Judge Scheindlin Limits Reach Of FCPA Jurisdiction

On Tuesday, Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York dismissed all claims asserted against Herbert Steffen, a 74 year old citizen of Munich, Germany and former CEO of Siemens S.A. Argentina (“Siemens”), a German company, in connection with a scheme to bribe Argentine officials.  Specifically, the complaint alleged that, through relationships with people in Argentina, Steffen facilitated Siemens’ agreement to pay various officials within the Argentine government approximately $100 million to obtain a contract in connection with the country’s national identity card project and other payments to cover up the initial bribes.

The SEC argued that the district court had specific jurisdiction over Steffen, asserting that the impact his conduct had on the accuracy of the company’s U.S. securities filings satisfied the requirement of In re Astrazeneca Sec. Litig., which provides that specific jurisdiction demands that the defendant has “purposefully directed his activities towards the forum and the litigation arises out of or is related to the defendant’s contact with the forum.”

The district court, applying the minimum contacts and reasonableness analysis of International Shoe,  rejected the SEC’s argument, observing that personal jurisdiction over Steffen under the SEC’s theory would subject to the jurisdiction of U.S. courts “every participant in illegal action taken by a foreign company subject to U.S. Securities laws.”  Rather, Judge Scheindlin distinguished prior cases, noting that jurisdiction is clearly established where an executive of a foreign issuer participates in a fraud “directed to deceiving” US shareholders, such as signing or directly manipulating financial statements to cover up illegal foreign conduct knowing that such will be relied upon by US investors.  By contrast, jurisdiction over Steffen was based exclusively upon the effect of his conduct in Argentina on the accuracy of statements made by others in US securities filings.  The court found such to be too much, noting that exercise of jurisdiction in that manner “is in need of a limiting principle” and required, at minimum, allegations that the defendant played a role in preparing a false report or covering up the illegal conduct from reporting.

Finally, the court concluded that personal jurisdiction over Steffen would be unreasonable.  Specifically, the court noted that his advanced age (74), poor English, and the lack of interest the United States has in adjudicating allegations of bribes by a foreign company in Argentina “all weigh against personal jurisdiction.”  The court also noted that the SEC has already obtained significant remedies from Siemens and that the need for relief against Steffen was not compelling.