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SEC v. Nature's Sunshine Products, Inc., Douglas Faggioli, and Craig D. Huff

 
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Nature's Sunshine Products, Inc. - Douglas Faggioli
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SEC Civil
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July 31, 2009
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SEC v. Nature's Sunshine Products, Inc., Douglas Faggioli, and Craig D. Huff
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SEC v. Nature's Sunshine Products, Inc. et al., No. 09-0672 (D. Utah 2009)
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The SEC charged Faggioli and another senior executive for Nature's Sunshine Products with books and records and internal control violations based on their positions as "control persons" within the meaning of Section 20(a) of the Securities Exchange Act of 1934 (15 U.S.C. s 78t(a)). On its face, the FCPA appears to require some degree of scienter or culpable knowledge even for books and records or internal controls violations. In the majority of the circuits, however, the government is not required -- and did not do so in this case -- to plead culpable knowledge of the control person, although the executive may raise it as an affirmative defense. Thus, in this case, the SEC held two of the company’s most senior executives liable based on the alleged knowledge of certain subordinates under their “control†� even though it did not allege that they had personal knowledge of the payments. Control person liability has never been asserted before in the FCPA context, and it potentially greatly expands the risk to corporate executives.
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Manufacturing-Other/Multi
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Brazil
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2000; 2001; 2002
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Customs officials in Brazil
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Nature's Sunshine Products, Inc. ("NSP") settled this action with the SEC without admitting or denying the following facts alleged in the SEC's complaint. NSP manufactures and sells nutritional and personal care products. Brazil became NSP's largest foreign market soon after it established a wholly-owned subsidiary in Brazil, Nature's Sunshine Productos Naturais, Ltda. ("NSP Brazil"), in 1994. In 1999 and 2000, the Brazilian government reclassified specified vitamins, herbal products, and nutritional supplements as medicines, which required companies selling those products to register them for importation and sale in Brazil. NSP Brazil was unable to register some of its products and consequently experienced a sharp decline in sales. In an effort to circumvent the new registration requirements, NSP allegedly made over $1 million in undocumented cash payments to customs brokers. Some of these "importation advances" were allegedly paid to Brazilian customs officials to allow NSP Brazil to import unregistered products.

As Faggioli was COO during the relevant time period, senior management responsible for the management and policies related to the manufacture, inventory, and distribution operations of NSP worldwide, including making and keeping books that reflected the state of registration of NSP's products and devising internal controls to ensure that product registration was adequately monitored, reported to Faggioli. Faggioli allegedly failed to adequately supervise NSP personnel in 2000 and 2001 to ensure that accurate books and records were kept and proper systems of internal controls were devised and maintained.
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Books and records (Issuer), Internal controls (Issuer)
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Civil penalty, Civil Settlement, Injunction/Cease and desist
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Nature's Sunshine Products, Inc. separately paid a $600,000 civil penalty; Huff also paid a $25,000 penalty.
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25,000
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0
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Officer of Issuer
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COO
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U.S.
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Customs Clearance
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Not stated.
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Cash
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Customs Broker or Agent/Consultant
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1,000,000
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Brazil
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No