SEC v. RAE Systems Inc. (D.D.C. 2010)
Case Details
- Case Name
- SEC v. RAE Systems Inc. (D.D.C. 2010)
- Foreign Official
- Employees of Chinese state-owned entities including employees of the Dagang Oil Field.
- Date of Conduct
-
2004 to 2008
- Nature of Business
- RAE Systems Inc. (“RAE”) is a Delaware corporation based in San Jose, California that develops and manufactures rapidly-deployable, multi-sensor chemical and radiation detection monitors and networks. Its operations in China involve two Chinese joint ventures: RAE-KLH (Beijing) Co., Limited (“RAE-KLH”), which is 96% owned by RAE, and RAE Coal Mine Safety Instruments (Fushun) Co., Ltd. (“RAE-Fushun”), which is 70% owned by RAE.
- Influence to be Obtained
- According to the SEC’s complaint, when RAE sought to acquire an interest in KLH it carried out due diligence through which it uncovered that KLH sales personnel historically financed their sales activities with state‑owned companies through cash advances reimbursed by the company and that such cash advances were used to pay bribes. After acquiring its interest in KLH in 2004, RAE allegedly communicated to RAE‑KLH personnel and officers that bribery practices should stop, but did not institute sufficient internal controls or discontinue the system of cash‑advance reimbursements which facilitated the bribery practices.
Throughout 2005 and 2006, RAE allegedly failed to investigate and remediate through the implementation of adequate internal controls when it encountered evidence of multiples instances of bribery and kickback activities taking place at RAE‑KLH. For example, during a visit to China in 2005 RAE’s then Vice President and Chief Financial Officer allegedly observed that RAE‑KLH had not received proper receipts for $500,000 in cash advances and reported that it was possible the cash had been used for “grease payments.” In response, RAE‑KLH put in place a compliance program, but, according to the government, controls remained insufficient to prevent bribery from taking place. Moreover, the company improperly recorded cash advances connected to bribes as business fees and travel and entertainment expenses.
Through 2007 bribery continued at both RAE‑KLH, paid directly and through a third‑party agent, and at a new joint venture entered by RAE in China, RAE‑Fushan, according to the government. In addition to cash bribes, both companies allegedly provided luxury gifts to employees of state owned entities such as notebook computers, jade, fur coats, appliances, suits, and expensive liquor.
- Enforcement
- On December 10, 2010, without admitting or denying the SEC’s allegations, RAE consented to the entry of final judgment, under which it is enjoined from violating the anti‑bribery, books and records, and internal controls provisions of the FCPA. Under the terms of the settlement, RAE will pay a total of $1,257,012 in disgorgement and prejudgment interest. RAE will also continue to review its internal controls and modify them to ensure no further violations of the books and records or anti‑bribery provisions of the FCPA, among other remediation steps. RAE also agreed to self‑report any questionable or corrupt payments it discovers it has made or false entries in its books and records to the SEC. Over three years, RAE must undertake internal reviews of its remediation efforts and report them to the SEC. The court entered final judgment in the case on December 15, 2010.
- Amount of the Value
- Approximately $400,000.
- Amount of Business Related to Payment
- Approximately $3,000,000 in revenues.
- Intermediary
- Joint venture; Third‑party agent.
- Citizenship of Parent Entity
- United States
- Total Sanction
- $ 1,257,012
- Reporting Requirements
- Yes (3 Years)
- Total Combined Monetary Sanction
- $ 2,957,012
Defendants
RAE Systems Inc.
- Citation
- SEC v. RAE Systems Inc., No. 1:10-cv-02093 (D.D.C. 2010).
- Other Statutory Provision
- None
- Disposition
- Complaint and Consent Order
- Defendant Jurisdictional Basis
- Issuer
- Defendant's Citizenship
- United States
