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Watts Water Sues Sidley For FCPA Problem

Aruna Viswanatha and Nate Raymond of Reuters reported yesterday that Watts Water Technologies Inc. sued its U.S. law firm, Sidley Austin, for not disclosing potential bribery it uncovered at a Chinese acquisition target.

In October last year, Watts agreed to penalties of nearly $3.8 million to settle a civil enforcement action brought by the SEC. It disgorged $2.75 million, and paid prejudgment interest of $820,791 and a $200,000 penalty.

Reuters said the lawsuit, filed on June 6, is ‘one of the first malpractice lawsuits involving one of the hottest areas for government enforcement, the Foreign Corrupt Practices Act.’

Sidley Austin vetted the Chinese acquisition for Watts in 2005, Reuters said, ‘but failed to inform the company about potential corruption issues even though their review had uncovered a suspicious document, according to the lawsuit.’

The Chinese target, Changsha Valve Works, turned over to Sidley during due diligence a document ‘that detailed the company’s written policy of paying kickbacks to Chinese government officials in order to secure government contracts,’ the lawsuit filed in state court in Washington said.

Watts said if it had known about the kickback policy, it wouldn’t have completed the $9 million acquisition.

Sidley billed Watts $200,000 for its work on the acquisition, Reuters said.

The story is here.

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