Financial Blog #104 (SFIO Update #35)- September 23, 2011 (5:09 PM) EST

I decided to do some research on the details of disgorgement before posting an update, because up until this point I was unfamiliar with the process.    

I found a website that clearly explains the process of how the SEC calculates the amount to be disgorged, and below I will paste some of the important parts.

• As an equitable remedy, disgorgement is not intended as tool to punish, but as a vehicle for preventing unjust enrichment.  The SEC is therefore only permitted to recover the approximate amount earned from the alleged illicit activities.  Disgorging anything more would be considered punitive. (In the case of SFIO, this means that the amount disgorged from the company will probably be in the range of 40k$, unless the SEC attempts to impose additional penalties)
• Establishing any reasonable measure of predictability when it comes to disgorgement, however, has proven challenging.  This is due in large part to the aforementioned lack of detail accompanying SEC disgorgement orders, specifically how the SEC calculates revenue and profit as well as how it weights variables such as the existence of parallel investigations by the DOJ, differing sets of facts, and varying levels of cooperation. (In the case of SFIO this means that while 40k$ would be a reasonably fair settlement, the actual number will not be predictable until the SEC presents the company with their requirements)
•  As things stands now, corporations involved in settlement talks with the SEC over potential FCPA violations have to rely on best-guess estimates in assessing how much the SEC may seek to disgorge. The SEC may ask a company to calculate its profits from alleged violations and outline any assumptions it made in producing these figures; however, this is no guarantee that the SEC will use such calculations. The SEC may challenge a company on assumptions it has made or seek to make its own approximation of profits (In the case of SFIO, this means that a big factor of the total fine will be how the SEC interprets the financials of SFIO, because there are not any paper profits thus far that they can disgorge)
  

(http://www.corporatecomplianceinsights.com/2010/disgorgement-fcpa-how-applied-calculated/)

The bottom line is that this is a positive development for the company and its shareholders, because the first step to regaining trust in the market is settling any legal issues with the SEC. Once that process is complete, the company can continue the long term plan of setting up distribution/marketing partners.  

In addition, the company filed a PPH with the US patent office on August 2nd. Basically, once approved for the Patent Prosecution Highway the examination process is sped up to a maximum of 3 months. This means that by November 2nd the company will receive a decision on the patent approval, and needless to say if approved the patent will be one of the most valuable parts of the company as a whole. 

Finally, I think the Letter of Intent to sell the Belgian Subsidiary for 1M+ in cash plus stock options is good news, but until a concrete agreement is reached there is no point for me to comment further. 

Overall, the company is in as good of a position as shareholders could hope for given the circumstances, and hopefully the Board of Directors continues to meticulously analyze the array of options before them.

Advertisement