A federal judge said he won’t “rubber stamp” the U.S. Securities and Exchange Commission’s settlement of foreign bribery allegations brought last year against International Business Machines Corp. (IBM)
U.S. District Judge Richard Leon, during a hearing yesterday in Washington, criticized the SEC and IBM for opposing his proposed reporting requirements for the company. He said IBM and the SEC need to prove statistically that his disclosure obligations are too burdensome.
“I’m not just going to roll over like the SEC has,” Leon told IBM’s lawyer, Peter Barbur, during the 25-minute hearing. “You’re going to need data to satisfy me.”
The heart of the dispute is that Leon, who has had the case under review for 22 months, wants reporting on a broader range of possible wrongdoing than the company is willing to turn over. Leon said there is a growing awareness among federal judges of the need for more rigorous review of corporate settlement agreements.
Leon, who spoke loudly and angrily, asked why the regulator would agree to limit such requirements for a company with a history of books-and-records violations. He also threatened to hold Barbur, of Cravath, Swaine & Moore LLP, in contempt for talking over him.
Barbur didn’t respond to an e-mail seeking comment on yesterday’s hearing.
IBM and the SEC submitted a “reasonable resolution” and “both parties continue to urge the court to approve the settlement,” Robert Weber, IBM’s general counsel, said in an e- mailed statement. “The parties have previously told the court that they are opposed to certain reporting provisions that are unrelated to the allegations in the complaint.”
IBM, based in Armonk, New York, said in March 2011 that it had settled with U.S. regulators over allegations that it bribed Chinese and South Korean officials to win at least $54 million in government contracts.
The company, without admitting or denying wrongdoing, agreed in 2011 to pay $10 million in disgorgement and penalties to settle alleged violations of the books-and-records and internal-control provisions of the Foreign Corrupt Practices Act.
Of 35 foreign bribery settlements with companies reached by the SEC since 2010, only one other failed to win judicial sign- off in less than three months.
Yesterday’s hearing was the first one Leon held in open court. At least three private meetings with the parties took place in his chambers without a court reporter present, according the case file and court stenographers.
Leon yesterday referenced conversations he has had with the parties since the case was filed, saying that he and the parties were at an impasse. He said it was his responsibility to ensure that the public’s interest was protected in the deal.
The judge said he wanted annual reports regarding the company’s FCPA compliance, specifically telling him about all possible accounting violations. He said that IBM balked at supplying such information beyond specific bribe allegations, a position supported by the SEC.
Under questioning from Leon, Barbur claimed he didn’t know how many possible accounting violations the company had in a given year. “As a practical matter it would be impossible to track,” Barbur said.
SEC lawyer Kyle DeYoung said the commission never asked IBM to quantify that information. He defended the narrow scope of compliance reporting the agency is seeking because it “should be tailored to conduct that gave rise to the complaint.”
Leon said that IBM has at least one employee dedicated to monitoring company litigation and FCPA compliance. The judge said he didn’t understand “why, for one of the largest companies in the world, this is too burdensome.” IBM accountants may be called to testify in his courtroom to back up the company’s position, he said.
“I guess you want that $10 million judgment on your list of achievements this year,” Leon told DeYoung. “Well, it’s not going to happen.”
He scheduled a hearing for Feb. 4.
The alleged payments, which occurred from 1998 through 2009, were made by employees at three subsidiaries of IBM, as well as LG IBM PC Co., a joint venture with LG Electronics Inc. (066570), according to the SEC’s complaint.
The SEC said cash payments to South Korean officials from 1998 to 2003 totaled $207,000 and were connected to contracts worth almost $54 million. Some of the money was delivered in shopping bags.
In China, the IBM employees created “slush funds” at local travel agencies that were used to pay for overseas excursions by government officials, the SEC said. IBM employees also gave gifts, such as cameras and laptop computers, to Chinese officials, according to the complaint.
The SEC didn’t say what IBM received in return from those officials.
The case is SEC v. International Business Machines Corp., 11-cv-00563, U.S. District Court, District of Columbia (Washington).
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