U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19107 \ March 1, 2005
Accounting and Auditing Enforcement
Release No. 2204 \ March 1, 2005
SECURITIES AND EXCHANGE COMMISSION v. THE TITAN CORPORATION, Civil Action No. 05-0411 (D.D.C.) (JR) (filed March 1, 2005)
SEC SUES THE TITAN CORPORATION FOR PAYMENTS TO ELECTION CAMPAIGN OF BENIN PRESIDENT
TITAN SETTLES AND AGREES TO PAY A TOTAL OF MORE THAN $28 MILLION TO SETTLE SEC ACTION AND RELATED CRIMINAL ACTION
TITAN PLEADS GUILTY IN RELATED CRIMINAL ACTION BROUGHT BY THE UNITED STATES ATTORNEY FOR THE SOUTHERN DISTRICT OF CALIFORNIA AND THE U.S. DEPARTMENT OF JUSTICE, FRAUD SECTION
SEC ALSO ISSUES REPORT OF INVESTIGATION TO PROVIDE GUIDANCE ON DISCLOSURE CONCERNING MATERIAL PROVISIONS IN MERGER AND OTHER CONTRACTUAL AGREEMENTS
The Securities and Exchange Commission today announced the filing of a settled enforcement action in the United States District Court for the District of Columbia charging The Titan Corporation ("Titan"), a San Diego, California-based military intelligence and communications company, with violating the anti-bribery, internal controls and books and records provisions of the Foreign Corrupt Practices Act ("FCPA"). Simultaneously with the filing of the Commission's complaint, and without admitting or denying its allegations, Titan consented to the entry of a final judgment permanently enjoining it from future violations of the FCPA and requiring it (i) to pay $15.479 million in disgorgement and prejudgment interest, (ii) to pay a $13 million penalty, which will be deemed satisfied by Titan's payment of criminal fines of that amount in parallel proceedings brought by the U.S. Attorney's Office for the Southern District of California and the U.S. Department of Justice, Fraud Section, and (iii) to retain an independent consultant to review the company's FCPA compliance and procedures and to adopt and implement the consultant's recommendations.
The Commission's complaint alleges that, from 1999 to 2001, Titan paid more than $3.5 million to its agent in Benin, Africa, who was known at the time by Titan to be the President of Benin's business advisor. Titan failed to conduct any meaningful due diligence into the background of its agent either before his retention or thereafter and also failed to ensure that the services alleged to be performed by the agent, and described in his invoices, were in fact provided to Titan. The complaint alleges, in 2001, at the direction of at least one former senior Titan officer based in the United States, Titan funneled approximately $2 million, via its agent in Benin, towards the election campaign of Benin's then-incumbent President. The complaint also alleges that some of these funds were used to reimburse Titan's agent for the purchase to T-shirts adorned with the President's picture and instructions to vote for him in the upcoming election. According to the complaint, Titan made these payments to assist the company in its development of a telecommunications project in Benin and to obtain the Benin government's consent to an increase in the percentage of Titan's project management fees for that project. The complaint alleges that a former senior Titan officer directed that these payments be falsely invoiced by the agent as consulting services and that actual payment of the money be broken into smaller increments and spread out over time. The complaint does not allege that the then-incumbent President knew of the payments.
The Commission's complaint also alleges that, from 1999 to 2003, Titan improperly recorded payments in its books and records, directed agents to falsify invoices submitted to Titan, and failed to devise or maintain an effective system of internal controls to prevent or detect other FCPA violations. Despite utilizing over 120 agents and consultants in over 60 countries, Titan never had a formal company-wide FCPA policy, failed to implement an FCPA compliance program, disregarded or circumvented the limited FCPA policies and procedures in effect, failed to maintain sufficient due diligence files on its foreign agents, and failed to have meaningful oversight over its foreign agents.
According to the complaint, Titan falsified documents that enabled its agents to under-report local commission payments in Nepal, Bangladesh, and Sri Lanka. In addition, the complaint alleges that Titan falsified documents presented to the United States government by under-reporting payments on equipment exported to Sri Lanka, France and Japan. The complaint also alleges that Titan (i) paid a World Bank Group analyst in cash to assist Titan in its project in Benin, and (ii) paid a Benin government official approximately $14,000 in travel expenses from 1999 to 2001.
Without admitting or denying the allegations in the complaint, Titan has consented to the entry of a final judgment permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder. Titan also has agreed to disgorge $12,620,000, and to pay prejudgment interest thereon in the amount of $2,859,195.47. Under the terms of the final judgment, Titan will also retain an independent consultant to review the company's FCPA compliance and procedures and will adopt and implement the consultant's recommendations.
Also today the U.S. Attorney's Office for the Southern District of California and the U.S. Department of Justice, Fraud Section filed criminal FCPA charges and a tax charge against Titan, who entered a guilty plea before the Honorable Roger T. Benitez, United States District Judge for the Southern District of California (United States of America v. Titan Corporation, Case No.05cr0314-BEN (S.D. Cal.)). In particular, Titan agreed to plead guilty to one felony count of violating the anti-bribery provisions of the FCPA, one felony count for falsifying the books and records of Titan, and one felony count for violating Title 26 U.S.C. Section 7206(2) and to pay a criminal fine of $13 million.
Commission's Report Pursuant to Section 21(a) of the Exchange Act
The Commission also today issued a Report of Investigation pursuant to Section 21(a) of the Exchange Act to provide guidance concerning potential liability under the antifraud and proxy provisions of the federal securities laws for publication of materially false or misleading disclosures regarding provisions in merger and other contractual agreements.
In its Report, the Commission stated that, on September 15, 2003, Titan became a party to a merger agreement with Lockheed Martin Corporation ("Lockheed") in which Lockheed agreed to acquire Titan, pending certain contingencies. Titan affirmatively represented in that merger agreement that to the knowledge of Titan, neither the company "nor any of its Subsidiaries, nor any director, officer, agent or employee of the Company or any of its Subsidiaries, has … taken any action which would cause the Company or any of its Subsidiaries to be in violation of the FCPA." This representation was publicly disclosed and disseminated by Titan in two places. The proxy statement disclosed the nature of the representation. The merger agreement containing the representation was also appended to Titan's proxy statement, which was filed with the Commission and sent to Titan's shareholders.
As the Report highlights, when an issuer makes a public disclosure of information -- via filing a proxy statement or otherwise -- the issuer is required to consider whether additional disclosure is necessary in order to put the information contained in, or otherwise incorporated into that publication, into context so that such information is not misleading. The issuer cannot avoid this disclosure obligation simply because the information published was contained in an agreement or other document not prepared as a disclosure document.
The Report is not intended to change the way issuers engage in merger, or other contractual, negotiations or to alter existing diligence obligations or to suggest, absent special circumstances (such as provisions intended to create third party beneficiaries), that provisions such as representations and covenants in such agreements are binding on or intended to benefit persons other than parties thereto. Representations, covenants, or other provisions of an agreement made by an issuer that are not public or disclosed to shareholders are not covered by the scope of this Report.
The Commission will consider bringing an enforcement action under Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5 and 14a-9 thereunder in the future if it determines that the subject matter of representations or other contractual provisions is materially misleading to shareholders because material facts necessary to make that disclosure not misleading are omitted.
The Commission acknowledges the assistance in this investigation from the Department of Justice, Fraud Section; the United States Attorney's Office for the Southern District of California; the Federal Bureau of Investigation, San Diego Division; the Internal Revenue Service, Criminal Investigations; and the Department of Defense Inspector General's Office, Defense Criminal Investigative Service.
The Commission's investigation is continuing.
SEC Complaint in this matter
Report of Investigation