Two former executives at Hungarian-based telecommunications company Magyar Telekom have agreed to pay financial penalties and accept officer-and-director bars to settle a previously-filed SEC case alleging they violated the Foreign Corrupt Practices Act (FCPA).
According to the SEC’s complaint, the company’s former CEO Elek Straub and former chief strategy officer Andras Balogh orchestrated the use of sham contracts to funnel millions of dollars in corrupt payments. The payments, occurring in 2005 and 2006, went to government officials in the Balkan nations of Macedonia and Montenegro. They were designed to shut out competition in the telecommunications industry.
Magyar Telekom’s subsidiaries in Macedonia made illegal payments of approximately $6 million under the guise of bogus consulting and marketing contracts. The same scheme was executed in Montenegro, where $9 million in payments were made.
For their parts in the scheme, Straub agreed to pay a $250,000 penalty and Balogh agreed to pay a $150,000 penalty. Both executives agreed to a five-year bar from serving as an officer or director of any SEC-registered public company. The settlements are subject to court approval.
“The executives in this case were charged with spearheading secret agreements with a prime minister and others to block out telecom competitors,” said Stephanie Avakian, acting director of the SEC’s division of enforcement. “We persevered in order to hold these overseas executives culpable for corrupting a company that traded in the U.S. market.”
Magyar Telekom paid a $95 million penalty in December 2011 to settle parallel civil and criminal charges related to the case. Deutsche Telekom, Magyar Telekom’s parent company, was charged with books and records and internal controls violations of the FCPA. Deutsche settled the SEC’s charges in 2011 as part of a non-prosecution agreement with the Department of Justice. It agreed to pay a penalty of $4.36 million.
A third Magyar Telekom executive charged in the SEC’s complaint, former director of business development and acquisitions Tamas Morvai, agreed to a settlement that was approved by the court in February. He was required to pay a $60,000 penalty for falsifying the company’s books and records in connection with the bribery scheme.
Straub and Balogh were set to stand trial this month.