In the Courts

To execute the scheme, the Defendants authorized the company's subsidiaries to make the first installment of the bribe (totaling '4.875 million) to Macedonian government officials via a Greek intermediary under purported contracts for consulting or marketing services. According to the SEC, the contracts “served no legitimate business purpose, and no bona fide services were rendered under them. Instead, the contracts were used to channel corrupt payments indirectly to government officials in a manner that would not be detected.” Id. at *2. These contracts were allegedly “supported by false performance certificates or fabricated evidence of performance.” Id.

During this time, Magyar's securities were publicly traded through American Depository Receipts (ADRs), were listed on the New York Stock Exchange (NYSE), and were registered with the SEC pursuant to Section 12(b) of the Exchange Act. Judge Sullivan explained that “[a]s executives of a publicly filed company, Defendants were required to make certifications to Magyar's auditors regarding the accuracy of the company's financial statements and the adequacy of its internal controls.” Id. The Defendants allegedly falsified their certifications in connection with Magyar's 2005 financial statements in order to cover up the alleged bribery scheme.

On Dec. 29, 2011, the SEC filed its Complaint, alleging that the Defendants had violated the anti-bribery provisions of the FCPA. In November 2012, the Defendants filed a motion to dismiss, alleging, inter alia, that the SEC's claims were time-barred. (The Defendant's motion to dismiss also alleged that the SEC lacked personal jurisdiction and that the complaint failed to state a claim upon which relief could be granted.) Id. at *3.

The court began its analysis of the Defendants' statute of limitations defense by noting that the applicable statute of limitations was the catch-all limitations period set forth in 28 U.S.C. ' 2462:

Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.

Id

. at *11 (emphasis in original).

Although neither party disputed that more than five years had passed since the SEC's claims first accrued, the parties did disagree on the plain meaning of ' 2462. The SEC argued that ' 2462 did not apply because the statute only applies 'if, within the same period, the offender ' is found within the United States.” Id. (internal quotation marks omitted). According to the SEC, the Defendants had not been present in the United States at any point during the statute of limitations period in question, thus the ' 2462 statute of limitations clock had not begun to run. Id. The Defendants, in turn, argued that the phrase “in order that proper service may be made thereon” relates “only to the ability to serve [a] defendant with process.” Id. at *12.

In analyzing these arguments, the court focused on the plain meaning of the statute, ultimately determining that the Defendants' interpretation of ' 2462 was at odds with the plain meaning of the statute. The court noted that the Defendants' interpretation of ' 2462 would effectively amend the statute by triggering the statute of limitations clock not only when a defendant is “found within the United States,” but also when service of process on a defendant is possible by some alternative method, regardless of the defendant's location. Id. The court reasoned that “[s]uch a reading would be a dramatic restatement of the statutory language and would render the clause 'if ' found within the United States' mere surplusage.” Id.

The court went on to explain that, although it was now possible to serve defendants not in the United States through the Hague Service Convention or otherwise, “this does not change the fact that Congress has maintained the statutory carve-out for defendants not found within the United States.” Id. The court said that, although the purpose underlying the carve-out is not as compelling as it previously was due to the development of worldwide service of process, it was “unwilling to second-guess Congress and amend the statute on its own.” Id.

In the Courts and Business Crimes Hotline were written by Roxana Mondrag'n and Associate Editor Matthew J. Alexander, respectively. Ms. Mondrag'n and Mr. Alexander are Associatesat Kirkland & Ellis LLP, Washington, DC.

SDNY Rules on Start of Statute of Limitations Clock

On Feb. 8, 2013, U.S. District Court Judge Richard Sullivan of the Southern District of New York issued an order in S.E.C. v. Straub, 11 CIV. 9645 RJS, 2013 WL 466600 (S.D.N.Y. Feb. 8, 2013), in which he denied the defendants' motion to dismiss in their entirety. Although the decision is a non-binding trial court decision, it is nonetheless notable for its holding regarding the statute of limitations in a Foreign Corrupt Practices Act (FCPA) anti-bribery violation under 15 U.S.C. ” 78dd-1, et seq.

The case stems from the alleged FCPA violations of three executives (the Defendants) of the Hungarian telecommunications company, Magyar Telekom, Plc. (Magyar). They allegedly bribed political officials in Macedonia in order to protect Magyar from increased competition and to mitigate the effects of increased regulatory burdens in the Macedonian telecommunications arena introduced in early 2005. Beginning in March 2005, the executives allegedly began executing a scheme to bribe public officials from both political parties in Macedonia's government, memorializing the scheme in secret documents known as the Protocols of Operation. As part of this scheme, the Defendants allegedly offered up to '10 million in bribes. Straub, 2013 WL 466600, at *1-3.

To execute the scheme, the Defendants authorized the company's subsidiaries to make the first installment of the bribe (totaling '4.875 million) to Macedonian government officials via a Greek intermediary under purported contracts for consulting or marketing services. According to the SEC, the contracts “served no legitimate business purpose, and no bona fide services were rendered under them. Instead, the contracts were used to channel corrupt payments indirectly to government officials in a manner that would not be detected.” Id. at *2. These contracts were allegedly “supported by false performance certificates or fabricated evidence of performance.” Id.

During this time, Magyar's securities were publicly traded through American Depository Receipts (ADRs), were listed on the New York Stock Exchange (NYSE), and were registered with the SEC pursuant to Section 12(b) of the Exchange Act. Judge Sullivan explained that “[a]s executives of a publicly filed company, Defendants were required to make certifications to Magyar's auditors regarding the accuracy of the company's financial statements and the adequacy of its internal controls.” Id. The Defendants allegedly falsified their certifications in connection with Magyar's 2005 financial statements in order to cover up the alleged bribery scheme.

On Dec. 29, 2011, the SEC filed its Complaint, alleging that the Defendants had violated the anti-bribery provisions of the FCPA. In November 2012, the Defendants filed a motion to dismiss, alleging, inter alia, that the SEC's claims were time-barred. (The Defendant's motion to dismiss also alleged that the SEC lacked personal jurisdiction and that the complaint failed to state a claim upon which relief could be granted.) Id. at *3.

The court began its analysis of the Defendants' statute of limitations defense by noting that the applicable statute of limitations was the catch-all limitations period set forth in 28 U.S.C. ' 2462:

Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.

Id

. at *11 (emphasis in original).

Although neither party disputed that more than five years had passed since the SEC's claims first accrued, the parties did disagree on the plain meaning of ' 2462. The SEC argued that ' 2462 did not apply because the statute only applies 'if, within the same period, the offender ' is found within the United States.” Id. (internal quotation marks omitted). According to the SEC, the Defendants had not been present in the United States at any point during the statute of limitations period in question, thus the ' 2462 statute of limitations clock had not begun to run. Id. The Defendants, in turn, argued that the phrase “in order that proper service may be made thereon” relates “only to the ability to serve [a] defendant with process.” Id. at *12.

In analyzing these arguments, the court focused on the plain meaning of the statute, ultimately determining that the Defendants' interpretation of ' 2462 was at odds with the plain meaning of the statute. The court noted that the Defendants' interpretation of ' 2462 would effectively amend the statute by triggering the statute of limitations clock not only when a defendant is “found within the United States,” but also when service of process on a defendant is possible by some alternative method, regardless of the defendant's location. Id. The court reasoned that “[s]uch a reading would be a dramatic restatement of the statutory language and would render the clause 'if ' found within the United States' mere surplusage.” Id.

The court went on to explain that, although it was now possible to serve defendants not in the United States through the Hague Service Convention or otherwise, “this does not change the fact that Congress has maintained the statutory carve-out for defendants not found within the United States.” Id. The court said that, although the purpose underlying the carve-out is not as compelling as it previously was due to the development of worldwide service of process, it was “unwilling to second-guess Congress and amend the statute on its own.” Id.

In the Courts and Business Crimes Hotline were written by Roxana Mondrag'n and Associate Editor Matthew J. Alexander, respectively. Ms. Mondrag'n and Mr. Alexander are Associatesat Kirkland & Ellis LLP, Washington, DC.