2007-77 Apr. 26, 2007 SEC Charges Baker Hughes With Foreign Bribery and With Violating 2001 Commission Cease-and-Desist Order See also: Litigation Release No. 20094 http://www.sec.gov/news/press/2007/2007-77.htm
SEC Charges Baker Hughes With Foreign Bribery and With Violating 2001 Commission Cease-and-Desist Order Baker Hughes Subsidiary Pleads Guilty to Three Felony Charges in Criminal Action Filed by Department of Justice; Criminal Fines, Civil Penalties and Disgorgement of Illicit Profits Total More Than $44 Million FOR IMMEDIATE RELEASE 2007-77 Washington, D.C., April 26, 2007 - The Securities and Exchange Commission today announced the filing of a settled enforcement action charging Baker Hughes Incorporated, a Houston, Texas-based global provider of oil field products and services, with violations of the Foreign Corrupt Practices Act (FCPA). Baker Hughes has agreed to pay more than $23 million in disgorgement and prejudgment interest for these violations and to pay a civil penalty of $10 million for violating a 2001 Commission cease-and-desist Order prohibiting violations of the books and records and internal controls provisions of the FCPA.
In the same complaint, the SEC also charged Roy Fearnley, a former business development manager for Baker Hughes, with violating and aiding and abetting violations of the FCPA. Fearnley has not reached any settlement with the Commission regarding these charges.
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "Baker Hughes committed widespread and egregious violations of the FCPA while subject to a prior Commission cease-and-desist Order. The $10 million penalty demonstrates that companies must adhere to Commission Orders and that recidivists will be punished."
Christopher R. Conte, an Associate Director in the SEC's Division of Enforcement, added, "Companies like Baker Hughes will be held accountable when they circumvent the rules of fair play and honest competition by making improper payments to win business."
The SEC's complaint alleges that Baker Hughes paid approximately $5.2 million to two agents while knowing that some or all of the money was intended to bribe government officials, specifically officials of State-owned companies, in Kazakhstan. The complaint alleges that one agent was hired in September 2000 on the understanding that Kazakhoil, Kazakhstan's national oil company at that time, had demanded that the agent be hired to influence senior level employees of Kazakhoil to approve the award of business to the company. Baker Hughes retained the agent principally at the urging of Fearnley. According to the complaint, Fearnley told his bosses that the "agent for Kazakhoil" told him that unless the agent was retained, Baker Hughes could "say goodbye to this and future business." Baker Hughes engaged the agent and was awarded an oil services contract in the Karachaganak oil field in Kazakhstan that generated more than $219 million in gross revenues from 2001 through 2006. Baker Hughes, the complaint alleges, paid the agent $4.1 million to its bank account in London but received no identifiable services from the agent. The complaint also alleges that in 1998 Baker Hughes retained a second agent in connection with the award of a large chemical contract with KazTransOil, the national oil transportation operator of Kazakhstan. Between 1998 and 1999, Baker Hughes paid over $1 million to the agent's Swiss bank account, despite a company employee knowing by December 1998 that the agent's representative was a high-ranking executive of KazTransOil.
The SEC's complaint against Baker Hughes also alleges violations of the books and records and internal controls provisions of the FCPA in Nigeria, Angola, Indonesia, Russia, Uzbekistan and Kazakhstan. In addition to violating the FCPA, certain of this conduct occurred after September 12, 2001, and consequently violated the Commission's 2001 cease-and-desist Order. Specifically, the complaint alleges that between 1998 and 2005, Baker Hughes made payments in Nigeria, Angola, Indonesia, Russia, Uzbekistan and Kazakhstan in circumstances that reflected a failure to implement sufficient internal controls to determine whether the payments were for legitimate services, whether the payments would be shared with government officials, or whether these payments would be accurately recorded in Baker Hughes' books and records.
For example, the complaint alleges that
from 1998 to 2004, Baker Hughes authorized commission payments of nearly $5.3 million to an agent (who worked in Kazakhstan, Russia and Uzbekistan) under circumstances in which the company failed to determine whether such payments were, in part, to be funneled to government officials in violation of the FCPA;
in Indonesia, between 2000 and 2003, Baker Hughes paid certain freight forwarders to import equipment into Indonesia using a "door-to-door" process under circumstances in which the company failed to adequately assure itself that such payments were not being passed on, in part, to Indonesian customs officials;
in Nigeria, between at least 2001 and 2005, Baker Hughes authorized payments to certain customs brokers to facilitate the resolution of alleged customs deficiencies under circumstances in which the company failed to adequately assure itself that such payments were not being passed on, in part, to Nigerian customs officials; and
in Angola, from 1998 to 2003, Baker Hughes paid an agent more than $10.3 million in commissions under circumstances in which the company failed to adequately assure itself that such payments were not being passed on to employees of Sonangol, Angola's state-owned oil company, to obtain or retain business in Angola. Without admitting or denying the SEC's allegations, Baker Hughes consented to the entry of a final judgment permanently enjoining it from future violations of the FCPA and ordering it to pay a civil penalty and disgorgement with prejudgment interest; and to retain an independent consultant to review the company's FCPA policies and procedures.
The Commission acknowledges Baker Hughes' cooperation in the investigation.
In a related criminal proceeding announced today, the United States Department of Justice filed criminal FCPA charges against Baker Hughes and its wholly-owned subsidiary Baker Hughes Services International, Inc., with an office in Atyrau, Kazakhstan. Baker Hughes Services International, Inc. entered a guilty plea before the Honorable Gray H. Miller, United States District Judge for the Southern District of Texas, and agreed to plead guilty to one count of violating the anti-bribery provisions of the FCPA, one count of aiding and abetting the falsification of the books and records of Baker Hughes, and one count of conspiracy to violate the FCPA, and to pay a criminal fine of $11 million. The Department of Justice has also entered into an agreement with Baker Hughes to defer prosecution for two years on charges of violating the anti-bribery and books and records provisions of the FCPA. Under the agreement, the company will retain for a period of three years a monitor to review and assess the company's compliance program and monitor its implementation of and compliance with new internal policies and procedures.
The staff acknowledges the cooperation and assistance of the U.S. Department of Justice, Fraud Section. The staff also acknowledges the help provided, in the form of mutual legal assistance, by the Isle of Man Financial Supervision Commission, HM Procureur (Attorney General) for Guernsey, and by the authorities of the United Kingdom and Switzerland.
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Contacts:
Christopher R. Conte, Associate Director, (202) 551-4834 Richard W. Grime, Assistant Director, (202) 551-4915 SEC Division of Enforcement
SEC, German BaFin Sign Regulatory Cooperation Arrangement FOR IMMEDIATE RELEASE 2007-76 Washington, D.C., April 26, 2007 - The Securities and Exchange Commission and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) today signed a comprehensive arrangement to facilitate their supervision of internationally active firms and their oversight of markets.
At a meeting in Berlin, SEC Chairman Christopher Cox and BaFin President Jochen Sanio executed a memorandum of understanding (MOU) that provides clear mechanisms for consultation, cooperation, and exchanges of information between their agencies. The MOU sets forth the terms and conditions for the sharing of information about regulated entities and financial groups that operate in the United States and Germany and, in view of the growing trend toward cross-border exchange affiliations, outlines a framework for cooperation in the oversight of markets in both countries.
Chairman Cox said, "The SEC and BaFin share a commitment to keeping our markets open, fair and transparent in an ever-changing and increasingly global marketplace. We must continue working together to facilitate the seamless and efficient regulation of internationally active firms in the United States and Germany. This arrangement helps the SEC and BaFin have access to the information necessary to supervise global securities firms and oversee markets."
President Sanio said, "There is already a tradition of cooperation between the SEC and BaFin. By signing this MOU we are now giving it an even wider framework. In times of increasing globalization, such agreements are very valuable - for the regulators of both countries and for the companies involved."
Ethiopis Tafara, Director of the SEC's Office of International Affairs, said, "This MOU builds on the SEC's recent efforts to formalize information-sharing arrangements for regulatory cooperation with our counterparts, as the Commission historically has done in the area of securities enforcement. Such arrangements infuse predictability and efficiency into our international cooperative efforts, and help ensure that global firms are being looked at in a coordinated fashion. The SEC and BaFin have had a long-standing cooperative relationship, and we are pleased to enhance that relationship here today."
SEC Announces $79 Million Fair Fund Distribution in the Edward Jones Revenue Sharing Settlement FOR IMMEDIATE RELEASE 2007-75 Washington, D.C., April 26, 2007 - The Securities and Exchange Commission today announced the distribution of a $79 million Fair Fund to current and former customers of Edward D. Jones & Co., L.P. The beneficiaries of the Fair Fund were victims of Edward Jones' failure to adequately disclose revenue payments from a select group of mutual fund companies.
Linda Chatman Thomsen, Director of the Division of Enforcement, said, "This distribution marks a significant step in the Commission's program to return money to investors injured by improper mutual fund practices."
On Dec. 22, 2004, the SEC brought settled administrative and cease-and-desist proceedings against Edward Jones for failing to adequately disclose its receipt of revenue sharing payments from a select group of mutual fund companies. Edward Jones consented to the entry of the SEC's Order without admitting or denying the SEC's findings. The Order found that Edward Jones had entered into revenue sharing agreements with seven "Preferred" mutual fund families. Edward Jones told the public and its customers that it was promoting the sale of the Preferred Families' mutual funds because of the funds' long-term investment objectives and performance. At the same time, however, Edward Jones failed to disclose that it received tens of millions of dollars of revenue sharing payments from the Preferred Families each year for selling their mutual funds. The SEC's Order required Edward Jones to pay disgorgement and prejudgment interest of $37.5 million and civil penalties of $37.5 million into a Fair Fund for distribution to benefit customers of Edward Jones and to retain an independent consultant to, among other things, administer the Fair Fund.
On June 1, 2006, the SEC approved a distribution plan which provided for the pro rata distribution of the Fair Fund to current and former customers of Edward Jones who purchased shares of mutual funds of the Preferred Families between Jan. 1, 1999, and Dec. 31, 2004. The SEC also appointed James R. Doty of the law firm of Baker Botts, L.L.P. as the fund administrator responsible for distributing the Fair Fund. Pursuant to the distribution plan, eligible customers' shares of the Fair Fund distribution have been calculated based upon the amount of revenue sharing Edward Jones received for each customer's investments in mutual funds from the Preferred Families. Current customers who have active accounts with Edward Jones have received electronic distributions directly to their accounts at Edward Jones. Customers who no longer have active accounts with Edward Jones have been sent physical checks to their last-known addresses as verified by an address validation system.
With today's final distributions, investors will receive all disgorgement, prejudgment interest, and civil penalties paid by Edward Jones, plus accumulated interest.
Further information about the distribution can be obtained on Edward Jones' public website at www.edwardjones.com.
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For further information contact:
Merri Jo Gillette (312) 353-9338 Regional Director, Chicago Regional Office
Timothy L. Warren (312) 353-7394 Associate Regional Director, Chicago Regional Office
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