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It's All Good For Sun

In May, a month after it agreed to be acquired by Oracle for $7.4 billion, Sun Microsystems said it may have violated the Foreign Corrupt Practices Act and that the violations could have a material effect on its business. It launched an internal investigation and shared the results with the Justice Department and the Securities and Exchange Commission. See our post here.

Now it looks like a false alarm after all. Sun's latest SEC filing, a Definitive Merger Proxy dated June 8, 2009 (Schedule 14A), says this:

Section 4.13. Compliance with Applicable Law.

(a) The Company and each of its Subsidiaries is and, since June 30, 2006 has been, in compliance in all material respects with all Applicable Laws and Orders. Neither the Company nor any of its Subsidiaries has received any written notice since June 30, 2006 (i) of any administrative, civil or criminal investigation or audit by any Governmental Authority relating to the Company or any of its Subsidiaries or (ii) from any Governmental Authority alleging that the Company or any of its Subsidiaries are not in compliance with any Applicable Law or Order in any material respect.

And a little later in the merger document, Sun represents to Oracle that without exception it has "complied with the U.S. Foreign Corrupt Practices Act of 1977 and other applicable anti-corruption laws." (see Section 4.24)

So, no FCPA violations and no notice from the DOJ or SEC of any investigations. A clean slate.

Not many internal FCPA investigations end this way. More often -- usually, in fact -- they start because of apparently reliable signs of compliance trouble. So most investigations end up confirming that yes, violations occurred -- usually beyond the scope of initial concerns. Sun's outcome, therefore, isn't typical.

What happened here? Sun isn't saying. But the timing may not have been accidental. Did anonymous internal whistleblowers opposed to Oracle's acquisition file false complaints? It's happened before. Or did outsiders upset by any potential disturbance in Sun's pivotal and hallowed role in the open-source community try to torpedo the deal by tossing false allegations into the mix -- perhaps posing as third-party agents working for Sun overseas? Twisted, but possible.

Wherever the allegations came from, Sun made all the right moves. It responded fast with a proper internal investigation, self-reports to the feds, and full disclosure to the marketplace. After all that, it came up with goose-eggs, nada, nichts, nothing. Compliance program and corporate integrity in tact. Great result. Congratulations to Sun.

Time to move on.

Before we all scatter, though, one last question. Could Sun's statements above from its merger proxy be wrong? Might it still have FCPA problems it isn't disclosing just yet? Not likely.

Sun would have been careful about that, remembering the Lockheed Martin / Titan case from 2005. Those companies in 2003 planned to merge. During due diligence, Titan was found to have serious FCPA compliance issues. Before Lockheed Martin terminated the merger, Titan had already filed an 8-K disclosure document with the SEC that included a proxy form with the merger agreement attached to it. That merger agreement, like Sun's, contained an unqualified representation by Titan to Lockheed Martin affirming FCPA compliance. But the representation later proved to be untrue.

The SEC took the position that the 8-K was a "communication with shareholders" by Titan and that a reasonable investor could have relied on the untrue FCPA representation. On that basis, shareholders could sue.

Titan's was a well-known mistake Sun would be anxious not to repeat.
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Full post as published by The FCPA Blog on June 16, 2009 (boomark / email).