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In the Matter of Watts Water Technologies, Inc. and Leesen Chang

 
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Chang, Leesen
:
SEC Civil
:
October 13, 2011
:
In the Matter of Watts Water Technologies, Inc. and Leesen Chang
:
In the Matter of Watts Water Technologies, Inc. and Leesen Chang, SEC Administrative Proceeding File No. 3-14585 (Oct. 13, 2011)
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Manufacturing-Other/Multi
:
China
:
2006; 2007; 2008; 2009
:
Employees of design institutes owned by the Chinese government.
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Watts Water Technologies, Inc. ("Watts") is a Delaware corporation that designs, manufactures, and sells water valves and related products. Leesen Chang was vice president of sales at Watts Shanghai Management Co., Ltd., which managed Watts' wholly-owned Chinese subsidiary, Watts Valve Changsha Co., Ltd. ("CWV"). Chang and Watts settled this action with the SEC without admitting or denying the following facts alleged in the SEC's cease and desist order.

CWV produced and supplied large valve products for infrastructure projects in China. Infrastructure projects in China are mostly developed, constructed, and owned by state-owned entities ("Project SOEs"). Project SOEs routinely retain state-owned design institutes to assist in the design and construction of their projects. Employees of CWV allegedly made improper payments to employees of certain design institutes, to influence the institutes to recommend CWV valve products to Project SOEs and to create design specifications that favored CWV products. CWV's improper payments allegedly generated profits for Watts of more than $2.7 million.

The improper payments were facilitated by a sales incentive policy created by CWV's Chinese predecessor, before it had been acquired by Watts. The sales policy provided, among other things, that sales personnel could utilize their commissions to make payments to design institutes. As a result, the payments to design institutes were improperly recorded in Watts' books and records as sales commissions.

Chang was among those responsible for maintaining and enforcing Watts' policies and procedures. Nevertheless, he allegedly approved commission payments to CWV sales personnel that he knew included payments to design institutes. Chang was also allegedly resistant to having the offending sales policy translated to English, which prevented the parent company from discovering the improper payments.

In 2009, Watts implemented anti-corruption and FCPA training for its Chinese subsidiaries. Following one such training session, in-house counsel in Watts' Chinese subsidiary became aware of potential FCPA violations at CWV and notified Watts' management in the U.S. Watts then retained outside counsel to conduct an internal investigation, publicly disclosed the investigation, and engaged in remedial measures such as conducting audits and implementing enhanced anti-corruption policies and procedures.
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Books and records (Individual), Internal Controls (Individual)
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Cease and Desist, Civil penalty
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Chang was ordered to pay a civil money penalty of $25,000. Watts was ordered to pay disgorgement of $2,755,815, prejudgment interest of $820,791 and a civil money penalty of $200,000.
:
25,000
:
0
:
Officer of Issuer
:
Senior Sales
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U.S.
:
United States
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Contract Procurement/Retention
:
2,700,000
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Cash
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Subsidiary Company
:
Not stated.
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China
:
No
:
Yes