Washington, D.C., March 1, 2005 – LAWFUEL – The Law News Network – The SEC today announced the filing of a settled enforcement action charging The Titan Corporation, a San Diego, Calif. based military intelligence and communications company, with violating the anti-bribery, internal controls and books and records provisions of the Foreign Corrupt Practices Act (FCPA). The SEC’s complaint alleges, among other things, that Titan funneled approximately $2 million, via its agent in Benin, towards the election campaign of Benin’s then-incumbent President.
Without admitting or denying the SEC’s allegations, Titan consented to the entry of a final judgment permanently enjoining it from future violations of the FCPA and requiring it to
· pay approximately $15.5 million in disgorgement and prejudgment interest,
· pay a $13 million penalty, which will be deemed satisfied by Titan’s payment of criminal fines of that amount in parallel proceedings brought by the U.S. Attorney’s Office for the Southern District of California and the U.S. Department of Justice, Fraud Section, and
· retain an independent consultant to review the company’s FCPA compliance and procedures and to adopt and implement the consultant’s recommendations.
“Illicit payments to government officials are inconsistent with fair play and vigorous competition and are a violation of U.S. law,” said Stephen M. Cutler, Director of the SEC’s Division of Enforcement. “Capital formation and corporate enterprise thrive when all parties participate on a level playing field.”
The SEC also issued a Report of Investigation to provide guidance concerning potential liability under the antifraud and proxy provisions of the federal securities laws for publication of materially false or misleading disclosures regarding provisions in merger and other contractual agreements.
“The SEC’s Report of Investigation highlights for issuers and disclosure counsel the potential exposure under the antifraud and proxy laws for publishing materially inaccurate disclosures relating to merger and other contractual agreements,” said Paul R. Berger, Associate Director of Enforcement.
Summary of the FCPA Enforcement Action
The SEC’s complaint against Titan includes the following allegations.
· From 1999 to 2001, Titan paid more than $3.5 million to its agent in Benin, Africa, who was known at the time by Titan to be the President of Benin’s business advisor. Some of the approximately $2 million funneled to its agent towards the election campaign of Benin’s then-incumbent President was used to reimburse Titan’s agent for the purchase of T-shirts adorned with the President’s picture and instructions to vote for him in the upcoming election. Titan made these payments to assist the company in its development of a telecommunications project in Benin and to obtain the Benin government’s consent to an increase in the percentage of Titan’s project management fees for that project. A former senior Titan officer directed that these payments be falsely invoiced by the agent as consulting services and that actual payment of the money be broken into smaller increments and spread out over time. The complaint does not allege that the then-incumbent President knew of the payments.
· In addition, despite utilizing over 120 agents and consultants in over 60 countries, Titan never had a formal company-wide FCPA policy, disregarded or circumvented the limited FCPA policies and procedures in effect, failed to maintain sufficient due diligence files on its foreign agents, and failed to have meaningful oversight over its foreign agents.
· Titan also
o falsified documents that enabled Titan’s agents to under-report local commission payments in Nepal, Bangladesh, and Sri Lanka;
o falsified documents presented to the United States government by under-reporting commission payments on equipment exported to Sri Lanka, France and Japan;
o paid a World Bank Group analyst in cash to assist it in its project in Benin; and
o paid a Benin government official approximately $14,000 in travel expenses from 1999 to 2001.
Summary of SEC’s Report Pursuant to Section 21(a) of the Exchange Act
· On Sept. 15, 2003, Titan became a party to a merger agreement in which Lockheed Martin Corporation agreed to acquire Titan, pending certain contingencies. Titan affirmatively represented in that merger agreement that to the knowledge of Titan, neither the company “nor any of its Subsidiaries, nor any director, officer, agent or employee of the Company or any of its Subsidiaries, has … taken any action which would cause the Company or any of its Subsidiaries to be in violation of the FCPA.” This representation was publicly disclosed and disseminated by Titan in two places. The proxy statement disclosed the nature of the representation. The merger agreement containing the representation was also appended to Titan’s proxy statement.
· As the Report highlights, when an issuer makes a public disclosure of information — via filing a proxy statement or otherwise — the issuer is required to consider whether additional disclosure is necessary in order to put the information contained in, or otherwise incorporated into that publication, into context so that such information is not misleading. The issuer cannot avoid this disclosure obligation simply because the information published was contained in an agreement or other document not prepared as a disclosure document.
· The Report is not intended to change the way issuers engage in merger, or other contractual, negotiations or to alter existing diligence obligations or to suggest, absent special circumstances (such as provisions intended to create third party beneficiaries), that provisions such as representations and covenants in such agreements are binding on or intended to benefit persons other than parties thereto. Representations, covenants, or other provisions of an agreement made by an issuer that are not public or disclosed to shareholders are not covered by the scope of this Report.
· The SEC will consider bringing an enforcement action in the future if it determines that the subject matter of representations or other contractual provisions is materially misleading to shareholders because material facts necessary to make that disclosure not misleading are omitted.
Today the U.S. Attorney’s Office for the Southern District of California and the U.S. Department of Justice, Fraud Section filed criminal FCPA charges and a tax charge against Titan, who entered a guilty plea before the Honorable Roger T. Benitez, United States District Judge for the Southern District of California (United States of America v. Titan Corporation, Case No.05cr0314-BEN (S.D. Cal.)). In particular, Titan agreed to plead guilty to one felony count of violating the anti-bribery provisions of the FCPA, one felony count for falsifying the books and records of Titan, and one felony count for violating Title 26 U.S.C. Section 7206(2) and to pay a criminal fine of $13 million.