January 02, 2013
DOJ Should Be Commended for Requiring a Conviction by UBS
It is not often that I praise the Department of Justice ("DOJ"), especially for bringing a prosecution. However, I commend the decision to prosecute -- really prosecute, and not just indict and offer a deferred prosecution -- a UBS subsidiary for its role in manipulating the benchmark LIBOR interest rate. See here.
To be sure, UBS was allowed to offer as the defendant in this case a Japanese subsidiary (UBS Securities Japan Co. Ltd.), for which a conviction would bring considerably less collateral damage than it would upon the parent company. Substituting others for prosecution, whether corporations or individuals, of course, is not a common benefit offered to criminal targets. Nonetheless, for DOJ, bringing a prosecution against a major financial institution, even a subsidiary, is a considerable and commendable step.
Generally, I believe that prosecutions should not be brought against large institutions because of a few rogue employees, unless at least one is a director or "a high managerial agent acting within the scope of his employment and in behalf of the corporation." New York Penal Law Section 20.20(2)(b). See also Model Penal Code Section 2.07. UBS, however, is a serial offender with a history (not alone among Swiss and other banks) as an eager accomplice of money launderers and tax evaders throughout the world. Although UBS' belated and commendable efforts to clean up its act and cooperate deserve credit, in this case DOJ apparently felt it did not make up for its past conduct enough to deserve non-prosecution, and appropriately broke its usual pattern of allowing major financial institutions to avoid criminal convictions.
As a practical matter, one may ask what the difference is between an indictment/deferred prosecution (as occurred in the case of the parent, UBS AG of Zurich) and indictment/conviction if both ultimate results carry huge financial penalties and other requirements, such as monitoring. Aside from the collateral consequences -- which can, as in the obvious case of Arthur Andersen, be fatal to a major financial institution (although I agree to an extent with Gabriel Markoff (see here) that such a fear is exaggerated) -- the conviction here has importance as a symbol, and perhaps also a deterrent in both the specific and general aspects.
Although the huge UBS fines will be borne by current UBS shareholders (not necessarily the same stockholders who benefited from the LIBOR bid-rigging), one would hope that UBS makes an effort to recoup the substantial financial gains through bonuses and other compensation geared to profits that those in leadership and supervisory roles made as a result of UBS' now-admitted criminality even if those leaders were uninvolved or unaware of the wrongdoing. I suspect that there will be no such serious effort, or at least little or no success if there is one.
December 17, 2012
HSBC Settlement: The Unanswered Questions
You can debate all day whether the government should allow any financial institution to get too big to fail. You can also debate whether such an institution, if it is too big to fail, should be too big to prosecute, even when it engages in blatantly criminal conduct over a lengthy period of time. However, you cannot seriously debate whether to prosecute senior bank officials of an international mega-bank who knowingly directed the criminal enterprise in question. Corporations only act through agents. Those agents are human beings.
We are not talking about technical matters here. This is not a question of whether each party to a complex transaction understood the fine print which revealed, or obscured, that an investment bank was betting against the deal it was pushing. According to the published reports and press statements, obvious narcotics-related money laundering was repeatedly facilitated by the bank, despite multiple regulatory warnings. The sources of funds connected to outlaw regimes were intentionally and repeatedly hidden. If this stuff happened, people did it. And they were no doubt high-ranking people.
No credible person will contend that the prosecution of corrupt bank officers can ever endanger the financial community. No matter how important the institution or high-ranking the officer, employees are fungible. The global financial impact of prosecuting these officers, no matter how important they think they are, will always be negligible.
Assistant AG Lanny Breuer said at his press conference that individual prosecutions were not being ruled out. (Similar statements were made at the time of the robo-signing settlement press conference, and we all know what an avalanche of individual DOJ prosecutions followed in the wake of that!) But other comments Breuer made, discussing how hard it supposedly is to prosecute the individuals involved, appear to be window-dressing rehearsals for future DOJ declinations.
Reporters should not let this issue slide into oblivion. The DOJ does not typically comment upon pending investigations of individuals. (Of course this does not stop some FBI and IRS agents from telling all of a target's friends that he is being criminally investigated, thereby ruining the target's life.) Here is an occasion where the policy should be ignored, particularly since the DOJ can comment on a pending investigation without revealing the names of the subjects and targets.
The question every self-respecting reporter should be asking AG Holder and Assistant AG Breuer is not whether individual indictments have been ruled in or out. The questions to be asked at every opportunity in the coming weeks and months are:
"What is the status of the investigation?"
"Is there really any investigation?"
"Are you treating this investigation like you treat the investigation of other individuals suspected of facilitating murder and drug crimes?"
Here is an account by Rolling Stone's Matt Taibbi of his appearance on Eliot Spitzer's Viewpoint program discussing the HSBC settlement. Taibbi's account contains a link to the Spitzer interview. Hat tip to Jack Darby of Austin's Krimelabb. com for alerting me to this posting. Taibbi also has an interesting opinion piece about the HSBC settlement on his Rolling Stone TAIBBLOG.
December 07, 2012
New Article - Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents
Professor Bruce Green (Fordham) and I have a new article coming out in Boston Colleg Law Review, titled Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents. You can download the article here. The SSRN abstract states:
This Article focuses on the relationship between corporations and their employee constituents in the context of corporate internal investigations, an unregulated multi-million dollar business. The classic approach provided in the 1981 Supreme Court opinion, Upjohn v. United States, is contrasted with the reality of modern-day internal investigations that may exploit individuals to achieve a corporate benefit with the government. Attorney-client privilege becomes an issue as corporate constituents perceive that corporate counsel is representing their interests, when in fact these internal investigators are obtaining information for the corporation to barter with the government. Legal precedent and ethics rules provide little relief to these corporate employees. This Article suggests that courts need to move beyond the Upjohn decision and recognize this new landscape. It advocates for corporate fair dealing and provides a multi-faceted approach to achieve this aim. Ultimately this Article considers how best to level the playing field between corporations and their employees in matters related to the corporate internal investigation.
September 26, 2012
NPA, DPA, Guilty Plea or Trial - Tyco & Subsidiaries
It is always interesting to see who will get a non-prosecution agreement, a deferred prosecution, or be placed in the position of pleading guilty. There are few who go to trial, but occasionally it happens. The risk of trial is enormous especially if the company is in the defense procurement area, accounting, health care, or dealing with possible collateral consequences.
According to a DOJ press release, "Tyco International Ltd - together with a subsidiary that pleaded guilty" to a criminal charge of conspiracy to violate the FCPA agreed to pay more than $26 million for the DOJ resolution and for charges from the SEC.
It seems that "an indirect, wholly owned subsidiary of Tyco" is the one pleading guilty, but near the bottom of this same press release one finds that Tyco received a non-prosecution agreement.
To what extent does the collateral consequences of the process drive the different resolutions?
September 24, 2012
Deferred Prosecution Agreements - Definitely A Plus
On September 13th Assistant Attorney General Lanny A. Breuer spoke to the New York City Bar extolling the virtues of DOJ's strategy for corporate prosecutions (see here). Former co-blogger Peter Henning here, also authored an article which focuses on the use of deferred prosecution agreements by the government.
One clearly has to credit the government with raising the bar in the corporate world to comply with legal mandates. Corporations throughout the world now have strong compliance programs and conduct internal investigations when questionable activities are reported to them. Likewise, post-Arthur Andersen, LLP, corporations are shy to go to trial - although there are some who have done so successfully (e.g. Lindsey Manufacturing- see here).
When the government first started using deferred and non-prosecution agreements, in a prior administration, there were government practices that were questionable. For example, allowing for huge sums to money to go to a former attorney general as a monitor, giving a chair to a law school that happened to be the same school the US Attorney graduated from, and negotiating for continuing work with the government as part of the agreement. (see Zierdt & Podgor, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing-here) Without doubt there were terms within the agreements that needed revision. Some terms that give complete control to prosecutors in deciding who can determine breaches of agreements present problems. But many of the questionable practices are not seen in recent deferred prosecution agreements, and this is good.
Agreements that still provide an imbalance between corporate misbehavior and individual miscoduct is creates an imbalance, but much of this is created by the fact that corporations have greater resources and can control the discussion with DOJ, to the detriment of the individual. Clearly there needs to be a better recognition of corporate constituents during the internal investigations, the subject of a forthcoming article that I author with Professor Bruce Green (Fordham) titled, Unregulated Internal Investigations: Achieving Fairness for Corporate Constituents. But this issue may not be one strictly for DOJ to resolve.
What is particularly impressive about the DOJ use of deferred prosecution agreements today is that it uses an educative model to reform corporate misconduct. One can't put a corporation in prison, so with fines as the best alternative it is important to focus on motivating good conduct. Corporate deferred and non-prosecution agreements are an important step in achieving this positive result. So, it is important to credit today's DOJ with how it is tackling the problem of corporate misbehavior.
July 24, 2012
Serious Financial Allegations Deserve Criminal Investigation
My learned and astute co-editor, Solomon Wisenberg, bridled at the thought of a criminal investigation of the Libor bank scandal (see here), which he believes will be a waste of time, and of the JP Morgan Chase trading loss (see here), which he believes lacks evidence of criminality. While I do not know enough about these matters to dispute his reasons, I nonetheless strongly believe a criminal investigation is warranted in both instances.
Financial manipulations which cost shareholders and customers of large institutions millions (or billions) of dollars require criminal investigation, and, if identifiable provable criminal wrongdoing is found, criminal prosecution. It has become clear that those institutions and their employees are incapable or unwilling to police themselves, and, as Mr. Wisenberg points out, the responsible regulatory agencies have often been asleep at the switch or even compliant.
That is not to say that every massive financial loss involves criminality or that weak or questionable criminal prosecutions should be brought to soothe the popular thirst for criminal punishment. It is not to say that genuine defenses, such as estoppel due to government approval or acquiescence, should not prevent prosecution. But for the huge financial institutions, even a penalty of almost a half billion dollars, as in the Barclays Bank "deferred prosecution" deal (effectively a "non-prosecution" deal), is merely a cost of doing business passed on to shareholders. And for many of the traders and manipulators, who always weigh risk but rarely morality, only the risk of a criminal prosecution (which for them involves potential prison sentences) will have any serious deterrent effect.
To be sure, criminal investigations, even without prosecutions, may deter innovation and creativity in financial vehicles and dealings (although I am not so sure that is a bad thing). Additionally, investigations themselves cause mental distress, potential loss of reputation, and considerable legal fees. Criminal investigations, therefore, should not be started without careful consideration by law enforcement or prosecutorial agencies. But massive losses of other people's money should almost always require an examination beyond a regulatory or civil one by our historically inept financial regulatory agencies.
Every death by other than natural causes, every fire of any proportion, and every serious automobile accident is reviewed by authorities for possible criminal prosecution. Is there any reason an unusual massive financial loss of other people's money should be exempt from scrutiny for possible criminality? I think not.
June 27, 2012
Barclays Bank to Pay - $160 Million - as Part of Non-Prosecution Agreement
A DOJ Press Release reports, Barclays Bank PLC Admits Misconduct Related to Submissions for the London Interbank Offered Rate and the Euro Interbank Offered Rate and Agrees to Pay $160 Million Penalty
Some highlights of the press release -
- "Barclays Bank PLC, a financial institution headquartered in London, has entered
into an agreement with the Department of Justice to pay a $160 million penalty
to resolve violations arising from Barclays’s submissions for the London
InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR),
which are benchmark interest rates used in financial markets around the world..."
- "To the bank’s credit, Barclays also took a significant step toward accepting
responsibility for its conduct by being the first institution to provide
extensive and meaningful cooperation to the government."
- "Barclays’s cooperation has been extensive, in terms of the quality and type of
information and assistance provided, and has been of substantial value in
furthering the department’s ongoing criminal investigation."
- "The agreement requires Barclays to continue cooperating with the department in
its ongoing investigation."
- "As a result of Barclays’s admission of its misconduct, its extraordinary
cooperation, its remediation efforts and certain mitigating and other factors,
the department agreed not to prosecute Barclays for providing false LIBOR and
EURIBOR contributions, provided that Barclays satisfies its ongoing obligations
under the agreement for a period of two years. The non-prosecution agreement
applies only to Barclays and not to any employees or officers of Barclays or any
Commentary - As a non-prosecution agreement it does not go through the courts and DOJ has the power to enforce or proceed should it believe there is a violation of the agreement. It also sounds like the white collar defense bar may have some new clients as the government has secured the cooperation of the company to go after individuals.
See also Jenna Greene, BLT Blog, Barclays Agrees to Pay $360M to Settle with CFTC, DOJ
over Interest Rate Manipulation
May 31, 2012
Corporate Sentencing Statistics With Commentary
Some have been claiming that corporate prosecutions are down in numbers. It certainly has not seemed that way, so I was glad to see the numbers, which demonstrate that corporate sentencings have been average over the past few years.
Lisa Rich, Director of the Office of Legislative and Policy Affairs at the United States Sentencing Commission provided the following corporate statistics for the recent Federal Sentencing Conference (although I have reworded some of what she provided): In FY 2011, there were 160 organizational cases and 151 pled guilty and 9 were convicted after jury trials. Probation was ordered in 111 cases and 31 had court ordered compliance/ethics programs. Three cases received credit for self-reporting and 44 received credit for cooperating with the government. But of the approximately 74 cases in FY2011 for which the Commission had Chapter 8 culpability information, there were no entities receiving full credit for having an effective compliance program. Not one of the 74 cases received credit under subsection (f).
These statistics do not reach the full corporate efforts by DOJ since they fail to include non-prosecution agreements or deferred prosecution agreements that have not gone through chapter 8. So some bottom line observations: 1) if the government decides to prosecute a corporation - it has an incredibly high chance of success; 2) more emphasis needs to be put into teaching corporations how to operate an effective compliance program; 3) studies need to examine whether by using deferred and non-prosecution agreements the government is increasing prosecutions against corporate individuals (it certainly seems likely that this would be the case).
May 30, 2012
Ninth Circuit Looks at Selective Waiver
In In re: Pacific Pictures the Ninth Circuit looks at "whether a party waives attorney-client privilege forever by voluntarily disclosing privileged documents to the federal government." The court starts with the principle that "voluntarily disclosing privileged documents to third parties will generally destroy the privilege." The court rejects the petitioners argument that disclosing documents to the government is different from disclosing them to civil litigants and that a selective waiver should apply. The court notes that legislative attempts to change the evidence rules to allow for selective waiver have failed so far.
The court also does not enforce a confidentiality letter between the corporation and the government. The court states:
"The only justification behind enforcing such agreements would be to encourage cooperation with the government. But Congress has declined to adopt even this limited form of selective waiver."
The court rejected a claim that "adopting such a rule will drastically impair law enforcement attempts to investigate espionage against 'attorneys, financial institutions, medical providers, national security agencies, judges, large corporations, or law firms.'"
Entities provide significant materials to the government as part of deferred and non-prosecution agreements. Not having a privilege needs to be considered by corporate counsel in deciding what to give to the government.
April 25, 2012
Should Wal-Mart Be Prosecuted, Really Prosecuted?
I expect that any day now one of my non-white-collar criminal clients will come to my office and ask me to incorporate him to protect him from future criminal liability. Of course, incorporation does not immunize an individual from criminal liability. Nor, generally, does it protect small corporations from prosecution.
However, it appears that just as massive corporations are "too big to fail," they are too big to prosecute. In the wake of the government's destruction of Arthur Andersen because of an ill-conceived, aggressive and ultimately unsuccessful indictment which caused the loss of thousands of jobs, DOJ has been highly reluctant to aggressively prosecute major corporations.
Although there are occasionally indictments of major corporations, most often these are disposed of by "deferred prosecutions," which are essentially delayed dismissals with financial penalties in numbers that are large in absolute terms but meager in comparison to the profits and assets of the corporation. To be sure, even when prosecuted to conviction, corporations do not go to jail and thus there may be little practical difference between a conviction of a corporation and a deferred prosecution. However, to the extent a goal of the criminal justice system is to achieve apparent fairness and equality, there is a genuine, if symbolic, reason for the prosecution of the large and powerful, whether they be individuals or corporations.
According to a thorough account in the New York Times this past Saturday, April 21, see here, Wal-Mart in Mexico, where the company has, according to the Times, one-fifth of its stores, engaged in a systemic countrywide scheme in which it spent millions of dollars to bribe hundreds of Mexican officials to gain favorable and expedited treatment and a competitive advantage. According to the Times, this conspiracy was not, as is often the case in corporate wrongdoing, the act of a rogue individual or group. Rather, it was orchestrated from the very top of the Wal-Mart Mexican hierarchy. Additionally, again according to the Times, when reports of this corruption reached Wal-Mart's U.S. headquarters, top executives took great pains to cover up the wrongdoing.
The alleged conspiracy, if the Times report is accurate, appears to be the kind of corporate crime, therefore, that deserves aggressive prosecution (not just an indictment and a deferred prosecution), especially if the government wants the Federal Corrupt Practices Act ("FCPA") to be taken seriously. Of course, there may be statute of limitations or other fact-finding or evidentiary problems involved in putting together a case involving facts from 2005, the year, according to the article, the bribe payments were made. It is far easier to write an article reporting corruption than to prove it under the rules of evidence beyond a reasonable doubt. It will be interesting to see what, if anything, DOJ does with respect to this matter.
March 14, 2012
Another Deferred Prosecution - "NYCity Payroll Project Scandal" Company
See Benjamin Weiner & Colin Moynihan, NYTimes, Company in New York City Payroll Project Scandal to Pay $500 Million
January 15, 2012
Federal Organizational Plea Agreements Website
Professors Brandon Garrett and Jon Ashley have an incredible new website that is a library of 1495 federal corporate plea agreements in which an organization was convicted. They intend to update this collection of agreements. The site has the agreements by date, U.S. Attorney Office district and name. The site also provides links to other helpful data concerning corporate convictions. This is an amazing website that provides a wealth of information.
September 19, 2011
Saudi Arabia-based Tamimi Global Company Ltd (TAFGA) Gets DPA
A DOJ Press Release here reports that "Saudi Arabia-based Tamimi Global Company Ltd (TAFGA) has agreed to pay the United States $13 million to resolve criminal and civil allegations that the company paid kickbacks to a Kellogg Brown & Root Inc. (KBR) employee and illegal gratuities to a former U.S. Army sergeant, in connection with contracts in support of the Army’s operations in Iraq and Kuwait." The press release states:
"Under the terms of that agreement, TAFGA will pay the United States $5.6 million as part of a deferred prosecution and institute a strict compliance program to ensure that the company and its employees will abide by the legal and ethical standards required for government contracts. If TAFGA meets its obligations under the agreement without violation for 18 months, the United States will dismiss the criminal charges."
July 08, 2011
"Wall Street & Prosecution" - There Are Benefits to Deferred Prosecutions
The NYTimes has a main story today, titled, As Wall St. Polices Itself, Prosecutors Use Softer Approach. Contributing blogger Sol Wisenberg offers an important perspective to the discussion - the problem of cooperation when the enterprise itself is tainted.
But the article itself misses some key aspects in its criticism of deferred prosecutions. It fails to look at the net result of a prosecution with and without a deferred prosecution agreement. With a deferred prosecution agreement you have the company admitting to culpability, you have change in the company assured, you usually have monitors added to the organization to avoid future problems, and you obtain the entity's cooperation. Does the company suffer? Most definitely yes - they pay huge fines. For example, Seimens - 800 million; Daimler - 185 million; SnamprogettiNetherlands BV - 240 million. And the cost for this prosecution or threat of prosecution is low because the company is agreeing to pay the fine. On the other hand, if the case had gone to trial there is the risk of a not guilty verdict (e.g., WR Grace; Xcel Energy, Inc.). Even if the company is convicted it will have cost the US taxpayer a significant amount of money for the prosecution, and the net result will be - payment of a fine by the company. The reality that is missed in this NYTimes article is that corporations cannot be put in jail. And if you put the company out of business - like Arthur Andersen LLP then you are putting many innocent workers out of a job that they were doing honestly. And maybe it's OK if it's a civil matter, like Bank of America just paying 8.5 billion to settle its problem with the money going to investors.
Deferred prosecutions do have their problems. For example, many of the terms in the agreement are one-sided, the company often has no choice but to agree, and corporate executives can get thrown under the bus to save the company. (See my co-authored article here).
But calling the use of deferred prosecutions a "softer approach" is missing what gets achieved with deferred prosecutions.
July 06, 2011
Not Guilty of OSHA Violations
It is not often that companies are criminally charged, and usually when it happens, regardless of the merits, we see the company enter a guilty verdict or enter into a deferred prosecution agreement (see here). But not Xcel Energy, Inc. and Public Service Company of Colorado. They were charged, they exercised their right to a jury trial, and were found not guilty after close to a month-long trial.
The Justice Department brought criminal charges against this Fortune 250 public company alleging safety violations - OSHA violations - in the deaths of five contractors at a hydro-electric power plant in Colorado.
Clearly this is an incredibly sad situation, with many families suffering and one cannot help but have the deepest sympathy for each person who has suffered here.
But one also has to wonder whether our criminal justice system should be used for prosecutions alleging OSHA violations from industrial accidents. Would these matters be better left for the administrative and civil process? And would our scarce resources be better spent educating companies on how best to keep workers' safe?
The company was represented by Cliff Stricklin, Chair of Holme Roberts & Owen's White Collar & Securities Litigation Group in Denver, Colorado. Stricklin also is an adjunct professor teaching white collar crime at University of Colorado School of Law.
See also John Ingold, Denver Post, Xcel Energy Found Not Guilty in 2007 Deaths of Five Workers in Colorado
May 07, 2011
20th Annual National Seminar on Federal Sentencing Guidelines - Corporate Plea Negotiations and Sentencing
This panel was moderated by Jeff Ifrah (Ifrah Law), with AUSA Arlo Devlin-Brown (SDNY) and Steven Bunnell (O'Melveny & Myers) as speakers. After the typical DOJ disclaimer that he was not speaking on behalf of DOJ, AUSA Devlin-Brown said that monitors are still in use. Monitors, he said, are usually selected by the US Attorney, but getting input in the selection from defense counsel is something done in some cases. The panelists spoke about the lack of attorney-client privilege with the monitor. Steven Bunnell spoke about how expensive monitors can be. One of the items discussed is how the scope of the monitorship is negotiated.
Steven Brunnell noted that corporate plea bargaining is a kind of begging. The corporate reputation is important. Sentencing guidelines are usually not a direct concern. AUSA Devlin-Brown noted how the collateral consequences of charging a corporation, make a difference (I call that the Arthur Andersen effect). As a result both sides try to reach a settlement. He also spoke about the delicate interests of parallel proceedings.
Hypotheticals were used to consider some of the issues. For example, what is the government view of the corporation indemnifying the CEO? How do you deal with employee resistance? One thing was clear from each hypo - the government has a lot of power.
My commentary - One topic discussed during this panel discussion concerned the level of trust between the corporation's attorney and the DOJ. It seemed to make a difference. But I have to ask the academic question -- should the trust between the private attorney and DOJ be a factor in how things progress in a criminal investigation? It is always interesting to see DOJ looking for consistency in sentencing, but then having individual US Attorneys and AUSAs making decisions on different aspects of a case that will be inconsistent based upon the AUSA or the defense attorney handling the matter.
December 20, 2010
SEC Agrees to First Non-Prosecution Agreement in Fraud and Insider Trading
Guest Blogger - Michael Volkov (Mayer Brown)
The SEC announced that it has entered a non-prosecution agreement with Carter's Inc. under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to its Executive Vice President’s (Joseph M. Elle’s) alleged role in insider trading and financial fraud. The non-prosecution agreement reflects the first use of the SEC’s cooperation policy announced earlier this year which seeks to incentivize cooperation in SEC investigations.
In support of its decision, the SEC cited the relatively isolated nature of the unlawful conduct, Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions.
According to the SEC's complaint filed in U.S. District Court for the Northern District of Georgia, Elles allegedly conducted his scheme from 2004 to 2009 while serving as Carter's Executive Vice President of Sales. The SEC alleges that Elles fraudulently manipulated the dollar amount of discounts that Carter's granted to its largest wholesale customer — a large national department store — in order to induce that customer to purchase greater quantities of Carter's clothing for resale. Elles then allegedly concealed his misconduct by persuading the customer to defer subtracting the discounts from payments until later financial reporting periods. He allegedly created and signed false documents that misrepresented to Carter's accounting personnel the timing and amount of those discounts.
The SEC further alleges that Elles realized sizeable gains from insider trading in shares of Carter's common stock during the fraud. Between May 2005 and March 2009, Elles realized a profit before tax of approximately $4,739,862 from the exercises of options granted to him by Carter's and sales of the resulting shares. Each of these stock sales occurred prior to the company's initial disclosure relating to the fraud on Oct. 27, 2009, immediately after which the company's common stock share price dropped 23.8 percent.
After discovering Elles's actions and conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods.
Under the terms of the non-prosecution agreement, Carter's agreed to cooperate fully and truthfully in action filed against any further investigation conducted by the SEC staff as well as in the enforcement Elles.
August 18, 2010
Barclays Bank PLC Forfeiting 298 Million Dollars
Many of the recent corporate settlements with the government have focused on violations of the Foreign Corrupt Practices Act. This one is somewhat unique in that the $298 Million Dollars being forfeited are for violations of the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). A DOJ Press Releasestates that "[t]he violations relate to transactions Barclays illegally conducted on behalf of customers from Cuba, Iran, Sudan and other countries sanctioned in programs administered by the Office of Foreign Assets Control (OFAC)." The forfeiture was part of a deferred prosecution agreement with DOJ and the NY County District Attorney's Office.
Barclay's press release notes that it "worked closely and constructively with the US Authorities." They noted that "[t]he US Authorities have recognised Barclays substantial cooperation in the resolution." It sounds like 100,000 members of Barclay's staff will be going through training programs.
See also Mike Scarcella, BLT Blog, Judge Approves $298M Settlement Between DOJ, Barclays Bank; William McQuillen & Jesse Westbroook, Barclays Follows Citigroup With Court Rejection of U.S. Accord
July 08, 2010
DOJ Refines Role Between DOJ/Monitors/Corporations in Deferred Prosescution Agreements
DOJ issued a press release, dated May 25, 2010, that provides additional guidance on the use of monitors in deferred and non-prosecution agreements. Where the Morford Memorandum had outlined nine basic principles for drafting monitor-related provisions in agreements, this new release provides an additional consideration. The memo provides that "[a]n agreement should explain what role the Department could play in resolving disputes that may arise between the monitor and the corporation, given the facts and circumstances of the case." Interestingly, the memo starts by stating that "the role that the Department plays in resolving particular types of disputes should be consistent with the fact that the Department is not a party to the contract between the company and the monitor." The DOJ policy provides examples of language that might be included in an agreement.
July 05, 2010
DOJ Issues Name Clearing Letter And Acknowledgment of DPA Side Agreement
In a highly unusual move, DOJ issued a letter vindicating an individual who had suffered as a result of a side agreement that had been entered with a 2007 Deferred Prosecution Agreement with American Express. Sergio Masvidal, former American Express Bank International Chair filed a suit charging that his constitutional rights had been violated when the court approved a settlement without knowledge that DOJ had a separate agreement to not employ Masvidal upon a sale of the bank or at the end of the one-year deferred prosecution agreement. He claimed that the result was a loss of "his job, reputation and prospects in the banking industry." DOJ filed a Motion to Dismiss this action, but Hon. William P. Dimitrouleas of the S.D. of Florida issued an opinion denying the government's motion finding "that the DOJ has not shown its entitlement to dismissal of the due process claim on the ground of privilege." (see 2010 WL 1956734)
The DOJ has now issued a letter acknowledging that it had "entered into a separate letter agreement, which prohibited Mr. Masvidal from being employed by any entity that purchased AEBI, or from continued employment with AEBI if no purchaser were found, unless the Department of Justice consented in advance to such employment." Additionally, they acknowledged that this agreement "was not presented to the District Court that was considering the DPA." The clearing letter being issued now tells that its investigation "did not reveal any evidence that Mr. Masvidal had committed any criminal offenses or violated any banking regulations" and that it was terminating the letter agreement's restrictions. Masvidal was represented by Attorney Joseph DeMaria.
Letter - Download Final Letter (Executed)
Commentary - It is good to see DOJ issuing this letter, but this is another indication of why terms within DPAs need to be disclosed, and why courts need to monitor the agreements. More importantly, government interference with third party contract and employment rights needs to be prohibited. Finally, seeing DOJ move to dismiss this complaint on January 11, 2010 is troubling in light of their recent admission that "[s]uch undisclosed letter agreements are not part of the Criminal Division's practice."