SEC v. Ruehlen (Ruehlen Motion For Summary Judgment)

Case 4:12-cv-00563 Document 146 Filed in TXSD on 03/28/14 Page 1 of 47
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. MARK A. JACKSON and JAMES J. RUEHLEN, Defendants. CIVIL ACTION NO. 4:12-CV-00563
DEFENDANT JAMES J. RUEHLENS MOTION FOR SUMMARY JUDGMENT AND MEMORANDUM OF LAW IN SUPPORT THEREOF
Case 4:12-cv-00563 Document 146 Filed in TXSD on 03/28/14 Page 2 of 47 TABLE OF CONTENTS Page NATURE AND STAGE OF THE PROCEEDINGS AND ISSUES TO BE RULED UPON BY THE COURT .................................................................................................. 1 INTRODUCTION AND SUMMARY OF ARGUMENT ......................................................... 1 STATEMENT OF UNDISPUTED MATERIAL FACTS ......................................................... 3 I. Relevant Background .......................................................................................................... 3 A. B. C. II. Nobles West Africa Division And Jim Ruehlen .................................................... 3 Mr. Ruehlen Identified The Paper Process As An Issue During The 2004 West Africa Division Audit .................................................................................... 5 After Researching Alternatives And Receiving Advice From Local Counsel, Noble Continued To Use The Paper Process In Early 2005 ................ 7 The Payments Were Reviewed For FCPA Compliance Through A Fully Transparent Process By Multiple Levels Within The Company .......................... 10 Mr. Ruehlen Fully Complied With Nobles Internal Controls Over The Payments ............................................................................................................... 13 Mr. Ruehlen Had No Role In Accounting For The Payments .............................. 16 Mr. Ruehlen Promptly Raised Concerns To Senior Management Upon Learning Of A Competitors Internal Investigation Related To Temporary Import Permits ...................................................................................................... 17
Payments In Connection With Temporary Import Permits .............................................. 10 A. B. C. D.
LEGAL STANDARD ................................................................................................................. 18 ARGUMENT ............................................................................................................................... 19 I. The Court Should Grant Summary Judgment On The SECs Claims For Violations Of The FCPAs Books And Records Provisions ............................................ 19 1. There Is No Evidence That Mr. Ruehlen Falsified Any Book, Record, Or Account, Or That He Aided And Abetted Nobles Alleged Failure To Keep Accurate Books And Records .......................... 20 There Is No Evidence That Mr. Ruehlen Believed That The Payments At Issue Were Unlawful Under the FCPA ............................... 23 Section 13(b) Does Not Require That Payments Be Recorded In An Account Named Unlawful Bribes ................................................... 26
2. 3. II.
The Court Should Grant Summary Judgment On The SECs Claim For Knowing Circumvention Of Nobles System Of Internal Accounting Controls .............................. 28 A. There Is No Evidence That Mr. RuehlenWho Received CFO Approval For Every Payment At Issue In This MatterCircumvented Nobles System Of Internal Accounting Controls .............................................................. 29 The SECs Other Theories Of Circumvention Are Meritless And Contradicted By The Undisputed Evidence .......................................................... 31
B.
Case 4:12-cv-00563 Document 146 Filed in TXSD on 03/28/14 Page 3 of 47 TABLE OF CONTENTS (continued) Page 1. 2. 3. 4. 5. III. A. B. Audit Committee Resolution ................................................................. 31 Backdated IC Network Certifications ................................................... 31 Quarterly Representation Letters .............................................................. 33 Deceptive Approval Requests ............................................................... 34 Payments Recorded To Other Accounts ................................................... 34
The Court Should Grant Summary Judgment On The SECs Bribery Claims ................. 35 The Paper Process ............................................................................................. 36 Extensions Of Temporary Import Permits ............................................................ 39
CONCLUSION ........................................................................................................................... 40
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Case 4:12-cv-00563 Document 146 Filed in TXSD on 03/28/14 Page 4 of 47 TABLE OF AUTHORITIES Page(s) Cases Baranowski v. Hart, 486 F.3d 112 (5th Cir. 2007) ..................................................................................................... 19 Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536 (5th Cir. 2005) ..................................................................................................... 19 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ............................................................................................................ 18, 19 Hockman v. Westward Commcns, LLC, 407 F.3d 317 (5th Cir. 2004) ..................................................................................................... 39 In re Yesner, Exchange Act Release No. 184, 75 SEC Docket 156, 2001 WL 587989 (ALJ May 22, 2001) ................................................... 23 Krim v. BancTexas Group, Inc., 989 F.2d 1435 (5th Cir. 1993) ....................................................................................... 28, 39, 41 Mayer Brown LLP v. IRS, 562 F.3d 1190 (D.C. Cir. 2009) ................................................................................................ 31 McConville v. SEC, 465 F.3d 780 (7th Cir. 2006) ..................................................................................................... 32 SEC v. Cedric Kushner Promotions, Inc., 417 F. Supp. 2d 326 (S.D.N.Y. 2006) ....................................................................................... 23 SEC v. Coffman, No. 06-cv-00088, 2007 WL 2412808 (D. Colo. Aug. 21, 2007) .............................................. 29 SEC v. Das, 723 F.3d 943 (8th Cir. 2013) ..................................................................................................... 25 SEC v. Espuelas, 905 F. Supp. 2d 507 (S.D.N.Y. 2012) ................................................................................. 25, 44 SEC v. Goldsworthy, No. 06-10012-JGD, 2007 WL 4730345 (D. Mass. Dec. 4, 2007) ............................................ 27 SEC v. Hopper, No. H-04-1054, 2006 WL 778640 (S.D. Tex. Mar. 24, 2006).................................................. 20 SEC v. Leslie, No. 07-3444, 2010 WL 2991038 (N.D. Cal. July 29, 2010) ............................................... 22, 25 SEC v. Nacchio, 438 F. Supp. 2d 1266 (D. Colo. 2006) ................................................................................ 23, 24 SEC v. Patel, No. 07-cv-39, 2008 WL 782465 (D.N.H. Mar. 24, 2008) ........................................................ 24 SEC v. Patel, No. 07-cv-39-SM, 2009 WL 3151143 (D.N.H. Sept. 30, 2009) ........................................... 2, 24
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Case 4:12-cv-00563 Document 146 Filed in TXSD on 03/28/14 Page 5 of 47 TABLE OF AUTHORITIES (continued) Page(s) SEC v. Rivelli, No. 05-cv-1039, 2010 WL 2775623 (D. Colo. July 14, 2010) ................................................. 22 SEC v. Shanahan, No. 4:07-CV-270, 2010 WL 148440 (E.D. Mo. Jan. 12, 2010)................................................ 22 Willis v. Roche Biomedical Labs., Inc., 61 F.3d 313 (5th Cir. 1995) ....................................................................................................... 19 Statutes 15 U.S.C. 78m..................................................................................................................... passim 15 U.S.C. 78t(e) ......................................................................................................................... 20 Rules Fed. R. Civ. P. 1 ............................................................................................................................ 18 Fed. R. Civ. P. 56 .......................................................................................................................... 18 Regulations 17 C.F.R. 240.13b2-1........................................................................................................... 20, 38 Treatises Joseph P. Covington & Iris E. Bennett, Practicing Under the U.S. Anti-Corruption Laws (2013 Supplement) ......................... 28, 29, 36 Other Authorities 122 Cong. Rec. 30,422 (1976) ...................................................................................................... 33 American Heritage Dictionary, Second College Edition (1991) .................................................. 31 DOJ Criminal Division & SEC Enforcement Division, A Resource Guide to the FCPA (2012) ..................................................................................... 30 Foreign Corrupt Practices Act of 1977, Exchange Act Release No. 34-17500, 21 SEC Docket 1466, 1981 WL 3638521 (Jan. 29, 1981) ........................................................ 24 H.R. Rep. No. 100-576 (1988) ...................................................................................................... 33 New Merriam-Webster Dictionary (1989)................................................................................... 31 Promotion of the Reliability of Financial Information, Exchange Act Release No. 34-13185 (Jan. 19, 1977) ............................................................... 36 S. Rep. No. 94-1031 (1976) .......................................................................................................... 32 S. Rep. No. 95-114 (1977) ................................................................................................ 25, 28, 32 U.S. Sec. & Exch. Commn, Report of the SEC on Questionable and Illegal Corporate Payments and Practices (May 12, 1976) .................................................................. 30 Websters New World Dictionary (3d ed. 1988) .......................................................................... 31 Websters Ninth New Collegiate Dictionary (1988) .................................................................... 31
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NATURE AND STAGE OF THE PROCEEDINGS AND ISSUES TO BE RULED UPON BY THE COURT On March 25, 2013, Plaintiff Securities and Exchange Commission (SEC) filed a Second Amended Complaint (the Complaint or SAC) seeking civil monetary penalties and injunctive relief against Defendants James J. Ruehlen and Mark A. Jackson, a current and former employee of Noble Corporation (Noble), for alleged violations of the Foreign Corrupt Practices Act (FCPA). Doc. No. 106. After discovery closed, the SEC, on March 25, 2014, voluntarily moved to dismiss with prejudice its claims against Mr. Ruehlen for (i) aiding and abetting Nobles alleged violation of Exchange Act Section 13(b)(2)(B), and (ii) knowingly . . . fail[ing] to implement a system of internal accounting controls in violation of Section 13(b)(5). Doc. No. 134. Trial is scheduled for July 9, 2014. Mr. Ruehlen moves for summary judgment on all remaining claims against him.1 INTRODUCTION AND SUMMARY OF ARGUMENT The Complaint portrays Jim Ruehlen as a rogue employee who, shortly after being promoted to the first management-level position of his career, embarked on an intricate scheme to bribe Nigerian officials to obtain illegal temporary import permits for Nobles rigs; routinely flouted company policy; ignored directions from Nobles Audit Committee; and concealed illicit payments in Nobles books and records. At the motion to dismiss stage, the Court was required to accept those allegations as true. Since then, 15 months of discovery have laid bare the utter falsity of the SECs narrative. The undisputed evidence establishes that Mr. Ruehlena diligent and hardworking operations employee with an impeccable reputation for honesty and integrityat all times acted
For its remaining claims, the SEC seeks civil monetary penalties only for violations that accrued on or after May 12, 2006. See Doc. No. 104; see also SAC at 56-57.
in good faith and under the close supervision of Nobles most senior executives. At no point did he attempt to conceal any conduct or circumvent controls or company processes. To the
contrary, it was Mr. Ruehlen who in 2004 first reported Nobles use of the so-called paper processthe central focus of the SECs claims in this matter. And it was Mr. Ruehlen who received approval for every one of the payments at issue from Nobles senior management, executives who had access to experts to assess the nature and propriety of those payments. It is undisputed that none of those executives or experts ever raised concerns to Mr. Ruehlen about the payments. The evidence also shows that Mr. Ruehlen, who had no accounting or legal training, had no role in determining how the paymentswhich were well known within Nobles corporate hierarchywere recorded in Nobles books. And to compound the irony of the SECs charges against Mr. Ruehlen, it was Mr. Ruehlen who independently raised new concerns regarding the temporary import process in early 2007, prompting Nobles internal investigation and voluntary disclosure to the U.S. government. Notwithstanding this evidencemuch of which was known to the SEC well before it filed this actionthe SEC charged Mr. Ruehlen with violating the FCPAs books and records and internal accounting control provisions (collectively, the accounting provisions) under every stretched legal theory imaginable. SEC v. Patel, No. 07-cv-39-SM, 2009 WL 3151143, at *65 (D.N.H. Sept. 30, 2009). Purportedly to streamline the presentation of evidence to the jury, the SECon the eve of summary judgmentvoluntarily dismissed two of those claims (that Mr. Ruehlen failed to implement a system of internal accounting controls and aided and abetted Nobles alleged failure to devise and maintain such a system). But the SECs
remaining FCPA accounting provision claims fail for the same reasons as the claims it now tacitly admits lacked meritMr. Ruehlen simply had no responsibility for or authority over the
accounting function at Noble, and had no role in determining how the payments at issue were recorded. Moreover, the SEC failed to develop any evidence during discovery to support the numerousand illogicalways that Mr. Ruehlen allegedly circumvented Nobles system of internal accounting controls. The Court should grant summary judgment on these claims in light of the undisputed evidence. The Court should also grant summary judgment on the SECs claims for violations of the FCPAs anti-bribery provisions. Whether the SEC can prove these claims turns entirely on Mr. Ruehlens state of mindi.e., whether he acted corruptly. The undisputed evidence shows that Mr. Ruehlen, like many others within the company, believed in good faith that the payments were to secure or expedite temporary import permits to which Noble was entitled. STATEMENT OF UNDISPUTED MATERIAL FACTS I. Relevant Background A. Nobles West Africa Division And Jim Ruehlen
Noble is an international offshore oil drilling contractor with rigs located throughout the world. During the relevant period, Noble maintained its headquarters in Sugar Land, Texas, where its senior managementincluding its CEO, CFO, Controller, General Counsel, Operations Vice Presidents, and Director of Internal Auditwere located. Robertson Tr.) at 172:4173:5; Ex. 13 (Thomas Mitchell Tr.) at 164:21165:20.2 Noble began operating in Nigeria in the early 1990s. Ex. 5 (James Day Tr.) at 68:5-11; Ex. 17 at 121:17-19. Noble makes its money through offshore drilling contracts with Ex. 17 (Julie
international oil companies (IOCs) such as Shell, Chevron, and Mobil. Ex. 5 at 154:24155:2. Nigeria is heavily dependent on oil revenue, and its rights in its oil fields are managed by the
Ex. refers to the exhibits to the concurrently-filed Declaration of Martin A. Hewett in Support of Mr. Ruehlens Motion for Summary Judgment.
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state-owned Nigerian National Petroleum Corporation (the NNPC). See Ex. 5 at 156:3 157:23; Ex. 9 (Mark Jackson Tr.) at 340:9343:8; Ex. 8 (Johannes Hilhorst Tr.) at 154:11 155:14. The NNPC contracts with IOCs to produce oil from those fields through joint ventures or production sharing contracts. See Ex. 5 at 155:3-6; Ex. 9 at 340:9343:1. The IOCs, in turn, contract with oil drilling companies such as Noble. Ex. 5 at 157:3-7; Ex. 9 at 340:9 342:11. Noble essentially rents its rigs to the joint ventures, which control the well sites and directs the drilling process. Ex. 5 at 23:1924:24; see also Ex. 8 at 26:327:3. Nobles
operations in Nigeria were overseen by Nigerias Department of Petroleum Resources (DPR), to which Noble submitted weekly reports regarding the status and location of its rigs. Ex. 1 (David Arthur Tr.) at 135:11-19, 136:22138:10. After graduating from high school, Jim Ruehlen began his career working for Western Oceanic on an offshore oil rig in the Gulf of Alaska as a roustabout, one of the most junior positions in the industry. He joined Noble in 1993 as a rig manager when it purchased Western Oceanic. Ex. 17 at 174:25175:5. From 2002 until September 2004, Mr. Ruehlen was assigned to Nobles Sugar Land Headquarters to work directly under Robert Rose, Nobles Vice President of the Eastern Hemisphere, to gain more exposure to various corporate departments and senior management. Ex. 14 at 49:1-18, 89:4-25; Ex. 9 at 75:2476:24. As part of that assignment, Mr. Ruehlen was detailed to assist Nobles internal audit department with a review of the West Africa Division in February and March of 2004 (the 2004 West Africa Division Audit). Ex. 14 at 88:489:22. Mr. Ruehlen became the Division Manager of Nobles West Africa Division in September 2004, his first such managerial role. Ex. 19 (James Ruehlen Tr.) at 21:14-17; Ex. 17 at 212:25213:10. As Division Manager, Mr. Ruehlen, in early 2005, moved to Nigeria with his
family, but still reported to Mr. Rose, who was based in Sugar Land. Ex. 19 at 25:1826:1, 123:4-12. Mr. Ruehlen continued as Division Manager of the West Africa Division until 2011, when he became the Division Manager of Nobles Mexico Division, a position he still holds today. Id. at 27:1228:18, 36:20-25. During discovery, every witness who had worked with Mr. Ruehlen long enough to form an opinion, from the CEO on down, testified that he was ethical, honest, and always attempted to follow the law and company policy. Ex. 5 at 190:16-25; Ex. 9 at 322:21323:14; Ex. 17 at 175:17176:8; Ex. 13 at 146:22148:4; Ex. 11 (Michael Lowther Tr.) at 114:9116:10; Ex. 14 at 50:2451:23; Ex. 21 (Timothy Thomasson Tr.) at 201:19202:10; Ex. 12 (Alan Middleton Tr.) at 113:20116:5; Ex. 1 at 93:895:1; Ex. 8 at 130:9132:11. B. Mr. Ruehlen Identified The Paper Process As An Issue During The 2004 West Africa Division Audit
Before and during the relevant period, Noble imported its offshore oil drilling rigs into Nigeria on the basis of temporary import permits. Mr. Ruehlens first exposure to temporary import permits was the 2004 West Africa Division Audit, during which he was told by local personnel that although most drilling contracts in Nigeria ranged from between two to five years, a temporary import permit was typically granted by the Nigerian Customs Service (NCS) for an initial 12 month period, and could be extended twice for a period of six months each. Ex. 19 at 52:253:12. Mr. Ruehlen also learned of the West Africa Divisions use of what the SEC calls the paper processi.e., that Noble had obtained a temporary import permit for one of its rigs based on documents reflecting physical exportation and re-importation of the rig, though the rig never actually moved. Id. at 43:10-15. Because he found it unusual, Mr. Ruehlen immediately reported the paper process to Thomas ORourke, Nobles Director of Internal Audit, who asked Mr. Ruehlen to prepare an initial draft of an audit finding regarding the issue. Ex. 48; Ex. 14 at 94:1895:12, 96:1898:8; 5
Ex. 19 at 45:13-24.
After receiving Mr. Ruehlens first draft, Mr. ORourke, along with
Mr. Rose, Timothy Thomasson (Nobles Vice President of Accounting and Tax), Robert Kayl (Nobles Tax Manager), and auditors from UHYan outside auditing firm that supported Nobles internal audit functionresearched the issue further and revised the finding. See
Exs. 49-52; Ex. 14 at 106:1108:4, 113:2114:23, 122:12124:18, 126:2-24. Among other things, the finding was revised to reflect advice from Nobles external auditor, PricewaterhouseCoopers (PwC), that additional renewals of the temporary import license may be obtained as long as the Company can justify continued use of the rig in Nigeria. Ex. 52 at 8; Ex. 14 at 126:2-24. Many executives at Noble understood PwCs advice to mean that Noble was entitled to a permit indefinitely, so long as it had a contract to drill oil in the country. Ex. 14 at 123:7125:5; Ex. 10 (Robert Kayl Tr.) at 126:4127:1; Ex. 9 at 234:4235:4. The final audit report was issued on April 12, 2004. Ex. 24; Ex. 14 at 149:22151:13. Mr. ORourke presented the report to the Audit Committee during an April 20, 2004 meeting. Ex. 14 at 161:11-19. In attendance were members of the Committee, Mr. ORourke, Robert Campbell (Nobles General Counsel), Mark Jackson (then CFO), and representatives from PwC. Id. at 161:20162:3; Ex. 4 (Robert Campbell Tr.) at 139:19140:16; Ex. 9 at 145:8-14; Ex. 21 at 238:25239:5. Mr. Ruehlen, as a relatively junior employee, did not attend Audit Committee meetings. Contrary to the allegations in the Complaint (see SAC 75), neither the final report nor anyone in attendance at the meetingincluding the members of the Audit Committee directed that the paper process should never be used again, and the Audit Committee issued no resolution to that effect. Ex. 14 at 162:13163:14; Ex. 9 at 291:7-18; Ex. 21 at 242:12243:2. Rather, as Mr. ORourke explained, the conclusion reflected in the audit reportand reiterated by a member of the Audit Committee during the meetingwas that Noble need[ed] to follow
up and figure out whats right, whats wrong, what the [Nigerian] law is and get it fixed. Ex. 14 at 163:5-7; see also Ex. 9 at 305:8-12; Ex. 5 at 106:3-22. Mr. Ruehlen was not assigned any responsibility for resolving the temporary import finding. Rather, the final report (i) recommended that Mr. Rose (Mr. Ruehlens boss) and Mr. Kayl obtain a detailed understanding of the risks and liabilities associated with temporary import permits and develop and communicate guidelines for the process; and (ii) charged Mr. Rose with the responsibility for ensuring the [D]ivisions compliance with all applicable rules and regulations related to importing and exporting assets. Ex. 24 at NOBLE0014721. In a July 2004 Internal Audit Update, Mr. ORourke reported to Nobles Audit Committee that Mr. Thomasson and Mr. Kayl had determined that the [rigs] currently in Nigeria meet the criteria necessary for an extension of each Temporary Import Permit. Ex. 28 at 8; Ex. 21 at 166:23167:16. Mr. ORourke also reported that, in the event that the NCS request[ed] that a new [temporary import permit] be executed, as opposed to an extension of an existing [permit], the Division ha[d] identified a free trade zone whereby export and re-import can be properly and legally performed. Ex. 28 at 8. C. After Researching Alternatives And Receiving Advice From Local Counsel, Noble Continued To Use The Paper Process In Early 2005
From August 2004 through early 2005, the West Africa Divisionat the direction of Mr. Rose, who was charged with overall responsibility for resolving the audit finding continued to explore potential options for obtaining importation authorization for Nobles rigs. Mr. Ruehlen at times assisted with that research, both before and after he became Division Manager in September 2004. Ex. 19 at 99:6100:1. During the course of that work, Noble learned that there were serious problems with each of the potential alternatives to the paper process that it explored: 7
Further Extensions: Notwithstanding Mr. Kayls and Mr. Thomassons conclusion that Noble was eligible to obtain permit extensions so long as it was under contract, NCS denied an application for a fourth extension in January 2005. Nobles principal customs agent, I.C. Network Limited (IC Network), informed Noble that, as a matter of policy now, NCS would not grant more than three extensions. Ex. 66 (emphasis added); Ex. 19 at 116:25119:7. Use of the Free Trade Zone: Although the July 2004 Internal Audit Update indicated that a free trade zone could be used to obtain temporary import permits (in the event that NCS request[ed] that Noble apply for a new permit rather than an extension), Mr. Ruehlen subsequently learned from another customs agent, Murphy Shipping (Murphy), that the free trade zone could not be used to secure new temporary import permits. Ex. 68; Ex. 19 at 182:1-15. Physical Exportation: Mr. Ruehlen understood that the 2.5 year limit for permits and extensions was in direct conflict with the contracting cycle used by the IOCs and their majority partner, the NNPC. Mr. Ruehlen also understood that exporting the rigs out of Nigeriaa process that would interrupt drilling operations and could take any[]where from four to six weeks at best, with no apparent purpose or benefit to any party involvedwas not feasible because the IOC and the NNPC (effectively, the Nigerian government) would not accept the fact that the [rig] would be unavailable for this time period during the initial term or subsequent extension period of the contract. Ex. 55 at 2; Ex. 14 at 185:2186:1; see also Ex. 5 at 157:1518. Permanent Importation: Jo Onodugo, Nobles long-time outside counsel in Nigeria, advised against permanent importation of Nobles rigs and recommended that Mr. Ruehlen discuss this option with other drilling contractors in Nigeria. Accordingly, Mr. Ruehlen spoke with a Managing Director of Parker Drillingthe only other contractor, to his knowledge, that had permanently imported equipment about the process. The executive advised against permanent importation because all cost implications are not transparent . . . and the whole process is extremely wrought with corruption. Ex. 55 at 2 (emphasis added).
Mr. Ruehlen also spoke with his counterparts at other large drilling contractors including Parker Drilling, Ensco, and GlobalSantaFeand learned that most had rigs that had been in Nigeria for more than three years, and that these contractors were also using the paper process. Ex. 55 at 1. Additionally, Mr. Ruehlen discussed the paper process with Nobles legal counsel, Ms. Onodugoan experienced Nigerian attorney who was highly regarded by
Noble personnel both in Nigeria and at corporate headquarters.3 Ex. 19 at 169:25172:6; Ex. 9 at 349:9350:1; Ex. 6 (Charles Dowden Tr.) at 121:6125:16; Ex. 17 at 129:11-24; Ex 5 at 67:25 70:13. Ms. Onodugo advised Mr. Ruehlen that NCS was aware that the rigs were not actually leaving Nigerian waters, and that the paper process was a process that was accepted by NCS for maintaining the rigs in Nigerian waters[] to continue . . . with drilling operations. Ex. 19 at 90:2094:14. As a result of his conversation with Ms. Onodugo, Mr. Ruehlen understood that Noble was entitled to a temporary import [permit] for [its] rigs in Nigeria so long as the rigs were gainfully employed or had a possibility or opportunity for continued work in Nigeria, and that the authorization to which Noble was entitled could be through an extension, or if they requested, the paper process. Id. at 133:18134:8. After collecting this information, which Mr. Ruehlen consistently communicated to his superior Mr. Rose, Noble used the paper process for three rigs whose extensions were expiring in late February 2005. Exs. 65, 67; Ex. 19 at 107:4-14, 145:20146:8, 156:6-21. In March 2005, Mr. Ruehlen informed Mr. ORourke of Ms. Onodugos advice and the Divisions use of the paper process. Ex. 14 at 178:6180:7. Mr. ORourke asked Mr. Ruehlen to prepare a memorandum summarizing the information he had learned to memorialize that he had attempted to follow the letter of the law . . . , renewed the right for the rig(s) to work in Nigerian waters via the only method available to the Company[,] and notified internal audit of the issue in a timely manner. Ex. 54; Ex. 14 at 175:21178:7. In or about May 2005, either Mr. ORourke or Mr. Ruehlen informed Mr. Jackson, who was then Nobles CFO, of Ms. Onodugos advice
Noble retained Ms. Onodugo as its local counsel shortly after it began operating in Nigeria in the early 1990s on the recommendation of several of its customers, including Shell and Chevron. Ex 5 at 67:2568:24; see also Ex. 14 at 171:2-8; Ex. 17 at 129:1-10. Ms. Onodugo advised Noble on a variety of Nigerian issues, including labor issues, importation issues, and Nigerian anticorruption laws. Ex. 4 at 205:12207:5, 216:9-22; Ex. 1 at 64:1765:9; Ex. 6 at 121:22122:7; Ex. 8 at 122:7123:11. Nobles personnel in Nigeria typically received advice from Ms. Onodugo by phone. Ex. 6 at 123:4125:1; Ex. 8 at 123:2-4.
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and the use of the paper process in March 2005. Ex. 14 at 262:5-19; Ex. 9 at 305:8-9. Both Mr. ORourke and Mr. Jackson were fully satisfied of the legality of the paper process in light of Ms. Onodugos advice. Ex. 9 at 307:6-9; Ex. 14 at 181:16-24. II. Payments In Connection With Temporary Import Permits A. The Payments Were Reviewed For FCPA Compliance Through A Fully Transparent Process By Multiple Levels Within The Company
Long before Mr. Ruehlen was sent to Nigeria as Division Manager, Noble made various types of payments to Nigerian officials, including regular payments directly to (i) officials of the local Nigerian police (to ensure that Nobles facilities and personnel would be protected against crime and insurrection), (ii) military police officials to escort employees along the dangerous route to the airport, and (iii) immigration officials in connection with expediting and securing visas for Nobles expatriate personnel working in Nigeria. Ex. 1 at 47:1454:15; Ex. 8 at 66:9 67:10, 80:7-12, 140; Ex. 6 at 105:19108:17, 117:8121:3. Noble historically also authorized payments to government officials in connection with the operation and movement of Nobles rigs, including (i) temporary import permits obtained through the paper process and extensions of those permits; (ii) the actual physical import and export of a rig and the application for a temporary import permit; and (iii) the movement of rigs to Nigerian ports to undergo repairs or maintenance. Ex. 19 at 236:16240:15, 240:25244:15; Ex. 12 at 157:5159:24, 195:9196:5; Ex. 1 at 47:2048:21, 53:2-10, 54:855:7. In sum, in Nigeria during the relevant period, all rig movements and permits required payments to Nigerian officials, whether new permits (with or without an actual rig movement) or extensions. Throughout the relevant period, Nobles Audit Committee, senior management (including its General Counsel), internal audit department, external auditors, and outside counsel were well aware of the payments to Nigerian officials that were made by the West Africa 10
Division. Ex. 14 at 72:276:4; Ex. 17 at 191:14193:6; Ex. 9 at 323:23324:18; Ex. 13 at 121:16122:2; Ex. 20 (Richard Shappard Tr.) at 133:4-23. In fact, in early 2003, Noble
established a dedicated general ledger account entitled facilitating payments for payments to government officials at the advice of Nobles outside FCPA counsel, the law firm of Thompson & Knight LLP (T&K). Ex. 9 at 183:3-9; Ex. 4 at 135:2-9. In January 2004, Internal Audit reported to the Audit Committee and PwC the results of a worldwide FCPA compliance audit, which included the discovery that the West Africa Division had not recorded any payments into that account in 2003. Ex. 26 at 2; Ex. 14 at 56:258:15. Following a review to identify payments to government officials that were made in 2003 but were not recorded in the facilitating payment account, more than $600,000.00 in payments were reclassified into that account, a large amount of which were payments to IC Network in connection with temporary import permits. Ex. 47; Ex. 14 at 65:1670:24; Ex. 27; Ex. 21 at 115:5-25; Ex. 9 at 183:23 184:10. Subsequent to this review, Mr. ORourke provided extensive information concerning the payments in the account to Robert Campbell (Nobles General Counsel) and T&K, which was retained by Mr. Campbell to investigate other payments that had been made by the West Africa Division. Ex. 53; Ex. 14 at 139:3142:9; see also Def. Jacksons Mot. Summ. J. at 1314. Both Mr. ORourke and Mr. Jackson believed that T&K had reviewed all of those payments, including the payments to IC Network, and had determined that they were lawful facilitating payments and not FCPA violations. Ex. 14 at 143:12145:1, 169:8-24; Ex. 9 at 184:12185:5, 190:9 191:1. Following the West Africa Division Audit, Mr. Campbell and T&K drafted a Service Agreement to govern Nobles relationship with IC Network. Ex. 29; Ex. 4 at 161:3162:16.
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Among other things, the lawyers initial draft required IC Network to submit receipts supporting all charges invoiced to Noble. Ex. 29 at 4.2. IC Network objected to that provision, and informed Mr. Rose that it would be unable to provide receipts for payments to government officials in connection with temporary import permits. Ex. 4 at 162:17-24, 163:24165:5; Ex. 40. After learning of IC Networks concern, Mr. Campbell revised the agreement to include a provision exempting special handling feesa term that Mr. Campbell coined to refer to unreceipted payments to government officialsfrom the requirement that IC Network submit receipts for the charges it would invoice Noble. Ex. 40; Ex. 4 at 165:6168:18; see also Ex. 9 at 188:3-16, 260:9261:11, 262:19263:2. That agreement was executed in July 2004, many months before Mr. Ruehlen became Division Manager in Nigeria. Ex. 41; Ex. 4 at 169:5-23. Nobles Internal Audit department regularly audited the West Africa Divisions facilitating payment account during 2005-2007. Ex. 14 at 168:5-12, 244:16245:7; Ex. 12 at 130:16-134:21; Ex. 21 at 254:16255:3. Internal Audit also periodically reported the amount of facilitating payments made by the Division to the Audit Committee; for example, in February 2007, Mr. ORourke reported to the Audit Committee that in 2006, the West Africa Division had made approximately $512,000 in payments to government officials in Nigeria. Ex. 57 at 2; Ex. 14 at 201:12202:17. In addition, PwC was aware of and had full access to Nobles facilitating payment account. Ex. 20 at 31:18-22, 100:17-24, 130:2-18, 132:15-25. In sum, from Mr. Ruehlens vantage point as of late 2004 and early 2005 when Noble sent him to Nigeria, Nobles executives and outside professionals were well aware of and sanctioned both the paper process and the long-standing regular payments to government officials that Noble was making in connection with temporary import permits and other matters. Indeed, Nobles General Counsel personally drafted the agreement with IC Network allowing for
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the precise payments at issue here. No one at Noble expressed concerns to Mr. Ruehlen that the payments violated the FCPA. B. Mr. Ruehlen Fully Complied With Nobles Internal Controls Over The Payments
Following a 2002 review of Nobles FCPA compliance policies by T&K, Noble revised its Administrative Policy Manual (APM) to make the CFO responsible for pre-approving payments to government officials. During the second half of 2004i.e., after the 2004 West Africa Division Audit and before and after Mr. Ruehlen became Division Manager in September 2004Mr. Rose and Mr. Thomasson assumed responsibility for submitting requests to Nobles CFO for approval of IC Networks requests to pay special handling charges in connection with temporary import permits and extensions, often copying Mr. Ruehlen on the communications. See Exs. 30, 31, 64, 72, 73; Ex. 18 at 189:15-192:6, 247:17249:4, 249:11250:23, 251:20 253:24, 254:1257:3; Ex. 21 at 179:21184:15 In early 2005, shortly after moving to Nigeria, Mr. Ruehlen assumed responsibility for requesting and obtaining approval for facilitating payments from Nobles CFO; and in May 2005, Mr. Ruehlen sought and obtained Mr. Jacksons approval of payment of special handling fees in connection with the three rigs that had used the paper process. Ex. 56; Ex. 14 at 188:19190:10; Ex. 68; Ex. 19 at 182:1185:5, 186:20187:7. Around that time, Mr. ORourke formalized the process of seeking CFO approval for facilitating payments. Given the frequency of certain types of payments the Division had to makeincluding payments to Nigerian police and immigration officials that could entail day to day, hour by hour, approval requests Mr. ORourke instructed Mr. Ruehlen that, going forward, the Division should prepare a projection for the total amount of those facilitating payments that the Division would need to make for each quarter, which Mr. Jackson could then approve in advance. Ex. 69; Ex. 19 at 13
191:2-9; see also Ex. 14 at 86:688:6; Ex. 12 at 28:2029:13. Under Mr. ORourkes guidance, payments related to temporary import permitswhich were recurring but less frequent than other payments to government officialswould continue to be approved individually. Ex. 69. Mr. ORourke also prepared a template for emails requesting CFO approval for payments related to temporary import permits, which included (i) what extension was being sought (where applicable); (ii) the amount of the special handling charge requested; and (iii) whether the payment and amount were similar to those that Noble had historically made. Ex. 75; Ex. 15 (Thomas ORourke SEC Tr.) at 539:13540:5. Mr. Jackson became Nobles Chief Operating Officer in 2005, and was succeeded as CFO by Bruce Busmire. Ex. 17 at 152:10-18; Ex. 3 (Bruce Busmire Tr.) at 28:8-15. After Mr. Busmires departure in March 2006, Mr. Jackson became acting CFO. Ex. 9 at 351:9-12. Thomas Mitchell was hired as CFO in November 2006, a position he held until 2011. Ex. 13 at 10:19-22. In their capacities as CFO, each of these senior executives received requests from Mr. Ruehlen to make facilitating payments in connection with temporary import permits or extensionsall of which conformed to the template that Mr. ORourke had directed Mr. Ruehlen to use (and thus included, among other things, the dollar amount)and Mr. ORourke was copied on most of Mr. Ruehlens approval-request emails.4 In certain instances, Mr. Busmire and Mr. Mitchell asked Mr. ORourke to weigh in and give a recommendation as to whether payments should be approved. See Ex. 32; Ex. 13 at 105:7106:10, 109:18112:6; Ex. 3 at
Both Mr. Busmire and Mr. Mitchell were certified public accountants who joined Noble from different companies and had prior familiarity with the FCPA. Ex. 13 at 15:16-20, 75:2476:1; Ex. 3 at 22:323:10, 28:2329:1, 67:1773:22. Both testified that they felt free to contact Mr. Ruehlen or others within the company if they had any questions concerning the requested payments. Ex. 13 at 165:21166:10; Ex. 3 at 95:2397:14.
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109:20110:17. Mr. ORourke recommended approval in every instance, and every one of Mr. Ruehlens requests was approved by the CFO.5 Mr. ORourke and Mr. Jackson both testified that they had no concerns about the payments that the Division made subsequent to 2004 because they were the exact same payments as those Noble had made previously and that they believed had been reviewed and approved by Nobles outside counsel. Ex. 14 at 169:13-24; Ex. 9 at 279:4281:8. Similarly, neither Mr. Busmire nor Mr. Mitchellwho were never charged by the SECbelieved that the payments they approved were unlawful under the FCPA. Ex. 3 at 97:15101:25; Ex. 13 at 149:3150:10. In determining whether to approve requests to make facilitating payments, both executives relied on Mr. ORourke if they had questions. Ex. 3 at 136:10-17, 201:6-17; Ex. 13 at 266:1267:4. Mr. Busmire also recalled discussing Mr. Ruehlens requests for facilitating
payments with Mr. Campbell, who assured him that the payments were consistent with prior practices and had been reviewed by him and . . . by outside counsel. Ex. 3 at 140:1-25, 97:15-101:25, 109:20111:1. In addition, Mr. Mitchell copied Mr. Campbell on several of his emails to Mr. Ruehlen approving payments. Exs. 33, 34, 35, 36. Thus, from Mr. Ruehlens perspective, the payments were consistent with prior practices that had been going on long before Mr. Ruehlen was sent to Nigeria, were regularly approved at the highest levels of the companyindeed, no payment request was ever disapprovedand were well-known to the General Counsel, among others.
See Ex. 74; Ex. 9 at 244:10-23, 247:1-5, 248:15249:22; Exs. 42, 43, 44, 45, 46; Ex. 3 at 121:10141:25, 151:10162:7; Exs. 33, 34, 37, 38; Ex. 13 at 107:10116:9, 118:18119:20, 126:21 130:2, 150:18151:9.
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C.
Mr. Ruehlen Had No Role In Accounting For The Payments
As Division Manager, Mr. Ruehlenwho is not an accountanthad no responsibility for overseeing or supervising Nobles accounting function, developing Nobles accounting policies, or determining how expenditures would be recorded in Nobles books. See, e.g., Ex. 17 at 175:3-16; Ex. 21 at 201:19202:3; Ex. 11 at 55:1556:10. Throughout the relevant period, Noble, like many companies, segregated the accounting/finance function from operations to ensure the formers independence. Ex. 13 at 180:16181:11. Noble had an Operations
Controller and a corporate Controller who were located in Nobles headquarters in Sugar Land, along with the rest of Nobles senior management. Ex. 12 at 18:619:3. Each Division, in turn, had a Division Controller who reported up directly through the accounting/finance function. See id. at 18:6-19:3. Mr. Ruehlen had no role in this structure and reporting line. Alan Middleton became the Division Controller for the West Africa Division in March 2005, shortly after Mr. Ruehlen arrived in Nigeria.6 Ex. 12 at 12:2213:4. As Division
Controller, Mr. Middletons responsibilities included monitoring the West Africa Divisions compliance with the FCPA. Ex. 39 at 2.9.2.5; Ex. 12 at 126:8128:8. Upon becoming Division Controller, Mr. Middleton received training from Mr. ORourke, who at that time was the Director of Internal Audit. Ex. 12 at 23:1824:17. Mr. ORourke reviewed with
Mr. Middleton the types of facilitating payments made by the Divisionincluding payments related to temporary import permitsand how they should be recorded. Id. at 27:2128:1. Mr. Middleton understood that, to comply with the FCPA and Nobles policies, payments to government officials that had been approved by the CFO had to be recorded in Nobles facilitating payment account. Id. at 131:24132:5, 129:18130:15.
Mr. Middleton had approximately 15 years of experience working as an accountant or controller prior to joining Noble. Ex. 12 at 113:15-18.
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The West Africa Divisions operations personnel had no role in the process of recording paymentsincluding payments to government officialsinto Nobles books and records. Ex. 12 at 32:16-24. In particular, Mr. Ruehlen had no role in (i) coding IC Networks
invoices, which entailed determining the general ledger account into which charges on IC Networks invoices would be recorded; or (ii) preparing the journal entries corresponding to those charges that were inputted into Nobles accounting system. Id. at 145:17-22, 146:9147:4. Mr. Middleton could not recall a single occasion where anyone on the operations side including Mr. Ruehlendirected him how to book payments, including payments that had been approved by the CFO as facilitating payments. Id. at 202:17203:5. Mr. Middleton determined whether a particular payment should be recorded to the facilitating payment account based on whether it was similar to the payments that the Division had historically made, which he had reviewed with Mr. ORourke shortly after he became Division Controller. Id. at 28:2-10, 30:1121. In the event that a new payment had to be made for which there was no historical precedent, Mr. Middleton asked either Mr. ORourke or Nobles Controller for guidance. Id. at 28:2-10. Mr. Middletonwho was aware of the paper processbelieved that the accounting entries corresponding to the payments to IC Network accurately reflected the transactions. Id. at 128:10129:17, 167:19169:9.7 The SEC never charged Mr. Middleton with any violations. D. Mr. Ruehlen Promptly Raised Concerns To Senior Management Upon Learning Of A Competitors Internal Investigation Related To Temporary Import Permits
On May 3, 2007, Mr. Ruehlen received a press release from another drilling contractor, Tidewater, which reported that Tidewater had initiated an internal investigation concerning
In addition to the facilitating payment account, certain portions of special handling fees were recorded to a prepaid expense account, and then amortized into the facilitating payment account over the life of the permit or extension. Ex. 12 at 70:673:16. Mr. Middleton testified that it was his decision to amortize the payments, which he believed was consistent with general accounting practice. Id. 70:673:16, 140:3141:4.
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payments to Nigerian officials in connection with temporary import permits. Ex. 63; Ex. 14 at 345:8-18. Mr. Ruehlen immediately forwarded the release to David Williams, who was then Nobles Senior Vice President for Operations. Ex. 63; Ex. 17 at 227:1228:3; Ex. 14 at 209:412, 346:7-15. Mr. Ruehlen noted that Tidewater was obtaining temporary import permits in much the same way as we are. Ex. 63. As a result of Mr. Ruehlens report, Noble engaged a law firm, Cadwalader, Wickersham & Taft LLP (Cadwalader), to conduct an internal investigation, and Noble ultimately decided to voluntarily disclose the issue to the SEC and the Department of Justice. Ex. 17 at 230:21231:7; Ex. 13 at 198:2-8. Mr. Ruehlen cooperated with both the Cadwalader and SEC investigations, including answering questions during a multi-day SEC deposition. Ex. 19 at 17:2218:1. Noble has never taken any disciplinary action against Mr. Ruehlen. Id. at 36:16-19. LEGAL STANDARD Summary judgment, far from being a disfavored procedural shortcut, is an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy and inexpensive determination of every action. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1). Summary judgment is warranted under Rule 56 if no genuine dispute as to any material fact exists and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); see also Celotex, 477 U.S. at 32223. Importantly, the mere existence of some factual dispute will not defeat a motion for summary judgment; Rule 56 requires that the fact dispute be genuine and material. Willis v. Roche Biomedical Labs., Inc., 61 F.3d 313, 315 (5th Cir. 1995) (emphasis in original). Although the moving party bears the burden of demonstrating that there is no genuine dispute as to any material fact, it is not required to negate the elements of the nonmoving partys case. See Willis, 61 F.3d at 315; Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536, 540 (5th 18
Cir. 2005). Rather, the moving party may satisfy its initial burden by showingthat is, pointing out to the district courtthat there is an absence of evidence to support the nonmoving partys case. Celotex, 477 U.S. at 325. Once the moving party has done so, the nonmoving party must come forward with specific evidence in order to raise a genuine issue of material fact. Baranowski v. Hart, 486 F.3d 112, 119 (5th Cir. 2007). ARGUMENT I. The Court Should Grant Summary Judgment On The SECs Claims For Violations Of The FCPAs Books And Records Provisions The SEC charges Mr. Ruehlen with violating the FCPAs books and records provisions in the following ways: (i) aiding and abetting Nobles alleged failure to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of [its] assets, as required by Exchange Act Section 13(b)(2)(A);8 and (ii) knowingly falsify[ing], or directly or indirectly[] falsify[ing] or caus[ing] to be falsified, [a] book, record, or account maintained by Noble, in violation of Section 13(b)(5) and Rule 13b2-1. See 15 U.S.C. 78m(b)(2)(A), 78m(b)(5), 78t(e); 17 C.F.R. 240.13b2-1. Each of these claims is premised on a single allegation: that the payments Noble authorized in connection with temporary import permits were falsely record[ed as legitimate operating expenses on Nobles books. E.g., SAC 3 (emphasis added). Though not mentioned in the Complaint, the basis for this allegation is not that the payments were recorded in any way to conceal that they were payments to government officials. Rather, the SEC contends that they were falsely and [in]accurate[ly] recorded because they were recorded in a general ledger
To establish aiding and abetting under Exchange Act Section 20(e), the SEC must prove (i) a primary violation; (ii) knowledge of the violation by Mr. Ruehlen; and (iii) that Mr. Ruehlen substantially assisted in the primary violation. See Mem. & Order, Doc. No. 87, at 42 (Dec. 11, 2012). To establish substantial assistance, the SEC must show that Mr. Ruehlens conduct was a substantial causal factor in the perpetration of Nobles primary violation. SEC v. Hopper, No. H-04-1054, 2006 WL 778640, at *15 (S.D. Tex. Mar. 24, 2006) (internal quotation marks omitted).
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expense account entitled facilitating payments. Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. Nos. 8-9). According to the SEC, recording the payments in this manner did not accurately and fairly reflect the transactions because the payments were, in fact, unlawful under the FCPA. Instead, the SEC contends that Noble should have booked [them] as unlawful bribes.9 Id. Each of the SECs books-and-records claims fail for at least two independent reasons. First, the undisputed evidence shows that Mr. Ruehlen never made or directed any of the accounting entries that the SEC claims were false. And second, even assuming, arguendo, that the accounting was improper and can be attributed to Mr. Ruehlen, there is no evidence that Mr. Ruehlen acted knowingly. Moreover, the aiding and abetting claim fails for the additional reason that there is no accounting requirement that Noble maintain and record payments in an account entitled unlawful bribes. Mr. Ruehlen is accordingly entitled to summary judgment on these claims. 1. There Is No Evidence That Mr. Ruehlen Falsified Any Book, Record, Or Account, Or That He Aided And Abetted Nobles Alleged Failure To Keep Accurate Books And Records
The undisputed facts show that Mr. Ruehlen (i) did not make any of the accounting entries at issue; (ii) was not responsible for determining how payments should be recorded in Nobles books; and (iii) did not direct accounting personnel as to how they would be booked. See supra at 1617. The undisputed evidence also shows that Mr. Ruehlen had no responsibility for supervising the West Africa Divisions accounting function, and the accounting department
The SEC has also suggested in discovery that Nobles books and records were false for the additional reason that in some instances portions of special handling charges were recorded in either (i) a prepaid expense account, and then amortized into the facilitating payment account over time; or (ii) a customs/duties account. Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. No. 8). Even assuming this caused Nobles books to be false, Mr. Middleton made clear in his deposition that (i) he, and not Mr. Ruehlen, made the decision to amortize certain charges over time, and (ii) to the extent any portion of the charges were booked to the customs/duties account, it was simply a mistake by the Division accounting department. Ex. 12 at 141:22142:16.
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did not rely on Mr. Ruehlen in determining how payments should be recorded in Nobles books. See supra at 17. In light of these undisputed facts, case law and simple logic forecloses each of the SECs books-and-records claims against Mr. Ruehlen. See, e.g., SEC v. Shanahan, No. 4:07CV-270, 2010 WL 148440, at *56 (E.D. Mo. Jan. 12, 2010) (granting summary judgment on Section 13(b)(2)(A) aiding and abetting claim and agreeing that because it was not [the defendants] responsibility to maintain the [companys] books and records, his failure to do so cannot constitute aiding and abetting); SEC v. Nacchio, 704 F. Supp. 2d 1099, 1107, 111518 (D. Colo. 2010) (granting summary judgment on Section 13(b)(2)(A) aiding and abetting and Section 13(b)(5) and Rule 13b2-1 falsification claims where the defendant was not an accountant and not involved in decisions as to how [] revenue [was] booked); SEC v. Leslie, No. 07-3444, 2010 WL 2991038, at *27, 32 (N.D. Cal. July 29, 2010) (granting summary judgment on Rule 13b2-1 claim where the evidence showed that the companys auditors did not rely on defendants alleged misrepresentations in preparing the companys financial records, and therefore [a]ny inaccuracies in the . . . accounting . . . cannot be the result of these misstatements); SEC v. Rivelli, No. 05-cv-1039, 2010 WL 2775623, at *5 (D. Colo. July 14, 2010) (granting summary judgment on Section 13(b)(2)(A) aiding and abetting and Rule 13b2-1 claims where the accountant who made the accounting entries at issue did not report to, or take direction from [the defendant], and where there was no evidence that [the defendant] concealed any information from [the responsible accountant] or from any of [the companys] senior management); SEC v. Cedric Kushner Promotions, Inc., 417 F. Supp. 2d 326, 337 (S.D.N.Y. 2006) (granting summary judgment on Section 13(b)(2)(A) aiding and abetting claim where there was no evidence to support the claim that the defendant, a non-accountant consultant who was also a director, was responsible for [the companys] books and records . . . ,
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or that he aided and abetted any violation with respect to th[at] requirement[]); In re Yesner, Exchange Act Release No. 184, 75 SEC Docket 156, 2001 WL 587989, at *36 (ALJ May 22, 2001) (finding insufficient evidence to support Rule 13b2-1 claim against respondent who did not supervise the activity giving rise to the allegedly false books and records and where the individuals in the . . . accounting department took their direction from a vice president of finance as opposed to the respondent).10 Lacking any evidence that Mr. Ruehlen made or directed any of the accounting entries for the payments at issue, the SEC appears to base its claims on allegations that (i) Mr. Ruehlen allowed the payments to be booked as facilitating payments, or (ii) the payments were booked to that account with Mr. Ruehlens knowledge and approval. See SAC 119, 123, 135, 137, 139, 141, 144, 145, 150 (emphasis added). But even assuming that the evidence supported these allegationswhich it does notreviewing and approving the manner in which the payments were recorded is not the same thing as falsifying a corporate book or record, no matter how many times the contention is repeated. Patel, 2009 WL 3151143, at *2728, 3336; see also SEC v. Nacchio, 438 F. Supp. 2d 1266, 128486 (D. Colo. 2006) (the fact that the defendant knew of and failed to disclose an allegedly false accounting practice was insufficient to establish that he caused [the issuers] books and records to be falsified or aided and abetted the issuers keeping of false books and records) (emphasis in original). Nor can Mr. Ruehlens involvement in seeking CFO approval to pay IC Networks invoices constitute a knowing falsification of a subsequent accounting entry for the transactions. See, e.g., SEC v. Patel, No.
Notably, many of the cases cited above granted summary judgment or dismissed the SECs (i) books-and-records claims and (ii) internal accounting control claims, including those that the SEC has now voluntarily dismissed in this matter, on the same groundsi.e., both sets of claims failed because the SEC had not alleged or presented evidence sufficient to show that the defendants had any role in, or responsibility for, the accounting judgments at issue. See, e.g., Cedric Kushner, 417 F. Supp. 2d at 337; Nacchio, 704 F. Supp. 2d at 1107, 111518.
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07-cv-39, 2008 WL 782465, at *1819 (D.N.H. Mar. 24, 2008) (dismissing SECs Section 13(b)(2)(A) aiding and abetting claim because the affirmative conduct attributed to [the defendant]negotiating the . . . deal [that was later allegedly improperly accounted for]is far too attenuated from the creation of false corporate records to qualify as aiding and abetting a violation of section 13(b)(2)(A)).11 2. There Is No Evidence That Mr. Ruehlen Believed That The Payments At Issue Were Unlawful Under the FCPA
Even assuming that the accounting can somehow be attributed to Mr. Ruehlen, there is no evidence to support the SECs claim that Mr. Ruehlen falsified any book or record knowingly. To show that Mr. Ruehlen possessed the requisite knowledge, the SEC must show that Mr. Ruehlen was aware that, in light of the true nature of the transactions, it was improper to record them as facilitating payments. SEC v. Espuelas, 905 F. Supp. 2d 507, 518 (S.D.N.Y. 2012); see also S. Rep. No. 95-114, at 9 (1977) (the term knowingly connotes a conscious undertaking . . . to falsify records). Given the SECs theory of why Nobles books and records were falsei.e., they were recorded, but did not actually qualify as a matter of law, as facilitating paymentsthe SEC must establish that Mr. Ruehlen understood and believed that the payments were unlawful under the FCPA.12 Cf. Leslie, 2010 WL 2991038, at *27 (granting
Moreover, to the extent the SEC argues that Mr. Ruehlen violated the books-and-records provisions by failing to correct the entries after they were made by the accounting department, that claim fails as well. As even the SEC has recognized, the responsibility to correct a known falsification . . . arises only when the individual in question is in some respect responsible for the records or controls, or otherwise supervises the activity giving rise to the violation. Foreign Corrupt Practices Act of 1977, Exchange Act Release No. 34-17500, 21 SEC Docket 1466, 1981 WL 3638521, at *8 (Jan. 29, 1981). Because Rule 13b2-1 does not include a scienter requirement, courts have applied a reasonableness standard to determine whether a violation of the Rule has occurred. See, e.g., SEC v. Das, 723 F.3d 943, 954 (8th Cir. 2013). But the only basis for the SECs contention that Mr. Ruehlen acted unreasonably with respect to the manner in which payments related to temporary import permits were recorded is that he knew the payments did not qualify as facilitating payments. As such, the SECs inability to prove that Mr. Ruehlen acted knowingly is equally fatal to the SECs Rule 13b2-1 claim. See, e.g., Espuelas, 905 F. Supp. 2d at 52526 (granting summary judgment on Rule 13b2-1 claim where the
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summary judgment on Section 13(b)(2)(A) aiding and abetting claim where the SEC failed to establish that the defendants not only knew of the relevant accounting principles but also knew how to apply them correctly). But there is no evidence that Mr. Ruehlen actually held that belief. The SEC appears to contend that Mr. Ruehlen must have known that payments in connection with temporary import permits and extensions did not qualify as facilitating payments because he knew that the granting of temporary import permits was discretionary and the payments were not small, two factors identified in Nobles APM as potentially relevant to whether a payment could qualify as a facilitating payment.13 See SAC 62, 115. But there is no evidence that Mr. Ruehlenan operations employee in Nigeria who was not tasked with making, nor qualified by training or education to make, the determination of whether a payment satisfied the statutory exception(i) had any developed understanding of those factors; (ii) believed that they were bright-line rules that negated the applicability of the exception to the payments in connection with temporary import permits14; or (iii) believed that the executives who were charged with approving the paymentswho were fully aware of the size and purpose of the payments and had access to professional and legal advice that Mr. Ruehlen did notwere
SEC based its claims . . . solely on the thesis that [the defendant] knew that it was improper to make the alleged accounting entry, but then failed to establish a genuine issue of material fact as to the defendants knowledge of the true nature of the transactions in question, and explaining that although Rule 13b2-1 imposes a reasonableness requirement rather than a scienter requirement, the SEC had not articulated an alternative argument as to why [the defendants] behavior was unreasonable). Ex. 62 7.6.5.1 (In general terms, a small payment to assure or speed the proper performance of a foreign officials duties that does not involve a discretionary action by such official may be considered a Facilitating Payment.). As discussed more fully in Mr. Jacksons memorandum, Mr. Ruehlen attended an FCPA training program conducted by T&K in November 2002 which used an example of a $10,000 payment to a government official to overcome a problem relating to importing or exporting a rig. See Def. Jacksons Mot. Summ. J. at 89; Ex. 25; Ex. 17 at 89:1690:3. Those materials concluded that the facilitating payment exception might apply, and did not suggest that there is any monetary cut-off for what may qualify as a facilitating payment.
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acting in bad faith. Cf. SEC v. Goldsworthy, No. 06-10012-JGD, 2007 WL 4730345, *15, 19 (D. Mass. Dec. 4, 2007) (granting summary judgment on Section 13(b)(5) and Rule 13b2-1 claims where the defendant act[ed] in accordance with the instructions from others in the company who had more knowledge about the deals at issue and whom he had no reason to distrust). The only evidence the SEC points to in support of the idea that Mr. Ruehlen knew that payments related to temporary import permit were questionable under the FCPA is Mr. ORourkes decision in early 2005 that those payments would not be included with the other payments that received blanket quarterly approval from the CFO. According to the SEC, that bifurcated approval structure shows that Mr. Ruehlen understood that payments related to permits were large, unusual, non-routine payments that did not qualify as facilitating payments. SAC 115. But the evidence contradicts the SECs allegation. Indeed,
Mr. ORourkewho was fully satisfied that the payments were lawfultestified during the SECs investigation that payments to Nigerian officials in connection with temporary import permits were not included in the blanket approval requests because they were not as frequent as the other payments the Division was making, and not for any other reason.15 Ex. 15 at 436:10-16; see also Ex. 14 at 87:2188:6. The SECs allegation is further undermined by a record replete with evidence that demonstrates Mr. Ruehlens attitude when confronted with other payment requests that he did believe might run afoul of the FCPA. Mr. Ruehlen refused to even attempt to pursue CFO approval for various types of payments requested of Noble during the relevant period, including
The SECs contention seems to be another example of making the facts fit the theory. If Noble had included payments in connection with temporary import permits with those grouped for quarterly approval, the SEC undoubtedly would have alleged that such grouping evinced an intent to bury those payments with unrelated smaller payments and thereby conceal them from heightened scrutiny. By breaking the payments out and submitting them separately, Noble employees increased transparency and ensured appropriate review at the highest levels within the company.
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(i) a 2005 request by a government official that Noble help the official furnish his new apartment, and (ii) numerous requests for campaign donations during election season in early 2007. Exs. 70, 71; Ex. 1 at 97:598:14; Ex. 57 at 1; Ex. 14 at 203:4204:25. In fact,
Mr. ORourke described the latter incidents to Nobles Audit Committee in February 2007; told the Audit Committee that Mr. Ruehlen followed Nobles policies to the letter; and described Mr. Ruehlen as a strong mitigating control factor with respect to Nobles FCPA risk. Ex. 57 at 1. See Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1449 (5th Cir. 1993) (Unsupported allegations of bad faith will not suffice to enable a party to survive summary judgment, especially in a case in which there is evidence that the defendant acted in good faith.) (internal quotation marks and citations omitted). 3. Section 13(b) Does Not Require That Payments Be Recorded In An Account Named Unlawful Bribes
As Congress recognized when it enacted Section 13(b), an accurate record is one that reflect[s] transactions in conformity with generally accepted accounting principles. S. Rep. No. 95-114, at 8; see also Joseph P. Covington & Iris E. Bennett, Practicing Under the U.S. Anti-Corruption Laws 2:03[A] n.34 (2013 Supplement) (hereinafter Covington & Bennett) ([T]he touchstone [of] . . . compliance with Section 13(b)(2)(A) is whether the books and records are sufficiently accurate to permit the issuer to generate GAAP-compliant financial statements.). Here, it is undisputed by the parties experts that there is nothing in GAAP or any other authoritative accounting literature that requires issuers to maintain and record payments in an account labeled unlawful bribes. Ex. 77 (Alan Bell Expert Rep.) at 6, 32, 34-37; Ex. 2 (Alan Bell Tr.) at 6:18-22, 246:11-12; Ex. 7 (Jeffrey Harfenist Tr.) at 216:1217:13. The SECs claim that Noble violated Section 13(b)(2)(A) by failing to make and keep such an account therefore fails for the simple reason that the applicable accounting standards do not require an 26
account entitled unlawful bribes. Cf. SEC v. Coffman, No. 06-cv-00088, 2007 WL 2412808, at *1617 (D. Colo. Aug. 21, 2007) (SEC failed to carry its burden of proving that the defendant had falsified any books or records because the SEC could not show that the accounting treatment it advocated for was required under the applicable accounting standards). Moreover, [t]he essence of Section 13(b)(2)(A) is that the bookkeeping entry . . . should reflect the true economic substance of the transaction. . . . Covington & Bennett 2:03[A][2] (citing H.R. Rep. No. 94-831, at 10 (1977)) (emphasis added). Here, the economic substance of the transactionsi.e., that they were payments to government officialswas abundantly clear from the manner in which they were recorded, since a facilitating payment is, by definition, a payment to a government official. As such, this case bears absolutely no relation to cases where payments to government officials were recorded in a manner to disguise or conceal them16the principal evil that Section 13(b)(2)(A) was designed to prevent. Cf. U.S. Sec. & Exch. Commn, Report of the SEC on Questionable and Illegal Corporate Payments and Practices, at 3 (May 12, 1976) (reporting that the SECs investigations leading up to the enactment of the FCPA uncovered falsifications of corporate financial records[] designed to disguise or conceal the source and application of corporate funds misused for illegal purposes) (emphasis added).17
Cf. DOJ Criminal Division & SEC Enforcement Division, A Resource Guide to the FCPA at 39 (2012), (noting that in prior FCPA enforcement actions, payments to government officials have been mischaracterized as commissions or royalties, consulting fees, sales and marketing expenses, scientific incentives or studies, travel and entertainment expenses, rebates or discounts, after sales services fees, petty cash withdrawals, free goods, intercompany accounts, supplier / vendor payments, and write-offs). Accepting the SECs position would also result in troubling consequences that Congress could not have intended. As construed by the SEC, an issuer violates Section 13(b)(2)(A)which does not contain a scienter requirementin any instance where payments to government officials (i) are judged in good faith to be lawful but are later determined to violate the FCPA, and (ii) were recorded as anything other than unlawful bribes when they were made (indeed, even if they were simply recorded to an account entitled payments to government officials). Moreover, employees involved in such
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II.
The Court Should Grant Summary Judgment On The SECs Claim For Knowing Circumvention Of Nobles System Of Internal Accounting Controls Section 13(b)(5) of the Exchange Act provides that [n]o person shall knowingly
circumvent . . . a system of internal accounting controls . . . described in [Section 13(b)(2)]. 15 U.S.C. 78m(b)(5) (emphasis added). Although the Exchange Act does not define the term circumvent, courts have construed that term in accordance with its ordinary meaning in a variety of contexts. See, e.g., Mayer Brown LLP v. IRS, 562 F.3d 1190, 1192 (D.C. Cir. 2009). With slight variations, circumvent is defined as to avoid or overcome by artful maneuvering. American Heritage Dictionary, Second College Edition 275 (1991).18 Section 13(b)(2)(B), in turn, requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that the following objectives are met: (i) transactions are executed in accordance with managements general or specific authorization; (ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles [GAAP] or any other criteria applicable to such statements, and (II) to maintain accountability for assets; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
transactions who believe that the payments were unlawful could be criminally liable for aiding and abetting the issuers violation of Section 13(b)(2)(A) unless they admit their illegal conduct notwithstanding their Fifth Amendment rightsin the issuers books and records by recording the payments as unlawful bribes. No plausible interpretation of Section 13(b) can support such results. See also Websters New World Dictionary 255 (3d ed. 1988) (defining circumvent as to get the better of or prevent from happening by craft or ingenuity); Websters Ninth New Collegiate Dictionary 243 (1988) (defining circumvent as to manage to get around[,] esp[ecially] by ingenuity or stratagem); The New Merriam-Webster Dictionary 147 (1989) (defining circumvent as to check or defeat[,] esp[ecially] by stratagem).
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15 U.S.C. 78m(b)(2)(B). This definition of a system of internal accounting controlsalso referred to as internal controls over financial reporting (or ICFR)pre-exists the FCPA and was adopted by Congress from authoritative accounting literature. S. Rep. No. 95-114, at 7-8; S. Rep. No. 94-1031, at 11 (1976). Examples of internal [accounting] controls include manual or automated review of records to check for completeness, accuracy and authenticity; a method to record transactions completely and accurately; and reconciliation of accounting entries to detect errors. McConville v. SEC, 465 F.3d 780, 790 (7th Cir. 2006). To establish a violation of Section 13(b)(5), therefore, the SEC must prove that Mr. Ruehlen, by artful maneuvering, avoid[ed] or overc[ame] Nobles system of internal accounting controls. Because there is no evidence to support the SECs various theories of circumventionmany of which also fail as a matter of law under this standardthe Court should grant summary judgment on this claim. A. There Is No Evidence That Mr. RuehlenWho Received CFO Approval For Every Payment At Issue In This MatterCircumvented Nobles System Of Internal Accounting Controls
The SECs principal theory of circumvention is that Mr. Ruehlen sometimes authorized Nobles customs agents to make payments to government officials without first obtaining approval from the CFO, as required by Nobles APM.19 SAC 40 (emphasis added); see also Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. No. 11). But it is undisputed that Mr. Ruehlen requested and received authorization for every one of the payments made to IC Network during Mr. Ruehlens tenure as Division Manager; not a single one of Nobles CFOs (or any other witness) testified that Mr. Ruehlen violated company policy; and not a single CFO
Ex. 62 at 7.6.5 ([Y]ou should not authorize or make any payment or offer of payment of anything of value to any foreign official . . . without the prior written authorization of the Companys Chief Financial Officer . . . .).
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testified that his decision to approve any payment would have turned out differently had Mr. Ruehlen sought approval earlier. In light of this evidence, there is no genuine dispute that the payments at issue were executed in accordance with managements general or specific authorization. 15 U.S.C. 78m(b)(2)(A)(i); see also 122 Cong. Rec. 30,422 (1976) (statement of Sen. Proxmire) (noting that the FCPAs internal accounting control provisions require[] that the businessmen of the country must be responsible to set up an accounting system that will inform them of what happens to their assets so that, if a bribe is paid, they will know). Moreover, this theory of circumventionwhich the SEC did not bother to ask Mr. Ruehlen about in his depositionis not premised on any artful maneuvering designed to evade the APMs CFO-approval requirement. Rather, the SECs claim is essentially that
Mr. Ruehlen failed to comply with the literal text of Nobles APM by sometimes not obtaining approval early enough. But as the plain language of Section 13(b)(5) and its legislative history make clear, circumventing a system of internal accounting controls requires more than a mere failure to comply with a particular internal accounting control. To hold otherwise would mean that every time a public company employee failed to follow an expense policy to the letter, that failure, regardless of how innocent or immaterial, would give rise to a federal law violation. This surely is not what Congress intended. Indeed, Congress added Section 13(b)(5) in 1988 to ensure that penalties were imposed on individuals for conduct calculated to evade a system of internal controls, and not merely failing to comply with the FCPAs . . . accounting control provisions. H.R. Rep. No. 100-576, at 916-17 (1988) (emphasis added). As such, this claim is not only unsupported by any evidence, but also fails as a matter of law.
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B.
The SECs Other Theories Of Circumvention Are Meritless And Contradicted By The Undisputed Evidence
The SECs remaining theories of circumvention are contradicted by the undisputed evidence, contradicted by the SECs own claims, or fail as a matter of law. 1. Audit Committee Resolution
The SEC alleges that Mr. Ruehlen (i) circumvented and directly contravened an Audit Committee Resolution that false paperwork would not be used to obtain temporary import permits when the paper process was used in February 2005, and then (ii) failed to report its use to the Audit Committee. Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. No. 11); see also SAC 92. But the undisputed evidence shows that the Audit Committee never issued any such resolution; and even if that was the Audit Committees direction to senior management, there is no evidence that Mr. Ruehlen was told of that fact. See supra at 67. Moreover, it is undisputed that Mr. Ruehlen communicated the use of the paper process to the Director of Internal Audita senior executive with a direct reporting obligation to the Audit Committee who independently made the decision not to report the matter in 2005 to the Committee. Ex. 14 195:3-11. This theory of circumvention is utterly without merit. 2. Backdated IC Network Certifications
The SEC alleges that following an inquiry from Mr. ORourke in February 2007, Mr. Ruehlen sought and obtained backdated certifications of [FCPA] compliance from I.C. Networkwhich IC Network was required to execute annually per the terms of its Service Agreement with Noble drafted by Robert Campbellfor 2005 and 2006, and then passed them off as signed on the date indicated.20 Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. No. 11);
The SEC also alleges that Mr. Ruehlen circumvented internal controls when he failed to ensure that I.C. Network certified compliance with the FCPA on an annual basis as required under the . . . Service Agreement. Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. No. 10) (emphasis added); see
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SAC 166. There is no evidence to support these allegations. The evidence shows only the followingafter Mr. ORourkes inquiry, Mr. Ruehlen sent a single copy of the certification form that need[ed] to be signed by IC Network to Hans Hilhorst (an Operations Manager), Ex. 60; and a week later, Mr. Hilhorst sent Mr. Ruehlen two copies of the certifications that he had received from IC Network, which were signed by IC Network and dated July 2005 and July 2006, respectively. Ex. 61. Neither Mr. Hilhorst nor any other witness testified that
Mr. Ruehlen asked that the certifications be backdated or that Mr. Ruehlen passed them off as [having been] signed on the date indicated. SAC 166; see Ex. 8 at 115:11118:19. And even if they were backdated, the SEC has no plausible explanation for how that resulted in a circumvention of Nobles system of controls.21 Moreover, this theory of circumvention is premised on an erroneous interpretation of Section 13(b)(2)(B) that the SEC has now apparently abandonedi.e., that in addition to internal accounting controls, Section 13(b)(2)(B) also applies to any and all controls designed to prevent violations of the FCPAs anti-bribery provisions. See, e.g., SAC 3 (alleging that Defendants failed to implement sufficient controls to prevent the [alleged] bribery) (emphasis added). But nothing in the FCPA or the securities laws applies Section 13(b)s internal controls requirements to controls designed to prevent corrupt payments to foreign officials. Covington & Bennett 2.03[B][2] n.52; see also Defs. Mot. Excl. Harfenist Test. at
also SAC 16465. Even assuming that Mr. Ruehlen was aware of the requirement prior to Mr. ORourkes inquiry in February 2007, Mr. Ruehlens mere failure to follow up and ensure that the certifications were received annually cannot constitute a knowing circumvention of Nobles system of internal accounting controls. Simply put, forgetting to ask a vendor to turn in paperwork hardly constitutes a violation of federal law. In particular, the SEC has never (i) explained the value or reliability of a Nigerian customs agents interpretation of U.S. law; (ii) established why it was improper for IC Network to certify compliance as of an earlier period; (iii) demonstrated that anyone at Noble relied on the allegedly postdated certifications; or (iv) shown that certifications bearing a different date would have resulted in a different outcome. The mere failure to obtain a properly dated form, one the SECs own expert placed essentially no value on, does not meet the test for circumvention. Ex. 7 at 353:5-9.
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59.
And although requiring agents to certify compliance with the FCPAs anti-bribery
provision may be an advisable component of an effective anti-corruption compliance program, see Ex. 76 (Jeffery Harfenist Expert Rep.) at 9, it cannot credibly be characterized as an internal accounting control. Cf. Promotion of the Reliability of Financial Information, Exchange Act Release No. 34-13185, 11 SEC Docket 1514, 1977 WL 174077, at *5 n.10 (Jan. 19, 1977) (The term internal accounting controls does not ordinarily encompass all corporate policies and procedures.). Accordingly, not only does the undisputed evidence refute this theory of circumvention, it fails as a matter of law and logic. 3. Quarterly Representation Letters
The SEC alleges that Mr. Ruehlen knowingly circumvented Nobles system of internal accounting controls by misrepresenting in quarterly representation letters to Nobles management that the Division had (i) complied with the FCPA and (ii) all applicable laws and regulations while knowing that the Division was making unlawful payments and using the paper process in violation of Nigerian law. But there is no genuine dispute that Mr. Ruehlen believed in good faith that (i) the payments were lawful facilitating payments and (ii) the paper process was lawful in Nigeria. See supra at 2426 and infra at 3638. And even if Mr. Ruehlens representations were in fact inaccurate, there is no basis to conclude that they resulted in the circumvention of Nobles entire system of internal accounting controls. It is undisputed that Mr. Ruehlen (i) raised concerns about the paper process in early 2004, which resulted in a report to Nobles Audit Committee; (ii) informed senior management of the use of the paper process in early 2005; (iii) sought and received approval for every payment at issue; and (iv) raised concerns about the paper process again in early 2007. In light of that undisputed evidence, the SECs circumvention theory essentially reduces to the position that Mr. Ruehlen didnt blow the whistle as many times as he should 33
have. Regardless, these allegations cannot establish a knowing circumvention of Nobles system of internal accounting controls. 4. Deceptive Approval Requests
The SEC also alleges that Mr. Ruehlen circumvented Nobles system of internal accounting controls through deceptive and mislead[ing] approval requests to Mr. Mitchell, including: (i) a request related to a temporary import permit that did not mention the use of the paper process; and (ii) a request for a fourth extension that failed to disclose that Noble had been denied a fourth extension in the past.22 Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. No. 10). These allegations are meritless. Each of Mr. Ruehlens requests to Mr. Mitchell conformed to the template Mr. ORourke had instructed Mr. Ruehlen to use, and Mr. ORourkewho was fully informed of the paper process, the background, and the related paymentswas copied on each of those emails (and asked by Mr. Mitchell to review them before he approved). See supra at 1415. As to the fourth extension request, Mr. Mitchellwho understood that it was
unusual to get a fourth extensiontestified that he relied solely on Mr. ORourke to vet the request and that the information in Mr. Ruehlens emails (which the SEC alleges was misleading) was immaterial to his decision-making. Ex. 13 at 175:2176:9. 5. Payments Recorded To Other Accounts
The SECs final theory of circumvention is that Mr. Ruehlen failed to ensure [that] all payments to government officials that were approved as facilitating payment[s] . . . were booked immediately and directly to the facilitating payment . . . account. Ex. 22 (Pl.s Resp. to Def.
The SEC also alleges that this request deceptive[ly] compared the amount of the proposed special handling charges for a fourth extension to the amount typically charged for the paper process. Ex. 22 (Pl.s Resp. to Def. Ruehlens Interrog. No. 11). But the SEC has never explained how the comparison was deceptive. Plainly, the SEC cannot establish circumvention simply by identifying additional financial comparisons that no one, at the time, thought relevant and that, even in hindsight, were immaterial to the decision-maker.
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Ruehlens Interrog. No. 10) (emphasis added). The apparent basis for this claim are certain instances where the SEC alleges that portions of special handling charges were recorded in a prepaid expense account and amortized over time (which Mr. Middleton believed was proper), or recorded in a customs/duties account (which Mr. Middleton believed was simply a clerical error by the Division accounting department). See supra at 20 n. 9. Not only is it undisputed that Mr. Ruehlen had no role in recording payments to either of those accounts, the action that the SEC contends Mr. Ruehlen should have takeni.e., directing that payments approved as facilitating payments be recorded in the facilitating payment account (and no other account)is the very same alleged conduct that underlies the SECs Section 13(b)(5) and Rule 13b2-1 knowing falsification claim. Plainly, the SECs heads I win, tails you lose theories of knowing circumvention and falsification fail. III. The Court Should Grant Summary Judgment On The SECs Bribery Claims To establish a violation of the FCPAs anti-bribery provisions, the SEC must prove that Mr. Ruehlen authorized payments to government officials corruptlyi.e., with the evil motive or wrongful purpose of influencing a foreign official to misuse his position. Mem. & Order, Doc. No. 87, at 37 (Dec. 11, 2012) (emphasis added). The evidence shows that, far from possessing an evil motive or wrongful purpose, Mr. Ruehlen had a good faith belief that Noble was entitled to the temporary import permits and extensions it received. Id. at 40 n.20 (emphasis added). Accordingly, the Court should grant summary judgment on the SECs bribery claims. See, e.g., Krim, 989 F.2d at 144950 (summary judgment is appropriate where there is no affirmative evidence . . . direct or circumstantial, which would allow for the reasonable inference that the moving party acted with a contrary intent or state of mind).
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A.
The Paper Process
Though the principal focus of the SECs Complaint is on the propriety of the paper process, it is undisputed that the paper process is not itself a violation of the FCPA, which does not criminalize violations of local law. Rather, to prove its anti-bribery claims, the SEC must not only prove that Mr. Ruehlen believed that the paper process was unlawful in Nigeria, but must also prove that he intended to induce government officials to assist Noble in breaking Nigerian lawi.e., to misuse their positions by granting illicit temporary import permits based on false documents. SAC 2. But there is no direct evidence that Mr. Ruehlenor anyone else at Noblebelieved that the payments were designed to induce Nigerian officials to misuse their positions. Nor is there any reasonable inference to that effect. See Hockman v. Westward Commcns, LLC, 407 F.3d 317, 325 (5th Cir. 2004). First, there is no admissible evidence that contradicts Mr. Ruehlens testimony that he was assured by Nobles longstanding local counsel that the paper process was legal.23 See supra at 89. Although the SEC appears to believe that Mr. Ruehlen fabricated this conversation after Nobles internal investigation began in May 2007, all the admissible evidence supports Mr. Ruehlens testimony. It is undisputed that Mr. Ruehlen conveyed Ms. Onodugos advice to Mr. ORourke shortly after the paper process was used for three rigs in late February 2005; and either Mr. Ruehlen or Mr. ORourke conveyed that advice to Mr. Jackson shortly thereafter. See supra at 910. Mr. ORourkewho described Mr. Ruehlen as one of the most honest people [he] know[s], Ex. 14 at 51:5testified that there was [no] doubt in his mind that Mr.
The SEC also appears to contend that there is a reasonable inference that Mr. Ruehlen knew the paper process was illegal because he was aware that Noble had been penalized by a Nigerian Panel of Inquiry for the use of false paperwork in connection with [temporary import permits]. SAC 71. But there is no evidence that Mr. Ruehlen or anyone else at Noble believed that any such penaltywhich was allegedly imposed in 2002, long before Mr. Ruehlens arrival as Division Managerrelated to the Nobles use of the paper process. See Def. Jacksons Mot. Summ. J. at 2527. Indeed, the SEC did not even question Mr. Ruehlen about this Panel during his deposition.
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36
Ruehlen had consulted with Ms. Onodugo and believed that she had advised him that the paper process was legal in Nigeria. Ex. 14 at 179:25180:2. Mr. ORourkes and Mr. Jacksons testimony is further corroborated by Julie RobertsonNobles Senior Vice President of Administration during the relevant periodwho testified that she recalled learning that Noble had received legal advice from its local counsel in Nigeria regarding temporary import permits prior to the investigation. Ex. 17 at 19:1220:19, 270:3272:25. Moreover, it is also undisputed that (i) Mr. ORourke referenced Ms. Onodugos advice in writing prior to Mr. Ruehlens email regarding Tidewaters investigation (and thus prior to the date when, under the SECs theory, Mr. Ruehlen had a motive to fabricate the advice after the fact) (Ex. 58; Ex. 14 at 205:5208:4); and (ii) Ms. Onodugo gave virtually the same advice to Noble in writing in May 2007, after Noble initiated an internal review following the Tidewater disclosure. Ex. 59; Ex. 14 at 209:13212:11. In light of this evidence, the SECs theory that the advice was fabricated is little more than unsupported speculation that cannot defeat summary judgment. Krim, 989 F.2d at 1449. Second, the SEC is not entitled to a reasonable inference that Mr. Ruehlen acted corruptly based on its allegation that Mr. Ruehlen used the paper process to avoid (i) paying permanent import duties on [Nobles] rigs or (ii) the operational costs of moving its rigs, and not based on a belief that the process was legal. E.g., SAC 47. The evidence shows that Noble and Mr. Ruehlen learned that there were serious problems with each of the potential alternatives to the paper process that were independent of their relative costs to Noble. See supra at 78. Indeed, Mr. Ruehlen was advised by another drilling executive to avoid permanent importationthe principal lawful option that the SEC alleges Mr. Ruehlen made corrupt
37
payments to Nigerian officials to avoidbecause all cost implications are not transparent . . . and the whole process is extremely wrought with corruption.24 Ex. 55 (emphasis added). Finally, the SEC is not entitled to an inference of corrupt intent based solely on the fact that use of the paper process coincided with the authorization of payments to Nigerian officials. Though omitted from the Complaint, during Mr. Ruehlens tenure as Division
Manager, Noble made payments in connection with a temporary import permit for a rig (the Noble Don Walker) that did not use the paper process. In late 2005, the Noble Don Walker was physically exported out of Nigerian waters to the Republic of Benin to drill a well. Ex. 1 at 101:6102:18; Ex. 19 at 240:25244:15. After that project was completed, the rig was reimported into Nigeria and Noble applied for and received a new temporary import permit. Ex. 1 at 101:6102:18; Ex. 14 at 240:25244:15. In connection with that process, Noble paid special handling charges to IC Network in approximately the same amount of those charges that it paid in connection with the paper process.25 This undisputed evidencewhich the SEC
consciously avoids26precludes any reasonable inference of corrupt intent based solely on the fact that Noble authorized payments to Nigerian officials when its customs agent used the paper process.
Moreover, the SECs own expert concedes that the very same Nigerian authorities alleged to have extracted bribes in connection with the temporary import process also administered the permanent importation process. Ex. 16 (Kofo Olugbesan Tr.) at 277:9-25. This rock and a hard place logic further demonstrates the unfairness in the SECs claims. Compare Ex. 44 (approving special handling charges of more than $30,000 in connection with the physical exportation and re-importation of the Noble Don Walker), and Ex. 42 (approving $38,462 in special handling charges in connection with obtaining a temporary import permit for the Noble Don Walker upon its physical importation into Nigeria) with, e.g., Ex. 43 (approving approximately $55,000 special handling charges in connection with the paper process for the Noble Ed Noble). Ex. 23 (Pl.s Resp. to Def. Jacksons Interrog. No. 22) (The payments to Nigerian government officials made in connection with a new [temporary import permit] for the Noble Don Walker in December 2005-January 2006 have not been placed at issue in this case . . . .).
26 25
24
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B.
Extensions Of Temporary Import Permits
The SEC also contends that Mr. Ruehlen acted corruptly when he authorized payments to Nigerian officials in connection with extensions of temporary import permits because he knew that extensions were discretionary. SAC 73, 23. But Mr. Ruehlenand many others at Nobletestified that they believed Noble was entitled to a permit authorizing Nobles rigs to operate in Nigeria, regardless of whether that authorization was granted in the form of an extension or a new permit. See supra at 6, 9. And not only is there no direct evidence that contradicts the genuineness of that widely-held belief within Noble, the record is replete with evidence that corroborates it: Information from PwC Nigeria: As reported in the 2004 West Africa Division Audit Report, PwC Nigeria advised Noble that it could renew temporary import permits annually so long as it could justify their continued use in Nigeria, which many Noble executives understood to mean that Noble was entitled to a permit so long as its rigs were working under contract with the Nigerian government. See supra at 6. Advice from Nobles Local Nigerian Counsel: Mr. Ruehlen understood from Jo Onodugo that the paper process was legal and that Noble was entitled to temporary importation authorizationwhether through an extension or a new permitso long as the rigs were gainfully employed or had a possibility or opportunity for continued work in Nigeria. See supra at 9. Moreover, a central component of that advice i.e., that the Nigerian government was fully aware that Nobles rigs were not physically movingwas corroborated by several factors, including the weekly rig status reports that Noble submitted to the Nigerian DPR. See supra at 4; see also Ex. 14 at 182:11183:1. The Nature of the Oil Industry in Nigeria: As reflected in his March 2005 memorandum to Mr. ORourke and Mr. Rose, Mr. Ruehlen believed that the NNPCwhich many at Noble regarded as Nobles ultimate customer, and arguably the most powerful government bureaucracy in Nigeria (given Nigerias well-known dependence on revenue from oil)would not accept a request from Noble to interrupt drilling to export and re-import its rigs to obtain a new temporary import permit. See supra at 8; see also Ex. 14 at 125:6-14.
In sum, the undisputed evidence shows that Mr. Ruehlen and others at Noble believed that they were entitled to the permits that Noble sought and received; and, by definition, a
39
payment to secure or expedite a benefit to which one is entitled is not a payment intended to influence a foreign official to misuse his position.27 Mem. & Order, Doc. No. 87, at 37 (Dec. 12, 2012). Mr. Ruehlen is therefore entitled to summary judgment on the SECs anti-bribery claims based on the authorization of payments in connection with extensions of temporary import permits.28 CONCLUSION For the foregoing reasons, Mr. Ruehlen requests that the Court grant his motion for summary judgment in full.
The SEC alleges that Mr. Ruehlen acted corruptly when he obtained approval to make payments in connection with an application for a fourth permit extension for a rig in February 2007 for the additional reason that he knew that fourth extensions were not allowed. SAC 15154, 181. The basis for Mr. Ruehlens alleged knowledge are events that occurred in or about February 2005i.e., IC Networks report that NCS would not grant fourth extensions as a matter of policy now, and Mr. Ruehlens discovery that other drilling contractors had been denied fourth extensions around that time. See supra at 8; Ex. 66. But that does not remotely establish that Mr. Ruehlen believed, two years later, that NCS had maintained that policy. Indeed, the record establishes that any such policy was subject to changefor example, although Mr. Ruehlen was told during the 2004 West Africa Division Audit that NCS would grant only two permit extensions, Noble received third extensions later that year. See supra at 5, 8. In light of the undisputed facts, there is no reasonable inference that supports the SECs claim that Mr. Ruehlen acted corruptly in authorizing payments in connection with this extension. For all of these same reasons, the SEC cannot establish either a primary violation of the FCPAs anti-bribery provisions by Noble or knowledge of such a violation by Mr. Ruehlen. As such, Mr. Ruehlen is also entitled to summary judgment on the SECs aiding and abetting bribery claim. See, e.g., Espuelas, 905 F. Supp. 2d at 518.
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DATE: March 28, 2014
Respectfully submitted, GIBSON, DUNN & CRUTCHER LLP
/s/ Nicola T. Hanna F. Joseph Warin Attorney-in-Charge D.C. Bar No. 235978 Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, N.W. Washington, District of Columbia 11101 Telephone: 202.955.8500 Facsimile: 202.467.0539 fwarin@gibsondunn.com Of Counsel: Daniel P. Chung Martin A. Hewett Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, N.W. Washington, District of Columbia 11101 Telephone: 202.955.8500 Facsimile: 202.467.0539 Nicola T. Hanna Kristopher P. Diulio Gibson, Dunn & Crutcher LLP 3161 Michelson Drive Irvine, California 92612-4412 Telephone: 949.451.3800 Facsimile: 949.451.4220 David Gerger Samy Khalil Gerger & Clarke 1001 Fannin Street, Suite 1950 Houston, Texas 77002 Telephone: 713.224.4400 Facsimile: 713.224.5153 Counsel for Defendant James J. Ruehlen
CERTIFICATE OF SERVICE I certify that, on this 28th day of March, 2014, I caused a copy of the foregoing to be sent electronically via the Courts CM/ECF system to the counsel of record in this matter who are registered on the CM/ECF system, including: Alfred Day, Esq. U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-5949 DayA@SEC.GOV Counsel for Plaintiff SECURITIES AND EXCHANGE COMMISSION David S. Krakoff, Esq. BuckleySandler LLP 1250 24th Street, N.W. Washington, D.C. 20037 dkrakoff@buckleysandler.com Counsel for Defendant MARK A. JACKSON /s/ Martin A. Hewett Martin A. Hewett

SEC v. Ruehlen (Ruehlen Motion For Summary Judgment)

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SEC v. Ruehlen (Ruehlen Motion For Summary Judgment)

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Case 4:12-cv-00563 Document 146 Filed in TXSD on 03/28/14 Page 1 of 47

Payments In Connection With Temporary Import Permits .............................................. 10 A. B. C. D.

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Mr. Ruehlen Had No Role In Accounting For The Payments

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The Paper Process

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Extensions Of Temporary Import Permits

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DATE: March 28, 2014

Respectfully submitted, GIBSON, DUNN & CRUTCHER LLP

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