Saturday, April 18, 2015

Lockheed Martin Wants Out of 40-Year-Old Disclosure Order

By Anne Sherry, J.D.

Nearly 40 years ago, the SEC obtained an order requiring Lockheed Aircraft Corporation to, among other undertakings, file a Form 8-K at least 10 days before revising its anti-corruption policies. Lockheed Martin Corporation, as the successor now bound by that order, is asking a district court to relieve it of that requirement. The SEC does not oppose the motion (SEC v. Lockheed Aircraft Corp., April 15, 2015).

Final judgment. The SEC filed bribery-related charges against Lockheed Aircraft in 1976. The company settled without admitting or denying the allegations and, as part of that settlement, consented to the requirement that it file advance notice of any changes to its anti-corruption policies and procedures.

Subsequent developments. Rules implementing the Sarbanes-Oxley Act now require public companies to either post their codes of ethics on their websites or include them as an exhibit to an annual report. Lockheed Martin elected to make its code of ethics and certain other policies, including its more specific anti-corruption policy, available on its website. The company’s motion points out that it is still bound by the 1976 judgment to file a Form 8-K before making any changes to its anti-corruption policies, even though its website disclosure complies with the SOX rule.

Lockheed is asking the district court to relieve it of that requirement under Federal Rule of Civil Procedure 60(b). Both requirements of the Supreme Court’s flexible Rufo v. Inmates of Suffolk County Jail (1992) standard are met, Lockheed avers, in that there have been significant changes in factual conditions and in the law, and the proposed modification is suitably tailored to those changes. The Internet is the major technological advancement that was not foreseen when the judgment was entered, and the SEC’s rule on public disclosure of codes of ethics permits website disclosure as an alternative to filing.

Relief requested. In these circumstances, Lockheed argues, the requirement to file a Form 8-K disclosing changes to the anti-corruption policies has been superseded by the recognition of corporate websites as an effective means for public disclosure. Lockheed also notes that the final judgment requires disclosure even of non-substantive changes that the SOX rule expressly exempts. For example, it was required to file a Form 8-K last year when the attorney who had previously been responsible for the anti-corruption policies retired.

Furthermore, the modifications that Lockheed is requesting are tailored to the changed circumstances. For one, the proposed modification would clarify that the policies and procedures at issue apply to payments prohibited by the Foreign Corrupt Practices Act, which was enacted after the final judgment was entered. Second, the changes would require Lockheed to disclose revisions to its code of ethics (which prohibits payments that violate the FCPA) in accordance with the SEC’s rules implementing SOX Section 406.

The case is No. 76-0611.