One thing the SEC likes to do is bring cases with a lot of deterrent value. That is, cases that it hopes will scare other people and companies into complying with the law. Often that means cases with large price tags attached. Companies see those expensive cases and want to stay far away from them if they can help it. But sometimes deterrence means smaller cases, for the very reason that the threshold for the violations is so low. The SEC will do this from time to time in the insider trading area. The idea is, if the SEC is crazy enough to go after something dinky like that, who knows what else it will do? They might come after me. This approach fits with Mary Jo White’s “broken windows” strategy (adopted from Rudy Giuliani’s tenure as mayor of New York) in which the Commission tries to “allocate our resources in such a way so that market participants understand we are at least looking and pursuing charges in all directions.”
Anyway, the Commission seems to be taking this angle with a settled administrative case it filed yesterday against Smith & Wesson. According to the SEC’s order, the Springfield, Mass.-based firearms manufacturer sought to break into new markets overseas starting in 2007. The company’s international sales staff then allegedly retained a third-party agent in Pakistan in 2008 to help the company obtain a deal to sell firearms to a Pakistani police department. Smith & Wesson officials authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, and then make additional cash payments. Smith & Wesson ultimately won a contract to sell 548 pistols to the Pakistani police for a profit of $107,852. In the larger scheme of things, this is a pretty tiny case. But it might scare the $%^&#! out of smaller companies making its first pushes into international markets. And indeed, that seems to be exactly the point for FCPA unit chief Kara Brockmeyer, who said in the press release, “This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales.”
The case also fits with Brockmeyer’s promise from last week that more FCPA matters would be brought as administrative cases, and not in federal courts. If Judge Rakoff doesn’t like the terms of the SEC’s settlement with Smith & Wesson, aside from writing to his Congressman there’s not a lot he can do about it.
The SEC’s order finds that Smith & Wesson violated the FCPA’s anti-bribery, internal controls and books and records provisions. The company agreed to pay $107,852 in disgorgement, $21,040 in prejudgment interest, and a $1.9 million penalty. In arriving at this resolution, the SEC apparently considered Smith & Wesson’s cooperation with the investigation as well as the remedial acts taken after the conduct came to light, though it’s hard to see how the sanctions could have been worse. Smith & Wesson halted the impending international sales transactions before they went through, and implemented a series of significant measures to improve its internal controls and compliance process. The company also terminated its entire international sales staff.