A large hedge fund manager and its CEO agreed to pay over $413 Million in civil and criminal penalties to the SEC and the Justice Department in connection with bribing foreign officials to invest sovereign wealth funds into the respondents’ investment funds. The SEC asserts that the firm did not follow its own anti-corruption procedures by failing to conduct required enhanced due diligence when concerns were raised. Although the SEC does not accuse the CEO of knowing about the bribes, they fault him and the CFO for approving the transactions despite red flags and warnings. As part of the settlement, the firm must hire a dedicated CCO that does not have any other job at the company. The SEC and DoJ allege several violations of the Foreign Corrupt Practices Act, the Investment Advisers Act, and the Securities Exchange Act. The SEC’s Enforcement Director admonished: “Senior executives cannot turn a blind eye to the acts of their employees or agents when they became aware of suspicious transactions…”
OUR TAKE: As firms go global to attract assets, the risk management infrastructure to ensure compliance with the FCPA and other laws (including laws of the local jurisdiction) must follow.