Will US Justice Department Try to Wreck Smith & Wesson?

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LanceOregon

Moderator
Lawyers acting on the behalf of investors in Smith & Wesson have announced an investigation into potential breaches of fiduciary duties by the board of directors and other company executives.

In January of this year, the US Justice Department arrested many gun industry officials in a sting operation. Those arrested were accused of “conspiring to pay bribes for supply contracts” to an undercover FBI agent posing as a representative of an African nation. These acts constitute potential violations of the Foreign Corrupt Practices Act (FCPA). One of the defendants in this pending case is Smith & Wesson's Vice President of sales for their International & U.S. Law Enforcement division.

A conviction in this crime has the potential of the Justice Department being able to bar Smith & Wesson from bidding on future US government law enforcement or military contracts. In addition, the US State Department could potentially bar Smith & Wesson from engaging in any foreign sales to governments as well.

If this were to happen, and Smith & Wesson stock were to plummet as a result, stockholders could then sue the Board of Directors and members of management for allowing these corrupt practices to take place. This is why this investigation has now been announced, to prepare for such a potential lawsuit, if the worst case should happen to Smith & Wesson.

What do you think? Would the US Justice Department really go after one of America's leading gun manufacturers in this manner? Or would fear of a political fallout prevent that?

Or could this whole FBI sting operation have been politically motivated in the first place, to make American gun makers look bad, and be able to harm them?

Sting operations have always bothered me to some degree, as I believe that they have some potential for abuse.

What do you think?

Here is a detailed report about this matter:

http://pr-usa.net/index.php?option=com_content&task=view&id=462454&Itemid=99999999

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If the alleged bribery attempt was limited to the one sales executive, I doubt the Justice Department would go after SW, assuming SW is cooperative with the Justice Department. If SW stonewalls or Justice determines there is a corporate culture fostering these practices, then Justice might take steps against SW.

And, to put things in perspective, General Electric recently settled charges that it violated the same law by paying $23 million. http://www.law.com/jsp/article.jsp?id=1202463966930. Years ago, it paid $69 million for defrauding the Pentagon. http://www.corpwatch.org/section.php?id=16. That hasn't stopped GE from selling lots of jet engines to the U.S. (and other products) and I don't suspect the latest action will either. Similarly, I don't think Justice will go after SW if the company plays ball.
 
The sting netted 16 indictments thus far, and the NY Times article indicates the DOJ isn't finished by any means. More indictments are likely to follow. It's not just S&W, but apparently a number of manufacturers. This is a move to set an example.

DD
 
Stings are touchy. They always smell a bit of entrapment. John DeLoreans case was a good example. How much was invested there that in the end, resulted in nothing.
 
KyJim said:
And, to put things in perspective, General Electric recently settled charges that it violated the same law by paying $23 million. http://www.law.com/jsp/article.jsp?id=1202463966930. Years ago, it paid $69 million for defrauding the Pentagon. http://www.corpwatch.org/section.php?id=16. That hasn't stopped GE from selling lots of jet engines to the U.S. (and other products) and I don't suspect the latest action will either. Similarly, I don't think Justice will go after SW if the company plays ball.
Click to expand...

I agree with the last sentence. However, understand who is the Chairman and CEO of GE; Jeffrey Immelt. Who happens to be one of our Presidents friends and advisors, so that might have helped with the charges that were just settled. Maybe?:D

But I'm sure the company will cooperate, and the person who caused the infraction will take the heat, SW will get their hands slapped. At least I hope that is what happens.
 
16 indictments. I seem to recall something about indictments and ham sandwiches. I have zero confidence in our current Justice Dept to do the right thing, I would be very surprised if more than a few of them went all the way to conviction.
 
The DOJ has a success rate of about 90%, give or take, when pursuing prosecutions. Regardless of one's personal opinions about the ease of obtaining a federal grand jury indictment, once Justice has its sights set on you, the odds are stacked heavily against you.

I know nothing about the particulars or merits of these particular individual cases, but FCPA has a well-established body of case law and it's unlikely that there will be any sort of novel defense in this case. I'd be shocked if any of these cases proceeds to trial - I believe we are far more likely to see a great number of the defendants cooperate with DOJ, and hefty fines levied against the firms involved.

At face value, one must also consider the nature of the transactions - large sums of cash are involved. Claiming that these large sums of cash are being paid personally by low level employees without the knowledge and support of company management is patently absurd.

Is the DOJ exploiting this to squeeze arms makers and possibly attempt to put them out of business? Maybe, and probably even likely. However, if you don't want to get squeezed, don't involve yourself in business transactions that might violate FCPA. It is certainly something anyone accustomed to dealing with foreign entities in economic transactions should be well acquainted with.
 
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