Business Crimes Hotline

A lengthy negotiation followed, led from Westport's side by Gougarty and the company's Asia Pacific General Manager (APAC GM), a Chinese national based in Shanghai recruited by Gougarty in 2014. According to the SEC, from the early days of his involvement, the APAC GM reported the significant and undisclosed financial interest in the private equity fund held by the Government Official. He also confirmed that the local law advice relied upon had been incorrect and that he believed it was the Government Official's personal financial interest that was the driving force behind the push to restructure the JV and transfer the shares. For example, in a June 2014 email to Gougarty and others, the APAC GM stated that "all he [the Government Official] wants is a discount to the fund where he has interest." Rather than being treated as a clear red flag, this connection with the Government Official "became a central part of Westport's negotiation strategy" according to the SEC. As the negotiations progressed slowly due to disagreements on valuation, Gougarty instructed others on the company position that the share transfer was conditioned on obtaining a long-term sales agreement with the SOE.

Throughout the negotiation process Gougarty failed to disclose what she knew to Westport's board, going so far as to delete related content from a draft letter that the APAC GM had prepared for the board. After a deal was struck in December 2015, valuing the JV at $70 million and including the share transfer in exchange for a long-term framework supply agreement and a cash dividend of 30% of undistributed profits, Gougarty continued to conceal the connection with the Government Official. After the transfer was completed in September 2016, both the company's books and records and forms submitted to the SEC misidentified the counterparty in the share transfer. The contemplated IPO never went ahead.

The SEC found that Gougarty personally caused the company's breaches of the books and records and internal accounting provisions as she knowingly circumvented what internal controls were in place by concealing the true identity of the private equity fund, failing to ensure that appropriate due diligence was conducted on the transaction and by signing false certifications. According to the SEC, "… as Gougarty knew, she had failed to disclose to the outside auditors the deficiencies and weaknesses in the internal controls that she had exploited in carrying out an unlawful bribery scheme in circumvention of Westport's anti-bribery policies and its key accounting controls."

The SEC's Order acknowledged Westport's remediation efforts (including the establishment of specific controls and mandated due diligence for transactions involving foreign government officials and entities) and its substantial cooperation which included making foreign witnesses available and voluntary production of documents.

The case is In the Matter of Westport Fuels Systems Inc. and Nancy Gougarty (No. 3-19543), before the Securities and Exchange Commission. The Order Instituting Cease-And-Desist Proceedings is available for download at http://bit.ly/2JeaitZ.

— Juliet Gunev, Mayer Brown LLP