In the realm of FCPA enforcement, where the vast majority of cases are settled before the filing and litigation of formal charges, it is often hard to compare the outcomes of early and eve-of-trial or post-trial settlements in any meaningful way. The Noble case, however, provides a rare opportunity to engage in such a comparison, not only because it was litigated by the SEC farther than almost any other FCPA case has been, but also because it involved both pre-and post-litigation settlements for individual defendants based on charges arising out of the same series
In February 2012, the U.S. Securities and Exchange Commission (“SEC”) charged three executives of Noble Corporation with violating various provisions of the FCPA and related laws in the course of their interactions with public officials in Nigeria’s energy sector.1 One of these defendants, Thomas O’Rourke, promptly settled with the SEC, accepting permanent injunctions against future violations as to every count on which he
was charged, and agreeing to pay a $35,000 civil penalty.2
The remaining individual defendants, Mark Jackson and James Ruehlen, decided to litigate.3 On July 2, 2014 – less than
a week before trial was to start and after more than two years of litigation – the SEC settled with these two defendants.4 Although Jackson and Ruehlen agreed to be enjoined from future violations of the books and records provision of the FCPA,
the settlements in their matters were notable in that the vast majority of the charges in the initial complaint, including the bribery charges, were conspicuously absent from
the settlements, and no monetary penalties were imposed.5
Although the Noble case offers just one data point, the outcomes for the three defendants raise important questions about both the difficulties of litigating these
types of cases for the SEC and the potential advantages of declining pre-trial settlement for would-be defendants. In addition,
the SEC’s litigation strategy in these cases highlights some possible problems with the expansive interpretation of the FCPA that the SEC and the Department of Justice (“DOJ”) have advanced in recent FCPA cases. These problems, highlighted in
the District Court’s refusal to accept the
SEC’s interpretation on certain key issues, such as the scope of the facilitation payments exception, as well as the concrete impact of the U.S. Supreme Court’s Gabelli decision (133 S. Ct. 1216 (2013)) in gutting large portions of the SEC’s claims for penalty relief, will doubtless affect future litigation, as well as the “market” for SEC (and in certain respects, DOJ) settlements for years to come. But at the same time, the SEC’s losses on these key issues, which drove the favorable settlements with Jackson and Ruehlen, could well incentivize the SEC to dig deeper, and earlier, for the evidence needed to sustain its burdens in FCPA matters.
II. Background of the Noble Case
In the Noble case, Noble Drilling (Nigeria) Ltd. (“Noble-Nigeria”)6 was accused of bribing Nigerian customs officials in exchange for the grant of what the SEC alleged were illegitimate Temporary Import Permits (“TIPs”) for Noble’s drilling rigs.
According to the SEC’s original complaint, Noble-Nigeria made illegal payments both to obtain false paperwork for new TIPs and to extend its existing TIPs – which normally are obtained through an
CONTINUED ON PAGE 12
- S.E.C. v. Thomas O’Rourke, No. 4:12-cv-00564, Complaint (S.D. Tex. Feb. 24, 2012); S.E.C. v. Jackson, No. 4:12-cv-00563, Complaint (S.D. Tex. Feb. 24, 2012).
- S.E.C. v. Thomas O’Rourke, No. 4:12-cv-00564, Final Judgment (S.D. Tex. March 28, 2014); see SEC Press Rel. 2012-32, SEC Charges Three Oil Services Executives with Bribing Customs Officials in Nigeria (Feb. 24, 2012), http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171487432.
3. See S.E.C. v. Jackson, No. 4:12-cv-00563 (S.D. Tex. 2012).
- See SEC Litig. Rel. 23038, SEC Settles Pending Civil Action Against Noble Executives Mark A. Jackson and James J. Ruehlen (July 17, 2014), http://www.sec.gov/litigation/ litreleases/2014/lr23038.htm.
- S.E.C. v. Jackson, No. 4:12-cv-00563, Final Judgment (S.D. Tex. July 3, 2014).
- Noble-Nigeria was a wholly owned subsidiary of Noble Corporation, an international provider of offshore drilling services and equipment.
The SEC Noble Prosecution n Continued from page 11
application process and permit temporary use of Nigerian resources for one year, with three discretionary six-month extensions – more than three times without moving the rigs out of, and then back into, Nigerian waters, as otherwise would be required.7 These allegedly unlawful TIPs permitted Noble-Nigeria to operate its offshore drilling rigs without paying duties associated with permanent import status being applied to its drilling equipment and without having to shut down its operations and exit Nigerian waters while applying for
a new TIP.8
In addition to the charges brought by the SEC (and also the DOJ) against
Noble-Nigeria’s parent, Noble Corporation, the SEC also brought charges against
three executives: Mark Jackson, who held various positions at the Noble Corporation, including that of Chief Executive Officer, Chief Operations Officer, Chief Financial Officer, and President; James Ruehlen, director and division manager of Noble- Nigeria; and Thomas O’Rourke, at different times director of internal audit and controller.9
The SEC alleged that Ruehlen requested from Jackson the authority to promise
the bribe payments or make the payments themselves and that the two then knowingly
recorded the illegal payments as legitimate business expenses.10 The SEC complaint also cited past violations by Noble-Nigeria either facilitated or ignored by Ruehlen and Jackson.11 With regard to O’Rourke,
“The way in which the SEC litigated against, and then settled with, Jackson and Ruehlen is notable both for the disparate outcome compared to
the O’Rourke settlement and the challenges that the agency faced – both legally and factually –
the SEC focused on the discharge of his oversight responsibilities, alleging that he helped approve the illegal payments and allowed the bribes to be booked improperly as legitimate expenses.12
Of the four defendants charged, two – Noble Corporation and O’Rourke – settled the claims against them. Noble Corporation
settled with both the SEC and the DOJ in 2010, paying disgorgement of $5.57 million to the former13 and signing a non-prosecution agreement that included a $2.59 million criminal penalty with the latter.14 O’Rourke, charged separately only by the SEC, settled as well, paying a $35,000 penalty in 2012 and consenting to injunctions preventing future violations of each of the statutes under which he was charged, which included prohibitions on aiding and abetting bribery and books and records violations, and violating the FCPA’s internal controls requirements.15
The remaining two defendants, Jackson and Ruehlen, against whom the DOJ had also not brought charges, chose to litigate the SEC’s civil charges that were filed against them.
III. Litigation of the Noble Case by the SEC
The way in which the SEC litigated against, and then settled with, Jackson and Ruehlen is notable both for the disparate outcome compared to the O’Rourke settlement and the challenges that the agency faced – both legally and factually – throughout. At the outset of this litigation, the SEC was likely
confident that it could successfully bring charges against both remaining individual defendants, particularly in light of the
CONTINUED ON PAGE 13
7. See S.E.C. v. Jackson, No. 4:12-cv-00563, Complaint (S.D. Tex. Feb. 24, 2012), ¶¶ 18-32.
- See id.
- The DOJ also brought charges against Noble Corporation, but chose not to charge the individuals.
- See id. at ¶ 38.
11. See S.E.C. v. Jackson, No. 4:12-cv-00563, Complaint (S.D. Tex. Feb. 24, 2012), ¶¶ 52-53.
- See S.E.C. v. Thomas O’Rourke, No. 4:12-cv-00564, Complaint (S.D. Tex. Feb. 24, 2012).
- See SEC Litig. Rel. 21728, SEC Charges Noble with FCPA Violations (Nov. 4, 2010), http://www.sec.gov/litigation/litreleases/2010/lr21728.htm.
- See DOJ Press Rel. 10-1251, Oil Services Companies and a Freight Forwarding Company Agree to Resolve Foreign Bribery Investigations and to Pay More Than $156 Million in Criminal Penalties (Nov. 4, 2010), http://www.justice.gov/opa/pr/2010/November/10-crm-1251.html.
- See SEC Press Rel. 2012-32, SEC Charges Three Oil Services Executives with Bribing Customs Officials in Nigeria (Feb. 24, 2012), http://www.sec.gov/News/PressRelease/ Detail/PressRelease/1365171487432.
The SEC Noble Prosecution n Continued from page 12
terms of the settlement that it had reached with O’Rourke. In its 46-page initial complaint, the SEC laid out, in detail, specific affirmative acts allegedly committed by each of the defendants over a period of roughly four years, from 2002 to 2007,16
as well as a multitude of red flags that were allegedly ignored or covered up.17 The charges included bribery, books and
records violations, circumvention of internal controls, and making false and misleading statements, and included, in the case of Jackson, control person liability.
On May 8, 2012, Jackson and Ruehlen each filed a motion to dismiss, challenging both the manner in which the SEC had pled its complaint and the
SEC’s interpretation of certain elements of the FCPA as unconstitutionally vague.18 Specifically, with respect to the pleadings, Jackson and Ruehlen alleged that the there was no distinction between permissible facilitation payments and bribes; that
there was inadequate identification of
identified as violated.19 Both Jackson and Ruehlen also argued that the alleged misconduct occurred outside of the five- year statute of limitations period, and thus was not timely charged. The SEC opposed this motion, challenging the pleading requirements that defendants
argued had not been met.20 With regard to the statute of limitations, the SEC argued that the complaint was timely, but that,
in any event, the statute of limitations had been tolled both under the continuing violations doctrine and under the fraudulent concealment
doctrine, extending the limitations period.21
A. Statute of Limitations and Gabelli
In litigating this motion to dismiss, one of the biggest challenges for the SEC was the statute of limitations issue. This issue was clouded by the concurrent litigation of
S.E.C. v. Gabelli, which stood to determine the applicability of the discovery rule –
allowing a cause of action to accrue upon
Specifically, in August 2011, the Second Circuit handed down an opinion reversing a District Court order that had earlier
“Th[e statute of limitations] issue was clouded by the concurrent litigation of S.E.C. v. Gabelli, which stood to determine the applicability of the discovery rule – allowing a cause of action to accrue upon discovery of the violation rather than when the violation actually took place – to penalty claims brought by the SEC, which are governed by 28
U.S.C. § 2462.”
held that the discovery rule did not apply
the officials involved; that there were
discovery of the violation rather than
to the SEC,23
creating a circuit split24
insufficient allegations relating to motive and intent; and that no particular books, records, or internal controls had been
when the violation actually took place22 – to penalty claims brought by the SEC, which are governed by 28 U.S.C. § 2462.
prompting a petition for certiorari on
the issue to be filed in, and then, while motion practice was ongoing, an order
CONTINUED ON PAGE 14
16. S.E.C. v. Jackson, No. 4:12-cv-00563, Complaint (S.D. Tex. Feb. 24, 2012) at ¶¶18-149.
- See generally id.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant James J. Ruehlen’s Motion to Dismiss Plaintiff ’s Complaint for Failure to State a Claim and Memorandum in Support Thereof (S.D. Tex. May 8, 2012), 23-34 (“Ruehlen Motion to Dismiss”); S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant Mark A. Jackson’s Motion to Dismiss the Complaint under Rule 12(b)(6) for Failure to State a Claim Upon Which Relief Can Be Granted (S.D. Tex. May 8, 2012), 19-20 (“Jackson Motion to Dismiss”).
- See sources cited at n. 18.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Plaintiff ’s Consolidated Response in Opposition to Defendants Jackson’s and Ruehlen’s Motions to Dismiss (S.D. Tex. June 22, 2012).
- See id. Argument Section E.
- See id.
23. See S.E.C. v. Gabelli, 653 F.3d 49, 60-61 (2d Cir. 2011), rev’ d, 133 S. Ct. 1216 (2013).
24. See 3M Co. v. Browner, 17 F.3d 1453, 1462-63 (D.C. Cir. 1994); FEC v. Williams, 104 F.3d 237, 240 (9th Cir. 1996); United States v. Core Labs., Inc., 759 F.2d 480, 481-83
(5th Cir. 1985); United States v. Witherspoon, 211 F.2d 858, 861 (6th Cir. 1954).
- See Gabelli v. SEC, 2012 WL 1419938, Pet. for Writ of Cert. (Apr. 20, 2012). The Petition for Certiorari was granted on September 25, 2012. (Docket Case No. 11-274).
The SEC Noble Prosecution n Continued from page 13
granting review by, the United States Supreme Court.25
Jackson and Ruehlen’s motion papers pointed to cases in the other circuits – including an arguably precedential Fifth Circuit case26 – in which the courts had held that claims under Section 2462 accrue at the time of violation.27 In the case of Jackson and Ruehlen, they argued, under this regime claims concerning any conduct that occurred before February 24, 2007 – i.e., most of the allegedly unlawful conduct at issue – would be time barred.28 The defendants also noted that the SEC
failed to plead any other grounds for tolling the statute of limitations, arguing that there was no fraudulent concealment and that there was no mention of tolling agreements in the complaint.29
In its response filed on June 22, 2012, the SEC first invoked the tolling agreements it had entered into with Jackson and Ruehlen, and then offered a number of other arguments as to why the acts prior
to five years before the SEC filed suit would still be timely.30 As a threshold matter, the agency noted that the statute of limitations would not apply to equitable
remedies.31 With regard to monetary penalties, the SEC did not argue in detail that the discovery rule was a valid basis for its claims, but instead focused on two
alternative theories for tolling the statute of limitations, after giving a brief nod to the Gabelli litigation.32 First, the SEC argued that the failure to keep accurate books
and records is “inherently continuing in nature” and continued into May 2007, which made the claims of violations of the FCPA’s books and records provisions timely even if the violations began outside of the limitations period.33 Second, the SEC argued that both the falsification of the company’s books and records and the
delayed notification of misconduct fulfilled the requirements of fraudulent concealment, which would also be a ground for tolling the limitations period.34
In deciding this motion to dismiss, Judge Ellison agreed that the claims accruing before February of 2007 should be time-barred, unless the SEC amended its complaint to plead expressly the continuing violations exception.35 Further, the District Court held that, although the continuing violations doctrine could be applied to the
books and records or the internal control violations alleged, it could not be applied to
“[T]he District Court held that, although the continuing violations doctrine could be
applied to the books and records or the internal control violations alleged, it could not be applied to any charges as to which at least one violation referenced therein had not occurred within the statute of limitations period.”
any charges as to which at least one violation referenced therein had not occurred within the statute of limitations period.36
As for the SEC’s contentions about fraudulent concealment, the District Court noted the requirement that the SEC must exercise reasonable diligence in discovering the fraud despite allegedly wrongful concealment by the defendants, and gave the SEC leave to amend its complaint in
CONTINUED ON PAGE 15
- United States v. Core Labs., Inc., 759 F.2d 480, 481-83 (5th Cir. 1985).
- See, e.g., SEC v. Microtune, Inc. 783 F. Supp. 2d 867, 873 (N.D. Tex. 2011); United States v. Core Labs, Inc., 759 F.2d 480, 482 (5th Cir. 1985); Trawinski v. United Techs., 313 F.3d 1295, 1298 (11th Cir. 2002).
- See Ruehlen Motion to Dismiss at 23-24; Jackson Motion to Dismiss at 19-20.
- See Ruehlen Motion to Dismiss at n.17; Jackson Motion to Dismiss at 20-22, n.22. Both defendants acknowledge that they did sign tolling agreements with the SEC that pushed the actionable date back to May 10, 2006, but point out that “because the SEC failed to plead the existence of those agreements in its Complaint . . . their existence ought not be considered for the purposes of this Motion to Dismiss.” Ruehlen Motion to Dismiss at n.17.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Plaintiff ’s Consolidated Response in Opposition to Defendants Jackson’s and Ruehlen’s Motions to Dismiss (S.D. Tex. 2012), 43-48.
- See id. at 48.
- See id. at 45-47.
- Id. at 45; see id. at 45-46.
- See id. at 46-47.
- See SEC v. Jackson, 908 F. Supp. 2d 834, 873 (S.D. Tex. 2012).
- See id. at 872.
- See id. at 871.
The SEC Noble Prosecution n Continued from page 14
order to plead properly such diligence.37 In his opinion, Judge Ellison noted that “the statute is not automatically tolled until such a time that plaintiff actually
had all of the knowledge necessary to state a claim; rather, a plaintiff must show that
“In his December 11, 2012 memorandum and order dealing with the motions to dismiss, Judge Ellison held that it was the SEC’s burden both to negate the applicability of the facilitating payments exception and to show the defendants’ intent wrongfully to influence
he acted diligently upon learning any facts that should have ‘excite[d] inquiry’”38 and cited to the Second Circuit’s decision in Gabelli “noting that, in the context of the discovery rule, defendants bear the burden of proving that a ‘reasonably diligent plaintiff would have discovered this fraud’ earlier.”39 He went on to acknowledge that “the Fifth Circuit has unambiguously held
that plaintiffs would ‘ultimately bear the burden of persuasion on the question of diligence’ [and] [t]his Court is bound by that precedent.”40
In light of this ruling, the SEC filed an amended complaint on January 25, 2013
– less than three weeks after oral argument in the Supreme Court in Gabelli – and
in this pleading alleged in greater detail its diligence in discovering the fraud and
explicitly mentioned the tolling agreements signed by the defendants.41 Again, the SEC did not rely on the discovery rule.
On February 27, 2013, the Supreme Court handed down its decision in Gabelli, holding that the SEC was not entitled to the benefit of the discovery rule in seeking monetary penalties.42 A month later, on March 25, 2013, the SEC filed a second amended complaint against Jackson and Ruehlen, limiting the civil penalties sought to alleged wrongdoing that took place
after May 2006, per the tolling agreements entered into with those defendants.
The equitable remedies sought, however, still covered the entire period of alleged misconduct, presumably relying on the concept that both the doctrine of laches and the doctrines underlying the grant of
equitable remedies against law violators were more flexible than the Gabelli rule.43
B. Facilitating Payments and Reliance on Counsel
In addition to the statute of limitations issue, Jackson and Ruehlen raised a second argument in their motion to dismiss that arguably presented an even greater threat to the SEC, and likely weighed heavily in the agency’s ultimate decision to settle.
As mentioned above, Jackson and Ruehlen asserted that, to the best of their knowledge at the time of the alleged misconduct,
the payments at issue were permissible facilitation payments and not illegal bribes. In addition and relatedly, Jackson and Ruehlen argued that they lacked the requisite mens rea for the “corrupt intent” element of an FCPA bribery charge, and thus were not civilly liable with respect to any such offense related to the allegedly impermissible payments.44
In his December 11, 2012 memorandum and order dealing with the motions to dismiss, Judge Ellison held that it was the SEC’s burden both to negate the applicability of the facilitating payments exception and to show the defendants’ intent wrongfully to influence foreign officials.45 The complaint did, according to Judge Ellison, allege the statutory elements with regard to the falsified TIPs, but
CONTINUED ON PAGE 16
- Id. at 868-69 (alteration in original) (quoting In re Beef Indus. Antitrust Litig., 600 F.2d 1148, 1171 (5th Cir. 1979)).
- Id. at 869 (quoting Gabelli, 653 F.3d at 60-61).
- Id. (quoting Texas v. Allan Constr. Co., 851 F.2d 1526, 1533 (5th Cir. 1988)).
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Amended Complaint (S.D. Tex. Jan. 25, 2013), 50-51.
- Gabelli v. S.E.C., 133 S. Ct. 1216, 1224 (2013). The Court stated that the purpose of the discovery rule was to preserve the claims of injured parties who were unable to obtain compensation for those injuries due to the difficulty of discovering their injury and held that because the sole function of the SEC is to investigate potential instances of non-compliance the purposes of the discovery rule are inapplicable in an SEC enforcement context. See id. at 1222.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Second Amended Complaint (Mar. 25, 2013).
- See Ruehlen Motion to Dismiss 13-17; Jackson Motion to Dismiss 13-19.
- See SEC v. Jackson, 908 F. Supp. 2d at 857, 860.
The SEC Noble Prosecution n Continued from page 15
failed to do so with regard to discretionary extensions of existing TIPs.46 Accordingly, the Judge gave the SEC leave to amend
its complaint to more comprehensively plead the alleged wrongdoing within the framework of the District Court’s ruling. The SEC subsequently filed two amended complaints attempting to remedy the weaknesses in its pleadings that the Court’s ruling had identified.
A number of months after filing its second amended complaint, the SEC again took on the facilitating payments issue and moved for summary judgment on certain points, claiming that, as a matter of law, the facilitation payments exception was inapt.47 The SEC insisted that the numerous consecutive extensions to the TIPs were contrary to Nigerian law, which limited
the number of permissible extensions to an existing TIP.48 This, according to the SEC, disposed of the facilitation payments issue; if the acts were illegal, there would
be no “routine” act to facilitate.49 The SEC further argued that, even if defendants thought the extensions were permissible under Nigerian law, the decision to grant extensions was discretionary, and thus the
“[T]he defendants went further to focus the court on the evidence indicating that the entirety of the conduct at issue had been transparently disclosed within the context of
a compliance program that had been developed with the assistance of
facilitating payments exception likewise should not apply.50
The defendants responded that this did not solve the scienter issue and asserted they were not aware that the requested extensions were impermissible or discretionary.51 They reasserted the absence of any evidence of “corrupt intent” behind their actions, and continued to emphasize that the proper inquiry regarding the exception is the purpose of the payments and not their
effect.52 In fact, the defendants went further to focus the court on the evidence indicating that the entirety of the conduct at issue had been transparently disclosed within the context of a compliance program that had been developed with the assistance of outside counsel.53 In their respective roles
as officers, they argued, they were entitled to rely, and did in fact rely, on the professional opinions of these advisors.54
On May 29, 2014, Judge Ellison heard argument on the parties’ motions for summary judgment, which had focused on the interpretation of the facilitation payments exception and the meaning of
the FCPA’s “intent” requirement. Jackson’s lawyer argued first, leading the District Court through each of the payments
made and focusing on the advice upon which the defendants relied in deeming the payments to be lawful under the FCPA. This advice was extensive – including a review of Noble’s compliance program by outside counsel, an audit by PricewaterhouseCoopers, legal advice from the company’s general counsel, and an opinion from Nigerian counsel (later hotly disputed by the SEC) – and none indicated
CONTINUED ON PAGE 17
- See id. at 862.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, SEC’s Motion for Partial Summary Judgment on Inapplicability of Facilitating Payment Exception and Memorandum of Law in Support (S.D. Tex. Mar. 28, 2014).
- See id. at 31-33.
- See id. at 29-30.
- See id. at 33-35.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant James J. Ruehlen’s Motion for Summary Judgment and Memorandum of Law in Support (S.D. Tex. Mar. 28, 2014), 19-26;
S.E.C. v. Jackson, No. 4:12-cv-00563 , Defendant Mark A. Jackson’s Motion for Summary Judgment (S.D. Tex. Mar. 28, 2014), 19-31.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant James J. Ruehlen MSJ and Memorandum of Law in Support 19-26; S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant Mark A. Jackson MSJ 19-31.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant James J. Ruehlen MSJ and Memorandum of Law in Support 10-15; S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant Mark A. Jackson MSJ 20-24.
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant James J. Ruehlen MSJ and Memorandum of Law in Support 23-26; S.E.C. v. Jackson, No. 4:12-cv-00563, Defendant Mark A. Jackson MSJ 22-24.
The SEC Noble Prosecution n Continued from page 16
any concern about the recorded facilitation payments.55 Ruehlen’s counsel echoed these arguments, also advancing an “actual knowledge” standard for allegedly improper
“[T]hat neither the defense nor the prosecution had obtained the testimony of the Nigerian legal expert whose advice was at issue raised the thorny problem of who carried the burden
to produce the witness after defendants testified to their reliance on her advice.”
payments and arguing that the advice received strongly indicated that neither Jackson nor Ruehlen possessed the requisite mental state for civil FCPA liability.56
The SEC first responded by challenging the actual knowledge standard, arguing that deliberate ignorance is not an excuse
under the FCPA.57 Still, recognizing that the crux of the case related to knowledge of wrongdoing, the government turned its
focus to the meaning of the phrase “corrupt intent.”58 Noting that the exception requires “purpose to expedite . . . a routine government action,”59 the government dedicated the majority of its argument to the state of Nigerian law, advocating for “an objective inquiry that relies on what the law in the country requires.”60 In the SEC’s view, the key issue was the discretion implicated in TIP issuance decisions, which removed them from the realm of permissible facilitation payments.61 The SEC also argued that the books and records provisions of the statute did not require the same intent as the bribery provisions.62
Judge Ellison’s questions during oral argument indicated a concern that, although the defense’s case turned on the receipt of legal advice that indicated no wrongdoing, the record on that issue was less than ideal.63 In particular, that neither the defense nor the prosecution had obtained the testimony
of the Nigerian legal expert whose advice was at issue raised the thorny problem of who carried the burden to produce the witness after defendants testified to their reliance on her advice.64 In addition, the judge appeared uncomfortable with being given the task of interpreting Nigerian law, particularly at the summary judgment
stage. In fact, at various points throughout the hearing, Judge Ellison queried whether, as a legal matter, the clear factual disputes being argued, including issues
of intent, flatly barred granting any party summary judgment.65
After two days of argument on these and other matters, Judge Ellison issued an oral decision from the bench denying all of the parties’ motions for summary judgment. Though he did not elaborate upon the basis for this ruling, the transcript suggests the District Court appeared to believe that there were a number of genuine disputes of material fact that needed to go to the jury, as was “clear from [the Court’s] questions”
throughout the proceedings.66 Nevertheless,
CONTINUED ON PAGE 18
- During oral argument, defendants described the elements of an extensive compliance program which, on their evidence, had been implemented and was working, and reliance on advice of (i) experienced executives who stated that the payments were required and permissible under Nigerian Law, (ii) an outside law firm specializing in FCPA issues that evaluated Noble’s compliance program and found it to be “excellent,” (iii) Noble’s General Counsel, (iv) an outside audit firm that stated that the additional TIP extensions were permissible and flagged no issues with the payments that were booked as facilitation payments, and (v) the company lawyer from Nigeria who stated that the payments were legal under Nigerian Law. The SEC disputed this evidence, and maintained that there was almost no evidence beyond the word of the interested parties that such advice had ever been received. In particular, there was significant dispute over the alleged advice of Nigerian counsel Jo Onodugo, whose direct testimony had not been obtained by the other side. See, e.g., S.E.C. v. Jackson, No. 4:12-cv-00563, Transcript of Proceedings – Motion Hearing for Summary Judgment (S.D. Tex. May 29, 2014) 13-33, 53-54, 57-64, 77-80, 104-09, 118-21, 126-32, 138-48, 154-59, 160-62.
- See id. at 61-63.
- See id. at 36-37.
- Id. at 38.
- Id. at 43.
- Id. at 44.
- See id. at 54.
- See id. at 51-52.
- Id. at 62.
- See id. at 166-172.
65. See, e.g., id. at 151, 186.
- S.E.C. v. Jackson, No. 4:12-cv-00563, Transcript of Proceedings – Motion Hearing for Summary Judgment (S.D. Tex. May 30, 2014), 138-39; see, e.g., id. at 6, 17, 20-21, 38, 50, 81, 132, 134; see also, e.g., S.E.C. v. Jackson, No. 4:12-cv-00563 Transcript of Proceedings – Motion Hearing for Summary Judgment (S.D. Tex. May 29, 2014) 63, 100-111, 149, 155-56.
The SEC Noble Prosecution n Continued from page 17
the transcript does give some indication of the Court’s receptiveness to the parties’
arguments, indicating areas of potential risk for the SEC. For example, Judge Ellison appeared to be somewhat persuaded by the defendants’ argument that receiving legal advice as to the payments could exculpate defendants, at least from the primary FCPA anti-bribery charges against them, if they acted in reliance of such advice. The Court did not, moreover, appear to be entirely persuaded by the SEC’s argument that
the presence of administrative discretion to grant a requested benefit automatically meant that the statutory facilitating payments exception, which makes no mention of government discretion, could not apply.
V. The Jackson and Ruehlen Settlements and Their Implications
On July 2, 2014, just days before trial, Jackson and Ruehlen settled with the SEC without agreeing to pay any monetary penalties or to disgorge any money allegedly received by reason of their alleged misconduct or to make any
admissions of guilt.67 Of the ten remaining charges against Jackson and the six charges against Ruehlen, the settlements in each case mentioned only one books and records charge; Jackson agreed to a permanent
injunction against violating the books and records provisions set forth in Section 13(b) (2)(A) of Title 15 as a “control person,”68 and Ruehlen agreed to a permanent injunction against aiding and abetting
a violation of the same, in his individual capacity.69 Neither Jackson and Ruehlen admitted or denied the allegations in the SEC’s complaints. By way of contrast, O’Rourke’s pre-litigation settlement included injunctions with respect to all five of the charges against him, as well as a civil penalty of $35,000, notwithstanding that the facts pleaded by the SEC were subject to the same statute of limitations bar that was ultimately decided in Jackson’s and Ruehlen’s favor.
Though the SEC’s decision to settle with Jackson and Ruehlen – the more senior of the executives charged in the Noble matter – was undoubtedly the product of
an assessment of many factors, it is likely that the denial of the agency’s motion for summary judgment and the potential for adverse rulings on the issue of facilitation payments and reliance on advice of counsel played a large role. The agency also faced an uphill battle relating to the statute of limitations. Given the leverage of the defendants at that juncture, they were able to obtain what was, objectively, a more favorable settlement than O’Rourke’s.
The Noble case raises important questions about the SEC’s expansive interpretation of the FCPA and the practical challenges that government
“The Noble case raises important questions about the SEC’s expansive interpretation of
the FCPA and the practical challenges that government attorneys face in court. Doubtless the SEC took into account the risk that a broad interpretation of the facilitating payments exception could have blown a significant hole in the agency’s enforcement agenda.”
attorneys face in court. Doubtless the SEC took into account the risk that a broad interpretation of the facilitating payments exception could have blown a significant hole in the agency’s enforcement agenda. Additionally, particularly following discovery, oral argument, and questions
by the judge that brought to the fore many specific facts about Noble’s compliance program, the agency doubtless assessed the
CONTINUED ON PAGE 19
- See S.E.C. v. Jackson, No. 4:12-cv-00563, Joint Stipulation and Motion for Entry of Final Judgments (July 2, 2014).
- See id. Ex. A at 1-2.
- See id. Ex. C at 1-2.
The SEC Noble Prosecution n Continued from page 18
equity of proceeding to trial in a case in which a company had at least attempted to do exactly what U.S. enforcement officials had been advocating for years – establish compliance programs with the assistance of outside advisors and counsel, escalate issues within the organization, and, when necessary, seek the guidance of local counsel in the relevant jurisdiction. The particulars of the Noble compliance program and the specific conduct at issue could well be debated for years, and in-
house counsel and compliance professionals may wish to consult these particulars to determine how to improve their programs and program execution to reduce even further the risk of government scrutiny. Nevertheless, one critical conclusion is that, depending on the facts, it very well may make sense not to settle early, but to force the government to its proof and to seek
judicial rulings on important unresolved questions of law, of which there remain many under the FCPA.
Beyond these lessons, those subject to the FCPA cannot take too much solace from the outcome in the Jackson and Ruehlen cases. In contrast to O’Rourke, who was
at least able to put the matter behind him at a relatively early date, Jackson and Ruehlen each litigated for years before settling, with all the attendant risks of doing so. Both Jackson and Ruehlen will remain subject to injunctions under the FCPA’s accounting provisions. Moreover, the SEC will no doubt assess what can be done to strengthen its hand in future cases – perhaps acting more quickly to initiate investigations
(and obtain tolling agreements) and also acting more pro-actively to secure the live testimony of witnesses abroad. The SEC also may determine, in other cases,
notwithstanding the outcomes here, to press its broad view of the FCPA (and a narrow view of the facilitating payments exception) as the applicable law in FCPA matters.