Maxwell Technologies Settles with SEC and DOJ

31 January 2011 Publication

On January 31, 2011, Maxwell Technologies Inc., a manufacturer of energy-storage and power-delivery products based in San Diego, agreed to settle FCPA charges with the United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC) for fines and penalties totaling approximately $14.3 million. The settlement related to the payment of bribes to Chinese government officials in order to win sales to state-owned manufacturers of electric-utility infrastructure in several Chinese provinces.

According to court documents,Maxwell’s wholly owned Swiss subsidiary, Maxwell S.A., engaged a Chinese agent to sell Maxwell’s products in China. From at least July 2002 through May 2009, Maxwell S.A. paid more than $2.5 million to its Chinese agent to secure contracts with Chinese customers. The agent, in turn, used this money to bribe officials at state-owned entities to secure these contracts. Maxwell S.A. paid its Chinese agent approximately $165,000 in 2002 and increased the payments to the agent to $1.1 million in 2008. In its books and records, Maxwell mischaracterized the bribes as sales-commission expenses.

According to the SEC Complaint, Maxwell’s U.S. Management discovered the bribery scheme in late 2002. The payments were allegedly made with the knowledge and tacit approval of certain former Maxwell officials. For example, the complaint alleges that former management at Maxwell knew of the bribery scheme in late 2002, when an employee indicated that a payment made in connection with a sale in China appeared to be "a kick-back, pay-off, bribe, whatever you want to call it, . . . . in violation of US trade laws." A U.S.-based Maxwell executive replied that "this is a well know[n] issue" and he warned '[n]o more emails please.'"

Under the terms of the agreement with the DOJ, Maxwell agreed to enter into a deferred prosecution agreement for three years. Maxwell also agreed to pay an $8 million criminal penalty and to implement an enhanced compliance program. Maxwell will also report to the DOJ periodically concerning its compliance efforts and will cooperate with the DOJ in ongoing investigations.

In order to settle with the SEC, Maxwell consented to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $5,654,576 in disgorgement, and $696,314 in prejudgment interest to be paid in two installments over one year.

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