Executives at Hungarian Telecom Company Settle FCPA Charges

Two former executives at Hungarian-based telecommunications company Magyar Telekom agreed to pay financial penalties to settle an SEC case alleging violations of the Foreign Corrupt Practices Act ("FCPA"). The SEC stated that the two executives agreed to be barred from serving as officers or directors at any SEC-registered public company for a period of five years.

In December 2011, Magyar Telekom paid a $95 million penalty to settle parallel civil and criminal charges alleging that the company bribed officials in Macedonia and Montenegro in order to shut out competition. At the time, the SEC also charged the company's former CEO and chief strategy officer with coordinating the use of false contracts in order to obtain millions of dollars in corrupt payments – a charge for which the former officers were scheduled to stand trial later this month. A third Magyar Telekom executive charged in the 2011 SEC Complaint agreed to a settlement, which was approved by the court in February, concerning the bribery scheme.

Commentary

These settlements represent the culmination of a hard-fought battle over the expansive view that the SEC and U.S. courts have taken over U.S. jurisdiction in civil FCPA cases. The contacts that the Magyar executives had with the United States were minimal to nonexistent. Nevertheless, the SDNY judge (Sullivan, J.) found they were sufficient to make the SEC's civil lawsuit appropriate.

The settlements in the case were the best that the litigants could have hoped for. The government achieves a judgment against individuals in a wide-reaching FCPA case, and the defendants suffer the tolerable consequences of a short-term bar and manageable monetary penalties in the settlement. It remains to be seen whether the Magyar case will become a bellwether standard for any others. The SEC's reach in the case was remarkably broad and aggressive, and is likely not to be replicated. Clearly, the settlements were a pragmatic realization of the weakness of the SEC's position against the defendants.

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