son-of-frankensteinWelcome to my third installment in this month’s classic monster movie festival. This year I am revisiting the Frankenstein series. Today I want to explore the final movie where Boris Karloff starred as Frankenstein’s Monster; Son of Frankenstein. I want to use this final installment in the Karloff trilogy to look at how the character he played evolved through the three movies; Frankenstein, Bride of Frankenstein and Son of Frankenstein.

Joyce Wegmuller, reviewing Son of Frankenstein in Kiss My Review, said, “The progression of the character as Karloff played him through three movies is fascinating. In “Frankenstein” he is an infant — new born to the world, ignorant and curious. He first learns fear when Fritz taunts him with fire. His next lesson is abandonment by his creator. He experiences some tenderness with little Maria, but in his innocent attempt to share in the playful game, he kills her and learns another confusing lesson in loss. More betrayal by his creator drives him to rage and murder.”

In Bride of Frankenstein Karloff starts his character with rage. Wegmuller wrote, “His attempts to find some relief are met with violence from the villagers. During his one brief moment of solace with the blind hermit, he learns about friendship and love, not to mention the pleasures of wine and cigars. This interlude is interrupted and he finds refuge in the tomb where he meets Doctor Pretorius who puts the idea of a girlfriend to him. Even after Doctor Pretorius persuades Henry Frankenstein to help him create a mate for Karloff, things go very badly. The Monster is rejected and hated by the one creature who might possibly have accepted and loved him, his bride.”

At the beginning of the Son of Frankenstein, the Monster is not in a very trusting mood. He finds companionship in one character, the demented Ygor (played by Bela Lugosi) who compels him to murder enemies of Ygor. After the Monster believes that the son of his creator, Wolf von Frankenstein (played by Basil Rathbone), killed Ygor the Monster kidnaps Wolf’s son but in the end yields to his basic humanity and does not harm the boy. The Son of Frankenstein was a great end to the three picture run of Karloff as the Monster.

I thought about this development of Karloff as Frankenstein’s Monster when I read a blog post by Tony Maida and Rebecca C. Martin, writing in the Harvard Law School Forum on Corporate Governance and Financial Regulation blog entitled “One Year Later: The Yates Memo, False Claims Act and Director & Executive Liability”. In the piece they discussed two recent False Claims Act (FCA) cases which may shed light on the direction the Department of Justice (DOJ) is headed under the Yates Memo and FCPA Pilot Program.

The first involved North American Health Care Inc. (NAHC) and two individuals, its chairman of the board and a senior vice president of reimbursement. The company settled potential FCA claims for a total of $30MM and the two individuals agreed to pay $1MM and $500,000 respectively. The second matter involved the former Chief Executive Officer (CEO) of Tuomey Healthcare, after the company paid $72.4MM in its FCA settlement and two years after his departure from company, resolved his “own liability for $1 million, has been required to release any indemnification claims he may have had against the company, and has agreed to a four-year period of exclusion from participating in federal health care programs.”

For both cases, the authors note that with “each of these closely timed settlements, the government’s announcement highlights the inclusion of individuals in the resolution and draws a clear connection to the Yates Memo’s premise.” They also point to the remarks of DOJ official Bill Baer at the SCCE 2016 Compliance and Ethics Institute, stating, “he spoke at length about the application of the Yates memo to civil matters, emphasizing the need for companies proactively to provide to the government information about all relevant facts, including those relating to individuals “no matter where those individuals fall in the corporate hierarchy”. The timing of these settlements and DOJ’s additional guidance suggests that we are seeing the impact of Yates on civil resolutions.” For my summary of Baer’s remarks, see this prior post.

Kevin M. LaCroix, writing in his always informative D&O Diary, in a piece entitled “The Yates Memo and Civil Liability for Corporate Officers and Directors, noted three key elements in these FCA settlements, which raise issues for Foreign Corrupt Practices Act (FCPA) enforcement actions after the Yates Memo and FCPA Pilot Program. First these cases were civil not criminal resolutions. LaCroix believes, I think rightly, that the DOJ intends to implement the Yates Memo’s guidelines on individual liability in connection with civil actions, in addition to criminal matters. He went to opine, “The fact that the principles embodied in the Yates Memo will be extended to civil enforcement actions as well is an added concern for corporate executives. At a minimum, the clear implication is that in connection with government-led civil enforcement actions, corporate executives could find themselves specifically targeted for civil liability.”

I would also add that under the FCPA Pilot Program, there were two recent settlements of privately held companies, HMT LLC and NCH Corporation, which are not subject to the Securities and Exchange Commission (SEC) oversight for FCPA jurisdiction. Yet both companies were required to disgorge profits to receive declinations. Clear evidence that there will be a blurring of previously distinct remedies on the civil and criminal sides of FCPA enforcement.

Second, LaCroix believes it is significant that the individuals were not required to admit to criminal liability. As you might expect from his perspective as an expert in directors and officers’ insurance coverage, he is concerned “that individual’s caught up in one of these kinds of regulatory actions would be compelled as a condition of settlement to make admissions that potentially could eliminate whatever remaining possibility there might have been for the individuals to seek coverage under their company’s D&O insurance policies.” However, with no criminal admissions this concern was lessened, although not ameliorated because of LaCroix’s third element.

It was that Ralph J. Cox III, the former CEO of Tuomey Healthcare, was required to relinquish any right to indemnification. While noting this was not “unprecedented”; LaCroix pointed out that “if an executive waives his or her right to indemnification from the company, that likely would preclude the possibility for coverage under the D&O insurance policy’s corporate reimbursement coverage.” This element not only could negatively impact the corporate officer or director involved in any such enforcement action but potentially could impact the corporate defendant as well. By furnishing indemnity protection, it tends to keep all the defendants aligned. If an officer or director has to pay his own defense, they may well decide their interests are not aligned with the corporation and take actions based upon this calculus.

Many compliance practitioners have speculated on the evolution of DOJ prosecutions after the Yates Memo and announcement of the FCPA Pilot Program. These cases show one clear direction which the DOJ is headed. With the focus on the civil side of enforcement, these cases could well herald what the DOJ may expect in the area of individual enforcement actions involving senior executives or Board of Director members going forward. When you couple these cases with the remarks of Bill Baer, at the SCCE 2016 Compliance and Ethics Institute, the evolution is appearing clearer.


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

© Thomas R. Fox, 2016

Show Notes for Episode 27, week ending October 21, 2016-the Walla Walla Edition:

  1. Lennox Industries self-reports a $425 bribe- as reported on the FCPA Blog;
  2. Another guilty plea in FIFA corruption scandal-as reported on the FCPA Blog;
  3. Public Citizen letter to DOJ/SEC re: Wal-Mart FCPA investigation, to read the letter click here;
  4. Miller & Chevalier Autumn 2016 FCPA Report released, for a copy click here;
  5. First FCPA Mock Trial Institute-for information and registration, click here;
  6. FCPA Blog NYC Conference-for information and registration click, here. Best of all, for listens of this podcast you are entitled to a 20% discount off the regular price. You can access the discount by clicking here.
  7. The Jay Rosen Weekend Report








Show Notes for Episode 25, week ending October 7, 2016-the Krakow Edition

  1. Breakdown of GSK Foreign Corrupt Practices Act settlement with SEC and declination from the DOJ, click here for SEC Order and here for commentary in the in the FCPA Compliance and Ethics Blog;
  2. The SCCE 2016 Compliance Effectiveness Survey, click here for the survey;
  3. My interview with Professor Sam Buell on the FCPA Compliance Report,
  4. Wells Fargo clawbacks from CEO John Stumpf and Carrie Toldstet, as reported in the Financial Times and in the New York Times and here for my commentary;
  5. The International Gaming Tech (IGT) SEC penalty, which is the first enforcement action for relational only, as reported in the FCPA Blog; and
  6. Jay previews his Weekend Report.

Show Notes:

In this episode, I visit with Samuel Buell, a professor at Duke University Law School. He chat on his piece in Slate online magazine entitled “Prosecuting Wells Fargo Executives Won’t Solve Anything’ and he should know as Prof. Buell helped prosecute the executives at the center of Enron. We discuss the deficiencies in criminal law for such prosecutions and discuss how the corporate form is designed to diffuse responsibility and liability in a corporation.

qtq80-9N0mGBLast week there were two declinations issued by Department of Justice (DOJ) for Foreign Corrupt Practices Act (FCPA) matters. The matters involved two Texas based, privately held companies. The first was HMT LLC (HMT) which makes above-ground liquid storage tanks for the oil and gas industry. The second was NCH Corporation (NCH) which produces cleaning products. Both companies received declinations under the new FCPA Pilot Program, which was announced last April.

What made these enforcement actions most interesting was that they were the first declinations; where a declination to prosecute was granted, yet there were no fines and penalties assessed against the companies yet both were required to disgorge the profits  generated by their illegal conduct. HMT disgorged $2.7 million in profit from its illegal acts and NCH disgorged $335,000 from its ill-gotten gains. While this category of declination was used for the first time in DOJ enforcement action; it was not the first time it had been discussed by the DOJ. Indeed, one might have wondered why it took nearly six months for this type of disgorgement to appear after the DOJ announcement of the FCPA Pilot Program.

When the FCPA Pilot Program was announced, most of the attention was given to the three prongs to receive credit: (1) self-disclosure, (2) extensive cooperation, and (3) thorough remediation. However, in both the Press Conference announcing the initiative and the written release, entitled “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance” (FCPA Pilot Program Guidance), the DOJ made clear there was a fourth requirement. As stated in the FCPA Pilot Program Guidance, “Moreover, to be eligible for such credit, even a company that voluntarily self-discloses, fully cooperates, and remediates will be required to disgorge all profits resulting from the FCPA violation.” It does not get much clearer than this statement.

As noted above both HMT and NCH were privately held businesses, not issuers under the Act and neither was subject to the Accounting Provisions of the FCPA. Previous FCPA enforcement actions, where there a was declination granted, involved companies which were issuers subject to the Accounting Provisions, enforced by the Securities and Exchange Commission (SEC). The companies who previously received declinations under the FCPA Pilot Program, Nortek, Akamai Technologies, and Johnson Controls all disgorged their ill-gotten profits in their respective SEC resolutions. In the cases of HMT and NCH, there could not be any SEC resolution as there is no SEC jurisdiction. Yet, to meet the fourth requirement of the FCPA Pilot Program, the companies were required to return their illegally obtained profit.

Former federal prosecutor Mike Volkov is probably the person who most often reminds us that the DOJ clearly signals its intentions. However, in FCPA Pilot Program the DOJ laid out in writing what was required and these two companies met all four requirements, thereby obtaining a declination. It should not be a surprise to anyone who read the FCPA Pilot Program Guidance to expect this was coming precisely in this type of case, where there was no SEC jurisdiction. Yet, there was more in these declinations which serve as lessons for the compliance practitioner.

NCH Corporation

According to its declination letter, “From February 2011 until mid-2013 the company had provided to Chinese government officials cash and other things of value, including gifts, meals, and entertainment, in order to influence the officials’ purchasing decisions.” These bribes were recorded in the company’s accounting records as, among other things, “customer maintenance fees,” “customer cooperation fees,” and “cash to customer,”. The company also “paid expenses for several employees of an NCH China government customer for a 10-day trip to various cities in the United States and Canada, only one half-day of which involved business related activities. The remainder of the trip involved sightseeing and other non-business activities. NCH paid approximately $12,000 for the non-business related expenses incurred by the officials during their trip, notwithstanding that NCH knew that: (1) the officials worked for a government entity; (2) NCH China had a sales bid pending before that entity while details of the trip were being discussed with the customer (although the bid was lost before the trip was taken); (3) various expenses were not for legitimate business activities; and (4) NCH had been advised that the proposed 10-day trip might violate the FCPA.”


According to its declination, from 2002 to 2011 the company had a “sales agent who was retained to promote and sell HMT’s products in Venezuela (“Venezuela agent”) illegally paid bribes to Venezuelan government officials in order to persuade Petroleos de Venezuela, S.A. (“PDVSA”), Venezuela’s state-owned and state-controlled energy company (an “instrumentality” under the FCPA), to purchase HMT products. To fund these bribes, the Venezuela agent frequently quoted prices to PDVSA that were substantially higher than the price HMT had quoted to the Venezuela agent. PDVSA paid the inflated prices to HMT, which kept the amount it had quoted the Venezuela agent and paid the Venezuela agent the remainder, purportedly as commission and subcontracting fees. HMT paid the Venezuela agent by wiring the purported commissions and subcontracting fees from its bank account in Texas to bank accounts designated by the agent in Panama, Curacao, and other locations.”

The factors listed which enabled both companies to receive declinations were similar. According to both declination letters, both companies:

  • Voluntarily self-disclosed the FCPA violations;
  • Thoroughly and comprehensively investigated the matter;
  • Provided full cooperation in the investigation, including providing of all known relevant facts about the individuals involved in or responsible for the misconduct, and both agreed to continue to fully cooperate in any ongoing investigations of individuals arising from this matter;
  • As noted both agreed to disgorge to the Department all profits earned from the illegal conduct;
  • Both took steps to enhance their compliance programs and their internal controls;
  • Both companies fully remediated. NCH Corporation terminated or took disciplinary action against the employees involved in the misconduct, including senior managers and lower-level employees involved in the misconduct, as well as high-level executives at company’s headquarters in the United States who oversaw the subsidiary in which the China misconduct occurred. HMT LLC also sanctioned ten employees through suspensions, pay freezes, bonus suspensions, and reductions of responsibilities, and severed business relationships with the Venezuela agent and the China distributor who were involved in the conduct. HMT also severed business relationships with seven other agents/distributors based on the findings of its investigation.

One can only say the FCPA Pilot Program is working and working well. With these two declinations the question of how privately owned businesses would be treated under the FCPA Pilot Program and the fourth requirement for profit disgorgement has been answered, although the answer was laid out in writing all along. For any Chief Compliance Officer (CCO) or compliance practitioner, these declinations should be studied closely to understand how the bribery schemes were funded and how the entities involved obtain such an outstanding result.


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

© Thomas R. Fox, 2016