There is no private right of action under the Foreign Corrupt Practices Act. However, regulatory enforcement actions under the FCPA by U.S. government authorities can and often does result in massive fines and penalties. When companies subject to FCPA enforcement are compelled to pay these penalties they often then hit with follow-on civil lawsuits arising out of or based on the anti-corruption enforcement action. In the most recent example of this anti-corruption enforcement and follow-on civil litigation sequence, earlier this week a plaintiff shareholder filed a securities class action lawsuit filed against a U.S.-listed Russian telecom company that was the subject of both criminal and civil FCPA enforcement actions that recently resulted in the company’s agreement to pay substantial fines and penalties.
Moscow-based Mobile Telesystems PJSC (MTS) is the largest mobile telecommunications company in Russia. The company was the subject of both a U.S. Department of Justice criminal FCPA enforcement action and an SEC civil enforcement action. The U.S. government authorities alleged that the company engaged in a scheme to pay bribes to telecommunications officials in Uzbekistan in order to obtain licenses and business opportunities in the country. Among the Uzbek official accused of soliciting or receiving bribes Gulnara Karimova, the daughter of the former President of Uzbekistan. (In a related proceeding, the DOJ is pursuing criminal money laundering charges against Karimova and another Uzbek official.)
Earlier this month, the DOJ and the SEC each issued press releases in which the agencies announced that MTS and related entities had resolved the FCPA enforcement actions based on the company’s agreement to enter into a deferred prosecution agreement and pay a total of $850 million in penalties. The $850 million total is inclusive of a $100 million civil penalty the company agreed to pay in resolution of the SEC enforcement action. The DOJ’s March 7, 2019 press release can be found here. The SEC’s March 6, 2019 press release can be found here. The criminal information that the DOJ filed against MTS can be found here, and the deferred prosecution agreement can be found here. According to The FCPA Blog (here), the $850 million in penalties is the third largest FCPA enforcement action resolution ever.
On March 19, 2019, an MTS shareholder filed a securities class action lawsuit in the Eastern District of New York against MTS and certain of its directors and officers on behalf of a class of investors who purchased the companies securities between March 19, 2014 and March 7, 2019. The plaintiff’s complaint can be found here. The plaintiff’s lawyers’ March 19, 2019 press release about the lawsuit can be found here.
According to the plaintiff’s lawyers’ press release the complaint alleges that the defendants
made false and/or misleading statements and/or failed to disclose that: (1) Mobile TeleSystems and its subsidiary were involved in a scheme to pay $420 million in bribes in Uzbekistan; (2) consequently, Mobile TeleSystems knew or should have known it would be forced to pay substantial fines to the U.S. government after disclosing in 2014 that the U.S. Department of Justice and Securities and Exchange Commission were investigating its Uzbekistan operations; (3) Mobile TeleSystems’ level of cooperation with the U.S. government and remediation was lacking; (4) due to the aforementioned misconduct, Mobile TeleSystems would be forced to pay approximately $850 million in criminal penalties to the U.S. government; and (5) as a result, defendants’ public statements were materially false and/or misleading at all relevant times.
As regular readers of this blog know, follow-on FCPA-related civil actions are not uncommon. Interestingly, the new lawsuit filed against MTS is not even the first U.S. securities class action to be filed in connection with payment of bribes to Uzbek telecommunications officials. As discussed here, in November 2015, plaintiff shareholders filed a securities class action lawsuit against Dutch telecommunications company VimpelCom Ltd and certain of its directors and officers in which the plaintiffs alleged that the company had paid bribes to a company controlled by Karimova in order to obtain access in the Uzbekistan telecommunications market.
(In February 2016, VimpelCom agreed to pay more than $795 million to resolve the anti-bribery enforcement action. In addition, in September 2017 Swedish telecommunications firm Telia Companies AB agreed to pay more than $965 million to resolve Uzbek-related FCPA charges.)
While follow-on FCPA civil actions are not uncommon, they are not always successful; over the years, many of these types of lawsuits have been defeated (refer for example, here). By the same token, there have been successful FCPA enforcement-related follow-on actions as well. To cite one rather dramatic recent example where an anti-corruption follow-on civil action resulted in a successful outcome for the claimants, in January 2018, the plaintiffs in the Petrobras securities class action lawsuit settled that case, for just under $3 billion. In a much earlier case, Avon settled an FCPA follow-on civil action for $62 million.
These kinds of FCPA-related follow on lawsuits represent one example of a larger phenomenon that I have noted on this blog, which is the rise of event-drive litigation. As I have noted in connection with discussing this phenomenon, the challenge for claimants in event-driven securities lawsuits is that just because the company has experienced a significant business reverse that caused the company’s share price to decline does not mean that the circumstances will support a securities class action lawsuit. Nevertheless, plaintiffs’ lawyers (or at least some of them) continue to file these kinds of lawsuits.
As discussed in a recent post on the CLS Blue Sky Blog by Columbia Law School professor John Coffee, among the causal factors behind the rise in event-driven securities litigation are changes in the plaintiffs’ bar, as what he calls “new entrants” compete for these kinds of event-driven cases in which these firms will not have to compete with the larger, better established plaintiffs’ firms. In that regards, I think it is interesting to note that the plaintiff’s law firm that filed the recent lawsuit against MTS is one of the “new entrant” law firms.