For any exporters who may be thinking of ignoring prior export violations hoping that no one will find out, this SEC filing and its tale of a whistleblower might give them an occasion for pause. Law Enforcement Associates just disclosed in an 8-K filed with the SEC that a former executive that the company had dismissed had charged the company with export violations.

The charges by the former executive, Mr. Paul Feldman, are contained in a letter that Feldman filed with the Department of Labor in connection with his dismissal. According to that letter, Law Enforcement Associates appears to have sold items to a company called Safesource for export to the Dominican Republican. Thereafter, Feldman learned that John Carrington, a former owner of Law Enforcement Associates, was a 50 percent owner of Safesource. That was problematic, according to Feldman’s letter, because Carrington was subject to a BIS denial order.

Feldman, another company director and company counsel then contacted the BIS agent that had investigated Mr. Carrington to inform the agent of the exports and its discovery that Carrington was involved in the exports. A week later federal agents raided Safesource.

Three other directors at Law Enforcement Associates, who Feldman alleges were friends of Carrington, became upset about the disclosures to federal authorities. They fired the company’s general counsel who had met with the BIS agent and replaced him with the personal attorney of one of the three Board members. The three directors also sought to have Feldman tell them what he had said to the BIS agent. When Feldman refused, claiming that the three other directors were leaking information about the matter to Carrington, the newly-appointed general counsel, according to Feldman’s letter, called the BIS agent “demanding” that he reveal what Feldman had told the government. Not surprisingly, the BIS agent is said to have told the new general counsel to “tread lightly.” (Practice note to budding export lawyers: this was not a good move by the new general counsel.) Feldman was later fired by a vote of the three directors.

Notwithstanding the ill-advised board-room theatrics — it’s generally a bad idea to try to shut down a company official trying to report export violations — it’s not clear that an export violation by the Company even occurred here. Of course, as regular readers are aware, I do not believe that BIS has the authority to impose general denial orders under the International Emergency Economic Powers Act, BIS’s current governing statute. Even if BIS did have that authority, the portion of the Denial Order that deals with actions by third parties, such as Law Enforcement Associates, would prohibit Law Enforcement Associates from assisting the Denied Person from acquiring any item to be exported from the United States. Here, the items exported were acquired by Safesource, which was not a Denied Person, and not by Carrington, who was.

Law Enforcement Associates disputes the claims made in the Feldman letter and states its belief that the allegations are simply an “attempt by a disgruntled former executive to seek retribution from the Company.”

Stay tuned. I don’t think this show is over yet.

Permalink


Copyright © 2009 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)