Douglas A. Murphy, David G. Kay and Lawrence H. Theriot

Litigation Release No. 17651 / August 1, 2002

Accounting and Auditing Enforcement
Release No. 1607 / August 1, 2002

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

SEC SUES FORMER OFFICERS OF AMERICAN RICE, INC. FOR AUTHORIZING FOREIGN BRIBES

On July 30, 2002, the Securities and Exchange Commission filed a civil injunctive action against two former officers of American Rice, Inc., Douglas A. Murphy and David G. Kay, alleging that they authorized over $500,000 in bribery payments to Haitian customs officials during 1998 and 1999, in violation of the Foreign Corrupt Practices Act. American Rice is a Houston, Texas based rice company. The complaint, filed in the United States District Court for the Southern District of Texas, alleges that Kay, with Murphy's knowledge, authorized the bribes to illegally reduce American Rice's import taxes by approximately $1.5 million.

According to the complaint, 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 complaint further alleges that Murphy was aware of the bribery scheme, but took no action to stop the payments. A third individual, Lawrence H. Theriot, a former American Rice consultant, allegedly assisted Kay and Murphy by monitoring the bribery scheme and exploring alternative arrangements.

The complaint alleges that Kay violated Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rule 13b2-1, and aided and abetted American Rice's violations of Sections 13(b)(2)(A) and (B) of the Exchange Act, that Murphy violated Section 30A of the Exchange Act and is liable, as a controlling person, for Kay's violations of Sections 30A and 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, and that Theriot aided and abetted Kay and Murphy's violations of Section 30A of the Exchange Act.

In parallel criminal proceedings, the Department of Justice previously obtained indictments against Murphy and Kay. On April 16, 2002, the United States District Court for the Southern District of Texas dismissed the indictments on the grounds that the payments at issue were not made to obtain or retain business in Haiti, as required by the Foreign Corrupt Practices Act. A notice of appeal has been filed by the Department of Justice. The Commission wishes to thank the United States Department of Justice for its assistance in this matter.

SEC Complaint in this matter.