On April 27, a civil FCPA litigation against three former executives of a Hungarian telecommunications company officially came to a close after more than five years of contentious litigation in the Southern District of New York when Judge Richard Sullivan approved the settlements of the last two defendants and entered judgment in the matter.  The case alleged that three former executives of Magyar Telekom, Plc., a Hungarian telecommunications company, participated in a scheme between 2004 and 2006 to bribe public officials in Macedonia in order to secure favorable treatment for Magyar’s Macedonian subsidiary.  All three defendants were foreign nationals working for an overseas company; the charged conduct took place exclusively on foreign soil; and the defendants continue to reside overseas.

There is nothing remarkable about the terms of the settlements themselves – they are garden variety no-admit-no-deny FPCA settlements with penalties and officer-and-director bars.  But what is notable are the three legal rulings handed down during the litigation by a respected SDNY judge on threshold issues.  They are: (1) the court’s expansive notion of personal jurisdiction, (2) the court’s broad ruling on the scope of the interstate commerce requirement, and (3) the court’s interpretation of the applicable statute of limitations as conferring no time limitation on the SEC’s ability to charge an overseas defendant who has remained outside the U.S. during the entire limitations period.  Given the relative absence of circuit court guidance in the FCPA space, the SEC is certain to attempt to leverage these favorable rulings going forward to prosecute foreign FCPA defendants in U.S. courts.

Personal Jurisdiction

The defendants asserted from the onset of litigation that the court had no jurisdiction over them.  In their motion to dismiss, they asserted that forcing them to appear in a U.S. court would violate their due process rights by impermissibly extending jurisdiction over “wholly foreign conduct” where there was no evidence that they intended to affect the U.S. or that their conduct had a significant impact here.  The court was unmoved, accepting the SEC’s argument wholesale that the defendants’ conduct – which allegedly involved falsifying SEC filings (Magyar’s ADRs traded on a U.S. exchange) and the company’s books and records to conceal the bribery scheme from auditors and investors – was designed to violate U.S. securities regulations and was thus necessarily directed toward the United States.[1]  The defendants fared no better in arguing the court should still decline to exercise its jurisdiction over them given the equities.  Specifically, the court was not swayed by the asserted difficulty of obtaining evidence located in foreign jurisdictions, the time and costs associated with tracking down and interviewing a key witness who was unilaterally interviewed by the SEC without prior notice to the defendants, and Defendant Elek Straub’s advanced age and leukemia treatments.[2]

The court’s assertion of personal jurisdiction in these circumstances – where there were no allegations whatsoever of conduct in the U.S. or even where, in the court’s words, the conduct was “not principally directed [here]” – provides the SEC with persuasive authority to urge other courts to retain jurisdiction over foreign defendants in future cases who had only limited contacts with the United States.  FCPA cases necessarily involve some degree of overseas conduct, but, if accepted by other courts, the court’s analysis would provide for personal jurisdiction over foreign defendants allegedly involved in virtually any conduct that conceivably impacts U.S. investors, however incidental.

Use of Interstate Commerce

The court also took a broad view of what is required to satisfy the FCPA’s requirement that the defendants made use of an “instrumentality of interstate commerce.”  Discovery revealed almost no evidence of emails routed through or stored on U.S. network servers – thereby negating the SEC’s jurisdictional allegations in the complaint that one or more emails bounced off of a U.S. server – but the SEC advanced a new theory at the summary judgment stage.  It claimed that the defendants used an instrumentality of interstate commerce when they participated in the preparation of allegedly falsified SEC filings posted to the SEC’s public EDGAR web site.[3]  That participation included making representations to Magyar’s external auditor and its internal accounting department in support of the company’s financial reporting, and signing a certification to be filed with the company’s annual report.[4]

The court accepted this theory.  It easily concluded that making SEC filings on the EDGAR website constituted use of an instrumentality of interstate commerce – the Internet.  It then examined the more difficult question: whether the defendants could be said to have used the Internet by way of Magyar’s SEC filings.  The court determined that, under the FCPA, defendants need not directly use an instrumentality: a defendant need only know that its use will follow in the ordinary course of business or that such use can reasonably be foreseen.[5]  Even though the defendants did not themselves draft the SEC filings or upload them to the EDGAR website, the court still found it sufficient that “Magyar’s filings with the SEC were a foreseeable consequence” of the defendants’ alleged misrepresentations made in connection with the company’s audit and filings with the SEC.[6]

The court’s finding that mere – and even indirect – participation in the preparation of SEC filings equated to use of an instrumentality of interstate commerce creates potential risk for foreign executives and employees of U.S. issuers.  Given its success in Straub, the SEC, as well as the U.S. Department of Justice, which also must satisfy the interstate commerce element in its prosecutions, may latch on to this new means of asserting jurisdiction, and continue to use participation in SEC filings as a hook in future suits against foreign executives.

Statute of Limitations

Title 28 U.S.C. § 2462 provides a five-year catch-all statute of limitations period that applies to civil FCPA claims.[7]  The SEC alleged that the defendants were never present in the U.S., and the court ruled at the motion to dismiss stage that the limitations period therefore did not apply and so the five-year statute of limitations never began to run.  The court was forced to revisit this ruling after discovery revealed that two of the defendants had in fact visited the U.S. during the limitations period.[8]  This teed up the issue of what happens if an FCPA defendant appears in the U.S. during the limitations period – even for a short period of time – but then returns overseas.  The defendants argued that § 2462 sets forth a five-year period in which the SEC had to both commence an action and serve defendants; the SEC maintained that the statute only runs when a defendant is present in the U.S. and tolls whenever a defendant is outside the country.[9]

Addressing this issue of first impression, the court adopted a middle ground approach based largely on a textual analysis of the statute.  It found that the five-year limitations period begins to run on the date the underlying claim accrues, does not toll while a defendant is absent from the U.S., and does not apply at all if a defendant is never present in the U.S. during the five-year period.

That the court settled on an interpretation of § 2462 which neither party had asserted underscores that the interpretation of this statute of limitations in the civil FCPA context is a live and unsettled issue.  Should other courts adopt the court’s interpretation of § 2462, foreign individuals who do not engage in frequent U.S. travel could find themselves in a situation where the statute of limitations never begins to run on their allegedly corrupt conduct overseas, leaving them open to civil FCPA prosecution many years after the underlying conduct occurred.


It remains to be seen whether courts in the SDNY and elsewhere follow Straub’s rulings related to personal jurisdiction, interstate commerce, and the statute of limitations.  And it is not yet clear whether the Clayton-led SEC will continue to enforce the FCPA as vigorously as prior SEC leadership.  But what is clear is that the SEC now has favorable decisions on three key threshold issues that should permit them to continue to sustain aggressive litigations even where actions by overseas defendants and their contacts to the forum are incidental or indirect, at best.

[1] SEC v. Straub, 921 F. Supp. 2d 244, 255–56 (S.D.N.Y. 2013).

[2] SEC v. Straub, No. 11 Civ. 9645 (RJS), 2016 WL 5793398, at *9 (S.D.N.Y. Sept. 30, 2016) (“Straub II”).

[3] See id. at *10–*12.

[4] Id. at *12.

[5] Id. at *11–*12.

[6] Id. at *12.

[7] Id. at *13.  It states: “Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.”  28 U.S.C. § 2462.

[8] Straub II, No. 11 Civ. 9645 (RJS), 2016 WL 5793398, at *13.

[9] Id. at *16.