Sun Microsystems, which is in the middle of a $5.6bn acquisition by software giant Oracle, said in its 10-Q quarterly financial filing with the Securities and Exchange Commission that it may have broken bribery laws overseas. The 10-Q filing also put some numbers on what Sun will have to pay if the Oracle acquisition does not go through.
Sun was pretty vague in the filing about exactly what was going on and where, but it said in the legal proceedings section (which appears in all 10-Q and 10-K reports for major companies because they are usually suing or being sued) that during fiscal year 2009 (which ends this June) it "identified activities in a certain foreign country that may have violated the Foreign Corrupt Practices Act."
You can learn all you want about the FCPA here at the DoJ site set up specifically for it. But in short, the FCPA was passed in 1977 after more than 400 companies admitted to shelling out more than $300m in bribes to foreign government officials, politicians, and political parties in the mid-1970s. The law was updated in 1988 and again in 1998, and it basically says you can't bribe foreign officials as a way of keeping business. The DoJ is the enforcer of the law and works hand-in-hand with the SEC to investigate allegations of bribery.
"We recently made a voluntary disclosure with respect to this and other matters to the Department of Justice (DOJ), Securities and Exchange Commission (SEC) and the applicable governmental agencies in certain foreign countries regarding the results of our investigations to date," Sun wrote in the 10-Q filing. "We are cooperating with the DOJ and SEC in connection with their review of these matters and the outcome of these, or any future matters, cannot be predicted. The FCPA and related statutes and regulations provide for potential monetary penalties, criminal sanctions and in some cases debarment from doing business with the U.S. federal government in connection with FCPA violations, any of which could have a material effect on our business."
According to a report at Reuters, Oracle was privy to the information about the bribery allegations and the subsequent investigation prior to making its bid to acquire Sun on April 20. The Wall Street Journal also has an Oracle spokesperson saying the company knew about the issue.
Sun's filing also touches on the merger agreement announced on April 20, where Oracle agreed to shell out $9.50 per share to acquire Sun (the document calls it a merger, but get real). If the deal doesn't go through, the filing said, Sun might be liable to pay a termination fee of approximately $260m and, in certain circumstances, might be responsible for covering Oracle's out-of-pocket expenses relating to the merger agreements up to an additional $45m. ®