Two China units of Massachusetts software company PTC Inc. entered into a non-prosecution agreement and paid a $14.5 million criminal penalty Tuesday to resolve a DOJ investigation into payments for recreational travel by Chinese government officials that violated the Foreign Corrupt Practices Act.
PTC Inc. also reached a civil settlement Tuesday with the U.S. Securities and Exchange Commission by disgorging $11.8 million and paying nearly $1.8 million in prejudgment interest. The SEC settled the case with an internal administrative order and didn’t go to court.
The company won business from Chinese state-owned entities worth about $13 million that was tainted by bribery, the DOJ said.
Parametric Technology (Shanghai) Software Company Ltd. and Parametric Technology (Hong Kong) Ltd. (PTC China), through local business partners, arranged and paid for employees of various Chinese state-owned enterprises to travel to the United States.
The travel was supposed to be for training at PTC Inc.’s headquarters in Massachusetts. But it was “primarily recreational travel to other parts of the United States, including New York, Los Angeles, Las Vegas and Hawaii,” the DOJ said.
PTC China paid more than $1 million through its business partners to fund the trips.
Company employees typically accompanied the Chinese officials on the trips.
PTC China admitted that the cost of the recreational trips was routinely hidden within the price of PTC China’s software sales to the Chinese state-owned entities whose employees went on the trips, according to the DOJ.
“PTC-China’s books and records were consolidated into PTC’s books and records, thereby causing PTC’s books and records to be inaccurate,” the SEC said.
The SEC charged PTC with “failing to devise and maintain an adequate system of internal accounting controls sufficient to prevent and detect [the] improper payments that occurred over several years.”
The FCPA allows companies to pay reasonable and bona fide expenses related directly to “the promotion, demonstration, or explanation of products or services.” But recreational travel doesn’t qualify.
PTC said late last year it had reserved $28.2 million for a possible settlement with the DOJ and SEC. The company reserved $13.6 million in October last year and an additional $14.6 million in mid November.
In May 2014, PTC said it received an SEC subpoena in connection with the FCPA investigation. The company first disclosed settlement talks with the DOJ and SEC in February 2014.
PTC provides digital and online technology services to businesses. It specializes in 2D and 3D design software, product lifecycle management, and service management solutions.
The company was formerly known as Parametric Technology Corporation and changed its name to PTC Inc. in January 2013. It’s headquartered in Needham, Massachusetts.
Tuesday’s non-prosecution agreement required PTC China to pay the $14.5 million criminal penalty and to continue cooperating with the DOJ. The NPA is here (pdf).
PTC China didn’t receive voluntary disclosure credit or full cooperation credit, the DOJ said.
[A]t the time of its initial disclosure, it failed to disclose relevant facts that it had learned in connection with a prior internal investigation and did not disclose those facts until the department uncovered additional information independently and brought them to PTC China’s attention.
The companies eventually gave the DOJ all known relevant facts, including information about individuals involved in the FCPA offenses, the DOJ said.
The FBI’s Boston Field Office investigated the case.
PTC Inc. trades on Nasdaq under the symbol PTC.
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The SEC’s Securities Exchange Act of 1934 Release No. 77145, Accounting and Auditing Enforcement Release No. 3743, and Administrative Proceeding File No. 3-17118 (all dated February 16, 2016) are here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.