Issue link: https://digital.shearman.com/i/1389983
24 The first half of 2021 brought a number of updates to private litigation actions that followed the conclusion, or even commencement, of FCPA investigations. Particularly prevalent were follow-on securities fraud claims and civil RICO actions. Significantly, the threat of such civil litigation by private third parties in the aftermath of an FCPA investigation has extended the uncertainty and financial risk related to anti-bribery violations. Last year, state owned oil and gas companies played a significant role in the follow-on litigation developments in the first half of 2021. SECURITIES FRAUD CLAIMS MOBILE TELESYSTEMS PJSC 7 In March, a court dismissed the investor lawsuit against Mobile TeleSystems which alleged that MTS had failed to disclose the $850 million penalty imposed by the DOJ and SEC as soon as it learned of their investigations. Investors claimed MTS could have estimated the likely penalty in 2014 when DOJ opened their investigation into MTS for bribery payments in Uzbekistan. Investors also claimed that MTS had misrepresented the extent to which it was cooperating with the government. Judge Ann Donnelly in the Eastern District of New York dismissed the suit on the basis that MTS had no way of knowing what the government would eventually charge, what penalty the government might assess, or even whether MTS would pursue a DPA or contest the charges. Because such factors could not be predicted, the court held that MTS was not liable for not disclosing the $850 million figure upon learning of the investigation and misleading investors. VEON (FORMERLY VIMPELCOM) 8 In a case similar to MTS, an investor class action against VEON was dismissed by Judge Andrew Carter of the Southern District of New York. Here the investors alleged that VEON failed to disclose internal concerns relating to potential bribery payments to the daughter of Uzbekistan's president when VEON first had knowledge of that conduct, which began in 2005, instead waiting to disclose on it Form 20-F in 2011. The court held that the regulation upon which the plaintiffs relied governed the accuracy and reliability of financial reporting but did not create an affirmative duty to disclose. Because the plaintiffs had not pointed to a statute requiring disclosure or public statement that would have been misleading absent a disclosure, the 7 Salim v. Mobile TeleSystems PJSC, No. 19-CV-1589 (AMD) (RLM) (E.D.N.Y. Mar. 01, 2021. 8 In re Veon Ltd. Sec. Litig., No. 15-cv-08672 (ALC) (S.D.N.Y. Mar. 11, 2021). court held that plaintiffs had not adequately plead a violation of the securities laws. ODEBRECHT 9 U.S. Magistrate Judge Barbara C. Moses of the Southern District of New York agreed to sanction Odebrecht S.A., a Brazilian engineering conglomerate, in its securities lawsuit for destroying the encryption keys necessary to access its secondary accounting platform, MyWebDay, where it tracked bribe payments it made to Brazilian government officials. Odebrecht destroyed the encryption keys in 2016 after investigations into its conduct had already begun, and the court held that the intentional destruction of the keys had prejudiced the plaintiffs' position with spoliation. However, the court declined to impose the harshest sanctions pursued by plaintiffs, explaining that while Odebrecht had destroyed access to evidence it knew or should have known would likely be used in litigation, it had not done so to affect this specific litigation. OSI SYSTEMS 10 Judge Fernando Olguin of the Central District of California denied OSI Systems' motion to dismiss a securities class action on the grounds that OSI should have disclosed the sale of 49% of its Albanian subsidiary, a sale which contradicted its statement that it owned all of the turnkey market in Albania. OSI, a manufacturer of scanning systems used in several industries, had sold the subsidiary, worth approximately $200 million, for $4.50 to an Albanian dentist with ties to the government. The court held that this sale made the statement that OSI owned 100% of the market was "misleading at best." The case remains pending. RICO CLAIMS The first half of 2021 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). 9 DoubleLine Capital LP et al. v. Odebrecht Finance Ltd. et al., 17-CV- 4576 (GHW) (BCM) (S.D.N.Y. Mar. 30, 2021). 10 Longo v. OSI Sys., Inc., No. CV 17-8841 FMO (SKx) (C.D. Cal. Mar. 31, 2021).