SEC v. NATCO Group Inc. (S.D. Tex. 2010)

• Case Name
• SEC v. NATCO Group Inc. (S.D. Tex. 2010)

• Date Filed
• 01/11/2010

• Enforcement Agency
• SEC

• Countries
• Kazakhstan

• Foreign Official
• Kazakh immigration prosecutors, Kazakh Ministry of Labor.

• Date of Conduct
• 2005 to 2007

• Nature of Business
• NATCO Group Inc. (“NATCO”), a Delaware corporation, designs, manufactures, and markets oil and gas production equipment and systems.  TEST Automation & Controls, Inc. (“TEST”), a wholly-owned subsidiary of NATCO, manufactures, sells, and services controls and automation systems.  

• Influence to be Obtained
• According to the complaint filed by the SEC on January 11, 2010, in June 2005, TEST Kazakhstan, a branch office of TEST, won a contract to provide instrumentation and electrical services in Kazakhstan.  In February 2007 and September 2007, Kazakh immigration prosecutors conducted audits and claimed that TEST Kazakhstan expatriate workers were working without proper documentation.  The prosecutors threatened to fine, jail, or deport the workers if TEST Kazakhstan did not pay cash fines.  Believing the prosecutors’ threats were genuine, employees of TEST sought and obtained guidance from TEST’s senior management in Louisiana.  TEST authorized payments, initially made in two separate transactions by TEST employees, in the amount of $25,000 and $20,000.  The employees were reimbursed by TEST.  TEST inaccurately recorded these payments in its books as a “salary advance” and as “visa fines.” 
  
  TEST Kazakhstan also allegedly used at least one consultant, who did not have a license to perform visa services, to assist in obtaining immigration documentation for its expatriate employees.  This consultant allegedly had close ties to an employee at the Kazakh Ministry of Labor, the entity issuing the visas.  Because Kazakh law requires companies seeking to withdraw cash from commercial bank accounts to submit supporting invoices, the consultant provided TEST Kazakh with bogus invoices.  With full knowledge of the invoices’ falsity, it is alleged that TEST Kazakh presented these false invoices in excess of $80,000 to the banks to withdraw the requested cash.  TEST Kazakhstan later submitted the invoices to TEST for reimbursement.  It is alleged that TEST reimbursed these requests despite knowing the invoices mischaracterized the true purpose of the services rendered.

• Enforcement
• The SEC’s complaint charged NATCO violations of the books and records and internal controls provisions of the FCPA.  On January 6, 2010, without admitting or denying the allegations in the complaint, NATCO agreed to pay a $65,000 penalty.

• Amount of the Value
• At least $45,000.

• Amount of Business Related to Payment
• Not Stated

• Intermediary
• Consultant

• Citizenship of Parent Entity
• United States

• Total Sanction
• $ 65,000

• Compliance Monitor
• No

• Reporting Requirements
• No

• Case is Pending?
• No

• Total Combined Monetary Sanction
• $ 65,000

NATCO Group Inc. 

• Citation
• SEC v. NATCO Grp. Inc., No. 10-cv-98 (S.D. Tex. 2010); In the Matter of NATCO Grp. Inc., Admin. Proc. No. 3-13742 (Jan. 11, 2010).

• Date Filed
• 01/11/2010

• Filed Under Seal
• No

• FCPA Statutory Provision
• • Books-and-Records
  • Internal Controls

• Other Statutory Provision
• None

• Disposition
• Cease-and-Desist Order, Complaint and Consent Order

• Defendant Jurisdictional Basis
• Issuer

• Defendant's Citizenship
• United States