Class 9 FCPA Flashcards
Who has jurisdiction over making sure US companies dont bribe foreign officials?
SEC
Is jurisdiction limited to issuers?
No
Where is the FCPA located in legislation?
Exchange Act section 13
what does FCPA say?
SEC has authority to enforce accurate books and records.
books, records, and accoutns should accurately and faily reflect the transactions and dispositions of the assets of the issuer.
Management is required to have specific accounting controls in place
FCPA, disgorgement and SEC
SEC has the ability recoup ill-gotten gains from violators or securities laws.
Lui v. SEC
Facts: Liu and Wang got investors to fund a new cancer treatment center
much of the money was misappropriated.
The SEC wanted disgorgement of all the investors funds
78u(d)(5) says the SEC can get equitable relief
The Kokesh case said disgorgement is a penalty
I: can the SEC obtain disgorgement? How much?
H: Disgorgement is equitable
- it must not exceed net profits
–deduct legitimate business expenses
- its must go to shareholders (harmed individuals)
–collected moeny often went to treasury
-SEC cant use joint and several liability to chase wrongdoers different funds.
Reasoning: essentially disgorgement looks like restitution. It takes the ill-gotten profits and gives them back.
What happens if the investors are harmed more than the wrongdoer is benefitted? harmed less?
What did Congress pass after Kokesh and Liu?
amendments to explicitly allow the SEC to obtain disgorgement. the SOL was lengthened to 10 years for some violations.
In the Matter of BHP Billiton Ltd.
Facts:
BHP is in the natural resource business.
The need government approvals in developing countries
they sponsor the Beijing Olympics
They give packages to foreign officials and leaders of state-owned enterprises.
Management didn’t really get approval by the ethics committee.
The processes followed weren’t really effective (managers copied/pasted responses)
I: did BHP violate the FCPA with the flights, hotels, and other benefits given to officials for Olympics?
H: yes
Reasoning:
Internal controls were insufficient
-there was no independent review of packages
-some applications were incomplete
-There was no training on filling out forms.
-There was no ability to update forms
-There was no cross-referencing of invitees would influence other units of BHP
Reg FD targets
was likely targeted more at investment banks and analysts, not issuers
Selective disclosure elements
- Disclosure by issuer or any person acting of behalf
- issuer: public company status
Person acting of behalf: sendior official or other officer, employee or agent - Material, non-public info
-materiality
non-public - Disclosure to certain parties
-broker or dealer, investment adv., investment company, holder of securities (if reasonably foreseeable that will purchase or sell security based on info) - Exceptions (non-exhaustive)
person who owes duty of trust or confidence to issuer, person who expressly agrees to maintain confidence, certain communications for most registered securities
what is the selective disclosure example that Regulation FD tried to remedy by prohibiting selective disclosure by corporate officials?
before the SECs adoption of regulation fair disclosure, it was believed that analysts traded favorable coverage of an issuer for superior access to info.
issuers would respond to reports of negative info by failing to invite them to analyst conferences, refusing to respond to telephone inquiries etc.
SEC v. Siebel Systems, Inc.
Facts: CFO goldman made comments to a smaller set of investors.
-better, contrasting with previous pessimism
-growing pipeline
He used future tense instead of present tense when framing the growth opportunities
I: did the comments violate Reg FD?
H: No, the comments were fine
Reasoning: language like growing and building wasnt materially changing the info
Public disclosures discussed future opportunities of the similar magnitude.
-public statements projected an increase in revenue.
- even though some investors traded after the statements, trading alone doesnt establish materiality of the statements.
Policy: we dont want a chilling effect.
Why did the SEC go after such ambiguous statements by management?
