Tuesday, January 18, 2005

Government Enjoined from Prosecuting Company Granted Antitrust Immunity

On Jan. 14, U.S. District Judge Timothy Savage (E.D. Pa.) enjoined the Department of Justice from indicting Stolt-Nielsen S.A., a foreign freight carrier, and Richard Wingfield, an executive vice-president, for antitrust violations for fixing prices in the chemical shipment industry.  In 2003, under the Antitrust Division's "Corporate Leniency Program," which permits the first company that discloses an antitrust violation to receive complete immunity from prosecution, Stolt-Nielsen received immunity from prosecution, and information provided by the company resulted in the successful prosecution of two other companies, Odfjell Seachem AS and Jo Tankers BV.  The government, however, then sought to revoke the immunity grant because Stolt-Nielsen had misled prosecutors about when it ceased its illegal activity.  An article in the Wall Street Journal (Jan. 17) states:

Stolt and Mr. Wingfield had been granted amnesty by the government in early 2003 and agreed to cooperate with the antitrust probe. But the Justice Department later revoked the amnesty and indicted them, arguing that they had failed to abide by terms that required "prompt and effective" action to halt the alleged activity. The Justice Department also suggested that Stolt, with headquarters in London but whose top executives are based in Connecticut, might not have been forthcoming with investigators.

Judge Savage found that the immunity agreement contained only one date--January 15, 2003--and that there was no express provision under which Stolt-Nielsen asserted that it had ceased fixing prices before that date (opinion here).  The court held:

We find that SNTG performed its obligation under the agreement when it supplied DOJ with self-incriminating evidence that led to the successful prosecution of SNTG’s coconspirators. Because DOJ got the benefit of its bargain, it cannot avoid fulfilling its promise based upon an understanding it contends the parties intended during negotiations but is not clearly defined in the integrated agreement. Thus, because SNTG did not breach the agreement, we shall enjoin DOJ from prosecuting and indicting SNTG for its part in the antitrust conspiracy to the date of the agreement.

Litigation over immunity agreements, either formal or informal, involves very high stakes, and in this case saved the company and an executive from an indictment.  (ph)

January 18, 2005 in Prosecutions | Permalink | TrackBack (0)

Please Take This Post

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January 18, 2005 in About This Blog | Permalink | Comments (0)

Monday, January 17, 2005

Booker and the Corporate Sentencing Guidelines

An article in the Wall Street Journal (Jan. 17), "Ruling on Sentencing Guidelines May Also Affect Corporate Crime," indicates that the Supreme Court's decision in Booker could result in Congressional changes to the Corporate Sentencing Guidelines.  This portion of the Sentencing Guidelines contains a detailed description of how corporate cooperation and measures to prevent misconduct by employees should be assessed in determining a criminal fine--including multipliers to increase or decrease a fine based on an assessment of the corporation.  Most importantly, the Corporate Sentencing Guidelines focus on the presence of an effective compliance program and early notification of possible criminal violations. 

Whether Booker will have any effect on this area of the Federal Sentencing Guidelines has not been widely addressed.  According to the article:

Corporate attorneys are reviewing the decision to understand what it means for companies facing federal criminal charges. An immediate concern is that Congress might pass legislation to add more requirements to corporate-ethics plans -- programs that companies can cite in their defense if employees are charged in a criminal case tied to their work there, such as accounting fraud. The ruling also gives judges the discretion to determine whether a company has an "effective" compliance program.

While one would hope corporate counsel will read and digest Booker, they shouldn't stay up too late (billing the time, no doubt) because the decision's effect on corporate prosecutions will be minimal, if non-existent, for at least three reasons.  First, the Guidelines are reflective of a trend in state corporate law to require corporations to create and maintain adequate systems for detecting and reporting misconduct that can be attributed to corporations.  Recall that the standard for holding a corporation criminally liable is quite low--respondeat superior--so directors have a fiduciary duty to prevent misconduct and, if it occurs, to report it promptly to take advantage of any possible leniency.  Second, the Sarbanes-Oxley Act requires corporate attorneys (both in-house and outside counsel) to report any possible corporate misconduct (both civil and criminal) to the company's chief legal officer and to the audit committee, so that provides another impetus to implement an effective compliance program. 

Third, the key issue for the corporation is not the fine table in the Sentencing Guidelines, it is avoiding a criminal prosecution.  Any number of recent cases, including the recent settlement by Edward D. Jones & Co. (see post here), involve deferred criminal prosecution agreements in which the company assents to certain remedial measures--hiring an outside consultant to review its procedures is a current favorite--that will result in dismissal of the charges if the company complies.  The Department of Justice's Principles of Federal Prosecution of Business Organizations, which sets forth guidelines for federal prosecutors in deciding whether to charge a corporation, is much more important in this area than the Sentencing Guidelines.  And it is in those Principles that the push for waiving the attorney-client privilege and work product protection has arisen, not the Sentencing Guidelines.  It is unlikely that the DOJ sees much need for Congressional assistance in the area because it treasures the prosecutorial discretion is has.  While the Corporate Sentencing Guidelines are a nice stick for the government to use in assessing a potential fine, for many companies, the specter of criminal prosecution is enough to push for a settlement, and the Arthur Andersen prosecution shows the effect of a conviction.  Andersen was fined $500,000 for its violation, a sentence that came well after its collapse.  Even a Supreme Court reversal of the conviction will not bring the firm back, and the Guidelines had little to do with its demise.

In preparing a book on white collar crime, I searched for a decision applying the Corporate Sentencing Guidelines and found none.  There is little judicial involvement in corporate sentencing, at least when a publicly-traded corporation or large organization is involved, and Booker is unlikely to change that in any way.  When the government charges a smaller, closely-held corporation, it is usually in conjunction with charges against the controlling (or sole) shareholder, and the corporation may be prosecuted more for evidentiary reasons.

Corporations, and their directors, have a fiduciary obligation to the shareholders to prevent misconduct and, when it is discovered, to minimize it.  The Corporate Sentencing Guidelines provide one means to analyze the corporation's conduct, but the structure now in place would not be affected by any change in the Guidelines from being mandatory to advisory--they always were in effect advisory. (ph)

January 17, 2005 in Sentencing | Permalink | TrackBack (0)

The Booker Effect--Higher Sentences?

While the Supreme Court's decision in Booker is still being parsed, one fairly consistent view of its effect is that with the demise of the rigidity of the mandatory federal Sentencing Guidelines, sentences are likely to move lower.  That may well be true in the drug area, at least for lower-level operatives who get hit with high sentences because of the overall quantity of drugs, but in the public corruption area the effect of Booker may be increased sentences.  As the federal government has stepped up its investigations of corruption at the state and local level--encouraged by last year's Supreme Court decision in Sabri v. United States--more convictions (and sentences) have resulted involving comparatively small amounts of money.  The Sentencing Guidelines put substantial weight on the amount at issue, which can result in a fairly lenient sentence, even if the municipality or other governmental body had few resources and could ill-afford any loss.  An article in the New Orleans Times-Picayune (Jan. 15) highlights this point in discussing the sentencing of payroll clerk who embezzled $71,000 from a local school district and received a two-year sentence.  The article states:

Louis Serrano lucked out in getting two years in federal prison, considering a new decision by the U.S. Supreme Court that would have given his judge authority to hand the convicted embezzler a stiffer sentence.  "I would have," U.S. District Court Judge Jay Zainey said this week, not long after the Supreme court ruled that the federal sentencing guidelines are no longer mandatory.  Serrano, who pleaded guilty to helping steal $71,000 from the city's public school system while working as a payroll clerk there, got the maximum sentence under the guidelines at the time: two years.  He could have faced a decade or more.  Zainey told Serrano in December that he deserved more time than the law allowed, but like judges across the nation, he was constrained by the formula spelled out in the guidelines, which typically gives first offenders like him lighter penalties.

In a jurisdiction like the Eastern District of Louisiana, which has its fair share (and maybe more) of public corruption, the message sent by the judges after Booker will not be welcomed by defendants in corruption cases.(ph)

January 17, 2005 in Sentencing | Permalink | TrackBack (0)

Riggs National Bank Directors Asleep at the Switch

Riggs National Bank became embroiled in a money laundering scandal related to its relationships with foreign governments and leaders, including former Chilean dictator Gen. Augusto Pinochet, and as a result the bank was bought out by PNC Financial (see earlier posts here and here).  A story in the Washington Post (Jan. 17) details the failure of the Riggs board of directors to pursue any additional information, much less remedial measures, when informed of the problem.  According to the article:

In October 2002, the directors of Riggs Bank received an internal memorandum listing $1.9 million in suspicious cash withdrawals by former Chilean dictator Augusto Pinochet from 2000 to 2002 -- the board's first official notification of a relationship that bank regulators were investigating. The directors did not question the nature of the bank's relationship with Pinochet, who only a year before had eluded a Spanish criminal indictment on genocide and torture charges, according to sources who have seen minutes and transcripts of the meeting. No internal procedures were changed. The board took no action.

Even worse, the banks controlling shareholder, Joe Allbritton and his wife Barbara--both board members--took the lead in ignoring the problem, according to the article.  "At Riggs, the directors at the bank and its holding company did not confront the huge risks connected with Riggs international banking relationships. The boards followed the lead of Allbritton and his wife, Barbara -- both directors who were often openly derisive of efforts by regulators to improve oversight of its international banking operations."  In an industry as heavily regulated--and prone to abuse--as banking, it is surprising to hear that directors would tolerate such an attitude.   Maybe I'm just naive. (ph)

January 17, 2005 in Money Laundering | Permalink | TrackBack (0)

Another Take on Ebbers Trial

The New York Times weighed in with its take on the upcoming trial of Bernie Ebbers, former CEO of WorldCom.  In an article on Jan. 16 "Superlatives (and Contradictions) in a Fraud Trial", reporter Ken Belson writes:

Many trials involving former corporate highfliers come down to whether the executive planned or knew about the fraud, or whether the dirty work was done by subordinates with his or her direct knowledge. Proving that Mr. Ebbers was "in the loop" will not be easy. According to managers who worked with him, Mr. Ebbers was a detail-oriented and hands-on executive who was concerned - even obsessed - with sales growth figures and efforts to cut costs.

But he did not appear to be a financial whiz capable of devising Enronlike accounting schemes, they said, and instead was more focused on buying companies to merge into WorldCom and on increasing revenue. While prosecutors say they have damning voice mail messages and memos, Mr. Ebbers rarely sent e-mail messages, making it harder to compile a paper trail of instructions to subordinates.

As noted in an earlier posts (here and here), the key to the government's case is whether the testimony of former WorldCom CFO Scott Sullivan, who worked closely with Ebbers through the late 1990s to its collapse, will be sufficient to link Ebbers to the accounting fraud perpetrated at the company.  Without the e-mail and document trail, it will be harder to show that Ebbers was a member--even the mastermind--of a conspiracy to misstate the company's revenue by playing games with WorldCom's books and records. (ph)

January 17, 2005 in Prosecutions | Permalink | TrackBack (0)

FBI Art Theft Task Force Formed

With all the hullabaloo just since January 1 about sentencing, torture policies, and the impending corporate chieftain trials (and retrials), it is nice to read a story about a slightly more arcane area of the criminal world, specifically the theft of art.  The FBI has formed a new task force to take on the problem, as described in an AP story (Jan. 15):

A new national FBI task force on stolen art hopes to learn more about the global trade — and how to tackle it — with the help of professionals and scholars in museums, as well as art and antiques dealers. Worldwide, only 5 percent to 10 percent of artwork reported stolen is recovered, said Lynne Richardson, who manages the art theft program at FBI headquarters in Washington. The group wants to learn more about how purloined art makes its way to U.S. shores.

The article notes that the eight members of the task force "visited curators at the Impressionist-rich Barnes Museum, conservationists at the Philadelphia Museum of Art and archaeologists at the University of Pennsylvania's Museum of Archeology and Anthropology, as well as art and antiques dealers." Tough duty. (ph)

January 17, 2005 in Investigations | Permalink | TrackBack (0)

Sunday, January 16, 2005

Peter Goldberger on Booker

Peter Goldberger on Booker

Peter Goldberger, NACDL member and criminal defense attorney, always has profound comments on legal issues. He has agreed to share his take on Booker on this list below:

"Booker decided (in the Stevens-drafted part of the majority opinion) that *because* the statute as enacted by Congress in 1984 *requires* (in 18 USC 3553(b)(1)) that a judge impose a sentence within the guidelines unless additional facts are found by the court, and requires the applicable guideline range to be determined and thus increased, enhancement by enhancement, on the basis of non-jury factfinding, the Sentencing Reform Act (not the guidelines themselves, as such) is unconstitutional.

"The Court then turned to remedy. In the Breyer-drafted part of the majority opinion the Court applies severance analysis to determine that the proper judicial remedy for this unconstitutionality is not to strike down the entire statutory scheme (and guidelines), and is not to engraft additional protective procedures onto the present scheme (jury trial of guideline enhancements), but rather to "excise" the particular provisions of the statute which it found to create the unconstitutionality -- 3553(b)(1)(which makes a guideline sentence mandatory unless a departure can be justified on the basis of judicial factfinding) and 3742(e) (which sets forth the strict standards of appellate review). The Court determined that the remaining portions of the Sentencing Reform Act could remain intact and function as a sensible sentencing system that would most nearly achieve the purposes of the 1984 Congress which enacted the statute.

"As a result, Booker (by virture of Justice Breyer's part of the majority opinion) leaves in place, as the binding law of federal sentencing, principally section 3553(a) of title 18 (as well as section 3553(c) and section 3742(f), most importantly). That means that the judge, at sentencing, is obligated to impose the sentence which is "sufficient but not greater than necessary" to achieve the broad social purposes of sentencing described in section 3553(a)(2). As an aid to selecting that sentence, the judge is obligated to "consider" about half a dozen different things, #4 of which (3553(a)(4)) is the applicable guideline range and #5 of which ((a)(5) is the Commission's policy statements, which includes the Commission's opinions about grounds for "departure"). That's the only place, and the only extent, to which the guidelines come into play, although they do come into play at that stage and must be "considered." The judge is also supposed to consider all sorts of other more traditional things as well, such as -- and note these considerations are *separate* from consideration of the guidelines -- "the nature of the offense" and the "history and characteristics of the offender" and "the need to avoid unwarranted disparities". The sentence which is minimally sufficient to serve its public purposes is what the law demands now, and the statute makes quite clear that this sentence is *not* necessarily or even presumptively a guideline sentence. The guidelines have *not* been made "advisory" in the sense of being the sole reference point or even the beginning point for the judge's exercise of discretion. However, once the guideline sentence is made non-mandatory, as under this result, the top of that range no longer meets the Blakely definition of a "statutory maximum," so it is *not* unconstitutional to calculate that "advisory" guideline on the basis of facts not found by the jury. Thus does the clever Justice Breyer save his baby, the Guidelines, from a bathwater fate."

-- Peter Goldberger, Ardmore, PA

January 16, 2005 in Sentencing | Permalink | TrackBack (0)

What is Scrushy Doing While the Trial Is Delayed?

According the the Atlanta Jrl Const. (AJC) the Scrushy trial is delayed a week as the prosecution "unloaded thousands of documents containing potential evidence on Scrushy right before opening statements were set to begin Jan. 18, spurring the judge to delay the trial by a week."  (See Post of Jan. 11)

Discovery material that is exculpatory, often called Brady material, needs to be provided to defense when it is received.  In contrast, witness statements (Jencks material) does not have to be provided to defense counsel until after the witness has testified.  The problem this creates is that defense counsel then needs to be given an opportunity to review this material - and thus there can be break in the trial.  To alleviate this problem, most federal prosecutors provide the material prior to the start of trial.  But what happens when the prosecution does a "document dump" right when the trial is ready to begin?  Clearly, it means that the trial gets delayed.  And that is what happened here. 

So what is Scrushy doing until January 25th when the trial begins?  According to the AJC.  "Scrushy and his wife, Leslie, have been hosting a half-hour Christian-themed talk show every weekday morning on local television."  And what is the prosecution doing?  Well, according to the AJC the lead prosecutor on the case,  "reportedly tapes the show in case Scrushy --- or occasional guest Donald Watkins, Scrushy's attorney --- say anything that can be used against him."   But no one really knows for sure because the court has imposed a gag order on the attorneys in the case.

(esp)

January 16, 2005 in Prosecutions | Permalink | TrackBack (0)

Kozlowski: What Will the Jury Say?

As the re-trial of L. Dennis Kozlowski, former Tyco chief executive, and Mark H. Swartz, Tyco's former chief financial officer, is about to begin (Tuesday)  the New York Times reports that Kozlowski says "'I firmly believe that I never did or intended to do anything wrong.'" The NYTimes reports that  "Kozlowski wants to be clear: the $6,000 shower curtain wasn't his idea." 

Mens rea is often the issue in white collar cases - that is, did the accused act with the proper mental state to commit the crime.  The problem that often arises for the defense is that it may be difficult for a jury to see beyond the evidence to understand whether the accused really knew about the alleged criminality.  In this case, the evidence will include items such as a $6,000 shower curtain, something that the average juror might have difficulty identifying with. 

With the recent ruling in the Booker case, many are discussing the constitutional role of juries to decide issues in a case.  But in white collar cases, one has to wonder if it always works in favor of the defense to have the jury making these decisions.

(esp)

January 16, 2005 in Prosecutions | Permalink