An FCPA Enforcement Case Study and Other Web Notes
The D & O Diary has previously written (here and here) about the recent revival of the Foreign Corrupt Practices Act (FCPA) and the potential implications for D & O risk. PricewaterhousCoopers’ Summer 2006 Solutions newsletter (here) has an interesting article entitled “ABB Ltd and the Foreign Corrupt Practices Act” taking a closer look at the FCPA problems at one particular company – ABB Ltd., the Switzerland-based energy engineering and construction company whose ADRs trade on the NYSE.
The article first reviews the 2004 enforcement proceeding against ABB, involving allegedly improper payments ABB subsidiaries made between 1998 and 2003 in Nigeria, Angola, and Kazakhstan. ABB ultimately consented to a judgment (without admitting or denying the allegations) enjoining the firm from future violations and requiring it to pay $5.9 million in disgorgement and a $10.5 million penalty. The article then reviews three subsequent incidents where ABB itself identified and self-reported possible additional FCPA violations involving suspected improper payments in Africa, Europe and the Middle East. The article comments that “[t]he continuing series of discoveries of suspected payments, disclosures to the SEC and DOJ (and the market) and ensuing internal control investigative results… raise questions about the control environment; imply that ABB’s compliance controls are inadequate; tarnish the Company’s reputation; and expose ABB to possible substantial fines and penalties.”
The article concludes with the observation that FCPA compliance is “on the SEC’s radar screen, and more cases like ABB are very likely to come. The hard lessons learned by ABB ought not to go unnoticed or unheeded by other global companies.” The article merits reading in its entirety.
A Further Commentary on the “Milberg Effect”: In a prior post (here), The D & O Diary added its observations on the Wall Street Journal’s editorial (here, subscription required) about the “Milberg Effect,” that is, the impact that the indictment of the Milberg Weiss firm is having on the declining number of securities fraud lawsuit filings. A recent post (here) by plaintiffs’ attorney Adam Savett on his Lies, Damn Lies blog provides an interesting additional perspective on the apparently declining number of securities fraud lawsuits. Savett suggests that “the number of federal securities class actions has potentially slowed because a substantial portion of the plaintiffs’ bar is busy filing other types of securities cases, including state and federal derivative actions.” This is an observation that The D & O Diary has also made (here), but the fact that this observation is coming from a member of the plaintiffs’ bar makes it more interesting.
Options Backdating Litigation Update: Perhaps the most obvious proof that the plaintiffs’ bar is concentrating on filing shareholders’ derivative lawsuits rather than securities fraud lawsuits is the pattern of lawsuit filings arising out of the options backdating scandal. As shown in The D & O Diary’s running tally of the options backdating litigations (which may be found here, and which was recently updated to add several new derivative lawsuits) only 17 companies have been sued in securities fraud lawsuits, but 78 companies have been named as nominal defendants in shareholders’ derivative lawsuits. Clearly, the plaintiffs’ bar is showing a preference for the derivative lawsuit, at least with respect to options backdating litigation.
The article first reviews the 2004 enforcement proceeding against ABB, involving allegedly improper payments ABB subsidiaries made between 1998 and 2003 in Nigeria, Angola, and Kazakhstan. ABB ultimately consented to a judgment (without admitting or denying the allegations) enjoining the firm from future violations and requiring it to pay $5.9 million in disgorgement and a $10.5 million penalty. The article then reviews three subsequent incidents where ABB itself identified and self-reported possible additional FCPA violations involving suspected improper payments in Africa, Europe and the Middle East. The article comments that “[t]he continuing series of discoveries of suspected payments, disclosures to the SEC and DOJ (and the market) and ensuing internal control investigative results… raise questions about the control environment; imply that ABB’s compliance controls are inadequate; tarnish the Company’s reputation; and expose ABB to possible substantial fines and penalties.”
The article concludes with the observation that FCPA compliance is “on the SEC’s radar screen, and more cases like ABB are very likely to come. The hard lessons learned by ABB ought not to go unnoticed or unheeded by other global companies.” The article merits reading in its entirety.
A Further Commentary on the “Milberg Effect”: In a prior post (here), The D & O Diary added its observations on the Wall Street Journal’s editorial (here, subscription required) about the “Milberg Effect,” that is, the impact that the indictment of the Milberg Weiss firm is having on the declining number of securities fraud lawsuit filings. A recent post (here) by plaintiffs’ attorney Adam Savett on his Lies, Damn Lies blog provides an interesting additional perspective on the apparently declining number of securities fraud lawsuits. Savett suggests that “the number of federal securities class actions has potentially slowed because a substantial portion of the plaintiffs’ bar is busy filing other types of securities cases, including state and federal derivative actions.” This is an observation that The D & O Diary has also made (here), but the fact that this observation is coming from a member of the plaintiffs’ bar makes it more interesting.
Options Backdating Litigation Update: Perhaps the most obvious proof that the plaintiffs’ bar is concentrating on filing shareholders’ derivative lawsuits rather than securities fraud lawsuits is the pattern of lawsuit filings arising out of the options backdating scandal. As shown in The D & O Diary’s running tally of the options backdating litigations (which may be found here, and which was recently updated to add several new derivative lawsuits) only 17 companies have been sued in securities fraud lawsuits, but 78 companies have been named as nominal defendants in shareholders’ derivative lawsuits. Clearly, the plaintiffs’ bar is showing a preference for the derivative lawsuit, at least with respect to options backdating litigation.
posted by Kevin LaCroix at 4:46 PM
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