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SEC vs. Thomas Wurzel - A Lesson for Executives

Author/s: Maria I. McMahon

The number of enforcement actions initiated under the Foreign Corrupt Practices Act (FCPA) by the U.S. Securities & Exchange Commission (SEC) against individuals has been increasing. In bringing such actions, the SEC sometimes employs the agency theory to assert jurisdiction over individuals and attach personal liability. As a result, company executives must be particularly vigilant in monitoring the activities of company representatives, consultants, agents and distributors to make certain that provisions of the FCPA are not violated. In addition, executives must ensure that the company has robust due diligence procedures for hiring third parties and that these procedures are strictly followed. The following is a summary of an SEC action where an executive was personally charged with violations of the FCPA that were committed in conduct of company business.

On May 29, 2009, the SEC filed a settled enforcement action against Thomas Wurzel, the former President of ACL Technologies, Inc. (ACL), a second tier subsidiary of United Industrial Corporation (UIC), a public corporation.

The SEC’s complaint alleged that Wurzel authorized illicit payments to an Egyptian-based agent “while he knew or consciously disregarded the high probability that the agent would offer, provide, or promise at least a portion of such payments” to Egyptian Air Force officials for the purpose of influencing these officials to award business to UIC.

Specifically, the SEC’s complaint alleged that in late 2001 to 2002, Wurzel authorized three forms of illicit payments to the agent:

(1) payments to the agent under the agent’s invoices “for labor subcontracting work”;
(2) a $100,000 advance payment to the agent in June 2002 for “equipment and materials;” and
(3) a $50,000 payment to the agent in November 2002 for “marketing services.”

In this matter, the SEC did not have direct evidence that improper payments were made by the agent to influence the decision-making of Egyptian Air Force officials. Instead, the SEC’s complaint included extracts from Wurzel’s correspondence with the agent where the agent stated that he needs more resources “to satisfy our people”, to meet “commitments” and to “keep momentum”.

Nevertheless, the SEC charged Wurzel with violations of the anti-bribery, books and records and internal controls provisions of the FCPA, as well as with aiding and abetting UIC’s violations of the anti-bribery and books and records provisions of the FCPA.

In a related action against UIC, the SEC also found that UIC’s corporate legal department approved the retention of the agent despite a lack of documented due diligence and despite an agency agreement that violated corporate policy.

The Wurzel case provides an example of the SEC’s authority to investigate and prosecute violations under Section 30A of the Exchange Act of 1934 (“Section 30A”), which contains the issuer-specific anti-bribery provisions of the FCPA. In the case at hand, Wurzel contended that there was no appropriate mechanism to enforce the FCPA provisions against him, because neither he nor his company (a second-tier subsidiary of UIC, a public corporation) was an issuer for purposes of Section 30A. However,
the SEC instituted an action against Wurzel based on the theory that Wurzel, as an agent of a US issuer (a parent company of the subsidiary that employed Wurzel), authorized illicit payments “to obtain or retain business” for that issuer.

This article is one of several that appear in International Trade Compliance Update, July 2009.

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SEC vs. Thomas Wurzel - A Lesson for Executives

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