In the Matter of Quad/Graphics, Inc.

Securities Exchange Act Release No. 87128 (2019)

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In the Matter of Quad/Graphics, Inc.

Securities Exchange Commission
Securities Exchange Act Release No. 87128 (2019)

  • Written by Brett Stavin, JD

Facts

In 2010, Quad/Graphics, Inc. (defendant), a United States-based company, acquired a Canadian company called World Color. Prior to the acquisition, World Color regularly did business with Cuba, including through selling telephone directories to ETECSA, a Cuba-owned telecommunications company. ETECSA purchased the telephone directories from wholly owned subsidiary World Color Peru. After the acquisition, World Color Peru became known as Quad Peru. Despite the existence of longstanding United States sanctions against trade with Cuba, Quad Peru continued to do business with Cuba postacquisition. In October 2010, Quad Peru entered into an agreement with ETECSA to provide Cuban telephone directories in exchange for $1.2 million. The directories were shipped in early 2011. Quad Peru’s senior management attempted to conceal the transaction from United States executives, advising Quad Peru employees to avoid referring to Cuba in their reports. After this transaction took place, Quad Peru staff decided to use a third-party, Peruvian intermediary in the future so as to facilitate the concealment. In reality, the Peruvian third party was simply a pass-through entity with no legitimate stake in the transaction. Quad Peru senior management subsequently misled Quad Peru’s legal department regarding the business transactions with Cuba, stating that Quad Peru was no longer producing any work for Cuba. On February 24, 2012, Quad Peru signed an agreement with the Peruvian agent to provide telephone directories for ETECSA even though the sale was for all practical purposes between Quad Peru and ETECSA. The Peruvian agent provided false invoices for the transaction and later signed an agreement with ETECSA for the sale. In September 2012, Quad Peru’s United States executives learned of the transactions. However, the United States executives failed to establish internal controls to ensure that no similar transactions occurred in the future. Moreover, United States executives allowed the unlawful 2012 sale to be completed.

Rule of Law

Issue

Holding and Reasoning ()

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