2 Landmark SDNY Opinions Address FCPA Jurisdiction and Statute of Limitations Issues
Two recent New York federal district court decisions—SEC v. Straub, et al. and SEC v. Sharef, et al.—offer the first insight into due process limits on personal jurisdiction in Foreign Corrupt Practices Act cases against foreign nationals. The main takeaway from the opinions is that companies should not assume that U.S. courts will not exercise personal jurisdiction over foreign personnel in civil FCPA actions—even if the only meaningful U.S. contact involves misleading an issuer’s auditors.
Straub involved a 2005 Securities and Exchange Commission action against three executives of a Hungarian telecommunications company, Magyar Telekom. The executives allegedly bribed Macedonian public officials and signed false representation letters to Magyar’s auditors in 2005. Magyar’s securities are publicly traded on the New York Stock Exchange and registered with the SEC, but the three executives lived and worked in Hungary and are Hungarian citizens. The executives moved to dismiss on lack of personal jurisdiction and statute of limitations grounds.
The Court rejected both arguments. Under International Shoe Co. v. Washington and its progeny, due process requires that a foreign defendant must have certain minimum contacts with the forum such that the exercise of personal jurisdiction does not offend traditional notions of fair play and substantial justice. Judge Richard J. Sullivan held that the Straub defendants had sufficient minimum contacts with the U.S. to justify exercising personal jurisdiction. The Court reasoned that the defendants knew or had reason to know that prospective U.S. purchasers of Magyar’s U.S. securities would receive financial reports based on the defendants’ misleading representations to the company’s auditors. The defendants therefore directed their conduct toward the U.S.—even if not principally so.
As for the statute of limitations issue, 28 U.S.C. § 2462 provides for a five-year statute of limitations, but only “if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.” Congress added the “is found” language to the statute in 1839; since then, other provisions and treaties have allowed for service of process on defendants abroad. Nevertheless, the Court held, the statutory language is clear: The five years do not begin to run until defendants are physically present in the U.S.
Sharef applied the same minimum contacts test for personal jurisdiction as Straub, but came out the other way. The SEC alleged that Siemens Aktiengesellschaft paid an estimated $100 million in bribes to top Argentinian government officials, and filed false certifications under the Sarbanes-Oxley Act. The individual defendants—former senior executives at Siemens—allegedly made these payments to renew a lucrative Argentinian contract and to prevent the bribes from coming to light. One defendant, a 74-year-old German citizen named Herbert Steffen, moved to dismiss for lack of personal jurisdiction.
The Court granted Steffen’s motion, largely because his alleged role in the bribery scheme was limited to pressuring others to pay the bribes, and participating in a phone call initiated by another defendant in connection with the scheme. The Court distinguished Straub by explaining that Steffen had participated only tangentially in the Siemens scheme. In particular, Steffen played no apparent role in falsifying or manipulating financial statements relied on by U.S. investors—unlike the Straub defendants.