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Securities & Derivative Litigation

Judge Refuses to Approve 2 FCPA Settlements, Indicating Deals With the SEC Will Be Closely Scrutinized

By John A. Goldmark
April 2013
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Although courts have typically rubber-stamped FCPA settlements, a federal judge has signaled a growing hostility to that practice by recently blocking two SEC deals. U.S. District Court Judge Richard Leon has refused to approve two SEC settlements under the FCPA, demanding that the companies agree to comply with stricter reporting and disclosure obligations. This uncommon move reflects increased judicial pushback and questioning of the SEC’s FCPA settlement practice, which began with U.S. District Judge Jed Rakoff’s now infamous November 2011 decision blocking the SEC’s $285 million settlement with Citigroup.

Following the example set by Judge Rakoff in the Citigroup decision, the so-called “Rakoff effect,” Judge Leon blocked the SEC’s $10 million settlement with IBM Corp. and its $13 million settlement with Tyco, International Ltd. A common thread between the two settlements is that both companies are repeat offenders. IBM and Tyco both settled FCPA claims in 2000 and 2006, respectively, and agreed never to violate the FCPA again. Judge Leon appears to be focused on this repeat offender issue, insisting that IBM agree to make additional disclosures in the future about any new FCPA investigations or violations. IBM has complained that such disclosures would be overly burdensome, putting the settlement on hold. (Judge Leon has not explained why he has refused to approve the Tyco settlement.)

This Rakoff effect could have a significant impact on the government’s FCPA enforcement program. Most FCPA cases filed by the SEC and DOJ are immediately settled without litigation or trial. If courts continue pushing the government to impose tougher reporting and disclosure provisions, however, companies may be less willing to settle FCPA claims.

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