In late July, the SEC filed a settled enforcement action against Nature’s Sunshine Products Inc. (NSP), its CEO Douglas Faggioli and its former CFO Craig D. Huff. The charges involved bribes by NSP’s Brazilian subsidiary to customs officials and false accounting to conceal the payments. As we said here, the SEC’s complaint alleged that Faggioli and Huff, in their capacities as control persons, violated the books and records and internal controls provisions of the securities laws in connection with the Brazilian bribes.
As control persons. What’s that mean?
A nice explanation appears on law.com from Philip Urofsky, the editor-in-chief of the FCPA Digest. He said in an interview that NSP’s officers, Faggioli and Huff, were charged individually under Section 20(a) of the Securities Exchange Act of 1934 as those “in control” of the Brazilian employees who paid the bribes. Urofsky said it’s the first time control-person liability has been used in the FCPA context. He explained:
What [the SEC charges] allege is that the current CEO, who was at the time the COO, had overall responsibility for the international operations of the company, including the export of products to Brazil. And the people who would know about these issues were under his control, and that the former CEO had authority and responsibility for the internal controls and books and records. This is a departure from the former practice. It’s consistent with Section 20A as it’s used in private litigation, but I’ve never seen the SEC use it in an FCPA case.
How significant is the appearance of control-person liability? Urofsky again:
It’s an indication of the SEC’s willingness to use all the tools at its disposal to hold individuals liable for acts within the corporation. Up until now, they usually would allege some knowledge, direct knowledge, and involvement of an individual. That is limiting because sometimes they don’t have the evidence, don’t have the last link. Also, in this case it’s the CEO and CFO. But Section 20A has been used against a much wider variety of corporate officers and even directors in civil litigation. So there’s potential where the directors are very active and involved in the operations of the company. In those circumstances, the SEC might very well look and see if there are facts to justify holding that person responsible.
There’s a lot more in the interview on law.com here.
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