SEC Charges Maxwell Technologies for Long-Running Bribery Scheme in China
FOR IMMEDIATE RELEASE
Washington, D.C., Jan. 31, 2011 — The Securities and Exchange Commission today charged energy-related products manufacturer Maxwell Technologies Inc. with violating the Foreign Corrupt Practices Act (FCPA) by repeatedly paying bribes to government officials in China to obtain business from several Chinese state-owned entities.
The SEC alleges that a Maxwell subsidiary paid more than $2.5 million in bribes to Chinese officials through a third-party sales agent from 2002 to May 2009. As a result, the subsidiary was awarded contracts that generated more than $15 million in revenues and $5.6 million in profits for Maxwell. These sales and profits helped Maxwell offset losses that it incurred to develop new products now expected to become Maxwell's future source of revenue growth.
Maxwell — a Delaware corporation headquartered in San Diego — has agreed to pay more than $6.3 million to settle the SEC's charges. In a related criminal proceeding, Maxwell has reached a settlement with the U.S. Department of Justice and agreed to pay an $8 million penalty.
"Maxwell's bribery allowed the company to obtain revenue and better financially position itself until new products were commercially developed and sold," said Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit. "This enforcement action shows that corruption can constitute disclosure violations as well as violations of other securities laws."
According to the SEC's complaint filed in U.S. District Court for the District of Columbia, Maxwell's wholly-owned Swiss subsidiary Maxwell Technologies SA paid the bribes to officials at several Chinese state-owned entities. The bribes were classified in invoices as either "Extra Amount" or "Special Arrangement" fees, and were made to improperly influence decisions by foreign officials to assist Maxwell in obtaining and retaining sales contracts for high voltage capacitors produced by Maxwell SA.
The SEC's complaint alleges that the illicit payments were made with the knowledge and tacit approval of certain former Maxwell officials. For example, former management at Maxwell knew of the bribery scheme in late 2002 when an employee indicated in an e-mail that a payment made in connection with a sale in China appeared to be "a kick-back, pay-off, bribe, whatever you want to call it, . . . . in violation of US trade laws." A U.S.-based Maxwell executive replied that "this is a well know[n] issue" and he warned "[n]o more e-mails please."
The SEC alleges that Maxwell failed to devise and maintain an effective system of internal controls and improperly recorded the bribes on its books. The illicit sales and profits from the bribery scheme helped Maxwell offset losses that it incurred to develop its new products. Maxwell made corrections in its Form 10-Q filing for the quarter ended March 31, 2009.
Without admitting or denying the allegations in the SEC's complaint, Maxwell consented to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $5,654,576 in disgorgement and $696,314 in prejudgment interest under a payment plan. The company also is required to comply with certain undertakings regarding its FCPA compliance program. Maxwell cooperated in the investigation.
Tracy L. Price and James Valentino of the SEC Enforcement Division's FCPA Unit conducted the investigation. The Commission acknowledges the assistance of the Department of Justice's Criminal Division-Fraud Section in its investigation, which is continuing.
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For more information about this enforcement action, contact:
Cheryl J. Scarboro,
Chief, Foreign Corrupt Practices Act Unit, SEC Division of Enforcement