Wednesday, March 14, 2012
Sunday, January 15, 2012
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.
Monday, September 19, 2011
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."
Friday, July 8, 2011
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.
Wednesday, July 6, 2011
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
Saturday, May 7, 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.
Monday, December 20, 2010
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.
Wednesday, August 18, 2010
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
Thursday, July 8, 2010
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.
Monday, July 5, 2010
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."
Monday, March 29, 2010
Sydney Morning Herald, Daimler ignored warnings on corruption: report
Business Week, Daimler Agrees to Deferred Prosecution Over Bribes
FCPA Blog here
The agreement is 98 pages.
Friday, March 19, 2010
The Wachovia Bank deferred prosecution agreement can be found here. One finds the usual high fine ( $50,000,000 in this case), that is seen in many deferred prosecution agreements. Wells Fargo is said to have "repaid any and all funds that it received through" TARP. But Wachovia also has a forfeiture amount to pay and the agreed amount is $110,000,000. One also finds usual provisions on cooperation, and that a breach of the agreement rests with the government. The agreement states "[t]he parties further understand and agree that the United States' exercise of reasonable discretion under this paragraph is not subject to review in any court or tribunal." But what is missing from this agreement that is seen in many agreements is the appointment of a compliance monitor.
Thursday, January 21, 2010
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.
Friday, January 15, 2010
GAO issued a third report on Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA), this time titled - DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness. The report recommends that:
"To assess its progress toward meeting its strategic objective of combating public and corporate corruption, the Attorney General should develop performance measures to evaluate the contribution of DPAs and NPAs towards achieving this objective."
There were 12 U.S. District and magistrate judges who provided comments that assisted in the report. A highlight sheet on the report states that "prosecutors, company representatives, monitors, and judges with whom GAO spoke more frequently cited disadvantages to greater judicial involvement - such as the lack of time and resources available to judges and concerns about the separation of powers and constitutionality of increased judicial involvement -than advantages to such involvement-such as the court's ability to act as an independent arbiter of disputes, increased transparency in the DPA process, and decreased perceptions of favoritism in selecting the monitor."
I wonder what defense attorneys would have said if they had been consulted on this question.
Prior Reports - Prosecutors Adhered to Guidance in Selecting Monitors for Deferred Prosecution and Non-Prosecution Agreements, but DOJ Could Better Communicate Its Role in Resolving Conflicts;Preliminary Observations on DOJs Use and Oversight of Deferred Prosecution and Non-Prosecution Agreements
Thursday, January 14, 2010
The SEC has instituted a new initiative to provide for greater cooperation in hopes of encouraging individuals to assist in bringing to light improper activities. (see SEC Press Release) And cooperators may obtain a benefit of immunity in return for their cooperation (see Marketplace here). The framework for this cooperation can be found here. Some concerns -
- What if you are the last person in the chain and there is no one left to offer cooperation against - is it fair for cooperation to be a race to the SEC office? Will individuals with more resources be the ones to receive the most benefits, while poorer folks are left to suffer the consequences of others cooperating?
- It is clear that the SEC gives itself enormous discretion in deciding the value of the individual's cooperation. The four factors listed as the outline for determining "whether, how much, and in what manner to credit cooperation by individuals" sound wonderful, but the outline is clearly subject to many different interpretations. For example, will everyone be in agreement as to "[w]hether the individual's cooperation resulted in substantial assistance to the Investigation?" Also, the SEC will be determining if the person acted with scienter. Will those who could suffer consequences of an SEC action agree with the determination that is made?
- And what if the individual disagrees with the level of cooperation determined by the SEC, is there any place to obtain review? The rules explicitly state that it does not "create or recognize any legally enforceable rights for any person."
- Does this really go beyond the powers that the SEC presently has now? If cooperation is offered, couldn't they now decide not proceed against someone? Is this new initiative offered for a symbolic purpose?
- If there is a real incentive offered will it result in the possibility of misinformation being relayed to the SEC by those who desire to obtain immunity. How will the SEC handle cooperators who lie to save themselves from the consequences that they can face for their illegal activities?
- Until such time as a neutral third party enters this picture to evaluate the cooperation, it certainly seems like this "new" approach is vague and perhaps just more of the same.
- The real question is not whether the SEC will receive information on improprieties, but rather will they do something about it when the information is received. Would this situation have brought the Madoff case to light sooner, or was Madoff brought to their attention but they failed to follow up.
For more commentary on other aspects of the SEC announcement, like the use of deferred prosecution agreements, see Mike Koehler, FCPA Blog, Game-Changing" Day at the SEC
Sunday, January 3, 2010
DOJ Press Release, UTstarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of Foreign Bribery in China states:
"UTStarcom Inc. (UTSI) has entered into an agreement with the Department of Justice, agreeing to pay a $1.5 million fine for violations of the Foreign Corrupt Practices Act (FCPA) by providing travel and other things of value to foreign officials, specifically employees at state-owned telecommunications firms in the People’s Republic of China."
"In a related matter, UTSI reached a settlement today with the U.S. Securities and Exchange Commission under which it agreed to pay an additional $1.5 million penalty and satisfy additional obligations for a period of four years."
See also David Barboza, NYTimes, Telecom Company to Pay $3 Million in China Bribe Case
Wednesday, September 2, 2009
Associate AG Perrelli states at the Pfizer Settlement Press Conference:
"today’s settlement reflects the Department of Justice working hard to protect American taxpayer dollars. This case is a great example of the Department’s commitment to fiscal accountability, combating fraud, and returning much-needed dollars back to the U.S. Treasury and state treasuries."
It is good to know that in these days of fiscal downturn, money is being obtained from a company that engaged in conduct disapproved by DOJ. (see here for background) But wouldn't it have been better if the wrongdoing had not occurred in the first place. I have to wonder what the government is doing pro-actively as opposed to re-actively to assure corporate compliance. Perhaps more dollars need to to be spent on "Educating Compliance" My forthcoming article, "Educating Compliance" to be published in Georgetown's American Criminal Law Review can be found here.
Saturday, August 15, 2009
UBS entered into a deferred prosecution agreement with the government (see here). The agreement included that UBS would provide the U.S. government "with the identities of, and account information for, certain United States customers of UBS’s cross-border business." Things initially moved slowly as an agreement needed to be reached regarding the release of information in light of privacy laws (see here). But with these two steps apparently settled according to press reports, it is not surprising to see an individual reaching a plea agreement with the government for failure to disclose UBS Swiss bank accounts to the IRS. A DOJ Press Release reports that this individual "admitted that he failed to pay at least $200,000 in federal income taxes and that he now owes the government interest and penalties."
One has to wonder if the government action of proceeding against individuals with Swiss accounts that were not properly reported to the IRS, will assist the US economy. Eileen C. Mayer, Chief of IRS-Criminal Investigation, called this prosecution "the tip of the iceberg."
Thursday, July 2, 2009
Beazer Homes USA, Inc. entered into a deferred prosecution agreement with the US Attorney's Office for the Western District of North Carolina. The company issued the following release for investors (see here). The agreement calls for an immediate payment of 10 million dollars in restitution (actually 7.5 million since it already paid 2.5 to North Carolina victims), with additional funds down the road. Additional payments to the FHA include an immediate payment of 4 million.
It is good to see that this agreement does not explicitly include a waiver of attorney client privilege. But there are two provisions in this agreement that cause concern. First is a statement that says that "BEAZER expressly agrees that it shall not, through its present or future attorneys, board of directors, officers, or any other person authorized to speak for the company, make any public statement, in litigation or otherwise, contradicting BEAZER'S acceptance of responsibility set forth above or the factual allegations in the criminal information filed in conjunction with this Agreement, except insofar as BEAZER contests the applicability of the factual allegations in the criminal information and/or this Agreement to a specific private civil litigant or class of litigants...." It later states that "[t]he decision of whether any public statement by any such person contradicting a fact contained in the criminal information will be imputed to BEAZER for the purpose of determining whether BEAZER has breached this Agreement shall be in the sole discretion of the United States." (emphasis added)
A second concern with this agreement also pertains to who has the authority to determine a breach of the agreement. The Agreement states "BEAZER agrees that the decision whether conduct and/or statements of any individual will be imputed to BEAZER for the purpose of determining whether BEAZER has knowingly, intentionally and materially violated any provision of this Agreement shall be in the sole discretion of the United States." (emphasis added) And later the same issue, "It is further agreed that in the event that the United States, in its sole discretion, determines that BEAZER has materially breached or violated any provision of this Agreement...." (emphasis added).
It's good to see DOJ no longer seeking a waiver of attorney-client privilege, but they also need to pay closer attention to contracts and provide a fairer agreement if there is a breach by a party to the agreement. A neutral party, as opposed to one of the parties to the agreement, should be making this call. See Candace Zierdt & Ellen S Podgor, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing
For discussion of the deferred prosecution agreement, see also Harry R. Weber, Houston Chronicle (AP), Charges filed against Beazer; Settlement reached ; Reuters, Beazer Homes agrees to settle mortgage fraud case; Wallace Witkowski, Marketwatch WSJ, Beazer settles with North Carolina, feds.
Beazer Settlement - Download BEAZER SETTLEMENT
Bill of Information - Download Bill of Info
Deferred Prosecution Agreement - Download Deferred Prosecution
Tuesday, May 12, 2009
A DOJ Press Releasereports on a deferred prosecution agreement entered into by "Novo Nordisk A/S (Novo), a Danish corporation based in Bagsvaerd, Denmark." The agreement calls for the company to pay a penalty of "$9 million penalty for illegal kickbacks paid to the former Iraqi government." This case is part of the DOJ's investigation "into the UN Oil-for-Food program." The DOJ filed "one count of conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act (FCPA)." The DOJ Press Release states:
"According to the agreement and the information filed today, between 2001 and 2003, Novo paid approximately $1.4 million to the former Iraqi government by inflating the price of contracts by 10 percent before submitting the contracts to the United Nations for approval and concealed from the United Nations the fact that the price contained a kickback to the former Iraqi government. Novo also admitted it inaccurately recorded the kickback payments as "commissions" in its books and records."