SEC Charges Underwriter and Bankers in Connection with Offering by China-based Issuer

On May 20, 2015, the U.S. Securities and Exchange Commission (“SEC”) announced a $25 million settlement with Australian mining company BHP Billiton (the “Company”) to resolve Foreign Corrupt Practices Act (“FCPA”) charges arising from the Company’s sponsorship of the 2008 Summer Olympics. The allegations concern a hospitality program offered to hundreds of guests worldwide—most of whom were not government officials—to attend the summer games in Beijing. Although there was no allegation that the program was created to influence any particular business opportunities or deals, the SEC charged that the Company failed to implement adequate anti-bribery controls to monitor the hospitality program.

April 1, 2015Practices: Anti-Corruption / International Risk, Securities & Futures Enforcement, Securities & Public Companies

On March 27, 2015, the U.S. Securities and Exchange Commission (SEC) announced charges against an investment bank and two of its bankers for failing to adequately review and escalate a due diligence report which contradicted statements about the ownership of certain assets contained in the marketing materials used in an underwritten public offering for now-defunct China-based Puda Coal, Inc. (Puda). This SEC action offers a number of important lessons for underwriters of offerings involving companies that operate in countries with heightened compliance risks.

Moreover, this is a reminder to private equity and strategic investors that incomplete diligence in connection with an investment – while not subject to the same legal obligations as underwriters in a U.S. public offering – can result in significant risk to the value of their investment and to their reputation, as well as potential governmental claims.

Puda’s story is fairly straight-forward (and will be familiar to those who have been following China-based, U.S.-listed companies over the last several years):