Ruehlen

7/31/2019 Ruehlen

http://slidepdf.com/reader/full/ruehlen 1/89

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

Securities and Exchange Commission,

Plaintiff,

v.

Mark A. Jackson et al.,

Defendants.

Civil Action No. 4:12-cv-00563

DEFENDANT JAMES J. RUEHLEN’S MOTION TO DISMISS

PLAINTIFF’S COMPLAINT FOR FAILURE TO STATE A CLAIM

AND MEMORANDUM IN SUPPORT THEREOF

Case 4:12-cv-00563 Document 36 Filed in TXSD on 05/08/12 of 35

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TABLE OF CONTENTS

I. INTRODUCTION ............................................................................................................. 1 A. Nature and Stage of the Proceeding ....................................................................... 1 B. Issues To Be Ruled upon by the Court .................................................................. 1

II. BACKGROUND ............................................................................................................... 1 A. Facts ....................................................................................................................... 1 B. The SEC‟s Complaint ............................................................................................ 2

III. SUMMARY OF ARGUMENT ......................................................................................... 3 IV. STANDARD OF REVIEW ............................................................................................... 5 V. ARGUMENT ..................................................................................................................... 7

A. Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allegethe Identity of the Involved Foreign Officials in Any Manner andFails To Distinguish Between Facilitation Payments and Bribes. ......................... 7 1. The identity of the foreign official to whom bribes were

allegedly made or authorized is an essential element of anFCPA violation. ......................................................................................... 7

2. All known contested FCPA bribery enforcement actionsresulting in liability clearly and specifically identified theforeign officials. ......................................................................................... 9

3. The Complaint fails to identify the foreign officials to whompayments were allegedly authorized. ....................................................... 11

B. Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allegethat Mr. Ruehlen Acted Corruptly. ...................................................................... 13 1. The Complaint fails to allege corrupt intent because it does not

plead facts showing the requirements of Nigerian law andfacts showing that Mr. Ruehlen sought to influence Nigerianofficials to violate their official duties on Noble‟s behalf. ...................... 13

2. The SEC‟s allegations that Mr. Ruehlen sought and followedthe advice of Noble‟s senior management negate any inferencethat he acted corruptly. ............................................................................. 15


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C. Claims 1 and 2 Must Be Dismissed Because the FCPA‟s FacilitationPayment Exception Is Unconstitutionally Vague as Applied toMr. Ruehlen. ........................................................................................................ 17

D. Claims 3 and 4 Must Be Dismissed Because the SEC Fails ToIdentify the False Book, Record, or Account, or the CircumventedControl, and Because Any Alleged Violations Are Derivative of theUnderlying Bribery Allegations. .......................................................................... 21

E. Plaintiff‟s Claims and Supporting Allegations Must Be DismissedBecause They Rely on Untimely Allegations that Fall Outside theStatute of Limitations. .......................................................................................... 23

VI. CONCLUSION ................................................................................................................ 25


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TABLE OF AUTHORITIES

Cases Abramo v. Teal, Becker & Chiaramonte,

No. 09-cv-269 (N.D.N.Y. May 12, 2010) ................................................................................. 24

Ashcroft v. Iqbal,556 U.S. 662 (2009) ........................................................................................................ 6, 11, 12

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .................................................................................................... 4, 6, 12, 21

Bell v. Bank of Am. Home Loan Servicing LP,No. 11-cv-2085, 2012 WL 568755 (S.D. Tex. Feb. 21, 2012) ................................................. 13

Blackburn v. City of Marshall,42 F.3d 925 (5th Cir. 1995) ........................................................................................................ 5

Campbell v. Wells Fargo Bank, N.A.,781 F.2d 440 (5th Cir. 1986) ...................................................................................................... 6

Citicorp Int’l Trading Co. v. W. Oil & Ref. Co.,771 F. Supp. 600 (S.D.N.Y. 1991) ........................................................................................... 10

Citicorp Int’l Trading Co. v. W. Oil & Ref. Co.,No. 88-5377, 1991 WL 4502 (S.D.N.Y. Jan. 16, 1991) ........................................................... 10

Cuvillier v. Taylor ,503 F.3d 397 (5th Cir. 2007) ................................................................................................ 6, 21

Diamond Roofing Co. v. OSHRC ,528 F.2d 645 (5th Cir. 1976) .................................................................................................... 18

Gates & Fox Co. v. OSHRC ,790 F.2d 154 (D.C. Cir. 1986) .................................................................................................. 18

Gen. Elec. Co. v. EPA,53 F.3d 1324 (D.C. Cir. 1995) .................................................................................................. 18

Gentilello v. Rege,627 F.3d 540 (5th Cir. 2010) .................................................................................................... 14

Grayned v. City of Rockford ,408 U.S. 104 (1972) ............................................................................................................ 20, 21

Harvey v. Montgomery Cnty.,No. 11-cv-1815, 2012 WL 1551337 (S.D. Tex. Apr. 30, 2012) ................................................. 6


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Higginbotham v. Mobil Oil Corp.,302 F. Supp. 857 (E.D. La. 1969), rev’d on other grounds, 436 F.2d 8 (5th Cir. 1970) ............ 6

Howard v. SEC ,376 F.3d 1136 (D.C. Cir. 2004) ................................................................................................ 17

Inturri v. City of Hartford ,365 F. Supp. 2d 240 (D. Conn. 2005) ....................................................................................... 20

Kellogg v. N.Y. State Dep’t of Corr. Servs.,No. 07-cv-2804, 2009 WL 2058560 (S.D.N.Y. July 15, 2009) ................................................ 24

Larson v. Northrop Corp.,21 F.3d 1164 (D.C. Cir. 1994) .................................................................................................. 24

Okpalobi v. Foster ,190 F.3d 337 (5th Cir. 1999) .............................................................................................. 18, 21

Perez v. Hoblock ,368 F.3d 166 (2d Cir. 2004) ..................................................................................................... 20

Reno v. ACLU ,521 U.S. 844 (1997) .................................................................................................................. 20

Se. Banking Corp.,69 F.3d 1539 (11th Cir. 1995) .................................................................................................. 24

SEC v. Benton,No. 09-cv-3963 (S.D. Tex. Dec. 11, 2009) ............................................................................... 10

SEC v. Brown,740 F. Supp. 2d 148 (D.D.C. 2010) .......................................................................................... 24

SEC v. Coffman,No. 06-cv-00088, 2007 U.S. Dist. LEXIS 61,347 (D. Colo. Aug. 21, 2007) ........................... 23

SEC v. First Fin. Grp. of Tex.,645 F.2d 429 (5th Cir. 1981) .................................................................................................... 24

SEC v. Fraser ,

No. 09-cv-443, 2010 WL 5776401 (D. Ariz. Jan. 28 2010) ..................................................... 21

SEC v. Jones,476 F. Supp. 2d 374 (S.D.N.Y. 2007) ...................................................................................... 24

SEC v. Mattson, No. 01-cv-3106 (S.D. Tex. Sept. 11, 2001) .............................................................................. 10


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SEC v. Microtune, Inc.,783 F. Supp. 2d 867 (N.D. Tex. 2011), appeal docketed , No. 11-10594(5th Cir. June 21, 2011) ............................................................................................................ 23

SEC v. Noble Corp.,No. 10-cv-4336 (S.D. Tex. Nov. 4, 2010) ................................................................................ 25

SEC v. O’Rourke,No. 12-cv-564 (S.D. Tex. Feb. 24, 2012) ............................................................................. 1, 25

SEC v. Shanahan,646 F.3d 536 (8th Cir. 2011) .................................................................................................... 17

SEC v. Tambone,417 F. Supp. 2d 127 (D. Mass. 2006) ....................................................................................... 12

SEC v. Yuen,

221 F.R.D. 631 (C.D. Cal. 2004) .............................................................................................. 12

Solis v. Bruister ,No. 10-cv-00077, 2012 WL 776028 (S.D. Miss. Mar. 8, 2012) ............................................... 24

Stichting ter Behartiging van de Belangen van Oudaandeelhouders in het Kapitaal van

Saybolt Int’l v. Schreiber ,327 F.3d 173 (2d Cir. 2003) ................................................................................................. 4, 13

Summer v. Land & Leisure, Inc.,664 F.2d 965 (Former 5th Cir. 1981) ........................................................................................ 24

United States v. Blondek ,741 F. Supp. 116 (N.D. Tex. 1990) ............................................................................................ 8

United States v. Classified Parking Sys.,213 F.2d 631 (5th Cir. 1954) ...................................................................................................... 6

United States v. Core Labs., Inc.,759 F.2d 480 (5th Cir. 1985) .................................................................................................... 23

United States v. Hoechst Celanese Corp.,128 F.3d 216 (4th Cir. 1997) .............................................................................................. 18, 20

United States v. Kay,359 F.3d 738 (5th Cir. 2004) .......................................................................................... 8, 14, 20

United States v. Kay,513 F.3d 432 (5th Cir. 2007) ................................................................................................ 4, 13


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United States v. Lake,472 F.3d 1247 (10th Cir. 2007) ................................................................................................ 23

United States v. Lanier ,520 U.S. 259 (1997) .................................................................................................................. 17

United States v. Liebo,923 F.2d 1308 (8th Cir. 1991) .................................................................................................. 16

United States v. Manapat ,928 F.2d 1097 (11th Cir. 1991) ................................................................................................ 18

United States v. O’Shea,No. 09-cr-629 (S.D. Tex. Jan. 16, 2012) ................................................................................ 8, 9

United States v. Outler ,659 F.2d 1306 (Former 5th Cir. 1981)........................................................................................ 7

United States v. Poly-Carb, Inc.,951 F. Supp. 1518 (D. Nev. 1996) .............................................................................................. 7

Zander v. Citibank ,No. 88-cv-5377, 1991 WL 11695066 (S.D.N.Y. Feb. 14, 1991) ............................................. 10

Statutes, Regulations, and Legislative History 15 U.S.C. § 78dd-1 ................................................................................................. 3, 4, 8, 9, 15, 20

15 U.S.C. § 78m ........................................................................................................................ 3, 26

15 U.S.C. § 78t(e) ........................................................................................................................... 3

18 U.S.C. § 201 ............................................................................................................................. 22

28 U.S.C. § 2462 ....................................................................................................................... 6, 27

17 C.F.R. § 240.12b2-1 ................................................................................................................... 3

Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213 (1977)............................................. 10

Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418 (1988) ........................ 10

Rules Fed. R. Civ. P. 12(b)(6)............................................................................................................. 1, 16

Fed. R. Civ. P. 8 ........................................................................................................................ 4, 25

Fed. R. Civ. P. 8(a)(2) ..................................................................................................................... 6


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Other Authorities 16 C.J.S. Constitutional Law § 187 (2012) ................................................................................... 22

5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1215 (3d ed.2004 Supp. 2011) ...................................................................................................................... 14

Richard Grime & Sara Zdeb, The Illusory Facilitating Payments Exception: Risks Posed

by Ongoing FCPA Enforcement Actions and the U.K. Bribery Act , in 1883 PLI/CORP377 (2011) ................................................................................................................................. 22

SEC Action Against Baker Hughes Incorporated’s Former Chief Financial Officer and

Controller Is Concluded , Litig. Rel. No. 18863 (Sept. 1, 2004) .............................................. 27


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I. INTRODUCTION

A. Nature and Stage of the Proceeding

On February 24, 2012, Plaintiff, the U.S. Securities and Exchange Commission (“SEC”),

filed suit against James J. Ruehlen, a current employee of Noble Corporation (“Noble”) (Compl.

¶ 13), a publicly traded offshore oil and gas drilling contractor with annual revenues of $2.7

billion,1 and against former Noble CEO and CFO Mark A. Jackson (id . ¶ 5) and former Noble

Director of Internal Audit and Controller Thomas F. O‟Rourke,2 alleging violations of the anti-

bribery and accounting provisions of the Foreign Corrupt Practices Act (“FCPA”). Mr. Ruehlen

waived service of the Complaint on March 9, 2012.

B. Issues To Be Ruled upon by the Court

Presently before the Court is Mr. Ruehlen‟s Motion to Dismiss all four claims against

him for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6).

II. BACKGROUND

A. Facts3

Mr. Ruehlen, a high school graduate who never attended college or received any formal

audit, finance, or legal education, entered the oil industry in 1979 as a roustabout, one of the

most junior positions in the industry. By September 2004, Mr. Ruehlen had become a mid-level

operations manager, who reported to and followed guidance from Noble‟s senior executives. In

1 Noble Corp., Annual Report, at 2, 27 (Form 10-K) (Feb. 27, 2012).2 The SEC‟s claims against Mr. O‟Rourke are set forth in a separate, settled complaint. SEC v. O’Rourke,

No. 12-cv-564 (S.D. Tex. Feb. 24, 2012).3 Because the Court must accept Plaintiff‟s allegations as true for the limited purpose of this Motion, Mr. Ruehlen

discusses them as if they are true. In fact, they are not. Although the background facts set forth in this Sectionare not challenged by the SEC, to the extent that they are not obvious from the SEC‟s Complaint, this Courtneed not rely on them in deciding to grant Mr. Ruehlen‟s Motion to Dismiss.


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that capacity, the SEC claims, Mr. Ruehlen authorized the payment of “special handling” charges

to a private customs agent to fund payments to Nigerian government officials to secure

temporary importation permits (“TIPs”) and TIP extensions from the Nigerian Customs Service

(“NCS”) to enable Noble‟s offshore oil rigs to operate in Nigeria pursuant to existing drilling

contracts. Noble‟s subsidiary in Nigeria booked these special handling charges as legitimate

operating expenses, i.e., as “facilitation payments,” in an account dedicated for such payments.

On two separate occasions, Mr. Ruehlen raised the propriety of Noble‟s process for

securing TIPs with Noble‟s senior management. First, in early 2004, he raised the issue to

Noble‟s Director of Internal Audit and understood that management would assess the practice.

Second, in May 2007, Mr. Ruehlen re-raised the issue when he learned that another drilling

contractor in Nigeria was conducting an internal review of its similar process for securing TIPs.

After Mr. Ruehlen sought guidance in May 2007, Noble conducted an internal investigation and

self-disclosed its practices to the SEC and U.S. Department of Justice (“DOJ”).4 In November

2010, following an industry-wide investigation, Noble and six other oil services and freight

forwarding companies settled alleged FCPA violations with the SEC without admitting or

denying liability.5 Despite the fact that Noble received the least severe penalty of the companies

charged by the SEC as a result of this industry-wide investigation, the only action taken by the

SEC against individuals are the cases against Mr. Ruehlen, Mr. Jackson, and Mr. O‟Rourke.

B. The SEC’s Complaint

As to Claim 1, the Complaint alleges that Noble, through Mr. Ruehlen, “authorized its

4 Noble Press Release, Noble Announces Independent Investigation of Operations in Nigeria (June 4, 2007),http://phx.corporate-ir.net/phoenix.zhtml?c=98046&p=irol-newsArticle&ID=1010656 &highlight=; Complaint ¶ 28, SEC v. Noble Corp., No. 10-cv-4336 (S.D. Tex. Nov. 4, 2010).

5 SEC Press Release 2010-214, SEC Charges Seven Oil Services and Freight Forwarding Companies forWidespread Bribery of Customs Officials (Nov. 4, 2010), http://www.sec.gov/news/press/2010/2010-214.htm.


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customs agent to pay bribes on Noble‟s . . . behalf to Nigerian government officials to influence

or induce them” to grant TIPs based on “false paperwork” and “grant[] extensions to these illicit

TIPs” to “retain business under drilling contracts in Nigeria,” in violation of the anti-bribery

provisions of the FCPA [15 U.S.C. § 78dd-1]. (Compl. ¶¶ 2, 150-52.) Claim 2 alleges that,

based on the conduct alleged in Claim 1, Mr. Ruehlen aided and abetted Noble‟s bribery [15

U.S.C. § 78t(e)]. (Compl. ¶¶ 153-56.) As to Claim 3, the Complaint alleges that Mr. Ruehlen

aided and abetted Noble‟s failures to make and keep accurate books, records, and accounts [15

U.S.C. § 78m(b)(2)(A)] and to devise and maintain internal accounting controls [15 U.S.C.

§ 78m(b)(2)(B)]. (Compl. ¶¶ 157-63.) Finally, Claim 4 alleges that Mr. Ruehlen knowingly

circumvented Noble‟s internal controls and falsified or caused to be falsified Noble‟s books,

records, and accounts in violations of the accounting provisions of the FCPA and Rule 13b2-1

thereunder [15 U.S.C. § 78m(b)(5) and 17 C.F.R. § 240.12b2-1]. (Compl. ¶¶ 164-67.) As set

forth below, the Complaint fails to state a claim.

III. SUMMARY OF ARGUMENT

Despite the repetition of the word “bribe” fifty-three times in its Complaint, Plaintiff fails

to allege a violation of law. The FCPA distinguishes between prohibited corrupt payments made

to obtain or retain business (i.e., bribes), 15 U.S.C. § 78dd-1(a), and permissible payments to

“secure the performance of a routine governmental action,” such as “obtaining permits, licenses,

or other official documents” or for “processing governmental papers” (i.e., facilitation

payments), 15 U.S.C. § 78dd-1(b), (f)(3). The Complaint assumes that all payments to foreign

officials are per se illegal bri bes, never acknowledging the FCPA‟s exception for facilitation

payments.


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The distinction between a permissible facilitation payment and an unlawful bribe turns on

the purpose and effect of the payment, namely whether it is being made to induce the recipient to

act improperly based on his or her particular role, duties, or responsibilities in order to obtain or

retain business — facts that the SEC must allege to state a claim. Despite investigating this matter

for nearly five years, the SEC apparently does not know — and therefore cannot allege — the

identity, role, duties, or responsibilities of any “Nigerian government officials” to whom Noble

or Mr. Ruehlen allegedly authorized payments. By failing to identify the particular foreign

officials to whom Noble and Mr. Ruehlen allegedly authorized payments, Mr. Ruehlen and this

Court are simply left to guess whether the alleged unidentified government officials had the

power to assist Noble in obtaining or retaining business by engaging in non-routine

governmental action, as the statute requires. Accordingly, the SEC fails to satisfy its burden of

pleading plausible facts under Federal Rule of Civil Procedure 8 and Twombly that the payments

at issue were prohibited bribes under the FCPA, rather than lawful facilitation payments.

Second, without identifying the intended recipients of the alleged payments or alleging

f acts showing how these officials abused their authority on Noble‟s behalf, Plaintiff fails to

allege that Mr. Ruehlen acted “corruptly,” that is, with “a bad purpose or evil motive,” United

States v. Kay, 513 F.3d 432, 446 (5th Cir. 2007), or with the “intent to influence a foreign official

to misuse his official position.” Stichting ter Behartiging van de Belangen van

Oudaandeelhouders in het Kapitaal van Saybolt Int’l v. Schreiber , 327 F.3d 173, 183 (2d Cir.

2003). To the contrary, the Complaint shows that Mr. Ruehlen reasonably believed that the

payments were proper because, among other things, they had been reviewed and approved by

Noble‟s senior management who were tasked with ensuring Noble‟s compliance with the FCPA


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and approving facilitation payments. The failure to plausibly allege facts showing corrupt intent

provides an independent basis to dismiss the claims against Mr. Ruehlen.

Third, to the extent that Plaintiff‟s first and second claims against Mr. Ruehlen survive

these challenges, the Court must nevertheless dismiss them because the law in effect at the time

failed to give Mr. Ruehlen “fair notice” of the interpretation now being advanced by the SEC in

this case. In addition, the SEC‟s strained and subjective interpretation of the FCPA‟s facilitation

payment exception makes it impossible for well-intentioned individuals to navigate between

lawful and unlawful conduct and, therefore, is unconstitutionally vague as applied to

Mr. Ruehlen.

Fourth, Claims 3 and 4 must be dismissed because the SEC fails to specify the particular

book, record, or account that it claims Mr. Ruehlen knowingly falsified (or unreasonably caused

to be false) or the particular internal control that he allegedly knowingly circumvented.

Additionally, to the extent that the alleged violations refer to Noble‟s decision to treat the special

handling fees as facilitation payments rather than bribes, these violations are entirely predicated

on the underlying FCPA violations alleged in Claims 1 and 2.

Finally, this action is governed by the five-year statute of limitations set forth in

28 U.S.C. § 2462. Because the claims against Mr. Ruehlen are principally based on alleged

conduct that occurred outside the limitations period and because the SEC raises no basis for

tolling, they are time-barred and must be dismissed.

IV. STANDARD OF REVIEW

Dismissal of a complaint is appropriate when it “lacks an allegation regarding a required

element necessary to obtain relief.” Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir.

1995). Although a complaint must contain only “a short and plain statement of the claim


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showing that the pleader is entitled to relief” under Federal Rule of Civil Procedure 8(a)(2), it

“must fairly apprise the defendant of the precise nature of the claim” to enable the defendant to

prepare a “proper defense.” Higginbotham v. Mobil Oil Corp., 302 F. Supp. 857, 861 (E.D. La.

1969), rev’d on other grounds, 436 F.2d 8 (5th Cir. 1970) (emphasis added); United States v.

Classified Parking Sys., 213 F.2d 631, 633 (5th Cir. 1954) (“[A] defendant is entitled to know

the extent of the claim being made against him, as well as its nature.”).

Under recent Supreme Court guidance, a plaintiff “must provide the plaintiff‟s grounds

for entitlement to relief — including factual allegations that when assumed to be true „raise a right

to relief above the speculative level.‟” Cuvillier v. Taylor , 503 F.3d 397, 401 (5th Cir. 2007)

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). That is, “a complaint must contain

sufficient factual matter, accepted as true, to „state a claim to relief that is plausible on its face.‟”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly). And a complaint achieves facial

plausibility only “when the plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.” Id . at 678-79

(emphasis added). Accordingly, the plaintiff must put forth more than “labels and conclusions.”

Twombly, 550 U.S. at 555; Harvey v. Montgomery Cnty., No. 11-cv-1815, 2012 WL 1551337, at

*5 (S.D. Tex. Apr. 30, 2012) (“The court should not strain to find inferences favorable to the

plaintiffs or accept conclusory allegations, unwarranted deductions, or legal conclusions.”

(internal quotes and citations omitted)). Moreover, the Court may not assume that a plaintiff can

prove facts not alleged. Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 443 (5th Cir. 1986).


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V. ARGUMENT

A. Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allege the

Identity of the Involved Foreign Officials in Any Manner and Fails To

Distinguish Between Facilitation Payments and Bribes.

The FCPA does not prohibit all payments to foreign officials. Indeed, the statute

explicitly exempts from its prohibitions payments to foreign officials to secure “routine

governmental action,” commonly referred to as facilitation payments. See 15 U.S.C.

§ 78dd-1(b), (f)(3). Unlike the FCPA‟s two affirmative defenses, 15 U.S.C. § 78dd-1(c),

Congress deliberately chose to treat facilitation payments as an exception to the FCPA‟s

substantive prohibitions, meaning that the Plaintiff bears the burden of pleading and proving that

the facilitation payment exception does not apply. See, e.g., United States v. Outler , 659 F.2d

1306, 1309-10 (Former 5th Cir. 1981) (dismissing a criminal conviction against a defendant

because the government failed to plead that a statutory exception did not apply, an “essential

element” of the offense), cert. denied , 455 U.S. 950 (1982); United States v. Poly-Carb, Inc., 951

F. Supp. 1518, 1526 n.6 (D. Nev. 1996) (holding that “Plaintiff bears the burden” of

demonstrating that the “exclusion does not apply” because the “exclusion does not appear as one

of the [statutory] affirmative defenses”). Plaintiff‟s Complaint fails to distinguish between

illegal bribes and legal facilitation payments, as if all payments to officials are unlawful,

regardless of their purpose. Moreover, the Complaint fails even to identify which foreign

officials received payments, much less their role, duties, or responsibilities.

1. The identity of the foreign official to whom bribes were allegedlymade or authorized is an essential element of an FCPA violation.

An essential “element[] of a violation of the FCPA” is “the identity . . . of the officials to

whom the suspect payments are made.” United States v. Kay, 359 F.3d 738, 760 (5th Cir. 2004)

(emphasis added). There are two “necessary parties” to a violation of the FCPA‟s anti-bribery


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provisions: “the [person] paying the bribe and the foreign official accepting it.” United States v.

Blondek , 741 F. Supp. 116, 117 n.1 (N.D. Tex. 1990), aff’d and adopted by United States v.

Castle, 925 F.2d 831 (5th Cir. 1991). In addition, the facilitation payment exception states that

the FCPA‟s prohibitions “shall not apply to any facilitating or expediting payment to a foreign

official . . . the purpose of which is to expedite or to secure the performance of a routine

governmental action by a foreign official . . . .” See 15 U.S.C. § 78dd-1(b). Whether a payment

to a particular foreign official is prohibited by the FCPA, therefore, depends on the official‟s

identity, role, duties, and responsibilities, as established by law, based on that official‟s office or

position. See Kay, 359 F.3d at 743. Accordingly, the Fifth Circuit has recognized that the FCPA

prohibits only payments “that prompt an official to deviate from his official duty.”6 Id. at 749

n.40 (emphasis added).

A recent U.S. District Court for the Southern District of Texas decision confirms that the

SEC must identify the particular foreign official or officials to whom improper payments were

allegedly authorized. See No. 09-cr-629 (S.D. Tex. Jan. 16, 2012) (Hughes, J.) (excerpt attached

as Exhibit A). In that case, prosecutors alleged that Mr. O‟Shea authorized bribes to Mexican

officials through an intermediary. Indictment, at 10, O’Shea (Nov. 16, 2009). At the close of the

government‟s case-in-chief, Mr. O‟Shea moved for a judgment of acquittal, arguing, in part, that

the identity of the Mexican officials that allegedly received the bribes had not been adequately

proven, despite the fact that the intermediary who allegedly made the payments was a

6 The FCPA originally excluded from the definition of “foreign official” those “whose duties are essentiallyministerial or clerical.” Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213 (1977). In 1988, the FCPAwas amended by removing the “ministerial or clerical” language from the definition of “foreign official” andcreating an express exception for facilitation payments made to secure “routine governmental action,” reflectingCongress‟ choice to preserve the importance of the identity of the foreign official as an element of an FCPA

claim. Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418 (1988) (Foreign Corrupt

Practices Act Amendments).


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cooperating government witness who testified at trial. In response, the prosecution vehemently

argued that it had met its burden: “[T]he FCPA makes it a crime to authorize. So we don‟t need

to put the money into anybody‟s pocket. It‟s not required under the statute.” Trial Tr. at 217:12-

21, O’Shea (Jan. 16, 2012).7

Judge Hughes rejected this position and granted the Motion for Acquittal noting that

“[y]ou can‟t convict a man promising to pay unless you have a particular promise to a particular

person for a particular benefit. If you call up the [intermediary] and say, [„L]ook, I‟m going to

send you 50 grand, bribe somebody,[‟] that does not meet the statute.” Id . at 227:19-23. The

identity of the foreign of ficial was an essential element: “While the Government does not have

to trace a particular dollar to a particular pocket of a particular official, it has to connect the

payment to a particular official . . . who can be identified in some reasonable way, that is, with

no reasonable doubt.” Id . at 248:18-24 (emphasis added).8

2. All known contested FCPA bribery enforcement actions resulting in

liability clearly and specifically identified the foreign officials.

Notably, in all known contested FCPA bribery enforcement actions that resulted in a

conviction of an individual defendant, the government has identified the involved foreign

officials by name or otherwise with precision. For the Court‟s convenience, attached as Exhibit

B is a list of the nine such criminal FCPA enforcement actions, along with details regarding the

allegedly involved foreign officials. Likewise, the sole civil FCPA enforcement action against

an individual defendant that has been litigated past a motion to dismiss further proves the point.

In SEC v. Mattson, the SEC specifically identified the foreign official as one who demanded a

7 The prosecution reiterated variations of this argument to the court in its opposition, all of which were soundlyrejected. See Trial Tr. at 216:16-24; 226:24-227:6; 228:3-9, O’Shea (Jan. 16, 2012).

8 The government subsequently moved to dismiss all claims against Mr. O‟Shea. See Motion to DismissCount(s), O’Shea (Feb. 9, 2012).


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bribe during a series of specific meetings with company intermediaries about a particular tax

assessment.9 Compl. ¶¶ 7-8, No. 01-cv-3106 (S.D. Tex. Sept. 11, 2001).

Similarly, in private litigation, courts also have required claimants to properly allege the

identity of the foreign officials to establish a claim based on the FCPA. In Citicorp International

Trading Co. v. Western Oil & Refining Co., 771 F. Supp. 600, 606 (S.D.N.Y. 1991), the court

rejected a claim as “conclusory” and nothing more than “bare allegations” under Federal Rule of

Civil Procedure 8, because the defendant identified the alleged bribe recipients only as “officials

of foreign governments.” Citicorp Int’l Trading Co. v. W. Oil & Ref. Co., No. 88-5377, 1991

WL 4502, at *6 (S.D.N.Y. Jan. 16, 1991). The amended counterclaim was held to be

“sufficiently particular” because it “identif[ed] . . . the person to whom the bribes were offered .”

Citicorp, 771 F. Supp. at 606 (emphasis added).10

Here, after nearly five years of extensive investigation conducted with Noble‟s full

cooperation, the SEC still cannot answer the questions that have been answered in every other

contested FCPA case to date: To which particular officials were the allegedly improper

payments made or authorized? What were their duties or responsibilities as a matter of law?

What unlawful actions were they asked to take based on their particular duties? As a result, the

Plaintiff has failed to plead adequate facts to enable the Court to draw the plausible inference that

9 Likewise, in SEC v. Benton, a case where the defendant answered the SEC‟s allegations before settling, theSEC‟s complaint alleged that money was paid to a specific Venezuelan official to obtain contract extensions,and that particular official was alleged to have the ability to block contract extensions sought by Benton‟semployer. Compl. ¶¶ 16-18, No. 09-cv-3963 (S.D. Tex. Dec. 11, 2009). Separately, the complaint also allegedthat Mr. Benton authorized payments to a specific Mexican customs official in exchange for lenient treatmenton a specific inspection. Id. at ¶¶ 21-23.

10 See Zander v. Citibank , Amended Answer, Amended Counterclaim and Third-Party Complaint, No.88-cv-5377, 1991 WL 11695066, at 18 (S.D.N.Y. Feb. 14, 1991) (“Mr. Horah instructed Mr. Shaw to makeunauthorized and illegal payments to Mrs. Abdul-Rahman and other NNPC officials . . . .”).


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any payments allegedly authorized by Mr. Ruehlen to unspecified foreign officials were the kind

of payments that even could violate the FCPA.

3. The Complaint fails to identify the foreign officials to whom payments

were allegedly authorized.

The Complaint fails to allege that Mr. Ruehlen (or anyone else at Noble) ever made or

even authorized any improper payments to any specific foreign officials. Rather, the Complaint

references the alleged foreign officials at issue using only the most generic of labels: “Nigerian

government officials” (e.g., Compl. ¶ 2), “Nigerian officials” (e.g., id. ¶ 22), “government

officials” (e.g., id. ¶¶ 24-26), “foreign government officials” (e.g., id. ¶ 38), “NCS officials”

(e.g., id. Heading D, at 14), and “foreign officials” (e.g., id. ¶ 49). But a “pleading that offers

labels . . . will not do.” Iqbal, 556 U.S. at 678 (internal quotes omitted). Plaintiff‟s failure to

plead an essential element of an FCPA violation is fatal to its claims.

The burden is on the SEC to plead the identity — or at least the role, duties, and

responsibilities — of the foreign officials to whom the payments in question were allegedly

authorized in order to sufficiently plead that the payments do not fall within the statute‟s

facilitation payment exception. By failing to do so, the SEC has not met its burden to plead

whether the unidentified officials engaged in only routine governmental actions, had authority to

award business to Noble, or violated their official duties under Nigerian law.

Although the identity of the foreign official is an essential element of every FCPA

enforcement action, it is paramount in this case because the payments at issue were approved by

Noble‟s senior management (Compl. ¶¶ 83, 85, 88), including the CFO who “was responsible for

Noble‟s compliance with the FCPA” (id . ¶ 9), as lawful facilitation payments to secure routine

governmental action. In light of these allegations, nebulous references to unidentified “Nigerian

government officials” are entirely insufficient because they leave Mr. Ruehlen and this Court to


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guess whether those officials violated their lawful duties or engaged in non-routine governmental

action to assist Noble in obtaining or retaining business.11 The SEC‟s failure here is particularly

glaring, as it subpoenaed documents and took sworn testimony before filing suit.12 The

Complaint‟s complete lack of specific factual allegations identifying the intended recipients of

any improper payments or the alleged benefits to Noble severely prejudices Mr. Ruehlen‟s

defense by rendering him unable to refute that the alleged payments were unlawful bribes, rather

than permissible facilitation payments.

Accordingly, Claims 1 and 2 must be dismissed because the SEC‟s failure to identify the

alleged foreign official(s) to whom Noble and Mr. Ruehlen allegedly authorized payments in a

reasonably specific manner does not enable the Court to “draw the reasonable inference that the

defendant is liable for the misconduct alleged” or to assess whether the SEC has “a right to relief

above the speculative level.” Iqbal, 556 U.S. at 678. Because the Complaint fails to “nudge[]

[its] claim[] across the line from conceivable to plausible,” the Court should dismiss all claims

against Mr. Ruehlen. Twombly, 550 U.S. at 570.

11 The Complaint does not allege that the payment of special handling charges had any role in Noble obtainingnew drilling contracts in Nigeria. Although the Complaint does allege in conclusory fashion that these “illicit” payments helped Noble “retain[] business under lucrative drilling contracts, obtain[ing] profits from operatingrigs in Nigeria, . . . avoid[ing] paying permanent import duties on its rigs . . . avoid[ing] the operational costs of moving its rigs, and avoid[ing] possible breaches of drilling contracts” (Compl. ¶ 32), the SEC pleads nospecific facts to support those conclusions. Further, not all payments that reduce operating costs to “increasethe profitability of an already- profitable venture” satisfy the business nexus element of an FCPA offense. See

Kay, 359 F.3d at 759-60.12 None of the transcripts of testimony taken by the SEC in its investigation, which the SEC recently provided to

counsel for Mr. Ruehlen, identify the foreign officials to whom the payments at issue were made or authorized.Although all plaintiffs may be “required to perform some pre-[litigation] discovery in order to uncover enoughfacts to state a claim for relief” in light of Twombly and Iqbal, see 5 Charles Alan Wright & Arthur R. Miller,Federal Practice and Procedure § 1215 (3d ed. 2004 Supp. 2011), courts have particularly held the SEC to its burden in light of its “substantial pre-filing investigatory powers.” See SEC v. Tambone, 417 F. Supp. 2d 127,131 (D. Mass. 2006) (considering the fact that the SEC had “taken the testimony of at least 23 witnesses andconducted extensive document discovery” in dismissing the SEC‟s complaint); SEC v. Yuen, 221 F.R.D. 631,637 (C.D. Cal. 2004) (dismissing the SEC‟s second amended complaint).


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B. Claims 1 and 2 Must Be Dismissed Because Plaintiff Fails To Allege that

Mr. Ruehlen Acted Corruptly.

To prove that Mr. Ruehlen violated the anti-bribery provisions of the FCPA, Plaintiff

must show that Mr. Ruehlen acted “corruptly,” 15 U.S.C. § 78dd-1(a), meaning that he acted

“knowingly and dishonestly, with the specific intent to achieve an unlawful result by influencing

a foreign official‟s action in one‟s own favor.” Kay, 513 F.3d at 449 (emphasis added). A

defendant does not act corruptly under the FCPA if he does not intend to “require the official to

misuse his position or breach his duties.” Stichting, 327 F.3d at 183. By failing to allege who

the foreign officials were, what the scope and bounds of their official duties were under Nigerian

law (and what Nigerian laws even apply), and how they breached those duties for Noble‟s

benefit, the Complaint fails to allege that Mr. Ruehlen acted with the evil motive necessary to

make out a claim. To the contrary, the Complaint specifically alleges that Mr. Ruehlen sought

and followed the advice of Noble‟s senior management, including those responsible for FCPA

compliance. Such conduct negates any inference that Mr. Ruehlen acted corruptly. See Bell v.

Bank of Am. Home Loan Servicing LP, No. 11-cv-2085, 2012 WL 568755, at *3 (S.D. Tex. Feb.

21, 2012) (Ellison, J.) (dismissing a complaint in part because certain factual allegations

“undermine[d]” the plaintiff‟s claims).

1. The Complaint fails to allege corrupt intent because it does not plead

facts showing the requirements of Nigerian law and facts showing that

Mr. Ruehlen sought to influence Nigerian officials to violate their

official duties on Noble’s behalf.

As set forth in Section V.A, the SEC fails to identify any Nigerian official or officials and

describe how those unidentified officials misused their positions or breached their duties to

Noble‟s benefit, an essential component of the corrupt intent element under the FCPA. Stichting,

327 F.3d at 183.


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To be sure, the SEC asserts that Noble‟s process for securing TIPs violated Nigerian law

in some way (see, e.g., Compl. ¶¶ 19-22, 54, 128), but the Complaint fails to identify what

Nigerian laws and regulations apply, what the applicable requirements are, and what elements

must be pleaded to show a violation. As pleaded, the requirements of Nigerian law are posited

as mere legal conclusions that fail to establish any factual basis for the proposition that

Mr. Ruehlen, Noble, or the alleged foreign officials engaged in conduct that satisfies even a

single element — much less all of the requisite elements — of an offense under Nigerian law.

Absent that, the Court lacks a basis to accept the SEC‟s assertions that the payments at issue

were necessarily bribes paid to influence or induce a Nigerian official to violate his or her

official duties and that Noble‟s process for securing TIPs was necessarily illegal under Nigerian

law. See Gentilello v. Rege, 627 F.3d 540, 545 (5th Cir. 2010) (affirming dismissal under Rule

12(b)(6) because the complaint failed to “substantiate” its “mere conclusory statements” of law

“by pointing to any ordinance, official policy, state or local law, contract, or other enforceable

agreement to support [plaintiff‟s] claim”).

By failing to allege the requirements of Nigerian law governing TIPs, the SEC simply

cannot identify “the sought-after unlawful actions taken or not taken by the foreign official in

consideration of the bribes,” Kay, 359 F.3d at 760, or show that any Nigerian officials engaged in

non-routine governmental action in violation of their official duties. The SEC never explains

what roles, duties, or responsibilities were held by the various unidentified Nigerian officials to

whom Mr. Ruehlen allegedly authorized payments or which of those officials, if any, had

authority or discretion to grant a TIP or TIP extension for rigs currently in Nigerian waters on

previously-won drilling contracts. (See Compl. ¶¶ 2, 18, 32.) Absent a plausible factual basis


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that Noble and Mr. Ruehlen were seeking to secure TIPs through some unlawful means, the

Complaint fails to allege corrupt intent and must be dismissed.

Although the Complaint repeatedly claims that Noble relied on “false paperwork” to

secure certain TIPs (e.g., id . ¶¶ 2, 27, 45, 68, 101) and concludes that Noble and Mr. Ruehlen

must have therefore knowingly violated unspecified Nigerian laws by making corrupt payments

(id . ¶¶ 45, 47, 73, 81, 89, 101, 110, 115, 123), the SEC fails to put forth plausible facts

suggesting that Noble‟s process for securing TIPs was illegal, rather than just a legal fiction in

Nigeria‟s byzantine law, created and facilitated by NCS officials through licensed customs

brokers. Indeed, the facts alleged in the Complaint show that Noble made payments to secure all

TIPs and TIP extensions, regardless of whether “false paperwork” was involved. (See, e.g.,

Compl. ¶¶ 2, 27, 31, 101 (variously alleging that Noble made payments to officials to secure

TIPs based on “false paperwork” and to obtain TIP extensions).) Moreover, the Complaint

makes clear that Noble‟s licensed customs agent directed the use of false paperwork and

prepared the false documentation that supported Noble‟s TIP applications. (See, e.g., id . ¶ 2

(describing Mr. Ruehlen as only “assist[ing] the customs agent in preparing false documents”)

(emphasis added); id . ¶ 136 (describing an invoice from a customs agent for “charges for

preparing false documents showing export of the rigs”) (emphasis added).) Absent plausible

facts suggesting that Noble sought to secure TIPs in violation of Nigerian law and paid Nigerian

officials to misuse their authority, the SEC fails to allege that Mr. Ruehlen acted corruptly and

thus fails to state a claim.

2. The SEC’s allegations that Mr. Ruehlen sought and followed the

advice of Noble’s senior management negate any inference that he

acted corruptly.

Although the Complaint fails to explain the laws governing issuance of TIPs and TIP

extensions in Nigeria, it does make one thing clear: Mr. Ruehlen authorized special handling


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charges to Noble‟s customs agent to secure TIPs only with the full knowledge and consent of

Noble‟s senior management. For example, the SEC acknowledges that Noble‟s process for

securing TIPs, including through the use of false paperwork, was reviewed and approved by

members of Noble‟s senior management, including its CFO and the Director of Internal Audit

(Compl. ¶¶ 83-85, 88), after Mr. Ruehlen raised the issue of their propriety to the Director of

Internal Audit and “summarized in writing” Noble‟s “practice of using false paperwork and

paying about $75,000 every two years to the customs agent for false paperwork TIPs” (id . ¶ 47).

In addition, the Complaint alleges that Mr. Ruehlen emailed his direct supervisor, Noble‟s Vice

President of Eastern Hemisphere Operations, to report that Noble “decided to resume the use of

false paperwork and related payments to government officials to obtain TIPs.” ( Id . ¶ 71.)

Further, the Complaint alleges that, over a period of two years, Mr. Ruehlen repeatedly sought

and received approval to pay special handling charges to Noble‟s customs agent from Noble‟s

Vice President of Eastern Hemisphere Operations, Noble‟s Director of Internal Audit and

Controller, at least three different CFOs who were charged with ensuring Noble‟s FCPA

compliance and with reviewing and approving facilitation payments, and another unnamed

Noble executive. (See id . ¶¶ 9, 23-24, 60, 71, 82-85, 88, 91, 93-94, 98, 102, 104, 107, 115-16,

123-24, 127.)

A subordinate‟s good faith reliance on directions from superiors negates his corrupt intent

under the FCPA. See United States v. Liebo, 923 F.2d 1308, 1314 (8th Cir. 1991) (granting

defendant a new trial based on newly discovered evidence that the defendant‟s superior had, in

fact, authorized all of the allegedly improper payments, thereby providing “strong evidence” that

the defendant acted “at his supervisor‟s direction and therefore, did not act „corruptly‟”). In

other contexts, courts have routinely held that mid-level employees are entitled to reasonably


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rely on instructions from senior corporate officers with access to legal and accounting experts,

even if the approved conduct is later found to be improper. See, e.g., SEC v. Shanahan, 646 F.3d

536, 544-45 (8th Cir. 2011); Howard v. SEC , 376 F.3d 1136, 1146-49 (D.C. Cir. 2004). As the

Complaint makes clear, Mr. Ruehlen consistently sought and received approval to pay special

handling charges from the members of senior management who were specifically tasked with

determining whether facilitation payments were proper under the FCPA. This strongly negates

any inference of corrupt intent.

C. Claims 1 and 2 Must Be Dismissed Because the FCPA’s Facilitation Payment

Exception Is Unconstitutionally Vague as Applied to Mr. Ruehlen.

As set forth above, the FCPA specifically allows facilitation payments to foreign officials

to obtain permits. 15 U.S.C. § 78dd-1(b), (f)(3). And Mr. Ruehlen, relying on Noble‟s senior

management, clearly believed that payments for TIPs fell within this exception. At the time of

his actions, the law did not give him “fair notice” to the contrary. The SEC‟s subjective

interpretation of the FCPA, as set forth in the Complaint, is not based on any published rule —

much less one developed through notice and comment — and is therefore plagued with

uncertainty and fails to provide fair warning regarding which payments are legal facilitation

payments and which payments are illegal bribes. Accordingly, the anti-bribery provisions of the

FCPA are unconstitutionally vague as applied to Mr. Ruehlen, and the claims against him must

be dismissed.

A statute that is ambiguous or that fails to give “fair notice” of its clear meaning cannot

support punitive governmental action. See, e.g., United States v. Lanier , 520 U.S. 259, 266-67

(1997) (holding that “the vagueness doctrine bars enforcement of a statute which . . . forbids . . .

an act in terms so vague that men of common intelligence must necessarily guess at its meaning

and differ as to its application” and noting that the “touchstone” of fair warning is whether it was


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“reasonably clear at the relevant time” that a defendant‟s conduct was prohibited by the statute

(internal quotes omitted)); Okpalobi v. Foster , 190 F.3d 337, 357 (5th Cir. 1999) (applying the

vagueness doctrine in a civil case). That is, when the government fails to give “fair notice” in

advance of its interpretation of a vague or ambiguous regulation, the government cannot punish

those who follow a different, reasonable interpretation for “violations” occurring before the

government made its interpretation clear. See, e.g., United States v. Hoechst Celanese Corp.,

128 F.3d 216, 225-27 (4th Cir. 1997) (holding that no penalty can be imposed if the defendant

“had reason to believe” based on “the facts as they appear to [the defendant,] not to the

[agency],” that the defendant‟s interpretation of the regulation was accurate, and vacating

penalties imposed before the EPA clarified its interpretation of the regulation at issue because the

“plain language” of the regulation did not “clearly” give advance notice of the agency‟s

interpretation).

Courts have repeatedly rejected prosecutions over laws less ambiguous than the FCPA.

See, e.g., Diamond Roofing Co. v. OSHRC , 528 F.2d 645, 648 (5th Cir. 1976) (holding that a

regulation requiring railings on “open-sided f loors” was too ambiguous to support a penalty for

unprotected “roofs”); Gen. Elec. Co. v. EPA, 53 F.3d 1324, 1331 (D.C. Cir. 1995) (barring a civil

penalty because EPA‟s interpretation of the Toxic Substances Control Act was not “ascertainably

certain” from the regulation and did not provide fair notice); Gates & Fox Co. v. OSHRC , 790

F.2d 154, 157-58 (D.C. Cir. 1986) (vacating penalty where company interpreted a regulation

requiring safety equipment in “areas where employees might be trapped by smoke or gas” as

applying only to certain areas because of the lack of fair warning of a contrary interpretation);

see also United States v. Manapat , 928 F.2d 1097, 1101 (11th Cir. 1991) (affirming dismissal of


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a false statements indictment arising from an inaccurate written response to a “fundamentally

ambiguous” question on a form).

An as-applied vagueness challenge to the constitutionality of a statute “is evaluated

considering how it operates in practice against the particular litigant.” 16 C.J.S. Constitutional

Law § 187 (2012).

There can be no dispute here that (a) the facilitation payment exception specifies no

monetary threshold above which payments are per se improper, (b) there is no analogous

exception in the domestic bribery statute (18 U.S.C. § 201), (c) the courts have not squarely

confronted application of the facilitation payment exception, and (d) there is no clear, published

guidance as to what the words of the exception mean and what the limits, if any, are. See

Richard Grime & Sara Zdeb, The Illusory Facilitating Payments Exception: Risks Posed by

Ongoing FCPA Enforcement Actions and the U.K. Bribery Act , in 1883 PLI/CORP 377

(2011).13 Indeterminate on its face, the SEC‟s interpretation is even less determinate in

application.

Here, the SEC alleges that payments for TIPs are unlawful bribes and not facilitation

payments, even though the FCPA lists payments made to obtain permits as among those covered

by the facilitation payment exception. Nothing in the Complaint shows that Mr. Ruehlen (or any

other reasonable person) could have known that any payments were intended for specific

officials with particular discretionary authority to award Noble business or approve or deny

13 See also Organization for Economic Co-operation and Development (“OECD”), United States: Phase 2 ReportOn Application Of The Convention On Combating Bribery Of Foreign Public Officials In International

Business Transactions And The 1997 Recommendation On Combatting Bribery In International BusinessTransactions, ¶¶ 114-15 (Oct. 2002), http://www.oecd.org/dataoecd/52/19/1962084.pdf. The OECD reviewsthe anti-bribery laws of signatory countries to its anti-bribery convention, including the United States. As far back as 2002, the OECD recommended that the United States issue guidance “to explain the tests it applies in practice to assist in the interpretation of this exception” or amend the statute to clarify whether “only minor payments are allowable.” Id. ¶ 116, Commentary.


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Noble‟s TIP applications, rather than permissible facilitation payments to induce those officials

to discharge their ordinary responsibilities.14 Thus, there is no discernible —much less “clearly

defined”— reason why the facilitation payment exception does not apply here. Grayned v. City

of Rockford , 408 U.S. 104, 108-09 (1972).

Moreover, the SEC concedes that Mr. Ruehlen acted at the direction of the members of

Noble‟s senior management, who were specifically tasked with ensuring FCPA compliance and

who approved the payment of “special handling charges” in connection with TIPs, and booked

those payments accordingly as facilitation payments. (See, e.g., Compl. ¶¶ 23-24, 60, 71, 79,

82-88, 103, 107, 111, 113-15, 120-21, 124, 129.)15

Under these circumstances, Mr. Ruehlen

could not possibly have foreseen that, years later, the SEC would allege that his authorization of

payments at management’s behest constituted unlawful bribery. The “uncertain sweep” of

Plaintiff‟s position in this case renders the FCPA, as applied to Mr. Ruehlen, unconstitutionally

vague. See Reno v. ACLU , 521 U.S. 844, 873 (1997). And, even if the SEC‟s interpretation is

reasonable, Mr. Ruehlen cannot be punished for failing to anticipate that view before 2007. See,

e.g., Hoechst Celanese Corp., 128 F.3d at 225-27.

The SEC‟s contention that Mr. Ruehlen must have known that the payments were

impermissibly “large”— and therefore illegal — is equally problematic. (See, e.g., Compl. ¶¶ 44,

91, 123.) First, the statute does not distinguish between bribes as “large” and facilitation

14 The SEC recognized this precise point when it stated, “The facilitating payments identified in the statute arethus payments for official actions . . . all of which likely would not directly result in the acquisition or renewalof a specific piece of business.” Brief of the SEC as Amicus Curiae Supporting Appellant, at 15, United Statesv. Kay, 359 F.3d 738 (2004) (No. 02-cr-20588), 2002 WL 32507955.

15 The Complaint makes clear that other drilling contractors in Nigeria engaged in the same practices (Compl. ¶ 85), further reinforcing the general belief that these payments were legal. Indeed, “when considering an „as-applied‟ challenge, a court must consider the context in which the regulation was enforced, i.e., it must evaluatethe underlying conduct by reference to the norms of the subject community.” Inturri v. City of Hartford , 365 F.Supp. 2d 240, 254-55 (D. Conn. 2005) (quoting Perez v. Hoblock , 368 F.3d 166, 175-76 (2d Cir. 2004))(emphasis added).


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payments as “small.” Moreover, there is nothing intrinsically “large” about facilitation payments

of approximately $37,500 each year (id . ¶ 47), particularly in the context of Noble‟s extensive

operations in Nigeria alleged in the Complaint (e.g., id . ¶¶ 1-2, 18). The law provides no

guidance regarding whether a particular payment is “too large” or “small enough” and, thus,

whether individuals like Mr. Ruehlen will be subjected to severe sanctions and potentially

career-ending enforcement actions. Unbounded “largeness” “fail[s] to provide explicit standards

for those who” enforce the laws and impermissibly “invests law enforcement officers with on-

the-spot legislative power,” which results in “ad hoc and subjective . . . applications” of the law,

as the instant case ably demonstrates. Okpalobi, 190 F.3d at 358 (internal quotes omitted). It

also fails to enable well-meaning and well-intentioned individuals to “steer between lawful and

unlawful conduct”— a central value that is protected by the void for vagueness doctrine.

Grayned , 408 U.S. at 108-09. Accordingly, the Complaint should be dismissed on vagueness

grounds as applied to Mr. Ruehlen.

D. Claims 3 and 4 Must Be Dismissed Because the SEC Fails To Identify the

False Book, Record, or Account, or the Circumvented Control, and Because

Any Alleged Violations Are Derivative of the Underlying Bribery Allegations.

Claims 3 and 4 allege general violations of the FCPA‟s accounting provisions, but fail to

identify which of Noble‟s books, records, or accounts were allegedly false and which specific

internal accounting controls were allegedly circumvented. (Compl. ¶¶ 157-67.) These

shortcomings require that Claims 3 and 4 be dismissed for failure to state a claim. Cuvillier v.

Taylor , 503 F.3d 397, 401 (5th Cir. 2007) (setting forth requirements of Federal Rule of Civil

Procedure 8 under Twombly); see also SEC v. Fraser , No. 09-cv-443, 2010 WL 5776401, at *9

(D. Ariz. Jan. 28 2010) (noting that “[m]ultiple district courts have commented upon the

unhelpfulness of [the shotgun] pleading strategy . . . and have dismissed SEC complaints because

of it”). Moreover, to the extent that one can infer the alleged violations of the FCPA‟s


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accounting provisions from the Complaint, those violations appear to be completely predicated

on the allegations in Claims 1 and 2 that Noble‟s authorization of special handling fees were

illegal bribes and not lawful facilitation payments. Given that Claims 1 and 2 fail to state a cause

of action against Mr. Ruehlen, Claims 3 and 4 fail to do so as well and must be dismissed.

The SEC‟s books-and-records allegations turn on the view that the special handling

payments did not fund facilitation payments, but rather funded impermissible bribes. Thus, the

SEC apparently alleges, by booking these payments as “legitimate operating expenses on

Noble‟s books” (Compl. ¶ 3) (i.e., as facilitation payments in a dedicated account), Noble‟s

books were somehow false. Because Plaintiff has failed to plead the identity of any foreign

officials and does not meet its burden of alleging that the payments were not facilitation

payments, it likewise fails to allege that Noble‟s books and records were false. Separately, these

claims should be dismissed because the Complaint fails to allege that Mr. Ruehlen had any role

in deciding how the special handling charges should be recorded in Noble‟s books, records, and

accounts.

With respect to the internal controls claims, the Complaint alleges only that “Jackson

failed to implement [the requisite] internal accounting controls.” (Compl. ¶ 3.) To the extent

that the claims are premised on allegations that Mr. Ruehlen “repeatedly prepared and signed

quarterly representation letters to Noble‟s upper management,” stating that Noble had “not

violated” the FCPA, while knowing that Noble was “paying bribes to government officials to

obtain illicit TIPs” (id . ¶ 141), those claims are derivative of Claims 1 and 2, and the SEC‟s

failure to establish that Noble paid bribes defeats any assertion that Mr. Ruehlen circumvented


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Noble‟s internal controls.16 See SEC v. Coffman, No. 06-cv-00088, 2007 U.S. Dist. LEXIS

61,347, at *41-44 (D. Colo. Aug. 21, 2007) (stating that the SEC‟s failure to prove an underlying

securities law violation requires its accounting claims to fail); United States v. Lake, 472 F.3d

1247, 1262-63 (10th Cir. 2007) (dismissing section 13(b)(5) charges after holding that the

government failed to prove an underlying violation of the securities laws); cf. SEC Action

Against Baker Hughes Incorporated’s Former Chief Financial Officer and Controller Is

Concluded , Litig. Rel. No. 18863 (Sept. 1, 2004) (reporting that “on joint motion of the parties,

the court dismissed the Commission‟s remaining books and records and internal controls claims

with prejudice” following dismissal of FCPA anti-bribery claims).

E. Plaintiff’s Claims and Supporting Allegations Must Be Dismissed Because

They Rely on Untimely Allegations that Fall Outside the Statute of

Limitations.

An SEC claim for civil penalties is governed by the five-year statute of limitations

applicable to civil actions. See 28 U.S.C. § 2462; see also SEC v. Microtune, Inc., 783 F. Supp.

2d 867, 873 (N.D. Tex. 2011), appeal docketed , No. 11-10594 (5th Cir. June 21, 2011) (noting

that the SEC and defendants agreed that Section 2462 “applies to the SEC‟s claims for civil

penalties”). In the Fifth Circuit, the claim accrues on the date of the violation. Microtune, 783

F. Supp. 2d. at 873; United States v. Core Labs., Inc., 759 F.2d 480, 482 (5th Cir. 1985).

Therefore, conduct occurring before February 24, 2007, i.e., more than five years prior to the

date this lawsuit was filed, is time-barred.

16Moreover, internal controls are designed to assure that transactions are made in accordance with management‟sauthorization and recorded in a manner that ensures Noble‟s financial statements comply with generallyaccepted accounting principles (“GAAP”). See 15 U.S.C. § 78m(b)(2)(B). Plaintiff does not allege that Noble‟s financial statements were materially inaccurate, inconsistent with GAAP, or would have differed had Noble recorded the payments as “bribes,” rather than as “facilitation payments.” Instead, the Complaint makesclear that Mr. Ruehlen consistently sought and received authorization from Noble‟s CFOs to pay specialhandling charges to Noble‟s customs agents to secure TIPs, confirming that Noble‟s assets were used andrecorded as management directed.


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24

Here, the vast majority of the allegedly unlawful conduct occurred before February 24,

2007 (see Compl. ¶¶ 18, 23-125, 138-41), and each of the four claims applicable to Mr. Ruehlen

incorporates and is premised upon time-barred allegations. Because the Complaint fails to raise

any basis for tolling of the statute of limitations,17 the Court should dismiss with prejudice any

claims predicated on conduct allegedly occurring before the statute of limitations date. See, e.g.,

Se. Banking Corp., 69 F.3d 1539, 1548 (11th Cir. 1995) (affirming the dismissal of “ portions of

the complaint . . . [in part because] some of the allegations are barred by the statute of

limitations”) (emphasis added); Abramo v. Teal, Becker & Chiaramonte, No. 09-cv-269,

Memorandum Decision and Order, at 24 (N.D.N.Y. May 12, 2010) (dismissing with prejudice

that portion of plaintiffs‟ first complaint predicated on defendants‟ conduct prior to the statute of

limitations date); see also, e.g., Kellogg v. N.Y. State Dep’t of Corr. Servs., No. 07-cv-2804,

2009 WL 2058560, at *1-2 (S.D.N.Y. July 15, 2009) (same).

Given that the Complaint also seeks injunctive relief, the SEC may argue that the alleged

conduct that occurred years outside the statute of limitations is relevant. That argument fails. As

an initial matter, the SEC has completely failed to plead facts suggesting that injunctive relief is

necessary because of a “reasonable likelihood” that Mr. Ruehlen “is engaged or about to engage

in practices that violate the federal securities laws.” SEC v. First Fin. Grp. of Tex., 645 F.2d

429, 434 (5th Cir. 1981); SEC v. Jones, 476 F. Supp. 2d 374, 383-84 (S.D.N.Y. 2007) (requiring

17 Although Mr. Ruehlen did sign several tolling agreements with the SEC, the vast majority of the allegedconduct is time-barred regardless. Because the SEC failed to plead the existence of those agreements in its

Complaint, however, their existence ought not be considered for purposes of this Motion to Dismiss. See, e.g.,Solis v. Bruister , No. 10-cv-00077, 2012 WL 776028, at *2-4 (S.D. Miss. Mar. 8, 2012) (dismissing plaintiff‟scomplaint and directing plaintiff to “file an amended complaint that makes specific reference to the tollingagreements”). Nor has the SEC alleged any facts that would give rise to tolling based on the doctrine of fraudulent concealment. Microtune, 783 F. Supp. 2d. at 875; see also SEC v. Brown, 740 F. Supp. 2d 148, 158(D.D.C. 2010) (quoting Larson v. Northrop Corp., 21 F.3d 1164, 1173 (D.C. Cir. 1994)); Summer v. Land &

Leisure, Inc., 664 F.2d 965, 970-71 (Former 5th Cir. 1981) (setting forth the standards for pleading fraudulentconcealment).


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25

the SEC to “go beyond the mere facts of past violations and demonstrate a realistic likelihood of

recurrence”). Given that Mr. Ruehlen‟s alleged actions took place more than five years ago and

that the Complaint alleges that Mr. Ruehlen is a current Noble employee (who is therefore bound

by Noble‟s existing consent injunction),18 the Complaint alleges no facts upon which the Court

could grant the SEC the relief it seeks.

VI. CONCLUSION

For the foregoing reasons, Plaintiff‟s Complaint against Mr. Ruehlen fails to state a

claim, and the Court should dismiss Claims 1-4 against Mr. Ruehlen in their entirety.

DATED this 8th day of May, 2012.

Respectfully submitted,

/s/ _

F. JOSEPH WARINJOHN H. STURCBRIAN C. BALDRATEGIBSON, DUNN & CRUTCHER LLP1050 Connecticut Avenue, N.W.Washington, District of Columbia 20036Telephone: (202) 955-8500Facsimile: (202) 467-0539Counsel for Defendant James J. Ruehlen

Of Counsel:

DAVID GERGERGERGER & CLARKE1001 Fannin, Suite 1950Houston, Texas 77002Telephone: (713) 224-4400Facsimile: (713) 224-5153

18 On November 12, 2010, Judge Rosenthal issued a final judgment in which Noble consented to being enjoinedagainst violations of the FCPA and to other remedies. See SEC v. Noble Corp., No. 10-cv-4336 (S.D. Tex. Nov.4, 2010); accord Complaint ¶ 21, SEC v. O’Rourke, 12-cv-564 (S.D. Tex. Feb. 24, 2012).


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CERTIFICATE OF SERVICE

I hereby certify that on the 8th day of May, 2012, I will electronically file the foregoingwith the Clerk of Court using the CM/ECF system, which will then send a notification of suchfiling (NEF) to the following:

Kenneth W. DonnellyAssistant Chief Litigation CounselDivision of Enforcement, Trial UnitU.S. Securities and Exchange Commission100 F Street, N.E.Washington, D.C. [email protected] for Plaintiff Securities and Exchange Commission

David S. Krakoff BuckleySandler LLP1250 24th Street, N.W.Washington, D.C. [email protected] for Defendant Mark A. Jackson

/s/ _

Brian C. Baldrate


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IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

Securities and Exchange Commission,

Plaintiff,

v.

Mark A. Jackson et al.,

Defendants.

Civil Action No. 4:12-cv-00563

[PROPOSED] ORDER

Upon consideration of Defendant James J. Ruehlen’s Motion to Dismiss Plaintiff’s

Complaint for Failure to State a Claim and the response(s) thereto, it is hereby ORDERED that

the motion is GRANTED, and the Complaint against Mr. Ruehlen is hereby DISMISSED.

IT IS SO ORDERED on this ____ day of ___________, 2012.

___________________________________

KEITH P. ELLISON

UNITED STATES DISTRICT JUDGE


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EXHIBIT A

Case 4:12-cv-00563 Document 36-1 Filed in TXSD on 05/08/12 Page 1 of 51

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THE UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

* * * * *

UNITED STATES OF AMERICA * CRIMINAL NO. H-09-629*

Versus * Houston, Texas* 9:00 a.m.

JOHN JOSEPH O'SHEA * January 16, 2012

* * * * *

JURY TRIAL (DAY 4)

BEFORE THE HONORABLE LYNN N. HUGHESUNITED STATES DISTRICT JUDGE

* * * * *

Proceedings recorded by computer stenographyProduced by computer-aided transcription

Edward L. Reed United States Court Reporter

515 Rusk, Suite 8016Houston, Texas 77002 * 713-250-5594


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1 APPEARANCES:

2 For the United States of America:

3 MR. JASON S. VARNADOAssistant United States Attorney

4 919 Milam, Suite 1500Houston, Texas 77002

5MR. CHARLES E. DUROSS

6 MS. NICOLA J. MRAZEKU.S. Department of Justice

7 Criminal Division1400 New York Ave., NW

8 Washington, DC 20005

9 For the Defendant:

10 MR. JOEL M. ANDROPHYMS. SARAH M. FRAZIER

11 MS. ASHLEY L. GARGOURBerg & Androphy

12 3704 TravisHouston, Texas 77002

13Court Reporter:

14EDWARD L. REED, CSR

15 515 Rusk, Suite 8016Houston, Texas 77002

16

17

18

19

20

21

22

23

24

25

2


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1 I N D E X

2

3 GOVERNMENT WITNESSES:

4 4. Charles Calland (Continued)

5 Cross Examination by Ms. Frazier...... 4

6 Redirect Examination by Mr. Duross.... 11

7 5. Francisco Forn

8 Direct Examination by Mr. Duross...... 13

9 Cross Examination by Ms. Frazier...... 30

10 6. Rudolph J. Trabanino

11 Direct Examination by Mr. Varnado..... 32

12 Cross-Examination by Ms. Gargour...... 42

13 Redirect Examination by Mr. Varnado... 43

14 7. Agent Lisa Diemert

15 Direct Examination by Mr. Varnado..... 46

16 Cross-Examination by Mr. Androphy..... 142

17 Redirect Examination by Mr. Varnado... 199

18 Government rests............................... 209

19 Defendant's Motion for Acquittal............... 209

20 Government's response.......................... 225

21 Court's ruling................................. 248

22

23

24

25

3


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1 he pretended it was a lot of fun and they couldn't help

2 him. We've all heard of that.

3 Are you going to return to the table?

4 THE WITNESS: If you'll let me.

5 THE COURT: I think we're through beating on

6 you.

7 THE WITNESS: Thank you.

8 THE COURT: Call your next witness, please.

9 MR. VARNADO: Your Honor, the United States

10 rests.

11 THE COURT: Mr. Androphy.

12 MR. ANDROPHY: We have something to take up

13 with the Court.

14 THE COURT: We'll take, it will probably be 30

15 minutes. We have some paperwork to do. Y'all may go

16 relax as best you can.

17 [Recess]

18 THE COURT: Mr. Androphy.

19 Now, don't get excited. Just tell me what

20 you want me to know.

21 MR. ANDROPHY: I'll go through the counts first

22 and then through some generalized statements.

23 Counts 8 and 11, two things, Judge. As

24 the Court knows, the only evidence in the case is the

25 CFE investigation in evidence that Obras did the work.

20


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1 Even if they didn't do the work, there is no connection

2 to any CFE officials. Therefore, Count 8 and 11 could

3 not survive at this juncture. There is no evidence

4 whatsoever beyond this stage.

5 THE COURT: Technically, the equal signs have

6 to be parallel to the floor.

7 MR. ANDROPHY: Not when you write like this.

8 THE COURT: That's three slashes. All right.

9 MR. ANDROPHY: On the Sorvill, that's 9 and

10 12. Again, the only evidence in the record with regard

11 to Sorvill's -- now, granted, Jr. said that nothing had

12 been done, but a reasonable-minded jury cannot support

13 a verdict on Jr's testimony alone. And there is no

14 corroboration for what he says. The evidence in Defense

15 Exhibit No. 23 is that Sorvill did the work. There was

16 an internal investigation and then the investigative

17 report, they contacted people at Sorvill and they

18 verified that the invoices were correct. And more

19 importantly, they were legitimate invoices, that the

20 work was actually done.

21 And even if you somehow get to Nestor

22 Moreno for the military school, the Government has

23 already made claim that in the Lindsey case, the same

24 dollars for the same alleged bribe. And a

25 reasonable-minded jury could not support a verdict of

21


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1 guilty based upon counts attributed to others in another

2 matter.

3 THE COURT: I guess 9, I guess the problem I'm

4 having is you have 218,000 going into Sorvill and we

5 don't know what else. And then 24,000 going to the

6 military school. Working from the military school

7 upstream to O'Shea, it is speculation. That $24,000 can

8 be any $24,000.

9 Is this a post-hair plug picture of

10 Moreno?

11 MR. DUROSS: I believe it is, Your Honor.

12 THE COURT: I wasn't tempted before, but I'm

13 certainly not afterwards?

14 All right.

15 MR. ANDROPHY: And this chart here, Judge, just

16 sort of summarizes. This is Demo 16 that Obras -- no

17 direction to CFE. And of the 268 wires here, the 29,5

18 goes to the military school. I've not addressed yet

19 Mr. O'Shea's knowledge. The Court mentioned that, but

20 the only testimony by anybody so far with regard to

21 Mr. O'Shea and what he allegedly knew or not comes from

22 Nestor Moreno, Jr.

23 THE COURT: You mean Fernando Basurto, Jr.?

24 MR. ANDROPHY: I'm sorry, Fernando, Jr.

25 JTHE COURT: Little Nestor is not out of

21


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1 school yet.

2 MR. ANDROPHY: Fernando, Jr. And that's the

3 only attribution they have to Mr. O'Shea's alleged

4 knowledge of anything here or whether or not -- but

5 there is no knowledge by Mr. O'Shea or no testimony that

6 he knew that somehow Nestor would get compensated in

7 this manner.

8 With regard to Counts 2 through 7, these

9 are the -- it's clear right off the bat that 4 and 7

10 don't go anywhere beside the Basurtos. They stop there.

11 But the Government is basically taking six

12 counts. And if you even look at the records and believe

13 the records of the transfer, there is no testimony that

14 other than the fact that Lizarraga sent money to Nestor

15 Moreno, if Lizarraga is not a CFE official and that's

16 his father-in-law in the transaction, well, it's beyond

17 speculation that this transaction here would have had

18 any connection to ABB paying the Basurtos for the work

19 done on the case. So the Government has to take leaps

20 and bounds --

21 THE COURT: Who then pay Chelala, and there is

22 no connection of Chelala to CFE, other than a

23 disbursement to the son-in-law of Nestor Moreno; right?

24 MR. ANDROPHY: And then from Nestor Moreno for

25 the hair plugs for Moreno. Just too attenuated for a

21


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1 reasonable-minded jury to support a verdict, especially

2 Mr. O'Shea's knowledge because --

3 THE COURT: Even if you assume the $27,000 is a

4 bribe and the alternate sources of funds for -- how do

5 you say his name?

6 MR. ANDROPHY: Lizarraga.

7 THE COURT: Lizarraga have is not been

8 discounted.

9 MR. ANDROPHY: And then because this is the

10 type of case, the Foreign Corrupt Practices, where

11 someone has to act at the highest level of criminal

12 intent in terms of the knowing, willingly and in that

13 regard, that further attenuates the connection and the

14 criminal responsibility for Mr. O'Shea.

15 But they have tried to take six counts and

16 the money ending up here is less than even one of the

17 counts, which is further evidence of the Government's

18 just attempt to try anything to make a connection to ABB

19 through Mr. Moreno.

20 Again, but as the counts show here and as

21 the tracing shows, we have Basurto, Chelala and

22 Lizarraga, none of those people are CFE people in the

23 transaction.

24 I didn't even argue this at this point,

25 Judge, and I'm not sure, but we have a relationship

21


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1 between Nestor Moreno and Lizarraga. You know, there is

2 a lot of people in Mexico potentially by the name of

3 Nestor Moreno, I don't know. And whether it's the same

4 relationship or not, same name, but there is no evidence

5 from any source.

6 THE COURT: There is a marriage certificate

7 that seems to have all the same names in it. And if you

8 were going to do that, Moreno would tell them to use

9 somebody and somebody with the same name as the

10 son-in-law. It's not uncommon for families to work

11 together, especially in Mexico.

12 MR. ANDROPHY: And it's not uncommon for

13 families to have financial relationships with each

14 other. That's not criminal.

15 THE COURT: I'm going to take that exhibit and

16 show it to my son-in-law.

17 MR. ANDROPHY: With regard to Count 10, we have

18 the same Basurto family, Chelala, Lizarraga. We have

19 Rovira here, but he's not a CFE person, Leonardo.

20 Lizarraga is not. And then we have two and a half

21 months later -- two months later, buying the trip,

22 perhaps three months later going on a trip with his

23 father-in-law as the only connection between Mr. O'Shea

24 and any allegations of a bribe.

25 THE COURT: All right. And Leonardo Rovira is

21


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1 the son-in-law of Nestor Moreno's chief of staff?

2 MR. ANDROPHY: Carlos Rovira, yes.

3 MR. DUROSS: His brother.

4 MR. ANDROPHY: Brother, Your Honor.

5 THE COURT: Brother.

6 MR. ANDROPHY: But if he gets paid, they can't

7 just --

8 THE COURT: No, I understand. I just wanted to

9 make sure I had the right CFE people.

10 MR. ANDROPHY: And then finally, on Count 13,

11 it just stops at Lizarraga Here. It doesn't go any

12 further.

13 THE COURT: Half of it stays with Chelala?

14 MR. ANDROPHY: Yes.

15 THE COURT: And Basurtos have a 25 percent

16 handling charge, so that accounts for the diminution of

17 theirs, but there is no accounting for Chelala getting

18 50 percent of the remainder. Would that be 37 and a

19 half percent of the whole?

20 All right. On Exhibit 23 we have an arrow

21 that goes from Lizarraga to Moreno for $44,000. That's

22 the hair plug, plus the trip to France. And the Ramon

23 Benitez $10,000, that's an uncharged account. And --

24 which count is the $20,000 to Carlos Rovira?

25 MR. ANDROPHY: It's not a count, Judge.

21


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1 MR. DUROSS: It's an overt act, Your Honor.

2 $20,000 outside the Container Store. I think it was a

3 series of cash withdrawals. Basurto Jr. testified to

4 it.

5 MR. ANDROPHY: But it's not part of the

6 substantive charge.

7 MR. DUROSS: That's correct, it's not one of

8 the Counts 2 through 13 that is currently being

9 presented to the jury, but it is part of Count 1 as an

10 overt act.

11 THE COURT: All right. And these two question

12 marks on Exhibit 23, Demonstrative 23 from Obras, one

13 from Sorvill and one from Obras, I take it neither of

14 those is part of the substantive count?

15 MR. ANDROPHY: They are.

16 MR. DUROSS: Well, that part of the

17 transaction -- I mean, it's this side of the transaction

18 that's being charged. But where the money ultimately --

19 whose bank account it actually ends up into, I believe

20 Agent Diemert said she didn't know because we couldn't

21 get the bank records from Mexico. But the other

22 evidence, whether it be testimony or evidence that's in

23 documentary form, we believe leads one to the reasonable

24 conclusion that it was going to CFE officials.

25 THE COURT: So that question mark on the

21


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1 Evergreen money flow are the counts to the CFE

2 officials, 8 and 11?

3 MR. DUROSS: I don't think it's a question

4 mark, Your Honor. We didn't publish this one. It has

5 dollar signs.

6 THE COURT: I know it has dollar signs, but

7 there are question marks. Otherwise, it would have

8 precise dollar amounts, wouldn't it?

9 MR. DUROSS: Well, I guess, Your Honor, what we

10 were trying to do was to indicate that moneys were going

11 into the Obras account, which was part of the scheme,

12 but we do not have the information on the back end

13 showing whose pocket it went into. And I don't want to

14 interrupt Mr. Androphy. The one thing that I would

15 mention to the Court that I think is important -- and

16 by the way, I know exactly why Mr. Androphy would be

17 starting at the back end over here, but I think what's

18 important as we walk through this, Your Honor, is that

19 the FCPA makes it a crime to authorize. So we don't

20 need to put the money into anybody's pocket. It's not

21 required under the statute. Now, I think we've done

22 that in many instances, but when I have a chance to

23 speak, I want to talk about that side.

24 THE COURT: All right. So -- all right, in 8

25 and 11, why does this chart say there was $327,000 that

21


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1 went out minutes later?

2 MR. ANDROPHY: Because the record they had

3 showed that the Obras account had coming money coming in

4 and then it had money going out and it looked like to

5 this BC Electric. That was the question I was asking

6 the agent and she said she didn't know.

7 THE COURT: All but about four of them are

8 something like BC Electric.

9 MR. ANDROPHY: And no investigation was done,

10 so there was no evidence of any ultimate recipient.

11 THE COURT: All right.

12 So, out of all of these, the only money

13 that can be traced to Nestor Moreno is the payment for

14 his son's tuition?

15 MR. DUROSS: Hair plugs, Your Honor, I think.

16 THE COURT: Well, no, that's directly.

17 MR. DUROSS: I'm sorry, I didn't --

18 THE COURT: Somebody paying your son-in-law

19 and then your son-in-law's payment is not directly.

20 MR. DUROSS: Frankly, I don't think any of

21 these payments are actually direct, except for the

22 cash --

23 THE COURT: Paying a bill at your son's school

24 is direct.

25 MR. DUROSS: Right, but even that didn't go

21


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1 directly from the school to ABB. My point is none of

2 these are direct.

3 THE COURT: If you pay somebody's bill

4 somewhere, that's a direct payment to them.

5 MR. VARNADO: Your Honor, I apologize. With

6 respect to the hair plug transaction, I guess we're

7 calling it, Gilberto Lizarraga simply did not have the

8 money to write that $27,000 check but for the deposit --

9 THE COURT: In that account. In that account.

10 MR. VARNADO: And that's the account he did, in

11 fact, use.

12 THE COURT: I've got a couple of empty

13 accounts. My main one -- it's hard being a Government

14 worker.

15 MR. DUROSS: Not if you're Nestor Moreno.

16 THE COURT: And that would be true in,

17 unfortunately, a great number of countries. They ought

18 to be able to start paying the people like border guards

19 our half of them and triple the salary of the rest. A

20 policeman can't support his family, barely support his

21 family on what he's getting paid. He's got to do

22 something.

23 All right, go ahead.

24 MR. ANDROPHY: Judge, also, as an overall, the

25 evidence showed that the Sorvill contract was the

21


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1 initial arrangement between ABB and ESIMEX and CFE. The

2 Evergreen contract was a contract that was upgrading the

3 system. Some maintenance, some upgrading.

4 If the law is that payments to reward for

5 past acts is not illegal, it's our position that the

6 bribes, if there were bribes in this case related to

7 SITRACEN -- I may have said Sorvill -- I meant SITRACEN.

8 Evergreen was an upgrade. Evergreen -- you know, I

9 asked Basurto Jr. whether or not they were going to be

10 locked into this thing, and he says, yeah, because -- he

11 may not have used the words directly yeah, but he agreed

12 that SITRACEN was an expensive arrangement involving

13 specialized software, a lot of training. It was a close

14 bid. ABB got the Evergreen bid. But there is no

15 testimony in this case that it wasn't feasible -- that

16 it would have been more feasible to go somewheres else.

17 The only testimony in this case was that it was almost a

18 guarantee that you got Sorvill, you were going to get

19 Evergreen. Otherwise, it was going to cost tens of

20 millions of dollars more.

21 So our theory here is that if a bribe was

22 paid, it was paid to get business from Sorvill, because

23 Evergreen -- the charge in this case was Evergreen,

24 there was nothing needed to get business in Evergreen.

25 They had the business. They didn't need to retain the

22


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1 business. They didn't need to do anything to retain the

2 business because they were locked into the SITRACEN

3 contract. And if this was a payment here to say thank

4 you guys and just a reward for past acts, it doesn't

5 rise to the level of an FCPA violation.

6 And then finally -- and I believe

7 Mr. Basurto even said that by the contract -- he said it

8 in his 302 and I asked him. By the contract alone, we

9 were going to get this arrangement. So no

10 reasonably-minded jury would have believed that it would

11 have taken -- sure, may have been paid more, but no

12 reasonable-minded jury would believe that it was needed,

13 other than, you know, just a good will for, you know,

14 the relationships that they had. And again, more money

15 for a past act.

16 And finally, Judge, the issue about

17 foreign official, the law, as the Court knows, is that a

18 criminal statute, which forbids an act in terms so vague

19 that one must guess to its meaning and differ as to its

20 application violates due process. We are listening to

21 expert testimony, who experts cannot agree on whether or

22 not CFE is a foreign official or an instrumentality of a

23 foreign government.

24 The problem we have in this case is that

25 Mr. O'Shea is being held criminally responsible for

22


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1 allegedly engineering something involving CFE as a

2 foreign official, when it's not clear from the record,

3 how does an individual in the United States of America --

4 he shouldn't have to guess -- he should not have to

5 guess as to the meaning of who CFE is. You know, we

6 don't allow arbitrary and discriminatory enforcement of

7 our laws. How can Mr. O'Shea, when dealing with this,

8 even if he's doing something incorrect, how can he

9 knowingly, willfully act and have knowledge that the

10 CFE -- it's not a foreign government. If you're dealing

11 with the country of Mexico, that may be one thing.

12 We're dealing with an electricity company. How can

13 Mr. O'Shea be held to a standard of knowledge to subject

14 him to a criminal indictment and a conviction for a

15 matter that the experts can't even agree on with regard

16 to whether or not CFE operates in a commercial setting

17 more than a governmental setting.

18 You know, I was listening to all the

19 evidence in the case and I'm thinking how much is

20 enough? Is it 10 percent, 20 percent, the competition?

21 How much is enough to rise to the level of an individual

22 being held criminally responsible? It's sort of like

23 we're trying to figure out here the status of CFE, but

24 hold Mr. O'Shea responsible, based upon our evaluation

25 today, when it was never presented to the Grand Jury in

22


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1 this case. The Grand Jury never had any thought process

2 on CFE. It was sort of taken for granted that CFE was a

3 foreign official in this case. The Government would

4 have put on no evidence if we didn't designate our

5 expert on this issue. Everything has been taken for

6 granted on foreign official --

7 THE COURT: Have you read the Grand Jury

8 transcript?

9 MR. ANDROPHY: I've only gotten -- I may have

10 gotten something on the Grand Jury, but I didn't get the

11 full Grand Jury. I may have gotten an agent's testimony

12 in the Grand Jury and that's it. I didn't get the full

13 extent of what was presented. But I saw the way they

14 did it in the Lindsey case, and they got -- through the

15 testimony, they got evidence of foreign officials

16 through the testimony of Basurto, Jr. That was the

17 basis for their evidence of the foreign official status,

18 because it was constantly asked of Basurto, Jr. who owns

19 the company, does it operate in a public versus a

20 private setting. He was their sponsored expert in

21 California on this issue.

22 And finally, Judge, just on the overall

23 portion, since the levels of responsibility in FCPA are

24 the highest. Some criminal laws, you know, have high

25 levels of proof. This one requires the highest level of

22


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1 knowledge of any criminal statute out there. And there

2 is too many vague inferences the Government is trying to

3 make between the SITRACEN and the Evergreen, as well as

4 the foreign official, and we're almost -- by not having

5 testimony from CFE representatives or any Mexican

6 officials on this, we're resorting to the testimony of

7 experts out there as to what they believe -- our expert

8 and their expert as to what they believe, rather than

9 the CFE as to what actually happens. But beyond that,

10 it's something that Mr. O'Shea could not --

11 THE COURT: But that would still not cure your

12 point that if you have to have the CFO or someone come

13 and explain why it's a Government agency, that vitiates

14 the notice that somebody has in dealing with them.

15 You're the Government. Perhaps it should be obvious.

16 MR. ANDROPHY: But not if you're Mr. O'Shea?

17 THE COURT: Well, that's your point.

18 MR. ANDROPHY: Thank you, Judge.

19 THE COURT: An expert or an executive suggested

20 it, it not something that is public notice.

21 MR. ANDROPHY: No, and it's the most

22 complicated of issues for -- when we filed our motion to

23 dismiss in the beginning, we didn't know where it would

24 lead; and to me, it still leads to a dead end of

25 knowledge.

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1 THE COURT: Thank you.

2 Mr. Duross?

3 MR. DUROSS: Thank you, Your Honor.

4 Your Honor, thank you for this

5 opportunity. I'd like to start, if I could, with what

6 the statute prohibits and what the elements are.

7 THE COURT: I know what the elements are. Tell

8 me how some of this supports the elements.

9 MR. DUROSS: Absolutely, Your Honor.

10 So, turning to the Court's initial

11 instructions in this matter, there are a number of

12 different elements that need to be proved in order for

13 the Government to sustain its case against the

14 defendant. First, we must prove that Mr. O'Shea is a

15 citizen of the United States, a fact that's been

16 stipulated to. Second, that he offered, paid or

17 authorized the payment of anything of value.

18 Your Honor, I believe that the evidence in

19 this respect is substantial, and I'm going to walk

20 through each of these, but I would start with that

21 proposition, and the reason why I do, Your Honor, is for

22 the reason I was talking about a moment ago. I think

23 Congress, in passing this, recognized the difficulty in

24 the issues of proof in terms of putting money in a

25 particular person's pocket. The money here or any of

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1 these cases, Your Honor, could go to a thousand

2 different bank accounts in a hundred different

3 countries, and we could spend decades just trying to

4 find where it went. It's a very complex and difficult

5 effort, and I think that Agent Diemert, Agent Hopper,

6 and the others who work on the case, did diligently

7 pursue that, not because it's actually required for a

8 conviction, but because it's actually strong -- I think

9 the Court used at one point suggestive evidence of what

10 was really going on here.

11 THE COURT: But you try to prove that crimes

12 that apparently were committed are evidence of crimes

13 you can't prove were committed, and that's one of the

14 problems here.

15 MR. DUROSS: Well, no, Your Honor, I think --

16 THE COURT: We think he was in the neighborhood

17 of Bank B, but we know he robbed Bank A, and therefore

18 you can convict him of B. Or in some cases in this

19 instance, some people robbed another bank and therefore

20 you can use that evidence of using the same getaway car.

21 MR. DUROSS: No, Your Honor, I think I would

22 disagree, with all due respect. I shouldn't have said

23 that, Your Honor. Forget I said that. I would disagree

24 with the Court because, frankly, Your Honor, in terms of

25 the presentation of evidence in this case, if we had

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1 simply stopped our entire investigation, stopped it just

2 when we had Basurto, Jr. saying he authorized this and

3 he knew what he was doing, and we knew that ABB sent the

4 money out, we could stand before the Court and say,

5 we've met that element that he authorized the payment of

6 anything of value. We have met our burden.

7 We went further than that, and the reason

8 why we went further than that is because it is strong

9 suggestive circumstances evidence of what really the

10 true nature of what was going on here. Because,

11 frankly, had we traced all that money out and it never

12 went for hair plugs or tuition or to somebody's

13 brother-in-law or brother or son-in-law, there would

14 be -- I think Mr. Androphy would get up here and he

15 would say they couldn't even put the money in anybody's

16 pocket. The fact that we were able to do that at all,

17 Your Honor, is frankly above and beyond what we need to

18 do. But here in terms of the authorization --

19 THE COURT: You can't convict a man promising

20 to pay unless you have a particular promise to a

21 particular person for a particular benefit. If you call

22 up the Basurtos and say, look, I'm going to send you 50

23 grand, bribe somebody, that does not meet the statute.

24 MR. DUROSS: No, it wouldn't, but for a

25 different reason, Your Honor. Because it would have to

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1 be a quid pro quo. I want you to pay bribes in order

2 for us to win the Evergreen contract.

3 Now, they don't have to actually know that

4 it was Nestor Moreno versus Carlos Rovira versus Gustavo

5 Salvador Torres. They just need to know my intent in

6 hiring you as the third party is that you will pass

7 bribes on to the CFE officials, who are going to make

8 this happen for me. And that is enough to sustain the

9 burden.

10 Here we're going much further, because not

11 only was there that agreement, and that agreement --

12 obviously there is the testimony of Basurto Jr. and Mr.

13 Androphy is a talented lawyer and he went after --

14 well --

15 THE COURT: I've seen a lot more of him than

16 you have.

17 MR. DUROSS: And hopefully, Your Honor will

18 give me the opportunity to see some more of him, that's

19 what I'm hoping for after we're done talking, which is

20 he obviously challenged the testimony of Basurto, Jr.,

21 and the jury can take that into consideration. But I

22 don't believe under the standard for Rule 29 that jurors

23 couldn't credit the testimony reasonably of Basurto, Jr.

24 and rely on it in forming their decisions as to whether

25 or not that agreement had been made. Here, however,

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1 they don't have to just do that. I think there is more.

2 I think there are the e-mails, the financial documents,

3 and other related information that I think is powerful,

4 circumstantial and direct evidence.

5 And so I believe that we have, for example,

6 Your Honor, I'm not going to belabor this. We have one

7 of the two meetings at Zucchini's. I don't want to keep

8 going over Zucchini's, but there's a meeting at which

9 there is an agreement --

10 THE COURT: I'll never eat there again.

11 MR. DUROSS: Mr. O'Shea is there and there is

12 discussion about bribes to be paid, and this is in the

13 August, September, 2003 time frame. We also have the

14 later meeting at Pappasito's in which there is actually

15 spreadsheet shown and there is discussions. That's

16 according to the testimony of Basurto, Jr. So maybe in

17 closing argument, Mr. Androphy will convince everybody

18 that he shouldn't be relied upon.

19 But it's not just that. We actually have

20 that same spreadsheet found on the laptop of John

21 O'Shea's work computer. We have the testimony of

22 Basurto, Jr. Of how it got there. And that contains the

23 3WT and the "Good Guys" and as we sort of walk through

24 some of those payments and connect some of those dots

25 today, I think that's strong powerful evidence to

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1 suggest what's actually going on here.

2 We also have a series of e-mails

3 concerning the authorization for these various payments,

4 ESIMEX, Obras and Sorvill. And this is all without, by

5 the way, getting to where the money ultimately lands.

6 Now, in terms of I think an important

7 element that Mr. Androphy touched upon was this idea

8 that the Evergreen contract was a lock, the idea that

9 this was -- we're always going to get it. And I think

10 that there is some very powerful evidence that came in

11 from Charles Calland that may have sort of slipped by,

12 which was, it wasn't a lock. He and Buddy Grierson were

13 trying to sell this thing and it wasn't going anywhere

14 in the 2001 and 2002 time frame. So, if CFE was going

15 to do the Evergreen contract, I think what you can pull

16 from what Mr. Calland said is they had to use ABB. That

17 is true. If they are going to do the Evergreen, because

18 the whole thing was connected. Absolutely, but there

19 was no lock that that was actually going to happen. In

20 fact, they gave up. I mean, he packed it in and went

21 and did something else for a while.

22 So don't even rely on Basurto, Jr. for

23 that. Rely on Charles Calland. He's got no dog in this

24 fight.

25 THE COURT: He's a representative of a big dog

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1 in this fight.

2 MR. DUROSS: I don't think anybody thinks

3 Charles Calland is a representative of a big dog. He

4 came in here and just said this is what he did himself.

5 I don't think he's there.

6 The jurors, obviously, Your Honor, they

7 could think that the fix is in and he's here to do what

8 he's here to do.

9 THE COURT: But he does work for the company

10 that has a big stake in this case.

11 MR. DUROSS: I think their stake is over in

12 large measure, Your Honor. They pled guilty, they paid

13 their --

14 THE COURT: How long have they committed to

15 report to the Justice Department about all the things

16 they are doing?

17 MR. DUROSS: Two or three years, Your Honor, I

18 don't know the exact date. But Mr. Calland didn't have

19 any involvement in that. I guess my point, Your Honor,

20 is simply this.

21 THE COURT: I don't have any problem with him.

22 I just point out, he's not unencumbered.

23 MR. DUROSS: Sure, and jurors are able to weigh

24 that. But I do think that a reasonable juror could take

25 what Mr. Calland said and take it in the light most

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1 favorable to the Government, believe that the Evergreen

2 contract was not a lot, in fact, quite the contrary, and

3 believed that bribes being paid was something necessary

4 to lock it up.

5 Now, in terms of the third element,

6 payment was to a foreign official or to a person knowing

7 it was going to be going to a foreign official. We

8 obviously don't have any payments directly to a foreign

9 official, and I think we've touched upon that a little

10 bit before. And candidly, Your Honor, I'm not going to

11 pretend that I'm the most knowledgeable guy in the world

12 about FCPA or foreign bribery, but the fact that money

13 goes through companies like Sorvill or Obras or ESIMEX,

14 on their way to pockets of foreign officials is pretty

15 standard. So the idea -- and for that second element.

16 By the way, everybody in this room probably could figure

17 that out.

18 THE COURT: It's standard for bikers and many

19 other unsavory people to wear blue jeans. That doesn't

20 mean if you wear blue jeans, you are unsavory.

21 MR. DUROSS: I wasn't suggesting merely giving

22 money to a third-party agent is somehow a criminal

23 offense, not at all. But the idea that money went to a

24 third party before it made its way to somebody else

25 isn't surprising. In fact, that's why I believe the

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1 law is crafted the way it is, and your instructions, I

2 think, contemplate that, which is specific that or to a

3 person whom he knew would offer to pay or pay at least

4 some -- that's the point, just the some, even that money

5 keeps going down, at least some of the money to a

6 foreign official, directly or indirectly. I think we've

7 definitely shown that here, Your Honor.

8 Now, Mr. Androphy raised the issue about

9 foreign official. Obviously, that's come up in a

10 context and to a degree, that as I think I've already

11 confessed, Your Honor, a few times, my fault, I wasn't

12 prepared for it. But when he say the experts disagree,

13 his expert will disagree with our expert. I get that

14 part. But I don't think we actually --

15 THE COURT: They both are very

16 knowledgeable people.

17 MR. DUROSS: Absolutely, Your Honor.

18 THE COURT: Is Baade a lawyer -- he's a lawyer,

19 isn't he?

20 MR. DUROSS: Baade is a lawyer. Dr. Wood was

21 not. But I don't think that our disagreement candidly --

22 and this is probably part of the Court's frustration of

23 the entire issue -- I don't think the disagreement is

24 sort of particularly a seismic nature. I think we all

25 agree, and obviously Dr. Baade may prove me wrong, I

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1 think we all agree it's a hundred percent state owned, a

2 hundred percent state controlled. The transmission --

3 THE COURT: I've already instructed them on

4 that.

5 MR. DUROSS: Right, distribution and

6 transmission is a hundred percent. And what we really

7 have an issue about is whether there is this market

8 concerning generation, of whether that's a market in

9 which CFE competes under a normal commercial basis.

10 THE COURT: It does trouble me, although I

11 don't think it's relevant to this motion, that the

12 Government did not present evidence on governmental

13 status on which a reasonable Grand Jury could have

14 relied.

15 MR. DUROSS: I believe, Your Honor, that we

16 presented evidence that it was a state owned company.

17 THE COURT: The statute is more subtle than

18 that. I'm not saying you couldn't have done it or they

19 wouldn't have indicted him.

20 MR. DUROSS: The statute says an

21 instrumentality of a foreign government. I think in

22 fairness, Your Honor, it is not a stretch to think that

23 a company that is created by, owned by and operated by a

24 foreign government, could be considered an

25 instrumentality. I think in the sharps relief of a

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1 trial in which we are going to be challenged on those

2 issues, we needed to have been more prepared and we were

3 not.

4 THE COURT: I don't know what was presented to

5 the Grand Jury, but as I observed several days ago, the

6 Government should have been prepared before they brought

7 the charges to the Grand Jury. It's something you have

8 to prove. And you shouldn't indict people on stuff you

9 can't prove.

10 MR. DUROSS: Understood, Your Honor.

11 THE COURT: And was it 2005 when ABB confessed?

12 MR. DUROSS: April 2005 was the voluntary

13 disclosure to the United States and the Department of

14 Justice and the Securities and Exchange Commission, Your

15 Honor.

16 THE COURT: This indictment is October of '09?

17 MR. DUROSS: Yes, I believe it is October '09 --

18 November, I'm sorry, Your Honor. November '09.

19 So, in terms of the level of proof on

20 foreign official, Your Honor, I believe under the

21 standard which is deferential to the Government in the

22 Rule 29 context, that a reasonable jury could find that

23 CFE -- frankly, I think we've proved beyond a reasonable

24 doubt, but a reasonable jury could find beyond a

25 reasonable doubt that CFE was, in fact, an

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1 instrumentality of foreign Government. They are

2 created, owned, controlled and run by the Mexican

3 Government. Whether or not they competed on a normal

4 commercial basis is an issue that I also think we've

5 addressed. We probably should have been more prepared

6 on our earlier, but I do believe we've at least played

7 some catch-up, Your Honor.

8 Now, in terms of the payment was made to

9 misuse authority. I think we have a number of pieces of

10 evidence about that. I think we have some conversations

11 testified to by Basurto, Jr. In early 2003 that those

12 conversations became more concrete and through the

13 August, September time frame, they were certainly,

14 particularly concrete, as well in November, that sort of

15 November time frame at Pappasito's, and then took an

16 even sharper focus when the invoices start to come in

17 with ESIMEX, Obras and Sorvill.

18 Now, in terms of the contract, it does go

19 from 34 to 37 million. And I believe that the

20 testimony -- we believe Mr. Basurto testified to and I

21 understand that Mr. Androphy may have a different take

22 on it, but that there was $3 million increase, one

23 million bucks was for the "Good Guys". I think we've

24 covered some of those payments. And then 2 million was

25 sort of additional moneys that CFE was going to be

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1 allowed to use to buy a variety of different equipment

2 over the life of the contract.

3 I believe that that has laid out pretty

4 clearly that in order to get this contract, they needed

5 to pay bribes. In order for this increase, the increase

6 that was going to go from 34 to 37, there was additional

7 bribes. And that really is reflected in the Third World

8 Tax on the one hand and the "Good Guys" on the other.

9 Now, turning, Your Honor, to the

10 corruptly, knowingly and willfully element.

11 Mr. Androphy is right, that is a high standard and I

12 agree with that. We have a number of pieces of

13 evidence. Obviously, there is the direct testimony of

14 Basurto, Jr. and I believe that a reasonable jury could

15 rely on his statements. Now, he's been impeached in

16 terms of what he did or didn't tell us earlier and they

17 can make that assessment, Your Honor, in judging that.

18 But I do believe we've gone to fairly great lengths to

19 find e-mails, whether they are from ABB or from Basurto.

20 We've found financial records to try to corroborate,

21 where possible, things that Basurto, Jr. said, and I

22 believe a jury could rely on that.

23 So we have these conversations, we have

24 coded e-mails. We have references by the way. I don't

25 want to go through all these, Your Honor, but we do have

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1 e-mail exchanges. So it's not just contemporaneous

2 e-mail exchanges between O'Shea and Basurto. And when

3 we move into the early 2004 time frame. For example,

4 Government Exhibit 1B, there is an e-mail talking about

5 Nestor and Carlos, where they will provide destination

6 numbers per figures as reflected in the table we gave

7 you in November. I think fairly compelling evidence

8 that supports what Basurto says.

9 The jury is entitled to reject it. But I

10 believe under the standard, a reasonable jury could rely

11 on it. We have, for example, regarding Obras. Carlos

12 and Nestor -- this is an e-mail from Basurto to O'Shea,

13 May of 2004, in Government's Exhibit 11A. They are

14 requesting a repeat of the transfers with the HB

15 invoice, at least, which comes to U.S. $76,200. They

16 have not mentioned anything about the other invoice,

17 suggesting they are satisfied. At least that's my take

18 on it.

19 THE COURT: Suggesting something.

20 MR. DUROSS: Suggesting something, Your Honor.

21 THE COURT: It's certainly not clear on its

22 face.

23 MR. DUROSS: Sure. And subject to argument.

24 But I also think it's not an unreasonable interpretation

25 and therefore a jury could rely upon it in reaching a

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1 verdict.

2 There are additional ones, Government's

3 Exhibit 15, and other pending items, Carlos and Nestor

4 are waiting to hear from you on your trip since they

5 want to discuss both the scheduling of transfers and the

6 generation projects they want to push for next year.

7 THE COURT: Okay, now, the transfers is evil;

8 right?

9 MR. DUROSS: I think it's very suggestive, Your

10 Honor.

11 THE COURT: What about generation project for

12 the next year?

13 MR. DUROSS: I think they're talking about

14 additional projects. I think that's separate. I was

15 reading the rest of the sentence, Your Honor, to be

16 complete.

17 THE COURT: I know. My point is you have

18 chosen one word that should be related to the generation

19 projects next year could be in. But it is a word that

20 could be interpreted evilly. But it also has

21 substantive business content.

22 MR. ANDROPHY: Absolutely, Your Honor. But I

23 think that's why the jurors reasonably could construe

24 that e-mail and listening to testimony of Basurto, Jr.

25 and seeing other e-mails, to use their common sense

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1 about what it means or doesn't mean. Whether they

2 reject what the Government says. But I think taking all

3 reasonable inferences in our favor, which they might

4 not, but in terms of evaluating the case here, I think

5 we get to the jury on that.

6 In terms of some of the others, Your

7 Honor, they talk about the bonus portion we are

8 handling. This is what Basurto is referring to. That's

9 given to the Good Guys. That is what he testified to.

10 Whether they reject it or not is up to them. There are

11 a whole series of them, and I could give you the exhibit

12 numbers if the Court were interested.

13 THE COURT: I've been here.

14 MR. DUROSS: I knew that, Your Honor, I'm

15 sorry. That was foolish of me. I'm sorry.

16 THE COURT: That's fine.

17 MR. DUROSS: Then we get to the approval of the

18 payment request. There is a whole series of -- if the

19 Court will recall Charles Calland's testimony on this,

20 which I think is important, which he said at the

21 beginning of the Evergreen contract, even though he was

22 the project manager, the person that was handling the

23 payments was John O'Shea. That's not nefarious, one or

24 the other. I'm just saying that's a fact that he

25 testified to.

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1 THE COURT: Still three people as I recall.

2 MR. DUROSS: I'm sorry?

3 THE COURT: I think there are three people.

4 You got the financial people, you had O'Shea and

5 somebody else.

6 MR. DUROSS: Yes, the controller had to end up

7 processing it. But then what happens is, in April 2004

8 Rene Cotting comes in. This is why I think it's

9 significant. And I think Your Honor is right that we

10 probably try to do too much with our witnesses and this

11 is something we could connect the dots with in front of

12 the jury. But Rene Cotting comes in and this process of

13 just trying to -- you know, signing off on these things

14 and just putting them through, wait a minute, there

15 needs to be more of a process in place. Charles Calland

16 now has to start signing off on it. Charles Calland

17 said what is this stuff, where is the contract, and

18 start looking around. And this starts to build to a

19 crescendo.

20 And when ultimately there is a meeting,

21 Rene Cotting says, where is the contract, and he's told

22 by O'Shea and Basurto, Jr. that there is a contract,

23 they just have to get it to him. This is in the end of

24 July. That's also what, if you recall, both Calland and

25 Forn were saying, end of July, what's going on here.

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1 And not only thereafter, John O'Shea ends

2 up leaving the company for whatever reason.

3 Now, before he does, however, and I know

4 that the Court heard about the purchase order probably

5 more than anyone would like to hear about it. Because I

6 think it is significant, because the purchase order in

7 the very beginning of August 2005, is pushed through

8 according to the testimony of Rene Cotting. This is

9 right on the heels of this awkward meeting where he

10 says, this has expired, what's going on, why are we

11 paying these guys?

12 John O'Shea is the guy who signs off on

13 this purchase order, gets it done without running it

14 past Renee Cotting. This purchase order then gets in

15 place, and payments continue to go out the door to

16 ESIMEX, because this purchase order is now in place.

17 The reason why this is significant, I want

18 to draw the Court's attention to it, because if I were

19 the Court, I would be thinking to myself, Count 13,

20 O'Shea is gone. Why is Count 13 in this indictment

21 attributed to John O'Shea?

22 And the point behind that, Your Honor, is

23 that while John O'Shea is no longer at ABB, he had put

24 in motion all of these actions so these payments would

25 continue to go out the door, and it did. And it only

24


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1 happened because you got this purchase order. When they

2 finally get the contract, which as the Court knows,

3 bogus, it's backdated, doesn't exist. It's created.

4 They see it and Mr. Forn, who I understand he still

5 works for the company, but I don't think has much of a

6 dog in the fight, says I looked at this thing and it

7 didn't add up to anything that I've seen before. This

8 is a real problem.

9 He goes and tells Cotting, they start

10 looking into this thing in October, and they say, oh,

11 hold on a second. You know, they look back at the

12 purchase order, they get very concerned about the 90

13 minutes and this thing got pushed through. They see all

14 the names of all these people get paid. None of this

15 makes any sense to them and they say, whew, we're not

16 paying anybody any more.

17 So, within about two months or so of John

18 O'Shea leaving ABB, the wheels have fallen off the

19 wagon. And the agreements that he had between himself

20 and Fernando Basurto, Jr., which he testified to, which

21 were all corroborated by the e-mails, become unearthed.

22 Your Honor, the fact that Cotting,

23 Calland, Forn know nothing about this, what's going to

24 and the contract and the agreements, and all this, and

25 the e-mails that have been shown to the jury and

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1 testified to by Basurto, Jr. support the fact that there

2 is this other agreement, this other -- I want to call it

3 a conspiracy, but that not charged -- agreement between

4 O'Shea on the one hand and Basurto on the other,

5 unbeknownst to all the other people.

6 That's powerful circumstantial evidence.

7 Wait a minute, something is wrong in Denmark here. And

8 that supports the knowingly --

9 THE COURT: In Rene Cotting's case, Holland.

10 MR. DUROSS: Switzerland.

11 THE COURT: Oh, he's from Switzerland?

12 MR. DUROSS: The accent, I think, was hard to

13 figure out, but maybe he was originally from Holland.

14 THE COURT: I thought he said he had come from

15 Holland.

16 MR. DUROSS: So, Your Honor, from that

17 perspective, I believe that this is powerful evidence.

18 So now I want to turn to what Mr. Androphy

19 started with, which is what can't the Government do in

20 terms of its proof once the money leaves ABB? And I

21 think the initial part is we've got the evidence both in

22 terms of e-mails and conversations with Basurto, Jr. as

23 well as the circumstantial evidence in terms of people

24 not knowing. And now the money at these different times

25 is going out the door. And what we have at that point

24


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1 is we followed the money trail. That's not perfect.

2 We've agreed to the instruction by the Court, you can't

3 trace dollar for dollar, you can't do it, and we

4 recognize that. But I think that's part of the scheme.

5 That's part of the brilliance of the whole --

6 THE COURT: But you can't win by saying people

7 who pay bribes are really tricky.

8 MR. DUROSS: No, no, no. But don't hold us to

9 a standard --

10 THE COURT: And therefore find them guilty.

11 MR. DUROSS: No, no, no. I'm sorry, I didn't

12 mean to suggest that, Your Honor. All I'm saying is

13 that we do have limits to what we can get. But where we

14 did get was this money going into these Basurto family

15 accounts, or Sorvill and Obras, which, for example,

16 Mr. Calland knows knowing about, has never seen any

17 backup documentation. It goes out the door, goes

18 through these different accounts.

19 And in some instances we've gone so far as

20 to actually be able to land that money into either

21 family members or CFE official's hands. And the reason

22 why that's significant isn't because in each instance we

23 can do it, but it backs up all the other stuff that we

24 thought was going on, what Basurto, Jr. tells us, what

25 the e-mails we believe our reading of them suggest to

24


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1 us.

2 And we think that that all connected shows

3 that a reasonable jury, in the light most favor able to

4 the Government, could look at all that evidence and say

5 to themselves, that's exactly what was going on here.

6 We believe Basurto, Jr. We believe the e-mails or the

7 interpretation that the Government has of those e-mails.

8 We believe that what's happening here is that CFE, the

9 contract, the contract at that point was dead in the

10 water, bribes were getting authorized, John O'Shea knew

11 about it, and it was going out the door.

12 There are two other things I'd like to

13 point out and I'll be quiet, which is the corrupt piece

14 of it is also, I think, underscored by the fact that

15 John O'Shea had a financial interest in what was going

16 on, as well. And he's getting money coming back from

17 the Basurtos.

18 I understand he says it's a loan and

19 that's fine, he can make that presentation. But that's

20 a lot of money coming into his account from the Basurtos

21 on a fairly regular basis. By the way, some of them add

22 up. So when he goes in -- it's late 2002. I think

23 Basurto, Jr. said it was December 2002. Actually, there

24 is a November 19th date. He goes to Mexico City, John

25 O'Shea, according to his travel voucher. Guess what one

24


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1 of the dates of those checks coming back to him. It's

2 in November? He was meeting up with these people and

3 he's getting money from them.

4 Now, finally, I said two things. One is

5 the is kickbacks. The second is the cover-up, which is

6 when all of this happens in April of 2005, right, so

7 John O'Shea is out in August 2004, fast forward to April

8 2005. ABB makes a public disclosure that there is an

9 investigation into bribery coming out of their Texas

10 unit concerning electricity.

11 What's happened between August of 2004 and

12 April of 2005? A whole mess of evidence that there's a

13 big cover-up. And I know John O'Shea is going to say he

14 was duped and he was an unwitting pawn, I believe they

15 used the term, of the Basurtos. But what happens in

16 April of 2005 isn't that he's like, oh, my gosh, I've

17 been fooled by these -- I think it was devious and

18 sophisticated Basurtos. No, he e-mails them and says my

19 lawyer says I should use Yahoo because it's harder to

20 follow and let's change up where we meet. Let's not do

21 the Eggs Benedict place, let's go someplace else. I

22 assume it was breakfast at Zucchini's. But be that as

23 it may, I mean, it underscores the corrupt nature of

24 what's going on. He doesn't pick up the phone and call

25 Mexican authorities or the FBI and say, oh, my gosh, let

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1 me tell you what's going on.

2 So I think it all underscores that, Your

3 Honor. So I've taken too much of your time, but that is

4 why I believe, Your Honor, a reasonable jury could infer

5 from this evidence, in a light most favorable to us, to

6 return guilty verdicts on all counts.

7 THE COURT: We'll take what I hope will be

8 about a 10 minute break.

9 [Recess]

10 THE COURT: John O'Shea's Motion for Judgment

11 of Acquittal will be granted.

12 The problem here is that the principal

13 witness against Mr. O'Shea is Basurto, Jr., who knows

14 almost nothing. His answers were abstract and vague,

15 generally relating gossip. And as I indicated, even

16 hearsay testimony must be something other than a

17 conclusion.

18 While the Government does not have to

19 trace a particular dollar to a particular pocket of a

20 particular official, it has to connect the payment to a

21 particular official, that the funds made under his

22 authority to a foreign official, who can be identified

23 in some reasonable way, that is, with no reasonable

24 doubt.

25 The only thing that has been established

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1 pretty close to that was that John O'Shea took kickbacks

2 from the Basurtos. That's not -- could be either one.

3 We haven't heard the other side of it. The problem with

4 that is that is unrelated to a public official in a

5 foreign country. It is as likely, if it was a kickback,

6 that the Basurtos were giving gratuities to O'Shea in

7 order to maintain their company representative status in

8 Mexico with ABB. While, if that's what it was, it would

9 be reprehensible, it's not bribing a foreign official.

10 We have considerable non-production on the

11 part of the Government records and people. I don't know

12 why Skopp was not produced. I don't know why the

13 Government did not give Skopp immunity. What I do know

14 is it is now six, seven years after ABB turned over its

15 records to the United States, having discovered on its

16 own the irregularities in its ranks, and Skopp was a

17 participant in the apparent irregularities. And the

18 Government not granting him immunity or anything else,

19 precluded O'Shea from calling him.

20 The immunity to Basurto, Sr. means he

21 doesn't have to do anything and he can still take the

22 Fifth on the grounds that he could be incriminating

23 himself in explaining these payments because they were,

24 in fact, transactions unrelated to the commission Nestor

25 Moreno and ABB. He didn't, as part of his earning his

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1 immunity, produce his financial records. What we have

2 is some records that Jr. produced, which are modest in

3 their extent and inconclusive in their reach.

4 We don't know what the going rate for a

5 country representative is. We know it varies and we

6 know it varied even for the Basurtos. But what we do

7 know is the Basurtos had other customers. They were

8 collecting money from Microsoft and IBM and doing

9 something with it. I am not suggesting that either of

10 those companies was doing anything wrong, authorized the

11 Basurtos to do something wrong for them. It's a fact

12 that the Basurtos had a business. And being the country

13 representative for a foreign company is sort of like

14 being a public relations officer. Responsibilities are

15 ill defined sometimes, but the Government has not

16 produced evidence from which one could conclude beyond a

17 reasonable doubt that their only business was paying

18 bribes or the business they did for ABB was only paying

19 bribes.

20 The money that is disbursed is sometimes

21 tied as closely as three steps can be to Moreno. In two

22 instances, the hair plugs and the tuition. But there

23 are just disbursements to the Basurtos that disappear

24 into the Basurto family. For instance, in Count 6, the

25 account, $67,500 is paid on a collection of $30,000.

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1 That makes neither one of them explanatory. And while

2 the Basurtos had a 25 percent arrangement perhaps,

3 apparently, in this case, even if you count Lizarraga,

4 that's $70,000 out of 181 or something like that.

5 Who and what Chelala is -- I know it's a

6 person, apparently. The Sorvill accounts we had as a

7 good illustration of Basurto, Jr.'s testimony, him

8 testifying about Sorvill. Nothing he saw or did. He's

9 just saying, oh, they are nothing but a conduit for

10 bribes, and no foundation, no specifics.

11 Even if you add up the tuition in that

12 count -- let's see if I can keep all these things

13 straight, you are talking about a million dollars, of

14 which $50,000 could be clearly traced. There are

15 payments to other people with no evidence that they were

16 connected with the commission's business.

17 Most of all, we don't have all of the

18 Basurtos' records and the Basurtos are both cooperating.

19 We don't have their financial records. We don't have

20 their cell phone records, we don't have all their other

21 account records. I didn't count the number of bank

22 accounts here, but there are five or six of them, and

23 those are just Bank of America accounts and Wells Fargo

24 Accounts. There are lots of other banks. And with

25 Sorvill, there is $268,000 going into Sorvill and

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1 $29,000 coming out. That makes, as the Government says,

2 the nature of that account undetermined rather than

3 suspect.

4 Basurto and O'Shea, I hesitate to say

5 used a code, talked deliberately obscurely instead of

6 deliberately clearly, that's not evidence of committing

7 a crime. People encrypt stuff all the time, every day.

8 They did before we got to the Internet. There is an

9 equally logical explanation for the post-termination

10 e-mails, and that is helping the Basurtos keep their

11 contract.

12 Does the defendant want me to bring the

13 jury in and instruct them or just go tell them?

14 MR. ANDROPHY: You can tell them. That would

15 be fine, Your Honor.

16 THE COURT: Government?

17 MR. DUROSS: That would be fine, Your Honor.

18 The Government would like an opportunity, if the Court

19 would permit us to speak with the members of the jury.

20 THE COURT: I will, if they want to. I'm going

21 to go talk to them for a minute and I'll tell them that

22 you are in here.

23 Do you want talk to them?

24 MR. ANDROPHY: Yes, Your Honor.

25 THE COURT: Mr. Androphy, be nice to them.

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1 MR. ANDROPHY: I will do it under Ms. Frazier's

2 supervision.

3 THE COURT: I want everybody to be all right.

4 All right, I'll be back shortly.

5 [Recess]

6 THE COURT: As the clerk has reported to you,

7 the jury did not want to talk to anybody. So I'm sorry

8 about that. I believe talking to the jurors is very

9 useful to lawyers, but I can't make them do it.

10 Is there any reason not to withdraw the

11 exhibits? Have these all been scanned and filed?

12 MR. DUROSS: When you say scanned and filed,

13 I'm not sure I totally understand.

14 THE COURT: We don't keep anything paper

15 anymore. So, if you file a copy, either you scan them

16 and file them electronically. Is there any reason for

17 me to keep all this stuff?

18 MR. DUROSS: We definitely have them scanned

19 into PDF, so we could provide a disk.

20 THE COURT: Mr. Androphy, do you want --

21 MR. ANDROPHY: We can withdraw them.

22 THE COURT: You want me to cherish them and add

23 to the real exhibits, these.

24 MR. DUROSS: The real ones, Your Honor?

25 THE COURT: Add to these.

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1 MR. DUROSS: Sure.

2 THE COURT: This thing, Mr. Androphy, I think

3 you came up with this.

4 MR. DUROSS: I believe Ms. Frazier, she showed

5 that to Mr. Calland.

6 MS. FRAZIER: Your Honor, that was impeachment

7 only.

8 THE COURT: I still want it in the record. How

9 about defense a thousand. That way, we know it won't

10 overlap, I hope. And then there was -- the Government

11 had two -- I already ruled on those, 28 and 29.

12 MR. DUROSS: That's correct, Your Honor.

13 THE COURT: Make sure they are included.

14 Do you want these back? I mean, all they

15 are is binders at this point.

16 MR. DUROSS: We don't need them back.

17 THE COURT: We recycle them if you don't want

18 them.

19 MR. DUROSS: Feel free to recycle them. That's

20 fine.

21 THE COURT: I don't believe in four-inch

22 binders, so somebody else will use them.

23 Anything else from the Government?

24 MR. VARNADO: No.

25 THE COURT: Mr. Androphy, anything else for

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1 O'Shea?

2 MR. ANDROPHY: No, Your Honor.

3 THE COURT: It's late. I see the Government is

4 taking their stuff downstairs. Do you want to get yours

5 tomorrow?

6 MR. ANDROPHY: We have a delivery service here

7 now, Judge.

8 THE COURT: All right, undelivery service.

9 Anything else?

10 MR. ANDROPHY: No, Your Honor.

11 THE COURT: All right, thank you counsel.

12 [Proceedings adjourned]

13

14 REPORTER'S CERTIFICATE

15

16 I certify that the foregoing is a correct transcript

17 from the record of proceedings in the above-entitled

18 cause.

19

20 /s/ Ed Reed 1-17-12Edward L. Reed Date

21 Official Court Reporter21

22

23

24

25

25


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EXHIBIT B


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Exhibit B:

The Identity of the Foreign Officials in Contested FCPA Bribery Convictions

1. In United States v. Liebo, No. 89-cr-76 (D. Minn. 1989), the foreign officials were

identified as “Captain Ali Tiemogo,” the “chief of maintenance for the Niger Air Force,”

and “Tahirou Barke, Tiemogo‟s cousin and close friend, [who] was the first consular for the Niger Embassy in Washington, D.C.” See United States v. Liebo, 923 F.2d 1308,1309 (8th Cir. 1991). Both foreign officials testified at the trial. Id.

2. In United States v. Mead , No. 98-cr-240 (D.N.J. 1998), the Criminal Complaint averred

that “a sack full of currency was . . . physically handed over to Audo Escudero, one of the

two Panamanian government officials from the Ministry of Commerce and Industries.”Criminal Complaint, Attachment B, at 11 (Jan. 29, 1998), available at

http://www.justice.gov/criminal/fraud/fcpa/cases/mead-etal/09-11-98mead-

complaint.pdf.

3. In United States v. Kay et al., No. 01-cr-914 (S.D. Tex. 2001), “Murphy and Kayauthorized [certain] employees to pay bribes of one-third of the savings to MarioMorisette, the Haitian customs official at Laff iteau . . . .” Brief for the United States at10, United States v. Kay, Nos. 05-20604 & 05-20606 (5th Cir. Dec. 27, 2006).

4. In United States v. King, No. 01-cr-190 (W.D. Mo. 2001), there was evidence of “ane-mail with a list of politicians already paid off and the ones he‟s gonna pay off.” See

United States v. King, 351 F.3d 859, 863 n.2 (8th Cir. 2003), cert. denied , 542 U.S. 905(2004).

5. In United States v. Kozeny et al., No. 05-cr-518 (S.D.N.Y. 2005), aff’d , 667 F.3d 122 (2d

Cir. 2011), the foreign of ficials included “two key Azerbaijani officials, Nadir Nasibov,the chairman of the State Property Committee („SPC‟), and Barat Nuriyev, his deputy.”See Gov‟t‟s Memorandum of Law in Opp‟n to Def.‟s Motion for Judgment of Acquittal

or a New Trial, at 5 (Sept. 25, 2009).

6. In United States v. Jefferson, No. 07-cr-209 (E.D. Va. 2007), aff’d , 674 F.3d 332 (4th Cir.

2012), the foreign official, referred to as “Nigerian Official A” in the Indictment, was

specifically identified and known to all parties. For example, the Indictment stated, “Onor about June 21, 2005, Defendant JEFFERSON composed and caused to be delivered a

letter on congressional letterhead addressed to Nigerian Official A.” Indictment at 27

(June 4, 2007). The Indictment proceeded, “On or about July 18, 2005, at the residence

of Nigerian Official A in Potomac, Maryland, Defendant JEFFERSON met privately withNigerian Official A and offered to pay a bribe to induce him to use his position to assist

in obtaining commitments from N1TEL for the benefit of the Nigerian Joint Venture.” Id . at 30.

7. In United States v. Green et al., No. 08-cr-59 (C.D. Cal. 2008), the foreign official was

identified by name and title as “Juthamas Siriwan,” “Governor” of the “Tourism


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Authority of Thailand.” Gov‟t‟s Combined Sentencing Position for Defs. Gerald &

Patricia Green at 1 (Jan. 14, 2010).

8. In United States v. Esquenazi et al., No. 09-cr-21010 (S.D. Fla. 2009), appeals docketed ,

Nos. 11-15331 and 11-15954 (11th Cir. 2011), the Indictment stated that the “Intended

Foreign Public Official Beneficiary” was “Jean Rene Duperval,” the “Director of International Relations of Haiti Teleco.” Indictment at 5, 21 (Dec. 4, 2009).

9. In United States v. Noriega et al., No. 10-cr-1031 (C.D. Cal. 2010), appeal docketed ,No. 11-50507 (9th Cir. 2011), the two foreign officials were specifically identified in the

First Superseding Indictment and were known to all parties: “Official 1 . . . held a senior

position at CFE [Comisión Federal de Electricidad, a Mexican utility company] [and]was the Sub-Director of Generation for CFE in 2002 and the Director of Operations in

2007. . . . Official 2 was the Director of Operations at CFE until that position was taken

over by Official 1 in 2007.” First Superseding Indictment at 2-3 (Oct. 21, 2010).

Considering defendants‟ motion to dismiss, the court wrote that “[t]he gist of the

allegations in the [First Superseding Indictment] was that the Lindsey Defendants paidbribes to two high-ranking employees of the [CFE]. . . . (Nestor Moreno and Arturo

Hernandez).” Id ., Order Denying Mot. to Dismiss, at 1 (Apr. 20, 2011). Althoughdefendants Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee were

convicted by a jury on May 10, 2011, the court subsequently vacated their convictions

and dismissed the First Superseding Indictment. Order Granting Mot. to Dismiss (Dec. 1,2011).


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