SEC Settles Out With Noble Executives

Sometimes you enter with a bang, but leave with a whimper. That is what I thought when I read in early July that the Securities and Exchange Commission had dismissed its cases against two Noble Corp. executives, Mark Jackson and James Ruehlen. The case had drawn much fanfare and attention, as it was a very rare SEC action against individuals for violations of the Foreign Corrupt Practices Act. But the case did not seem to turn out as the SEC had intended.

The SEC announced the enforcement action in February 2012, amid much fanfare. In its press release issued at the time of the initial court filing, the SEC claimed “that former Noble Corp. CEO Mark Jackson along with James Ruehlen, who is the current director and division manager of Noble's subsidiary in Nigeria, bribed customs officials to process false paperwork purporting to show the export and re-import of oil rigs, when in fact the rigs never moved. The scheme was designed to save Noble from losing business and incurring significant costs associated with exporting rigs from Nigeria and then re-importing them under new permits. Bribes were paid through a customs agent for Noble's Nigerian subsidiary with Jackson and Ruehlen's approval.” These actions led to allegations that Jackson and Ruehlen directly violated the anti-bribery provisions, internal controls, and false records provisions relating to the FCPA. For all of these claims the SEC sought injunctive relief and monetary damages.

However the case had been slowly whittled down over the years. The first claim to go was the request for monetary damages in December 2012. Then, in March of this year, the SEC dropped internal controls charges against Jackson and Ruehlen. In a court filing, the SEC said it did so “to narrow this case and streamline the presentation of evidence to the jury.”

For all the rhetoric and posturing, to obtain an agreed court order saying that you will not violate the law—which you were under an obligation not to violate regardless of any court order, agreed upon or otherwise—does seem to be a result not merited from all the time, attention and money.

In addition to narrowing its case against the two defendants, the SEC suffered several contrary rulings from the trial judge. One of the more interesting aspects of the case was that the judge, apparently ruling for the first time on the question, held that the SEC must bear the burden of negating the facilitation payments exception. Further, he held that the five-year statute of limitations is a firm boundary and that the SEC cannot claim that conduct which was greater than five years old could be the basis for an action, absent fraudulent concealment or some other legal basis to extend the time limit. Finally, in his last rulings before the trial setting of July 9, the trial judge ruled against the defendants, denying their motion for summary judgment that the SEC did not have enough evidence in the civil suit against them for a jury to decide they violated the FCPA. But the judge similarly refused the SEC's request to strike Jackson and Ruehlen's defense that the payments they allegedly oversaw to Nigerian customs agents were permitted facilitating payments under the FCPA.

At the eve of trial, the SEC was left with claims that Jackson and Ruehlen oversaw and approved bribes and that such payments were falsely entered into Noble's books and records. But even these claims never saw the light of a courtroom's day as all parties settled. As reported in the FCPA Blog, “A docket entry from July 1 for the U.S. federal district court in Houston said all deadlines in the SEC's civil FCPA enforcement action against two former Noble executives have been vacated ‘pending final settlement documents.'” As reported by Sam Rubenfeld in the Wall Street Journal, “Mr. Jackson consented to an injunction for being a ‘control person' for Noble's books and records violations, and Mr. Ruehlen consented to an injunction for aiding and abetting books and records violations. Neither admitted nor denied wrongdoing under the terms of the settlement documents, nor were they penalized in the case.” Moreover, both defendants agreed not to violate or aid and abet any violation of the FCPA going forward. Pretty stout stuff when you consider that all U.S. citizens have that obligation going forward.

In a prepared statement, Jackson's lawyer, David Krakoff of the law firm BuckleySandler, said, “We are very pleased with today's settlement. It resolves allegations that have hung over Mr. Jackson for many years without any admission of liability, without any payment of money, and without any restriction on Mr. Jackson's future employment opportunities. Mr. Jackson can now move forward with his life and career.” Meanwhile, F. Joseph Warin, a lawyer for Mr. Ruehlen, was quoted in the same WSJ article as saying, “While we were looking forward to presenting our case to a jury, the settlement of one recordkeeping claim—without any admission of liability or wrongdoing, monetary penalty, or restriction on Mr. Ruehlen's employment—satisfactorily ends the matter and allows Jim to focus his energies on his work for Noble.”

So where does this leave the SEC and what does it mean for FCPA enforcement going forward? I am certain the SEC will continue to aggressively pursue internal controls and books and records violations of the FCPA when and where it finds them; as shown by a related case involving another Noble executive, Thomas O'Rourke, Noble's former controller and head of internal audit, who settled the SEC's civil charges in 2012 by paying a $35,000 penalty for claims around the same set of facts. Further, Jackson and Ruehlen's employer, Noble Corp., paid a $2.6 million fine to the Department of Justice, $5.6 million in disgorged profits and interest to settle an SEC investigation, and $2.5 million to Nigerian authorities to settle its follow-on investigation; all of which came out the Panalpina investigation and related-enforcement actions.

But for all the rhetoric and posturing, to obtain an agreed court order saying that you will not violate the law—which you were under an obligation not to violate regardless of any court order, agreed upon or otherwise—does seem to be a result not merited from all the time, attention and money.