Please ensure Javascript is enabled for purposes of website accessibility

The SEC Changes Its Course with Ralph Lauren

By Andrew Marder - Apr 24, 2013 at 10:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company was fined for bribing officials, but the outcome could have been much worse.

Depending on how often you meet in glass-walled conference rooms, $125 might seem like a lot for a shirt. It pales in comparison, though, to the $1.6 million that Ralph Lauren (RL 1.25%) just agreed to pay to the SEC and Justice Department. The penalty came in light of a revelation that the Polo manufacturer's Argentine subsidiary had bribed Argentinian officials from 2005 to 2009 in order to avoid proper customs protocol.

But the most interesting piece of this story isn't the bribe or the fine, but the way the whole thing played out. Ralph Lauren wasn't accused of bribery -- it discovered it on its own during an internal investigation. By telling the SEC about the malfeasance, the company was able to avoid a larger penalty and sign the first Non-Prosecution Agreement (link opens PDF file), or NPA, regarding a Foreign Corrupt Practices Act, or FCPA, violation with the SEC.  

Seriously, don't sue us
In announcing the outcome, the SEC said, "When they found a problem, Ralph Lauren Corporation did the right thing by immediately reporting it to the SEC and providing exceptional assistance in our investigation." That led to the company being punished less than it would have been if the discovery had come from an external party, or if Ralph Lauren hadn't participated fully.

In addition to its lighter fee, the SEC also agrees not to pursue any additional enforcement against Ralph Lauren, regardless of what new information comes to light through the rest of the investigation. That gives the company a good reason to participate fully with investigators, as the digging goes on.

Compare the kid-glove treatment that Ralph Lauren is getting with the $15 million penalty -- along with millions more in related penalties -- that Pfizer (PFE 3.59%) agreed to pay in 2012 for its bribery issues. The company was found to have acted inappropriately in its international expansion, bribing doctors and government officials.

The odd part is that Pfizer also worked well with the SEC, according to the agency. It also discovered the issue during an internal audit, and it also volunteered information. But Pfizer's FCPA violation didn't result in a NPA being signed. The more recent move from the SEC may signal that the government is going to be more willing to work with companies in the future, if they agree to play nice.

What's next
The expansion of NPAs into the foreign space may be a useful tool for an understaffed SEC. It gets a result of some sort without requiring all the costs and hours associated with a drawn-out prosecution. Legal observers have said that this may be a precedent for more such cases in the future, and should signal that corporations are being encouraged to keep their own houses in order.

The shift that the SEC has made since its Pfizer ruling last year should indicate that this is not just a slightly different way of operating -- it's a new way of thinking about enforcement. While the result of that thinking may not be justice with a capital "j," it's certainly better than nothing. That seems like a step in the right direction.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ralph Lauren Corporation Stock Quote
Ralph Lauren Corporation
$93.24 (1.25%) $1.15
Pfizer Inc. Stock Quote
Pfizer Inc.
$52.47 (3.59%) $1.82

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.