Business Crime: USA's SEC issues FCPA charges

The SEC alleges that a Maxwell subsidiary paid more than USD2.5 million in bribes to Chinese officials through a third-party sales agent from 2002 to May 2009. "As a result, the subsidiary was awarded contracts that generated more than USD15 million in revenues and USD5.6 million in profits for Maxwell. These sales and profits helped Maxwell offset losses that it incurred to develop new products now expected to become Maxwell's future source of revenue growth."

The action was taken in conjunction with the US Department of Justice and Maxwell has agreed to pay penalties.

In respect of the SEC's action (which is not a criminal charge and therefore the statement in the header is somewhat misleading) Maxwell has agreed to pay a sum exceeding USD6.3 million.

In respect of the criminal charges brought by the DoJ, Maxwell has agreed to pay a penalty of USD8 million.

Therefore almost the entire revenue (not, note, profit) from the contracts has been wiped out.

The following is taken verbatim from the SEC's notice in relation to the proceedings:

According to the SEC's complaint filed in U.S. District Court for the District of Columbia, Maxwell's wholly-owned Swiss subsidiary Maxwell Technologies SA paid the bribes to officials at several Chinese state-owned entities. The bribes were classified in invoices as either "Extra Amount" or "Special Arrangement" fees, and were made to improperly influence decisions by foreign officials to assist Maxwell in obtaining and retaining sales contracts for high voltage capacitors produced by Maxwell SA.

The SEC's complaint alleges that the illicit payments were made with the knowledge and tacit approval of certain former Maxwell officials. For example, former management at Maxwell knew of the bribery scheme in late 2002 when an employee indicated in an e-mail that a payment made in connection with a sale in China appeared to be "a kick-back, pay-off, bribe, whatever you want to call it, . . . . in violation of US trade laws." A U.S.-based Maxwell executive replied that "this is a well know[n] issue" and he warned "[n]o more e-mails please."

The SEC alleges that Maxwell failed to devise and maintain an effective system of internal controls and improperly recorded the bribes on its books. The illicit sales and profits from the bribery scheme helped Maxwell offset losses that it incurred to develop its new products. Maxwell made corrections in its Form 10-Q filing for the quarter ended March 31, 2009.

Without admitting or denying the allegations in the SEC's complaint, Maxwell consented to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $5,654,576 in disgorgement and $696,314 in prejudgment interest under a payment plan. The company also is required to comply with certain undertakings regarding its FCPA compliance program. Maxwell cooperated in the investigation.