Vancouver-based energy firm Westport Fuel Systems Inc. has reached a settlement with the U.S. Securities and Exchange Commission, which claimed the company engaged in bribery of a Chinese government official.
Westport and its former chief executive officer Nancy Gougarty made no admission or denial of the commission’s findings under the settlement; however, the company agreed to pay a total fine of $4,046,000 and Gougarty agreed to pay a $120,000 fine for their involvement in the bribery scheme.
Westport, through Gougarty and others, “engaged in a scheme to bribe a Chinese foreign government official … to obtain business and a cash dividend payment from Westport’s Chinese joint venture,” stated an SEC order issued Sep. 27.
In a statement of facts, the SEC outlined how Westport and Gougarty violated the Exchange Act and the Foreign Corrupt Practices Act.
The bribery scheme — as stated by the SEC order issued Friday — started in March 2013 with a Chinese government official proposing to take the joint venture named Weichai Westport Inc. public. The official worked for the Chinese state-owned company that was Weichai’s largest shareholder (Westport owned 35 % of Weichai). The official falsely claimed to Westport the public offering depended on a transfer of shares from Westport to a Chinese private equity firm, for which the official held a financial interest. Gougarty’s Asia Pacific manager became aware of this and reported it to her. However, Gougarty falsified company records and kept the information hidden from Westport’s board, the SEC order states.
And so, in exchange for the sale of low-valued shares to the private Chinese equity firm, Westport, “through Gougarty and others,” believed that the official would use his influence to cause Weichai to authorize an increased dividend payment of $3.5 million to Westport as well as to execute a supply agreement between Weichai and Westport, which was hemorrhaging money.
Although Weichai never went public, a sale of shares nonetheless took place.
Westport issued a news release Aug. 22, 2016, claiming it had sold 11.7% of Weichai for $7.2 million to Weichai Holding Group Co., Ltd. and an “additional undisclosed purchaser.” Associated with the sale was the sought-after $3.5 million dividend and supply agreement between Westport and Weichai.
It’s not stated how much the Chinese official profited, or if he did.
“Westport also failed to devise and maintain a sufficient system of internal accounting controls, and Gougarty was a cause of this violation,” the SEC stated in its order. “Gougarty knowingly circumvented the internal accounting controls that Westport did maintain.”
Westport has agreed to undertake corrective efforts of its anti-corruption and financial reporting compliance programs, according to the SEC. The company has also agreed to report to the SEC for two years to provide updates on its compliance and due diligence measures.
The sale of shares took place with the company aiming to improve its liquidity. Westport has an accumulated deficit of $998 million and recorded a net loss of $31.5 million last year, 2019 audited statements show.
Gougarty replaced founding CEO David Demers a month before the share sale occurred (she was chief operating officer prior to becoming CEO). She resigned last January with no mention from the company of the SEC investigation.
Gougarty’s Jan. 14 retirement agreement with the company included 1.74 million shares (valued at $2.3 million at the time), $585,000 cash and $106,250 vacation pay, company records show.
Westport, which works on low-carbon natural gas delivery systems, is listed on the Nasdaq, which is regulated by the SEC. It is also listed on the Toronto Stock Exchange.
It’s unknown if Canadian regulators or police will sanction or criminally investigate Westport’s actions. The B.C. Securities Commission claimed in an email Monday that “the SEC’s action is a great example of the BCSC [BC Securities Commission] cooperating with a securities regulator in another jurisdiction to effectively and efficiently enforce the law.” It didn’t elaborate what the BCSC did.
While the B.C. RCMP confirmed its division is not investigating, the BCSC said it can neither confirm nor deny an investigation.
Canada has the Corruption of Foreign Public Officials Act, which prohibits Canadian entities from bribing foreign officials. Federal RCMP headquarters did not respond to Glacier Media’s questions on Monday.