Thursday, January 21, 2010

General Re Non-Prosecution Agreement - Commentary

DOJ and General Re have entered into a non-prosecution agreement that provides for a monetary payment of $19,500,000 to the US Postal Inspection Service Consumer Fraud Fund, as well as other payments. The agreement and details of it can be found in Andrew Longstreth's article in AMLAW Litigation titled, General Re Resolves DOJ and SEC Claims Based on Fraudulent AIG Transactions. Background on the situation can be found in Amir Efrati's article in the, WSJ, GenRe Reaches Deal With Justice Department in AIG Case.   The agreement itself has some of the typical provisions we have seen in deferred and non-prosecution agreements, but also has some that are not found in all of the agreements of the past.

  • Like the typical non-prosecution agreement, the agreement is provided by a letter between the parties and is not part of a court document.
  • Like the typical deferred and non-prosecution agreement, the DOJ has the "sole discretion" to determine if there is a failure to comply.  I should note here that in a recent co-authored article on deferred prosecutions, written with Professor Candace Zierdt , we note the contractual problems with one party having the sole discretion to determine if there is a breach of the terms in the agreement.  See Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing A court does not get to review the validity of whether there has in fact been a breach of the agreement.
  • In the cooperation section of the agreement, there is a provision providing that this cooperation section does not apply if it's a prosecution because of a breach of the agreement.  It is good to see DOJ recognizing that they can't ask a party to be their own prosecutors.
  • The agreement includes an "internal corporate remediation measures" section.  Although corporate monitors have often been seen in past agreements, this agreement has some peculiar aspects. For one the agreement has some very specific remediation statements. For example, the Berkshire Hathaway CFO and Director of Internal Audit will be attending the General Re Corporation's Audit Committee meetings.  Additionally a Complex Transaction Committee "will maintain the power to reject any proposed transaction from being written by General Re or any of its insurance or reinsurance company affiliates within the Gen Re Group."  The specifics here make one wonder to what extent the government is inserting itself within private corporate matters.  They aren't just saying you have to comply with the law, they are providing an infrastructure to make them accountable.
  • The agreement prohibits the company from making certain statements -

"General Re agrees that neither it nor its directors and executive officers, nor any person authorized to speak for them, will make, cause others to make, or acknowledge as true any factual statement inconsistent with the factual descriptions of the Agreed Statement of Facts in Attachment A. Any such public statement inconsistent with the Agreed Statement of Facts shall, subject to the cure rights below, constitute a breach of this Agreement."

  • General Re also agreed to run press releases or other prepared public statement in connection with this agreement by the DOJ, and they need to receive the seal of approval from DOJ prior to its release. Can the government include an agreement that infringes on first amendment rights? It isn't the first time that we have seen such a provision.

(esp)

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Deferred Prosecution Agreements, Settlement | Permalink

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