Former SEC FCPA Enforcement Attorney Critical of SEC's Recent Veraz Networks Inc. Enforcement Action

Richard Grime is a former high-ranking SEC FCPA enforcement attorney. While at the SEC, Grime "played a prominent role in the Commission’s FCPA program, spoke at FCPA conferences, and participated or supervised many of the Commission’s FCPA cases. He also worked closely with the Department of Justice on countless parallel investigations." (See here).

Grime is currently a partner at O'Melveny & Myers LLP and is listed as the lead author of this recent release regarding the SEC's recent enforcement action against Veraz Networks Inc.

The Veraz enforcement action was discussed in this prior post. Among other things, I noted in the post that the Veraz enforcement action contributes to several pillars of what I have been calling the facade of FCPA enforcement. In short, one pillar is the frequency in which FCPA enforcement actions are resolved based on uninformative, bare-bones, and legal conclusory statements of facts or allegations. Check as to the Veraz enforcement action, I stated. Another pillar discussed is the increasing and alarming trend of FCPA enforcement actions being resolved based on tenuous, dubious and untested legal theories. Check as to the Veraz enforcement action, I stated given that the enforcement action (like so many) is based on the SEC's theory, never accepted by a court, that employees of state-owned or state-controlled enterprises are "foreign officials" under the FCPA.

Grime and his co-authors strike the same themes in the release.

Among other things, Grime and his co-authors state that the SEC "complaint discloses little information about the specifics of the alleged misconduct" and "the complaint is remarkably ambiguous about the substance of the alleged violations."

According to Grime and his co-authors:

"The complaint refers to 'gifts,' 'illicit payments,' and 'questionable expenses,' but provides little useful insight as to the surrounding circumstances or even the value of some of the alleged gifts and payments. Similarly, the complaint does not state how the company recorded the payments or how the records were inaccurate."

Why does this matter?

As Grime and his co-authors note: "given that there are few FCPA court opinions, the SEC should seek through these settled complaints to fully explain the facts underlying its actions and how those facts violate the law."

As to the enforcement agencies' interpretation of the key "foreign official" element, Grime and his co-authors state as follows:

"Like numerous prior cases, the SEC alleges that employees of foreign government-controlled companies are foreign 'government officials.' Until a court decides otherwise, the SEC and the Department of Justice will continue to broadly interpret the FCPA and companies will need to diligence the ownership and control of commercial organizations across the world to avoid running afoul of the FCPA."

Grime and his co-authors also dish up this criticism of the Veraz enforcement action:

"By punishing Veraz for such conduct, the SEC provides little incentive for a company to voluntarily disclose misconduct, cooperate, and thereby seek leniency. It is unstated whether Veraz cooperated with the SEC investigation, but the company did disclose that it spent $3 million on the investigation. For that sum, the company presumably assisted the SEC’s investigation, but no credit (or explanation for a lack of credit) is given. The specter that even small payments will be prosecuted may drive companies to conclude that remediation without the government’s involvement is the wiser approach."