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SEC v. Tesoro Petroleum

SEC v. Tesoro Petroleum

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Published by: Mike Koehler on Sep 29, 2011
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SECv.
TESORO
PETROLEUMCORPORATION
UnitedStatesDistrictCourt.DistrictofColumbia.No.80-2961.November20)1980.LitigationReleaseNo.9236.Release
in
full
text.
TheSecuritiesandExchangeComm.issiontodayannounced
the
filing
ofa
civil
injunctiveaction
in
the
UnitedStates
District
Courtfor
theDistrictof
Columbiaseeking
toenjoinTesoroPetroleum
Corporation
("Tesoro")
fromfurtherviolationsofSections13(a)(reporting)and
34(a)
(proxy)oftheSecurities
ExchangeActof
1934("EXchange
Act")andrules
thereunder.
The
Commission'scomplaintalleged
that
since
atleast
the
time
Tesorobecameapubliccompany,Defendant
Tesoro
andothershaveengaged
in
acourseofbusiness
in
connectionwith
acquiring
materialforeign
assets,
attempt.
ing
toacquirematerialforeignassets,orconductingforeign
business
wherebythey
made
orcausedto
be
made
sub.
stantial
paymentsto"finders"
and"consultants,"where
such
payments.withrespect
tomulu-million
dollar
con.
tracts,
were
disproportionate
to
the
businessobtainedor
theservicesrendered,wexenotusualorcustomaryand
were
madeunder
circUMstances
such
that
Tesorowasandcontinuesto
beunabletoaccountforor$8tWy
itselfastothe
final
dispOsition
of
such
corporate
fluids.
In
certain
instancesinvolvingpaymentsmade
in
connectionwithforeignbusinessactivities,thecircumstancesofthe
pay·
meats
indicate
that
the
funds,
in
Wholeor
in
part,may
have
beendirectlyorindirectly
transferred
toforeigngover
ment
officials
orpoliticalleaders.
In
another
instance
asignificant
sum
was
returned
by
sucharecipientto
Tesoro
during
the
pendency
ofaninternalTesoroinvestigationof'
questionableorimproperpayments.Further.
TesolO
knew
that
such
courseofbusinessexposedandcontinuestoexpose
material
assets
ofthecompany
te
a
significantandcontinuingriskofloss.Tesoro
has
failedto
make
timely
andadequatedisclosureofthiscourseofbusiness,the
urw::countabllity
ofsuch
payments,
andthe
particular
riskthatsuch
course
ofbusinessposes
tomaterial
assetsandrevenuesofthecompany.Without
admitting
ordenying
theallegations
contained
in
theCommission's
complaint,
Defendant
Tesoro
con-sentedto
theentry
of
a
Final
Judgment
of
Permanent
Injunctionenjoiningthe
company
fromfutureviolationsofSections13(a)and14{a)oftheExchangeActandrulesthereunder.
In
its
consentto
theentryofthe
Final
Judgment,·
Tesoroundertook,
within
sixty(60)
days
ofthe
entryof
the
Final
Judgment
in
thismatter.to
appoint
asanewdirectorapersonsatisfactorytotheCommission.Such.director
will
be
nOminated
and
recommendedforelection
at
Tesoro's
nextannualmeetingforatennofthreeyears.
Whilea
director,
suchperson
shall
alsoserveaschainnanof
the
audit
committeeofTesoro'sboard
of
directors.The
audit
committee
will.
fonnulate
and
implement
poliCies
andproceduresdesignedtopreventoccurrenceofmattersofthenaturealleged
in
thecomplaintandsatisfyitselfastowhether"anyfeeshereafierpaid
in
connectionwitheon-
ducting
foreign
businesswerepaid
directly
or
indirectly
to
any
governmentofficial
oremployee.Additionally,Tesoroundertooknottomake
pay.
ments,
oroffers
ofpayments,
directlyorindirectly,toanyforeignofficialor
any
fore.lgnpoliticalpartyorleader
thereof
for
purposesofinfluencingan
act
ofsuchofficis1s
orpartiesorinducing
them
touse
their
influencetoaffecta
foreign
govemmcnt
actordecision.Further,
Tesoro'undertook
to
keep
accuratebooband
recordsand
to
file
with
theCommissiona
current
reportonForm8-K
which
will
attachtheretoa
copy
oftheexecutedConsent,
Final.Judgment
andComplaint
in
this
matter.
UNITEDSTATESDISTRICTCOURTFORTHEDlSTRICTOFCOLUMBIASECURITmsANDEXCHANGECOMMISSION,SOONorthCapitol
Street
Washington,D.C.20549PJaintiff,
v.
TESOROPETROLEUMCORPORATION
Defendant.
 
COMPLAlNT
FOR
PERMANENTINJUNCTIONAND
FOROTHEREQUITABLERELIEF
Nov.20,1980
The
PlaintiffSecuritiesandExchangeCommission
("Commission")alleges
that:
1.
DefendantTESOROPETROLEUM
CORPORA·
TION("TESORO")and
others
haveengaged,areengaged
andareabouttoengage
in
acts,practicesandcoursesofbusinesswhichconstituteand
will
constituteviolationsofSections13(a)and14(8)oftheSecuritiesExchangeActof1934("Exchange
Act")
[15U.S.C.7Sm(a)ap.d7Su(a)]andRules12b-20,13a·1,13a-11,13a·13and14a·9there-under[17C.F.R.240.+2b·20.240.138·1.240.13&-11,240.13a-13and240.14a-9}.
2.
Defendantmay.unless
restrained
andenjoined,.continuetoengageinthe
acts,
practices
andcoursesof
business
setforth
inthisComplaintand
in
actsandprac-tices
of
similarpurportandobject.3.'TheCommission,pursuanttotheauthoritygrantedto
it
bySections13(a),14(a)
and
23(a)oftheExchangeAct[15U.s.C.78m(a),?8n(a)and78w(a)}.hasprom-ulgatedRules1220,13a-1,13a-11,13a-13and14a-9[17C.P.R.
240.12b·20.
240.13l.240.1311,240.13a-13and240.14a-9)andthesubstanceofsaidruleswere
in
effectat
alltimes
relevantherein
andare
still
in
effect.JURISDICTIONANDVENUE
4.The
Cornmisslonbrings
this
actionpursuanttoSections21(d)and(e)oftheExchange
Act
[15U.S.C.78u(d)and(e)],torestrainandenjoinDefendant
TESORO
fromengaginginsuchacts,practices
and
courses
ofbus-
iness,andtoobtaincertainancillaryrelief,5.
This
Courthasjurisdictionof'
this
action
pUIlIuant
toSections2I(e)
and27oftheExchangeAct(15U.s.C.7Su(e)and7Baa]..
6.Certain
oftheacts,praoticesand
courses
ofbusinessandtransactionsallegedhereinhaveoccurred
within
theDistrictofColumbia.THEDEFENDANT7.DefendantTESORO,aDelawarecorporation
with
headquartersat8700TesoroDrive.SanAntonio,
Texas,is
anintegratednaturalresources
company
which
has
since1964engaged
in
orendeavored
to
engage
in
theexploration,development,prcduction,purchase
and
saleofonandgas
in
Algeria,Angola,Antigua,Argentina,
Bolivia,
Brazil,Canada,
Columbia,Ecuador,
Egypt,France,
Ghana,
Greece,Indonesia,India,
Iran,
Iraq,
Italy,
IvoryCoast,
Japan,tiberia,
Malaysia,
MexiCO,NetherlandsNetherlandsAntilles,
Nigeria,
Norway,
Peoples'
Republicof
China,Portugal,Romania,Singapore,Spain,Taiwan,TrinidadandTobago,UnitedKingdom,
U.S.s.R.,
Venezuela
and
West
Germany.
Italsorefines,transportsand
markets
petroleumproducts,
manufactures
and
leasesoilfieldserviceequip-ment
and
operates
on
and
gas
drDling
rigs.TESORO's
.securities
areregisteredpun"ianttoSection
12(b)
of
theExclumgeAct
[IS
U.S.C.
781(b)1.
and
its
commonstock
is
tradedontheNewYorkandPacificstockexchanges.COUNTISection13(a)oftheExchange
Act
[15U.S.C.78(a)]andRulesl2b-20.13a~1,
iss-n
and13a·13[17C.F.R.240.12b·20,240.13a·1,240.13a-l1and240.-13a-13]thereUnder.
8.Paragraphs1
through
7are
hereby
reallegedand
Incerporatedhereinbyreference.9.Fromabout1968tothedatehereof.TESOROand
others,
singly
and
in
concert,directly
andindirectly.and
aidingandabettingeachother,filedandcaused
to
befiledwiththeCommissioncertainreportsofTESOROincluding
annualreportsonForm10-X,periodicrepgrts
onForm
IQ.Qandcurrentreportson
FODll
S-l{,
which
reportswereandare
mateda1ly
false
and·
misleading
in
that
they
faUedamongother
things,
todisclose
the
activitiesde·scribedinParagraphs10.through21below.
10.Sinceatlout
the
timeTESORObecameapublic
company,DefendantTESORO
and
othershaveengaged
in
acourse
of
business
in
connection
with
acqUiring
materialforeign
assets,attempting
to
acquire
material
foreignassets,
or
conducting
foreign
businesswherebytheymadeor
caused
tobe
made
substantial
payments
to
"finders"and"consultants,"where
such
payments,withrespecttomulti·million
dollarcontracts,weredisproportionateto
thebusinessobtained
Or
the
servi~rendered.werenotusual
Of
customaryandwere
madeunder
circumstancessuchthat
TESORO
was
andcontinuesto
be
unabletoaccount
fororsatisfyitselfas
to
the
final
dispositionofsuehcorporate
funds.
In
certaininstancesinvolvingpaymentsmade
in
connectionwithforeignbusinessacthities.thecircum-
stancesof
thepaymentsindicate
that
the
funds,
inwholeor
in
part,
mayhavebeendirectlyorindirectlytransferredtoforeigngovernmentofficialsorpoliticalleaders.
In
anotherinstanceasignificant
sum
was
returnedbysucharecipienttoTESOROduringthependencyof
an
internalTESOROinvestigationofquestionableorimproperpayments.
 
Further,TESOROknew
that
suchcourseofbusinessexposedandcontinuestoexposematerialassetsofthecompanyto
a
signiflCantandcontipuingrisk
ofloss.
TESORO
has
failedtomaketimelyandadequatedisclosureof
thiscourseofbusiness,
theunaccountabilityofsuchpayments,andtheparticular
risk
that
such
courseof
businessposestomaterialassetsandrevenuesofthecom-pany.
11.Mpart
of
such
conduct,
Defendant
TESORO
(1)
madeandkeptbooks,recordsandaccountswhichfailed
in
reasonabledetailtoaccumtelyandfairlyreflectthetrans-actions
and
dispositionsofTesoro'sassets;
and
(2)
madetransfersanddisbursementswithoutadequaterecordsand
controls
sufficienttoinsure
thatsuch
transfers
and
dis·bursementswereactuallymadeforthepurposesindicatedandwithoutadequaterecordsandcontrols
to
documentwhetherthe
services
providedtherefor,ifany,were
com-
mensurate
with
the
amountspaid.
12.
.As
part
of
said
conduct,sinceatleast1974
De-
fendantTESOROthroughtheparticipationoftheChair-manof
itsBoard,RobertV.West
("West")hascausedpaymentsandloanstotallingapproximately$460,500tobemadetooronbehalfofentitiesassociatedwithJamesL.Morgan("Morgan"),a'''finder/consultant''whoasslstedTESORO
In
obtainingcertainforeignoiland
gas
eon-cessionsfromaforeigngovernment.lhesepaymentsweredisproportionatetothebusinessobtainedortheservicesrendered.werenotusualorcustomary,andweremadeundercircumstancesindicatlngthat
the
funds,inwhole·or
in
part,
mayhavebeentransferreddirectlyorindirectlytoforeigngovernmentofficials.TESORO
was
andcontinues
to
beunable
toaccountfororsatiSfyitselfasto
the
final
dispositionofsuchcorporatefunds.13.
Of
the$460,500paidbyTESORO
in
connection
with
itssuccessfulsigningofaproductionsharingcontract
with
aforeigngovernment
in
1974,$200,000
in
cash
was
paidtoMorganwhenWestdeliveredtoMorgan,and
im·
mediatelythereafterassistedMorgan
in
cashing,aTESOROcheckpayabletoaforeignentity
in
whichMo{gatl
was
apartner.Afterthecheck
was
cashed,tile$200,000incash
was
delivered
by
MorgantoMorgan'shomewhereanofficialofthenationaloilcompanyofthecountryinvolved
was
waiting.
WestaccompaniedMorgantoMorgan'shomeandmetwiththe
offiCial
ofthenationaloilcompany.Morganhad
nreviously
requested
that
WestbringthecheckforMorganonadatetocoinCidewithtile
visit
ofthe
official
ofthenationaloilcompany.14.
As
afurtherpartofsaidconduct,West,inperson·
ally
arrangingforthedraftingofthecheckandforthebanktohavesufficientmoneyonhandtoeash
it,
departedfromnormalTESOROaccountingprocedures.TESORO'ssenioraccountingfinanceofficerswerenotinformedofthetransactionsuntiltheywerenotified
by
thebank'sVicepresidentthatthecheckhadbeencashed.Westinformed
the
TESOROexecutivecommitteeofthecircumstancesof
the
payment
only
after
it
hadtakenplace.The
full
TES·
ORO
Boardwas
not
infODDedof'
thefacts
orcircum-
stances
ofthe
payment
until
later.
1S.
In
1974,
in
connectionwiththesuccessfulsigningofthisproductionsharingcontract,TESORO.inaddition
to
the
$200,000
directpaymenttoMorgan,arrangedandgual11llteeda$200,000bankloan
to
aUnitedStatesentitycontrolled
by
Morgan
as
additionalpaymentforMorgan's"consultingservices,"Thenotebecamepastdue
in
Decem-
bet
1977
andsubsequentlyTESORO,under
its
guarantee,paidthenoteplus560,500ininterestwhenMorgande-faulted
on
thenote,16.TESOROaccountedfor
this
payment
as.
aloanguarantee.However,
within
atleast
three
monthsofthe
loan,Westdoubted.
very
much
that
Morgan
would
ever
repay
the
noteandinstIUctedTesoro'saccountingper-
sonnel
to
establish
areserveforthe
note
on
TESORO's
books,
17.
As
further
part
of
said
conductbetweenDecember1973andSeptember1974.TESOROpaid$120,000toaconsultantinconnectionwith.anapplicationto
dobusiness
in
another
foreigncountty.and
in
connectionwithsub-sequentapplications
by
TESOROtodobusiness
in
that
countryandarefineIyjointventure.Thesepayments,made
pUlSllant
to
an
agreementbetweentheconsult-antandTESOROw~hprovided
that
theconsultantwould
be
paid$10,000monthlyforone
year,
were
dis-
proportionateto
the
businessobtainedorthe'services
rendered.werenot
usual
orcustomary,
andweremadeundereireumstaneesindicating
that
thefunds.inwholeor
in
part.
mayhavebeenpassedontogovernmentofficials.TESOROwasandcontinuestobeunabletoaccountfororsatisfyitselfastothefinaldispositionofsuchcorporatefunds.
·18.
On
December6,
1973,
duringtheperiodwhenTESORO'sapplicationto
do
business
was
pending,TES-OROconveyed$30,000toabankaccountofthecon-sultantataUnitedStatesbankaspaymentforthefirstthreemonthsoftheagreementreferredto
in
plll11graph17
above.
In
January1974.justpriortothetime
that
theconsultantinformedWestthatTESOROwouldsoonbenotlfted
that
ithadqualifiedtobidonexplorationareas,theconsultantpaidadirectorofthenational
on
company$20.000
via
two$10,000checksdrawnon
the
sameU.S.bankaccountto
whicll.
TESOROdepositedtheconsultant's
,

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