Lindsey Manufacturing: The Charges Were Dismissed

The Lindsey Manufacturing FCPA case concerned allegations that sales commissions funded bribes to officials at Mexico’s state-owned electric utility. The Justice Department accused the equipment manufacturer and two executives of using a sales representative to win utility contracts through those payments. The court later threw out their convictions and dismissed the charges because government misconduct undermined the prosecution. The dismissal ended that case against the company, but the court expressly declined to declare the defendants factually innocent.

The Alleged Commission Scheme at Mexico’s Electric Utility

According to the Justice Department’s charging announcement, Lindsey Manufacturing made emergency restoration systems and other equipment used by electric utilities. The Azusa, California, company sold to foreign government-owned utilities, including Comisión Federal de Electricidad, known as CFE. CFE bought goods and services from Mexican and foreign suppliers to provide electricity, and the announcement described it as one of Lindsey Manufacturing’s most significant customers.

The announcement said Lindsey Manufacturing hired Grupo Internacional de Asesores as its sales representative in Mexico to obtain CFE contracts. Grupo received a share of the revenue from those contracts. The alleged arrangement put a business intermediary between the manufacturer and the utility officials whose decisions could bring it more work.

The indictment alleged a 30 percent commission on all goods and services Lindsey Manufacturing sold to CFE, substantially higher than its previous representatives had received. The government alleged that the company’s president and chief financial officer understood that some or all of the commission would fund bribes in exchange for contracts. It also alleged that the prices charged to CFE rose by the same percentage so the utility would absorb the added expense. In that account, the government-owned customer paid for the alleged arrangement through its equipment purchases.

The announcement described invoices and transfers as the steps connecting the contracts to the alleged bribes. Grupo’s director allegedly submitted fraudulent invoices for the commission, and the company executives allegedly caused the invoiced money to be wired to Grupo’s brokerage account while knowing its intended use. For an employee familiar with sales pricing or payment approvals, the relevant business decisions were the commission agreement, the customer’s price and the authorization of those transfers.

What the Government Alleged the Money Bought

The charging announcement alleged that Grupo’s directors used money in the brokerage account to provide personal benefits to CFE officials. Those benefits included a yacht costing approximately $1.8 million and a Ferrari costing $297,500 for one official. The announcement also alleged payment of an official’s American Express bills and transfers to an official’s relatives. The government’s theory connected those personal benefits to the manufacturer’s effort to obtain utility contracts.

The FBI’s Los Angeles Field Office and IRS Criminal Investigation’s Los Angeles Field Office investigated the case, with assistance from the Department of Homeland Security Office of Inspector General. The Justice Department prosecuted the company and its executives. But proving what left Grupo’s account was only part of the case: the court identified the company’s knowledge and intent, and the connection between its money and the benefits, as central disputed questions.

Why the Court Threw Out the Convictions

The dismissal order records guilty verdicts returned in May 2011 and then explains why the court set the company’s and its executives’ convictions aside. The court found that the government’s misconduct, considered together, affected the verdicts and substantially harmed the defense. Its findings included false statements in warrant applications, false or misleading grand jury testimony, failures to turn over evidence and violations of court rulings.

One false statement concerned the route of the money. An FBI affidavit supporting a search of Lindsey Manufacturing’s premises said the company paid Sorvill, another intermediary controlled by Grupo’s director. The court found that Lindsey Manufacturing never paid Sorvill and that a prosecutor had inserted the false statement into the affidavit. That distinction mattered because it attributed a payment relationship to the company that did not exist.

Another finding concerned what an executive supposedly knew. An FBI agent told the grand jury that the chief financial officer had said he did not want to know what the commission would fund. The court found that the agent had not attended the interview, the FBI interview memorandum contained no such statement and the government acknowledged that the executive never said it. An invented statement of indifference could make the payment approval look very different from what the interview actually documented.

The court also rejected the agent’s account of a broad bookkeeping change in response to an IRS audit. It found that the conversation with the bookkeeper did not respond to such an audit and that only a single payment had been reclassified. The court treated the differences between the testimony and the underlying business records as material to the government’s explanation of the alleged scheme.

What the Dismissal Meant for the Allegations

The court found the evidence of knowing bribery weak: there were no direct admissions or writings acknowledging that the payments were corrupt, and it described the indirect evidence as unclear. It also questioned the connection between Lindsey Manufacturing’s deposits and Grupo’s payments for officials’ benefits. The account held substantial funds from other sources, and the timing generally did not connect the company’s payments to the benefits, with an exception for the Ferrari funds.

Delayed disclosure compounded those problems. The court found that withholding grand jury transcripts prevented the defense from explaining the investigation’s weaknesses to the jury at the start of trial. Looking at the prosecution as a whole, it granted the defendants’ request to dismiss the charges and refused to give the government another trial. The company’s judgment of discharge, filed in December 2011, confirms dismissal with prejudice, ending that prosecution against Lindsey Manufacturing.

The court expressly said the defendants were not entitled to a finding of factual innocence. Its decision therefore leaves the alleged payment scheme as an allegation and the misconduct findings as the reason the convictions fell. For an insider who knows how a commission was approved or what an invoice covered, this case shows why the actual contracts, account movements and conversations matter: the court tested the government’s account against those details and found consequential failures.

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