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SEC v. Straub et al.

 
:
Magyar Telekom - Elek Straub
:
SEC Civil
:
December 29, 2011
:
SEC v. Straub et al.
:
SEC v. Straub et al., No. 11-civ-9645
:
Telecommunications-Other/Multi
:
Macedonia, Montenegro
:
2005; 2006
:
Unspecified Macedonian and Montenegrin government officials
:
The SEC alleged that, from 2005 to 2006, Elek Straub, the former Chairman and Chief Executive Officer of Magyar Telekom, Plc.; Andras Balogh, the Director of Central Strategic Organization of Magyar Telekom; and Tamas Morvai, the Director of Business Development and Acquisitions in the Central Strategic Organization of Magyar Telekom (collectively, the "senior executives") executed a scheme to bribe Macedonian government officials to obtain certain regulatory and business benefits. In particular, the senior executives allegedly retained a Greek "lobbying consultant" to negotiate a secret agreement with a senior government official, called the "Protocol of Cooperation," pursuant to which the government would refrain from tendering a license to Magyar's mobile phone competitor under a newly-enacted law and would mitigate other adverse effects under the law for Magyar's subsidiaries. In return, the government official was promised up to €10 million in bribes. The Protocol of Cooperation was approved by Straub and Balogh and senior executives at Deutsche Telekom, Magyar's parent company. (The allegation of knowledge by Deutsche Telekom appears only in the SEC's charges against the individual defendants, not the companies).

In addition, after discussing various options for bribing Macedonia's minority political party, the senior executives allegedly offered that party the opportunity to designate the beneficiary of a valuable business opportunity in exchange for its support of the benefits sought by Magyar. The SEC further alleged that Balogh and Morvai entered a second Protocol of Cooperation, identical to the first, with a senior government official of the minority political party.

According to the SEC, as a result of these promises, the Macedonian government delayed the introduction of a mobile phone competitor until 2007 and unlawfully reduced the frequency fee tariffs imposed on Magyar's subsidiaries. In exchange, the senior executives allegedly authorized Magyar's subsidiaries to channel payments of €4.875 million to the officials through entities affiliated with the Greek intermediary. These payments were purportedly made under the guise of six bogus "consulting" and "marketing" contracts that were specifically designed to evade Magyar's internal controls and were falsely recorded as consulting expenses in Magyar's books and records.

In 2005, Straub, Balogh, and Morvai allegedly executed a second corrupt scheme in which they authorized payments of €7.35 million to government officials in the Republic of Montenegro. The payments were intended to facilitate Magyar's acquisition of super-majority ownership of Telekom Crne Gore A.D. ("TCG"), a former state-owned public telecommunications services provider in Montenegro, on favorable terms. The Government of Montenegro sold its 51% stake to Magyar though a public tender process, but Magyar was unsuccessful in acquiring shares from the minority shareholders due to a budget set by Deutsche Telekom. Straub, Balogh, and Morvai offered bribes to Montenegrin officials to induce the government to contribute €0.30 per share to private shareholders, which enabled Magyar to acquire an additional 22% of TCG.

After the government facilitated the TCG deal, Straub and Balogh funneled €4.47 million to Montenegrin officials through "consulting" contracts between Magyar's subsidiaries and entities in Mauritius and the Seychelles. Straub, Balogh, and Morvai also allegedly funneled €580,000 to the sister of a Montenegrin official through a sham consulting agreement with a purported New York-based counter-party and entered a fourth sham consulting with a shell company based in England under which it paid €2.3 million.

The SEC further alleged that Straub, Balogh, and Morvai lied to Magyar's auditors by failing to disclose the purpose and existence of the contracts used to pay government officials.

On October 29, 2012, Straub, Balogh, and Morvai filed a motion to dismiss the civil charges, arguing that the court lacks personal jurisdiction over the defendants because they are foreign national defendants and their alleged conduct occurred wholly outside, and without a nexus to, the United States. Furthermore, the defendants argue that the SEC’s claims are time-barred. Lastly, the defendants
argue that the complaint fails to state the claims alleged because it does not adequately plead that the defendants corruptly made use of interstate commerce and that the intended payment recipients were “foreign officials” under the FCPA; it does not sufficiently allege facts to support the aiding and abetting claims; and the complaint does not meet the heightened pleading requirements under Rule 9 of the Federal Rules of Civil Procedure, which requires allegations of individual culpable conduct by each defendant.

On February 8, 2013, Judge Richard Sullivan of the Southern District of New York denied the defendants’ motion to dismiss the complaint in the action, finding that 1) the court had personal jurisdiction over the defendants, 2) the SEC’s claims were not time-barred, and 3) the SEC had sufficiently stated its claims. On August 5, 2013, the Court also denied the defendants’ motion for leave to file an
interlocutory appeal.

In March 2014, the SEC elected to drop its claims against Straub, Balogh, and Morvai for alleged bribes paid to Montenegrin officials in 2005. Citing the complexity and scope of the investigation, the SEC opted to only pursue a second set of claims involving bribes paid to Macdedonian officials.

In September 2016, the court partially granted the SEC’s and defendants’ motions for summary judgment. In so ruling, the court held that Commission’s case against the three executives could proceed on the grounds that participating in the preparation of false securities filings, which were later posted to the Commission’s U.S.-based EDGAR website, was sufficient to establish the Commission’s jurisdiction over the defendants. A trial in the case is currently scheduled to begin in May 2017.
:
Aiding and abetting anti-bribery, Aiding and abetting books and records, Aiding and abetting internal controls, Anti-bribery (Issuer), Books and records (Individual)
:
False Statements
:
Not stated.
:
0
:
Director of Issuer
:
Board Chairman, CEO
:
Foreign
:
Hungary
:
Other Business Advantage, Tax
:
Not stated.
:
Cash
:
Family Member, Sales Agent/Consultant, Shell entity, Subsidiary Company
:
15,000,000
:
No
:
No
:
Germany, Hungary, Switzerland