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October 24, 2013 at 10:53 AM
Among recent enforcement actions were the Department of Labor’s recovery of $4 million for an employee stock ownership plan and charges by the SEC against the collateral manager of a CDO for fraud and against Diebold for FCPA violations.
Also, in the wake of a previous SEC action, a Minneapolis-based attorney, his advisory firm and a real estate lending fund were found liable for fraud in a jury trial.
Diebold to Pay $48 Million Over FCPA Violations
Ohio-based Diebold Inc., manufacturer of voting machines, ATMs and bank security systems, was charged by the SEC with violating the Foreign Corrupt Practices Act by bribing officials at government-owned banks with pleasure trips to illegally win business.
From 2005 to 2010, Diebold subsidiaries in China and Indonesia, according to the SEC, sent government-owned bank officials on all-expense-paid junkets to such tourist destinations as the Grand Canyon, Napa Valley, Disneyland, Las Vegas, New York and Hawaii, as well as Paris, Amsterdam, Venice, Rome, Australia and Bali.
The company spent more than $1.6 million on bribes for Chinese officials and more than $147,000 for Indonesian officials; it also hid these expenses as legitimate training expenses. Its Chinese subsidiary also dropped annual cash gifts on dozens of officials that ranged from $100 to more than $600.
And in Russia, from 2005 to 2008, the company spent another $1.2 million in bribes to employees at privately owned banks in connection with the sale of ATMs to those banks, and then cooked the books to cover up the fact.
Diebold has agreed to pay more than $48 million to settle the SEC’s charges and resolve a parallel criminal matter announced today by the U.S. Department of Justice. That includes $22.9 million in disgorgement and prejudgment interest, and an additional $25.2 million fine in the parallel criminal proceeding. The company has also agreed to appoint an independent compliance monitor.
Medical Technology Company Stryker Also Caught in FCPA Violation
The SEC charged a Michigan-based medical technology company with violating the Foreign Corrupt Practices Act when subsidiaries in five different countries bribed doctors, health care professionals, and other government-employed officials in order to obtain or retain business.
An SEC investigation found that Stryker Corp.’s subsidiaries in Argentina, Greece, Mexico, Poland and Romania made illicit payments totaling approximately $2.2 million that were incorrectly described as legitimate expenses in the company’s books and records. Descriptions varied from a charitable donation to consulting and service contracts, travel expenses, and commissions. Stryker made approximately $7.5 million in illicit profits as a result of the improper payments.
Without admitting or denying the allegations, Stryker has agreed to pay more than $13.2 million to settle the SEC’s charges.
“Stryker’s misconduct involved hundreds of improper payments over a number of years during which the company’s internal controls were fatally flawed,” said Andrew Calamari, director of the SEC’s New York Regional Office. “Companies that allow corruption to occur by failing to implement robust compliance programs will not be allowed to profit from their misconduct.”
The SEC’s order instituting settled administrative proceedings details improper payments by employees of Stryker’s subsidiaries as far back as 2003. They used third parties to make the payments in order to win or keep lucrative contracts for the sale of Stryker’s medical technology products. For example, in January 2006, Stryker’s subsidiary in Mexico directed a law firm to pay approximately $46,000 to a Mexican government employee in order to secure the winning bid on a contract. The result was $1.1 million in profits for Stryker. The subsidiary reimbursed the Mexico-based law firm for the bribe and booked the payment as a legitimate legal expense. However, no legal services were actually provided and the law firm simply acted as a funnel to pay the bribe.
According to the SEC’s order, Stryker’s subsidiary in Greece made a purported “donation” of nearly $200,000 in 2007 to a public university in Greece to fund a laboratory that was a pet project of a public hospital doctor. In exchange for the payment, the doctor agreed to provide business to Stryker.
The SEC’s investigation also found that Stryker’s subsidiaries bribed foreign officials by paying their expenses for trips that lacked any legitimate business purpose. For example, in exchange for the promise of future business from the director of a public hospital in Poland, Stryker paid travel costs for the director and her husband in May 2004. This included a six-night stay at a New York City hotel, attendance at two Broadway shows, and a five-day trip to Aruba.
The SEC’s order requires Stryker to pay disgorgement of $7,502,635, prejudgment interest of $2,280,888, and a penalty of $3.5 million. Without admitting or denying the allegations, Stryker agreed to cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.
DOL Recovers Over $4 Million for ESOP
