This recent Wall Street Journal article highlighted how the SEC’s win rate at trials has slipped. According to the article:
“[The SEC has] won 55% of its trials since October , a sharp drop after three consecutive years when it prevailed more than 75% of the time.”
There has never been an SEC Foreign Corrupt Practices Act trial, but the above percentages are downright stellar when one considers that the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.
As highlighted in this previous post, in 2002 the S.D. of Texas dismissed an SEC complaint against Eric Mattson and James Harris. The enforcement action involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment. The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment. When Mattson and Harris was decided, the S.D. of Texas in U.S. v. Kay case had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation. The SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases. The Court rejected the SEC’s arguments and followed the trial court’s analysis in Kay that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.” See here for the court’s Memorandum and Order.
As highlighted in this previous post, in 2013 the S.D. of New York dismissed an SEC complaint against Herbert Steffen. In dismissing the case against the German national, the judge concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process. The judge stated, in pertinent part, as follows.
“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless. [...] [U]nder the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements. This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.”
The other two instances in FCPA history in which the SEC is being put its burden of proof are in the pending Straub and Jackson cases. To state the obvious, when an SEC complaint is allowed to proceed past the motion to dismiss stage, the SEC has not prevailed when put to its ultimate burden of proof. Rather the standard at the motion to dismiss stage is whether the complaint pleads enough facts to state a claim that is plausible on its face.
As highlighted in this previous post, in February 2013 the S.D. of New York denied the motion to dismiss of Elek Straub and other foreign national defendants (formerly associated with Magyar Telekom) in an SEC FCPA case concerning an alleged bribery scheme in Macedonia. A trial date has not been set in the case, the current discovery deadline is May 2015.
As highlighted in this previous post, in December 2012 the S.D. of Texas granted – in an SEC FCPA enforcement action involving alleged conduct in Nigeria – Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that sought monetary damages while denying the motion to dismiss as to claims seeking injunctive relief. Even though court granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint. As noted in this prior post, that is indeed what happened next, and as noted here a second round of briefing began anew. As noted in this previous post, in the Defendant’s renewed motion to dismiss they argued that the SEC could not rely on the fraudulent concealment or continuing violations doctrine to extend the limitations period to cover certain claims. A week later the Supreme Court issued its unanimous decision in SEC v. Gabelli (see here for the prior post) and soon thereafter the Defendants filed a notice of supplemental authority with the court arguing that Gabelli “bolstered” their position. On the same day the SEC’s opposition brief was due, the parties jointly notified the court “that in lieu of opposing the [motion to dismiss] the SEC intends to file a Second Amended Complaint.” The filing noted that the then proposed Second Amended Complaint “moots the relief sought in the [the motion to dismiss] because it clarifies that, among the violations alleged, the SEC seeks civil penalties … only to the extent such violations accrued on or before [a certain date]. In short, after being put to its initial burden of proof, the SEC’s case against Jackson and Ruehlen remains a shell of its former self. The SEC’s case against Jackson and Ruehlen is currently scheduled for trial to begin on July 9, 2014.