Legg Mason will pay more than $34 million to resolve a Securities and Exchange Commission charge that the company violated the Foreign Corrupt Practices Act in a scheme to bribe Libyan government officials.
According to the SEC’s order, a former Legg Mason asset management subsidiary, Permal Group Inc., partnered with a French financial services company to solicit investment business from Libyan state-owned financial institution between 2004 and 2010.
In and around 2004, Libya emerged from international economic sanctions, and Libyan financial institutions sought opportunities to invest the substantial assets under their control.
“Financial institutions from around the globe aggressively sought access to these assets,” according to the SEC.
Against this backdrop, Permal explored partnerships both with introducing brokers and with other financial institutions, in an effort to improve its efforts to market products and services to Libyan financial institutions.
This is when Permal partnered with Paris-based Société Générale — and engaged in a scheme to pay bribes to Libyan government officials through a Libyan middleman in order to secure investments.
According to the SEC’s order, the middleman used the term “cooking” to describe his ability to cause Libyan government officials to invest by any means necessary, including bribes.
For example, according to the SEC’s order, the Libyan middleman transferred approximately $75,000 to a relative of a Libyan government official, and that same day, the middleman placed a telephone call, which was recorded, to a Société Générale employee, during which he stated about the Libyan government official: “I cooked him … Only we have to go there, start the fire, have a barbecue.”
As a result of the scheme, Legg Mason, through Permal, was awarded business tied to $1 billion of investments for the Libyan financial institutions, earning net revenue of approximately $31.6 million.
“Companies must take adequate steps to identify and mitigate the risks of bribery and corruption present in their global business. Those risks are particularly acute when, as here, agents and middlemen are used as part of a company’s efforts to obtain business with government clients,” Charles Cain, chief of the Enforcement Division’s FCPA Unit, said in a statement.
The SEC’s order finds that Legg Mason violated the internal accounting controls provision of the Securities Exchange Act of 1934.
Legg Mason agreed to disgorge approximately $27.6 million of ill-gotten gains plus $6.9 million in prejudgment interest to settle the SEC’s case. Legg Mason had also previously agreed to pay $33 million to the Justice Department in sanctions resulting from the firm’s involvement in the scheme.
A Legg Mason spokesperson told ThinkAdvisor that the SEC settlement amount, combined with the amount paid to the Justice Department, does not exceed the total charge of $71 million accrued by Legg Mason in the March and June quarters of 2018, representing the firm’s total estimated liability for the Libya matter.
Legg Mason does not expect the payment to have “any impact on future investment and operationsm,” according to the spokesperson.
At the time of Legg Mason’s settlement with the Justice Department, the firm sent a letter informing shareholders of the Justice Department settlement and the impending SEC settlement. The letter, which Legg Mason shared with ThinkAdvisor, stated that “the misconduct by former employees of the legacy Permal business that the government found was totally unacceptable. It violated our high standards, our long-held core values and our ‘no-chalk’ culture.”
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