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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. - Craig D. Huff
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SEC Civil
:
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 Huff 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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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 CFO during the relevant time period, Huff allegedly had supervisory responsibilities for senior management and policies regarding the making and keeping of books and records at NSP that accurately reflected in reasonable detail the state of registration of products sold in Brazil, and regarding devising and maintaining a system of internal controls at NSP sufficient to provide reasonable assurance that the registration of NSP products sold in Brazil was adequately monitored. Huff allegedly failed to adequately supervise NSP personnel in 2000 and 2001 to make and keep books and records that accurately reflected in reasonable detail the state of registration of NSP products sold in Brazil, and to adequately supervise NSP personnel in devising and maintaining an appropriate system of internal controls.
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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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25,000
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0
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Officer of Issuer
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CFO
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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