Investigations and Decisions

UK: Innospec investigation ends with conviction of last two directors

The SFO’s long-running investigation into bribery and corruption by UK chemical firm Innospec Ltd finally came to an end on 18 June 2014 with the conviction at Southwark Crown Court of the remaining two defendants, former Innospec chief executive Dennis Kerrison and Militiades Papachristo, former regional sales director, on charges of conspiracy to commit corruption. The pair were found guilty by a unanimous jury. Their convictions follow guilty pleas by two other former directors of the company, Paul Jennings and David Turner, in 2012. All four are expected to be sentenced on 25 July 2014.

For the background to the case, see the April 2014 edition of Financial Crime Update, here.

For the SFO’s press release, see here. 

UK: Head of Oxfam’s anti-fraud unit jailed for stealing from the charity

Edward McKenzie-Green, the ex-head of Oxfam’s counter-fraud unit, was jailed at the Old Bailey on 27 May 2014 for two years and five months after pleading guilty to defrauding the charity of more than £64,000. While investigating fellow charity workers operating in Haiti after the earthquake there in 2011, McKenzie-Green set up fake companies and submitted false invoices from them to Oxfam. He then paid the proceeds into bank accounts in the name of his father before transferring the money to himself.

Phillip Dunn, Oxfam’s new head of counter-fraud said that the case had damaged the reputation of the charity. He said: "Oxfam is trying to become a world leader in counter-fraud investigation and to have the head of counter fraud contribute to that is immeasurably damaging.” 

UK: Three men handed prison sentences for seeking to fix lower-league football matches

Three men have been handed prison sentences for seeking to fix football matches in the lower leagues of England & Wales.

An investigation initiated by The Telegraph newspaper and pursued by the National Crime Agency (“NCA”) uncovered a plot to fix matches in the lower leagues for fees of around £70,000, including the League Two match between AFC Wimbledon and Dagenham and Redbridge on 26 November 2013.

By unanimous verdict, two businessmen, Singaporean Chann Sankaran and Krishna Sanjey Ganeshan of British and Singaporean nationality, were found guilty of conspiracy to commit bribery at Birmingham Crown Court. On 20 June 2014, they were each sentenced to 5 years’ imprisonment. Professional football player Michael Boateng was also found guilty by a majority of 11 to 1 of conspiracy to commit bribery and was sentenced to 16 months’ imprisonment. Jurors cleared Hakeem Adelakun, a teammate of Mr Boateng, of involvement in the conspiracy and have yet to reach a verdict on a third footballer, Moses Swaibu.

In his sentencing remarks, Judge Melbourne Imman QC commented that attempts to eliminate the integrity of football “…for personal gain must expect significant prison sentences so when such acts are discovered a clear signal is sent to others”

US: 11th Circuit defines government “instrumentality” under FCPA’s anti-bribery provisions

The United States Court of Appeals for the Eleventh Circuit recently issued a rare and important decision interpreting the US FCPA. In US v. Esquenazi, the Court held that a telecommunications company founded, owned and controlled by the Government of Haiti, subject to Haiti’s anti-public-corruption statutes and granted a public monopoly, was a government “instrumentality” under the FCPA. The decision is the first to define what constitutes a government “instrumentality” as that term is used in the FCPA’s anti-bribery provisions, which prohibit bribing officers or employees of foreign governments and their instrumentalities.

The defendants had been convicted of bribing a “foreign official,” which is defined in the FCPA as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” On appeal, the Court rejected the defendants’ argument that only an actual part of the government should be considered a government instrumentality and held instead that an “instrumentality” is any “entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The decision is significant because it clarifies that the FCPA bars certain conduct, not just with respect to the officers or employees of a foreign government itself, but also with respect to the officers or employees of foreign-government-controlled entities that perform a function the foreign government considers its own.

US: SEC issues $2.2 million fine in first-ever whistleblower retaliation case

On June 16, 2014, the US Securities and Exchange Commission (“SEC”) fined hedge fund advisory firm Paradigm Capital Management for retaliating against a whistleblowing employee. The $2.2 million settlement marks the first time the SEC has brought an enforcement action for violations of the anti-retaliation provisions under Section 21-F of the Securities Exchange Act of 1934 (“Exchange Act”).

After James Nordgaard notified the SEC of possibly illegal trades, Paradigm demoted him from head trader to compliance assistant, stripping him of his supervisory and trading responsibilities and sending him offsite to write a report about the problematic trading he had described to the government. The activity reported by Mr Nordgaard involved Paradigm making certain trades between 2009 and 2011 through a broker-dealer to reduce tax liabilities for hedge fund investors. Paradigm had created a conflicts committee because both Paradigm and the broker-dealer were controlled by Paradigm’s President, but a majority of the committee members also reported to the President.

2010’s Dodd-Frank Act grants the SEC authority to charge companies that retaliate against whistleblowers who have reported potential securities law violations. Dodd-Frank also produced a SEC-led program that allows whistleblowers to receive as much as thirty percent of the amount collected when their information leads to an SEC enforcement action.

The Settlement Order is available here. 

US: Supreme Court allows securities class action defendants to rebut “fraud on the market” reliance at class certification

On June 22, 2014, the US Supreme Court issued its ruling in Halliburton Co v. Erica P. John Fund, Inc., allowing defendants to rebut the “fraud on the market” reliance presumption at the class certification stage to dismiss securities class action suits. In 1988’s Basic Inc. v. Levinson, the Court established the fraud on the market doctrine, holding that securities class action plaintiffs could satisfy Rule 10b-5’s reliance element by invoking the presumption that a public, material misrepresentation will distort the price of stock traded in an efficient market, and that anyone who purchases the stock at the market price may be considered to have done so in reliance on the misrepresentation.

The Supreme Court first heard Halliburton in 2011, when it ruled that securities fraud plaintiffs need not prove loss causation to invoke Basic at the class certification stage. On remand, Halliburton argued that evidence it already had introduced to disprove loss causation also showed its alleged misrepresentations had not affected its stock price, and thus should force the plaintiffs to prove reliance individually, eliminating the possibility of class certification under Federal Rule of Civil Procedure 23(b)(3). The District Court rejected Halliburton’s argument and certified the class, and the Fifth Circuit affirmed, holding that Halliburton could use its price impact evidence only at trial, not at the class certification stage. The Supreme Court vacated the Fifth Circuit’s judgment and remanded to give Halliburton the opportunity to defeat the presumption at the class certification stage.

The Supreme Court’s opinion is available here. 

US: Former Rabobank trader pleads guilty to LIBOR manipulation

On 10 June 2014 Takayuki Yagami, a former yen trader for Rabobank, pleaded guilty to conspiracy to commit wire and bank fraud by manipulating Rabobank's yen LIBOR submissions to benefit his trading positions. Mr Yagami entered his plea in the Southern District of New York.

Mr Yagami, a Japanese national, was a senior trader in Rabobank's Money Market/FX Forwards desks in Tokyo and elsewhere in Asia According to a press release by the United States Department of Justice ("DoJ"), between May 2006 to at least January 2011, Mr Yagami conspired with three other Rabobank employees to make false and fraudulent yen LIBOR submissions to benefit their trading positions.

The yen LIBOR rate is calculated based upon submissions from a panel of 16 banks, including Rabobank. The DoJ says that during the period in question, Rabobank's primary submitter of Yen LIBOR, Paul Robson of the UK, entered rates at levels requested by Mr Yagami and two other traders from Rabobank. These two other traders were named as Paul Thompson of Australia, and Tetsuya Motomura of Japan. The yen LIBOR submissions requested by the traders were consistent with their derivative trading positions that referenced the rate.

Mr Robson, Mr Thompson and Mr Motomura were all indicted by a New York grand jury in April 2014. Rabobank itself entered into a deferred prosecution agreement with the DoJ on 29 October 2013 and agree to pay a $325 million penalty to resolve violations arising from Rabobank's LIBOR submissions

Assistant Attorney General Caldwell commented that this was "the ultimate inside job" and added that "Takayuki Yagami is the ninth person charged by the Justice Department in connection with the industry-wide LIBOR investigation, and we are determined to pursue other individuals and institutions who engaged in this crime". 

US: GSK agrees to settle allegations of unlawful marketing practices with 44 US states

It has been reported that GlaxoSmithKline (“GSK”) has agreed to pay $105m (£62.7m) to settle claims brought by 44 US states over allegations of unlawful marketing practices between 1999 and 2010, including lavish incentives to salesmen and doctors by way of hospitality and entertainment, to promote its drugs for purposes for which they had not been approved.

GSK has already paid a record fine of $3 billion to the US federal government to settle largely the same allegations, in 2012.

The SFO in the UK announced at the end of May 2014 that it had opened a criminal investigation into GSK following allegations of bribery in China. GSK has stressed that there is no connection between the US and Chinese cases and has highlighted the current overhaul of its marketing practices, which aims to prevent such conduct in the future. It also stated that the settlement with the US states did not imply any admission of wrongdoing or liability.