DOJ PRIORITIZES PROSECUTION OF INDIVIDUALS
As mentioned in our previous alert, the Department of Justice (the "DOJ") issued a memorandum to all federal prosecutors on September 9, directing them to focus on seeking accountability from culpable individuals in their investigations of corporate wrongdoing. Additionally, the memorandum emphasized that corporations would be required to provide evidence concerning the individuals responsible for wrongdoing, and would receive no cooperation credit if they refused.
The DOJ has long been criticized for entering into arrangements with corporations whereby the corporations pay large fines, sometimes without admitting misconduct, and where responsible individuals are not prosecuted at all. This memorandum follows on from a series of recent speeches by senior DOJ officials where they emphasized the need for individual accountability and explained that corporations must, as a condition of receiving cooperation credit, provide information concerning culpable individuals. In a sense, every investigation into corporate wrongdoing by necessity must involve an evaluation of both corporate and individual wrongdoing. This memorandum, by the second highest ranking officer at the DOJ, is simply the latest pronouncement that the prosecution of individual wrongdoing will be a focus of DOJ investigations. Whether it will be true in practice, as prosecutors grapple with proof problems in individual cases, remains to be seen.
ANALOGIC CORP REVEALS POSSIBLE FCPA SETTLEMENT WITH SEC
The medical imaging firm Analogic Corp announced its quarterly and annual results on September 16. Within these results, it revealed details of a Foreign Corrupt Practices Act investigation into conduct by its Danish subsidiary, BK Medical ApS and certain of its foreign distributors. Previous company filings indicated that the conduct under investigation involved BK Medical being paid extra by distributors and transferring these extra funds to third parties.
The company reported that it has commenced discussions with the Securities and Exchange Commission (the "SEC") on this matter and has proposed a settlement of $1.6 million. However, it remains unclear whether this figure will be accepted by the SEC and whether any additional action will be taken by the DOJ or by the Danish authorities.
HITACHI AGREES TO $19 MILLION SEC SETTLEMENT OF FCPA CHARGES
The SEC announced on September 28 that it had charged Hitachi, Ltd. with violating the FCPA. The SEC's charges were based on allegations that the company sold a 25% stake in a South African subsidiary to a company operating as a front for the African National Congress (the "ANC"), allowing the South African company and the ANC to share in profits made by Hitachi on power station contracts in South Africa. According to the SEC's complaint, this conduct violated the FCPA's books and records provisions since the South African subsidiary failed to properly characterize dividend and "success fee" payments made to it by Hitachi.
Hitachi has agreed to pay $19 million to settle the charges.
SEC SETTLES FCPA CHARGES AGAINST HYPERDYNAMICS
Hyperdynamics Corporation announced on September 29 that it had reached a settlement with the SEC regarding possible violations of the books and records provisions of the FCPA. The SEC's cease and desist order states that Hyperdynamics failed to adequately record certain payments made by its subsidiary in the Republic of Guinea. The payments were made to two Guinean entities and were recorded as having been made for public relations and lobbying services. It was subsequently revealed that the two entities were owned by a local Hyperdynamics employee; the company could not confirm how the funds were used by the entities or whether the services were in fact provided.
The order requires Hyperdynamics to pay a civil penalty of $75,000 in recognition of its books and records violations.
FORMER CFO OF SIEMENS ARGENTINA PLEADS GUILTY TO FCPA VIOLATIONS
On September 30, the DOJ announced that Andres Truppel, the former CFO of Siemens S.A. – Argentina ("Siemens Argentina") entered a guilty plea relating to his role in a decade-long bribery scheme. Truppel admitted to involvement in a scheme to pay bribes to Argentine government officials in connection with a project to create national identity cards. Payments were reportedly concealed in a number of different ways, including using shell companies, false contracts for consulting services and by paying $7.4 million as part of a hedging contract with a foreign currency company incorporated in the Bahamas. In addition, Truppel admitted that he and his co-conspirators paid nearly $1 million to a former official in Argentina’s Ministry of Justice, which was used to bribe an Argentine government official.
SEC BRINGS INSIDER TRADING CHARGES RELATED TO P.F. CHANG'S MERGER
The SEC announced on September 23 that it was bringing charges against a consultant to the Panda Restaurant Group and his friend in relation to allegations of insider trading. The SEC said that the consultant provided his friend with confidential information relating to the bidding process for P.F. Chang's China Bistro following receipt of this information when providing coaching services to the management of Panda Restaurant Group. Two of the consultant's friends (and a third individual who is now deceased) reportedly purchased "out of the money" call options for P.F. Chang's and then immediately sold them when an offer for the company was announced, making profits of around $300,000.
One of the friends has agreed to pay a penalty of $19,829, comprising his trading profits, plus interest.
STOCKBROKER PLEADS GUILTY IN INSIDER TRADING SCHEME
The DOJ announced on September 16 that a stockbroker had admitted to participating in a five-year insider trading scheme involving the theft of information from an international law firm. Vladimir Eydelman, who formerly worked as a stockbroker at two major financial institutions, admitted to trading on information provided by a client, Frank Tamayo, who had, in turn, received the information from the managing clerk at the New York office of Simpson Thatcher & Bartlett LLP (Steven Metro). Metro would reportedly search the firm's systems for information on mergers and acquisitions and pass this on to Tamayo who, in turn, gave the information to Eydelman. The DOJ has stated that the three co-conspirators made over $5.6 million in profit from their trading.
Tamayo pleaded guilty to conspiracy and securities and tender offer fraud in September 2014, while Metro is scheduled to stand trial in February 2016. Eydelman is due to be sentenced in December 2015.
SUPREME COURT DECLINES TO REVIEW NEWMAN INSIDER TRADING CASE
We reported in last month's update on the Solicitor General's request for the Supreme Court to review the Second Circuit's Newman decision. On October 5, the Supreme Court denied this request without comment, with the result that the Second Circuit's decision in Newman will remain binding. Prosecutors will therefore be required to demonstrate that an insider disclosed confidential non-public information in exchange for a significant personal benefit in order to secure insider trading charges. We have summarized below some Newman-related cases heard prior to the Supreme Court's decision and will continue to provide updates on the courts' treatment of such cases and application of the Newman standard.
A Georgia judge ruled on September 24 that Mark Megalli, a former portfolio manager at Level Global Investors LP who previously pled guilty to insider trading charges could not rely on Newman to avoid civil liability. The judge found that Megalli entered his guilty plea in a court bound by the Eleventh Circuit, not the Second and, furthermore, that Megalli was only one level removed from the insider and admitted he knew that he was trading on inside information. For further details, see Securities and Exchange Commission v. Megalli, case number 1:13-cv-03783, in the U.S. District Court for the Northern District of Georgia.
A New Jersey judge also recently ruled that George Holley, the former chairman of Home Diagnostic, Inc. could not rely on Newman to vacate his December 2014 settlement with the SEC. The settlement related to allegations that Holley tipped his cousin and a friend prior to Home Diagnostic's acquisition but Holley since sought to argue that his conduct was no longer illegal under the Newman standard (Securities and Exchange Commission v. Holley et al., case number 11-cv-00205, in the U.S. District Court for the District of New Jersey).
CAESARS PALACE REACHES AML SETTLEMENT WITH FINCEN
On September 8, the Financial Crimes Enforcement Network ("FinCEN") announced that Desert Palace, Inc., doing business as Caesars Palace ("Caesars") had agreed to pay an $8 million civil penalty for "willful and repeated violations" of the Bank Secrecy Act. The consent to the assessment of the penalty entered into by Caesars and FinCEN concludes that the company maintained severely deficient internal controls on its private gaming salons, allowing gamblers to circumvent certain recordkeeping and reporting requirements and causing Caesars to fail to report a number of instances of suspicious activity. In addition to the civil penalty, Caesars has agreed to make improvements to its AML program, including undergoing independent testing, and to carry out a "look-back" review for suspicious transactions.
Caesars had previously disclosed that it was engaged in settlement discussions with FinCEN, mentioning a possible penalty range of $12 million to $20 million.
SEC CHARGES INVESTMENT ADVISOR WITH FAILURE TO ADOPT PROPER CYBERSECURITY POLICIES AND PROCEDURES
On September 22, the SEC announced that it had reached a settlement with R.T. Jones Capital Equities Management, Inc. ("R.T. Jones"), an investment advisor in respect of charges that it had failed to adopt proper cybersecurity policies and procedures, compromising personally identifiable information of around 100,000 individuals. R.T. Jones has agreed to pay a $75,000 penalty.
According to the SEC's order, R.T. Jones failed to adopt written policies and procedures reasonably designed to safeguard customer information, including implementation of a firewall, encryption of data and maintaining a response plan for cybersecurity incidents. The firm's web server was attacked by an unknown hacker in July 2013, rendering the data vulnerable to theft.
AMENDMENTS TO CUBAN SANCTIONS REGIME
The Department of Treasury's Office of Foreign Assets Control has announced amendments to its Cuban Assets Control Regulations and published new FAQs on its sanctions against Cuba, reflecting the US policy of further engagement with Cuba. Whilst broad sanctions against Cuba remain in force, the new legislation provides relaxations relating to travel, telecommunications and internet-based services, business operations in Cuba, and remittances. The new measures took effect on September 21.