Thursday, September 21, 2006
The preferred manner of settling corporate criminal investigations these days is to enter into an agreement that does not result in a criminal conviction, which can have devastating results for companies in heavily regulated industries, such as health care, insurance, and financial services. The usual vehicle is a deferred prosecution agreement, in which the government files charges but agrees to dismiss them if the corporation fulfills the terms of the agreement. Organizations entering into such agreements include organizations ranging from corporate giants, such as Time-Warner and Boeing, to non-profit hospitals. Bristol-Myers Squibb's CEO was forced out recently because of a possible violation of the company's deferred prosecution agreement. Another way to settle cases has been a nonprosecution agreement, which appears to be quite similar to a deferred prosecution agreement except that the government does not file charges with the intention of dismissing them. Merrill Lynch entered into one of these agreements related to its advice to Enron.
The moniker given to the agreement appears to be important, according to an article in Corporate Counsel (here). Prudential Financial Inc. entered into an agreement with the U.S. Department of Justice to settle mutual fund late trading claims in which it paid $600 million but no criminal charges were filed. The company viewed this as a "nonprosecution agreement." In remarks about the settlement, however, Deputy Attorney General Paul McNulty called is a "deferred prosecution agreement." The agreement itself has neither term in it, and is simply titled "Agreement." The Department of Justice's press release (here) only calls it an "agreement" and does not mention the filing of any charges, which is usually done in the release describing deferred prosecution agreements (see AIG release here). It may be that Prudential Financial's lawyers got snookered by the DoJ because, as the article notes, the U.S. Attorney's Office asked that "Nonprosecution" be removed from the agreement, a change the company accepted.
Does it really make a difference what the agreement is called? From a public disclosure standpoint, a company will find it easier to "spin" a nonprosecution agreement because there are no specific charges filed. Yet, the Prudential Financial agreement contains a "statement of facts" that describes the misconduct that triggered the agreement, so there is no hiding what the government determined was criminal conduct. In each case, a future violation can trigger a renewed prosecution. It may be that Shakespeare captured the distinction well when he wrote "That which we call a rose/By any other name would smell as sweet." (ph)