MAN TO PAY DISGORGEMENT AND PENALTY TO SETTLE INSIDER TRADING CHARGES

FROM:  SECURITIES AND EXCHANGE COMMISSION 

On February 6, 2014, the Securities and Exchange Commission filed insider trading charges against Hao He a/k/a Jimmy He alleging He purchased short-term put option contracts in the securities of Sina Corporation ("Sina"), a foreign private issuer headquartered in Shanghai, China.

The SEC's complaint, filed in the federal district court in Atlanta, Georgia, alleges that He, between October 10, 2012 and November 13, 2012, obtained material nonpublic information concerning Sina's upcoming, negative, future earnings guidance while visiting China and/or through phone calls to China. Based on this information, He purchased approximately $162,000 in short-term put options on November 13 and November 14, 2012, which contracts expired on November 17, 2012. Given the cost and nature of those trades, Sina's stock had to decline within a short time frame in order for He's trades to be profitable.

On November 15, 2012, Sina issued an announcement noting that it had beaten analyst forecasts for third quarter earnings, but also announced unexpected negative guidance for the fourth quarter of 2012. As a result of this negative guidance, analysts downgraded the stock and, upon opening on November 16, 2012, Sina's stock price declined approximately 8.5%, opening at $48.60 compared to the previous day's close of $53.10, and ultimately closed at $45.06.

Following the announcement and decline in the stock price, He sold all of his put option contracts on November 16, 2012 for $331,530.83, generating illicit profits of $169,819.10.

The SEC's complaint alleges that He violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

He has consented, without admitting or denying the Commission's allegations, to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and requiring him to pay $169,819.10 in disgorgement plus prejudgment interest of $6,155.36, and a penalty of $169,819.10. The settlement with He is subject to court approval.

The SEC's investigation was conducted by Grant Mogan and Peter Diskin of the Atlanta Regional Office.

SEC CHARGES DIEBOLD, INC. WITH FOREIGN CORRUPT PRACTICES ACT VIOLATIONS IN CHINA, INDONESIA AND RUSSIA

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Diebold with FCPA Violations in China, Indonesia, and Russia

The Securities and Exchange Commission today charged Diebold, Inc. ("Diebold"), an Ohio corporation that is a global provider of ATMs and bank security systems, with violations of the Foreign Corrupt Practices Act ("FCPA") for lavishing international leisure trips, entertainment, and other improper gifts on foreign officials to obtain and retain lucrative business with government owned banks in China and Indonesia, and for paying other bribes in connection with the sale of ATMs to private banks in Russia. The SEC's complaint, filed in the United States District Court for the District of Columbia, alleges that Diebold paid approximately $3 million in illicit payments in these countries from 2005 through 2010. To settle the SEC's charges, Diebold has agreed to consent to final judgment, which is subject to court approval, ordering a permanent injunction, payment of $22,972,942 in disgorgement and prejudgment interest, and appointment of independent compliance monitor.

As alleged in the SEC's complaint, from 2005 through 2010, through its Chinese subsidiary Diebold Financial Equipment Company (China), Ltd., Diebold provided international leisure trips and entertainment to officials of government owned banks in China. This included trips to Europe, with stays in Paris, Amsterdam, Florence, Rome and other European cities, and trips to the United States, with travel to the Grand Canyon, Napa Valley, Disneyland, Las Vegas, and other popular tourist destinations. The SEC alleges that Diebold spent approximately $1.6 million on leisure trips, entertainment, and other improper gifts for government bank officials in China. During this same time period, the SEC alleges, Diebold spent over $147,000 on leisure trips and entertainment for officials of government banks in Indonesia. As alleged in the complaint, Diebold executives in charge of the company's operations in Asia knew of these improper payments, which were falsely recorded in Diebold's books and records as training or other legitimate business expenses.

The SEC's complaint further alleges that from 2005 through 2008, through its Russian subsidiary Diebold Self-Service Ltd., Diebold paid bribes on the sale of ATMs to private banks in Russia. As alleged in the complaint, these bribes totaled approximately $1.2 million, and were funneled through a Diebold distributor in Russia. According to the complaint, Diebold's Russian subsidiary executed phony service contracts with its distributor to hide and falsely record the payments as legitimate business expenses.

The SEC's complaint charges Diebold with violating Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Diebold has agreed to consent to a final judgment that permanently enjoins the company from future violations of these provisions, orders Diebold to pay $22,972,942 in disgorgement and prejudgment interest, and requires the appointment of an independent compliance monitor. In a parallel criminal proceeding, Diebold has agreed to pay a $25.2 million criminal fine as part of a deferred prosecution agreement with the U.S. Department of Justice.

The SEC's investigation was led by Devon A. Brown and Brian O. Quinn with assistance from Jennifer Baskin of the FCPA Unit and Kristen Dieter. The SEC thanks the U.S. Department of Justice's Fraud Section, the United States Attorney's Office for the Northern District of Ohio, and the Federal Bureau of Investigation, for their assistance in this matter.

FINAL JUDGEMENT IMPOSED IN INTERNAL CONTROLS CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The United States Securities and Exchange Commission announced today that the Honorable Ronnie Abrams of the United States District Court for the Southern District of New York entered a final judgment against defendant Ren Hu on May 17, 2013. The final judgment imposes on Hu a permanent injunction against future violations of Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5, 13a-14, and 13b2-2 thereunder, and further from aiding and abetting violations of Section 13(b)(2)(B) of the Exchange Act. The final judgment also imposes a 3-year officer and director bar against Hu but does not include any civil monetary penalty based on Hu's financial condition.

The SEC's Complaint, filed on July 30, 2012, charged Hu, former chief financial officer of China Yingxia, with fraudulent representations in Sarbanes-Oxley certifications. Among other things, the Complaint alleges that Hu made material misrepresentations in several SOX certifications. The SEC alleges that Hu misrepresented that he had designed or caused to be designed disclosure and internal controls, when he had not done so. The SEC also alleges that Hu knowingly failed to implement internal controls, aided and abetted China Yingxia's failure to do so, and made materially misleading statements to auditors concerning such controls and potential fraud by the CEO, who has reportedly been convicted by Chinese authorities for illegal fundraising activities, similar to a Ponzi scheme. China Yingxia, a Chinese reverse merger company, failed in early 2009. Hu consented, without admitting or denying the allegations of the SEC's Complaint, to the entry of the final judgment.

The Commission also previously reached several other settlements stemming from its investigation into China Yingxia. The Commission's related civil injunctive actions are still pending.

SEC FILES SETTLED FCPA CHARGES AGAINST ELI LILLY AND COMPANY

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged Eli Lilly and Company with violations of the Foreign Corrupt Practices Act (FCPA) for improper payments its subsidiaries made to foreign government officials to win millions of dollars of business in Russia, Brazil, China and Poland.

The SEC alleges that the Indianapolis-based pharmaceutical company’s subsidiary in Russia used offshore "marketing agreements" to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services, and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary. Transactions with off-shore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

The SEC alleges that when the company did become aware of possible FCPA violations in Russia, Lilly did not curtail the subsidiary’s use of the marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third party entities associated with government officials. Lilly agreed to pay more than $29 million to settle the SEC’s charges.

As alleged in the SEC’s complaint filed in federal court in Washington D.C.:
Lilly’s subsidiary in Russia paid millions of dollars to off-shore entities for alleged "marketing services" in order to induce pharmaceutical distributors and government entities to purchase Lilly’s drugs, including approximately $2 million to an off-shore entity owned by a government official and approximately $5.2 million to off-shore entities owned by a person closely associated with an important member of Russia’s Parliament. Despite the company’s recognition that the marketing agreements were being used to "create sales potential" with government customers and that it did not appear that any actual services were being rendered under the agreements, Eli Lilly allowed its subsidiary to continue using the agreements for years.
Employees at Lilly’s subsidiary in China falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians.
Lilly’s subsidiary in Brazil allowed one of its pharmaceutical distributors to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug product to state government institutions.
Lilly’s subsidiary in Poland made eight improper payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government health authorities in exchange for the official’s support for placing Lilly drugs on the government reimbursement list.
Lilly agreed to pay disgorgement of $13,955,196, prejudgment interest of $6,743,538, and a penalty of $8,700,000 for a total payment of $29,398,734. Without admitting or denying the allegations, Lilly consented to the entry of a final judgment permanently enjoining the company from violating the anti-bribery, books and records, and internal controls provisions of the FCPA, Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act. Lilly also agreed to comply with certain undertakings including the retention of an independent consultant to review and make recommendations about its foreign corruption policies and procedures. The settlement is subject to court approval.

SEC CHARGES BIOMETINC., WITH BRIBING DOCTORES IN ARGENTINA, BRAZIL, AND CHINA

The following excerpt is from a Securities and Exchange Commission e-mail:
Washington, D.C., March 26, 2012 — The Securities and Exchange Commission today charged Warsaw, Ind.-based medical device company Biomet Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries and agents bribed public doctors in Argentina, Brazil, and China for nearly a decade to win business.

Biomet, which primarily sells products used by orthopedic surgeons, agreed to pay more than $22 million to settle the SEC’s charges as well as parallel criminal charges announced by the U.S. Department of Justice today. The charges arise from the SEC and DOJ’s ongoing proactive global investigation into medical device companies bribing publicly-employed physicians.

The SEC alleges that Biomet and its four subsidiaries paid bribes from 2000 to August 2008, and employees and managers at all levels of the parent company and the subsidiaries were involved along with the distributors who sold Biomet’s products. Biomet’s compliance and internal audit functions failed to stop the payments to doctors even after learning about the illegal practices.

“Biomet’s misconduct came to light because of the government’s proactive investigation of bribery within the medical device industry,” said Kara Novaco Brockmeyer, Chief of the Enforcement Division’s Foreign Corrupt Practices Act Unit. “A company’s compliance and internal audit should be the first line of defense against corruption, not part of the problem.”

According to the SEC’s complaint filed in federal court in Washington D.C., employees of Biomet Argentina SA paid kickbacks as high as 15 to 20 percent of each sale to publicly-employed doctors in Argentina. Phony invoices were used to justify the payments, and the bribes were falsely recorded as “consulting fees” or “commissions” in Biomet’s books and records. Executives and internal auditors at Biomet’s Indiana headquarters were aware of the payments as early as 2000, but failed to stop it.

The SEC alleges that Biomet’s U.S. subsidiary Biomet International used a distributor to bribe publicly-employed doctors in Brazil by paying them as much as 10 to 20 percent of the value of their medical device purchases. Payments were openly discussed in communications between the distributor, Biomet International employees, and Biomet’s executives and internal auditors in the U.S. For example, a February 2002 internal Biomet memorandum about a limited audit of the distributor’s books stated:

Brazilian Distributor makes payments to surgeons that may be considered as a kickback. These payments are made in cash that allows the surgeon to receive income tax free. …The accounting entry is to increase a prepaid expense account. In the consolidated financials sent to Biomet, these payments were reclassified to expense in the income statement.

According to the SEC’s complaint, two additional subsidiaries – Biomet China and Scandimed AB – sold medical devices through a distributor in China who provided publicly-employed doctors with money and travel in exchange for their purchases of Biomet products. Beginning as early as 2001, the distributor exchanged e-mails with Biomet employees that explicitly described the bribes he was arranging on the company’s behalf. For example, one e-mail stated:

[Doctor] is the department head of [public hospital]. [Doctor] uses about 10 hips and knees a month and it’s on an uptrend, as he told us over dinner a week ago. …Many key surgeons in Shanghai are buddies of his. A kind word on Biomet from him goes a long way for us. Dinner has been set for the evening of the 24th. It will be nice. But dinner aside, I’ve got to send him to Switzerland to visit his daughter.
The SEC alleges that some e-mails described the way that vendors would deliver cash to surgeons upon completion of surgery, and others discussed the amount of payments. The distributor explained in one e-mail that 25 percent in cash would be delivered to a surgeon upon completion of surgery. Biomet sponsored travel for 20 Chinese surgeons in 2007 to Spain, where a substantial part of the trip was devoted to sightseeing and other entertainment.

Biomet consented to the entry of a court order requiring payment of $4,432,998 in disgorgement and $1,142,733 in prejudgment interest. Biomet also is ordered to retain an independent compliance consultant for 18 months to review its FCPA compliance program, and is permanently enjoined from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Biomet agreed to pay a $17.28 million fine to settle the criminal charges.

The SEC’s investigation was conducted by Brent S. Mitchell with Tracy L. Price of the Enforcement Division’s FCPA Unit and Reid A. Muoio. The SEC acknowledges the assistance of the U.S. Department of Justice’s Fraud Section and the Federal Bureau of Investigation. The investigation into bribery in the medical device industry is continuing.