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Securities and Exchange Commission v. Hitachi, LTD.

United States District Court, District of Columbia

November 24, 2015

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
HITACHI, LTD., Defendant.

MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, UNITED STATES DISTRICT JUDGE.

Plaintiff Securities and Exchange Commission (the “SEC”) filed the Complaint in the above-captioned action on September 28, 2015, alleging that Defendant Hitachi, Ltd. (“Hitachi”) violated certain accounting control provisions of the Foreign Corrupt Practices Act (“FCPA”) [15 U.S.C. § 78m(b)(2)(A)-(B)]. Presently before the Court is the parties’ Joint Motion for Approval and Entry of Proposed Consent Judgment. See ECF No. [5]. For the reasons stated below, the Court GRANTS the parties’ Joint Motion for Approval and Entry of Proposed Consent Judgment.

I. BACKGROUND

A. The SEC’s Complaint

As alleged in the Complaint, in 2005, Hitachi created a subsidiary in South Africa for the purpose of establishing a local presence in that country to pursue lucrative public and private contracts, including government contracts to build two new major power stations. Complaint ¶ 2. To obtain preferential bidding status in accordance with post-Apartheid empowerment legislation, Hitachi sold 25% of the stock in its newly-created subsidiary to a local investment firm, Chancellor House Holdings (Pty) Ltd. (“Chancellor”), which was a front for the African National Congress (“ANC”), South Africa’s ruling political party. See Id. ¶ 3, 21, 28. Hitachi’s arrangement gave Chancellor-and by proxy the ANC-the ability to share in the profits from any power station contracts secured by Hitachi. Id. ¶ 3. Hitachi also entered into a separate “success fee” arrangement with Chancellor, wherein Chancellor would be entitled to “success fees” in the event Hitachi secured contracts “substantially as a result” of its efforts. See Id. ¶¶ 3, 32-35.

During the course of bidding on the power station contracts, a series of news articles in the South African press reported that Chancellor was a funding vehicle for the ANC-a fact that the ANC’s Secretary General publicly acknowledged and that Chancellor’s chairman admitted. See Id. ¶¶ 22-26, 40-45, 55. Hitachi, nevertheless, maintained its relationship with Chancellor through its subsidiaries and encouraged Chancellor to use its political influence to help Hitachi obtain the government contracts. See Id. ¶¶ 4, 46-51.

Ultimately, in 2007, Hitachi was awarded the power station contracts, which were worth approximately $5.6 billion. See Id. ¶¶ 5, 54, 56. In 2008, Hitachi’s subsidiary paid Chancellor “success fees” totaling approximately $1.1 million. See Id. ¶¶ 5, 59. In 2010, Hitachi’s subsidiary recorded a dividend worth over $1.7 million dollars to be paid to Chancellor. See Id. ¶¶ 7, 63-65. Hitachi’s subsidiary inaccurately recorded both payments in their accounting books, describing the payments as “consulting fees” and “dividends declared, ” without any reference to the fact that the payments to Chancellor were in exchange for its political influence in assisting Hitachi obtain two government contracts. See Id. ¶¶ 6-7, 60-61, 63. The subsidiary’s inaccurate books and records were consolidated into Hitachi’s financial statements for the fiscal years ended in 2009 and 2011, and filed with the SEC. See Id. ¶¶ 6-7, 60, 65.

In 2011, Hitachi’s subsidiary declared and recorded a second dividend worth approximately $3.2 million due to Chancellor. See Id. ¶ 66. This dividend declaration reflected on the subsidiary’s books and records was consolidated into Hitachi’s financial statements for the year ended March 31, 2012, but those statements were not filed with the SEC because Hitachi voluntarily terminated its registration and duty to file reports with the SEC. See Id. ¶¶ 12, 66.

In February 2014, Hitachi repurchased Chancellor’s shares in Hitachi’s subsidiary for approximately $4.4 million. Id. ¶ 68. In total, Chancellor received approximately $10.5 million from Hitachi, a return of over 5, 000% on its investment in Hitachi’s subsidiary. Id. ¶ 69.

The SEC alleges that Hitachi has violated Sections 13(b)(2)(A) and (b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78m(b)(2)(A), (B)]. See Id. ¶¶ 77-80.

B. The Proposed Settlement

Hitachi has agreed to settle the SEC’s charges and consented to the entry of a proposed consent judgment. See Consent of Hitachi, ECF No. [1-2]; Proposed Consent Judgment, ECF No. [1-3]. The terms of the settlement were negotiated by Hitachi’s counsel and were considered and approved by the SEC. Joint Mot. at 3. The proposed consent judgment permanently enjoins Hitachi from violating the Exchange Act’s books and records and internal accounting controls provisions-which are the provisions that the SEC’s complaint alleges that Hitachi violated. See Proposed Consent Judgment, ECF No. [1-3], at 1. The proposed consent judgment also orders Hitachi to pay a civil penalty in the amount of $19, 000, 000 under Section 21(d)(3) of the Exchange Act. See Consent of Hitachi, ECF No. [1-2], at 1; Proposed Consent Judgment, ECF No. [1-3], at 1-2. Under the proposed consent judgment, Hitachi would make this payment within 30 days after entry of a final judgment. Proposed Consent Judgment, ECF No. [1-3], at 2.

II. LEGAL STANDARD

Prior to approving a proposed consent decree, or consent judgment, “a court must satisfy itself of the settlement’s overall fairness to beneficiaries and consistency with the public interest.” Citizens for a Better Env't v. Gorsuch, 718 F.2d 1117, 1126 (D.C. Cir. 1983) (internal quotation marks omitted). Specifically, the Court must “determine that the settlement is fair, adequate, reasonable and appropriate under the particular facts and that there has been valid consent by the concerned parties.” Id. (citation omitted); see also Massachusetts v. Microsoft, 373 F.3d 1199, 1206 n.1 (D.C. Cir. 2004) (noting that any consent decree must “fairly and reasonably resolve the controversy in a manner consistent with the public interest”) (internal quotations and citation omitted). Approving a consent decree “is a judicial act” that the Court undertakes with care. See United States v. Microsoft Corp., 56 F.3d 1448, 1462 (D.C. Cir. 1995). However, short of a decree that “make[s] a mockery of judicial power, ” the Court should accept an agreement between the parties. Id. As this circuit has recognized, ...


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