The FCPA, Voluntary Disclosure and Cooperation

The FCPA, Voluntary Disclosure and Cooperation

Maxwell Technologies, Inc. resolved FCPA violations with DOJ and the SEC. After voluntarily disclosing its violations to DOJ and the SEC the company settled all charges. Under the terms of the settlements Maxwell will pay DOJ and the SEC a total of $13.65 million, had criminal charges filed against it, entered into a deferred prosecution agreement, had an SEC complaint filed detailing its violations, consented to the entry of a permanent injunction and has undertaken to implement enhanced FCPA procedures. The investigation is continuing according to the SEC. Maxwell and its shareholders will continue to expend sums to cooperate.

The company resolved the issues with DOJ. A two count criminal information was filed, charging the company with violating the anti-bribery and books and records provisions of the FCPA. Maxwell entered into a deferred prosecution agreement. It also agreed to implement enhanced procedures and pay a criminal fine of $8 million.

In the SEC settlement the company consented to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records and internal control provisions of the FCPA. Maxwell also agreed to pay disgorgement of $5,654,567 and prejudgment interest of $696,314. It will also be required to comply with certain undertaking regarding its FCPA compliance program. SEC v. Maxwell Technologies Inc., Case No. 1:11-cv-00258 (D.D.C. Filed Jan. 31, 2011).

According to the underlying documents, the violations at Maxwell occurred from 2002 through May 2009. The company is a manufacturer of energy storage and power delivery products. Although it is a market leader in the high-voltage capacitor business which has a high-margin, the product line among its most mature. Revenues from this product line helped offset losses on the development of new products.

During the relevant time period the company was able to market products through its Swiss subsidiary in China. Sales were made through a Chinese agent to state owned enterprises. The invoices added 20% to cover the cost of kickbacks. That amount was described as "extra amount" or "special arrangement." The amounts were included in the books and records of the parent company as commissions. Overall the company paid $2.5 million in bribes and was awarded contracts that generated $15 million in revenue and $5.6 million in profits. U. S. company officials were aware of this long running bribery scheme according to the SEC's complaint.

In September 2008 during an internal review of the commissions paid the Chinese agent, the management team learned that they were unusually high. Accordingly, a certificate was obtained from the agent representing that he was aware of FCPA requirements and had not violated the Act. No further action was taken.

Subsequently, in February 2009 a new Maxwell sales director learned about the kickbacks. This information was promptly transmitted to the new company CEO who notified the audit committee and outside counsel. After inquiry the company disclosed the potential FCPA issues in its Form 10-Q filing for the quarter ended March 31, 2009.

The Department of Justice "acknowledged Maxwell's voluntary disclosure of the FCPA violations . . . " (here). The SEC stated that "Maxwell cooperated in the investigation" (here).

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