Ruehlen

Case 4:12-cv-00563 Document 36
Filed in TXSD on 05/08/12 Page 1 of 35
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
Securities and Exchange Commission, Plaintiff, v. Mark A. Jackson et al., Defendants. Civil Action No. 4:12-cv-00563
DEFENDANT JAMES J. RUEHLENS MOTION TO DISMISS PLAINTIFFS COMPLAINT FOR FAILURE TO STATE A CLAIM AND MEMORANDUM IN SUPPORT THEREOF
TABLE OF CONTENTS I. INTRODUCTION ............................................................................................................. 1 A. B. II. Nature and Stage of the Proceeding ....................................................................... 1 Issues To Be Ruled upon by the Court .................................................................. 1
BACKGROUND ............................................................................................................... 1 A. B. Facts ....................................................................................................................... 1 The SECs Complaint ............................................................................................ 2
III. IV. V.
SUMMARY OF ARGUMENT ......................................................................................... 3 STANDARD OF REVIEW ............................................................................................... 5 ARGUMENT ..................................................................................................................... 7 A. Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allege the Identity of the Involved Foreign Officials in Any Manner and Fails To Distinguish Between Facilitation Payments and Bribes. ......................... 7 1. The identity of the foreign official to whom bribes were allegedly made or authorized is an essential element of an FCPA violation. ......................................................................................... 7 All known contested FCPA bribery enforcement actions resulting in liability clearly and specifically identified the foreign officials. ......................................................................................... 9 The Complaint fails to identify the foreign officials to whom payments were allegedly authorized. ....................................................... 11
2.
3. B.
Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allege that Mr. Ruehlen Acted Corruptly. ...................................................................... 13 1. The Complaint fails to allege corrupt intent because it does not plead facts showing the requirements of Nigerian law and facts showing that Mr. Ruehlen sought to influence Nigerian officials to violate their official duties on Nobles behalf. ...................... 13 The SECs allegations that Mr. Ruehlen sought and followed the advice of Nobles senior management negate any inference that he acted corruptly. ............................................................................. 15
2.
C.
Claims 1 and 2 Must Be Dismissed Because the FCPAs Facilitation Payment Exception Is Unconstitutionally Vague as Applied to Mr. Ruehlen. ........................................................................................................ 17 Claims 3 and 4 Must Be Dismissed Because the SEC Fails To Identify the False Book, Record, or Account, or the Circumvented Control, and Because Any Alleged Violations Are Derivative of the Underlying Bribery Allegations. .......................................................................... 21 Plaintiffs Claims and Supporting Allegations Must Be Dismissed Because They Rely on Untimely Allegations that Fall Outside the Statute of Limitations. .......................................................................................... 23
D.
E.
VI.
CONCLUSION ................................................................................................................ 25
ii
TABLE OF AUTHORITIES Cases Abramo v. Teal, Becker & Chiaramonte, No. 09-cv-269 (N.D.N.Y. May 12, 2010)................................................................................. 24 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ........................................................................................................ 6, 11, 12 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .................................................................................................... 4, 6, 12, 21 Bell v. Bank of Am. Home Loan Servicing LP, No. 11-cv-2085, 2012 WL 568755 (S.D. Tex. Feb. 21, 2012) ................................................. 13 Blackburn v. City of Marshall, 42 F.3d 925 (5th Cir. 1995) ........................................................................................................ 5 Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440 (5th Cir. 1986) ...................................................................................................... 6 Citicorp Intl Trading Co. v. W. Oil & Ref. Co., 771 F. Supp. 600 (S.D.N.Y. 1991) ........................................................................................... 10 Citicorp Intl Trading Co. v. W. Oil & Ref. Co., No. 88-5377, 1991 WL 4502 (S.D.N.Y. Jan. 16, 1991) ........................................................... 10 Cuvillier v. Taylor, 503 F.3d 397 (5th Cir. 2007) ................................................................................................ 6, 21 Diamond Roofing Co. v. OSHRC, 528 F.2d 645 (5th Cir. 1976) .................................................................................................... 18 Gates & Fox Co. v. OSHRC, 790 F.2d 154 (D.C. Cir. 1986) .................................................................................................. 18 Gen. Elec. Co. v. EPA, 53 F.3d 1324 (D.C. Cir. 1995) .................................................................................................. 18 Gentilello v. Rege, 627 F.3d 540 (5th Cir. 2010) .................................................................................................... 14 Grayned v. City of Rockford, 408 U.S. 104 (1972) ............................................................................................................ 20, 21 Harvey v. Montgomery Cnty., No. 11-cv-1815, 2012 WL 1551337 (S.D. Tex. Apr. 30, 2012) ................................................. 6 iii
Higginbotham v. Mobil Oil Corp., 302 F. Supp. 857 (E.D. La. 1969), revd on other grounds, 436 F.2d 8 (5th Cir. 1970) ............ 6 Howard v. SEC, 376 F.3d 1136 (D.C. Cir. 2004) ................................................................................................ 17 Inturri v. City of Hartford, 365 F. Supp. 2d 240 (D. Conn. 2005) ....................................................................................... 20 Kellogg v. N.Y. State Dept of Corr. Servs., No. 07-cv-2804, 2009 WL 2058560 (S.D.N.Y. July 15, 2009) ................................................ 24 Larson v. Northrop Corp., 21 F.3d 1164 (D.C. Cir. 1994) .................................................................................................. 24 Okpalobi v. Foster, 190 F.3d 337 (5th Cir. 1999) .............................................................................................. 18, 21 Perez v. Hoblock, 368 F.3d 166 (2d Cir. 2004) ..................................................................................................... 20 Reno v. ACLU, 521 U.S. 844 (1997) .................................................................................................................. 20 Se. Banking Corp., 69 F.3d 1539 (11th Cir. 1995) .................................................................................................. 24 SEC v. Benton, No. 09-cv-3963 (S.D. Tex. Dec. 11, 2009) ............................................................................... 10 SEC v. Brown, 740 F. Supp. 2d 148 (D.D.C. 2010) .......................................................................................... 24 SEC v. Coffman, No. 06-cv-00088, 2007 U.S. Dist. LEXIS 61,347 (D. Colo. Aug. 21, 2007) ........................... 23 SEC v. First Fin. Grp. of Tex., 645 F.2d 429 (5th Cir. 1981) .................................................................................................... 24 SEC v. Fraser, No. 09-cv-443, 2010 WL 5776401 (D. Ariz. Jan. 28 2010) ..................................................... 21 SEC v. Jones, 476 F. Supp. 2d 374 (S.D.N.Y. 2007) ...................................................................................... 24 SEC v. Mattson, No. 01-cv-3106 (S.D. Tex. Sept. 11, 2001) .............................................................................. 10
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SEC v. Microtune, Inc., 783 F. Supp. 2d 867 (N.D. Tex. 2011), appeal docketed, No. 11-10594 (5th Cir. June 21, 2011) ............................................................................................................ 23 SEC v. Noble Corp., No. 10-cv-4336 (S.D. Tex. Nov. 4, 2010) ................................................................................ 25 SEC v. ORourke, No. 12-cv-564 (S.D. Tex. Feb. 24, 2012) ............................................................................. 1, 25 SEC v. Shanahan, 646 F.3d 536 (8th Cir. 2011) .................................................................................................... 17 SEC v. Tambone, 417 F. Supp. 2d 127 (D. Mass. 2006) ....................................................................................... 12 SEC v. Yuen, 221 F.R.D. 631 (C.D. Cal. 2004) .............................................................................................. 12 Solis v. Bruister, No. 10-cv-00077, 2012 WL 776028 (S.D. Miss. Mar. 8, 2012) ............................................... 24 Stichting ter Behartiging van de Belangen van Oudaandeelhouders in het Kapitaal van Saybolt Intl v. Schreiber, 327 F.3d 173 (2d Cir. 2003) ................................................................................................. 4, 13 Summer v. Land & Leisure, Inc., 664 F.2d 965 (Former 5th Cir. 1981)........................................................................................ 24 United States v. Blondek, 741 F. Supp. 116 (N.D. Tex. 1990) ............................................................................................ 8 United States v. Classified Parking Sys., 213 F.2d 631 (5th Cir. 1954) ...................................................................................................... 6 United States v. Core Labs., Inc., 759 F.2d 480 (5th Cir. 1985) .................................................................................................... 23 United States v. Hoechst Celanese Corp., 128 F.3d 216 (4th Cir. 1997) .............................................................................................. 18, 20 United States v. Kay, 359 F.3d 738 (5th Cir. 2004) .......................................................................................... 8, 14, 20 United States v. Kay, 513 F.3d 432 (5th Cir. 2007) ................................................................................................ 4, 13
United States v. Lake, 472 F.3d 1247 (10th Cir. 2007) ................................................................................................ 23 United States v. Lanier, 520 U.S. 259 (1997) .................................................................................................................. 17 United States v. Liebo, 923 F.2d 1308 (8th Cir. 1991) .................................................................................................. 16 United States v. Manapat, 928 F.2d 1097 (11th Cir. 1991) ................................................................................................ 18 United States v. OShea, No. 09-cr-629 (S.D. Tex. Jan. 16, 2012) ................................................................................ 8, 9 United States v. Outler, 659 F.2d 1306 (Former 5th Cir. 1981)........................................................................................ 7 United States v. Poly-Carb, Inc., 951 F. Supp. 1518 (D. Nev. 1996) .............................................................................................. 7 Zander v. Citibank, No. 88-cv-5377, 1991 WL 11695066 (S.D.N.Y. Feb. 14, 1991) ............................................. 10 Statutes, Regulations, and Legislative History 15 U.S.C. 78dd-1 ................................................................................................. 3, 4, 8, 9, 15, 20 15 U.S.C. 78m........................................................................................................................ 3, 26 15 U.S.C. 78t(e) ........................................................................................................................... 3 18 U.S.C. 201 ............................................................................................................................. 22 28 U.S.C. 2462 ....................................................................................................................... 6, 27 17 C.F.R. 240.12b2-1 ................................................................................................................... 3 Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213 (1977)............................................. 10 Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418 (1988) ........................ 10 Rules Fed. R. Civ. P. 12(b)(6)............................................................................................................. 1, 16 Fed. R. Civ. P. 8 ........................................................................................................................ 4, 25 Fed. R. Civ. P. 8(a)(2) ..................................................................................................................... 6
vi
Other Authorities 16 C.J.S. Constitutional Law 187 (2012)................................................................................... 22 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure 1215 (3d ed. 2004 Supp. 2011) ...................................................................................................................... 14 Richard Grime & Sara Zdeb, The Illusory Facilitating Payments Exception: Risks Posed by Ongoing FCPA Enforcement Actions and the U.K. Bribery Act, in 1883 PLI/CORP 377 (2011) ................................................................................................................................. 22 SEC Action Against Baker Hughes Incorporateds Former Chief Financial Officer and Controller Is Concluded, Litig. Rel. No. 18863 (Sept. 1, 2004) .............................................. 27
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I. A.
INTRODUCTION
Nature and Stage of the Proceeding
On February 24, 2012, Plaintiff, the U.S. Securities and Exchange Commission (SEC), filed suit against James J. Ruehlen, a current employee of Noble Corporation (Noble) (Compl. 13), a publicly traded offshore oil and gas drilling contractor with annual revenues of $2.7 billion,1 and against former Noble CEO and CFO Mark A. Jackson (id. 5) and former Noble Director of Internal Audit and Controller Thomas F. ORourke,2 alleging violations of the antibribery and accounting provisions of the Foreign Corrupt Practices Act (FCPA). Mr. Ruehlen waived service of the Complaint on March 9, 2012. B. Issues To Be Ruled upon by the Court
Presently before the Court is Mr. Ruehlens Motion to Dismiss all four claims against him for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6). II. A. Facts3 BACKGROUND
Mr. Ruehlen, a high school graduate who never attended college or received any formal audit, finance, or legal education, entered the oil industry in 1979 as a roustabout, one of the most junior positions in the industry. By September 2004, Mr. Ruehlen had become a mid-level operations manager, who reported to and followed guidance from Nobles senior executives. In
1 Noble Corp., Annual Report, at 2, 27 (Form 10-K) (Feb. 27, 2012). 2 The SECs claims against Mr. ORourke are set forth in a separate, settled complaint. SEC v. ORourke, No. 12-cv-564 (S.D. Tex. Feb. 24, 2012). 3 Because the Court must accept Plaintiffs allegations as true for the limited purpose of this Motion, Mr. Ruehlen discusses them as if they are true. In fact, they are not. Although the background facts set forth in this Section are not challenged by the SEC, to the extent that they are not obvious from the SECs Complaint, this Court need not rely on them in deciding to grant Mr. Ruehlens Motion to Dismiss.
that capacity, the SEC claims, Mr. Ruehlen authorized the payment of special handling charges to a private customs agent to fund payments to Nigerian government officials to secure temporary importation permits (TIPs) and TIP extensions from the Nigerian Customs Service (NCS) to enable Nobles offshore oil rigs to operate in Nigeria pursuant to existing drilling contracts. Nobles subsidiary in Nigeria booked these special handling charges as legitimate operating expenses, i.e., as facilitation payments, in an account dedicated for such payments. On two separate occasions, Mr. Ruehlen raised the propriety of Nobles process for securing TIPs with Nobles senior management. First, in early 2004, he raised the issue to Nobles Director of Internal Audit and understood that management would assess the practice. Second, in May 2007, Mr. Ruehlen re-raised the issue when he learned that another drilling contractor in Nigeria was conducting an internal review of its similar process for securing TIPs. After Mr. Ruehlen sought guidance in May 2007, Noble conducted an internal investigation and self-disclosed its practices to the SEC and U.S. Department of Justice (DOJ).4 In November 2010, following an industry-wide investigation, Noble and six other oil services and freight forwarding companies settled alleged FCPA violations with the SEC without admitting or denying liability.5 Despite the fact that Noble received the least severe penalty of the companies charged by the SEC as a result of this industry-wide investigation, the only action taken by the SEC against individuals are the cases against Mr. Ruehlen, Mr. Jackson, and Mr. ORourke. B. The SECs Complaint
As to Claim 1, the Complaint alleges that Noble, through Mr. Ruehlen, authorized its
4 Noble Press Release, Noble Announces Independent Investigation of Operations in Nigeria (June 4, 2007), http://phx.corporate-ir.net/phoenix.zhtml?c=98046&p=irol-newsArticle&ID=1010656 &highlight=; Complaint 28, SEC v. Noble Corp., No. 10-cv-4336 (S.D. Tex. Nov. 4, 2010). 5 SEC Press Release 2010-214, SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials (Nov. 4, 2010), http://www.sec.gov/news/press/2010/2010-214.htm.
customs agent to pay bribes on Nobles . . . behalf to Nigerian government officials to influence or induce them to grant TIPs based on false paperwork and grant[] extensions to these illicit TIPs to retain business under drilling contracts in Nigeria, in violation of the anti-bribery provisions of the FCPA [15 U.S.C. 78dd-1]. (Compl. 2, 150-52.) Claim 2 alleges that, based on the conduct alleged in Claim 1, Mr. Ruehlen aided and abetted Nobles bribery [15 U.S.C. 78t(e)]. (Compl. 153-56.) As to Claim 3, the Complaint alleges that Mr. Ruehlen aided and abetted Nobles failures to make and keep accurate books, records, and accounts [15 U.S.C. 78m(b)(2)(A)] and to devise and maintain internal accounting controls [15 U.S.C. 78m(b)(2)(B)]. (Compl. 157-63.) Finally, Claim 4 alleges that Mr. Ruehlen knowingly circumvented Nobles internal controls and falsified or caused to be falsified Nobles books, records, and accounts in violations of the accounting provisions of the FCPA and Rule 13b2-1 thereunder [15 U.S.C. 78m(b)(5) and 17 C.F.R. 240.12b2-1]. (Compl. 164-67.) As set forth below, the Complaint fails to state a claim. III. SUMMARY OF ARGUMENT
Despite the repetition of the word bribe fifty-three times in its Complaint, Plaintiff fails to allege a violation of law. The FCPA distinguishes between prohibited corrupt payments made to obtain or retain business (i.e., bribes), 15 U.S.C. 78dd-1(a), and permissible payments to secure the performance of a routine governmental action, such as obtaining permits, licenses, or other official documents or for processing governmental papers (i.e., facilitation payments), 15 U.S.C. 78dd-1(b), (f)(3). The Complaint assumes that all payments to foreign officials are per se illegal bribes, never acknowledging the FCPAs exception for facilitation payments.
The distinction between a permissible facilitation payment and an unlawful bribe turns on the purpose and effect of the payment, namely whether it is being made to induce the recipient to act improperly based on his or her particular role, duties, or responsibilities in order to obtain or retain businessfacts that the SEC must allege to state a claim. Despite investigating this matter for nearly five years, the SEC apparently does not knowand therefore cannot allegethe identity, role, duties, or responsibilities of any Nigerian government officials to whom Noble or Mr. Ruehlen allegedly authorized payments. By failing to identify the particular foreign officials to whom Noble and Mr. Ruehlen allegedly authorized payments, Mr. Ruehlen and this Court are simply left to guess whether the alleged unidentified government officials had the power to assist Noble in obtaining or retaining business by engaging in non-routine governmental action, as the statute requires. Accordingly, the SEC fails to satisfy its burden of pleading plausible facts under Federal Rule of Civil Procedure 8 and Twombly that the payments at issue were prohibited bribes under the FCPA, rather than lawful facilitation payments. Second, without identifying the intended recipients of the alleged payments or alleging facts showing how these officials abused their authority on Nobles behalf, Plaintiff fails to allege that Mr. Ruehlen acted corruptly, that is, with a bad purpose or evil motive, United States v. Kay, 513 F.3d 432, 446 (5th Cir. 2007), or with the intent to influence a foreign official to misuse his official position. Stichting ter Behartiging van de Belangen van Oudaandeelhouders in het Kapitaal van Saybolt Intl v. Schreiber, 327 F.3d 173, 183 (2d Cir. 2003). To the contrary, the Complaint shows that Mr. Ruehlen reasonably believed that the payments were proper because, among other things, they had been reviewed and approved by Nobles senior management who were tasked with ensuring Nobles compliance with the FCPA
and approving facilitation payments. The failure to plausibly allege facts showing corrupt intent provides an independent basis to dismiss the claims against Mr. Ruehlen. Third, to the extent that Plaintiffs first and second claims against Mr. Ruehlen survive these challenges, the Court must nevertheless dismiss them because the law in effect at the time failed to give Mr. Ruehlen fair notice of the interpretation now being advanced by the SEC in this case. In addition, the SECs strained and subjective interpretation of the FCPAs facilitation payment exception makes it impossible for well-intentioned individuals to navigate between lawful and unlawful conduct and, therefore, is unconstitutionally vague as applied to Mr. Ruehlen. Fourth, Claims 3 and 4 must be dismissed because the SEC fails to specify the particular book, record, or account that it claims Mr. Ruehlen knowingly falsified (or unreasonably caused to be false) or the particular internal control that he allegedly knowingly circumvented. Additionally, to the extent that the alleged violations refer to Nobles decision to treat the special handling fees as facilitation payments rather than bribes, these violations are entirely predicated on the underlying FCPA violations alleged in Claims 1 and 2. Finally, this action is governed by the five-year statute of limitations set forth in 28 U.S.C. 2462. Because the claims against Mr. Ruehlen are principally based on alleged conduct that occurred outside the limitations period and because the SEC raises no basis for tolling, they are time-barred and must be dismissed. IV. STANDARD OF REVIEW
Dismissal of a complaint is appropriate when it lacks an allegation regarding a required element necessary to obtain relief. Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995). Although a complaint must contain only a short and plain statement of the claim
showing that the pleader is entitled to relief under Federal Rule of Civil Procedure 8(a)(2), it must fairly apprise the defendant of the precise nature of the claim to enable the defendant to prepare a proper defense. Higginbotham v. Mobil Oil Corp., 302 F. Supp. 857, 861 (E.D. La. 1969), revd on other grounds, 436 F.2d 8 (5th Cir. 1970) (emphasis added); United States v. Classified Parking Sys., 213 F.2d 631, 633 (5th Cir. 1954) ([A] defendant is entitled to know the extent of the claim being made against him, as well as its nature.). Under recent Supreme Court guidance, a plaintiff must provide the plaintiffs grounds for entitlement to reliefincluding factual allegations that when assumed to be true raise a right to relief above the speculative level. Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). That is, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly). And a complaint achieves facial plausibility only when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. at 678-79 (emphasis added). Accordingly, the plaintiff must put forth more than labels and conclusions. Twombly, 550 U.S. at 555; Harvey v. Montgomery Cnty., No. 11-cv-1815, 2012 WL 1551337, at *5 (S.D. Tex. Apr. 30, 2012) (The court should not strain to find inferences favorable to the plaintiffs or accept conclusory allegations, unwarranted deductions, or legal conclusions. (internal quotes and citations omitted)). Moreover, the Court may not assume that a plaintiff can prove facts not alleged. Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 443 (5th Cir. 1986).
V. A.
ARGUMENT
Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allege the Identity of the Involved Foreign Officials in Any Manner and Fails To Distinguish Between Facilitation Payments and Bribes.
The FCPA does not prohibit all payments to foreign officials. Indeed, the statute explicitly exempts from its prohibitions payments to foreign officials to secure routine governmental action, commonly referred to as facilitation payments. See 15 U.S.C. 78dd-1(b), (f)(3). Unlike the FCPAs two affirmative defenses, 15 U.S.C. 78dd-1(c), Congress deliberately chose to treat facilitation payments as an exception to the FCPAs substantive prohibitions, meaning that the Plaintiff bears the burden of pleading and proving that the facilitation payment exception does not apply. See, e.g., United States v. Outler, 659 F.2d 1306, 1309-10 (Former 5th Cir. 1981) (dismissing a criminal conviction against a defendant because the government failed to plead that a statutory exception did not apply, an essential element of the offense), cert. denied, 455 U.S. 950 (1982); United States v. Poly-Carb, Inc., 951 F. Supp. 1518, 1526 n.6 (D. Nev. 1996) (holding that Plaintiff bears the burden of demonstrating that the exclusion does not apply because the exclusion does not appear as one of the [statutory] affirmative defenses). Plaintiffs Complaint fails to distinguish between illegal bribes and legal facilitation payments, as if all payments to officials are unlawful, regardless of their purpose. Moreover, the Complaint fails even to identify which foreign officials received payments, much less their role, duties, or responsibilities. 1. The identity of the foreign official to whom bribes were allegedly made or authorized is an essential element of an FCPA violation.
An essential element[] of a violation of the FCPA is the identity . . . of the officials to whom the suspect payments are made. United States v. Kay, 359 F.3d 738, 760 (5th Cir. 2004) (emphasis added). There are two necessary parties to a violation of the FCPAs anti-bribery
provisions: the [person] paying the bribe and the foreign official accepting it. United States v. Blondek, 741 F. Supp. 116, 117 n.1 (N.D. Tex. 1990), affd and adopted by United States v. Castle, 925 F.2d 831 (5th Cir. 1991). In addition, the facilitation payment exception states that the FCPAs prohibitions shall not apply to any facilitating or expediting payment to a foreign official . . . the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official . . . . See 15 U.S.C. 78dd-1(b). Whether a payment to a particular foreign official is prohibited by the FCPA, therefore, depends on the officials identity, role, duties, and responsibilities, as established by law, based on that officials office or position. See Kay, 359 F.3d at 743. Accordingly, the Fifth Circuit has recognized that the FCPA prohibits only payments that prompt an official to deviate from his official duty.6 Id. at 749 n.40 (emphasis added). A recent U.S. District Court for the Southern District of Texas decision confirms that the SEC must identify the particular foreign official or officials to whom improper payments were allegedly authorized. See No. 09-cr-629 (S.D. Tex. Jan. 16, 2012) (Hughes, J.) (excerpt attached as Exhibit A). In that case, prosecutors alleged that Mr. OShea authorized bribes to Mexican officials through an intermediary. Indictment, at 10, OShea (Nov. 16, 2009). At the close of the governments case-in-chief, Mr. OShea moved for a judgment of acquittal, arguing, in part, that the identity of the Mexican officials that allegedly received the bribes had not been adequately proven, despite the fact that the intermediary who allegedly made the payments was a
6 The FCPA originally excluded from the definition of foreign official those whose duties are essentially ministerial or clerical. Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213 (1977). In 1988, the FCPA was amended by removing the ministerial or clerical language from the definition of foreign official and creating an express exception for facilitation payments made to secure routine governmental action, reflecting Congress choice to preserve the importance of the identity of the foreign official as an element of an FCPA claim. Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418 (1988) (Foreign Corrupt Practices Act Amendments).
cooperating government witness who testified at trial. In response, the prosecution vehemently argued that it had met its burden: [T]he FCPA makes it a crime to authorize. So we dont need to put the money into anybodys pocket. Its not required under the statute. Trial Tr. at 217:1221, OShea (Jan. 16, 2012).7 Judge Hughes rejected this position and granted the Motion for Acquittal noting that [y]ou cant convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the [intermediary] and say, [L]ook, Im going to send you 50 grand, bribe somebody,[] that does not meet the statute. Id. at 227:19-23. The identity of the foreign official was an essential element: While the Government does not have to trace a particular dollar to a particular pocket of a particular official, it has to connect the payment to a particular official . . . who can be identified in some reasonable way, that is, with no reasonable doubt. Id. at 248:18-24 (emphasis added).8 2. All known contested FCPA bribery enforcement actions resulting in liability clearly and specifically identified the foreign officials.
Notably, in all known contested FCPA bribery enforcement actions that resulted in a conviction of an individual defendant, the government has identified the involved foreign officials by name or otherwise with precision. For the Courts convenience, attached as Exhibit B is a list of the nine such criminal FCPA enforcement actions, along with details regarding the allegedly involved foreign officials. Likewise, the sole civil FCPA enforcement action against an individual defendant that has been litigated past a motion to dismiss further proves the point. In SEC v. Mattson, the SEC specifically identified the foreign official as one who demanded a
7 The prosecution reiterated variations of this argument to the court in its opposition, all of which were soundly rejected. See Trial Tr. at 216:16-24; 226:24-227:6; 228:3-9, OShea (Jan. 16, 2012). 8 The government subsequently moved to dismiss all claims against Mr. OShea. See Motion to Dismiss Count(s), OShea (Feb. 9, 2012).
bribe during a series of specific meetings with company intermediaries about a particular tax assessment.9 Compl. 7-8, No. 01-cv-3106 (S.D. Tex. Sept. 11, 2001). Similarly, in private litigation, courts also have required claimants to properly allege the identity of the foreign officials to establish a claim based on the FCPA. In Citicorp International Trading Co. v. Western Oil & Refining Co., 771 F. Supp. 600, 606 (S.D.N.Y. 1991), the court rejected a claim as conclusory and nothing more than bare allegations under Federal Rule of Civil Procedure 8, because the defendant identified the alleged bribe recipients only as officials of foreign governments. Citicorp Intl Trading Co. v. W. Oil & Ref. Co., No. 88-5377, 1991 WL 4502, at *6 (S.D.N.Y. Jan. 16, 1991). The amended counterclaim was held to be sufficiently particular because it identif[ed] . . . the person to whom the bribes were offered. Citicorp, 771 F. Supp. at 606 (emphasis added).10 Here, after nearly five years of extensive investigation conducted with Nobles full cooperation, the SEC still cannot answer the questions that have been answered in every other contested FCPA case to date: To which particular officials were the allegedly improper payments made or authorized? What were their duties or responsibilities as a matter of law? What unlawful actions were they asked to take based on their particular duties? As a result, the Plaintiff has failed to plead adequate facts to enable the Court to draw the plausible inference that
9 Likewise, in SEC v. Benton, a case where the defendant answered the SECs allegations before settling, the SECs complaint alleged that money was paid to a specific Venezuelan official to obtain contract extensions, and that particular official was alleged to have the ability to block contract extensions sought by Bentons employer. Compl. 16-18, No. 09-cv-3963 (S.D. Tex. Dec. 11, 2009). Separately, the complaint also alleged that Mr. Benton authorized payments to a specific Mexican customs official in exchange for lenient treatment on a specific inspection. Id. at 21-23. 10 See Zander v. Citibank, Amended Answer, Amended Counterclaim and Third-Party Complaint, No. 88-cv-5377, 1991 WL 11695066, at 18 (S.D.N.Y. Feb. 14, 1991) (Mr. Horah instructed Mr. Shaw to make unauthorized and illegal payments to Mrs. Abdul-Rahman and other NNPC officials . . . .).
10
any payments allegedly authorized by Mr. Ruehlen to unspecified foreign officials were the kind of payments that even could violate the FCPA. 3. The Complaint fails to identify the foreign officials to whom payments were allegedly authorized.
The Complaint fails to allege that Mr. Ruehlen (or anyone else at Noble) ever made or even authorized any improper payments to any specific foreign officials. Rather, the Complaint references the alleged foreign officials at issue using only the most generic of labels: Nigerian government officials (e.g., Compl. 2), Nigerian officials (e.g., id. 22), government officials (e.g., id. 24-26), foreign government officials (e.g., id. 38), NCS officials (e.g., id. Heading D, at 14), and foreign officials (e.g., id. 49). But a pleading that offers labels . . . will not do. Iqbal, 556 U.S. at 678 (internal quotes omitted). Plaintiffs failure to plead an essential element of an FCPA violation is fatal to its claims. The burden is on the SEC to plead the identityor at least the role, duties, and responsibilitiesof the foreign officials to whom the payments in question were allegedly authorized in order to sufficiently plead that the payments do not fall within the statutes facilitation payment exception. By failing to do so, the SEC has not met its burden to plead whether the unidentified officials engaged in only routine governmental actions, had authority to award business to Noble, or violated their official duties under Nigerian law. Although the identity of the foreign official is an essential element of every FCPA enforcement action, it is paramount in this case because the payments at issue were approved by Nobles senior management (Compl. 83, 85, 88), including the CFO who was responsible for Nobles compliance with the FCPA (id. 9), as lawful facilitation payments to secure routine governmental action. In light of these allegations, nebulous references to unidentified Nigerian government officials are entirely insufficient because they leave Mr. Ruehlen and this Court to
11
guess whether those officials violated their lawful duties or engaged in non-routine governmental action to assist Noble in obtaining or retaining business.11 The SECs failure here is particularly glaring, as it subpoenaed documents and took sworn testimony before filing suit.12 The Complaints complete lack of specific factual allegations identifying the intended recipients of any improper payments or the alleged benefits to Noble severely prejudices Mr. Ruehlens defense by rendering him unable to refute that the alleged payments were unlawful bribes, rather than permissible facilitation payments. Accordingly, Claims 1 and 2 must be dismissed because the SECs failure to identify the alleged foreign official(s) to whom Noble and Mr. Ruehlen allegedly authorized payments in a reasonably specific manner does not enable the Court to draw the reasonable inference that the defendant is liable for the misconduct alleged or to assess whether the SEC has a right to relief above the speculative level. Iqbal, 556 U.S. at 678. Because the Complaint fails to nudge[] [its] claim[] across the line from conceivable to plausible, the Court should dismiss all claims against Mr. Ruehlen. Twombly, 550 U.S. at 570.
11 The Complaint does not allege that the payment of special handling charges had any role in Noble obtaining new drilling contracts in Nigeria. Although the Complaint does allege in conclusory fashion that these illicit payments helped Noble retain[] business under lucrative drilling contracts, obtain[ing] profits from operating rigs in Nigeria, . . . avoid[ing] paying permanent import duties on its rigs . . . avoid[ing] the operational costs of moving its rigs, and avoid[ing] possible breaches of drilling contracts (Compl. 32), the SEC pleads no specific facts to support those conclusions. Further, not all payments that reduce operating costs to increase the profitability of an already-profitable venture satisfy the business nexus element of an FCPA offense. See Kay, 359 F.3d at 759-60. 12 None of the transcripts of testimony taken by the SEC in its investigation, which the SEC recently provided to counsel for Mr. Ruehlen, identify the foreign officials to whom the payments at issue were made or authorized. Although all plaintiffs may be required to perform some pre-[litigation] discovery in order to uncover enough facts to state a claim for relief in light of Twombly and Iqbal, see 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure 1215 (3d ed. 2004 Supp. 2011), courts have particularly held the SEC to its burden in light of its substantial pre-filing investigatory powers. See SEC v. Tambone, 417 F. Supp. 2d 127, 131 (D. Mass. 2006) (considering the fact that the SEC had taken the testimony of at least 23 witnesses and conducted extensive document discovery in dismissing the SECs complaint); SEC v. Yuen, 221 F.R.D. 631, 637 (C.D. Cal. 2004) (dismissing the SECs second amended complaint).
12
B.
Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allege that Mr. Ruehlen Acted Corruptly.
To prove that Mr. Ruehlen violated the anti-bribery provisions of the FCPA, Plaintiff must show that Mr. Ruehlen acted corruptly, 15 U.S.C. 78dd-1(a), meaning that he acted knowingly and dishonestly, with the specific intent to achieve an unlawful result by influencing a foreign officials action in ones own favor. Kay, 513 F.3d at 449 (emphasis added). A defendant does not act corruptly under the FCPA if he does not intend to require the official to misuse his position or breach his duties. Stichting, 327 F.3d at 183. By failing to allege who the foreign officials were, what the scope and bounds of their official duties were under Nigerian law (and what Nigerian laws even apply), and how they breached those duties for Nobles benefit, the Complaint fails to allege that Mr. Ruehlen acted with the evil motive necessary to make out a claim. To the contrary, the Complaint specifically alleges that Mr. Ruehlen sought and followed the advice of Nobles senior management, including those responsible for FCPA compliance. Such conduct negates any inference that Mr. Ruehlen acted corruptly. See Bell v. Bank of Am. Home Loan Servicing LP, No. 11-cv-2085, 2012 WL 568755, at *3 (S.D. Tex. Feb. 21, 2012) (Ellison, J.) (dismissing a complaint in part because certain factual allegations undermine[d] the plaintiffs claims). 1. The Complaint fails to allege corrupt intent because it does not plead facts showing the requirements of Nigerian law and facts showing that Mr. Ruehlen sought to influence Nigerian officials to violate their official duties on Nobles behalf.
As set forth in Section V.A, the SEC fails to identify any Nigerian official or officials and describe how those unidentified officials misused their positions or breached their duties to Nobles benefit, an essential component of the corrupt intent element under the FCPA. Stichting, 327 F.3d at 183.
13
To be sure, the SEC asserts that Nobles process for securing TIPs violated Nigerian law in some way (see, e.g., Compl. 19-22, 54, 128), but the Complaint fails to identify what Nigerian laws and regulations apply, what the applicable requirements are, and what elements must be pleaded to show a violation. As pleaded, the requirements of Nigerian law are posited as mere legal conclusions that fail to establish any factual basis for the proposition that Mr. Ruehlen, Noble, or the alleged foreign officials engaged in conduct that satisfies even a single elementmuch less all of the requisite elementsof an offense under Nigerian law. Absent that, the Court lacks a basis to accept the SECs assertions that the payments at issue were necessarily bribes paid to influence or induce a Nigerian official to violate his or her official duties and that Nobles process for securing TIPs was necessarily illegal under Nigerian law. See Gentilello v. Rege, 627 F.3d 540, 545 (5th Cir. 2010) (affirming dismissal under Rule 12(b)(6) because the complaint failed to substantiate its mere conclusory statements of law by pointing to any ordinance, official policy, state or local law, contract, or other enforceable agreement to support [plaintiffs] claim). By failing to allege the requirements of Nigerian law governing TIPs, the SEC simply cannot identify the sought-after unlawful actions taken or not taken by the foreign official in consideration of the bribes, Kay, 359 F.3d at 760, or show that any Nigerian officials engaged in non-routine governmental action in violation of their official duties. The SEC never explains what roles, duties, or responsibilities were held by the various unidentified Nigerian officials to whom Mr. Ruehlen allegedly authorized payments or which of those officials, if any, had authority or discretion to grant a TIP or TIP extension for rigs currently in Nigerian waters on previously-won drilling contracts. (See Compl. 2, 18, 32.) Absent a plausible factual basis
14
that Noble and Mr. Ruehlen were seeking to secure TIPs through some unlawful means, the Complaint fails to allege corrupt intent and must be dismissed. Although the Complaint repeatedly claims that Noble relied on false paperwork to secure certain TIPs (e.g., id. 2, 27, 45, 68, 101) and concludes that Noble and Mr. Ruehlen must have therefore knowingly violated unspecified Nigerian laws by making corrupt payments (id. 45, 47, 73, 81, 89, 101, 110, 115, 123), the SEC fails to put forth plausible facts suggesting that Nobles process for securing TIPs was illegal, rather than just a legal fiction in Nigerias byzantine law, created and facilitated by NCS officials through licensed customs brokers. Indeed, the facts alleged in the Complaint show that Noble made payments to secure all TIPs and TIP extensions, regardless of whether false paperwork was involved. (See, e.g., Compl. 2, 27, 31, 101 (variously alleging that Noble made payments to officials to secure TIPs based on false paperwork and to obtain TIP extensions).) Moreover, the Complaint makes clear that Nobles licensed customs agent directed the use of false paperwork and prepared the false documentation that supported Nobles TIP applications. (See, e.g., id. 2 (describing Mr. Ruehlen as only assist[ing] the customs agent in preparing false documents) (emphasis added); id. 136 (describing an invoice from a customs agent for charges for preparing false documents showing export of the rigs) (emphasis added).) Absent plausible facts suggesting that Noble sought to secure TIPs in violation of Nigerian law and paid Nigerian officials to misuse their authority, the SEC fails to allege that Mr. Ruehlen acted corruptly and thus fails to state a claim. 2. The SECs allegations that Mr. Ruehlen sought and followed the advice of Nobles senior management negate any inference that he acted corruptly.
Although the Complaint fails to explain the laws governing issuance of TIPs and TIP extensions in Nigeria, it does make one thing clear: Mr. Ruehlen authorized special handling 15
charges to Nobles customs agent to secure TIPs only with the full knowledge and consent of Nobles senior management. For example, the SEC acknowledges that Nobles process for securing TIPs, including through the use of false paperwork, was reviewed and approved by members of Nobles senior management, including its CFO and the Director of Internal Audit (Compl. 83-85, 88), after Mr. Ruehlen raised the issue of their propriety to the Director of Internal Audit and summarized in writing Nobles practice of using false paperwork and paying about $75,000 every two years to the customs agent for false paperwork TIPs (id. 47). In addition, the Complaint alleges that Mr. Ruehlen emailed his direct supervisor, Nobles Vice President of Eastern Hemisphere Operations, to report that Noble decided to resume the use of false paperwork and related payments to government officials to obtain TIPs. (Id. 71.) Further, the Complaint alleges that, over a period of two years, Mr. Ruehlen repeatedly sought and received approval to pay special handling charges to Nobles customs agent from Nobles Vice President of Eastern Hemisphere Operations, Nobles Director of Internal Audit and Controller, at least three different CFOs who were charged with ensuring Nobles FCPA compliance and with reviewing and approving facilitation payments, and another unnamed Noble executive. (See id. 9, 23-24, 60, 71, 82-85, 88, 91, 93-94, 98, 102, 104, 107, 115-16, 123-24, 127.) A subordinates good faith reliance on directions from superiors negates his corrupt intent under the FCPA. See United States v. Liebo, 923 F.2d 1308, 1314 (8th Cir. 1991) (granting defendant a new trial based on newly discovered evidence that the defendants superior had, in fact, authorized all of the allegedly improper payments, thereby providing strong evidence that the defendant acted at his supervisors direction and therefore, did not act corruptly). In other contexts, courts have routinely held that mid-level employees are entitled to reasonably
16
rely on instructions from senior corporate officers with access to legal and accounting experts, even if the approved conduct is later found to be improper. See, e.g., SEC v. Shanahan, 646 F.3d 536, 544-45 (8th Cir. 2011); Howard v. SEC, 376 F.3d 1136, 1146-49 (D.C. Cir. 2004). As the Complaint makes clear, Mr. Ruehlen consistently sought and received approval to pay special handling charges from the members of senior management who were specifically tasked with determining whether facilitation payments were proper under the FCPA. This strongly negates any inference of corrupt intent. C. Claims 1 and 2 Must Be Dismissed Because the FCPAs Facilitation Payment Exception Is Unconstitutionally Vague as Applied to Mr. Ruehlen.
As set forth above, the FCPA specifically allows facilitation payments to foreign officials to obtain permits. 15 U.S.C. 78dd-1(b), (f)(3). And Mr. Ruehlen, relying on Nobles senior management, clearly believed that payments for TIPs fell within this exception. At the time of his actions, the law did not give him fair notice to the contrary. The SECs subjective interpretation of the FCPA, as set forth in the Complaint, is not based on any published rule much less one developed through notice and commentand is therefore plagued with uncertainty and fails to provide fair warning regarding which payments are legal facilitation payments and which payments are illegal bribes. Accordingly, the anti-bribery provisions of the FCPA are unconstitutionally vague as applied to Mr. Ruehlen, and the claims against him must be dismissed. A statute that is ambiguous or that fails to give fair notice of its clear meaning cannot support punitive governmental action. See, e.g., United States v. Lanier, 520 U.S. 259, 266-67 (1997) (holding that the vagueness doctrine bars enforcement of a statute which . . . forbids . . . an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application and noting that the touchstone of fair warning is whether it was
17
reasonably clear at the relevant time that a defendants conduct was prohibited by the statute (internal quotes omitted)); Okpalobi v. Foster, 190 F.3d 337, 357 (5th Cir. 1999) (applying the vagueness doctrine in a civil case). That is, when the government fails to give fair notice in advance of its interpretation of a vague or ambiguous regulation, the government cannot punish those who follow a different, reasonable interpretation for violations occurring before the government made its interpretation clear. See, e.g., United States v. Hoechst Celanese Corp., 128 F.3d 216, 225-27 (4th Cir. 1997) (holding that no penalty can be imposed if the defendant had reason to believe based on the facts as they appear to [the defendant,] not to the [agency], that the defendants interpretation of the regulation was accurate, and vacating penalties imposed before the EPA clarified its interpretation of the regulation at issue because the plain language of the regulation did not clearly give advance notice of the agencys interpretation). Courts have repeatedly rejected prosecutions over laws less ambiguous than the FCPA. See, e.g., Diamond Roofing Co. v. OSHRC, 528 F.2d 645, 648 (5th Cir. 1976) (holding that a regulation requiring railings on open-sided floors was too ambiguous to support a penalty for unprotected roofs); Gen. Elec. Co. v. EPA, 53 F.3d 1324, 1331 (D.C. Cir. 1995) (barring a civil penalty because EPAs interpretation of the Toxic Substances Control Act was not ascertainably certain from the regulation and did not provide fair notice); Gates & Fox Co. v. OSHRC, 790 F.2d 154, 157-58 (D.C. Cir. 1986) (vacating penalty where company interpreted a regulation requiring safety equipment in areas where employees might be trapped by smoke or gas as applying only to certain areas because of the lack of fair warning of a contrary interpretation); see also United States v. Manapat, 928 F.2d 1097, 1101 (11th Cir. 1991) (affirming dismissal of
18
a false statements indictment arising from an inaccurate written response to a fundamentally ambiguous question on a form). An as-applied vagueness challenge to the constitutionality of a statute is evaluated considering how it operates in practice against the particular litigant. 16 C.J.S. Constitutional Law 187 (2012). There can be no dispute here that (a) the facilitation payment exception specifies no monetary threshold above which payments are per se improper, (b) there is no analogous exception in the domestic bribery statute (18 U.S.C. 201), (c) the courts have not squarely confronted application of the facilitation payment exception, and (d) there is no clear, published guidance as to what the words of the exception mean and what the limits, if any, are. See Richard Grime & Sara Zdeb, The Illusory Facilitating Payments Exception: Risks Posed by Ongoing FCPA Enforcement Actions and the U.K. Bribery Act, in 1883 PLI/CORP 377 (2011).13 Indeterminate on its face, the SECs interpretation is even less determinate in application. Here, the SEC alleges that payments for TIPs are unlawful bribes and not facilitation payments, even though the FCPA lists payments made to obtain permits as among those covered by the facilitation payment exception. Nothing in the Complaint shows that Mr. Ruehlen (or any other reasonable person) could have known that any payments were intended for specific officials with particular discretionary authority to award Noble business or approve or deny
13 See also Organization for Economic Co-operation and Development (OECD), United States: Phase 2 Report On Application Of The Convention On Combating Bribery Of Foreign Public Officials In International Business Transactions And The 1997 Recommendation On Combatting Bribery In International Business Transactions, 114-15 (Oct. 2002), http://www.oecd.org/dataoecd/52/19/1962084.pdf. The OECD reviews the anti-bribery laws of signatory countries to its anti-bribery convention, including the United States. As far back as 2002, the OECD recommended that the United States issue guidance to explain the tests it applies in practice to assist in the interpretation of this exception or amend the statute to clarify whether only minor payments are allowable. Id. 116, Commentary.
19
Nobles TIP applications, rather than permissible facilitation payments to induce those officials to discharge their ordinary responsibilities.14 Thus, there is no discerniblemuch less clearly definedreason why the facilitation payment exception does not apply here. Grayned v. City of Rockford, 408 U.S. 104, 108-09 (1972). Moreover, the SEC concedes that Mr. Ruehlen acted at the direction of the members of Nobles senior management, who were specifically tasked with ensuring FCPA compliance and who approved the payment of special handling charges in connection with TIPs, and booked those payments accordingly as facilitation payments. (See, e.g., Compl. 23-24, 60, 71, 79, 82-88, 103, 107, 111, 113-15, 120-21, 124, 129.)15 Under these circumstances, Mr. Ruehlen could not possibly have foreseen that, years later, the SEC would allege that his authorization of payments at managements behest constituted unlawful bribery. The uncertain sweep of Plaintiffs position in this case renders the FCPA, as applied to Mr. Ruehlen, unconstitutionally vague. See Reno v. ACLU, 521 U.S. 844, 873 (1997). And, even if the SECs interpretation is reasonable, Mr. Ruehlen cannot be punished for failing to anticipate that view before 2007. See, e.g., Hoechst Celanese Corp., 128 F.3d at 225-27. The SECs contention that Mr. Ruehlen must have known that the payments were impermissibly largeand therefore illegalis equally problematic. (See, e.g., Compl. 44, 91, 123.) First, the statute does not distinguish between bribes as large and facilitation
14 The SEC recognized this precise point when it stated, The facilitating payments identified in the statute are thus payments for official actions . . . all of which likely would not directly result in the acquisition or renewal of a specific piece of business. Brief of the SEC as Amicus Curiae Supporting Appellant, at 15, United States v. Kay, 359 F.3d 738 (2004) (No. 02-cr-20588), 2002 WL 32507955. 15 The Complaint makes clear that other drilling contractors in Nigeria engaged in the same practices (Compl. 85), further reinforcing the general belief that these payments were legal. Indeed, when considering an asapplied challenge, a court must consider the context in which the regulation was enforced, i.e., it must evaluate the underlying conduct by reference to the norms of the subject community. Inturri v. City of Hartford, 365 F. Supp. 2d 240, 254-55 (D. Conn. 2005) (quoting Perez v. Hoblock, 368 F.3d 166, 175-76 (2d Cir. 2004)) (emphasis added).
20
payments as small. Moreover, there is nothing intrinsically large about facilitation payments of approximately $37,500 each year (id. 47), particularly in the context of Nobles extensive operations in Nigeria alleged in the Complaint (e.g., id. 1-2, 18). The law provides no guidance regarding whether a particular payment is too large or small enough and, thus, whether individuals like Mr. Ruehlen will be subjected to severe sanctions and potentially career-ending enforcement actions. Unbounded largeness fail[s] to provide explicit standards for those who enforce the laws and impermissibly invests law enforcement officers with onthe-spot legislative power, which results in ad hoc and subjective . . . applications of the law, as the instant case ably demonstrates. Okpalobi, 190 F.3d at 358 (internal quotes omitted). It also fails to enable well-meaning and well-intentioned individuals to steer between lawful and unlawful conducta central value that is protected by the void for vagueness doctrine. Grayned, 408 U.S. at 108-09. Accordingly, the Complaint should be dismissed on vagueness grounds as applied to Mr. Ruehlen. D. Claims 3 and 4 Must Be Dismissed Because the SEC Fails To Identify the False Book, Record, or Account, or the Circumvented Control, and Because Any Alleged Violations Are Derivative of the Underlying Bribery Allegations.
Claims 3 and 4 allege general violations of the FCPAs accounting provisions, but fail to identify which of Nobles books, records, or accounts were allegedly false and which specific internal accounting controls were allegedly circumvented. (Compl. 157-67.) These shortcomings require that Claims 3 and 4 be dismissed for failure to state a claim. Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (setting forth requirements of Federal Rule of Civil Procedure 8 under Twombly); see also SEC v. Fraser, No. 09-cv-443, 2010 WL 5776401, at *9 (D. Ariz. Jan. 28 2010) (noting that [m]ultiple district courts have commented upon the unhelpfulness of [the shotgun] pleading strategy . . . and have dismissed SEC complaints because of it). Moreover, to the extent that one can infer the alleged violations of the FCPAs 21
accounting provisions from the Complaint, those violations appear to be completely predicated on the allegations in Claims 1 and 2 that Nobles authorization of special handling fees were illegal bribes and not lawful facilitation payments. Given that Claims 1 and 2 fail to state a cause of action against Mr. Ruehlen, Claims 3 and 4 fail to do so as well and must be dismissed. The SECs books-and-records allegations turn on the view that the special handling payments did not fund facilitation payments, but rather funded impermissible bribes. Thus, the SEC apparently alleges, by booking these payments as legitimate operating expenses on Nobles books (Compl. 3) (i.e., as facilitation payments in a dedicated account), Nobles books were somehow false. Because Plaintiff has failed to plead the identity of any foreign officials and does not meet its burden of alleging that the payments were not facilitation payments, it likewise fails to allege that Nobles books and records were false. Separately, these claims should be dismissed because the Complaint fails to allege that Mr. Ruehlen had any role in deciding how the special handling charges should be recorded in Nobles books, records, and accounts. With respect to the internal controls claims, the Complaint alleges only that Jackson failed to implement [the requisite] internal accounting controls. (Compl. 3.) To the extent that the claims are premised on allegations that Mr. Ruehlen repeatedly prepared and signed quarterly representation letters to Nobles upper management, stating that Noble had not violated the FCPA, while knowing that Noble was paying bribes to government officials to obtain illicit TIPs (id. 141), those claims are derivative of Claims 1 and 2, and the SECs failure to establish that Noble paid bribes defeats any assertion that Mr. Ruehlen circumvented
22
Nobles internal controls.16 See SEC v. Coffman, No. 06-cv-00088, 2007 U.S. Dist. LEXIS 61,347, at *41-44 (D. Colo. Aug. 21, 2007) (stating that the SECs failure to prove an underlying securities law violation requires its accounting claims to fail); United States v. Lake, 472 F.3d 1247, 1262-63 (10th Cir. 2007) (dismissing section 13(b)(5) charges after holding that the government failed to prove an underlying violation of the securities laws); cf. SEC Action Against Baker Hughes Incorporateds Former Chief Financial Officer and Controller Is Concluded, Litig. Rel. No. 18863 (Sept. 1, 2004) (reporting that on joint motion of the parties, the court dismissed the Commissions remaining books and records and internal controls claims with prejudice following dismissal of FCPA anti-bribery claims). E. Plaintiffs Claims and Supporting Allegations Must Be Dismissed Because They Rely on Untimely Allegations that Fall Outside the Statute of Limitations.
An SEC claim for civil penalties is governed by the five-year statute of limitations applicable to civil actions. See 28 U.S.C. 2462; see also SEC v. Microtune, Inc., 783 F. Supp. 2d 867, 873 (N.D. Tex. 2011), appeal docketed, No. 11-10594 (5th Cir. June 21, 2011) (noting that the SEC and defendants agreed that Section 2462 applies to the SECs claims for civil penalties). In the Fifth Circuit, the claim accrues on the date of the violation. Microtune, 783 F. Supp. 2d. at 873; United States v. Core Labs., Inc., 759 F.2d 480, 482 (5th Cir. 1985). Therefore, conduct occurring before February 24, 2007, i.e., more than five years prior to the date this lawsuit was filed, is time-barred.
16 Moreover, internal controls are designed to assure that transactions are made in accordance with managements authorization and recorded in a manner that ensures Nobles financial statements comply with generally accepted accounting principles (GAAP). See 15 U.S.C. 78m(b)(2)(B). Plaintiff does not allege that Nobles financial statements were materially inaccurate, inconsistent with GAAP, or would have differed had Noble recorded the payments as bribes, rather than as facilitation payments. Instead, the Complaint makes clear that Mr. Ruehlen consistently sought and received authorization from Nobles CFOs to pay special handling charges to Nobles customs agents to secure TIPs, confirming that Nobles assets were used and recorded as management directed.
23
Here, the vast majority of the allegedly unlawful conduct occurred before February 24, 2007 (see Compl. 18, 23-125, 138-41), and each of the four claims applicable to Mr. Ruehlen incorporates and is premised upon time-barred allegations. Because the Complaint fails to raise any basis for tolling of the statute of limitations,17 the Court should dismiss with prejudice any claims predicated on conduct allegedly occurring before the statute of limitations date. See, e.g., Se. Banking Corp., 69 F.3d 1539, 1548 (11th Cir. 1995) (affirming the dismissal of portions of the complaint . . . [in part because] some of the allegations are barred by the statute of limitations) (emphasis added); Abramo v. Teal, Becker & Chiaramonte, No. 09-cv-269, Memorandum Decision and Order, at 24 (N.D.N.Y. May 12, 2010) (dismissing with prejudice that portion of plaintiffs first complaint predicated on defendants conduct prior to the statute of limitations date); see also, e.g., Kellogg v. N.Y. State Dept of Corr. Servs., No. 07-cv-2804, 2009 WL 2058560, at *1-2 (S.D.N.Y. July 15, 2009) (same). Given that the Complaint also seeks injunctive relief, the SEC may argue that the alleged conduct that occurred years outside the statute of limitations is relevant. That argument fails. As an initial matter, the SEC has completely failed to plead facts suggesting that injunctive relief is necessary because of a reasonable likelihood that Mr. Ruehlen is engaged or about to engage in practices that violate the federal securities laws. SEC v. First Fin. Grp. of Tex., 645 F.2d 429, 434 (5th Cir. 1981); SEC v. Jones, 476 F. Supp. 2d 374, 383-84 (S.D.N.Y. 2007) (requiring
17 Although Mr. Ruehlen did sign several tolling agreements with the SEC, the vast majority of the alleged conduct is time-barred regardless. Because the SEC failed to plead the existence of those agreements in its Complaint, however, their existence ought not be considered for purposes of this Motion to Dismiss. See, e.g., Solis v. Bruister, No. 10-cv-00077, 2012 WL 776028, at *2-4 (S.D. Miss. Mar. 8, 2012) (dismissing plaintiffs complaint and directing plaintiff to file an amended complaint that makes specific reference to the tolling agreements). Nor has the SEC alleged any facts that would give rise to tolling based on the doctrine of fraudulent concealment. Microtune, 783 F. Supp. 2d. at 875; see also SEC v. Brown, 740 F. Supp. 2d 148, 158 (D.D.C. 2010) (quoting Larson v. Northrop Corp., 21 F.3d 1164, 1173 (D.C. Cir. 1994)); Summer v. Land & Leisure, Inc., 664 F.2d 965, 970-71 (Former 5th Cir. 1981) (setting forth the standards for pleading fraudulent concealment).
24
the SEC to go beyond the mere facts of past violations and demonstrate a realistic likelihood of recurrence). Given that Mr. Ruehlens alleged actions took place more than five years ago and that the Complaint alleges that Mr. Ruehlen is a current Noble employee (who is therefore bound by Nobles existing consent injunction),18 the Complaint alleges no facts upon which the Court could grant the SEC the relief it seeks. VI. CONCLUSION
For the foregoing reasons, Plaintiffs Complaint against Mr. Ruehlen fails to state a claim, and the Court should dismiss Claims 1-4 against Mr. Ruehlen in their entirety. DATED this 8th day of May, 2012. Respectfully submitted,
/s/
F. JOSEPH WARIN JOHN H. STURC BRIAN C. BALDRATE GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, District of Columbia 20036 Telephone: (202) 955-8500 Facsimile: (202) 467-0539 Counsel for Defendant James J. Ruehlen Of Counsel: DAVID GERGER GERGER & CLARKE 1001 Fannin, Suite 1950 Houston, Texas 77002 Telephone: (713) 224-4400 Facsimile: (713) 224-5153
18 On November 12, 2010, Judge Rosenthal issued a final judgment in which Noble consented to being enjoined against violations of the FCPA and to other remedies. See SEC v. Noble Corp., No. 10-cv-4336 (S.D. Tex. Nov. 4, 2010); accord Complaint 21, SEC v. ORourke, 12-cv-564 (S.D. Tex. Feb. 24, 2012).
25
CERTIFICATE OF SERVICE I hereby certify that on the 8th day of May, 2012, I will electronically file the foregoing with the Clerk of Court using the CM/ECF system, which will then send a notification of such filing (NEF) to the following: Kenneth W. Donnelly Assistant Chief Litigation Counsel Division of Enforcement, Trial Unit U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-5949 DonnellyK@SEC.GOV Counsel for Plaintiff Securities and Exchange Commission David S. Krakoff BuckleySandler LLP 1250 24th Street, N.W. Washington, D.C. 20037 dkrakoff@buckleysandler.com Counsel for Defendant Mark A. Jackson
/s/ Brian C. Baldrate
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
Securities and Exchange Commission, Plaintiff, v. Mark A. Jackson et al., Defendants. Civil Action No. 4:12-cv-00563
[PROPOSED] ORDER Upon consideration of Defendant James J. Ruehlens Motion to Dismiss Plaintiffs Complaint for Failure to State a Claim and the response(s) thereto, it is hereby ORDERED that the motion is GRANTED, and the Complaint against Mr. Ruehlen is hereby DISMISSED. IT IS SO ORDERED on this ____ day of ___________, 2012.
___________________________________ KEITH P. ELLISON UNITED STATES DISTRICT JUDGE
Case 4:12-cv-00563 Document 36-1
EXHIBIT A
THE UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION * * * * * UNITED STATES OF AMERICA Versus JOHN JOSEPH O'SHEA * * * * * * * * * * JURY TRIAL (DAY 4) BEFORE THE HONORABLE LYNN N. HUGHES UNITED STATES DISTRICT JUDGE * * * * * CRIMINAL NO. H-09-629 Houston, Texas 9:00 a.m. January 16, 2012
Proceedings recorded by computer stenography Produced by computer-aided transcription
Edward L. Reed
United States Court Reporter 515 Rusk, Suite 8016 Houston, Texas 77002 * 713-250-5594
2 1 2 3 4 5 6 7 8 9 10 11 12 13 Court Reporter: 14 15 16 17 18 19 20 21 22 23 24 25 EDWARD L. REED, CSR 515 Rusk, Suite 8016 Houston, Texas 77002 MR. CHARLES E. DUROSS MS. NICOLA J. MRAZEK U.S. Department of Justice Criminal Division 1400 New York Ave., NW Washington, DC 20005 For the Defendant: MR. JOEL M. ANDROPHY MS. SARAH M. FRAZIER MS. ASHLEY L. GARGOUR Berg & Androphy 3704 Travis Houston, Texas 77002 APPEARANCES: For the United States of America: MR. JASON S. VARNADO Assistant United States Attorney 919 Milam, Suite 1500 Houston, Texas 77002
3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7. 6. 5. GOVERNMENT WITNESSES: 4. Charles Calland (Continued) Cross Examination by Ms. Frazier...... Redirect Examination by Mr. Duross.... Francisco Forn Direct Examination by Mr. Duross...... Cross Examination by Ms. Frazier...... Rudolph J. Trabanino Direct Examination by Mr. Varnado..... Cross-Examination by Ms. Gargour...... Redirect Examination by Mr. Varnado... Agent Lisa Diemert Direct Examination by Mr. Varnado..... 46 32 42 43 13 30 4 11 I N D E X
Cross-Examination by Mr. Androphy..... 142 Redirect Examination by Mr. Varnado... 199 Government rests............................... 209 Defendant's Motion for Acquittal............... 209 Government's response.......................... 225 Court's ruling................................. 248
209 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 minutes. rests. THE COURT: Mr. Androphy. We have something to take up you. THE WITNESS: THE COURT: MR. VARNADO: Thank you. Call your next witness, please. Your Honor, the United States he pretended it was a lot of fun and they couldn't help him. We've all heard of that. Are you going to return to the table? THE WITNESS: THE COURT: If you'll let me. I think we're through beating on
MR. ANDROPHY: with the Court. THE COURT:
We'll take, it will probably be 30 Y'all may go
We have some paperwork to do.
relax as best you can. [Recess] THE COURT: Mr. Androphy. Just tell me what
Now, don't get excited. you want me to know. MR. ANDROPHY:
I'll go through the counts first
and then through some generalized statements. Counts 8 and 11, two things, Judge. As
the Court knows, the only evidence in the case is the CFE investigation in evidence that Obras did the work.
210 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 12. Even if they didn't do the work, there is no connection to any CFE officials. Therefore, Count 8 and 11 could There is no evidence
not survive at this juncture. whatsoever beyond this stage. THE COURT:
Technically, the equal signs have
to be parallel to the floor. MR. ANDROPHY: THE COURT: Not when you write like this. All right.
That's three slashes.
MR. ANDROPHY:
On the Sorvill, that's 9 and
Again, the only evidence in the record with regard
to Sorvill's -- now, granted, Jr. said that nothing had been done, but a reasonable-minded jury cannot support a verdict on Jr's testimony alone. corroboration for what he says. And there is no
The evidence in Defense There was
Exhibit No. 23 is that Sorvill did the work.
an internal investigation and then the investigative report, they contacted people at Sorvill and they verified that the invoices were correct. And more
importantly, they were legitimate invoices, that the work was actually done. And even if you somehow get to Nestor Moreno for the military school, the Government has already made claim that in the Lindsey case, the same dollars for the same alleged bribe. And a
reasonable-minded jury could not support a verdict of
211 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Moreno? MR. DUROSS: THE COURT: I believe it is, Your Honor. I wasn't tempted before, but I'm guilty based upon counts attributed to others in another matter. THE COURT: I guess 9, I guess the problem I'm
having is you have 218,000 going into Sorvill and we don't know what else. military school. And then 24,000 going to the
Working from the military school That $24,000 can
upstream to O'Shea, it is speculation. be any $24,000.
Is this a post-hair plug picture of
certainly not afterwards? All right. MR. ANDROPHY: sort of summarizes. direction to CFE. And this chart here, Judge, just
This is Demo 16 that Obras -- no And of the 268 wires here, the 29,5 I've not addressed yet
goes to the military school. Mr. O'Shea's knowledge.
The Court mentioned that, but
the only testimony by anybody so far with regard to Mr. O'Shea and what he allegedly knew or not comes from Nestor Moreno, Jr. THE COURT: You mean Fernando Basurto, Jr.? I'm sorry, Fernando, Jr. Little Nestor is not out of
MR. ANDROPHY: JTHE COURT:
212 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 counts. school yet. MR. ANDROPHY: Fernando, Jr. And that's the
only attribution they have to Mr. O'Shea's alleged knowledge of anything here or whether or not -- but there is no knowledge by Mr. O'Shea or no testimony that he knew that somehow Nestor would get compensated in this manner. With regard to Counts 2 through 7, these are the -- it's clear right off the bat that 4 and 7 don't go anywhere beside the Basurtos. They stop there.
But the Government is basically taking six And if you even look at the records and believe
the records of the transfer, there is no testimony that other than the fact that Lizarraga sent money to Nestor Moreno, if Lizarraga is not a CFE official and that's his father-in-law in the transaction, well, it's beyond speculation that this transaction here would have had any connection to ABB paying the Basurtos for the work done on the case. and bounds -THE COURT: Who then pay Chelala, and there is So the Government has to take leaps
no connection of Chelala to CFE, other than a disbursement to the son-in-law of Nestor Moreno; right? MR. ANDROPHY: And then from Nestor Moreno for Just too attenuated for a
the hair plugs for Moreno.
213 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reasonable-minded jury to support a verdict, especially Mr. O'Shea's knowledge because -THE COURT: Even if you assume the $27,000 is a
bribe and the alternate sources of funds for -- how do you say his name? MR. ANDROPHY: THE COURT: discounted. MR. ANDROPHY: And then because this is the Lizarraga.
Lizarraga have is not been
type of case, the Foreign Corrupt Practices, where someone has to act at the highest level of criminal intent in terms of the knowing, willingly and in that regard, that further attenuates the connection and the criminal responsibility for Mr. O'Shea. But they have tried to take six counts and the money ending up here is less than even one of the counts, which is further evidence of the Government's just attempt to try anything to make a connection to ABB through Mr. Moreno. Again, but as the counts show here and as the tracing shows, we have Basurto, Chelala and Lizarraga, none of those people are CFE people in the transaction. I didn't even argue this at this point, Judge, and I'm not sure, but we have a relationship
214 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 between Nestor Moreno and Lizarraga. You know, there is
a lot of people in Mexico potentially by the name of Nestor Moreno, I don't know. And whether it's the same
relationship or not, same name, but there is no evidence from any source. THE COURT: There is a marriage certificate And if you
that seems to have all the same names in it.
were going to do that, Moreno would tell them to use somebody and somebody with the same name as the son-in-law. It's not uncommon for families to work
together, especially in Mexico. MR. ANDROPHY: And it's not uncommon for
families to have financial relationships with each other. That's not criminal. THE COURT: I'm going to take that exhibit and
show it to my son-in-law. MR. ANDROPHY: With regard to Count 10, we have We have
the same Basurto family, Chelala, Lizarraga.
Rovira here, but he's not a CFE person, Leonardo. Lizarraga is not. And then we have two and a half
months later -- two months later, buying the trip, perhaps three months later going on a trip with his father-in-law as the only connection between Mr. O'Shea and any allegations of a bribe. THE COURT: All right. And Leonardo Rovira is
215 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 just -THE COURT: No, I understand. I just wanted to the son-in-law of Nestor Moreno's chief of staff? MR. ANDROPHY: MR. DUROSS: MR. ANDROPHY: THE COURT: Carlos Rovira, yes. His brother. Brother, Your Honor.
Brother. But if he gets paid, they can't
MR. ANDROPHY:
make sure I had the right CFE people. MR. ANDROPHY: And then finally, on Count 13, It doesn't go any
it just stops at Lizarraga Here. further. THE COURT:
Half of it stays with Chelala? Yes.
MR. ANDROPHY: THE COURT:
And Basurtos have a 25 percent
handling charge, so that accounts for the diminution of theirs, but there is no accounting for Chelala getting 50 percent of the remainder. half percent of the whole? All right. On Exhibit 23 we have an arrow That's Would that be 37 and a
that goes from Lizarraga to Moreno for $44,000. the hair plug, plus the trip to France.
And the Ramon And --
Benitez $10,000, that's an uncharged account. which count is the $20,000 to Carlos Rovira? MR. ANDROPHY:
It's not a count, Judge.
216 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. DUROSS: It's an overt act, Your Honor. I think it was a
$20,000 outside the Container Store. series of cash withdrawals. it. MR. ANDROPHY: substantive charge. MR. DUROSS:
Basurto Jr. testified to
But it's not part of the
That's correct, it's not one of
the Counts 2 through 13 that is currently being presented to the jury, but it is part of Count 1 as an overt act. THE COURT: All right. And these two question
marks on Exhibit 23, Demonstrative 23 from Obras, one from Sorvill and one from Obras, I take it neither of those is part of the substantive count? MR. ANDROPHY: MR. DUROSS: They are. Well, that part of the
transaction -- I mean, it's this side of the transaction that's being charged. But where the money ultimately --
whose bank account it actually ends up into, I believe Agent Diemert said she didn't know because we couldn't get the bank records from Mexico. But the other
evidence, whether it be testimony or evidence that's in documentary form, we believe leads one to the reasonable conclusion that it was going to CFE officials. THE COURT: So that question mark on the
217 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Evergreen money flow are the counts to the CFE officials, 8 and 11? MR. DUROSS: mark, Your Honor. dollar signs. THE COURT: I know it has dollar signs, but Otherwise, it would have I don't think it's a question It has
We didn't publish this one.
there are question marks.
precise dollar amounts, wouldn't it? MR. DUROSS: Well, I guess, Your Honor, what we
were trying to do was to indicate that moneys were going into the Obras account, which was part of the scheme, but we do not have the information on the back end showing whose pocket it went into. interrupt Mr. Androphy. And I don't want to
The one thing that I would
mention to the Court that I think is important -- and by the way, I know exactly why Mr. Androphy would be starting at the back end over here, but I think what's important as we walk through this, Your Honor, is that the FCPA makes it a crime to authorize. So we don't It's not
need to put the money into anybody's pocket. required under the statute.
Now, I think we've done
that in many instances, but when I have a chance to speak, I want to talk about that side. THE COURT: All right. So -- all right, in 8
and 11, why does this chart say there was $327,000 that
218 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 went out minutes later? MR. ANDROPHY: Because the record they had
showed that the Obras account had coming money coming in and then it had money going out and it looked like to this BC Electric. That was the question I was asking
the agent and she said she didn't know. THE COURT: All but about four of them are
something like BC Electric. MR. ANDROPHY: And no investigation was done,
so there was no evidence of any ultimate recipient. THE COURT: All right.
So, out of all of these, the only money that can be traced to Nestor Moreno is the payment for his son's tuition? MR. DUROSS: THE COURT: MR. DUROSS: THE COURT: Hair plugs, Your Honor, I think. Well, no, that's directly. I'm sorry, I didn't -Somebody paying your son-in-law
and then your son-in-law's payment is not directly. MR. DUROSS: Frankly, I don't think any of
these payments are actually direct, except for the cash -THE COURT: is direct. MR. DUROSS: Right, but even that didn't go Paying a bill at your son's school
219 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 accounts. worker. MR. DUROSS: THE COURT: Not if you're Nestor Moreno. And that would be true in, They ought directly from the school to ABB. these are direct. THE COURT: If you pay somebody's bill My point is none of
somewhere, that's a direct payment to them. MR. VARNADO: Your Honor, I apologize. With
respect to the hair plug transaction, I guess we're calling it, Gilberto Lizarraga simply did not have the money to write that $27,000 check but for the deposit -THE COURT: MR. VARNADO: fact, use. THE COURT: I've got a couple of empty In that account. In that account.
And that's the account he did, in
My main one -- it's hard being a Government
unfortunately, a great number of countries.
to be able to start paying the people like border guards our half of them and triple the salary of the rest. A
policeman can't support his family, barely support his family on what he's getting paid. something. All right, go ahead. MR. ANDROPHY: Judge, also, as an overall, the He's got to do
evidence showed that the Sorvill contract was the
220 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 initial arrangement between ABB and ESIMEX and CFE. The
Evergreen contract was a contract that was upgrading the system. Some maintenance, some upgrading. If the law is that payments to reward for past acts is not illegal, it's our position that the bribes, if there were bribes in this case related to SITRACEN -- I may have said Sorvill -- I meant SITRACEN. Evergreen was an upgrade. Evergreen -- you know, I
asked Basurto Jr. whether or not they were going to be locked into this thing, and he says, yeah, because -- he may not have used the words directly yeah, but he agreed that SITRACEN was an expensive arrangement involving specialized software, a lot of training. bid. ABB got the Evergreen bid. It was a close
But there is no
testimony in this case that it wasn't feasible -- that it would have been more feasible to go somewheres else. The only testimony in this case was that it was almost a guarantee that you got Sorvill, you were going to get Evergreen. Otherwise, it was going to cost tens of
millions of dollars more. So our theory here is that if a bribe was paid, it was paid to get business from Sorvill, because Evergreen -- the charge in this case was Evergreen, there was nothing needed to get business in Evergreen. They had the business. They didn't need to retain the
221 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 business. They didn't need to do anything to retain the
business because they were locked into the SITRACEN contract. And if this was a payment here to say thank
you guys and just a reward for past acts, it doesn't rise to the level of an FCPA violation. And then finally -- and I believe Mr. Basurto even said that by the contract -- he said it in his 302 and I asked him. By the contract alone, we So no
were going to get this arrangement.
reasonably-minded jury would have believed that it would have taken -- sure, may have been paid more, but no reasonable-minded jury would believe that it was needed, other than, you know, just a good will for, you know, the relationships that they had. for a past act. And finally, Judge, the issue about foreign official, the law, as the Court knows, is that a criminal statute, which forbids an act in terms so vague that one must guess to its meaning and differ as to its application violates due process. We are listening to And again, more money
expert testimony, who experts cannot agree on whether or not CFE is a foreign official or an instrumentality of a foreign government. The problem we have in this case is that Mr. O'Shea is being held criminally responsible for
222 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 allegedly engineering something involving CFE as a foreign official, when it's not clear from the record, how does an individual in the United States of America -he shouldn't have to guess -- he should not have to guess as to the meaning of who CFE is. You know, we
don't allow arbitrary and discriminatory enforcement of our laws. How can Mr. O'Shea, when dealing with this,
even if he's doing something incorrect, how can he knowingly, willfully act and have knowledge that the CFE -- it's not a foreign government. If you're dealing
with the country of Mexico, that may be one thing. We're dealing with an electricity company. How can
Mr. O'Shea be held to a standard of knowledge to subject him to a criminal indictment and a conviction for a matter that the experts can't even agree on with regard to whether or not CFE operates in a commercial setting more than a governmental setting. You know, I was listening to all the evidence in the case and I'm thinking how much is enough? Is it 10 percent, 20 percent, the competition?
How much is enough to rise to the level of an individual being held criminally responsible? It's sort of like
we're trying to figure out here the status of CFE, but hold Mr. O'Shea responsible, based upon our evaluation today, when it was never presented to the Grand Jury in
223 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this case. on CFE. The Grand Jury never had any thought process
It was sort of taken for granted that CFE was a The Government would
foreign official in this case.
have put on no evidence if we didn't designate our expert on this issue. Everything has been taken for
granted on foreign official -THE COURT: transcript? MR. ANDROPHY: I've only gotten -- I may have Have you read the Grand Jury
gotten something on the Grand Jury, but I didn't get the full Grand Jury. I may have gotten an agent's testimony I didn't get the full
in the Grand Jury and that's it. extent of what was presented.
But I saw the way they
did it in the Lindsey case, and they got -- through the testimony, they got evidence of foreign officials through the testimony of Basurto, Jr. That was the
basis for their evidence of the foreign official status, because it was constantly asked of Basurto, Jr. who owns the company, does it operate in a public versus a private setting. He was their sponsored expert in
California on this issue. And finally, Judge, just on the overall portion, since the levels of responsibility in FCPA are the highest. Some criminal laws, you know, have high This one requires the highest level of
levels of proof.
224 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 knowledge of any criminal statute out there. And there
is too many vague inferences the Government is trying to make between the SITRACEN and the Evergreen, as well as the foreign official, and we're almost -- by not having testimony from CFE representatives or any Mexican officials on this, we're resorting to the testimony of experts out there as to what they believe -- our expert and their expert as to what they believe, rather than the CFE as to what actually happens. But beyond that,
it's something that Mr. O'Shea could not -THE COURT: But that would still not cure your
point that if you have to have the CFO or someone come and explain why it's a Government agency, that vitiates the notice that somebody has in dealing with them. You're the Government. MR. ANDROPHY: THE COURT: Perhaps it should be obvious. But not if you're Mr. O'Shea?
Well, that's your point. Thank you, Judge.
An expert or an executive suggested
it, it not something that is public notice. MR. ANDROPHY: No, and it's the most
complicated of issues for -- when we filed our motion to dismiss in the beginning, we didn't know where it would lead; and to me, it still leads to a dead end of knowledge.
225 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 opportunity. THE COURT: Thank you.
Mr. Duross? MR. DUROSS: Thank you, Your Honor.
Your Honor, thank you for this I'd like to start, if I could, with what
the statute prohibits and what the elements are. THE COURT: I know what the elements are. Tell
me how some of this supports the elements. MR. DUROSS: Absolutely, Your Honor.
So, turning to the Court's initial instructions in this matter, there are a number of different elements that need to be proved in order for the Government to sustain its case against the defendant. First, we must prove that Mr. O'Shea is a
citizen of the United States, a fact that's been stipulated to. Second, that he offered, paid or
authorized the payment of anything of value. Your Honor, I believe that the evidence in this respect is substantial, and I'm going to walk through each of these, but I would start with that proposition, and the reason why I do, Your Honor, is for the reason I was talking about a moment ago. I think
Congress, in passing this, recognized the difficulty in the issues of proof in terms of putting money in a particular person's pocket. The money here or any of
226 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 these cases, Your Honor, could go to a thousand different bank accounts in a hundred different countries, and we could spend decades just trying to find where it went. It's a very complex and difficult
effort, and I think that Agent Diemert, Agent Hopper, and the others who work on the case, did diligently pursue that, not because it's actually required for a conviction, but because it's actually strong -- I think the Court used at one point suggestive evidence of what was really going on here. THE COURT: But you try to prove that crimes
that apparently were committed are evidence of crimes you can't prove were committed, and that's one of the problems here. MR. DUROSS: THE COURT: Well, no, Your Honor, I think -We think he was in the neighborhood
of Bank B, but we know he robbed Bank A, and therefore you can convict him of B. Or in some cases in this
instance, some people robbed another bank and therefore you can use that evidence of using the same getaway car. MR. DUROSS: No, Your Honor, I think I would I shouldn't have said I would disagree
disagree, with all due respect. that, Your Honor.
Forget I said that.
with the Court because, frankly, Your Honor, in terms of the presentation of evidence in this case, if we had
227 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 simply stopped our entire investigation, stopped it just when we had Basurto, Jr. saying he authorized this and he knew what he was doing, and we knew that ABB sent the money out, we could stand before the Court and say, we've met that element that he authorized the payment of anything of value. We have met our burden.
We went further than that, and the reason why we went further than that is because it is strong suggestive circumstances evidence of what really the true nature of what was going on here. Because,
frankly, had we traced all that money out and it never went for hair plugs or tuition or to somebody's brother-in-law or brother or son-in-law, there would be -- I think Mr. Androphy would get up here and he would say they couldn't even put the money in anybody's pocket. The fact that we were able to do that at all,
Your Honor, is frankly above and beyond what we need to do. But here in terms of the authorization -THE COURT: You can't convict a man promising
to pay unless you have a particular promise to a particular person for a particular benefit. If you call
up the Basurtos and say, look, I'm going to send you 50 grand, bribe somebody, that does not meet the statute. MR. DUROSS: No, it wouldn't, but for a Because it would have to
different reason, Your Honor.
228 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you have. MR. DUROSS: And hopefully, Your Honor will be a quid pro quo. I want you to pay bribes in order
for us to win the Evergreen contract. Now, they don't have to actually know that it was Nestor Moreno versus Carlos Rovira versus Gustavo Salvador Torres. They just need to know my intent in
hiring you as the third party is that you will pass bribes on to the CFE officials, who are going to make this happen for me. burden. Here we're going much further, because not only was there that agreement, and that agreement -obviously there is the testimony of Basurto Jr. and Mr. Androphy is a talented lawyer and he went after -well -THE COURT: I've seen a lot more of him than And that is enough to sustain the
give me the opportunity to see some more of him, that's what I'm hoping for after we're done talking, which is he obviously challenged the testimony of Basurto, Jr., and the jury can take that into consideration. But I
don't believe under the standard for Rule 29 that jurors couldn't credit the testimony reasonably of Basurto, Jr. and rely on it in forming their decisions as to whether or not that agreement had been made. Here, however,
229 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 they don't have to just do that. I think there is more.
I think there are the e-mails, the financial documents, and other related information that I think is powerful, circumstantial and direct evidence. And so I believe that we have, for example, Your Honor, I'm not going to belabor this. of the two meetings at Zucchini's. We have one
I don't want to keep
going over Zucchini's, but there's a meeting at which there is an agreement -THE COURT: MR. DUROSS: I'll never eat there again. Mr. O'Shea is there and there is
discussion about bribes to be paid, and this is in the August, September, 2003 time frame. We also have the
later meeting at Pappasito's in which there is actually spreadsheet shown and there is discussions. according to the testimony of Basurto, Jr. That's So maybe in
closing argument, Mr. Androphy will convince everybody that he shouldn't be relied upon. But it's not just that. We actually have
that same spreadsheet found on the laptop of John O'Shea's work computer. We have the testimony of And that contains the
Basurto, Jr. Of how it got there.
3WT and the "Good Guys" and as we sort of walk through some of those payments and connect some of those dots today, I think that's strong powerful evidence to
230 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that. fight. THE COURT: He's a representative of a big dog suggest what's actually going on here. We also have a series of e-mails concerning the authorization for these various payments, ESIMEX, Obras and Sorvill. And this is all without, by
the way, getting to where the money ultimately lands. Now, in terms of I think an important element that Mr. Androphy touched upon was this idea that the Evergreen contract was a lock, the idea that this was -- we're always going to get it. And I think
that there is some very powerful evidence that came in from Charles Calland that may have sort of slipped by, which was, it wasn't a lock. He and Buddy Grierson were
trying to sell this thing and it wasn't going anywhere in the 2001 and 2002 time frame. So, if CFE was going
to do the Evergreen contract, I think what you can pull from what Mr. Calland said is they had to use ABB. is true. That
If they are going to do the Evergreen, because Absolutely, but there In
the whole thing was connected.
was no lock that that was actually going to happen. fact, they gave up. I mean, he packed it in and went
and did something else for a while. So don't even rely on Basurto, Jr. for Rely on Charles Calland. He's got no dog in this
231 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that. in this fight. MR. DUROSS: I don't think anybody thinks He
Charles Calland is a representative of a big dog.
came in here and just said this is what he did himself. I don't think he's there. The jurors, obviously, Your Honor, they could think that the fix is in and he's here to do what he's here to do. THE COURT: But he does work for the company
that has a big stake in this case. MR. DUROSS: I think their stake is over in They pled guilty, they paid
large measure, Your Honor. their -THE COURT:
How long have they committed to
report to the Justice Department about all the things they are doing? MR. DUROSS: Two or three years, Your Honor, I But Mr. Calland didn't have I guess my point, Your Honor,
don't know the exact date. any involvement in that. is simply this. THE COURT:
I don't have any problem with him.
I just point out, he's not unencumbered. MR. DUROSS: Sure, and jurors are able to weigh
But I do think that a reasonable juror could take
what Mr. Calland said and take it in the light most
232 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 favorable to the Government, believe that the Evergreen contract was not a lot, in fact, quite the contrary, and believed that bribes being paid was something necessary to lock it up. Now, in terms of the third element, payment was to a foreign official or to a person knowing it was going to be going to a foreign official. We
obviously don't have any payments directly to a foreign official, and I think we've touched upon that a little bit before. And candidly, Your Honor, I'm not going to
pretend that I'm the most knowledgeable guy in the world about FCPA or foreign bribery, but the fact that money goes through companies like Sorvill or Obras or ESIMEX, on their way to pockets of foreign officials is pretty standard. So the idea -- and for that second element.
By the way, everybody in this room probably could figure that out. THE COURT: It's standard for bikers and many That doesn't
other unsavory people to wear blue jeans.
mean if you wear blue jeans, you are unsavory. MR. DUROSS: I wasn't suggesting merely giving
money to a third-party agent is somehow a criminal offense, not at all. But the idea that money went to a
third party before it made its way to somebody else isn't surprising. In fact, that's why I believe the
233 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not. isn't he? MR. DUROSS: Baade is a lawyer. Dr. Wood was law is crafted the way it is, and your instructions, I think, contemplate that, which is specific that or to a person whom he knew would offer to pay or pay at least some -- that's the point, just the some, even that money keeps going down, at least some of the money to a foreign official, directly or indirectly. definitely shown that here, Your Honor. Now, Mr. Androphy raised the issue about foreign official. Obviously, that's come up in a I think we've
context and to a degree, that as I think I've already confessed, Your Honor, a few times, my fault, I wasn't prepared for it. But when he say the experts disagree, I get that
his expert will disagree with our expert. part. But I don't think we actually -THE COURT: knowledgeable people. MR. DUROSS: THE COURT:
They both are very
Absolutely, Your Honor. Is Baade a lawyer -- he's a lawyer,
But I don't think that our disagreement candidly --
and this is probably part of the Court's frustration of the entire issue -- I don't think the disagreement is sort of particularly a seismic nature. I think we all
agree, and obviously Dr. Baade may prove me wrong, I
234 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that. that. MR. DUROSS: Right, distribution and And what we really think we all agree it's a hundred percent state owned, a hundred percent state controlled. THE COURT: The transmission --
I've already instructed them on
transmission is a hundred percent.
have an issue about is whether there is this market concerning generation, of whether that's a market in which CFE competes under a normal commercial basis. THE COURT: It does trouble me, although I
don't think it's relevant to this motion, that the Government did not present evidence on governmental status on which a reasonable Grand Jury could have relied. MR. DUROSS: I believe, Your Honor, that we
presented evidence that it was a state owned company. THE COURT: The statute is more subtle than
I'm not saying you couldn't have done it or they
wouldn't have indicted him. MR. DUROSS: The statute says an I think in
instrumentality of a foreign government.
fairness, Your Honor, it is not a stretch to think that a company that is created by, owned by and operated by a foreign government, could be considered an instrumentality. I think in the sharps relief of a
235 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 trial in which we are going to be challenged on those issues, we needed to have been more prepared and we were not. THE COURT: I don't know what was presented to
the Grand Jury, but as I observed several days ago, the Government should have been prepared before they brought the charges to the Grand Jury. to prove. It's something you have
And you shouldn't indict people on stuff you
can't prove. MR. DUROSS: THE COURT: MR. DUROSS: Understood, Your Honor. And was it 2005 when ABB confessed? April 2005 was the voluntary
disclosure to the United States and the Department of Justice and the Securities and Exchange Commission, Your Honor. THE COURT: MR. DUROSS: This indictment is October of '09? Yes, I believe it is October '09 -November '09.
November, I'm sorry, Your Honor.
So, in terms of the level of proof on foreign official, Your Honor, I believe under the standard which is deferential to the Government in the Rule 29 context, that a reasonable jury could find that CFE -- frankly, I think we've proved beyond a reasonable doubt, but a reasonable jury could find beyond a reasonable doubt that CFE was, in fact, an
236 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 instrumentality of foreign Government. They are
created, owned, controlled and run by the Mexican Government. Whether or not they competed on a normal
commercial basis is an issue that I also think we've addressed. We probably should have been more prepared
on our earlier, but I do believe we've at least played some catch-up, Your Honor. Now, in terms of the payment was made to misuse authority. I think we have a number of pieces of I think we have some conversations
evidence about that.
testified to by Basurto, Jr. In early 2003 that those conversations became more concrete and through the August, September time frame, they were certainly, particularly concrete, as well in November, that sort of November time frame at Pappasito's, and then took an even sharper focus when the invoices start to come in with ESIMEX, Obras and Sorvill. Now, in terms of the contract, it does go from 34 to 37 million. And I believe that the
testimony -- we believe Mr. Basurto testified to and I understand that Mr. Androphy may have a different take on it, but that there was $3 million increase, one million bucks was for the "Good Guys". covered some of those payments. I think we've
And then 2 million was
sort of additional moneys that CFE was going to be
237 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 coded e-mails. allowed to use to buy a variety of different equipment over the life of the contract. I believe that that has laid out pretty clearly that in order to get this contract, they needed to pay bribes. In order for this increase, the increase
that was going to go from 34 to 37, there was additional bribes. And that really is reflected in the Third World
Tax on the one hand and the "Good Guys" on the other. Now, turning, Your Honor, to the corruptly, knowingly and willfully element. Mr. Androphy is right, that is a high standard and I agree with that. evidence. We have a number of pieces of
Obviously, there is the direct testimony of
Basurto, Jr. and I believe that a reasonable jury could rely on his statements. Now, he's been impeached in
terms of what he did or didn't tell us earlier and they can make that assessment, Your Honor, in judging that. But I do believe we've gone to fairly great lengths to find e-mails, whether they are from ABB or from Basurto. We've found financial records to try to corroborate, where possible, things that Basurto, Jr. said, and I believe a jury could rely on that. So we have these conversations, we have We have references by the way. I don't
want to go through all these, Your Honor, but we do have
238 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 face. MR. DUROSS: Sure. And subject to argument. e-mail exchanges. So it's not just contemporaneous And when
e-mail exchanges between O'Shea and Basurto. we move into the early 2004 time frame.
For example,
Government Exhibit 1B, there is an e-mail talking about Nestor and Carlos, where they will provide destination numbers per figures as reflected in the table we gave you in November. I think fairly compelling evidence
that supports what Basurto says. The jury is entitled to reject it. But I
believe under the standard, a reasonable jury could rely on it. We have, for example, regarding Obras. Carlos
and Nestor -- this is an e-mail from Basurto to O'Shea, May of 2004, in Government's Exhibit 11A. They are
requesting a repeat of the transfers with the HB invoice, at least, which comes to U.S. $76,200. They
have not mentioned anything about the other invoice, suggesting they are satisfied. on it. THE COURT: MR. DUROSS: THE COURT: Suggesting something. Suggesting something, Your Honor. It's certainly not clear on its At least that's my take
But I also think it's not an unreasonable interpretation and therefore a jury could rely upon it in reaching a
239 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. THE COURT: the next year? MR. DUROSS: additional projects. I think they're talking about I think that's separate. I was What about generation project for right? MR. DUROSS: I think it's very suggestive, Your verdict. There are additional ones, Government's Exhibit 15, and other pending items, Carlos and Nestor are waiting to hear from you on your trip since they want to discuss both the scheduling of transfers and the generation projects they want to push for next year. THE COURT: Okay, now, the transfers is evil;
reading the rest of the sentence, Your Honor, to be complete. THE COURT: I know. My point is you have
chosen one word that should be related to the generation projects next year could be in. could be interpreted evilly. substantive business content. MR. ANDROPHY: Absolutely, Your Honor. But I But it is a word that
But it also has
think that's why the jurors reasonably could construe that e-mail and listening to testimony of Basurto, Jr. and seeing other e-mails, to use their common sense
240 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 sorry. about what it means or doesn't mean. reject what the Government says. Whether they
But I think taking all
reasonable inferences in our favor, which they might not, but in terms of evaluating the case here, I think we get to the jury on that. In terms of some of the others, Your Honor, they talk about the bonus portion we are handling. This is what Basurto is referring to. That's
given to the Good Guys.
That is what he testified to. There are
Whether they reject it or not is up to them.
a whole series of them, and I could give you the exhibit numbers if the Court were interested. THE COURT: MR. DUROSS: I've been here. I knew that, Your Honor, I'm I'm sorry.
That was foolish of me. THE COURT: MR. DUROSS: That's fine.
Then we get to the approval of the
payment request.
There is a whole series of -- if the
Court will recall Charles Calland's testimony on this, which I think is important, which he said at the beginning of the Evergreen contract, even though he was the project manager, the person that was handling the payments was John O'Shea. the other. That's not nefarious, one or
I'm just saying that's a fact that he
testified to.
241 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. DUROSS: THE COURT: Still three people as I recall. I'm sorry? I think there are three people.
You got the financial people, you had O'Shea and somebody else. MR. DUROSS: processing it. Yes, the controller had to end up
But then what happens is, in April 2004 This is why I think it's
Rene Cotting comes in. significant.
And I think Your Honor is right that we
probably try to do too much with our witnesses and this is something we could connect the dots with in front of the jury. But Rene Cotting comes in and this process of
just trying to -- you know, signing off on these things and just putting them through, wait a minute, there needs to be more of a process in place. now has to start signing off on it. Charles Calland
Charles Calland
said what is this stuff, where is the contract, and start looking around. crescendo. And when ultimately there is a meeting, Rene Cotting says, where is the contract, and he's told by O'Shea and Basurto, Jr. that there is a contract, they just have to get it to him. July. This is in the end of And this starts to build to a
That's also what, if you recall, both Calland and
Forn were saying, end of July, what's going on here.
242 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 And not only thereafter, John O'Shea ends up leaving the company for whatever reason. Now, before he does, however, and I know that the Court heard about the purchase order probably more than anyone would like to hear about it. Because I
think it is significant, because the purchase order in the very beginning of August 2005, is pushed through according to the testimony of Rene Cotting. This is
right on the heels of this awkward meeting where he says, this has expired, what's going on, why are we paying these guys? John O'Shea is the guy who signs off on this purchase order, gets it done without running it past Renee Cotting. This purchase order then gets in
place, and payments continue to go out the door to ESIMEX, because this purchase order is now in place. The reason why this is significant, I want to draw the Court's attention to it, because if I were the Court, I would be thinking to myself, Count 13, O'Shea is gone. Why is Count 13 in this indictment
attributed to John O'Shea? And the point behind that, Your Honor, is that while John O'Shea is no longer at ABB, he had put in motion all of these actions so these payments would continue to go out the door, and it did. And it only
243 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 happened because you got this purchase order. When they
finally get the contract, which as the Court knows, bogus, it's backdated, doesn't exist. It's created.
They see it and Mr. Forn, who I understand he still works for the company, but I don't think has much of a dog in the fight, says I looked at this thing and it didn't add up to anything that I've seen before. is a real problem. He goes and tells Cotting, they start looking into this thing in October, and they say, oh, hold on a second. You know, they look back at the This
purchase order, they get very concerned about the 90 minutes and this thing got pushed through. the names of all these people get paid. They see all
None of this
makes any sense to them and they say, whew, we're not paying anybody any more. So, within about two months or so of John O'Shea leaving ABB, the wheels have fallen off the wagon. And the agreements that he had between himself
and Fernando Basurto, Jr., which he testified to, which were all corroborated by the e-mails, become unearthed. Your Honor, the fact that Cotting, Calland, Forn know nothing about this, what's going to and the contract and the agreements, and all this, and the e-mails that have been shown to the jury and
244 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Holland. MR. DUROSS: So, Your Honor, from that testified to by Basurto, Jr. support the fact that there is this other agreement, this other -- I want to call it a conspiracy, but that not charged -- agreement between O'Shea on the one hand and Basurto on the other, unbeknownst to all the other people. That's powerful circumstantial evidence. Wait a minute, something is wrong in Denmark here. that supports the knowingly -THE COURT: MR. DUROSS: THE COURT: MR. DUROSS: In Rene Cotting's case, Holland. Switzerland. Oh, he's from Switzerland? The accent, I think, was hard to And
figure out, but maybe he was originally from Holland. THE COURT: I thought he said he had come from
perspective, I believe that this is powerful evidence. So now I want to turn to what Mr. Androphy started with, which is what can't the Government do in terms of its proof once the money leaves ABB? And I
think the initial part is we've got the evidence both in terms of e-mails and conversations with Basurto, Jr. as well as the circumstantial evidence in terms of people not knowing. And now the money at these different times And what we have at that point
is going out the door.
245 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 is we followed the money trail. That's not perfect.
We've agreed to the instruction by the Court, you can't trace dollar for dollar, you can't do it, and we recognize that. But I think that's part of the scheme.
That's part of the brilliance of the whole -THE COURT: But you can't win by saying people
who pay bribes are really tricky. MR. DUROSS: a standard -THE COURT: MR. DUROSS: And therefore find them guilty. No, no, no. I'm sorry, I didn't All I'm saying is But where we No, no, no. But don't hold us to
mean to suggest that, Your Honor.
that we do have limits to what we can get.
did get was this money going into these Basurto family accounts, or Sorvill and Obras, which, for example, Mr. Calland knows knowing about, has never seen any backup documentation. It goes out the door, goes
through these different accounts. And in some instances we've gone so far as to actually be able to land that money into either family members or CFE official's hands. And the reason
why that's significant isn't because in each instance we can do it, but it backs up all the other stuff that we thought was going on, what Basurto, Jr. tells us, what the e-mails we believe our reading of them suggest to
246 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 us. And we think that that all connected shows that a reasonable jury, in the light most favor able to the Government, could look at all that evidence and say to themselves, that's exactly what was going on here. We believe Basurto, Jr. We believe the e-mails or the
interpretation that the Government has of those e-mails. We believe that what's happening here is that CFE, the contract, the contract at that point was dead in the water, bribes were getting authorized, John O'Shea knew about it, and it was going out the door. There are two other things I'd like to point out and I'll be quiet, which is the corrupt piece of it is also, I think, underscored by the fact that John O'Shea had a financial interest in what was going on, as well. the Basurtos. I understand he says it's a loan and that's fine, he can make that presentation. But that's And he's getting money coming back from
a lot of money coming into his account from the Basurtos on a fairly regular basis. up. By the way, some of them add I think
So when he goes in -- it's late 2002.
Basurto, Jr. said it was December 2002. is a November 19th date.
Actually, there
He goes to Mexico City, John Guess what one
O'Shea, according to his travel voucher.
247 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of the dates of those checks coming back to him. in November? It's
He was meeting up with these people and
he's getting money from them. Now, finally, I said two things. the is kickbacks. One is
The second is the cover-up, which is
when all of this happens in April of 2005, right, so John O'Shea is out in August 2004, fast forward to April 2005. ABB makes a public disclosure that there is an
investigation into bribery coming out of their Texas unit concerning electricity. What's happened between August of 2004 and April of 2005? big cover-up. A whole mess of evidence that there's a And I know John O'Shea is going to say he
was duped and he was an unwitting pawn, I believe they used the term, of the Basurtos. But what happens in
April of 2005 isn't that he's like, oh, my gosh, I've been fooled by these -- I think it was devious and sophisticated Basurtos. No, he e-mails them and says my
lawyer says I should use Yahoo because it's harder to follow and let's change up where we meet. Let's not do I
the Eggs Benedict place, let's go someplace else. assume it was breakfast at Zucchini's.
But be that as
it may, I mean, it underscores the corrupt nature of what's going on. He doesn't pick up the phone and call
Mexican authorities or the FBI and say, oh, my gosh, let
248 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. me tell you what's going on. So I think it all underscores that, Your So I've taken too much of your time, but that is
why I believe, Your Honor, a reasonable jury could infer from this evidence, in a light most favorable to us, to return guilty verdicts on all counts. THE COURT: We'll take what I hope will be
about a 10 minute break. [Recess] THE COURT: John O'Shea's Motion for Judgment
of Acquittal will be granted. The problem here is that the principal witness against Mr. O'Shea is Basurto, Jr., who knows almost nothing. His answers were abstract and vague, And as I indicated, even
generally relating gossip.
hearsay testimony must be something other than a conclusion. While the Government does not have to trace a particular dollar to a particular pocket of a particular official, it has to connect the payment to a particular official, that the funds made under his authority to a foreign official, who can be identified in some reasonable way, that is, with no reasonable doubt. The only thing that has been established
249 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 pretty close to that was that John O'Shea took kickbacks from the Basurtos. That's not -- could be either one. The problem with
We haven't heard the other side of it.
that is that is unrelated to a public official in a foreign country. It is as likely, if it was a kickback,
that the Basurtos were giving gratuities to O'Shea in order to maintain their company representative status in Mexico with ABB. While, if that's what it was, it would
be reprehensible, it's not bribing a foreign official. We have considerable non-production on the part of the Government records and people. why Skopp was not produced. I don't know
I don't know why the What I do know
Government did not give Skopp immunity.
is it is now six, seven years after ABB turned over its records to the United States, having discovered on its own the irregularities in its ranks, and Skopp was a participant in the apparent irregularities. And the
Government not granting him immunity or anything else, precluded O'Shea from calling him. The immunity to Basurto, Sr. means he doesn't have to do anything and he can still take the Fifth on the grounds that he could be incriminating himself in explaining these payments because they were, in fact, transactions unrelated to the commission Nestor Moreno and ABB. He didn't, as part of his earning his
250 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 immunity, produce his financial records. What we have
is some records that Jr. produced, which are modest in their extent and inconclusive in their reach. We don't know what the going rate for a country representative is. We know it varies and we But what we do They were
know it varied even for the Basurtos.
know is the Basurtos had other customers.
collecting money from Microsoft and IBM and doing something with it. I am not suggesting that either of
those companies was doing anything wrong, authorized the Basurtos to do something wrong for them. that the Basurtos had a business. It's a fact
And being the country
representative for a foreign company is sort of like being a public relations officer. Responsibilities are
ill defined sometimes, but the Government has not produced evidence from which one could conclude beyond a reasonable doubt that their only business was paying bribes or the business they did for ABB was only paying bribes. The money that is disbursed is sometimes tied as closely as three steps can be to Moreno. instances, the hair plugs and the tuition. In two
But there
are just disbursements to the Basurtos that disappear into the Basurto family. For instance, in Count 6, the
account, $67,500 is paid on a collection of $30,000.
251 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 That makes neither one of them explanatory. And while
the Basurtos had a 25 percent arrangement perhaps, apparently, in this case, even if you count Lizarraga, that's $70,000 out of 181 or something like that. Who and what Chelala is -- I know it's a person, apparently. The Sorvill accounts we had as a
good illustration of Basurto, Jr.'s testimony, him testifying about Sorvill. Nothing he saw or did. He's
just saying, oh, they are nothing but a conduit for bribes, and no foundation, no specifics. Even if you add up the tuition in that count -- let's see if I can keep all these things straight, you are talking about a million dollars, of which $50,000 could be clearly traced. There are
payments to other people with no evidence that they were connected with the commission's business. Most of all, we don't have all of the Basurtos' records and the Basurtos are both cooperating. We don't have their financial records. We don't have
their cell phone records, we don't have all their other account records. I didn't count the number of bank
accounts here, but there are five or six of them, and those are just Bank of America accounts and Wells Fargo Accounts. There are lots of other banks. And with
Sorvill, there is $268,000 going into Sorvill and
252 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 $29,000 coming out. That makes, as the Government says,
the nature of that account undetermined rather than suspect. Basurto and O'Shea, I hesitate to say used a code, talked deliberately obscurely instead of deliberately clearly, that's not evidence of committing a crime. People encrypt stuff all the time, every day. There is an
They did before we got to the Internet.
equally logical explanation for the post-termination e-mails, and that is helping the Basurtos keep their contract. Does the defendant want me to bring the jury in and instruct them or just go tell them? MR. ANDROPHY: be fine, Your Honor. THE COURT: MR. DUROSS: Government? That would be fine, Your Honor. You can tell them. That would
The Government would like an opportunity, if the Court would permit us to speak with the members of the jury. THE COURT: I will, if they want to. I'm going
to go talk to them for a minute and I'll tell them that you are in here. Do you want talk to them? MR. ANDROPHY: THE COURT: Yes, Your Honor.
Mr. Androphy, be nice to them.
253 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 anymore. exhibits? MR. ANDROPHY: supervision. THE COURT: I want everybody to be all right. I will do it under Ms. Frazier's
All right, I'll be back shortly. [Recess] THE COURT: As the clerk has reported to you, So I'm sorry
the jury did not want to talk to anybody. about that.
I believe talking to the jurors is very
useful to lawyers, but I can't make them do it. Is there any reason not to withdraw the Have these all been scanned and filed? MR. DUROSS: When you say scanned and filed,
I'm not sure I totally understand. THE COURT: We don't keep anything paper
So, if you file a copy, either you scan them Is there any reason for
and file them electronically. me to keep all this stuff? MR. DUROSS:
We definitely have them scanned
into PDF, so we could provide a disk. THE COURT: Mr. Androphy, do you want -We can withdraw them.
You want me to cherish them and add
to the real exhibits, these. MR. DUROSS: THE COURT: The real ones, Your Honor? Add to these.
254 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 fine. THE COURT: I don't believe in four-inch them. MR. DUROSS: Feel free to recycle them. That's only. THE COURT: I still want it in the record. That way, we know it won't How MR. DUROSS: THE COURT: Sure. This thing, Mr. Androphy, I think
you came up with this. MR. DUROSS: that to Mr. Calland. MS. FRAZIER: Your Honor, that was impeachment I believe Ms. Frazier, she showed
about defense a thousand. overlap, I hope. had two --
And then there was -- the Government
I already ruled on those, 28 and 29. That's correct, Your Honor. Make sure they are included. I mean, all they
MR. DUROSS: THE COURT:
Do you want these back? are is binders at this point. MR. DUROSS: THE COURT:
We don't need them back. We recycle them if you don't want
binders, so somebody else will use them. Anything else from the Government? MR. VARNADO: THE COURT: No. Mr. Androphy, anything else for
255 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 /s/ Ed Reed Edward L. Reed Official Court Reporter 1-17-12 Date I certify that the foregoing is a correct transcript from the record of proceedings in the above-entitled cause. REPORTER'S CERTIFICATE O'Shea? MR. ANDROPHY: THE COURT: No, Your Honor. I see the Government is Do you want to get yours
It's late.
taking their stuff downstairs. tomorrow? MR. ANDROPHY: now, Judge. THE COURT:
We have a delivery service here
All right, undelivery service.
Anything else? MR. ANDROPHY: THE COURT: No, Your Honor.
All right, thank you counsel.
[Proceedings adjourned]
EXHIBIT B
Exhibit B: The Identity of the Foreign Officials in Contested FCPA Bribery Convictions
1. In United States v. Liebo, No. 89-cr-76 (D. Minn. 1989), the foreign officials were identified as Captain Ali Tiemogo, the chief of maintenance for the Niger Air Force, and Tahirou Barke, Tiemogos cousin and close friend, [who] was the first consular for the Niger Embassy in Washington, D.C. See United States v. Liebo, 923 F.2d 1308, 1309 (8th Cir. 1991). Both foreign officials testified at the trial. Id. 2. In United States v. Mead, No. 98-cr-240 (D.N.J. 1998), the Criminal Complaint averred that a sack full of currency was . . . physically handed over to Audo Escudero, one of the two Panamanian government officials from the Ministry of Commerce and Industries. Criminal Complaint, Attachment B, at 11 (Jan. 29, 1998), available at http://www.justice.gov/criminal/fraud/fcpa/cases/mead-etal/09-11-98meadcomplaint.pdf. 3. In United States v. Kay et al., No. 01-cr-914 (S.D. Tex. 2001), Murphy and Kay authorized [certain] employees to pay bribes of one-third of the savings to Mario Morisette, the Haitian customs official at Laffiteau . . . . Brief for the United States at 10, United States v. Kay, Nos. 05-20604 & 05-20606 (5th Cir. Dec. 27, 2006). 4. In United States v. King, No. 01-cr-190 (W.D. Mo. 2001), there was evidence of an e-mail with a list of politicians already paid off and the ones hes gonna pay off. See United States v. King, 351 F.3d 859, 863 n.2 (8th Cir. 2003), cert. denied, 542 U.S. 905 (2004). 5. In United States v. Kozeny et al., No. 05-cr-518 (S.D.N.Y. 2005), affd, 667 F.3d 122 (2d Cir. 2011), the foreign officials included two key Azerbaijani officials, Nadir Nasibov, the chairman of the State Property Committee (SPC), and Barat Nuriyev, his deputy. See Govts Memorandum of Law in Oppn to Def.s Motion for Judgment of Acquittal or a New Trial, at 5 (Sept. 25, 2009). 6. In United States v. Jefferson, No. 07-cr-209 (E.D. Va. 2007), affd, 674 F.3d 332 (4th Cir. 2012), the foreign official, referred to as Nigerian Official A in the Indictment, was specifically identified and known to all parties. For example, the Indictment stated, On or about June 21, 2005, Defendant JEFFERSON composed and caused to be delivered a letter on congressional letterhead addressed to Nigerian Official A. Indictment at 27 (June 4, 2007). The Indictment proceeded, On or about July 18, 2005, at the residence of Nigerian Official A in Potomac, Maryland, Defendant JEFFERSON met privately with Nigerian Official A and offered to pay a bribe to induce him to use his position to assist in obtaining commitments from N1TEL for the benefit of the Nigerian Joint Venture. Id. at 30. 7. In United States v. Green et al., No. 08-cr-59 (C.D. Cal. 2008), the foreign official was identified by name and title as Juthamas Siriwan, Governor of the Tourism
Authority of Thailand. Govts Combined Sentencing Position for Defs. Gerald & Patricia Green at 1 (Jan. 14, 2010). 8. In United States v. Esquenazi et al., No. 09-cr-21010 (S.D. Fla. 2009), appeals docketed, Nos. 11-15331 and 11-15954 (11th Cir. 2011), the Indictment stated that the Intended Foreign Public Official Beneficiary was Jean Rene Duperval, the Director of International Relations of Haiti Teleco. Indictment at 5, 21 (Dec. 4, 2009). 9. In United States v. Noriega et al., No. 10-cr-1031 (C.D. Cal. 2010), appeal docketed, No. 11-50507 (9th Cir. 2011), the two foreign officials were specifically identified in the First Superseding Indictment and were known to all parties: Official 1 . . . held a senior position at CFE [Comisin Federal de Electricidad, a Mexican utility company] [and] was the Sub-Director of Generation for CFE in 2002 and the Director of Operations in 2007. . . . Official 2 was the Director of Operations at CFE until that position was taken over by Official 1 in 2007. First Superseding Indictment at 2-3 (Oct. 21, 2010). Considering defendants motion to dismiss, the court wrote that [t]he gist of the allegations in the [First Superseding Indictment] was that the Lindsey Defendants paid bribes to two high-ranking employees of the [CFE]. . . . (Nestor Moreno and Arturo Hernandez). Id., Order Denying Mot. to Dismiss, at 1 (Apr. 20, 2011). Although defendants Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee were convicted by a jury on May 10, 2011, the court subsequently vacated their convictions and dismissed the First Superseding Indictment. Order Granting Mot. to Dismiss (Dec. 1, 2011).

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