Co-authored by Joseph E. Gallo.
The US District Court for the Southern District of New York recently addressed whether the Foreign Corrupt Practices Act (FCPA) could reach a foreign executive of a non-US company. In contrast to the Straub case (see “SDNY Favors the SEC in Foreign Corrupt Practices Act Action Involving Novel Issues of Statutory Interpretation” in Litigation above), the District Court declined to exercise personal jurisdiction over the moving defendant. The decision offers a potential limiting principle for the reach of personal jurisdiction under the FCPA.
Following the resolution of criminal and civil FCPA claims against Siemens Aktiengesellschaft (Siemens) and proceedings in Germany, the Securities and Exchange Commission brought this enforcement action against, among others, Herbert Steffen (Steffen), a former Siemens executive. The complaint alleged that the defendant executives participated in a scheme during the period 1996 to 2007 to bribe Argentinian government officials to gain beneficial treatment for Siemens. The SEC further alleged that the executives made false certifications pursuant to the Sarbanes-Oxley Act regarding the accuracy of Siemens’ quarterly and annual certifications to the SEC. Steffen’s alleged role in the scheme was limited to encouraging another Siemens executive to authorize the bribes to Argentinian officials. There were no allegations that Steffen had authorized the bribes himself, participated in the cover-up or had any involvement in the alleged falsification of SEC filings.
Steffen moved to dismiss and the District Court agreed that the SEC failed to allege the facts necessary to assert jurisdiction over him in the United States. Citing to Straub, the District Court explained that in FCPA cases, minimum contacts with the United States necessary to establish personal jurisdiction exist where “an executive of a foreign securities issuer, wherever located, participates in a fraud directed to deceiving United States shareholders” (emphasis in original). Here, however, the District Court found that Steffen’s alleged conduct was not directed at the United States, as he had neither authorized the bribes, nor had any role in the cover-up. Even if Steffen’s actions were a proximate cause of the false SEC filings (which the District Court doubted), the District Court found his actions “far too attenuated from the resulting harm to establish minimum contacts [with the United States].” The District Court opined that if it accepted the SEC’s elastic view of jurisdiction, then “every participant in illegal action taken by a foreign company subject to US securities laws would be subject to the jurisdiction of US courts no matter how attenuated their connection with the falsified financial statements” (emphasis in original). The District Court disapproved, finding that the “exercise of jurisdiction over foreign defendants based on the effect of their conduct on SEC filings is in need of a limiting principle.” Under that “limiting principle,” the District Court declined the SEC’s request to exercise jurisdiction over Steffen.
SEC v. Sharef, et al., No. 11 Civ. 9073 (SAS) (S.D.N.Y. February 19, 2013).