By Mark Curriden
The Fort Worth Regional Office of the U.S. Securities and Exchange Commission and U.S. Justice Department officials in Washington, D.C. and New York are leading the investigation into whether Wal-Mart officials violated the Foreign Corrupt Practices Act by making illegal cash payments to Mexican officials in return for receiving licenses and permits to open and operate new stores, lawyers familiar with the inquiry said Monday.
Allegations that Wal-Mart bribed Mexican officials and that senior-level executives then covered up those abuses were revealed in an article in the New York Times on Sunday.
As a result of the article, Wal-Mart officials released a statement confirming that it informed SEC and DOJ officials of possible FCPA violations and that it is cooperating with the federal investigation. In December, Wal-Mart officials disclosed in their quarterly financials that the SEC had been notified of potential FCPA violations, but did not explain further.
The SEC’s decision to have its Fort Worth office handle the inquiry, instead of SEC lawyers in Washington, DC or New York, shows that Commission leadership has great confidence in its enforcement lawyers based in North Texas, according to lawyers who follow SEC matters.
Jeff Ansley, a former SEC lawyer who is now a partner at Curran Tomko Tarski in Dallas, said it makes sense for the Wal-Mart case to be handled by the SEC’s Fort Worth Office.
“From standpoint of victims and investors, one jurisdiction makes no more sense than another when it comes to Wal-Mart,” said Ansley. “But Wal-Mart is in this office’s jurisdiction and it would send a very bad message if the office here isn’t allowed to lead this investigation.”
“If you are a Wal-Mart official and your name was in the New York Times Sunday, then you need a lawyer right now, because the civil and criminal penalties under FCPA are serious,” said Ansley. “The DOJ has either already convened a grand jury or will do so soon.”
Lawyers said Monday that it is unclear if the Justice Department’s criminal inquiry will be led by Main Justice in Washington, DC, or by prosecutors in the Southern District of New York.
The Fort Worth Regional Office has enforcement jurisdiction of publicly traded companies in Texas, Oklahoma, Kansas and Arkansas. Wal-Mart is based in Arkansas.
The Wal-Mart inquiry will be the largest and highest profile case for the Fort Worth Regional Office since David Woodcock took over as regional director seven months ago. Assistant Director Michael King heads the office’s enforcement of FCPA. Neither made comments Monday.
“If the SEC gives Michael King the time, resources and freedom he needs to lead the Wal-Mart investigation, then Wal-Mart is in deep shit because Michael is a great lawyer and extraordinarily thorough and he will get to the bottom of what happened,” said a former SEC lawyer.
Wal-Mart has hired Greenberg Traurig, which has offices in Austin and Houston, to conduct a review of its global corporate compliance efforts. The retail company also hired Jones Day to conduct an internal investigation of its Mexican operations, Bloomberg News reported. It is unclear if lawyers from either of the law firms’ Texas offices are involved in the representation.
Lawyers said that most corporations self-report FCPA violations and cooperate with the SEC in hopes of getting less punishment. That will not work for Wal-Mart in this case.
“Wal-Mart is not going to get credit for self-reporting to the government because it only self-reported because it was about to be exposed by the New York Times,” said Jeff Johnston, a partner at Vinson & Elkins in Houston who is an expert on FCPA matters.
“Wal-Mart needs to take disciplinary action against the executives involved if it expects to get any kind of favorable treatment for its cooperation in the investigation going forward,” Johnston said.
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