Previous articles (here and here) have discussed scrutiny of SEC resolution procedures in the SEC v. Citigroup case. Although not an FCPA enforcement action, the SEC policies (such as settlement via neither admit nor deny language) being questioned by Judge Jed Rakoff (S.D.N.Y.) are the same in SEC FCPA enforcement actions. Thus, Judge Rakoff’s questions are relevant to SEC FCPA enforcement.
A typical SEC FCPA enforcement action involves a permanent injunction prohibiting future FCPA violations – see here for the recent Comverse SEC FCPA enforcement action containing such language. In this prior article regarding Diebold’s FCPA disclosure, I noted that Diebhold was already subject to an injunction prohibiting future FCPA violations (as a result of a non-FCPA FCPA enforcement action) and I asked whether Diebold was in jeopardy of violating that injunction.
If Diebold does indeed become a repeat offender, it will have company. For instance, in 2004 ABB Ltd. resolved an FCPA enforcement action and “consented to the entry of a final judgment enjoining it from future FCPA violations.” In 2010, ABB Ltd. again agreed to resolve an FCPA enforcement action. So much for that permanent injunction thing. Likewise, in 2001 Baker Hughes resolved an FCPA enforcement action and was ordered to cease and desist from any future FCPA violations. In 2007, Baker Hughes again agreed to resolve an FCPA enforcement action – see here. So much for that cease and desist thing.
Thus, Judge Rakoff’s question in the Citigroup action – whether SEC injunctions against future violations have any meaning is a good question. Specifically, Judge Rakoff requested an answer to the following question: “The proposed judgment imposes injunctive relief against future violations. What does the SEC do to maintain compliance? How many contempt proceedings against large financial entities has the SEC brought in the past decade as a result of violations of a prior consent judgment?”
In its Citigroup brief the SEC responded as follows.
“Civil contempt is a remedy available to the SEC in the event either (1) that a defendant is engaging in an ongoing violation of an injunction, or (2) compensation is due the SEC as a result of a defendant’s violation of an injunction. Because alternative effective remedies often are available, including the filing of an independent action with corresponding legal and equitable relief, the Commission has not frequently pursued civil contempt proceedings and does not appear to have initiated such proceedings against a ‘large financial entity’ in the last ten years. However, prior unlawful conduct by a corporate entity is considered in determining the appropriate penalty in any subsequent enforcement action.”
For additional information see this recent New York Times article from Edward Wyatt.
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