In May, a month after it agreed to be acquired by Oracle for $7.4 billion, Sun Microsystems said it may have violated the Foreign Corrupt Practices Act and that the violations could have a material effect on its business. It launched an internal investigation and shared the results with the Justice Department and the Securities and Exchange Commission. See our post here.
Now it looks like it was all a false alarm. Sun’s latest SEC filing, a Definitive Merger Proxy dated June 8, 2009 (Schedule 14A), says this:
Section 4.13. Compliance with Applicable Law.
(a) The Company and each of its Subsidiaries is and, since June 30, 2006 has been, in compliance in all material respects with all Applicable Laws and Orders. Neither the Company nor any of its Subsidiaries has received any written notice since June 30, 2006 (i) of any administrative, civil or criminal investigation or audit by any Governmental Authority relating to the Company or any of its Subsidiaries or (ii) from any Governmental Authority alleging that the Company or any of its Subsidiaries are not in compliance with any Applicable Law or Order in any material respect.
And a little later in the merger document, Sun represents to Oracle that without exception it has “complied with the U.S. Foreign Corrupt Practices Act of 1977 and other applicable anti-corruption laws.” (see Section 4.24)
So, no FCPA violations and no notice from the DOJ or SEC of any investigations. A clean slate.
Not many internal FCPA investigations end this way. More often — usually, in fact — they start because of apparently reliable signs of compliance trouble. Most investigations then end up confirming that yes, violations occurred — usually beyond the scope of initial concerns. Sun’s outcome, therefore, isn’t typical.
What happened here? Sun isn’t saying. But the timing may not have been accidental. Did anonymous whistleblowers opposed to Oracle’s acquisition file false complaints? It’s happened before. Did people upset about potential disturbances in Sun’s pivotal and hallowed role in the open-source community try to torpedo the deal by tossing false allegations into the mix? Twisted, but possible.
Wherever the allegations came from, Sun made all the right moves. It responded fast with a proper internal investigation, self-reports to the feds, and full disclosure to the marketplace. After all that, it came up with nothing. Compliance program and corporate integrity intact. Great result. Time to move on.
Before we all scatter, though, one last question.
Could Sun’s statements in its merger proxy be wrong? Just boilerplate reps saving the place in the text? Might Sun still have FCPA problems it isn’t disclosing just yet? Not likely, considering the Lockheed Martin / Titan case.
Those companies planned to merge in 2003. During due diligence, Titan was found to have serious FCPA compliance issues. Before Lockheed Martin terminated the merger, Titan had already filed an 8-K disclosure document with the SEC that included a proxy form with the merger agreement attached to it. That merger agreement, like Sun’s, contained an unqualified representation by Titan to Lockheed Martin affirming FCPA compliance. But the representation later proved to be untrue.
The SEC warned through a release that the 8-K was a “communication with shareholders” from Titan and that a reasonable investor could have relied on the untrue FCPA representation, resulting in liability for securities law violations. Presumably, that SEC release would have guided Sun’s preparation and publication of its Definitive Merger Proxy, including the compliance reps quoted above.
See Securities Exchange Act of 1934 Release No. 51283 / March 1, 2005 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on potential Exchange Act Section 10(b) and Section 14(a) liability here.
Editor’s Note: It’s not all that clear whether Sun’s reps are correct as written. Take a look at the AmLaw Daily’s story suggesting Sun may have jumped the gun with its filing. We’re waiting for clarification from Sun itself. And so, we imagine, are its shareholders.