corrupt Practices Act (FCPA) for mischaracterisation in its company records of payments made improperly to the ruling political party in South Africa. These payments were made in connection with the award of two contracts to build power stations.
Hitachi was alleged to have knowingly partnered with a company (Chancellor House Holdings (Pty) Ltd) (Chancellor) serving as a front for the African National Congress (ANC), and had encouraged the company to use its influence to help obtain the two contracts from Eskom Holdings SOC Ltd., a public utility company owned and operated by the South African government. Hitachi allegedly first sold a 25 per cent stake in its South African subsidiary to Chancellor - and by proxy to the ANC – thereby allowing Chancellor to share in the profits from any power station contract secured by Hitachi. Hitachi is then alleged to have paid "success fees" to Chancellor for its assistance, and inaccurately recorded these as "consulting fees", without appropriate supporting documentation.
In addition to the FCPA, these actions are potential violations of the Securities Exchange Act 1934. The SEC's statement flagged the 'lax internal control environment' that enabled such breaches to take place.
Hitachi agreed to pay US$19 million to settle the SEC charges, although it did not admit or deny the allegations. The settlement, which remains subject to court approval, permanently enjoins Hitachi from any further violations of the FCPA. In a notable first, the SEC received assistance from the African Development Bank's Integrity and Anti-Corruption Department in conducting its investigation.
TOSHIBA CORPORATION TO INITIATE LEGAL ACTION AGAINST FORMER EXECUTIVES FOR THEIR ROLE IN THE ACCOUNTING SCANDAL
We have previously reported on the Toshiba Corporation (Toshiba) accounting scandal, including on the company's independent investigation into its accounting practices, and the subsequent report of 20 July 2015 detailing that the company had overstated its operating profit by JPY 151.8 billion (US$1.22 billion). In last month's update (available here), we also detailed the fines imposed on Toshiba by the Tokyo and Nagoya Stock Exchanges.
The company is now considering suing a number of its former executives, following a proposal from a Toshiba shareholder to sue 28 former and current executives. The shareholder has argued that executives should pay compensatory damages of JPY 1 billion (US$8.26 million) to cover the costs of the investigation, and to help restore public confidence in Toshiba. Under Japanese company law, the shareholder will be able to sue the executives directly in the event that the company decides against initiating proceedings. The shareholder has given the company a window of 60 days to file such a suit.
A panel of three external lawyers is also currently investigating the 98 individuals who served on Toshiba's board during the relevant period, and is expected to conclude that at least three former presidents and a former vice president and one-time chief executive responsible for accounting, were directly involved in the scandal. A report from the panel is expected in the coming months.
SONY CORP AGREES TO SETTLE EMPLOYEE CLAIMS OVER THEFT OF PERSONAL INFORMATION FOLLOWING HACKING SCANDAL
Sony Corporation (Sony) has agreed to pay up to US$8 million to settle claims from its employees over the theft of their personal information during the November 2014 cyberattack. Sony will also have to pay for data protection and legal costs for the employees under the deal, and will provide for identity protection services for employees who join the settlement. The terms of the deal call for up to US$10,000 a person, capped at US$2.5 million, to reimburse workers for identity theft losses; up to US$1,000 each to cover the cost of credit-fraud protection services, capped at US$2 million, and up to US$3.5 million in legal fees. Sony did not admit liability or wrongdoing in the settlement.
The deal is yet to receive approval from the US District Court in Los Angeles, but a motion for preliminary approval of the settlement was filed on 19 October 2015.