Brief Fact Summary. It was claimed by the Securities and Exchange Commission (SEC) (Plaintiff) that World-Wide Coin Investments, Ltd.’s (Defendant) internal accounting practices were in violation of the Foreign Corrupt Practices Act (FCPA), which merged accounting provisions into federal securities laws.
Synopsis of Rule of Law. Under the Foreign Corrupt Practices Act, when internal accounting records and controls are insufficient, the SEC may impose liability.
The books and records provision has three basic objectives: (1) books and records should reflect transactions in conformity with accepted methods of reporting economic events, (2) misrepresentation, concealment, falsification, circumvention, and other deliberate acts resulting in inaccurate financial books and records are unlawful, and (3) transactions should be properly reflected on books and records in such a manner as to permit the preparation of financial statements in conformity with GAAP and other criteria applicable to such statements.View Full Point of Law
Issue. Under the Foreign Corrupt Practices Act, when internal accounting records and controls are insufficient, may the SEC impose liability?
Held. (Vining, J.) Yes. Under the Foreign Corrupt Practices Act, when internal accounting records and controls are insufficient, the SEC may impose liability.As a result of the FCPA, the SEC is permitted enforcement over the internal accounting procedures of companies with registered securities and accounting provisions are incorporated into federal securities law. Congress’ intention that the scope of federal securities laws must be extended past disclosure requirements is reflected in the FCPA. Section 13(b)(2)(a) of the FCPA includes the books and records provision where a company’s records need to show transactions with compliance with accepted accounting methods.; misstatements and concealment that cause inaccurate records are made illegal.Â The prerequisite for accuracy of records expects only that the record-keeping system will be sufficient and allows the company to choose how to implement the system.Â When deciding if internal accounting procedures are sufficient, the business size, and its complexity and other conditions are proper considerations. One should note that there is no scienter requirement in because even unintentional errors could allow for the utilization of corporate assets that Congress wanted to prevent via the FCPA. Independent auditors expressly warned World-Wide and Hale that the accounting system they were employing had substantial weaknesses. Subsequently, World-Wide was nearly annihilated, partly due to the absence of internal accounting controls. So, according to the FCPA, World-Wide’s accounting procedures were obviously insufficient.Â Hale must return all shares of World-Wide that he holds, World-Wide needs to disclose all material information concerning its operations since July 1979 and an independent audit is ordered. Judgment for the SEC.
Discussion. Wide discretion is given to the SEC by FCPA in questioning the information process in any publically held corporation. The SEC has failed to be aggressive in going after cases due to extensive criticism of this discretion as interfering with corporate management. It has willingly limited its enforcement actions to situations in which top management is implicated and to unreasonable nonconformities that are more than intermittent, unintentional errors.