U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 18925 / October 7, 2004

U.S. v. David Kay and Douglas Murphy, C.R. No. H-01-914 (S.D.Texas)

SEC v. Douglas A. Murphy, David G. Kay and Lawrence H. Theriot, Civil Action No. H-02-2908 (S.D. Texas)

DOUGLAS MURPHY AND DAVID KAY FOUND GUILTY OF VIOLATING FOREIGN CORRUPT PRACTICES ACT IN CRIMINAL ACTION BROUGHT BY DEPARTMENT OF JUSTICE

On October 6, a federal jury in Houston, Texas, found defendants Douglas Murphy and David Kay, former officers of American Rice, Inc., a Houston based rice company, guilty of authorizing over $500,000 in bribes to Haitian customs officials during 1998 and 1999 to reduce American Rice's import taxes illegally in violation of the Foreign Corrupt Practices Act. The jury also found defendant Murphy guilty of obstruction of justice in connection with a parallel civil investigation of the bribery payments by the Securities and Exchange Commission. Murphy, a resident of Texas, was American Rice's president at the time of the violations. Kay, also a resident of Texas, was an American Rice vice president of operations and reported to Murphy. The defendants are to be sentenced on January 6. This criminal action, brought by the Department of Justice, arose out of a joint investigation with the Securities and Exchange Commission.

According to the indictments against Murphy and Kay, filed in the United States District Court for the Southern District of Texas, in advance of certain rice shipments to Haiti between January 1998 and October 1999, Kay directed an American Rice employee to prepare false shipping records that underreported the tonnage of rice on the relevant vessels. Haitian customs officials used the false records to clear the American Rice vessels through customs. After the vessels cleared customs, Kay allegedly directed American Rice employees in Haiti pay cash bribes to certain customs officials. To hide the payments, Kay then directed American Rice's controller in Haiti to improperly record the bribery payments as routine business expenditures. American Rice employees made at least 12 bribery payments totaling approximately $500,000. In exchange, American Rice illegally avoided approximately $1.5 million in Haitian import taxes. The indictments further allege that Murphy knew about the bribery scheme, but took no action to stop the payments.

The Securities and Exchange Commission has also filed a civil action against Murphy and Kay in the Southern District of Texas. The Commission's complaint alleges that Murphy and Kay violated the civil provisions of the Foreign Corrupt Practices Act and aided and abetted American Rice's violations of certain bookkeeping and internal controls provisions of the securities laws relating to falsely recording the bribery payments in American Rice's books and records. The complaint also alleges that another individual, Lawrence Theriot aided and abetted Murphy and Kay's violations of the Foreign Corrupt Practices Act. The Commission's civil action has been stayed pending the outcome of the criminal trial.