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CCI Judge Limits Discovery From Feds

A ruling this week in the Foreign Corrupt Practices Act prosecution of four former executives of Control Components Inc. (CCI) could have implications for defendants in other FCPA and white collar cases. The U.S. District Court in Santa Ana, California on Tuesday rejected the defendants’ motion to obtain discovery of CCI’s internal investigation through the Department of Justice.

Stuart Carson, Hong Rose Carson, Paul Cosgrove, and David Edmonds had argued that due to CCI’s plea agreement with the DOJ, which required CCI to produce all records related to foreign bribery, the government had “constructive possession” of CCI’s documents even though it took physical delivery of only a small portion. The volume of material was enormous — 5.6 million documents, equating to 75 million pages. Because of the government’s “constructive possession,” the defendants argued, they could obtain all the material through the DOJ instead of CCI (thereby short-circuiting any objections to discovery CCI might have). But the court disagreed.

The defendants had relied on Judge Kaplan’s decision in the KPMG case in the Southern District of New York. It tended to support the defendants’ motion. But Judge James Selna rejected the motion and said the former CCI executives couldn’t obtain discovery from CCI through the DOJ. His ruling took a narrower view of Judge Kaplan’s order in the Stein case, which has been seen as an important help to white-collar defendants. Judge Selna said:

At the end of the day, Carson’s argument rests on the district court decision in United States v. Stein, 488 Supp. 2d 350 (S.D. N.Y. 2007). There are many reasons not to follow Stein’s lead. First, the terms of the Deferred Prosecution Agreement executed by KPMG in Stein were sweeping and open ended:

“8. KPMG agrees that its continuing cooperation with the Office’s investigation shall include, but not be limited to, the following:

(a). Completely and truthfully disclosing all information in its possession to the Office and the IRS about which the Office and the IRS may inquire, including but not limited to all information about activities of KPMG, present and former partners, employees, and agents of KPMG . . .”

(Id. at 353; emphasis supplied; internal quotation marks deleted.) By no stretch of the imagination did CCI enter into an agreement allowing the Government to request anything in the possession of CCI. The KPMG agreement is devoid of the subject matter and comprehensive privilege strictures for which CCI bargained. (Plea Agreement, ¶¶ 6.) Even if Stein were taken at face value, it would not justify the blanket production of much of what Carson requests, including most specifically CCI’s Electronic Database.

Judge Selna also issued a separate order rejecting the defendants’ motion to dismiss several counts of the indictment. The order included a nice discussion of the FCPA’s statute of limitations and what the government needs to do to protect its tolling. That’s the same issue that came up in the prosecution of Viktor Kozeny and his co-defendants.

The discovery ruling is a big win for the government. In April this year, the four former CCI executives had accused the Justice Department of playing “a game of hide and seek” with its evidence against them. They said the government had identified only 30 of the 236 illegal payments alleged in the indictment — not enough for them to plan their defense. They wanted access through the DOJ of everything it had received as a result of CCI’s self-reporting. Their discovery request included the electronic database collected during CCI’s internal investigation and audit documents, among other things.

CCI designs and manufactures service control valves for use in the nuclear, oil and gas, and power generation industries. It’s owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

The four former executives were charged with two others in a nine-year conspiracy to win contracts by bribing officials at foreign state-owned companies. The indictment alleged bribery “in over thirty countries” with “approximately 236 payments” totaling “approximately $6.85 million” to secure a series of projects that “resulted in net profits to [their employer, CCI] of approximately $46.5 million.” In addition to cash, the government said the bribes consisted of “overseas holidays,” “extravagant vacations,” “lavish sales events,” and “expensive gifts.”

Their trial was supposed to start on Tuesday this week. But Judge Selna moved the start all the way to November 2, 2010. He said both sides need extra time to prepare due “to the nature of the prosecution, the volume of discovery, the international issues, and the number of defendants . . . .”

A copy of Judge Selna’s December 8, 2009 Order Granting in Part and Denying in Part Defendants’ Motion to Compel in US v. Carson et al can be downloaded here

A copy of Judge Selna’s December 8, 2009 Order Denying Defendants’ Motion to Dismiss Counts 9-11 can be downloaded here

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