United States: Shareholder Efforts To Bootstrap FCPA Violations Into Private Securities Cases Meet With Mixed Success – Key Takeaways

The absence of a private right of action under the Foreign Corrupt Practices Act (FCPA) has motivated plaintiffs' attorneys to pursue indirect legal theories – often in the form of securities class actions, derivative actions, or books and records cases – in an effort to craft a recoverable private claim for corporate bribery. Typically, these attempts have relied on a company's disclosure of a government investigation or statements in a deferred prosecution agreement (DPAs) or settlement agreement between a company and a regulator in which the company admits facts about wrongful conduct and internal control failures. Plaintiffs' attorneys try to capitalize on these often full-throated admissions of wrongdoing to substantiate otherwise skeletal pleadings.

As recent cases show, however, even DPAs and regulatory resolutions with admissions do not necessarily make for a successful securities class action. Most securities fraud claims, like those in the recent case Doshi v. General Cable Corp.,1 are dismissed. Only a smaller number proceed to discovery. This article analyzes recent trends in FCPA-based securities litigation.

Legal framework

Admissions in DPAs or other corporate resolutions often embolden shareholders and plaintiffs' attorneys to think they have the requisite facts to meet the heightened securities fraud pleading requirements under securities laws, which include satisfying Rule 9b of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act (PSLRA). Most claims, however, are dismissed under the first element of federal securities fraud, which requires a material misrepresentation or omission by the defendant. To plead a material misrepresentation, a plaintiff must "specify each statement to have been misleading" and "why the statement is misleading." Despite the DPA admissions, plaintiffs often struggle to identify statements that rise to the level of a material misstatement.

Recent trends in FCPA-based securities cases

Doshi v. General Cable Corp.

The recent Doshi case provides a prime example of a claimant failing to satisfy the material misstatement element. Investors initiated this putative securities class action after the company agreed to pay approximately USD 76 million to the Department of Justice and the Securities and Exchange Commission to resolve an FCPA enforcement action concerning its foreign subsidiaries' conduct abroad. Piggy-backing off the government's allegations and the company's admissions in the settlement, shareholders alleged the company made three categories of false or misleading statements, each of which the court concluded was insufficient to state a claim:

  • Misstatements about policies and ethics.The court held that general statements regarding the existence of policies and the company's commitment to abiding by the law were too vague and boilerplate to be material or misleading.
  • Misstatements about the efficacy of internal controls.Although the court held that the company's disclosures in the government settlements confirmed that prior statements about the efficacy of its internal controls were misleading, the defendant did not know the statements were false at the time they were made and therefore lacked the requisite scienter.
  • Omissions regarding market risks.The court held that the company had no duty to disclose risks until the consequences of the company's actions – that it was impossible for the company's foreign subsidiaries to operate without making improper payments – were "virtually certain."

A series of other cases, like Doshi, have carefully considered these same (or similar) allegations of FCPA-related corporate disclosures. In most cases, such statements have been held not actionable. As discussed below, however, in certain circumstances, admissions in FCPA resolutions can be evidence of a misstatement sufficient to support an action.

Statements about integrity, ethics, and compliance with law

Shareholders routinely fashion fraud claims around a company's statements about its compliance with the law, its reputation for integrity or its commitment to ethical conduct, all of which are arguably discredited following an FCPA-related settlement. Courts, however, have largely dismissed such public statements as mere "puffery" – corporate cheerleading upon which no reasonable person would rely. Explicitly aspirational statements, such as those in corporate codes of conduct, are considered outside the bounds of liability. So too are statements accompanied by qualifiers that make clear to the reader that they are corporate goals.

Under certain circumstances, however, generic statements about an organization's compliance with anti-bribery law may be actionable. In the Eletrobras FCPA/securities litigation,2 the court found that the company's repeated statements emphasizing "its commitment to transparency and ethical conduct" were made in direct response to disparaging press reports implicating Eletrobras in the now infamous Operation Car Wash bribery scandal. The larger context in which the statements about the company's integrity were made suggested that the underlying purpose was to reassure investors, thus making the statements actionable.

Statements about the existence or effectiveness of internal controls

Another common category of statements upon which shareholders try to base a claim are statements from SEC filings or Sarbanes-Oxley Act (SOX) certifications relating to the quality of a company's internal controls. General statements about internal controls are generally not actionable because they are too vague or boilerplate. But some plaintiffs have successfully pled an actionable misstatement where the statements reflected an opinion on the efficacy of the program and the plaintiff was able to allege that the speaker was aware the opinion was false.

In Doshi, the court determined that statements in annual reports regarding the company's internal controls were actionable because the statements suggested that management had reviewed these controls and concluded they were effective, and plaintiffs pled facts to show that these conclusions were ill-founded. The court's conclusion rested in part on the company's admissions in government settlement agreements that management knew at the time of the representations that the company's internal controls were inadequate and facilitated improper payments. These additional facts elevated what would otherwise be a non-actionable general statement to an actionable basis for a claim.

Failure to disclose FCPA risk or payments

As a general matter, a company has no free-standing duty to disclose market or corruption risk or even uncharged wrongdoing. To be actionable, the lack of disclosure must make other disclosures materially misleading to investors. The risk of liability on this basis is most likely to arise where a company discusses the reasons for its success, thus creating an obligation to tell the whole story, even if that includes illegal conduct.

The recent cases involving Rio Tinto3 and Braskem4 are illustrative of this point. In the Rio Tinto case, shareholders alleged that the company committed securities fraud by failing to disclose that its financial success was due, at least in part, to business obtained by bribing government officials. After examining the company's public statements, however, the court concluded that the statements were not actionable because the company did not attribute its success to any particular cause.

In contrast, in Braskem, the court agreed with shareholders that the company's statements regarding the bases for the price it paid for certain raw material were actionable. The court so found because the company advanced a number of innocuous reasons for the low purchase price, but neglected to mention that the prices had been established pursuant to a side agreement the company procured by paying substantial bribes.

Failure to disclose FCPA investigation

A company's failure to disclose that it is being investigated by a regulator is generally not actionable. However, in Menaldi v. Och-Ziff Capital Management Group,5 the court found that shareholders adequately pled that the company failed to disclose a contingent loss in violation of Generally Accepted Accounting Principles (GAAP) because the officers were aware that the company did business with high-risk parties in Africa and had received detailed SEC subpoenas describing the alleged misconduct. The court found that the government investigation triggered a "reasonable possibility" of an adverse impact on the company's financial position by way of a penalty or disgorgement order should the investigation conclude illegal conduct had occurred. Because GAAP mandated disclosure of the investigation, the company's failure to do so was held actionable.

Other areas of exposure

In addition to securities fraud claims, organizations facing allegations of FCPA violations risk exposure to other forms of shareholder litigation, including books and records inspections and derivative claims. Such litigation imposes an additional burden on an organization dealing with FCPA concerns and may result in substantial additional cost.

Fortunately, a robust corporate and board response to FCPA concerns may lower the risks associated with derivative claims resulting from potential or actual violations. Courts have rejected shareholder assertions of demand futility for derivative claims alleging improper oversight where a board took steps to address potential FCPA violations, including through an internal investigation led by outside counsel.6 Moreover, where a plaintiff makes a demand before filing a derivative claim and the board refuses the demand, courts have found such refusal reasonable where the board first conducts a thorough investigation.7


These cases suggest a few things companies might consider to limit their exposure to securities fraud claims following an FCPA-related resolution or other FCPA-related disclosures.

First and foremost, a robust and prompt response to FCPA concerns, including through investigation and remediation, substantially lowers the risk associated with shareholder litigation resulting from such concerns. If remediation is required, companies should consider both individual remediation (ie, through discipline) and systemic remediation (ie, through implementation of policies and procedures establishing an effective control environment). Relatedly, companies should consult disclosure counsel to determine when a duty to disclose an ongoing investigation or illegal conduct may arise.

Second, companies should take care in the wording of any admissions in DPAs or resolutions entered with government regulators and be sensitive to the risk of downstream securities litigation based on these admissions. Furthermore, companies should strive to negotiate language in the resolution papers reflecting, to the maximum extent possible, self-disclosure, extraordinary cooperation, and the role of the audit committee and board in conducting the internal investigation.

Third, companies should be mindful when drafting disclosures pertaining to such factors as their anti-corruption commitment, effectiveness of internal controls, source of success, or risks they face in foreign markets. Every business wants to emphasize its positive attributes in public statements, but tempered language, with appropriate caveats, can help avoid misinterpretation.


1  Doshi v.  General Cable Corp., et al., No.  2:17-cv-25 (WOB-CJS),2019 WL 1965159 (E.D.Ky.  Apr.  30, 2019).

2 In re Eletrobras Sec.  Litig., 245 F.  Supp.  3d 450 (S.D.N.Y.  2017).}

3  Das v.  Rio Tinto PLC, 332 F.  Supp.  3d 786 (S.D.N.Y 2018).

4  In re Braskem S.A.  Sec.  Litig., 246 F.  Supp.  3d 731 (S.D.N.Y.  2017).

5 Menaldi v.  Och-Ziff Capital Mgmt.  Grp.  LLC, 277 F.Supp.3d 500 (S.D.N.Y.  2017).

6  See, eg, Shields on Behalf of Sundstrand Corp.  v.  Erickson, 710 F.Supp.  686, 691 (1989).

7 See, eg, Morefield v.  Bailey, 959 F.  Supp.  2d 887, 906 (E.D.  Va.  2013).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions