Among recent enforcement actions by the Securities and Exchange Commission were charges against a New Jersey man for insider trading; sanctions against a Florida auditor who circumvented audit rules; and charges against a Texas-based company for violating the Foreign Corrupt Practices Act.
Layne Christensen Charged With Bribing Tax, Other Foreign Officials; Fined $5M
Global water management, construction and drilling company Layne Christensen, headquartered in Texas, has been charged by the SEC with violating the Foreign Corrupt Practices Act (FCPA) by making improper payments to foreign officials in several African countries in order to obtain beneficial treatment and reduce its tax liability. It will pay about $5.1 million to settle the charges.
The company self-reported the misconduct, which included receiving approximately $3.9 million in unlawful benefits during a five-year period as a result of bribes typically paid through its subsidiaries in Africa and Australia. Some payments were funded through cash transfers from Layne’s U.S. bank accounts.
Nearly $800,000 went to to foreign officials in Mali, Guinea and the Democratic Republic of the Congo (DRC) to reduce Layne’s tax liability and avoid associated penalties for delinquent payment. Thanks to the bribes, Layne was able to realize more than $3.2 million in improper tax savings.
Layne also made improper payments to customs officials in Burkina Faso and the DRC to avoid paying customs duties and obtain clearance to import and export its equipment. The bribes were hidden in the company’s books and records as legal fees and commissions.
In addition, Layne paid more than $23,000 in cash to police, border patrol, immigration officials and labor inspectors in Burkina Faso, Guinea, Tanzania, and the DRC to obtain border entry for its equipment and employees. The bribes also helped get work permits for its expatriate employees and avoid penalties for noncompliance with local immigration and labor regulations.
Layne has agreed to pay $3,893,472.42 in disgorgement, plus $858,720 in prejudgment interest. In addition, the company will pay a $375,000 penalty; the amount, according to the SEC reflects Layne’s self-reporting, remediation, and significant cooperation with the agency’s investigation.
The settlement also requires the company to report for two years to the SEC on the status of its remediation and implementation of measures to comply with the FCPA.
Layne has consented to the order without admitting or denying the SEC’s findings.
SEC Charges New Jersey Man With Insider Trading
David Post of Livingston, New Jersey, was charged by the SEC with insider trading after he traded on tips from a former business school classmate about the impending acquisition of two pharmaceutical companies.
According to the agency, Post was told confidential information by Zachary Zwerko, whose job it was to evaluate potential acquisitions in his position as a financial analyst at a major pharmaceutical company. Zwerko has already been charged for his part in the scheme, which began in 2012.
That was when Zwerko found out his company was one of the bidders for Ardea Biosciences Inc. As the public announcement approached, Zwerko would send regular updates on the negotiations to Post, who then bought $227,000 worth of Ardea securities.
Not only had Post never bought Ardea before, that was the most he had ever invested in a single company. Once the acquisition was made public, Ardea’s stock rose by 51%; Post sold all of his shares and made approximately $105,000 in profits.
The SEC also said that Zwerko similarly tipped Post with confidential details about his employer’s nonpublic negotiations to acquire Idenix Pharmaceuticals Inc. earlier this year. To do this, Zwerko had to access confidential files in the company’s database and gain additional nonpublic information from others in the company, since he was not directly involved in the deal.
Once again, Post, who had never before purchased Idenix securities, bought a total of $219,000 in Idenix shares from May 21 to June 6. After the public announcement on June 9, Post sold for a profit of approximately $579,000.
Post and Zwerko used prepaid “burner” cell phones and sent each other coded text messages in advance of Post’s trading. They also used a dummy email account they could both access to draft an e-mail message in code and leave it in the draft folder for the other to read and then delete.
In exchange for the illegal tips, which made Post almost $700,000, Post paid Zwerko $7,000 at a Halloween party after his trades in 2012. He gave Zwerko an additional $50,000 in a shoebox when Zwerko visited his home after additional insider trading occurred earlier this year.
The U.S. Attorney’s Office for the Southern District of New York announced a parallel insider trading case against Post; it had already filed one against Zwerko earlier this month.
The SEC’s investigation is continuing.
SEC Sanctions Florida Auditor on Rule Circumvention
The SEC has sanctioned Florida-based auditor Eliot Berman for violating federal laws and regulations requiring lead audit partners to periodically rotate off their audit engagements with a publicly traded company in order to preserve the integrity of the financial reporting process.
Legally, the lead partner primarily responsible for the audit of a public company is prohibited from performing lead audit partner services for the same issuer for more than five consecutive fiscal years. However, Eliot Berman tried to circumvent this auditor rotation requirement.
In the case of a company whose audit he had conducted for the previous five years, Berman installed as lead audit partner an employee at his firm who was not a certified public accountant and was not qualified to lead the audit. Then Berman simply continued to perform many of the lead audit partner functions for that audit.
Berman and his firm, Berman & Co., located in Boca Raton, have agreed to settle the SEC’s charges. Berman must pay a $15,000 penalty and is suspended for at least one year from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.
— Check out SEC, FINRA: 5 Tips to Avoid Penny Stock Scams on ThinkAdvisor.