Bruno Sammartino died this week. Perhaps not as well known to most people, if you were a pro wrestling fan in the 60s and 70s you certainly had heard of Sammartino. According to his New York Times (NYT) obituary he was “an Italian immigrant who was heavyweight champion of the World Wide Wrestling Federation for a record 11 years in the 60s and 70s.” In a time of clear good guys and bad guys, Sammartino was one of the good guys, besting the likes of Killer Kowalski, Hans Mortier, Waldo von Erich, Ivan Koloff, Gorilla Monsoon, Professor Toro Tanaka and George (the Animal) Steele. The matches were fake but the action was real. His defeats of these and many other bad guys in the world of pro wrestling informs today’s post on the continued unraveling of the Petróleos de Venezuela, S.A. (PDVSA) corruption.

Yesterday Cesar David Rincon Godoy (Rincon) pled guilty to a massive money laundering scheme which took the proceeds of his corruption while he was employed at PDVSA. According to the DOJ Press Release, Rincon, a citizen of Venezuela previously residing in Spain and who was extradited to the US, pled guilty in federal court to one count of conspiracy to commit money laundering. U.S. District Judge Kenneth M. Hoyt of the Southern District of Texas accepted Rincon’s plea and imposed a personal money judgment in the amount of $7,033,504.71 against the defendant, who agreed to the entry of an order of forfeiture. Rincon’s sentencing is scheduled for July 9.

According to his Indictment, Rincon was part of a group of PDVSA purchasing agents who “solicited PDVSA vendors for bribes and kickbacks in exchange with providing assistance to those vendors in connection with their PDVSA business, including assisting them in receiving PDVSA contracts and assisting them in receiving payment priority over other vendors”. Rincon admitted that he accepted bribes from Roberto Enrique Rincon Fernandez (Rincon) and Abraham Jose Shiera Bastidas (Shiera), in exchange to assist Rincon’s and Shiera’s companies in receiving payment priority and additional PDVSA contracts. Rincon further admitted that he then conspired with Rincon and Shiera to launder and conceal the proceeds of the bribery scheme through a series of financial transactions, including wire transfers to accounts in the US and Switzerland. Both Rincon and Shiera had previously pled guilty to charges under the Foreign Corrupt Practices Act (FCPA) for their respective roles in the bribery scheme.

Rincon made quite a bit of money from the scheme. He admitted to conspiring with others to launder at least $7,033,504.71 in proceeds from the various bribery schemes in which he participated. This is the amount he agreed to forfeit back to the US government. There was nothing in the Indictment or Press Release which indicated that the money was still in his Swiss bank account. Nor was there anything which might suggest if that money will be paid to any of the parties who have filed lawsuits involving the grand PDVSA bribery schemes or even PDVSA itself.

Other Potential Claimants?

I previously wrote about the first civil action filed in Houston for the massive bribery and corruption which engulfed PDVSA and those who tried to do business with it over the past few years. The case involves a Houston based company, Harvest Natural Resources, Inc. (Harvest), an oil and gas producer, which alleged it went out of business because it refused to pay $40 million in bribes to former officials and business partners of PDVSA. The lawsuit was filed against former Venezuelan and PDVSA officials and it alleged they blocked the sale of Harvest’s Venezuelan holdings after the company refused to pay them a bonus based upon the sales price. Harvest eventually had to sell the assets at fire sale prices and the company estimated it lost $470 million due the bribe demands. The company closed its operations in 2017.

Interestingly, PDVSA was not named as a party, only those individuals who tried to extort money from Harvest, which was trying to sell an interest in a Venezuelan entity, whose transfer PDVSA officials named in the lawsuit had to approve. These individuals were part of the PDVSA corruption ‘Management Team’ laid out in the DOJ indictments. It is unusual to bring suit against those who sought bribes, particularly when they were not paid. Yet that is exactly the legal strategy which Harvest is employing. It will be interesting to see how they proceed, if they can make a successful case and, most importantly, if they can collect damages on any award they may receive from the court.

Finally, there is the lawsuit filed by the PDVSA US Litigation Trust (the “Trust”) in federal court in Miami, Florida, on behalf of Venezuela’s state-owned oil company, PDVSA. The lawsuit alleges that the defendants, a group of 44 oil trading companies, banks and individuals, participated in a 14-year scheme to rig bids, underpay on purchases and overcharge on sales, allegedly resulting in billions of dollars of losses to PDVSA. It is not clear that PDVSA will have standing to bring the suit or that the US government would allow it to continue given the current state of sanctions against Venezuela.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2018

In March the SEC made its biggest-ever whistleblower award. It gave one person more than $33 million and in the same case split nearly $50 million between two others. The previous high for an SEC award to a single whistleblower was $30 million in 2014. All three whistleblowers were represented by the law firm of Labaton Sucharow and the awards were based upon SEC enforcement actions against Merrill Lynch. Today, I have with me Steve Durham, a partner at the firm to talk about the awards and its implications in light of the recent Supreme Court decision in Digital Realty Trust v. Somers. 

There are several key points to take away from the awards which we discuss. Initially the awards were divided into two separate awards; one to two individuals for $50 million and a second of $33 million to one individual. We discuss what is original information in the eyes of the SEC which can qualify for an award. In the award, the SEC noted the initial two whistleblowers could have received a higher amount if their information had been more timely delivered to the SEC, which is as soon as they were learned of the misconduct. This timing issue is critical not only to help set the amount of the award but also to establish a whistleblower is qualified to receive an award as there were other individuals who stepped forward later with the same or similar information.

We also explore where the SEC is in its overall whistleblower award program. Durham believes there are several large whistleblower awards in the SEC pipeline and that the SEC Whistleblower program has been an overall success. Even with the Congressional attacks on Dodd-Frank, there is no call to reform this part of the law.

For more information on the firm, check it out on this site,  www.secwhistlebloweradvocate.com.

The Moody Blues were inducted into the Rock and Roll Hall of Fame this weekend. Ann Wilson of Heart introduced the band for their award and jam session. The band has been eligible for the Rock and Roll Hall of Fame since its inception in 1990 yet for reasons not clear they were not nominated until this year. With the overwhelming support of their huge fan base they were elected in this year, in their first year of being nominated. The Moody Blues and their song Nights in White Satin inform today’s blog post topic of Wells Fargo.

As reported in RollingStone.comWilson said, in part, “From day one, Denny Laine, Ray Thomas, Mike Pinder, Graeme Edge, John Lodge and Justin Hayward hit hard and go way deep. The Moody Blues are as mind-blowing in concert as on record. They have sold 70 million albums and counting worldwide and they have continued to do so without selling their creative soul for 54 years and counting. Tonight, the Rock and Roll Hall of Fame finally honors what 70-plus million listeners and counting have known for over half a century.” “All this is beyond impressive and is mind-boggling, but let us not overlook the simple fact that the Moody Blues are, and have always been, a kickass rock band.” That they are.

I fell in love with the Moody Blues for their concept albums. Their first was Days of Future Pastwhich they have been playing live over the past year in honor of its 50thyear anniversary release. The most well-known song in that masterpiece is Nights in White Satin, which the Financial Times (FT) reported on this weekend in its Life of a Song column. The piece was written by guitarist Justin Hayward when he was only 19. The song still moves Hayward as he said for the FT, “You can do it in a soundcheck and technically it’s nice, but you play it in front of an audience and they bring a sort of magic to it…It’s great. It’s something I would never want to give up.” It is the same for me.

I thought about Moody Blues quite a bit this weekend as they garnered recognition from the Rock and Roll Hall of Fame with their induction. Of course, I listened to their catalog to get me in the right frame of mind for their induction on Saturday night. One of the things which struck me about all of this was the confluence in reading the recent news about Wells Fargo and another potential fine from federal regulators. This fine is proposed by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller. As reported by the Wall Street Journal(WSJ), the proposed fine is a stunning $1 billion to resolve probes into auto insurance and mortgage lending abuses at the bank.

This proposed fine led Wells Fargo to note that while its 2018 first quarter profits rose, it may be required to restate earnings due to the large fine. This is in addition to Q1 revenues dropping from the same time period last year and the bank’s stock taking a pounding on Friday, of over 3%. Finally, was the grim news about still increasing expenses at the bank which rose another 3.2% for the quarter coming in at a hefty $14.2bn.

The Washington Postreported, “Such a large civil penalty would be the latest hit to Wells Fargo’s effort to rebuild its image after more than a year of scandal.” Wells Fargo itself has “acknowledged that it charged thousands of customers for auto insurance they didn’t need, driving some to default on their loans and lose their cars through repossession. The bank has also said it will refund customers who were charged improper fees to lock in an interest rate for a Wells Fargo mortgage.”

All of the above is on top of the $185 million in fines and penalties the bank agreed to in the original fraudulent accounts scandal. In that imbroglio the bank reserved another $1bn+ for remediation and settlements and there may be additional scandals still lurking for which regulators demand sanctions. In January the bank agreed to a sanction which capped its growth until milestones are reached to satisfy the Federal Reserve Bank. At this point there is no end date for this most serious sanction.

The Wells Fargo scandals continue to be one of the starkest lessons about the cost of a corrupt culture and the catastrophic effect it can have on an organization. The former Chief Executive Officer (CEO) and head of the business unit where the fraudulent accounts originated were dismissed. The Board of Directors has been required to largely reconstitute itself and the current CEO admitted that the bank has far to go before it can move past the scandal. Of course, the bank will have to pay back all the money from those it defrauded as well.

Wells Fargo drives home the need to have ethics at the center of your business. Only by doing so can you have a culture of compliance so that employees will do the right thing when the time comes. Wells Fargo has paid and will continue to pay a high price for its failures, yet it must change an entire culture which punished and retaliated against those who spoke up against fraud and corruption. It must also change not only its compliance program but the structure of an organization which prevented the Board of Directors from having sight into the culpable business units after the scandal was made public in the Los Angeles Times. One might only hope that the current CEO Tim Sloan, understood the irony in his statement last week, “In terms of declaring victory and walking ahead, we’re not quite there yet.” Perhaps it was simply a banker’s understatement.

This final line reminded me of the most poignant line in Nights in White Satin(at least for me) which is “letters I’ve written, never meaning to send”. It turns out those were a reference to Justin Hayward’s girlfriend with whom he had broken up with when he was writing the song. The older I get, the more I see teenaged angst with us all for a long time. Maybe Hayward was just prescient.

To hear the Moody Blues’ Hall of Fame set list, check out the following on YouTube.

Nights in White Satin

Ride My See-Saw

I’m Just a Singer (in a Rock and Roll Band)

Your Wildest Dreams

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018

 

In this episode, Matt Kelly and I take a deep dive into the weeds to what drives misconduct at the C-Suite, Senior executive level by considering the most current examples of privilege and arrogance in the current administration, Scott Pruett at the EPA. We consider his actions from the compliance perspective, the HR perspective and corporate governance perspective.

What drives CEOs, C-Suiters and senior executives to engage in behavior which is beyond the pale of corporate norms and acceptability? How can a company deep from hiring a senior executive who will harm its reputation? Find out the answer to these and other questions on Compliance into the Weeds.

See Matt Kelly’s blog post What Drives Misconduct: The EPA Example

With the Astros off to a 6-1 start and the Facebook FUBAR continuing, Jay Rosen and myself take a look at some of the top compliance stories over the past week.

  1. Embraer dodges a shareholder action based on its FCPA violations. Henry Cutter reports in the WSJ Risk and Compliance Journal. Tom considers the decision as a rift in the time space continuum in the FCPA Compliance and Ethics Blog. Kevin LaCroix considers from the more traditional legal angle in the D&O Diary.
  2. Facebook continues to either (1) not get it; (2) throw its users under the bus, and/or generally show it has no idea what it is doing going forward, click here. Mark Zuckerberg will explain it all to Congress. Larry Robinson on Fast Company online lays out what the company need to do. Tom explores the tone at the company in Compliance Week (sub req’d)
  3. What should you ask in an interview of a compliance professional? Maurice Gilbert, founder at Conselium Search gives some great tips in his eBook, Hiring Compliance Officers available at no charge on Corporate Compliance Insights.
  4. Bob Conlin, the CEO at Navex explains why CEO trust is so low. Check out his article here.
  5. What is the SEC whistleblower safe harbor rule? Henry Cutter reports in the WSJ Risk and Compliance Journal.
  6. Mike Volkov puts on an excellent podcast on how to deal with search warrant on the Corruption, Crime and Compliance podcast.
  7. Check out this week’s 5-part podcast series on corporate monitorships with Vin DiCianni and Eric Feldman. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra.
  8. Tom announces presales of his next book, the Complete Compliance Handbook, which will be published by Compliance Week in April 2018. It is available for PreSale here.
  9. Jonathan Armstrong will be in Houston on April 10 to put on a half-day GDPR workshop. You can find out more and register at the Greater Houston Business and Ethics Roundtable website, org. Tom will host a breakfast meeting with Jonathan on a UK Bribery Act update. For details and registration contact Tom.
  10. Tom will be leading Convercent Roundtables on using data to drive ethics to the center of business on Houston (April 17) and Dallas (April 18). He will lead discussions on using data to drive ethics into the center of business.
  11. Jay details a webinar hosted by Convercent where AMI SVP Eric Feldman presents a qualitative look on how quickly an ethical scandal can impact a company. To listen, click here.

 

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit Affiliated Monitors at www.affiliatedmonitors.com.