Results from the US Securities & Exchange Commission Inspection in 2023

April 1, 2024

Many people wonder why the US Securities & Exchange Commission (SEC) has been so successful, which has anequivalent agency in Brazil. The reason for its effectiveness is not hard to understand: the agency does not hesitate to investigate and impose penalties to curb irregularities that impact the day-to-day operations of the US stock market, including instances of corruption.

In 2023, the SEC announced that it took a total of 784 enforcement actions, which is 3% more than in 2022. Additionally, the agency initiated 162 administrative proceedings aimed at preventing or suspending certain individuals from specific roles in the US securities market, based on criminal convictions and civil injunctions. Finally, the SEC also filed 121 actions against stock issuers who failed to submit the required filings to the agency.

1.1. THE ROLE OF WHISTLEBLOWERS

To achieve such effectiveness, the SEC relies on the assistance of its own investors and the increasing confidence of the general public. This, in turn, requires the agency to act with greater urgency, ensuring that any complaint will not be disregarded. On the contrary, each complaint will prompt a thorough internal investigation, and if any irregularity is found, severe penalties will be imposed by the agency.

Indeed, it's important to highlight that 2023 marked a record year for the SEC Whistleblower Program. The agency issued nearly $600 million in awards to whistleblowers, including the largest amount ever paid to a whistleblower, totaling $279 million. The program's success is evident as the SEC received approximately 18,000 complaints in 2023 alone, surpassing the previous record of 12,300 complaints in 2022 by about 50%. If we consider contacts of other natures with whistleblowers, the total number of interactions rises to 40,000 in 2023.

1.2. FOREIGN CORRUPT PRACTICES ACT

Regarding violations of the Foreign Corrupt Practices Act (FCPA), the US anti-corruption law, the SEC has made it clear that this is one of its priorities. Since 2010, the agency has established a specialized division for enforcing penalties and has successfully imposed penalties on the following companies:

1. Albermale Corporation

The Albemarle Corporation agreed to pay approximately $103.6 million in restitution and prejudgment interest to settle FCPA anti-bribery, recordkeeping, and internal accounting controls charges related to certain activities in Vietnam, India, Indonesia, China, and the United Arab Emirates (09/29/23).

2. Clear Channel Outdoor Holdings, Inc.

Clear Channel Outdoor Holdings Inc. agreed to pay approximately $26.1 million in disgorgement and prejudgment interest resulting from bribes paid by its agent, a former majority-owned affiliate in China, in violation of anti-bribery, recordkeeping, and internal accounting controls provisions (09/28/23).

3. 3M Company

Minnesota-based 3M , agreed to pay more than $6.5 million to settle allegations of violating the books, records, and internal control provisions of the FCPA. Employees of a China-based 3M subsidiary organized conferences, educational events, and visits to overseas health facilities for Chinese health officials, ostensibly as part of their marketing and outreach efforts. However, these activities often served as a pretext to provide foreign travel, sightseeing, and entertainment (08/25/23).

4. Grupo Aval

The Colombian conglomerate Grupo Aval Acciones y Valores SA (Grupo Aval SA) and its banking subsidiary Corporación Financiera Colombiana SA (Corficolombiana) agreed to pay US$40 million to resolve allegations of violating books and records, internal accounting controls provisions, and, in the case of Corficolombiana, the anti-bribery provisions of the FCPA, in connection with the extension of a road infrastructure project in Colombia. The SEC alleges that Corficolombiana, through its former president and with a joint venture partner, paid at least $28 million in bribes to secure the extension (08/10/23).

5. Gartner, Inc.

A research and consulting services firm agreed to pay over $2.45 million to settle allegations of violating the FCPA's anti-bribery, books, and records, and internal accounting control provisions in connection with a corrupt deal with a South Korean company, aiming to secure and maintain contracts with the South African Revenue Service (05/26/2023).

6. Koninklijke Philips, NV

Medical device manufacturer Koninklijke Philips, NV agreed to pay $62 million to settle allegations of violating books, records, and internal accounting controls provisions of the FCPA in connection with its subsidiaries' operations in China. Over several years, employees of Philips' Chinese subsidiaries, distributors, or sub-dealers sought to improperly influence government hospital officials, including through offering price discounts that raised the risk of payments to government officials, in order to enhance the likelihood of Philips' products being selected in public tenders. They further manipulated public tenders by colluding with employees of other manufacturers to fabricate false competing proposals, creating the appearance of legitimate public tenders (05/11/23).

7. Frank’s International NV

The oilfield services company Frank's International NV agreed to pay approximately US$8 million to settle allegations of violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. These violations were in connection with payments made by its subsidiaries to an Angolan government official through a purported sales agent (04/26/23).

8. Flutter Entertainment plc

The company Flutter Entertainment plc , a successor company to The Stars Group, Inc., has agreed to pay a $4 million civil penalty to settle allegations of violating the books and records and internal accounting control provisions of the FCPA. These violations were related to approximately $8.9 million in payments to consultants in Russia in support of the company's operations and its efforts to legalize poker in that country (03/06/23).

9. Rio Tinto plc

The company Rio Tinto plc agreed to pay a civil penalty of $15 million to settle allegations of violating the books and records and internal accounting control provisions of the FCPA. This was in connection with paying $10.5 million to a consultant to assist the company in retaining mining rights for certain blocks in the Simandou mountain region of the Republic of Guinea, by offering or paying money to benefit a Guinean government official (03/06/23).

1.3. THE COLLABORATION OF THE INVESTIGATED MAKES THE DIFFERENCE

The SEC has also shown that cooperation from those under investigation can make a difference. Rewards for cooperation have been granted in cases involving public equity issuers, private companies, and consulting firms, covering a range of violations including material misstatements, record-keeping violations, undisclosed privileges, and violations of whistleblower protection rules. The following examples are notable:

1. The SEC resolved charges against telecommunications company GTT Communications, Inc. for failing to disclose material information about unsubstantiated adjustments made to various Commission filings, which inflated GTT's reported operating profit by at least 15% over three quarters. The SEC's order acknowledged GTT's prompt self-reporting, affirmative corrective action, and substantial cooperation with the SEC, resulting in the agency not imposing a civil penalty against GTT.

2. The SEC resolved charges against broker Perella Weinberg as part of the agency's initiative to investigate violations of the recordkeeping provisions of federal securities laws. Perella Weinberg reported the conduct and agreed to pay a $2.5 million civil penalty to settle the allegations. Other companies charged in the initiative, but didn't self-report, agreed to pay substantially higher civil penalties to resolve the charges.

3. The SEC also resolved charges against View, Inc., a publicly traded maker of "smart" windows, for failing to disclose $28 million in warranty-related liabilities. No civil penalties were imposed against View because the company reported the conduct to the SEC, took prompt corrective action, and cooperated with the staff's investigation. According to the established order, after self-reporting the conduct, View assisted agency personnel by providing detailed financial analyses, explanations, and summaries of factual matters; proactively identified important documents and witnesses; and responded to several team requests without requiring subpoenas.

These examples are essential in illustrating that honesty should always be credited. Despite failures, errors, or even fraud committed by certain employees, it's evident that the company does not condone or endorse such practices.

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Results from the US Securities & Exchange Commission Inspection in 2023

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Many people wonder why the US Securities & Exchange Commission (SEC) has been so successful, which has anequivalent agency in Brazil. The reason for its effectiveness is not hard to understand: the agency does not hesitate to investigate and impose penalties to curb irregularities that impact the day-to-day operations of the US stock market, including instances of corruption.

In 2023, the SEC announced that it took a total of 784 enforcement actions, which is 3% more than in 2022. Additionally, the agency initiated 162 administrative proceedings aimed at preventing or suspending certain individuals from specific roles in the US securities market, based on criminal convictions and civil injunctions. Finally, the SEC also filed 121 actions against stock issuers who failed to submit the required filings to the agency.

1.1. THE ROLE OF WHISTLEBLOWERS

To achieve such effectiveness, the SEC relies on the assistance of its own investors and the increasing confidence of the general public. This, in turn, requires the agency to act with greater urgency, ensuring that any complaint will not be disregarded. On the contrary, each complaint will prompt a thorough internal investigation, and if any irregularity is found, severe penalties will be imposed by the agency.

Indeed, it's important to highlight that 2023 marked a record year for the SEC Whistleblower Program. The agency issued nearly $600 million in awards to whistleblowers, including the largest amount ever paid to a whistleblower, totaling $279 million. The program's success is evident as the SEC received approximately 18,000 complaints in 2023 alone, surpassing the previous record of 12,300 complaints in 2022 by about 50%. If we consider contacts of other natures with whistleblowers, the total number of interactions rises to 40,000 in 2023.

1.2. FOREIGN CORRUPT PRACTICES ACT

Regarding violations of the Foreign Corrupt Practices Act (FCPA), the US anti-corruption law, the SEC has made it clear that this is one of its priorities. Since 2010, the agency has established a specialized division for enforcing penalties and has successfully imposed penalties on the following companies:

1. Albermale Corporation

The Albemarle Corporation agreed to pay approximately $103.6 million in restitution and prejudgment interest to settle FCPA anti-bribery, recordkeeping, and internal accounting controls charges related to certain activities in Vietnam, India, Indonesia, China, and the United Arab Emirates (09/29/23).

2. Clear Channel Outdoor Holdings, Inc.

Clear Channel Outdoor Holdings Inc. agreed to pay approximately $26.1 million in disgorgement and prejudgment interest resulting from bribes paid by its agent, a former majority-owned affiliate in China, in violation of anti-bribery, recordkeeping, and internal accounting controls provisions (09/28/23).

3. 3M Company

Minnesota-based 3M , agreed to pay more than $6.5 million to settle allegations of violating the books, records, and internal control provisions of the FCPA. Employees of a China-based 3M subsidiary organized conferences, educational events, and visits to overseas health facilities for Chinese health officials, ostensibly as part of their marketing and outreach efforts. However, these activities often served as a pretext to provide foreign travel, sightseeing, and entertainment (08/25/23).

4. Grupo Aval

The Colombian conglomerate Grupo Aval Acciones y Valores SA (Grupo Aval SA) and its banking subsidiary Corporación Financiera Colombiana SA (Corficolombiana) agreed to pay US$40 million to resolve allegations of violating books and records, internal accounting controls provisions, and, in the case of Corficolombiana, the anti-bribery provisions of the FCPA, in connection with the extension of a road infrastructure project in Colombia. The SEC alleges that Corficolombiana, through its former president and with a joint venture partner, paid at least $28 million in bribes to secure the extension (08/10/23).

5. Gartner, Inc.

A research and consulting services firm agreed to pay over $2.45 million to settle allegations of violating the FCPA's anti-bribery, books, and records, and internal accounting control provisions in connection with a corrupt deal with a South Korean company, aiming to secure and maintain contracts with the South African Revenue Service (05/26/2023).

6. Koninklijke Philips, NV

Medical device manufacturer Koninklijke Philips, NV agreed to pay $62 million to settle allegations of violating books, records, and internal accounting controls provisions of the FCPA in connection with its subsidiaries' operations in China. Over several years, employees of Philips' Chinese subsidiaries, distributors, or sub-dealers sought to improperly influence government hospital officials, including through offering price discounts that raised the risk of payments to government officials, in order to enhance the likelihood of Philips' products being selected in public tenders. They further manipulated public tenders by colluding with employees of other manufacturers to fabricate false competing proposals, creating the appearance of legitimate public tenders (05/11/23).

7. Frank’s International NV

The oilfield services company Frank's International NV agreed to pay approximately US$8 million to settle allegations of violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. These violations were in connection with payments made by its subsidiaries to an Angolan government official through a purported sales agent (04/26/23).

8. Flutter Entertainment plc

The company Flutter Entertainment plc , a successor company to The Stars Group, Inc., has agreed to pay a $4 million civil penalty to settle allegations of violating the books and records and internal accounting control provisions of the FCPA. These violations were related to approximately $8.9 million in payments to consultants in Russia in support of the company's operations and its efforts to legalize poker in that country (03/06/23).

9. Rio Tinto plc

The company Rio Tinto plc agreed to pay a civil penalty of $15 million to settle allegations of violating the books and records and internal accounting control provisions of the FCPA. This was in connection with paying $10.5 million to a consultant to assist the company in retaining mining rights for certain blocks in the Simandou mountain region of the Republic of Guinea, by offering or paying money to benefit a Guinean government official (03/06/23).

1.3. THE COLLABORATION OF THE INVESTIGATED MAKES THE DIFFERENCE

The SEC has also shown that cooperation from those under investigation can make a difference. Rewards for cooperation have been granted in cases involving public equity issuers, private companies, and consulting firms, covering a range of violations including material misstatements, record-keeping violations, undisclosed privileges, and violations of whistleblower protection rules. The following examples are notable:

1. The SEC resolved charges against telecommunications company GTT Communications, Inc. for failing to disclose material information about unsubstantiated adjustments made to various Commission filings, which inflated GTT's reported operating profit by at least 15% over three quarters. The SEC's order acknowledged GTT's prompt self-reporting, affirmative corrective action, and substantial cooperation with the SEC, resulting in the agency not imposing a civil penalty against GTT.

2. The SEC resolved charges against broker Perella Weinberg as part of the agency's initiative to investigate violations of the recordkeeping provisions of federal securities laws. Perella Weinberg reported the conduct and agreed to pay a $2.5 million civil penalty to settle the allegations. Other companies charged in the initiative, but didn't self-report, agreed to pay substantially higher civil penalties to resolve the charges.

3. The SEC also resolved charges against View, Inc., a publicly traded maker of "smart" windows, for failing to disclose $28 million in warranty-related liabilities. No civil penalties were imposed against View because the company reported the conduct to the SEC, took prompt corrective action, and cooperated with the staff's investigation. According to the established order, after self-reporting the conduct, View assisted agency personnel by providing detailed financial analyses, explanations, and summaries of factual matters; proactively identified important documents and witnesses; and responded to several team requests without requiring subpoenas.

These examples are essential in illustrating that honesty should always be credited. Despite failures, errors, or even fraud committed by certain employees, it's evident that the company does not condone or endorse such practices.

No items found.