Sec. & Exch. Comm'n v. Jackson

• Decision Date: 11 December 2012
• Docket Number: Civil Action No. H–12–0563.
• Citation: 908 F.Supp.2d 834
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Mark A. JACKSON and James J. Ruehlen, Defendants.
• Court: U.S. District Court — Southern District of Texas

908 F.Supp.2d 834

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Mark A. JACKSON and James J. Ruehlen, Defendants.

Civil Action No. H–12–0563.

United States District Court,

S.D. Texas,

Houston Division.

Dec. 11, 2012.

Kenneth W. Donnelly, Alfred Arthur Day, Sharan Custer, Securities & Exchange Commission, Washington, DC, for Plaintiff.

David S. Krakoff, Adam Miller, James T. Parkinson, Lauren R. Randell, Paige Ammons, BuckleySandler LLP, F. Joseph Warin, Brian C. Baldrate, Jeremy Joseph, John H. Sturc, Gibson Dunn and Crutcher LLP, Washington, DC, David Gerger, Samy K. Khalil, Gerger Clarke, Houston, TX, Kristopher P. Diulio, Nicola T. Hanna, Gibson Dunn and Crutcher, LLP, Irvine, CA, for Defendants.

MEMORANDUM AND ORDER

KEITH P. ELLISON, District Judge.

Pending before the Court are Defendant Mark A. Jackson's (“Jackson”) Motion to Dismiss the Complaint UnderRule 12(b)(6) for Failure to State a Claim Upon Which Relief Can Be Granted (Doc. No. 35), and DefendantJames J. Ruehlen's (“Ruehlen”)Motion to Dismiss Plaintiff's Complaint for Failure to State a Claim (Doc. No. 36).After considering the parties' filings, all responses and replies thereto, and the applicable law, the Court finds that the Defendants' Motions should be GRANTED IN PART and DENIED IN PART.

I.BACKGROUND

The Securities and Exchange Commission(“SEC”) filed this enforcement action against former and current officers of Noble Corporation(“Noble”).(Compl. ¶ 1.)Noble is an international provider of offshore drilling services and equipment.(Compl. ¶ 1.)Noble and its wholly owned subsidiary, Noble Drilling (Nigeria) Ltd. (“Noble–Nigeria”), operate in Nigeria.(Compl. ¶ 1.)Between January 2003 and May 2007, Noble–Nigeria had up to seven drilling rigs that operated offshore in Nigeria.(Compl. ¶ 18.)To operate drilling rigs offshore in Nigeria, the Nigerian laws require the owner of the rig to either pay permanent import duties or obtain a Temporary Import Permit (“TIP”).(Compl. ¶¶ 18–20.)

TIPs allow drilling rigs to operate in Nigerian waters without payment of permanent import duties.(Compl. ¶ 18.)Under Nigerian law, the Nigeria Customs Service (“NCS”) grants TIPs for rigs that will be in the country for only one year.(Compl. ¶ 19.)NCS may, in its discretion, grant up to three six-month extensions to a TIP.(Compl. ¶ 20.)Upon the expiration of a TIP and any TIP extensions, NCS requires the rig to be exported from Nigeria.(Compl. ¶ 20.)If the owner of the rig wishes to continue using the rig after the expiration of a TIP and any applicable extensions, he can either convert the rig to permanent import status and pay the appropriate permanent import duties, or he can export the rig and seek a new rig TIP to re-import the rig.(Compl. ¶ 20.)In order to obtain a TIP or an extension, the rig owner must submit an application through a licensed customs agent; NCS does not deal directly with rig owners.(Compl. ¶ 21.)

Noble's standard procedure in applying for TIPs and TIP extensions would involve obtaining a price proposal from a customs agent detailing the costs associated with obtaining the new TIP or extension.(Compl. ¶ 23.)The proposals would indicate those charges that did not have any supporting documentation by labeling them as “special handling” or “procurement.”(Compl. ¶ 23.)Noble's FCPA policy required such unreceipted payments to foreign government officials to be pre-approved in writing by the CFO.(Compl. ¶ 24.)Once the CFO approved the unreceipted payments, the customs agent would be authorized to pay the Nigerian government officials in accordance with the price proposal.(Compl. ¶ 24.)The customs agent would then submit an invoice to Noble reimbursing him for the money paid to the Nigerian government officials.(Compl. ¶ 25.)

The SEC alleges that Noble and Noble–Nigeria authorized a customs agent to pay bribes to Nigerian government officials in order to obtain false documentation Noble–Nigeria needed to obtain TIPs.(Compl. ¶¶ 18, 19, 22–27.)Additionally, the SEC alleges, Noble and Noble–Nigeria, through a customs agent, paid bribes to Nigerian government officials for TIP extensions.(Compl. ¶ 31.)In this action, the SEC charges Jackson and Ruehlen with multiple violations of the Foreign Corrupt Practices Act (“FCPA”), and other federal securities laws in connection with actions they allegedly took to obtain TIPs and TIP extensions in order to avoid paying permanent import duties.(Compl. ¶¶ 2–4, 150–177.)

Specifically, Jackson and Ruehlen are alleged to have approved numerous “special handling” and “procurement” payments to Nigerian government, understandingthat all “special handling” and “procurement” payments were bribes to government officials to obtain false paperwork necessary to secure TIPs or to obtain discretionary TIP extensions.¹(Compl. ¶ 24.)Consequently, the SEC avers Jackson and Ruehlen both violated Section 30A of the Securities Exchange Act of 1934(“Exchange Act”), 15 U.S.C. § 78dd–1. (Compl. ¶¶ 151–152.)Furthermore, through this conduct, Jackson and Ruehlen also aided and abetted Noble's violation of Section 30A of the Exchange Act, in violation of Section 20(e) of the Exchange Act,15 U.S.C. § 78t(e).(Compl. ¶¶ 155–156.)Moreover, the SEC contends, Jackson and Ruehlen allowed these payments repeatedly to be posted on Noble's books as legitimate operating expenses.(Compl. ¶¶ 95, 111, 113, 119.)In so doing, Jackson and Ruehlen aided and abetted Noble's violation of Section 13(b)(2)(A) of the Exchange Act,15 U.S.C. § 78m(b)(2)(A), which requires Noble to keep books and records that accurately reflect its transactions, and Noble's violation of Section 13(b)(2)(B) of the Exchange Act,15 U.S.C. § 78m(b)(2)(B), which requires Noble to devise and maintain a system of internal controls that provides reasonable assurances that transactions are executed in accordance with management's general or specific authorizations, in violation of Section 20(e) of the Exchange Act,15 U.S.C. § 78t(e).(Compl. ¶¶ 158–163.)Additionally, because Jackson and Ruehlen knew these actions violated an Audit Committee resolution, and because Ruehlen frequently authorized these unreceipted TIP-related payments to government officials without pre-approval from the CFO, Jackson and Ruehlen's actions amounted to a knowing circumvention of Noble's internal accounting controls, in violation of Section 13(b)(5) of the Exchange Act,15 U.S.C. § 78m(b)(5), or, at a minimum, Jackson and Ruehlen, at least indirectly, caused Noble's books and accounts to be false, in violation of Exchange Act Rule 13b2–1,17 C.F.R. § 240.13b2–1. (Compl. ¶¶ 165–167.)

The SEC also alleges several violations against Jackson alone.(Compl. ¶¶ 168–177.)In representing to auditors that he was unaware of any FCPA violations or violations of law, Jackson violated Exchange Act Rule 13b2–2,17 C.F.R. § 240.13b2–2. (Compl. ¶¶ 169–170.)In personally certifying that he had disclosed all significant deficiencies and material weaknesses in the design or operation of internal controls, as required by the Sarbanes–Oxley Act of 2002, Jackson violated Exchange Act Rule 13a–14,17 C.F.R. § 240.13a–14. (Compl. ¶¶ 172–173.)Finally, because Jackson controlled Noble and Ruehlen, the SEC seeks to hold Jackson liable as a control person under Section 20(a) of the Exchange Act,15 U.S.C. § 78t(a), for Noble, Ruehlen's and unnamed others' violations of Sections 30A,13(b)(2)(A)and13(b)(2)(B) of the Exchange Act,15 U.S.C. § 78dd–1,15 U.S.C. §§ 78m(b)(2)(A) and (B).(Compl. ¶¶ 174–177.)

During the relevant time periods, Jackson held numerous, executive-level positions at Noble.(Compl. ¶ 8.)From September 2000 to October 2005, he was the CFO of Noble.(Compl. ¶ 31.)In March 2005, Jackson became the COO of Noble, but continued to act as the CFO until October 2005, when a replacement was found.(Compl. ¶ 101.)In about March of 2006, the CFO stepped down, and Jackson assumed the role of Acting CFO from March 2006 to November 2006, until a new CFO was hired.(Compl. ¶ 8, 114.)In addition to these roles, Jackson also became the president of Noble in February 2006, a Director in July 2006, and CEO in October of 2006.(Compl. ¶ 8.)Jackson resigned from Noble in September 2007.(Compl. ¶ 12.)

As CFO and Acting CFO, Jackson was responsible for Noble's compliance with the FCPA.(Compl. ¶ 9.)The SEC alleges that several events that transpired in 2003 and 2004 put Jackson on notice that Noble was violating the FCPA.(Compl. ¶ 33.)During Jackson's tenure as CFO, in February of 2003, the Nigerian government assessed a penalty against Noble–Nigeria for, among other things, preparing false documents to obtain TIPs.(Compl. ¶ 36.)Additionally, in January of 2004, Jackson also received a company-wide internal audit report regarding FCPA compliance (“FCPA Audit”).(Compl. ¶ 37.)The FCPA Audit indicated that employees did not understand the FCPA, did not comply with Noble's FCPA procedures, and did not get proper approvals before making unreceipted payments to foreign officials.(Compl. ¶ 38.)

The SEC similarly alleges that events that transpired in 2003 and 2004 put Ruehlen on notice that Noble was violating the FCPA.(Compl. ¶ 33.)In 2003 and 2004, Ruehlen worked in Noble's operations and corporate internal audit groups.(Compl. ¶ 15.)During that period, he worked on an audit of the West Africa Division(“West Africa Audit”), which revealed Noble–Nigeria's use of false paperwork and payments of approximately $75,000 every two years in order to obtain improper TIPs.(Compl. ¶ 15, 47.)Ruehlen summarized in writing the penalty Noble–Nigeria had previously paid to the Nigerian government for violation of the TIP laws, Noble–Nigeria's continued use of false pretenses and payments of approximately $75,000 bi-annually to customs agents to obtain TIPs, and the risks associated with continued improper use of the TIP system.(Compl. ¶ 47.)However, the final ...