On August 19, 2013, the SEC entered into a settlement agreement with Phillip Falcone and his advisory firm, Harbinger Capital Partners, based on allegations that Falcone used $113 million in Harbinger assets to his personal benefit, had favored certain investors at the expense of other investors, and had improperly manipulated bond prices. In order to settle the case, Falcone and Harbinger were required to make numerous admissions of wrongdoing. This settlement reflects the first implementation of the SEC’s new policy, announced in June 2013, under which the agency will require admissions of wrongdoing in connection with the settlement of certain enforcement actions.
According to reports, the SEC will now require parties to admit wrongdoing in cases involving “egregious intentional misconduct,” obstruction of an SEC investigation, or “misconduct that harmed large numbers of investors.” SEC Chairman Mary Jo White explained during a recent speech at a Wall Street Journal CFO Network conference that “public accountability in particular kinds of cases can be quite important, and if you don’t get them, you litigate them.”
What do these developments mean for settlements in FCPA cases? Although the SEC has not expressly stated that it will seek admissions in FCPA settlements, one can imagine that with the right set of facts, violations of the FCPA could meet the standards that the SEC is targeting in its new policy requiring admission of wrongdoing. Companies and individuals with FCPA issues need to be aware of the potential consequences of being required to admit wrongdoing in connection with SEC settlements. The FCPA has no private right of action; but that has not stopped plaintiffs from filing derivative lawsuits, securities fraud actions, tort and contract law claims, employment lawsuits, and private actions under the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, with FCPA misconduct alleged as the underlying acts. Although those lawsuits have been met with mixed results, admissions of wrongdoing in FCPA settlements with the SEC could give the plaintiffs’ bar another avenue to sue companies and executives for FCPA violations.