UTStarcom, Inc. ("UTSI") was a Delaware corporation headquartered in Alameda, California. UTSl's common stock was registered with the SEC and traded on the NASDAQ. UTSI was a global telecommunications company that designed, manufactured and sold network equipment and handsets. Historically, China was UTSI's most important market. For example, between 1995 and 2004, more than 75% of UTSI's sales were to government-controlled municipal and provincial telecommunications companies in China. UTSI operated in China primarily through its wholly-owned subsidiary, UTStarcom China Co., Ltd. ("UTS-China").
Between 2002 and 2007, UTSI spent nearly $7 million on approximately 225 trips for customer employees pursuant to training provisions in systems contracts entered into between UTS-China and government-controlled municipal or provincial telecommunications companies.
On at least seven occasions between 2002 and 2004, UTSI paid for executive training programs at U.S. universities that were attended by managers and other employees of government customers in China. The programs covered general management topics and were not specifically related to UTSI's products or business. UTSI paid for all expenses associated with the programs, which totaled more than $4 million from 2002 to 2004.
On at least ten occasions between 2001 and 2005, UTSI provided or offered full-time employment with UTSI in the U.S., including salaries and other benefits, to employees of government customers or their family members in China and Thailand. These offers were made for the purpose of obtaining or retaining business from the customers.
In 2004, as part of its effort to expand its business outside China, UTSI submitted a bid for a sales contract to a government-controlled telecommunications company in Thailand. While UTSI's bid was under consideration, UTSI's general manager in Thailand spent nearly $10,000 on French wine as a gift to agents of the government customer, including rare bottles that cost more than $600 each. The manager also spent $13,000 for entertainment expenses for the same customer in an attempt to secure the contract. UTSI's former Executive Vice President and CEO of UTS-China approved the payments.
In 2005, UTSI attempted to expand its business into Mongolia. UTSI's Executive Vice President and CEO of UTS-China at that time authorized a $1.5 million payment to a Mongolian company pursuant to a purported consulting agreement and told UTSI's Board of Directors that the $1.5 million was a license fee paid to the Mongolian government. In reality, the license fee was only $50,000. UTSI agreed to work with the Mongolian company and pay the $1.5 million because the Mongolian company had government connections. UTSI's Executive Vice President and CEO of UTS-China knew that the $1.5 million payment was not a license fee and that the Mongolian company used a portion of it to make payments to at least one Mongolian government official to help UTSI obtain a favorable ruling in a dispute over its license. In early 2007, UTSI's former Executive Vice President and CEO of UTS-China authorized a $200,000 payment to a Chinese company pursuant to a purported consulting agreement. Although the payment was accounted for as a consulting expense, no records were maintained describing what services, if any, were actually provided. In reality, it was a sham consulting company and the payment was made as part of an effort to obtain a contract from a Chinese government customer.
On December 31, 2009, the SEC filed a three count Complaint in the Northern District of California against UTSI alleging violations of the anti-bribery, books & records, and internal controls provisions of the FCPA. On the same date, UTSI entered into a Consent Agreement with the SEC, and on April 14, 2010, the court issued its final judgment based on that Consent Agreement. The court permanently enjoined UTSI from future violations of the FCPA and ordered the company to pay a civil fine of $1.5 million and to issue yearly reports to the SEC on the implementation of UTSI's enhanced anti-corruption policies and procedures.
