The Securities and Exchange Commission is on the defensive again with another federal judge. For months, behind closed doors, U.S. District Judge Richard Leon in Washington, D.C., has repeatedly criticized a proposed settlement the SEC reached with International Business Machines Corp. in a foreign bribery case. Those simmering grievances became public at a hearing last week in which Leon accused the SEC of “rolling over” and threatened to cite one of IBM’s lawyers at Cravath, Swaine & Moore for contempt of court. According to a Bloomberg News report on the hearing, Leon angrily rejected IBM’s $10 million deal to settle SEC claims that the company bribed Chinese and South Korean officials to win $54 million in government contracts. According to Bloomberg, Leon stated that the settlement isn’t in the public interest because IBM, which has a history of bribery allegations, wouldn’t be required to publicly report all future violations of U.S. anti-bribery laws. He refused to sign off on the deal until IBM either agreed to additional reporting requirements or presented data showing that the reporting requirements are overly burdensome. “I’m not just going to roll over like the SEC has,” Leon reportedly told Cravath partner Peter Barbur, who represented IBM at the hearing. Leon follows in the path of Manhattan U.S. District Judge Jed Rakoff, who has criticized the SEC for entering into settlements that he doesn’t believe are in the public interest. The SEC has taken the position that a judge isn’t allowed to consider the public interest when evaluating settlements; it asserted that argument in the court fight over the $285 million Citigroup settlement that Rakoff rejected. That case will be argued before the U.S. Court of Appeals for the Second Circuit in February. The SEC announced in March 2011 that it had charged IBM with civil violations of the Foreign Corrupt Practices Act in China and South Korea and that IBM agreed to settle the charges without admitting wrongdoing. According to the SEC’s complaint, more than 100 employees of IBM subsidiaries made small bribes to government officials in Asia between 1998 and 2009. The SEC didn’t actually charge IBM with violating the anti-bribery provision of the FCPA. Instead, the agency accused IBM of violating provisions of the law requiring companies to maintain accurate books and records and to put in place internal controls for preventing FCPA violations. Under the settlement, IBM agreed to pay $5.3 million in disgorgement, $2.7 million in prejudgment interest, and a $2 million civil penalty. The company also agreed to compile annual reports on its future bribery allegations. That remedy didn’t sit right with Leon. He argued that IBM should list in its annual reports not just alleged bribery, but also potential accounting violations. Both IBM and the SEC have countered that those requirements are too burdensome and that they go beyond the scope of the SEC’s original complaint. The parties and the judge have had three closed-door discussions about the proposed settlement since the case was filed. Leon dug his heels in further at the December 20 hearing. He reiterated that he thinks his job is to ensure that the settlement is in the public interest. He also said that he didn’t understand why heightened reporting requirements are so onerous for one of the biggest companies in the world. “You’re going to need data to satisfy me,” he said. The next hearing is scheduled for February 4. Leon also reportedly threatened to cite Barbur for contempt of court for talking over him. Back in 2000, IBM agreed to pay a $300,000 penalty to resolve an SEC complaint alleging that it violated the same “books and records” provision of the FCPA. “Judge Leon may have good grounds for seeking information about IBM’s continuing compliance with the law because it’s a prior offender,” New York Times Dealbook blogger Peter Henning noted in this post. Barbur was not available for comment. Robert Weber, IBM’s general counsel, told Bloomberg that IBM submitted a “reasonable resolution” and that both the company and the SEC “continue to urge the court to approve the settlement.”
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