Issue link: https://digital.shearman.com/i/1265921
UNUSUAL DEVELOPMENTS FCPA DIGEST July 2020 32 further enforcement actions against several former C-suite executives at the company in connection with the scheme. As several former Cognizant executives were subsequently charged from conduct arising out of the bribery scheme, plaintiffs filed an amended complaint in 2019, including new allegations related to the indictments. Defendants moved to dismiss the complaint, noting the Private Securities Litigation Reform Act (PSLRA) imposes certain heightened pleading standards on securities plaintiffs. At issue in the motion to dismiss, specifically, were (1) whether statements by the company and its chief executive were materially false and misleading, and (2) whether the statements were made with the requisite scienter. In June 2020, Judge Esther Salas denied the defendants' motion to dismiss the securities fraud claims. Judge Salas found the plaintiffs stated with particularity facts giving rise to a strong inference that the company acted with the required state of mind—that is, it acted with an intent to deceive, manipulate, or defraud, either knowingly or recklessly. She further found that the alleged financial misstatements were sufficiently material at the pleading stage to merit a denial of the motion to dismiss. Later in June 2020, the DOJ wrote in a court filing that it intends to seek a stay of discovery in the securities case pending prosecution of Coburn and Schwartz, two of the executives charges over the alleged bribery scheme. The case is currently pending, and further developments in the case should be followed closely by companies apprehensive of follow-up securities litigation in the aftermath of an anti-bribery investigation. Mobile Telesystems PJSC In another notable securities fraud case, investors sued Mobile Telesystems PJSC (MTS) in relation to the company's $850 million FCPA settlement in 2019. 17 The plaintiffs allege that MTS made misleading statements when it sought to assure investors that it would cooperate with the DOJ's investigation. The complaint states that if MTS had cooperated fully with the investigation, it would have received a 25% sentencing discount— reducing the eventual penalty by an additional $350 million. MTS moved to dismiss the complaint in May 2020, noting in part that it could not have predicted the outcome of the investigations; the motion is currently pending. 17 Salim v. Mobile TeleSystems PJSC et al., No. 1:19-cv-01589 (E.D.N.Y. 2019). 18 Citgo Petroleum Corporation v. Petroleum Logistics Service Corp., No. 20-cv-01820 (S.D. Tex. 2020) RICO CLAIMS The first half of 2020 saw notable updates to several civil Racketeer Influenced and Corrupt Organizations Act (RICO) claims arising out of FCPA enforcement actions. RICO opens the door to plaintiffs by offering a federal claim for damages related to racketeering activities. The Act is silent about its extraterritorial reach, and as a result, it is relatively rare for RICO cases to follow FCPA investigations because of the difficulty of establishing jurisdiction over conduct occurring in foreign countries (but not altogether impossible). State-Owned Oil Companies PdVSA continues to feature prominently in this section on private litigation. In May 2020, PdVSA's wholly owned subsidiary, Citgo Petroleum Company (which is discussed in the "Foreign Officials" section above), filed a complaint for damages under RICO against businessman Jose Manuel Gonzalez Testino and his company Petroleum Logistics Service Corp. 18 Testino had pled guilty to one count of conspiracy to violate the FCPA by paying bribes to PdVSA and Citgo employees in Texas (and thus obviating a question on the extraterritorial reach of RICO), and Citgo filed claims that it suffered damages as a result of Testino's conspiracy. The damage claims rest both in common law and under RICO. Under the RICO claims, Citgo seeks treble damages for all actual injuries caused by Testino and his company, as well as attorneys' fees—both of which are permitted by the RICO statute. Citgo's case against Testino and his company is currently pending. Continuing the trend of national oil companies requesting damage awards in U.S. federal court for corruption schemes in which their own officials received bribes, Petrobras sued Samsung Heavy Industries in March 2019 under RICO. 19 Samsung had previously settled criminal charges with the DOJ related to the same conduct in November 2019, paying $75 million to the DOJ. In June 2020, the court dismissed the RICO claims because it found the conduct was time-barred based on the Act's four-year statute of limitations, which begins when a plaintiff knew or should have known of the injury. Petrobras had issued several press releases back in 2014 regarding the specific official Samsung is alleged to have bribed, which indicates it knew or should have known of the bribery scheme that was the subject of the RICO claim. 19 Petrobras Am., Inc. v. Samsung Heavy Indus. Co., No. H-19-1410 (S.D. Tex. 2019).