There is no private right of action under the Foreign Corrupt Practices Act. However, FCPA-related matters frequently are the subject of D&O claims, as investors file follow-on civil actions in the wake of news of an FCPA-related investigation or enforcement action. The latest examples of this type of corrupt payment-related follow-on actions are the lawsuits recently filed against Raytheon Technologies Corporation and certain of its directors and offices in the wake of the company’s disclosures of governmental investigations of alleged improper payments. The new lawsuits are representative examples of the ways in which news of corruption investigations can lead to D&O claims against the target companies.



Raytheon is a global aerospace and aeronautics defense firm. In 2001, the company formed a joint venture called Thales-Raytheon Systems (TRS) with the French aerospace firm, Thales Group. In its October 27, 2020 SEC filing on Form 10-Q, Raytheon disclosed a number of items with respect to the TRS venture.


Among other things, the company disclosed that in 2019 Raytheon had received an SEC subpoena “seeking information in connection with an investigation into whether there were improper payments made by Thales-Raytheon Systems (TRS) or anyone acting on their behalf in connection with TRS or Raytheon Company contracts in certain Middle East countries since 2014.” The company further disclosed that in the first quarter of 2020, the U.S. Department of Justice advised Raytheon that it has opened a “parallel investigation.” During the third quarter of 2020, Raytheon received an additional SEC subpoena, “seeking information and documents as part of its ongoing investigation.”


The 10-Q also disclosed that on October 8, 2020, the company received a criminal subpoena from the DOJ “seeking and documents in connection with an investigation relating to financial accounting, internal controls financial reporting, and cost reporting regarding Raytheon Company’s Missiles & Defense business since 2009.”


In its 10-Q, the company said that it was cooperating with the SEC and DOJ investigations, and noted that it is conducting its own investigation to determine “whether there has been any conduct that is in violation of Raytheon Company policy.”


The Lawsuits

On October 30, 2020, a plaintiff shareholder filed a securities class action lawsuit in the District of Arizona against Raytheon and certain of its directors and officers. The complaint, a copy of which can be found here, purports to be filed on behalf of a class of investors who purchased Raytheon securities between February 10, 2016 and October 27, 2020.


After extensive block quotations from company disclosures and financial statements during the class period, the complaint refers to the disclosures from the company’s October 27, 2020 10-Q cited above.


The complaint alleges that the company’s various statements during the class period were misleading because defendants allegedly made false and/or misleading statements and/or failed to disclose that: “(1) Raytheon had inadequate disclosure controls and procedures and internal control over financial reporting; (2) Raytheon had faulty financial accounting; (3) as a result, Raytheon misreported its costs regarding Raytheon Company’s Missiles & Defense business since 2009; (4) as a result of the foregoing, Raytheon was at risk of increased scrutiny from the government; (5) as a result of the foregoing, Raytheon would face a criminal investigation by the U.S. Department of Justice (‘DOJ’); and (6) as a result, Defendants’ public statements were materially false and/or misleading at all relevant times.”


The complaint alleges that the company’s share price declined 7% on the news of the governmental investigations. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.


In addition to the securities class action complaint, on November 25, 2020, a separate plaintiff filed a shareholder derivative action in the District of Delaware against 16 current and former directors and officers of Raytheon, as well as against the company as nominal defendants. The derivative complaint, which can be found here, repeats many of the same allegations as set forth in the securities class action complaint.


The derivative complaint also adds a number of other allegations, including allegations that while the company’s share price allegedly was inflated by misrepresentations, seven of the individual defendants “engaged in lucrative insider sales, netting combined proceeds of over $37 million.” The derivative complaint also alleges that during the class period the company repurchased over 24 million shares of its common stock for over $4 billion, but that as a result of the inflation in the value of the company’s stock, the company overpaid for its own shares by nearly $2.7 billion.


The derivative complaint asserts substantive claims against the defendants for violations of Section 14(a), based on alleged misrepresentations in the company’s proxy statements; for alleged violations of Section 10(b), in connection with the alleged damage to the company based on the company’s repurchase of its own shares at inflated prices; for alleged violations of Section 20(a); for breach of fiduciary duties; for alleged unjust enrichment; for abuse of control; for gross mismanagement; for waste of corporate assets; and, against certain of the individual defendants, for contribution.


The derivative complaint seeks recovery of damages on behalf of Raytheon, as well as the adoption by the company and its board of “all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and to protect Raytheon and its shareholders from a repeat of the damaging events described herein.”



While the newly filed lawsuits are representative examples of the ways in which news of a corruption investigation can lead to D&O claims, there are a number of unusual or at least distinctive features to this situation.


The first is that relatively little is known about the possible improper payments that are under investigation. The company’s very terse description in its 10-Q does not even identify the specific country or countries in which the allegedly improper payments took place, saying only that the investigation is looking into payments relating to “contracts in certain Middle East countries.” The company’s disclosures contain no further details about the alleged payments, such as the size of the payments; the number of company representatives involved; the contracts or programs with which the payments were made; and the magnitude of any benefits the company may have derived as a result of the payments.


And while I opened this blog post by referring to litigation patterns involving FCPA-related investigations, the fact is that the company’s 10-Q disclosures do not refer to or mention the FCPA. The company’s 10-Q refers only to allegedly “improper payments,” without specifying what about the payments might have, or allegedly might have, made the payments improper.


The Raytheon complaints have only just been filed and it remains to be seen whether or not the complaints will be successful. However, though the complaints have only just been filed, it is worth noting, as I have previously observed, that plaintiffs seeking to assert liability claims on the basis of alleged FCPA violations or other corrupt conduct frequently fall short, even where the defendant company has admitted to improper payments. As I have also previously noted, corruption-related lawsuits frequently are filed, but frequently are unsuccessful.


There is, however, one very good reason why plaintiffs’ lawyers continue to file these kinds of lawsuits despite the long odds, and that is that if they can figure out a way to get past the motion to dismiss hurdle, these cases can be highly remunerative. The most extreme example of this principle is the high-profile case involving Petrobras, which settled in early 2018 for $3 billion, one of the largest U.S. securities class action settlements ever.


The Petrobras settlement may be an outlier, but it is not the only recent high dollar-figure settlement in FCPA-related securities class action lawsuits. For example, the series of settlements in the FCPA-related Cobalt International Energy securities suit total approximately $389.6 million. The bribery related securities suit against Wal-Mart Stores settled for $160 million. The FCPA-related securities suit against Avon Products settled for $62 million.


Given the magnitude of these various settlements, it seems likely that plaintiffs’ lawyers will continue to file these kinds of corruption-related actions. To be sure, while there are a number of these kinds of lawsuits every year, they usually amount to more than a small handful of cases representing a relatively small portion of the overall volume of securities and derivative lawsuit filings. However, the corruption-related lawsuits, while few in number, are representative of a larger phenomenon, which is the more general rise in the number of event-driven lawsuits.


Event-driven litigation has come to be such a significant factor in securities and derivative litigation filings in recent years. The exposure to these kinds of claims is not the kind of risk that can be identified by the kind of financial statement review and analysis that is the traditional basis of public company D&O insurance underwriting – although, to be sure, companies that are doing business in certain obvious high-risk jurisdictions obviously are at greater risk of becoming involved in bribery or corruption investigations.