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Results from the US Securities & Exchange Commission Inspection in 2023

April 01, 2024
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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.

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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.

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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:

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                   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).                

           

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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:

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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.

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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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