Did Sempra Energy pass bribes to officials in Mexico to grease construction projects there? Then, when a whistle-blower complaint was filed, did the Securities and Exchange Commission and the Federal Bureau of Investigation permit Sempra to investigate itself by hiring friendly law firms that — of course — exonerated the company?
A lawsuit filed in federal court in late April may shed light on those questions. Rodolfo Michelon, who had a high Sempra accounting position in Mexico, filed suit against the SEC and FBI, stating that they did not respond adequately to information requests under the Freedom of Information Act.
In 2010, Michelon filed a still-pending suit against Sempra, alleging wrongful termination and that the company passed bribes in Mexico, among other things. Later, Michelon filed a whistle-blower complaint with the FBI and SEC incorporating the information about alleged Mexican briberies. However, those two agencies deferred any investigations to law firms hired and paid by Sempra, according to the April suit.
Three law firms exonerated Sempra on the bribery charges, and neither agency conducted its own investigation, according to the suit. Sempra’s vice president and general counsel, Javade Chaudhri, had once been a partner in two of the three firms: Jones Day and Winston & Strawn.
There are two major prongs to the April suit, filed by San Diego lawyers Gary Aguirre and Daniel Gilleon. First, Michelon describes in detail Sempra’s alleged Mexican accounting abuses that he believed had a “high risk of concealing actual bribes to foreign government officials,” in violation of the Foreign Corrupt Practices Act of 1977.
For example, in August of 2007, Michelon got an urgent request to approve a payment of $84,000 to a construction company that would build a fire station in Tijuana. The station was inaugurated in 2007 and soon abandoned. The whole thing “was a ruse to channel funds to government officials employed by the City of Tijuana,” says the suit.
And in 2006, Sempra wanted a piece of land next to its proposed liquefied natural gas plant at Costa Azul, near Ensenada. “Sempra concocted a sham transaction to purchase the land from another purported owner who had died two years earlier,” charges the suit. There was a family living on the property. Under instructions from Sempra, Michelon withdrew the equivalent of $16,000 in pesos for a so-called bond for the Mexican prosecutor’s office, as a first step in evicting the family, according to the suit. Shortly, the family was ousted and the house leveled by a bulldozer driven by a Sempra employee, according to the suit.
In 2010, a Mexican court declared that the family was the rightful owner of the land. That same year, a federal judge in San Diego dismissed the family’s American suit against Sempra, claiming that the charges should be aimed at the Mexican government, not Sempra. Michelon, convinced that the incident smacked of bribery, wanted more information from his employer. Sempra’s private security force escorted him off the property, generating his 2010 suit. Sempra claims Michelon was a “disgruntled employee” trying to “extract money from the company.”
Sempra complained to Michelon’s supervisors in 2006 that his accounting staff was obstructing a $5 million payment to a so-called charitable trust established for Ensenada. Michelon was suspicious. The suit notes that Interfor, an international investigative firm, reported that Sempra was making payoffs to get approvals for the Ensenada operation, and some of the money may have landed in the offshore tax and secrecy havens of the Cayman Islands and Switzerland.
The second prong of the April suit describes how the SEC and FBI allegedly let Sempra’s law firms do the purported digging. The securities agency has a program to “outsource” whistle-blowing complaints originating within major banks and corporations to law firms that will be paid by those entities, says the suit. This is inherently contradictory, because law firms “are obligated to act as zealous advocates of their clients’ interests,” says the suit. So how could those law firms do anything but exonerate their clients?
The FBI refuses to comment. Although he won’t comment specifically on any investigations, a spokesman for the SEC claims, “Our enforcement division does not rely on any company’s internal review, but conducts its own investigations.” But Aguirre and Gilleon produced emails showing that the agencies met repeatedly with Jones Day. The lawyers couldn’t find anything suggesting that either agency interviewed Mexicans.
I question the securities agency’s statement. For some time, in certain circumstances, the SEC has encouraged corporate self-regulation and self-investigation under a precedent set by Seaboard Corporation 11 years ago. The Seaboard precedent was used by the securities agency to let board members of San Diego’s fraud-pockmarked Peregrine Systems off the hook.
In November of 2010, Aguirre attended a conference of securities attorneys in New York City. Congress had recently passed the Dodd-Frank Act, which made sweeping changes in financial regulations. The act would give monetary rewards to whistle-blowers who provide original information to regulators, including the SEC. Many lawyers were concerned about abuses.
The head of enforcement of the securities agency reassured the lawyers. “We’ll have a separate office of the whistle-blower, which will in all likelihood sit in our office of market intelligence, the group that currently handles tips, complaints, and referrals, and…I am sure that it will not be uncommon in the appropriate case to contact the company and indicate that we have received this and have them undertake at least the same kind of initial review that they would currently do.… And then, we’ll analyze and evaluate that effort…and if we feel that it’s been thorough and complete and honest and candid, the likelihood of us independently conducting that review is lessened. (Italics mine.)
In bureaucratese, the securities agency is admitting it does permit companies to do their own investigations. That is probably what happened with Sempra and the charges about Mexican briberies. Now it is up to the court to force the SEC and FBI to cough up more information about this so-called self-regulation. ■